Appendix — Juliano v. Commercial Life Insurance

la

APPENDIX A

ors

IN THE SUPREME COURT

OF THE STATE OF CALIFORNIA

SUPREME COURT

FILED

DEC 15 1988

Clerk

Deputy

COMMERCIAL LIFE $003129

INSURANCE COMPANY, et al., (Ct. of Appeal

Petitioners, No. D006995)

v. (Super. Ct.

THE SUPERIOR COURT No. 542103)

OF SAN DIEGO COUNTY,

Respondent;

JOSEPH V. JULIANO,

Real Party in Interest.

SEE DISSENTING OPINION

We are asked to decide whether the Employee

Retirement Income Security Act of 1974 (ERISA) (29

U.S.C. § 1001 ef seq.) preempts a private cause of

action brought under California Insurance Code section

790.03, subdivision (h),! where the action asserts a

claim arising from an employee benefit plan. We

conclude that ERISA does preempt such an action.

| Unless otherwise provided, all statutory references are to the

Insurance Code.

2a

Joseph V. Juliano’s employer sponsored an employee

benefit plan insured by Commercial Life Insurance

Company and Automatic Data Processing, Inc.

(collectively referred to as Commercial). It is undis-

puted that the plan was the type regulated by ERISA.

The benefits under the plan included group term life

insurance, accidental death and dismemberment in-

surance, major medical expense benefits, prescription

drug and medicine benefits, and dental care benefits.

Juliano suffered from diabetes, which adversely

affected his eyesight. Doctors recommended surgery.

Following the surgery, Juliano forwarded his medical

bills to Commercial. Commercial refused payment,

claiming that the treatment was not covered by the plan

because it arose from a preexisting condition.

Juliano brought suit against Commercial. The

complaint alleged eight common law causes of action

for bad faith, waiver, and estoppel. The complaint also

alleged a single statutory cause of action for bad faith

under section 790.03, subdivision (h).? Commercial

Section 790.03 provides in pertinent part:

“The following are hereby defined as unfair methods of

competition and unfair and deceptive acts or practices in the

business of insurance. [{] ... (h) Knowingly committing

or performing with such frequency as to indicate a general

business practice any of the following unfair claims

settlement practices: [{] (1) Misrepresenting to claimants

pertinent facts or insurance policy provisions relating to any

coverages at issue. (q] (2) Failing to acknowledge and act

reasonably promptly upon communications with respect to

claims arising under insurance policies. [4] (3) Failing to

adopt and implement reasonable standards for the prompt

investigation and processing of claims arising under

insurance policies. [§) (4) Failing to affirm or deny

coverage of claims within a reasonable time after proof of

loss requirements have been completed and submitted by the

insured. [4] (5S) Not attempting in good faith to effectuate

prompt, fair, and equitable settlements of claims in which

(continued)

3a

answered the complaint. Then, prior to trial, Commer-

cial filed a motion for judgment on the pleadings,

(ftn. continued)

liability has become reasonably clear. ({] (6) Compelling i

insureds to institute litigation to recover amounts due under

an insurance policy by offering substantially less than the

amounts ultimately recovered in actions brought by such

insureds, when such insureds have made claims for amounts

reasonably similar to the amounts ultimately recovered. [4]

(7) Attempting to settle a claim by an insured for less than

the amount to which a reasonable man would have believed

he was entitled by reference to written or printed advertising

material accompanying or made part of an application. [4]

(8) Attempting to settle claims on the basis of an applica-

tion which was altered without notice to, or knowledge or

consent of, the insured, his representative, agent, or broker.

(4) (9) Failing, after payment of a claim, to inform insureds

or beneficiaries, upon request by them, of the coverage

under which payment has been made. [{] (10) Making

known to insureds or claimants a practice of the insurer of

appealing from arbitration awards in favor of insureds or

claimants for the purpose of compelling them to accept

settlements or compromises less than the amount awarded in

arbitration. [4] (11) Delaying the investigation or payment

of claims by requiring an insured, claimant, or the physician

of either, to submit a preliminary claim report, and then

requiring the subsequent submission of formal proof of loss

forms, both of which submissions contain substantially the

same information. [({} (12) Failing to settle claims

promptly, where liability has become apparent, under one

portion of the insurance policy coverage in order to influ-

ence settlements under other portions of the insurance

policy coverage. [4] (i3) Failing to provide promptly a

reasonable explanation of the basis relied on in the insur-

ance policy, in relation to the facts or applicable law, for the

denial of a claim or for the offer of a compromise settle-

ment. [(] (14) Directly advising a claimant not to obtain

the services of an attorney. [4] (15) Misleading a claimant

as to the applicable statute of limitations.”

