abstract. For decades, the individual health insurance market failed to provide consumers adequate or affordable health coverage. The Affordable Care Act (ACA) sought to change this state of affairs, establishing a new Patient’s Bill of Rights and instituting other protections that require insurers to make comprehensive coverage readily accessible. However, recent reports have begun to document health plans’ violations of the ACA, such as their failure to pay consumers their required refunds or the illegal imposition of waiting periods for transplant services. Although the ACA preserves a role for states in implementing and enforcing the law, state remedies are often lacking. For instance, many state consumer protection laws do not apply to insurance, while traditional breach of contract claims only provide for recourse when a health insurance policy expressly incorporates ACA provisions. As a result, a critical gap in the law has come to light: the absence of a private right of action. This Note proposes that state courts can address this gap by finding that the sale of individual health insurance comes with an implicit and legally enforceable promise that the policy and insurer administering it are in full compliance with the ACA. In other words, this Note urges courts to establish an “implied warranty of legality” in the context of individual health insurance. Modeled on the implied warranty of habitability, this approach would correct for power imbalances within this market. It would also promote individual rights by empowering consumers to sue when they have been wronged and foster civic engagement by enabling consumers to play an active role in the enforcement of public law. The implied warranty of legality would also have redistributive effects, allowing for the costs of noncompliance to be shared more evenly across the market. Looking beyond the ACA, the implied warranty of legality should also be applied in other regulated markets with similar dynamics, or, if the ACA is scaled back or repealed, to enforce state health insurance rules that seek to protect consumers from unlawful insurer practices.

author. Yale Law School, J.D. 2016. I am grateful to Douglas Kysar, as well as to my classmates in his Spring 2015 Products Liability seminar, for providing early guidance and feedback. I am also deeply indebted to Jay Angoff, whose expertise in insurance law and commitment to consumer rights helped inspire and shape this proposal. For their insightful comments and careful edits, I thank Urja Mittal, Marissa Roy, and others at the Yale Law Journal. All errors are my own. Most importantly, I thank Jonathan Benton for his constant support.

Introduction

The individual health insurance market plays an important residual function in the U.S. health care system, serving individuals and families who cannot access or afford employer-sponsored insurance but who earn too much to qualify for Medicaid.1 Until recently, however, this market frequently failed to provide these consumers adequate or affordable health coverage. Premiums were often prohibitively expensive for consumers,2 especially women, older adults, and less healthy people whom insurers could charge higher rates.3 Insurers also considered some consumers—from pregnant women and expectant fathers to individuals who had suffered from acne, allergies, or bunions—“uninsurable” and would deny them any coverage.4 In addition, some insurers would strategically rescind coverage when consumers became sick, denying consumers the benefits for which they had contracted and paid.5 To the extent that individual consumers could obtain and retain individual health insurance coverage, their policies typically provided limited protection against out-of-pocket medical costs, covered fewer benefits, and imposed greater restrictions than did employer-sponsored plans.6

These practices played a central role in Congress’s decision to enact the Patient Protection and Affordable Care Act, commonly known as the ACA.7 The first set of ACA reforms, collectively referred to as the Patient’s Bill of Rights, became effective on September 23, 2010, six months after the law was enacted.8 Among other things, the Patient’s Bill of Rights prohibits insurers from imposing annualand lifetime dollar limits on coverage,9 discriminating against children with pre-existing conditions,10 and rescinding coverage absent fraud or intentional misrepresentation by the consumer.11 These rules also require insurers to cover preventive care without cost-sharing12 and to allow children to stay on their parent’s health plan until they reach the age of twenty-six.13 Even more robust patient protections became effective in 2014. For example, in 2014, the ACA extended the rules against pre-existing condition denials to adults14 and imposed community rating requirements that limit insurers’ ability to vary rates based on individual characteristics, such as age, gender, and health status.15 The ACA also required insurers to cover a broad range of “essential health services,” including prescription drugs, maternity care, and rehabilitative and habilitative services.16 Plans sold through the newly launched health insurance marketplaces must meet additional requirements, such as network adequacy and marketing rules.17

Despite these new rules, consumers still face obstacles to adequate and affordable health coverage. Multiple insurers, for instance, have continued to charge consumers copays for preventive services, such as birth control, that the law requires insurers to make available without cost-sharing.18 Other insurers have issued policies excluding coverage of transplant services for new enrollees, contravening the law’s prohibitions on benefit-specific waiting periods.19 And one insurer has been accused of cheating individual market enrollees out of $35 million in rebates under the ACA’s medical loss ratio rules, which require insurers to pay refunds if they do not spend eighty percent or more of premium dollars on health care expenditures or quality improvement.20

Consumers injured by these insurer violations and others are presented with limited options for recourse. Consumers may appeal certain adverse benefit denials using their health plans’ internal procedures and hope that their insurers self-correct or, if that fails, ask an external reviewer to reconsider their claims.21 If the appeals process does not address consumers’ problems, consumers may take their complaints to state and federal regulators, and hope—perhaps in vain—that these regulators intervene.22 But what consumers cannot do, at least under federal law, is sue. Despite the myriad ways in which the ACA transformed the substantive laws governing individual health insurance, the ACA did not create a private right of action that could empower consumers to require insurers to comply with these rules and pay damages if consumers are injured when they do not.23

The law’s reluctance to provide a private right of action under federal law may stem, in part, from the law’s deference to the historic role of states when it comes to insurance regulation.24 States have long been the primary regulators of insurance, a fact that Congress recognized and enshrined in the McCarran-Ferguson Act of 1945.25 The Act officially declared that federal law shall not be construed to limit or override state laws regulating insurance unless Congress’s intent to do so is clear.26 While the ACA was an unprecedented federal intervention into state authority, it did not disrupt the general framework established by the McCarran-Ferguson Act: federal law serves as a floor upon which state law can build.27 Thus, consumers may turn to state law where the ACA is lacking.28 As this Note will show, however, relying on already established state laws to enforce the ACA is much like trying to fit a square peg into a round hole. You might squeeze it in sometimes, but the hole is not the best fit and often will not work at all. For example, consumers may be able to bring a breach of contract claim under state law when the policy terms of their insurance plans are ambiguous and the ACA favors one interpretation, but consumers may be without a remedy for violations of provisions that are not expressly incorporated in their contracts.29

In response to the inadequacy of existing options, this Note proposes that state courts recognize an “implied warranty of legality,” a single, comprehensive state cause of action that allows consumers to privately enforce the ACA.30 Under the implied warranty of legality, the sale of an individual health insurance policy would carry with it an implied, enforceable promise that the policy and the insurer administering it are and will remain in full compliance with the ACA for the policy’s term.31 Failure to comply with the ACA would constitute a breach of the implied warranty and be actionable in court for either prospective (i.e., injunctive) or compensatory relief, with the goal of placing the consumer in the position he or she would have been in had no violation occurred.

The implied warranty of legality has a robust lineage. This Note draws inspiration from the original judicial opinions that created the implied warranty of habitability, which revolutionized the relationship between landlords and tenants using a theory based on the classic doctrines of implied warranties of merchantability and fitness.32 The implied warranty of legality also may be viewed as an expansion of and improvement upon the reasonable expectations doctrine—a half-century old approach to interpreting insurance contracts that is meant to favor consumers, who are often relatively powerless and information-poor market actors.33

Like other implied warranties, the implied warranty of legality is attractive for its intuitive simplicity. Just as the implied warranty of merchantability promises consumers that the goods they purchase “are fit for the ordinary purposes for which such goods are used”34—for example, that a refrigerator keeps its contents cold—the implied warranty of legality promises consumers who purchase individual health insurance that the policy does what the law says it must. Unlike the reasonable expectations doctrine, however, the implied warranty of legality imposes no new, unexpected obligations on insurers. Rather, it holds insurers accountable for promises implicit in the private health insurance market in a post-ACA world.

More broadly, the instinct behind this proposal—to provide a remedy for individuals who have suffered an injury due to others’ legal violations—is centuries old.35 Civil recourse theorists, such as John Goldberg, draw on social contract theory to argue that the state should provide opportunities for redress via private law in order to compensate for the law’s restrictions on individuals’ ability to seek private retribution.36 Others, like Nathan Oman, frame the impulse for recourse as a question of honor.37 Oman points to John Grisham’s novel The Rainmaker, where a mother sues an insurance company for denying medical treatment to her dying son, to help illustrate this point: “By suing the company, by standing up to it, the mother transformed herself from a passive victim into an agent, an equal who could demand and receive respect.”38 The implied warranty of legality seeks to give real consumers that same opportunity.

The remainder of this Note proceeds in three major parts. Part I begins by explaining the important role of state law in this area. Critically, the ACA preserves states’ traditional role in health insurance regulation and does not preempt state causes of action that enable consumers to sue to enforce the law. Yet existing state causes of action that consumers may try to use for this purpose fail to provide a comprehensive private enforcement regime. Most importantly, no single cause of action would enable enforcement of the full array of the ACA’s various consumer rights and protections.

