Marshall v. Bankers Life & Casualty Co.

MOSK, J.

I dissent. The majority misinterpret the holding of Fort Halifax Packing Co. v. Coyne (1987) 482 U.S. 1 [ 96 L.Ed.2d 1 , 107 S.Ct. 2211 ] (hereinafter Fort Halifax), as well as other cases permitting preemption of *1060 state law by the Employee Retirement Income Security Act (ERISA) only if the employer takes a substantial role in administering an insurance policy. Moreover, their conclusion that the employer in this case “established and maintained” an “employee benefit plan” is based on reasoning inconsistent on the face of the opinion.

In analyzing the preemption issue, it must be kept in mind the “basic assumption [is] that Congress did not intend to displace state law.” (Maryland v. Louisiana (1981) 451 U.S. 725, 746 [ 68 L.Ed.2d 576, 595-596 , 101 S.Ct. 2114 ].) The presumption applies most strongly where, as here, Congress legislates in an area traditionally occupied by tibe states (Rice v. Santa Fe Elevator Corp. (1947) 331 U.S. 218, 230 [ 91 L.Ed. 1447, 1459 , 67 S.Ct. 1146 ]), such as tort law. Since there is a strong presumption against preemption, we should not, as the majority do, read the provisions of ERISA expansively, so as to enlarge the scope of its preemption language.

Fort Halifax (supra, 482 U.S. 1 ) is directly contrary to the majority’s holding. In distinguishing that case, the majority rely on the fact that the severance payment there involved was made directly by the employer to the employee, rather than pursuant to an insurance policy. However, the rationale of that case cannot be so easily dismissed. Almost the entire analysis in the opinion relates to the purpose served by the preemption provisions of ERISA and the reason why that purpose is not violated unless the employer performs such administrative tasks as the calculation and payment of benefits pursuant to an “employee benefit plan.”

The opinion in Fort Halifax provides three reasons in support of its conclusion that the Maine statute requiring payment of severance benefits in that case was not preempted by ERISA. First, ERISA does not preempt state laws that grant employee benefits, but only those that relate to an “employee benefit plan.” ( 482 U.S. at p. 8 [ 96 L.Ed.2d at p. 9 ].) A payment to an employee that does not require ongoing administrative activity by the employer is not such a plan.

Second, one reason only an “employee benefit plan” is subject to preemption is that an employer who administers such a plan would be subject to state regulation, raising the prospect of a conflict between ERISA and state regulation. That is, an employer-administered plan would require the employer to perform functions like determining the eligibility of claimants and calculating benefit levels. The most efficient way to meet these obligations is to provide a set of standard procedures to guide the processing of claims and disbursement of benefits. This conduct would be subject to state regulatory requirements, thereby interfering with ERISA’s goal of assuring that administrative practices of a benefit plan will be governed by a single set of *1061 regulations. (Fort Halifax, supra, 482 U.S. at pp. 8-14 [96 L.Ed.2d at pp. 9-13].)

Third, the statute was not preempted by ERISA because the severance payment did not implicate a second concern of the preemption provision, namely, the regulatory purposes of ERISA. The fiduciary standards contained in the federal legislation were designed to safeguard employees who were the beneficiaries of an “employee benefit plan” from such abuses by an employer as self-dealing, imprudent investment, and misappropriation of plan funds. “Only ‘plans’ involve administrative activity potentially subject to employer abuse.” (Fort Halifax, supra, 482 U.S. at p. 16 [ 96 L.Ed.2d at p. 16 ].) Without such activity by the employer, “[i]t would make no sense for pre-emption to clear the way for exclusive federal regulation, for there would be nothing to regulate.” (Ibid.)

In sum, Fort Halifax holds that state laws are not preempted by ERISA unless the employer administers an “employee benefit plan,” because it is only such administration that would violate the dual purpose of the preemption provision, i.e., the avoidance of conflict between state and federal regulations governing administration of the plan, and the danger that the employer might abuse its administrative function.

The dissenting opinion in Fort Halifax also understands the majority as holding that the issue of preemption turns on whether the employer has established an “administrative scheme” for paying benefits. (“I dissent because it is incredible to believe that Congress intended that the broad preemption provision contained in ERISA would depend upon the extent to which an employer exercised administrative foresight in preparing for the eventual payment of employee benefits.” (Fort Halifax, supra, 482 U.S. 1, 23 [ 96 L.Ed.2d at p. 19 ], dis. opn. of White, J.)

The majority in the instant case barely mention the high court’s reasoning in Fort Halifax . Instead, they attempt to distinguish the decision on the ground that the employer there paid the severance benefit directly to the employee. This attempted distinction is patently invalid. The reason the severance payment in that case did not invoke preemption, as the court expressly stated, was because it did not require administration by the employer; it was not, as the majority here claim, because the payment was made directly to the employee by the employer. “Some severance benefit obligations by their nature necessitate an ongoing administrative scheme, but others do not. Those that do not, such as the obligation imposed in this case, simply do not involve a state law that *relate[s] to’ an employee benefit ‘plan.’ ” (Fort Halifax, supra, 482 U.S. at p. 18 [96 L.Ed.2d at pp. 15-16].)