(continued)

4a

alleging that each cause of action set forth by Juliano

was preempted by ERISA. In response, Juliano conced-

ed that Pilot Life Ins. Co. v. Dedeaux (1987) _ U.S. _

[107 S.Ct. 1549] compelled the conclusion that his

common law causes of action were preempted by

ERISA. However, he argued that his statutory cause of

action under section 790.03, subdivision (h), was not

preempted. The trial court agreed with Juliano and

denied Commercial’s motion for judgment on the

pleadings as to the statutory cause of action for viola-

tion of section 790.03, subdivision (h).

Commercial filed a petition for writ of mandate

and/or prohibition in the Court of Appeal. The Court of

Appeal summarily denied the petition. We granted

review and issued an alternative writ.

In his return to the writ, Juliano argues th; t section

790.03, subdivision (h)_is exempt from preemption

because it “regulates insurance” within the meaning of

ERISA’s “saving clause.”

ERISA comprehensively regulates employee pension

and welfare plans. (Metropolitan Life Ins. Co. v

Massachusetts (1985) 471 U.S. 724, 732; 29 U.S.C.

§$§ 1003, 1002.) The act protects interstate commerce

and the participants of employee benefit plans by

requiring disclosure to participants, establishing stand-

ards of conduct and fiduciary duties, and providing for

remedies, sanctions, and ready access to federal courts

(29 U.S.C. § 1001(b).) While ERISA imposes upon

(ftn. continued

In Royal Globe Ins. Co. v. Superior Court (1979) 23 Cal.3d 880,

we held that private litigants could sue to enforce certain provisions

of section 790.03, subdivision (h). However, Royal Globe was

prospectively overruled in Moradi-Shalal v. Fireman's Fund

Insurance Cos. (1988) _ Cal 34 -

benefit plans a variety of substantive requirements

relating to participation, funding, and vesting, it con-

tains almost no federal regulation of the substantive

terms of benefit plans. (Metropolitan Life, supra, 471

U.S. at p. 732.)

ERISA’s civil remedies are comprehensive in their

scope. A participant or beneficiary of an ERISA plan

may bring a civil action for monetary relief from an

administrator’s failure to provide requested informa-

tion, or to recover benefits or enforce present or future

rights under the terms of the plan. (29 USL.

§ 1132(a).) Moreover, a participant, beneficiary, or

fiduciary may sue to enjoin any act which violates

ERISA or the terms of the plan, and may also sue for

other equitable relief, or for breach of fiduciary duty.

([bid.) The Secretary of Labor may also bring an action

for breach of fiduciary duty, for injunctive or equitable

relief, for relief from failure of the administrator to

provide information, or to collect any civil penalties

under the act. (/bid.)

In addition, ERISA contains detailed provisions for

claims enforcement and _ procedure. (Ze VU.oG.

§§ 1132, 1133.) Moreover, regulations promulgated by

the Department of Labor pursuant to 29 United States

Code section 1133 provide specific claims-handling

rules and procedures. (29 C.F.R. § 2560.502-1 et seq.)

ERISA also contains a broad preemption provision.

The “preemption clause” provides: “Except as pro-

vided in subsection (b) of this section, the provisions of

this subchapter and subchapter III of this chapter shall

supersede any and all State laws insofar as they may

now or hereafter relate to any employee benefit plan

described in section 1003(a) of this title and not exempt

under section 1003(b) of this title. This section shall

take effect on January 1, 1975.” (29 U.S.C. § 1144(a).)

The breadth of the preemption clause is qualified,

however, by the “saving clause,” which provides in

6a

pertinent part: “[NJothing in this subchapter shall be

construed to exempt or relieve any person from any law

of any State which regulates insurance, banking, or

securities.” (29 U.S.C. § 1144(b)(2)(A).)

II

Our resolution of this case is aided by previous

decisions of the United States Supreme Court. In

Metropolitan Life Ins. Co. v. Massachusetts, supra, 471

U.S. 724, the Supreme Court addressed the question

whether ERISA preempted a Massachusetts statute

which required certain minimum mental-health-care

benefits to be included in employee health-care plans.