To fill this gap, Part II proposes that states adopt an implied warranty of legality. This approach is modeled on the implied warranty of habitability, and the reasons given by courts for adopting it apply equally to the individual health insurance market under the ACA. Additionally, the implied warranty of legality, like the implied warranty of habitability, is based in the common law, thus negating any need for state legislative action. Part II also describes how the implied warranty of legality would operate in practice. This discussion includes consideration of how courts would construct the warranty—including the basis on which courts could hold insurers liable, whether insurers should be allowed to disclaim the warranty, and the remedies that would be available, as well as potential barriers to adoption. As proposed, the implied warranty of legality would run the risk of increasing premiums, but these increases are justifiable on redistributive grounds. Additionally, while insurers are likely to raise the primary jurisdiction and filed rate doctrines as bars to litigation, these doctrines should have minimal impact on consumers’ ability to seek recourse under the implied warranty of legality.

Part III concludes by considering if and when the implied warranty of legality could be applied to regulatory regimes beyond the ACA. The ACA’s narrow approach to preemption means that preemption should not pose a barrier to the adoption of the proposed implied warranty of legality. Although this result is not assured under other federal statutes, Supreme Court precedent generally preserves state causes of action—like the implied warranty of legality—that parallel but do not expand federal requirements. Moreover, the implied warranty could be applied to enforce state health insurance rules in the event that the ACA’s federal protections are scaled back. Assuming preemption is not an obstacle, the implied warranty could also be extended beyond the individual health insurance context and would be most justified in markets that resemble insurance and housing—for instance, markets where participation is involuntary and goods carry high societal importance.

i. the continuing vitality of state law under the aca

The ACA transformed health insurance regulation in the United States by setting comprehensive new federal standards intended to improve the affordability, adequacy, and accessibility of individual health insurance.39 Yet contrary to conventional wisdom, the ACA is far from a “federal takeover of health insurance.”40 Rather, the ACA maintains states’ historical responsibility to both establish and enforce the law governing health insurance. Indeed, the law self-avowedly left in place the “federalism framework” under which states serve as the primary regulators of insurance.41 This Part describes this framework and argues that it allows states to provide for private enforcement of the ACA even in the absence of a federal private right of action. An analysis of existing state causes of action illustrates the extent to which consumers can rely on current law to enforce the ACA and seek relief from injuries arising from violations thereof. This analysis reveals that these causes of action provide only a piecemeal remedy and that a more comprehensive solution is necessary to ensure consumers benefit from the full array of rights and protections provided them by the ACA.

A. State Regulatory and Enforcement Powers Under the ACA

States have long served as the default regulators of insurance. In fact, up until 1944, when the Supreme Court recognized that interstate insurance transactions fell within Congress’s Commerce Clause power,state regulatory power was exclusive.42 The Supreme Court’s decision reversing precedent prompted a swift reaction from Congress, but rather than exercise its newfound authority, Congress disclaimed it.43 Specifically, in the McCarran-Ferguson Act of 1945, Congress declared that continued state regulation of insurance was “in the public interest”44 and provided that congressional action should not be interpreted to “invalidate, impair, or supersede” state regulation absent a clear intent to do so.45 While Congress since has intervened significantly in the context of employer-sponsored benefit plans, until the ACA, Congress largely left regulation and enforcement of individual insurance to the states, only setting certain minimum standards.46

The ACA greatly expanded the breadth and scope of federal regulations governing the individual insurance market but preserved the state-centric approach to individual insurance regulation along two dimensions. First, states may continue to strengthen health insurance regulation.47 For example, while the ACA allows health insurers to charge older adults rates up to three times more than what they charge younger adults, states may demand that health insurers apply the same rates to all customers, regardless of age.48 Second, states remain the primary enforcers of both federal and state health insurance regulations in the individual market.49

Unfortunately, state public enforcement mechanisms are unlikely to provide consumers complete protection from violations of the law. These typically include review and approval of policy forms, review and approval of premium rates, complaint processing, oversight of claims payment practices and advertising, and periodic market conduct reviews.50 Violations may be met with the imposition of corrective action plans, fines, and orders to refund money to consumers, among other measures.51 Because states are responsible for licensing health insurers, they may also take action on the license in response to severe violations.52 Yet prior work examining state insurance regulation has found that insurance departments tend to “underperform in their efforts to protect and support consumers’ interests.”53 Regulatory capture54 and limited resources55 have frequently been proffered as explanations for this shortcoming. Studies tracking state implementation of the ACA similarly suggest that many states lack the ability or willingness to closely monitor insurer compliance and bring enforcement actions when violations are uncovered. In some cases, this is driven by a lack of capacity or institutional knowledge of how to enforce provisions of the ACA that are novel to the state.56 In other instances of inaction, state regulators lack the legal authority to directly enforce some or all of the ACA’s market reforms.57 Effective administrative enforcement also depends on robust market conduct examinations that allow for ongoing monitoring of insurers after rates and policies are approved,58 but it appears unlikely that these examinations will be conducted with sufficient regularity or thoroughness to provide meaningful protection to consumers, since they can be costly and time-consuming.59 And, even if regulators do eventually intervene, it may only come after consumers have experienced injury.60

These drawbacks have led others to conclude that private enforcement is necessary to complement public enforcement.61 Of course, leaving in place state public enforcement power does not necessarily mean that federal law allows private causes of action arising under state law. But Congress was clear in the ACA that state law is not preempted unless it “prevent[s] the application” of the ACA’s insurance reforms.62 In the only appellate decision interpreting this preemption language to date, the Eighth Circuit described the set of cases in which preemption applies as “narrow” and held that “only those state laws that ‘hinder or impede’ the implementation of the ACA run afoul of the Supremacy Clause.”63 The same clause has elsewhere been termed an “anti-preemption provision,” amid speculation that it may even preserve state laws that frustrate but do not directly block or contradict federal law, in contrast to general principles of obstacle preemption.64

Nothing in the text of the ACA suggests that this anti-preemption provision is limited to the substantive requirements that a state may set for insurance companies—that is, the first of the two dimensions discussed above. Rather, the text expressly preserves “any State law” and thus plainly extends protection from preemption to state causes of action so long as they do not hinder the ACA.65 The question thus becomes whether existing state causes of action can provide relief for consumers injured due to violations of the law, or if a new cause of action is needed.66

B. Existing State Causes of Action

States have long been important battlegrounds in the fight to advance consumer rights, and, over time, states have adopted a latticework of statutes and common law claims to protect consumers.67 Faced with unlawful conduct by insurers, consumers could attempt to vindicate their rights under the ACA by availing themselves of any of three categories of existing laws: contract law, state consumer protection statutes, and insurance bad faith laws. However, while these laws might support consumers in certain circumstances, they ultimately fall short of providing consumers a coherent and comprehensive remedy for violations. Specifically, each approach only provides a means to enforce some, but not all, of the rights and protections afforded consumers under the ACA, and, even then often limits the types of relief available.

1. Breach of Contract

Private insurance is defined as a “contract where one undertakes to indemnify another or pay a specified amount upon determinable contingencies.”68 Failure to follow through on a contractual promise gives rise to a breach of contract claim.69 Because a health insurance contract or policy may not expressly incorporate all of an insurer’s obligations under the ACA, traditional breach of contract claims offer only limited recourse to consumers seeking redress for violations of the ACA.

Consider a health insurance contract that expressly lists items and services that are included within the ACA-mandated essential health benefit package.70 If the insurer then denies coverage for one of the listed services, a consumer can bring a breach of contract claim and effectively force the plan to comply with the law. But if the policy is ambiguous or does not specifically reference the ACA, the consumer may face difficulties in seeking to require the insurer to comply with the ACA or to compensate for harm caused by the insurer’s violation of the law. For example, even though health insurers must cover four different types of addiction treatment medication as part of the essential health benefit package, an insurer may not list all four types in its policy.71 If the insurer then denies coverage for an unlisted addiction treatment medication, the insurer will have violated the ACA, but not necessarily the terms of its policy.

To strengthen their claim in situations where their policies are ambiguous, plaintiffs may turn to one of two contract interpretation doctrines that place a thumb on the scale in favor of consumers. The first doctrine, contra proferentem, provides that “ambiguities must be construed against the drafter.”72 Typically, this rule is invoked to resolve ambiguities as a matter of last resort, after the court has first attempted to shed light on the provision by reviewing extrinsic or parole evidence.73 To protect consumers from exploitation by insurers, however, this rule traditionally has taken on a stronger role in insurance contract disputes74: “Once the court finds an ambiguity, the interpretation favoring the policyholder prevails, without reference to the parties’ intent and without examination of extrinsic evidence.”75

The second approach, the reasonable expectations doctrine, goes even further. In 1970, driven by concerns about the adhesive nature of insurance contracts and a growing consensus that consumers were not closely reviewing insurance contracts, Robert Keeton proposed that insurance contracts should be read such that “[t]he objectively reasonable expectations of applicants and intended beneficiaries regarding the terms of insurance contracts will be honored even though painstaking study of the policy provisions would have negated those expectations.”76 This is now known as the reasonable expectations doctrine.