*1062 If anything, direct payment by the employer is more likely to indicate preemption under the Supreme Court’s rationale than indirect payment, such as payment by an insurer. The court describes the type of activities of an employer that will invoke federal preemption, as follows: Preemption occurs if the employer “makes a commitment systematically to pay certain benefits” by undertaking such activities as “determining the eligibility of claimants, calculating benefit levels, making disbursements . . . and keeping appropriate records in order to comply with applicable reporting requirements.” (Fort Halifax, supra, 482 U.S. at p. 9 [ 96 L.Ed.2d at p. 10 ], italics added.) Thus, the employer who pays the employee directly is, under the Supreme Court’s analysis, more involved in administration of a benefit plan and therefore more likely to invoke preemption than one who pays a benefit only by purchasing a policy of insurance.

No case, so far as I am aware, has interpreted the holding of Fort Halifax as being confined merely to cases in which the employer made direct payment to the employee, nor is there any authority for the proposition that employer administration of a policy is irrelevant to the issue of preemption. A number of cases following the high court’s decision have properly viewed it as standing for the proposition that an employer’s involvement in plan administration is the touchstone of the preemption analysis. (Gahn v. Allstate Life Ins. Co. (5th Cir. 1991) 926 F.2d 1449, 1452 [although the court ultimately concluded that the record was insufficient to enable it to decide whether a benefit plan was involved, the principle that the employer’s “involvement with the administration of the plan” is the determining factor in the preemption analysis was clearly stated]; Taggart Corp. v. Life & Health Benefits Admin. (5th Cir. 1980) 617 F.2d 1208, 1210-1211 ; Turnbow v. Pacific Mut. Life Ins. Co. (Nev. 1988) 104 Nev. 676 [ 765 P.2d 1160, 1161 ]; Lambert v. Pacific Mutual Life Ins. Co. (1989) 211 Cal.App.3d 456, 463-465 [ 259 Cal.Rptr. 398 ]; Rizzi v. Blue Cross of So. California (1988) 206 Cal.App.3d 380, 389 [ 253 Cal.Rptr. 541 ] [“the line of demarcation between ERISA plans and non-ERISA plans depends on the level of involvement by the employer in the program so as to warrant federal regulation of the administrative integrity of the program”].)

Furthermore, the majority’s reasoning is inconsistent on its face. While it concedes that the mere purchase of insurance does not establish a plan, it effectively holds that preemption occurs if the employer does no more than make such a purchase. Thus, it concludes that a plan exists if a “reasonable person could ascertain the intended benefits, beneficiaries, source of financing, and procedures for receiving benefits.” I fail to see how an employer can purchase any insurance without the specification of these details.

The majority’s conclusion that the employer in this case did more than merely purchase insurance suffers from the same defect. Its conclusion is *1063 based on the following factors: The employer (1) selected the policy from among other available policies, (2) chose to provide health care benefits to all of its employees at its own cost and to provide the opportunity for dependent coverage, (3) paid the monthly premiums, (4) submitted enrollment cards and forms for changes of beneficiary to the administrator, and (5) cancelled the policy after six months and substituted another policy from a different insurer. Aside from number 4 on this list, an employer who makes a “bare purchase” of insurance must perform all these tasks, assuming that it has the power to cancel the policy, as the employer had in this case. 1 That is, the employer cannot purchase insurance without choosing a policy and paying the premiums. Only the fact that the employer submitted enrollment and change of beneficiary forms to the insurer’s administrator goes beyond “mere purchase.” The notion that an insurer is totally immunized from liability under state law because the employer rather than the employee transmits these routine forms to the insurer is incomprehensible.

The same problem with the majority’s reasoning is evident in its conclusion that the employer “established and maintained” an ERISA plan because it purchased a group insurance policy, contributed to premiums and remitted them to the insurer, and retained the authority to terminate it. How can an employer purchase a policy without complying with these requirements?

Today’s decision deprives countless Californians defrauded by insurers of the protection afforded by state law. It is ironic indeed that a federal statute designed to defend the interests of insured employees is construed to sanction such a result. Sadly, it bears repeating, as stated in my dissent in Garvey v. State Farm Fire & Casualty Co. (1989) 48 Cal.3d 395, 416 [ 257 Cal.Rptr. 292 , 770 P.2d 704 ], “in this court, the insurer wins and the insureds lose.”

I would affirm the judgment of the Court of Appeal.

The fact that the employer was not obligated to continue to provide health benefits weighs against preemption. (Donovan v. Dillingham (11th Cir. 1982) 688 F.2d 1367, 1374-1375 .)