The Massachusetts statute regulated the substantive

terms of insurance contrac:; by requiring health-

insurance policies to provide, among other things, 60

days of coverage for confinement in a mental hospital

and certain minimum outpatient benefits.

Noting that there is a presumption against preemp-

tion (Metropolitan Life, supra, 471 U.S. at p. 741), the

court concluded that the Massachusetts statute was

saved from preemption because it regulated insurance

within the meaning of ERISA’s saving clause.

The court applied the following analysis to deter-

mine whether the Massachusetts statute regulated

insurance. Initially, the court took a “common sense”

view of the matter, concluding that the Massachusetts

Statute regulated insurance because it controlled the

substantive terms of insurance policies. (Metropolitan

Life, supra, 471 U.S. at p. 740.)

Next, the court applied three criteria adopted by case

law to define the “business of insurance” under the

McCarran-Ferguson Act (15 U.S.C. § 1011 et seq.):°

3 The McCarran-Ferguson Act pertains to the regulation of

insurance. Section 1011 provides: “Congress declares that the

(continued)

“ “first, whether the practice has the effect of trans-

ferring or spreading a policyholder’s risk; second,

whether the practice is an integral part of the policy

relationship between the insurer and the insured; and

third, whether the practice is limited to entities within

the insurance industry.’” (Metropolitan Life, supra,

471 U.S. at p. 743, quoting Union Labor Life Ins. Co. v

Pireno (1982) 458 U.S. 119, 129, original emphasis.)

The United States Supreme Court found that all three

McCarran-Ferguson factors were satisfied. Addressing

the first factor, the court held that the Massachusetts

Statute “obviously” effected the spreading of risk,

because the statute “was intended to effectuate the

legislative judgment that the risk of mental-health care

should be shared.” (Metropolitan Life, supra, 471 U.S.

at p. 743.) Turning to the second factor, the court held

that “mandated-benefit laws directly regulate an in-

tegral part of the relationship between the insurer and

the policyholder by limiting the type of insurance that

an insurer may sell to the policyholder.” (/bid.) The

third factor was also met, because the Massachusetts

Statute imposed requirements only on insurers. (/did.)

The Supreme Court had a further opportunity to

determine the scope of ERISA preemption in Pilor Life

Ins. Co. v. Dedeaux, supra, 107 S.Ct. 1549. Pilot Life

presented the issue whether ERISA preempted common

law tort and contract actions arising from the improper

processing of a claim for benefits under an insured

employee benefit plan. Everate Dedeaux injured his

back while working for Entex, Inc. Dedeaux sought

disability benefits under an employee benefit plan

insured by Pilot Life Insurance Company (Pilot Life).

(ftn. continued)

continued regulation and taxation by the several States of the

business of insurance is in the public interest, and that silence on the

part of the Congress shall not be construed to impose any barrier to

the regulation or taxation of such business by the several States.”

8a

Pilot Life terminated Dedeaux’s benefits after two

years, and Dedeaux brought a diversity suit in federal

district court. Dedeaux alleged Mississippi common

law claims for fraud, breach of fiduciary duty, and

breach of contract. However, he did not assert any of

the causes of action available to him under ERISA.

Pilot Life moved for summary judgment, arguing that

ERISA preempted all of Dedeaux’s claims. The district

court granted summary judgment, but the circuit court

of appeals reversed.

The Supreme Court reversed the court of appeals.

Stating that “the express pre-emption provisions of

ERISA are deliberately expansive, and designed to

‘establish pension plan regulation as exclusively a

federal concern’” (Pilot Life, supra, 107 S.Ct. at p.

1552), the Supreme Court concluded that Dedeaux’s

claims were preempted. Although the Supreme Court

applied the Metropolitan Life analysis to support its

conclusion, it relied primarily on the “clear expression

of congressional intent that ERISA’s civil enforcement

scheme be exclusive” to find preemption. (/d. at p.

1558.)

Proceeding first with the Metropolitan Life analysis,

the court applied the “common-sense view” to find that

the Mississippi common law of bad faith could not be

construed as a law that regulated insurance within the

meaning of the saving clause. “A common-sense view

of the word ‘regulates’ would lead to the conclusion

that in order to regulate insurance, a law must not just

have an impact on the insurance industry, but be spe-

cifically directed toward that industry.” (Pilor Life,

supra, 107 S.Ct. at p. 1554.)