How this doctrine should be applied in practice has led to considerable debate. Some argue that its use should be limited to situations in which contract language is ambiguous. This, of course, raises the question of whether the reasonable expectations doctrine is distinct from contra proferentem.77 Others interpret the reasonable expectations doctrine to mean that the expectations of an objective, reasonable consumer should trump clear contract language when the two conflict.78 However, this approach presents questions as to what an objective, reasonable consumer would expect her health insurance to cover.79 Finally, some argue for a middle ground that takes into consideration how conspicuous the contested provision was to the consumer when the policy was purchased.80

These disagreements reflect a central tension faced by courts seeking resolution to insurance disputes: insurers need predictability when setting rates so that they can cover all the claims without risking insolvency, while consumers are poorly equipped to understand the scope of protection provided by their insurance policy at the time of purchase.81828384

The Second Restatement of Contracts adopted language reflecting a more robust version of the reasonable expectations doctrine with respect to standard form contracts in 1979: “Where the other party has reason to believe that the party manifesting such assent would not do so if he knew that the writing contained a particular term, the term is not part of the agreement.”85 Since the 1990s, however, courts’ use of the doctrine—particularly in its stronger forms—has significantly declined in response to the reinvigoration of contractual formalism and the related ascendency of textualism and the law and economics movement.86 One estimate from 1998 found that only six states still used a “‘pure’ version of the Keeton doctrine,” while an additional five states had walked back prior endorsements.87 By 2007, the number of strictly adherent states was down to two.88

While rare today, a robust version of the reasonable expectations doctrine—where courts are willing to trump express contractual language—could enable consumers to enforce ACA provisions that may only be implicit in their insurance policies. Along these lines, Wendy Mariner has argued that courts should combine the reasonable expectations doctrine with traditional rules of statutory interpretation to resolve disputes over what insurers must cover under the ACA’s essential health benefit rules.89 For example, an insurance policy may state broadly that it covers maternity care, as mandated by the ACA, without identifying every item and service that falls within that general category.90 Under this version of the reasonable expectations doctrine, a consumer denied a particular service should be able to sue for breach of contract and successfully argue that the court should look to the ACA and its implementing regulations to establish the consumer’s reasonable expectations and thereby define the scope of maternity care required by the contract.91

Relying on the ACA to establish a baseline for reasonable expectations in this manner may make the doctrine more appealing in jurisdictions where it is currently disfavored. Using the ACA as a basis would cabin judicial discretion and limit insurers’ concerns about facing unpredictable obligations.92 But even if there were a resurgence in the reasonable expectations doctrine, breach of contract claims still would not reach violations of ACA provisions that are not reflected in the terms of the health insurance policy. Health insurance policies generally describe what benefits are covered and under what conditions, but may not specify how rates are calculated and applied, the terms of the ACA’s medical loss ratio rules, or other crucial features of health plan administration.93 Accordingly, breach of contract claims provide only a partial solution for consumers when their health insurers violate the ACA.

2. State Consumer Protection Statutes

Every state and the District of Columbia has adopted laws to combat fraudulent and deceptive practices in consumer marketplaces.94 These statutes, commonly known as Unfair and Deceptive Acts and Practices laws (UDAPs), are important in enabling consumers to prevent harm and recover damages for injuries caused by unscrupulous business practices.95

In their strongest form, UDAPs allow consumers to bring claims expressly alleging that insurers violated the ACA and thus serve as an important tool for privately enforcing the ACA. Take California’s consumer protection laws as an example. They are labeled “strong” on fifteen out of nineteen criteria by the National Consumer Law Center, including on the criterion for insurance.96 Like many state UDAPs, California’s Unfair Competition Law (UCL) prohibits businesses from engaging in “any unlawful, unfair or fraudulent business act or practice.”97 More uniquely, however, the California Supreme Court has observed that, “[b]y proscribing ‘any unlawful’ business practice, ‘section 17200 borrows violations of other laws and treats them as unlawful practices’ that the unfair competition law makes independently actionable.”98 Courts have since found that the statute covers violations of both state and federal law, meaning that a violation of the ACA is a per se violation of the UCL.99 Under this broad definition of unlawful acts or practices, plaintiffs have brought a class action lawsuit against a California insurer for alleged violations of the ACA’s medical loss ratio rules.100

Yet despite its broad scope, the UCL has its own flaws, including both substantive and procedural limits that make recovery more difficult, if not impossible, for certain consumers. For example, consumers do not have standing to seek relief unless they have “suffered injury in fact and ha[ve] lost money or property as a result of unfair competition.”101 Additionally, when consumers have standing, their remedies are generally limited to injunctive relief and restitution.102 Imagine a new enrollee in one of the insurance plans found to have illegally imposed waiting periods for transplant services.103 Under the UCL, the consumer could neither bring suit asking a court to order their insurer to comply with the law without first suffering financial injury, nor seek compensation for expenses (such as physician or pharmacy bills) or physical injury (if, for example, the consumer develops complications during the waiting period) incurred as a result of a violation. Thus, while the UCL authorizes suits against insurance companies for violations of federal law, it fails to provide complete recourse for all consumers.

By and large, the utility of other states’ UDAPs is even more circumscribed. Unlike California’s UCL, for instance, under most state UDAPs, it is insufficient to allege that a company violated a law. In other words, there are no per se violations. Instead, a plaintiff must show that the defendant engaged in certain unfair, deceptive, or unconscionable trade practices that may be more or less strictly defined and thus more difficult to meet.104 For example, Oregon’s UDAP lists a number of specific unlawful practices, from making false or misleading representations about price reductions to organizing pyramid schemes.105 While it also includes a catchall category,106 the Attorney General must first declare an unfair or deceptive practice as such before anyone can bring suit under this catchall.107 Among the handful of states other than California in which violations of state or federal statutes regulating businesses constitute per se violations of their UDAPs, additional rules can limit a consumer’s ability to bring a claim to privately enforce the ACA. For example, Illinois courts have ruled that a violation of federal law only constitutes a per se violation of the state’s UDAP if the action “offends public policy.”108 Yet to “offend public policy,” the federal law must, among other things, provide a private right of action itself, thereby making the UDAP at least somewhat redundant.109 In addition, some UDAPs demand that the consumer show that the defendant’s conduct had a negative public impact,110 while others require proof of intent.111 These requirements create stringent hurdles for consumers who have suffered individualized injuries and seek to vindicate the rights and protections guaranteed them under the ACA.

Even more problematically for consumers seeking redress for violations of the ACA, nearly half of the states exempt insurance transactions from the scope of their UDAPs, either in the express language of the statute or as interpreted by courts.112 Opponents of including insurance transactions under UDAPs sometimes argue that state administrative enforcement mechanisms sufficiently protect consumers,113 despite evidence to the contrary.114 Often, however, the exception is at least partially justified by a determination that “selling an insurance policy is not an ordinary consumer contract for ‘goods or services’” and thus falls outside the scope of UDAPs, which are focused on consumer transactions.115 Indeed, it has been argued that “the distinctive features of the insurance relationship”—including the fact that the relationship between the parties is based on a desire for protection against calamity rather than commercial advantage, as well as the unequal relationship between insured and insurer—“remove it from the model of contract.”116 But the “tortious” nature of the harm that insurers can impose through their actions should not be a reason to deny consumers recourse,117 although it may suggest the need for a different solution that accounts for the complex nature of insurance relationships.

3. Insurer Bad Faith Laws

Insurer bad faith laws are one attempt to reconcile the dual contractual and tortious nature of insurer misconduct.118 Like all contracts, insurance policies come with an implied duty of good faith and fair dealing under which insurers are expected not to interfere with a policyholder’s right to receive contracted-for benefits.119 Under contract law, when the duty is breached, a consumer may only recover up to their policy limits.120 This remedy, however, has been found inadequate to fully compensate consumer injuries that arise due to an insurer’s breach, such as emotional distress and lost income, or to deter insurers from unscrupulous conduct.121 Approximately half of the states have imposed a correlative tort duty not to engage in bad faith that provides consequential and punitive damages to fill this gap.122

Because of their relation to the duty of good faith, claims for bad faith typically arise out of an insurer’s performance of its contractual duties.123 Most commonly, bad faith claims allege the wrongful denial of coverage or unreasonable delays in claims processing.124 Beyond the remedy, the primary difference between a bad faith claim and a breach of contract claim is that the former requires a showing that the insurer’s conduct was unreasonable.125 While there is no uniform standard for bad faith causes of action, courts typically require consumers to show both that their insurer acted unreasonably and that their insurer was aware (or should have been aware) of the unreasonableness of its conduct.126 Because of this overlap between bad faith and breach of contract claims, bad faith claims are unlikely to capture different violations of the ACA than breach of contract claims. Bad faith claims may take a slightly altered tone, however: over time there has been a growing recognition of “systemic” or “institutional” bad faith whereby a consumer argues that rather than erring once, an insurer intentionally structured its claims processing so as to deny certain benefits to all policyholders.127 This likely presents the greatest opportunity to use bad faith litigation to enforce the ACA. For example, if a consumer has reason to believe that his or her insurance company is routinely denying coverage of certain items and services in violation of both the contract and the essential health benefit or preventive service rules, the consumer can bring a bad faith claim in addition to or in lieu of any breach of contract claim.

