Allis-Chalmers Corp. v. Lueck, 471 U.S. 202 (1985)

Allis-Chalmers Corp. v. Lueck

No. 83-1748

Argued January 16, 1985
Decided April 16, 1985
471 U.S. 202

CERTIORARI TO THE SUPREME COURT OF WISCONSIN

Syllabus

The bad-faith handling of an insurance claim, including a claim under a disability insurance plan included in a collective bargaining agreement, is a tort under Wisconsin law. Petitioner and a labor union, of which respondent employee of petitioner is a member, are parties to a collective bargaining agreement that incorporates a self-funded disability plan administered by an insurance company and providing benefits for nonoccupational injuries to employees. The agreement establishes a disability grievance procedure that culminates in final and binding arbitration. Respondent, after suffering a nonoccupational injury, entered into a dispute over the manner in which petitioner and the insurer handled his disability claim. Rather than utilizing the grievance procedure, respondent brought a tort suit against petitioner and the insurer in a Wisconsin state court, alleging bad faith in the handling of his claim and seeking damages. The trial court ruled in favor of petitioner and the insurer, holding that respondent had stated a claim under § 301 of the Labor Management Relations Act, which provides that suits for violations of collective bargaining agreements may be brought in federal district court. In the alternative, if the claim were deemed to arise under state law, rather than § 301, it was preempted by federal labor law. The Wisconsin Court of Appeals affirmed. The Wisconsin Supreme Court reversed, holding that the claim did not arise under § 301 as constituting a violation of a labor contract, but was a tort claim of bad faith. The court reasoned that, under Wisconsin law, the tort of bad faith is distinguishable from a bad-faith breach-of-contract claim, and that, although a breach of duty is imposed as a consequence of the relationship established by contract, it is independent from that contract.

Held: When resolution of a state law claim is substantially dependent upon analysis of the terms of a collective bargaining agreement, that claim must either be treated as a § 301 claim or dismissed as preempted by federal labor contract law. Here, respondent’s claim should have been dismissed for failure to make use of the grievance procedure or as preempted by § 301. The right asserted by respondent is rooted in contract, and the bad faith claim could have been pleaded as a contract claim under § 301. Unless federal law governs that claim, the meaning of the disability benefit provisions of the collective bargaining agreement would be subject to varying interpretations, and the congressional goal of a unified body of labor contract law would be subverted. Preemption is also necessary to preserve the central role of arbitration in the resolution of labor disputes. Pp. 208-221.

116 Wis.2d 559, 342 N.W.2d 699, reversed.

BLACKMUN, J., delivered the opinion of the Court, in which all other Members joined, except POWELL, J., who took no part in the consideration or decision of the case.