The court next applied the McCarran-Ferguson

factors. Regarding the first factor — whether the

practice has the effect of spreading policyholder risk —

the court determined, without explanation, that unlike

the mandated-benefits law in Metropolitan Life, the

\

9a

Mississippi common law did not effect a spreading of

policyholder risk. (Pilot Life, supra, 107 S.Ct. at p.

1554.) Addressing the second factor — whether the

practice is an integral part of the policy relationship

between the insurer and the insured — the court stated

that the Mississippi common law could perhaps be

considered a part of the insurer-insured relationship,

but that the connection was attenuated at best. “In

contrast to the mandated-benefits law in Metropolitan

Life, the common law of bad faith does not define the

terms of the relationship between the insurer and the

insured; it declares only that, whatever terms have been

agreed upon in the insurance contract, a breach of that

contract may in certain circumstances allow the

policyholder to obtain punitive damages.” (Pilor Life,

supra, 107 S.Ct. at p. 1555.) Thus, although the

common law could be considered a “part” of the

insurer-insured relationship, it could not be considered

an “integral” part. (/bid.) Finally, applying the third

factor — whether the practice is limited to entities

within the insurance industry — the court noted that the

common law had general application to all members of

the community, and was not directed solely to the

insurance industry. (/bid.) The court concluded that

the Mississippi common law failed the McCarran-

Ferguson test. (/d. at pp. 1554-1555.)

The court easily distinguished its Pilot Life holding

from the holding in Metropolitan Life. (Pilot Life,

supra, 107 S.Ct. at p. 1558.) Metropolitan Life did not

involve a state law that conflicted with a substantive

provision of ERISA, because ERISA — unlike the

Massachusetts law in Metropolitan Life — “does not

regulate the substantive content of welfare-benefit

plans.” (Metropolitan Life, supra, 471 U.S. at p. 732.)

However, in Pilot Life the common law remedies

asserted by Dedeaux conflicted with ERISA’s remedies.

Therefore, the court in Pilot Life went on to determine

10a

whether Congress intended the ERISA remedies to be

exclusive.

The Supreme Court concluded that Congress clearly

expressed an intent that the civil enforcement provi-

sions of ERISA be the exclusive vehicle for actions by

ERISA-plan- participants and beneficiaries asserting

improper processing of a claim for benefits. (Pilot Life,

supra, 107 S.Ct. at p. 1555.) The court’s determination

of exclusivity is supported by the language and struc-

ture of ERISA’s civil enforcement provisions and by

the legislative history of the act.‘ (Ibid.) “In sum, the

detailed provisions of § 502(a) [of ERISA (29 U.S.C.

§ 1132)] set forth a comprehensive civil enforcement

scheme that represents a careful balancing of the need

for prompt and fair claims settlement procedures

against the public interest in encouraging the formation

of employee benefit plans. The policy choices reflected

in the inclusion of certain remedies and the exclusion of

others under the federal scheme would be completely

undermined if ERISA-plan participants and benefi-

Ciaries were free to obtain remedies under state law that

Congress rejected in ERISA.” The court added: “The

deliberate care with which ERISA’s civil enforcement

remedies were drafted and the balancing of policies

embodied in its choice of remedies argue strongly for

the conclusion that ERISA’s civil enforcement remedies

were intended to be exclusive.” (Pilot Life, supra, 107

S.Ct. at pp. 1556-1557.)

Metropolitan Life and Pilot Life provide helpful

guidance in this case, but the Supreme Court has not

The legislative history indicates that Congress intended ERISA

to have the same preemptive force as the exclusive remedy provi-

sions of section 301 of the Labor-Management Relations Act

(LMRA) (61 Stat. 156, 29 U.S.C. § 185). (Pilot Life, supra, 107

S.Ct. at pp. 1555, 1557-1558.) The Supreme Court stated that the

powerful pre-emptive force of the LMRA displaced all state actions

within its scope. (/d. at p. 1557.)

addressed the precise issue posed here. A number of

other courts, however, have faced this issue.

Roberson v. Equitable Life Assur. Soc. of U.S

(C.D.Cal. 1987) 661 F.Supp. 416 involved facts almost

identical to those at bar. Plaintiff Donald Roberson

brought an action in state court against The Equitable

Life Assurance Society of the United States

(Equitable), alleging that Equitable failed to pay all

benefits due under an ERISA-regulated employee

benefit plan. Roberson’s complaint stated seven com-

mon law causes of action. The complaint also stated a

Single statutory cause of action under section 790.03,

Subdivision (h), and a single cause of action against his

employer, Alpha Microsystems, for ERISA remedies.