Unfair insurance practice acts and unfair claim settlement statutes are statutory analogues to insurer bad faith law, prohibiting vexatious refusals to pay claims.128 Like common law bad faith claims, these statutes often only attach liability to claim denials if the insurer’s denial is deemed unreasonable.129 Because of their similarity, some states have held that unfair insurance practice acts and unfair claim settlement statutes preempt bad faith causes of action.130 Problematically, while some of these statutes authorize consumers to bring claims under them,131 many rely solely on public enforcement mechanisms, meaning that consumers in some states have no way to recover for bad faith conduct and are limited to breach of contract remedies.132

In sum, where states provide bad faith causes of action that sound in tort, they may provide an important mechanism for expanding the remedies available to consumers harmed by certain violations of the ACA. Nonetheless, like breach of contract and UDAP-based claims, bad faith actions do not constitute a comprehensive mechanism for challenging violations of all the ACA’s insurance reforms. Given the limited focus of the cause of action on wrongful denials or delays of coverage, bad faith claims are unlikely to reach violations of the ACA that do not implicate the provision of benefits, such as the law’s rating reforms, eligibility rules, and transparency requirements.

ii. an “implied warranty of legality” in health insurance

This Note advocates for a more comprehensive and targeted approach to ACA enforcement than any of the three causes of action discussed above can provide. Specifically, I propose introducing an implied warranty of legality that individual health insurance policies and the companies offering them are in full compliance with the ACA. This Part first describes the primary source of inspiration for this approach—the implied warranty of habitability—and demonstrates how the motivations justifying the adoption of the implied warranty of habitability apply equally to an implied warranty of legality. It then discusses how common law courts can adopt an implied warranty of legality without waiting for state legislative action, as they did decades ago with the implied warranty of habitability, and describes three key issues early courts will confront in structuring the warranty. This Part concludes by addressing two potential barriers to adoption: the threat of increased costs and the primary jurisdiction and filed rate doctrines.

A. The Implied Warranty of Habitability

Starting in 1961, state courts across the country began adopting an implied warranty of habitability for residential leases.133 The Supreme Court of Wisconsin was the first state high court to do so, with its opinion in Pines v. Perssion.134 The best known decision came a decade later, when Judge J. Skelly Wright issued the majority opinion for the D.C. Circuit in Javins v. First National Realty Corp.135 Following Pines, the Javins Court held that “a warranty of habitability, measured by the standards set out in the Housing Regulations for the District of Columbia, is implied by operation of law into leases of urban dwelling units covered by those Regulations.”136 In so ruling, the court provided common law remedies to tenants whose living conditions did not meet municipal housing regulations.137

These decisions marked a revolution in property law, which for centuries had stood by the rules of caveat emptor and no-repair: tenants were to take the land and any improvements as they found them and were barred from escaping their lease obligations even when they faced breaches by their landlords.138 While the concept of an implied warranty was new to property, it was standard fare in contract law.139 For example, by the 1960s implied warranties based on the assumed expectations of buyers—such as implied warranties of fitness and merchantability—were well established for the sale of goods.140 The implied warranty of merchantability served as an implicit promise that the goods being sold were suitable for ordinary use and of average quality.141 The implied warranty of fitness offered a guarantee to buyers who informed sellers that they sought goods for a particular use that the good then sold was in fact fit for that purpose.142 Additionally, as the Illinois Supreme Court observed, it was also common practice to read the law in effect at the time a contract was adopted into the terms of the contract itself, “as though expressly referred to or incorporated in it.”143 Thus, while the implied warranty of habitability was novel in adopting an implied warranty based on the housing code, the premises behind it were well established.

The Javins court offered a multi-faceted explanation for its landmark decision. As the court explained, the legislature had adopted a regulatory scheme, the housing code, which reflected “a well known package of goods and services” that modern tenants expected of any “shelter.”144 The court observed that in so doing, “[t]he legislature has made a policy judgment—that it is socially (and politically) desirable to impose these duties on a property owner.”145 Yet the court found that public efforts to enforce the housing code were “far from uniformly effective”146 and that tenants were poorly equipped to bring their homes up to code, both because of their relative inability to identify and deal with housing defects compared to landlords,147 and because of their lack of bargaining power contra landlords.148 Accordingly, to remedy this situation, the court borrowed a well-known concept from contract law—the implied warranty—and applied it to property.149

The present-day individual health insurance market reflects similar dynamics to those outlined by the Javins court: Congress has adopted a robust set of consumer protections that all individual health plans must meet, but administrative enforcement is insufficient to prevent violations or recompense the injured,150 and consumers are poorly positioned to protect themselves before the fact. As Keeton explained when he was advocating for the reasonable expectations doctrine, an insurance contract is a form of adhesion contract.151 Consumers cannot bargain over the terms of the contract,152 and, in fact, they often cannot even access the full policy before they purchase the plan.153 This allows insurers to draft the terms to maximize their own interests against the consumer’s interests.154 Moreover, even if consumers could negotiate or know the specific terms of their policies, they are unlikely to be able to make sense of the policy language and cannot necessarily predict what items and services they will need.155 Consumers also are not free to switch insurance policies mid-year if they encounter violations but do not qualify for a special enrollment period.156Implied warranty theory provides a cause of action that can take these structural features of the health insurance context into account in providing a remedy to consumers.

Scholars have occasionally made passing references to the potential of applying implied warranty theory to insurance,157 yet it has gained little traction to date.158 This has been attributed at least in part to the fact that implied warranties traditionally attach to the sale of tangible products.159 This formal distinction is not especially compelling, however: consumers are just as ill-equipped to tell if an insurance policy offered to them “‘works’ for its intended purpose” as they are with a physical good like a television or car.160 Perhaps more importantly, implied warranty theory appears to have been overshadowed by Keeton’s reasonable expectations doctrine.161 And, indeed, application of the implied warranty of merchantability or fitness to insurance would likely operate in much the same way as the reasonable expectations doctrine, as both look to what a reasonable consumer expects an insurance policy to cover.162

In a post-ACA world, however, implied warranty theory can do far more than these approaches. Because the ACA sets a comprehensive regulatory scheme against which insurance policies and insurer conduct can be judged, courts need not speculate about what a reasonable consumer would or would not expect. Consequently, this approach is less radical than the traditional reasonable expectations doctrine in an important way: an implied warranty of legality merely enforces requirements that the ACA has already set into law rather than imposing new, unexpected obligations on insurers.163 The implied warranty of legality can thus better resolve the aforementioned tension between insurers’ need for predictability and consumers’ need for protection that constrained adoption of the reasonable expectations doctrine.164

B. The Power of Common Law Courts

State adoption of an implied warranty of legality may, but need not, be the product of legislative action. Rather, as this Note proposes, it can be judicially enacted. To appreciate why, it is important to first draw out the distinction between finding an implied private right of action under the ACA and establishing an implied warranty under state common law. While the ACA’s text forecloses the first option, the latter remains within the power of state courts.

The past half-century has seen a retrenchment from finding implied causes of action under federal statutes.165 This trend, instigated by Justice Powell’s dissent in the 1979 Supreme Court case Cannon v. University of Chicago,166 is premised on the “separation-of-powers principle of limited jurisdiction” of federal courts.167 Because Congress determines the jurisdiction of federal courts, if Congress forgoes creating a private cause of action to enforce federal law, “federal courts should not assume the legislative role of creating such a remedy and thereby enlarge their jurisdiction.”168 The movement away from implied causes of action has also been justified by concerns for democratic accountability.169 Today, the general rule is that courts may not imply private causes of action under federal statutes absent affirmative evidence of congressional intent.170 Applied here, it follows that because Congress did not intend to create a federal cause of action to enforce the ACA, the courts may not imply one. A plaintiff who comes to court relying on a theory of an implied statutory cause of action will lose.

The analysis changes, however, if the plaintiff’s claim derives from state common law.171As a preliminary matter, the underlying reasons for precluding implied causes of action under federal statutes—separation of powers and democratic accountability—do not apply with the same force at the state level. States are not bound by the same separation-of-powers principles that the Constitution imposes on the federal government.172 Instead, state power is “diffused horizontally across the branches, as well as vertically between the state and myriad local units.”173 Free from the legal constraints facing federal courts, state courts may issue advisory opinions, appoint executive branch officials, and initiate investigations.174 Moreover, state courts may also be thought of as more democratic than federal courts.175 Many state court judges are elected, giving them a greater level of accountability and political knowledge than is typically assumed of federal judges.176 In addition, state judges “are likely to feel closer links to their local communities than federal judges, thereby enjoying a greater aura of democratic accountability.”177 And just as state courts have more democratic bona fides than their federal counterparts, many state legislatures arguably have fewer, suggesting less reason to defer to traditional political processes at the state level.178

Even more importantly, however, constitutional limits to federal power necessarily restrain the modern implied right of action jurisprudence described above, while state power “is plenary and inherent.”179 Because federal courts lack the power to make common law absent exceptional circumstances, “they must restrict themselves to statutory interpretation in deciding whether to imply a cause of action from a statute.”180 State courts, in contrast, have historically retained broad common law powers, and their analysis of whether a cause of action exists is not limited to that which is specified in a statute.181ven ardent opponents of judicial lawmaking, such as Justice Scalia, have acknowledged this distinction between the power and role of state and federal courts.182 According to the conventional view, “while [judges] may disagree strongly with particular decisions, [they] rarely question the authority of common-law courts, even in pivotal cases.”183 The common lawmaking power of state courts thus far exceeds the power of federal courts in constructing a private right of action.

Properly understood, the implied warranty of legality would be a product of the state common law, rather than of the ACA itself. Common lawmaking reasons by analogy,184 comparing the facts of one case to those of the past such that the law evolves over time “to bring about better, fairer, and generally more desirable results.”185 As a part of this process, common law courts “perceive the impact of major legislative innovations and . . . interweave the new legislative policies with the inherited body of common-law principles.”186 To establish an implied warranty of legality, a court need only look to the state’s existing body of law and reason that the circumstances surrounding the sale of an individual health insurance policy in the age of the ACA are conceptually similar to the circumstances in which courts adopted the implied warranty of habitability in the housing context. If a court does so, it is within the court’s power to conclude that the implied warranty of legality should apply.

C. Constructing an Implied Warranty of Legality

As a product of the analogical approach to state common lawmaking, an implied warranty of legality would likely look and operate differently across the country. States may, for instance, adopt different burdens of proof, statutes of limitations, and other standards based on whatever their existing implied warranty doctrines provide. Yet it is worth briefly sketching out certain key contours of the implied warranty of legality that have a particularly significant impact on consumers’ ability to successfully seek relief. As an example, begin with the class of plaintiffs in California alleging that their insurer unlawfully denied them rebates under the ACA’s medical loss ratio rules. If they sought to add an implied warranty claim to their complaint, they would have to show (1) that they purchased individual health insurance through a plan subject to the ACA; (2) that at the time of purchase they assumed the plan complied with the ACA and its implementing regulations; (3) that the insurer violated the ACA’s medical loss ratio rules by failing to provide refunds; and (4) that the violation caused them injury.187 The insurer may then attempt to negate any of these elements in its defense or raise other affirmative defenses.188

The following subsections lay out factors that the court should take into account in determining liability under the implied warranty of legality, as well as the remedies that should be available to successful plaintiffs. In particular, these subsections will focus on issues that courts and academics have highlighted as important in the context of the implied warranty of habitability and that are likely to arise as courts consider adopting an implied warranty of legality: first, the kind of insurer conduct that constitutes a breach of the implied warranty; second, whether insurers may raise waiver as a defense; and third, the remedies that would be available to consumers. In some instances, I recommend that courts follow a path similar to that which courts have followed in implied warranty of habitability cases; in other instances, I suggest that departure is warranted.

1. Basis for Finding Violations

The threshold task for courts will be to define what conduct constitutes a breach of the implied warranty of legality. I propose that courts adopt two boundaries to keep the implied warranty of legality from becoming a general-purpose cause of action against insurers, rather than a tool for allowing consumers to vindicate their rights and protections under the ACA.

First, courts should limit the warranty to violations of the ACA so that insurers will not be open to claims based on consumer expectations that are not grounded in the statute. This, notably, would be a departure from how some jurisdictions have approached the implied warranty of habitability. The Supreme Court of Hawaii, for example, “based its holding on a common sense notion that certain conditions make housing unsuitable for human occupancy, rather than on a statutory notion of an implied minimum quality of housing as in Javins.”189 California, likewise, chose not to limit the implied warranty of habitability to the housing code, despite acknowledging that compliance with housing code standards would suffice in most cases.190 One of the strengths of the implied warranty of legality over the reasonable expectations doctrine, however, is that courts can rely on a set of relatively well-established standards of conduct governing insurers to guide their decisions. By limiting consumer claims to violations of these standards, insurers retain a greater measure of predictability regarding when courts may hold them liable. Absent reasonably clear parameters for determining insurer liability, the implied warranty of legality would likely suffer the same resistance as the reasonable expectations doctrine.191

Of course, there will be areas in the law that remain ambiguous and that courts adjudicating an implied warranty claim would have to interpret.192 Nothing is unique about this situation, however, and courts should fill in the gaps just as they would in any other circumstance. The fact that this could produce some variation in how the law is interpreted and applied across states should not bar adoption of the warranty; “[i]ndeed, the very reason that Congress delegates to the states in many circumstances is to produce policy disuniformity—that is, to produce federal law that may mean different things in different states.”193 The idea that state courts will be interpreting ambiguities in the ACA should not be jarring, but seen as a natural extension of the law’s structure. While this could produce some uncertainty for insurers, it is more circumscribed than what they face under the reasonable expectations doctrine. The potential for variation in the law across states would also be nothing new for insurers, given the primacy of state regulation both before and after the ACA.194

Second, courts should limit the warranty to provisions that are intended to benefit consumers. For example, consumers should not be allowed to sue merely because an insurer violated one of the ACA’s agency reporting or administrative simplification rules.195 This limitation is regularly used in negligence per se cases, a theory of tort liability that similarly relies on statute to define the standard of care that individuals must observe. In these cases, courts will typically only hold that a violation of a statute constitutes negligence if the plaintiff is among the class of persons the statute is intended to protect, and the harm the plaintiff has suffered is the type of injury the statute sought to prevent.196 A similar approach makes sense under contract law, which traditionally bars incidental beneficiaries from enforcing a contract to which they are not a party, but which benefits them.197

This limit also may be necessary to avoid a preemption challenge. As discussed in greater depth in Section IV.A, the Supreme Court generally will not find that a state cause of action is preempted when it merely provides damages for an injury caused by conduct prohibited by a federal statute.198 The Court, however, has preempted claims brought under a fraud-on-the-agency theory, whereby the plaintiffs were effectively seeking to enforce a duty that the defendant owed a federal agency, rather than a duty directly owed to the plaintiffs themselves.199 In the Court’s view, the agency should be able to specify what it needs from a regulated entity without interference from third parties that could disrupt its review processes and thus obstruct implementation of federal law.200 Presumably a court could come to a similar conclusion if consumers attempt to use the implied warranty of legality to enforce duties owed by an insurer to a state or federal agency.

2. The Defense of Waiver

Insurers are likely to try to avoid liability under the implied warranty of legality by disclaiming the warranty in their policies. That is, insurers may claim that they make no promises as to whether their policies comply with the ACA so that the warranty does not apply to them. Insurers could then argue as an affirmative defense that consumers who purchase policies with disclaimers have waived their right to bring implied warranty claims. In order for the implied warranty of legality to remain viable, however, courts must treat any such disclaimers as void and enforce the legal norm against such disclaimers by imposing punitive damages if and when insurers adopt them.

Whether or not parties can disclaim implied warranties varies under existing law. Under the Uniform Commercial Code, parties can disclaim many of the warranties that would otherwise apply to a sales contract.201 This approach is based on general freedom of contract principles.202 In contrast, disclaimers have largely been prohibited with respect to the implied warranty of habitability.203 To the extent they are allowed, they are typically regarded “with intense suspicion when the purchaser is an ordinary consumer” rather than a commercial investor or other sophisticated party.204 Supporters of the implied warranty of habitability justified banning disclaimers by pointing to the power imbalances between tenants and landlords and the importance of the policies protected by the warranty.205 As the Javins court noted, allowing landlords to disclaim the implied warranty of habitability would effectively “nullify the object of the statute.”206 The housing code prescribes mandatory standards that landlords must meet, not suggestions subject to negotiation between landlords and tenants.

These policy concerns apply with equal force to the implied warranty of legality, which like the implied warranty of habitability is premised on compliance with a statutory code. They are also buttressed by a further consideration: the threat of risk selection that could occur if insurers were allowed to opt out. Willingness to purchase an insurance policy that disclaims the warranty could be used as a proxy for an individual’s relative risk in two ways. First, by purchasing such a policy, the consumer would be waiving her right to bring a lawsuit under the implied warranty of legality even if the policy were non-compliant with the law. Thus, waiving parties represent a lower litigation risk than consumers who retained the right to sue for breach of the warranty. Second, insurers may presume that consumers who are willing to waive the warranty expect to have lesser health care expenses than someone who wants to retain the full protections available to them under the law. A woman facing a high-risk pregnancy, for instance, will want assurance that her health insurer is not skirting the ACA’s maternity coverage and out-of-pocket cost requirements. It is in her interest to find a plan that is subject to the implied warranty of legality. The implied warranty of legality is, in effect, insurance that her insurance complies with the ACA or at least, that she is placed in the position she would have been in as if the insurer had complied if a violation occurs.207 In contrast, someone who only expects to go to the doctor for an annual physical will neither value nor seek out that additional level of protection.208

Thus, an insurer that insists on disclaiming the warranty is effectively offering less comprehensive insurance and could attract a lower-risk population than an insurer that does not disclaim. Over time, this risk segmentation could drive up the average costs of those insurers who are subject to the warranty compared to those that have opted out.209 Non-disclaiming insurers will have to begin disclaiming the warranty themselves to avoid this outcome and stay competitive. Sooner or later, all insurers in the market will have disclaimed the warranty, and consumers will be back to square one, unable to seek redress for violations.