The defendants removed the case to federal court and

moved for summary judgment in light of Pilot Life.

Roberson conceded that all of his common law claims

were preempted by ERISA, but argued that his statutory

claim under section 790.03, subdivision (h) was not

preempted because section 790.03, subdivision (h)

regulates insurance within the meaning of ERISA’s

Saving clause.

The district court applied the analysis set forth in

Metropolitan Life and Pilot Life. The court initially

concluded that “common sense” suggested that section

790.03, subdivision (h) regulates insurance. “The most

persuasive argument in support of saving the California

Statute is its obvious connection to regulating in-

Surance. Thus, under the ‘common sense’ test, it would

Strain logic to argue that section 790.03(h) is not

specifically directed toward the insurance industry.”

(Roberson, supra, 661 F.Supp. at p. 422.)

The court determined, however, that section 790.03,

Subdivision (h) did not satisfy two of the three

McCarran-Ferguson criteria. “First, it would not

appear that 790.03(h) has any effect of transferring or

spreading policyholder risk. Unlike the Massachusetts

12a

law in Metropolitan Life, section 790.03(h) does not

purport to regulate the substantive terms or content of

insurance policies by mandating benefits. Rather,

subsection (h) of section 790.03 primarily is aimed at

the procedural aspect of processing and settling

claims.” (Roberson, supra, 661 F.Supp. at p. 422.)

Turning to the second McCarran-Ferguson factor, the

court stated: “Despite its providing for more specific

standards of conduct in processing claims for benefits,

section 790.03(h) is not ‘integral’ to the insurer-insured

relationship. Section 790.03(h) does not regulate the

terms of the contract itself and hence does not regulate

‘the business of insurance’ as that term is defined under

the McCarran-Ferguson Act.” (/bid.) The court deter-

mined that section 790.03, subdivision (h) is directed

toward the insurance industry, and therefore the third

McCarran-Ferguson factor was satisfied. But the court

cited authority for the proposition that the satisfaction

of only one factor is insufficient. (/bid., citing United

Food & Commercial Workers v. Pacyga (9th Cir. 1986)

801 F.2d 1157, 1161.)

Finally, the court in Roberson followed Pilot Life's

holding that ERISA’s remedies are exclusive. In Pilot

Life, “because the civil enforcement provisions of

ERISA were intended to provide the exclusive remedies

for mishandling of claims, the Mississippi law was in

conflict with ERISA and was therefore pre-empted. [4]

The same potential for conflict with ERISA’s civil

enforcement provisions exists with respect to California

Insurance Code Section 790.03(h).... Section

790.03(h) ... provides that either an insured or third-

party claimant may sue an insurer for engaging in

unfair claims settlement practices .... Such provisions

reach impermissibly beyond the scope of ERISA. See,

e.g. [Massachusetts Mut. Life Ins. Co. v. Russell (1985)

473 U.S. 134, 145-148] (holding that ERISA does not

grant a private right of action for delay in processing

benefit claims).” (Roberson, supra, 661 F.Supp. at p.

l3a

423, original emphasis.) The court concluded: “Thus,

even assuming that section 790.03(h) regulates insur-

ance and is therefore within the scope of the saving

clause, it must be pre-empted for infringing on the same

exclusive civil remedy provisions that were dispositive

in Pilot Life.” (Roberson, supra, 661 F.Supp. at p. 424,

fn. omitted.)

In Kanne v. Connecticut General Life Ins. Co. (9th

Cir. 1988) F.2d __ (88 Daily Journal D.A.R. 12662),

the Ninth Circuit Court of Appeals began where Rober-

son left off: It found the conclusion inescapable that

section 790.03, subdivision (h) is preempted under

Pilot Life. Although the Ninth Circuit stated its general

agreement with the Roberson opinion (id. at p. 12665,

fn. 6), it was willing to assume for purposes of its

analysis that section “790.03(h) is a law regulating

insurance under the savings clause.” (/d. at p. 12664.)