To prevent this outcome, state courts can declare that the implied warranty of legality is mandatory and treat any waivers that insurers may put into their policies as void, as courts have done with the implied warranty of habitability.210 If an insurer nonetheless includes waiver clauses in its policies to try to deter less sophisticated consumers from invoking their rights, the court could levy punitive damages in addition to any other applicable remedies.211 In so doing, the court can ensure that the implied warranty of legality is available to all consumers and is not subverted into a tool for segmenting risk.

3. Remedies

The ACA benefits consumers in a wide variety of ways: from requiring insurers to provide coverage of certain benefits to certain populations,212 to limiting premiums and out-of-pocket costs,213 to increasing transparency and disclosure rules, including requirements to provide language access services to consumers with limited English proficiency.214 The types of remedies consumers may seek in response to violations of these and other rules will necessarily vary as well. Which remedies will be available in practice will turn on whether courts conceive of the implied warranty of legality as arising under contract or tort law. In keeping with how some courts have treated the implied warranty of habitability as well as insurance claims more generally, I recommend a hybrid approach under which both contract and tort remedies are available.

Either contract or tort law may provide an adequate remedy if a consumer only wants a court to declare what the law requires and order insurers to comply. Equitable remedies under contract law include specific performance, whereby the court orders the breaching party to fulfill its promises if money damages cannot fully compensate the non-breaching party for her losses.215 While courts consider specific performance an extraordinary remedy out of concern “that requiring performance interferes with the promisor’s liberty,”216 specific performance is uniquely appropriate in the context of implied warranties that are based on the breaching party’s pre-existing statutory or regulatory obligations. The court is not imposing on the promisor’s liberty, but enforcing a congressionally enacted requirement. Tort law similarly allows for injunctive relief when monetary damages are inadequate to remedy an injury.217 Specific performance or tort-based injunctive relief will be adequate in cases where consumers face future or ongoing injury from a violation, such as if an insurer unlawfully denies coverage for a non-urgent medical service or refuses to extend coverage to dependent children under the age of twenty-six.218 Therefore, to the extent consumers seek prospective relief, it may make no difference whether the implied warranty of legality sounds in contract or tort.

Contract and tort law part ways, however, when it comes to providing financial compensation to injured parties. Under contract law, remedies are primarily focused on compensating the non-breaching party for foreseeable economic harms.219 Often this means giving the non-breaching party the “benefit of the bargain”—that is, putting them in the position they would have been in absent breach.220 This would be appropriate if, for instance, an insurer failed to provide a full refund under the medical loss ratio rules (as has been alleged in California),221 or if an insurer required a consumer to pay greater out-of-pocket costs than the law allows.222 Tort law, in contrast, generally bars recovery for purely economic injuries,223 but allows courts to award damages for personal injury.224 This will be important if, for example, an individual is impermissibly denied coverage for a transplant and suffers injury or death due to the resulting delay in treatment.225

The two areas of law also diverge when it comes to punitive damages. Tort law generally allows for punitive damages, for the purposes of both punishment and deterrence.226 Contract law, in contrast, bars punitive damages unless the conduct at issue is independently tortious.227 This distinction is often justified by the theory of “efficient breach.” Courts should not seek to deter breaches through punitive damages because the breaching party will only breach if it is economical to do so after taking into account compensation for the non-breaching party.228 Courts should be less hesitant to order punitive damages in the context of the implied warranty of legality, however, given that an insurer’s obligations are not merely private promises they entered into voluntarily and now regret, but are mandatory rules imposed by Congress. Punitive damages would also be important if consequential damages are unavailable. Absent either punitive or consequential damages, insurers have “a strong financial incentive to delay providing medical treatment,”229 because some consumers may never challenge the denial in the first place. The remedy for those that do will otherwise only be an order that the insurer pay for the previously denied benefits, thus allowing the insurer to accumulate interest in the interim.230 While this may be a small amount at the individual level, insurers cover tens if not hundreds of thousands of lives in any given state, suggesting that the aggregate can be significant.231

Despite these traditional distinctions between tort and contract law, the line between remedies under the two regimes is not always so clear for implied warranties. While the Javins court held that a breach of the implied warranty of habitability “gives rise to the usual remedies for breach of contract,”232 other jurisdictions have described the implied warranty of habitability as “a multi-faceted legal concept that encompasses contract and tort principles.”233 These courts capitalized on this hybrid status to allow for consumers to recover under both theories, including contract-based consequential damages and tort-based personal injury damages.234 Additionally, even when operating under a contract theory of liability, some courts have pushed the boundaries of what is compensable and allowed renters to recover personal injury damages on the grounds that the harm was reasonably foreseeable when the parties entered into the contract.235

As discussed earlier, insurance also does not fit neatly within the bounds of traditional contract law.236 As the California Supreme Court has observed, “[w]hereas contract actions are created to enforce the intentions of the parties to the agreement, tort law is primarily designed to vindicate ‘social policy.’”237 Thus, while the relationship between the consumer and insurer is based on a contract, the inherent inequities between the parties and the “quasi-public service” nature of insurance implicate tort duties.238 As with claims brought against landlords under the implied warranty of habitability, courts have begun to expand the types of damages that are available when contract claims are brought against insurance companies. Specifically, although courts traditionally limited contract damages to the terms of the insurance policy, states have begun to allow insurance policyholders to recover for consequential damages on the theory that they were also foreseeable.239 As the New York Court of Appeals explained, consequential damages are “designed to compensate a party for reasonably foreseeable damages,”240 and an insurer would certainly know “that failure to perform would (a) undercut the very purpose of the agreement and (b) cause additional damages that the policy was purchased to protect against in the first place.”241 Thus, consumers who suffer additional injury under such circumstances should be able to recover for those damages as a part of their bargained-for benefit.242 The Second Restatement of Contracts likewise acknowledges that some states have enacted statutes allowing punitive damages in insurance disputes.243

The blurriness between contract and tort with respect to both implied warranty and insurance suggests that the implied warranty of legality may likewise occupy a hybrid status. Courts thus may provide a blend of remedies that vary based on case-specific circumstances. Since consumers will seek different relief depending on what provisions of the ACA their insurers violate, courts should remain flexible by providing remedies that correspond to the harms incurred. This sort of flexibility is necessary because of the broad array of violations possible under the ACA, given the diversity of requirements imposed on insurers.244 Alternatively, even if a state court treats the implied warranty of legality as falling within the scope of contract law, consumers should remain able to receive consequential damages for foreseeable physical injuries that result from an insurer’s breach.

D. Addressing Potential Barriers to Adoption

Having described how courts can adopt and structure the implied warranty of legality, this Section seeks to defend the implied warranty against two potential barriers to adoption. First, this Section acknowledges that achieving greater compliance with the ACA through the implied warranty of legality may result in premium increases. I contend, however, that this is a result of redistributing the costs of noncompliance and is wholly consistent with and justified under the ACA’s egalitarian principles. Accordingly, cost considerations should not dissuade courts from adopting the implied warranty of legality. Second, this Section considers the primary jurisdiction and filed-rate doctrines, which insurers often invoke to limit litigation. I argue that these doctrines would have only a narrow impact, if any, on claims brought under the implied warranty of legality. Thus, like concerns about costs, these considerations should not prevent the adoption of the proposed warranty.

1. The Costs of (Non-)Compliance

The goal of the implied warranty of legality is to increase compliance with the ACA. This will entail added costs for health insurers, stemming from at least two sources: (1) obligations that insurers would otherwise avoid, including the cost of covering certain benefits and individuals, and (2) consequential damages that insurers are required to pay for injuries that result from violations of the ACA.245 The insurers will then either take those costs as a loss or, more likely, redistribute them across all their policy holders in the same risk pool through future premium increases.246 Critics of the implied warranty of legality may argue that these added costs are reason alone not to adopt it.247 While rising health care costs are a real concern for consumers,248 any added costs from the implied warranty of legality, like the costs generated by the ACA’s insurance reforms, are justifiable on redistributive grounds.

The ACA’s insurance reforms are inherently egalitarian, pooling risk “equally and broadly among healthy and sick insureds.”249 Insurers must offer coverage to all, healthy or sick, at the same rate.250 Moreover, this insurance must comply with certain minimum standards so that it actually provides consumers meaningful protection against risk.251 As critics of the ACA point out, providing more comprehensive coverage to higher-risk consumers also increases the cost of health insurance, particularly for those who were benefitting under the prior system.252 These costs do not appear out of thin air, however. Prior to passage of the ACA, they simply were not shared evenly across the population. Some consumers paid disproportionately more than others for insurance.253 Other consumers paid for their health care expenses out of pocket without the benefit of adequate insurance, often incurring significant medical debt along the way.254 And some went without care, incurring costs in the form of poorer health outcomes and even death.255 In enacting the ACA, Congress chose to spread these costs more evenly across consumers and address cost growth through other mechanisms, such as delivery and payment system reforms.256

The implied warranty of legality reinforces the ACA’s horizontal redistribution scheme. Today, the lack of a private right of action under the ACA puts the costs of noncompliance on consumers. If, for example, an insurer unlawfully denies certain consumers coverage, those consumers alone bear the costs of paying for health care services out of pocket or not receiving the care they need, when they need it. Just as “it is unjust to ask the ill and injured to pay the costs of unavoidable conditions that impair their welfare,” it is equally unjust to force these unlucky consumers to pay the costs of ACA violations themselves.257 As the law currently stands, these consumers cannot take any steps to protect themselves from unanticipated violations of the law. By adopting the implied warranty of legality, however, courts can permit the costs of compliance to be distributed more broadly across the population.258

The implied warranty of legality, like the ACA itself, also advances vertical redistribution by asking those who earn more to pay more of any added costs.259 The ACA accomplishes this by providing premium tax credits to individuals and families earning up to 400 percent of the Federal Poverty Level if they purchase their insurance through an ACA-created health insurance marketplace (also known as an exchange).260 These tax credits cap the amount eligible consumers must contribute to premiums to a percentage of income based on a sliding scale.261 The federal government predicts that, on average, these tax credits will lower eligible consumers’ premiums by seventy-three percent in 2016.262 Because the ACA calculates tax credit levels as a percentage of an individual’s income, rather than as a percentage of premiums, the tax credits would also shield eligible individuals from any year-to-year premium increases that result from the adoption of the implied warranty of legality.263 This means that the federal government would pay any costs associated with adoption of the implied warranty of legality on behalf of low-income consumers. In contrast, today, the least well-off are no more protected from the costs of insurer noncompliance than the wealthier.

Thus, the implied warranty reinforces the ACA’s substantive promises to consumers, but does so in a manner that builds on and even furthers the law’s redistributive framework. Costs should not be a reason to oppose the implied warranty of legality. If anything, the fact that costs of noncompliance are otherwise shouldered unevenly is reason to adopt it.

2. The Filed Rate and Primary Jurisdiction Doctrines

Insurers frequently turn to two judge-made doctrines to avoid litigation: the primary jurisdiction and filed rate doctrines. Both of these doctrines are premised on the theory that courts should abstain from adjudicating matters where the law has empowered an administrative agency to act. These doctrines recognize that administrative agencies often have specialized knowledge and discretionary authority to which courts should defer.264 These doctrines originated in and still have their greatest salience in the context of third-party challenges to a regulated entity’s rates.265 Yet even acknowledging this, their impact on claims brought under the implied warranty of legality will be limited. After all, rates are only one of many areas regulated by the ACA, and consumers would still be able to bring various other claims before a court.

The primary jurisdiction doctrine governs the general allocation of authority between agencies and courts.266 As articulated by the Supreme Court, it “applies where a claim is originally cognizable in the courts, and . . . enforcement of the claim requires the resolution of issues which, under a regulatory scheme, have been placed within the special competence of an administrative body.”267 State courts have uniformly adopted the doctrine268 and commonly apply it to cases involving insurance rates, premiums, and policy forms.269

If applied broadly, this doctrine may inappropriately limit consumers’ ability to get recourse under the implied warranty of legality.270 Yet multiple safeguards are available to courts seeking to limit the doctrine’s negative effects. First, courts have discretion over whether to refer cases to administrative bodies in the first instance, considering whether the interests of uniformity and expertise “will be aided by [the doctrine of primary jurisdiction’s] application in the particular litigation.”271 If a court determines that it can resolve the case without an agency’s expertise or if the agency has no authority to act with respect to the consumer’s claims, the court can hold on to the case.272 This may occur where, for example, the ACA does not leave room for administrative discretion and the court merely must determine whether the insurer violated it. Second, if primary jurisdiction is found to apply, the judicial process is merely suspended while the administrative body takes action.273 The plaintiff may revive his or her claim after the administrative body has ruled.274 Third, to avoid excessive administrative delays, courts have occasionally imposed deadlines on the agency to make a ruling.275 Accordingly, so long as courts exercise care, the primary jurisdiction doctrine need not be a bar to litigation, including claims brought under the implied warranty of legality. Instead, it may provide a useful mechanism for incorporating agency input while preserving a consumer’s right to judicial recourse when insurers violate the ACA.

The filed rate doctrine, in contrast, stands for the proposition that courts will not hear claims implicating rates that have been filed and approved by regulatory agencies.276 Thus, when applicable, it is a total bar to judicial recourse. While jurisdictions vary, however, there are important limits on the scope of the doctrine that will prevent the filed rate doctrine from barring most, if not all, potential claims brought under an implied warranty of legality.

First, the filed rate doctrine typically only applies when consumers directly challenge insurance rates as unlawful. In most states, the filed rate doctrine neither bars litigation challenging whether the policy forms an insurer filed with the state comply with applicable regulations, nor blocks other contract claims seeking to challenge how an insurer has interpreted its policy or to enforce certain terms of a policy.277 This distinction is grounded in justiciability concerns. While courts may be poorly equipped to evaluate and retroactively revise an insurer’s rates—which involves making complex predictions about how many people will enroll and how much care they will utilize278—disputes over whether policy forms or others terms of an insurance contract comply with the ACA present more straightforward questions that courts can answer.279 Given this limit, the filed rate doctrine would not affect any claims brought under the implied warranty of legality that do not directly challenge an insurer’s rates, such as claims that an insurer is unlawfully denying coverage of certain benefits, requiring consumers to pay copays, or withholding rebates.

Second, many jurisdictions only apply the filed rate doctrine to bar claims for damages, thus allowing claims for injunctive relief to proceed.280 This limit means that individuals may still be able to challenge an insurer’s rates so long as they only seek future relief.

Third, some jurisdictions refuse to apply the doctrine in cases where administrative review is considered insufficient.281 The Ninth Circuit, for instance, has held that merely filing rates “does not render them immune from challenge” or “legitimize” rates that do not comply with the law.282 This approach is logical: while deference to an administrative agency may justify invoking the filed rate doctrine when regulators have authority to approve or disapprove rates, there is no agency action to defer to in states with review authority alone.283 Because justiciability concerns remain, however, any challenges to rates brought under the implied warranty of legality may present a circumstance where the court could invoke the primary jurisdiction doctrine to refer any retrospective reallocation of rates to an agency while otherwise maintaining jurisdiction over the case.

Taking these three factors into account, the filed rate doctrine is far narrower than the primary jurisdiction doctrine. Because it wholly removes cases from a court’s jurisdiction, however, it also comes with a bigger bite when it does apply. In part due to its perceived harshness,284 the doctrine remains contentious.285 Some state court judges have even suggested that its days are numbered.286 Indeed, because both the filed rate doctrine and the primary jurisdiction doctrines are judge-made, courts can roll them back just as courts can push forward the implied warranty of legality. Even if they remain in place, however, the main limit they would impose on the implied warranty of legality would be to bar certain challenges to insurer rates. This alone is not reason enough to justify not adopting the warranty.

iii. the implied warranty of legality beyond the aca

Looking forward, the implied warranty of legality need not be limited to enforcing the ACA. This Part offers preliminary thoughts on the extent to which the implied warranty of legality can and should be invoked in other markets to enforce other regulatory regimes. First, I return to the practical barrier facing almost any state cause of action: federal preemption. As discussed above, the implied warranty of legality is viable as a mechanism for enforcing the ACA at least in part because of the ACA’s very narrow approach to preemption. This Part will discuss the rules that are likely to apply when a federal statute is silent or otherwise does not go as far as the ACA to fend off preemption. Then, I turn to the normative question of when else courts should adopt the implied warranty of legality, assuming no preemption. Private rights of action can benefit both individuals and society, but they come with costs. I identify two additional features of the insurance and housing markets that justify creating implied warranties, and I contend that these characteristics should be used to identify other markets where the adoption of the implied warranty of legality would be equally appropriate.

A. Preemption and the Parallel Claims Exception

As explained earlier, the ACA does not preempt “any State law” unless it “prevent[s] the application” of the ACA’s insurance reforms.287 In this context, preemption is not a significant concern as the implied warranty of legality should not block implementation in any way. Yet not all federal statutes include preemption clauses that so clearly preserve state causes of action, and, indeed, some of these statutes expressly bar state causes of action.288 While an implied warranty of legality will be a non-starter in the latter case, Supreme Court precedent regarding the parallel claims exception to preemption suggests that the implied warranty of legality may remain viable when statutes are silent or ambiguous.

Under the parallel claims exception, the Court has regularly exempted from preemption claims based on “state duties [that] . . . ‘parallel,’ rather than add to, federal requirements.”289 Justifying the parallel claims exception, in Medtronic, Inc. v. Lohr, the Court explained that “[t]he presence of a damages remedy does not amount to the additional or different ‘requirement’ that is necessary under the statute; rather, it merely provides another reason for manufacturers to comply with identical existing ‘requirements’ under federal law.”290 Because the implied warranty of legality simply provides a mechanism for consumers to enforce the terms of a federal statute, either through injunctive or compensatory relief, it should generally fall within the bounds of the parallel claims exception. However, there are potential limits.

First, the Court held in Buckman Co. v. Plaintiffs’ Legal Committee that the parallel claims exception does not necessarily apply to statutes regulating areas of the law where states have not traditionally played a role, such as food and drug safety, or when there is reason to think Congress sought uniformity in enforcement.291 This is not a concern in the health insurance context given states’ historic leadership in this area and the fact that the ACA expressly allows for continued state-level variation,292 but it could impact uptake of the implied warranty of legality in other markets where states traditionally have not played a role.

Second, even if the implied warranty of legality is generally feasible under the parallel claims exception, Buckman suggests that preemption could still block certain claims. Specifically, preemption could be a barrier if consumers seek to enforce duties the regulated entity owed an agency rather than duties the entity directly owed them. In Buckman, the plaintiff’s claims were based on a fraud-on-the-agency theory: they were injured because a device manufacturer secured approval by making fraudulent representations to the U.S. Food & Drug Administration (FDA).293 In the Court’s view, these claims “inevitably conflict with the FDA’s responsibility to police fraud consistently with the Administration’s judgment and objectives.”294 For example, were the Court to allow the plaintiffs’ fraud-on-the-agency claims to survive, applicants seeking to fend off future litigation “would then have an incentive to submit a deluge of information that the Administration neither wants nor needs, resulting in additional burdens on the FDA’s evaluation of an application.”295 One could imagine the implied warranty of legality having a similar disruptive effect if consumers could use it to enforce reporting requirements and other administrative duties.

In sum, consumers will likely have greater success invoking the implied warranty of legality in the context of markets traditionally subject to state regulation than in new, emerging markets or those primarily regulated at the federal level. Additionally, consumers will be more likely to defeat preemption defenses when they bring claims to enforce statutory provisions that directly benefit them rather than duties owed to federal agencies, even if such duties carry indirect benefits.

B. Guiding Principles for Future Applications

Providing people with private rights of action to enforce statutory and constitutional provisions offers benefits at both the individual and societal level.296 For individuals, as this Note has already touched on, a private right of action provides an important mechanism to recoup damages for injuries suffered due to another’s violation of the law. This carries with it obvious financial benefits, but the sense of empowerment that comes from standing up for oneself in court can also promote dignity and integrity, and “give people control over their lives.”297 For society, providing individually enforceable rights can “promote order and predictability, thus enabling people to act upon reasonable expectations in managing their affairs.”298 It can also advance democratic values by enabling individuals to represent themselves.299 In addition, private enforcement of a federal regulatory scheme can specifically benefit overburdened regulators by bringing more resources and attention to an issue and alerting regulators to areas that need more attention.300

At the same time, recognizing private rights of action “may conflict with social utility because recognizing rights is sometimes inefficient.”301 How then, should courts determine when social utility is sufficiently great to outweigh potential inefficiencies that may result from private enforcement? One answer is that courts should defer to the legislature and simply look to whether state causes of action are preempted.302 However, simply because Congress has left room for state solutions does not necessarily mean that courts should go out of their way to adopt them. Thus, for courts establishing the implied warranty of legality for the first time and seeking to build in limits to the applicability and availability of the implied warranty across a range of contexts, I identify two features common to housing and insurance that justify providing consumers a private right of action to enforce the rights and protections afforded them by statute. These two characteristics can serve to guide the application of the implied warranty of legality to other contexts in the future.

First, in these markets, redress is dependent upon the presence of compulsion or involuntariness in the transaction. In the housing context, this compulsion is de facto: participation in the rental housing market is a practical necessity for millions of Americans who cannot afford to purchase a home. In insurance, it is de jure: individuals must maintain minimum essential coverage to avoid tax penalties.303 For individuals who do not qualify for employer-sponsored insurance or public programs, this means that they must purchase individual health insurance coverage.304 While these consumers may have a choice of plans when they first enroll, they cannot change plans mid-year absent a change in financial or living circumstances.305 They may report their problems to state and federal regulators, but, as Part I shows, their ability to seek recourse is limited in the absence of a general private right of action. Thus, while the ACA affords consumers a vast new array of protections, it does not empower them to take action to respond to violations. This is adhesion-plus: not “take it or leave it” but simply “take it.”306

Providing enforceable rights to consumers in a “take it” situation is not merely a matter of market fairness, but civic fairness. Along these lines, Nan Hunter argues that a “right of participation should be viewed as reciprocal to the individual’s obligation to purchase insurance.”307 Hunter conceives of this right of participation in the context of individual engagement in ACA-related policymaking,308 but it can also take the form of individual engagement in ACA enforcement efforts.309 Adjudication should be understood as an “avenue[] for political expression” and “an alternative point of entry into political life.”310 Through the implied warranty of legality, consumers gain a voice in shaping a market where they are otherwise largely held both captive and passive.

Second, the regulated transaction—here, the purchase of individual health insurance—is of great societal importance. In fact, this transaction involves a Rawlsian-type primary good, a good that, behind a veil of ignorance, individuals would choose to distribute equally to ensure fair and just opportunities for advancement in society.311 While Rawls himself did not identify health care as such a good in his original writings, others have since suggested that it “could readily be added to the list.”312 As Norman Daniels has argued, meeting people’s health needs is foundational to their ability to function normally in society and “to choose among life plans they can reasonably pursue, given their talents and skills.”313 Empirical studies confirm a connection between poor health and annual earnings,314 as well as the important role that health insurance plays in health outcomes.315 Insurance itself is also associated with positive economic effects, both for individuals316 and society at large.317 As the Wisconsin Supreme Court observed in Pines when it adopted the implied warranty of habitability, “[t]he need and social desirability of adequate housing for people in this era of rapid population increases is too important to be rebuffed by that obnoxious legal cliché, caveat emptor.”318 So, too, is the need and social desirability of access to adequate health care—which, for all but the very wealthy, means access to adequate health insurance.319

This Note is not the first proposal to identify these principles as reasons to justify intervention in a market, but it takes their import further. As Shlomit Azgad-Tromer argued, “[i]f consumers have bounded voluntariness, and the moral values of society support the assignment of the market as serving a basic need, that market should be considered essential and be regulated at a higher degree of paternalism.”320 While Azgad-Tromer is focused on regulatory interventions, such as price controls and subsidies,321 this Note is motivated by the belief that regulatory paternalism alone is not enough to protect these “essential markets” if regulators cannot consistently ensure that the rules are followed. When these circumstances apply, courts should empower consumers to enforce the protections that they are provided by bringing actions under an implied warranty theory.

Conclusion

The implied warranty of legality would allow consumers to enforce the myriad rights and protections granted them under the ACA. Absent this, limitations in the administrative enforcement mechanisms and pre-existing state causes of action leave open the chance that many, if not most, violations of the law will go without remedy. Individuals will continue to face unnecessary charges, excessive premiums, and denials of care from which the law was meant to protect them. This will surely cause financial injury to many and may even result in preventable physical and emotional injury to some.

Like the implied warranty of habitability before it, the implied warranty of legality can help correct the power imbalance between consumers and insurers still left after enactment of the ACA. It can empower consumers to stand up for themselves and seek individualized redress, as well as to engage civically by participating in enforcement of the law. Moreover, the implied warranty of legality will further the ACA’s redistributive goals by ensuring that the costs of an insurer’s noncompliance with the law are shared more equitably across the market.

In adopting an implied warranty of legality, state courts can also assert a position for themselves in defining how the law will operate within their jurisdiction. While this role has received little attention to date, it is a natural extension of the ACA’s federalist structure. Continuing to misconceive of the ACA as a federally and administratively driven statute will deny consumers the benefit of the law’s full potential. While the ACA is transformative in the protections it provides to patients and consumers, it did not upend the traditional state-federal dynamic in insurance regulation. States have long built on minimum federal floors to better protect consumers and should do so again here, where the ACA falls short.

And states need not stop there. The concept of an implied warranty of legality should be applied to other federal and state regulatory schemes under which consumers face similar pressures and bargaining dynamics. Indeed, even if the ACA were repealed or amended, the implied warranty of legality could be used to enforce state health insurance rules. The adaptability of the implied warranty of legality is rooted in its simplicity: consumers should be able to trust that when they purchase a heavily regulated product or service, it is in compliance with the applicable rules. If it is not, the provider has broken an implicit promise on which its contracts were based and should be held responsible.