The Kanne court rejected the plaintiffs’ argument for

limiting Pilot Life's preemption holding to only those

state laws which do not fall within the savings clause:

“To accept this argument, ... we would have to ignore

the second half of Pilot Life, 107 S.Ct. 1555-58, in

which the Court made abundantly clear that its preemp-

tion holding was equally based on its acceptance of the

Solicitor General’s view that ‘Congress clearly ex-

pressed an intent that the civil enforcement provisions

of ERISA § §02(a) be the exclusive vehicle for actions

asserting improper processing of a claim for benefits.’ ”

(88 Daily Journal D.A.R. at pp. 12664-12665.) The

court concluded that it was not possible to read the

Pilot Life discussion of congressional intent as permit-

ting a State statute like section 790.03, subdivision (h)

to supplement the ERISA civil enforcement provisions

available to remedy improper claims processing. (/d. at

l4a

p. 12665.)°

Our reading of Pilot Life accords with that of the

Ninth Circuit in Kanne. We are persuaded that section

790.03, subdivision (h) would still be preempted by

ERISA even if it were found to be within the scope of

the savings clause as a law regulating insurance. This

conclusion is compelled by the Supreme Court’s discus-

sion of congressional intent, which the court cited as

the most significant factor in its determination. (See

Pilot Life Ins. v. Dedeaux, supra, 107 S.Ct. at p. 1558.)

In Pilot Life the Supreme Court held that Congress

intended the remedies set forth in ERISA to be the

exclusive remedies available to ERISA-plan claimants.

(Pilot Life, supra, 107 S.Ct. at pp. 1555-1557.)

However, section 790.03, subdivision (h), as had been

5 Other cases have also found preemption. Lee v. Prudential /ns.

Co. of America (N.D. Cal. 1987) 673 F.Supp. 998 held that although

section 790.03, subdivision (h) does regulate insurance under the

common-sense and McCarran-Ferguson analyses, the statute is

nevertheless preempted because ERISA’s remedies are exclusive.

Misic v. Building Service Employees Health (9th Cir. 1986) 789 F.2d

1374 affirmed the dismissal of the plaintiff's state law claims,

including a claim under section 790.03, subdivision (h), based on

ERISA preemption. Russell v. Mass. Mut. Life Ins. Co. (9th Cir.

1983) 722 F.2d 482, reversed on other grounds in Massachusetts

Mut. Life Ins. Co. v. Russell, supra, 473 U.S. 134, held that the

plainuff’s state law claims, including section 790.03, subdivision (h)

are preempted by ERISA.

Although some federal courts have determined that section

790.03, subdivision (h) is not preempted by ERISA, those cases

were decided prior to Metropolitan Life and Pilot Life and did not

have the benefit of the Supreme Court’s guidance on the issue. (See

Eversole v. Metropolitan Life Ins. Co., Inc. (C.D.Cal. 1980) 500

F.Supp. 1162; Presti v. Connecticut General Life Ins. Co., Inc.

(N.D.Cal. 1985) 605 F.Supp. 163.)

We are aware that other decisions have been rendered on both

sides of the issue presented. Because those decisions are un-

published, they are not discussed here.

15a

interpreted by our decision in Royal Globe, supra, 23

Cal.3d 880, provided a privete litigant with a cause of

action for bad faith settlement practices. (See Part IV,

post, p. _‘* [typed opn. pp. 19-20].) This remedy is not

available under ERISA. (Cf. Massachusetts Mut. Life

Ins. Co. v. Russell, supra, 473 U.S. at pp. i45-148

[private right of action for extracontractual damages is

neither expressly nor impliedly available under 29

U.S.C. § 1109, subd. (a)].) Therefore, the remedy

available to a private litigant under section 790.03,

subdivision (h), conflicts with ERISA’s exclusive

remedies. This type of conflict was expressly disal-

lowed in Pilot Life. (Pilot Life, supra, 107 S.Ct. at pp.

1555-1558.) Moreover, in Pilot Life the Supreme Court

held that Congress’s omission of certain remedies was

intentional: “The policy choices reflected in the inclu-

sion of certain remedies and the exclusion of others

under the federal scheme would be completely under-

mined if ERISA-plan participants and beneficiaries

were free to obtain remedies under state law that Con-

gress rejected in ERISA. ‘The six carefully integrated

civil enforcement provisions found in § 502(a) of the

Statute as finally enacted ... provide strong evidence

that Congress did nor intend to authorize other remedies

that it simply forgot to incorporate expressly.’ ” (Pilot

Life, supra, 107 S.Ct. at p. 1556, quoting Mas-

sachusetts Mut. Life Ins. Co. v. Russell, supra, 473 U.S.

at p. 146, emphasis in original.) We conclude that Pilot

Life’s express holding controls the resolution of this

case.° Pilot Life is directly on point regarding the

exclusivity issue, and its conclusion is inescapable.

We find no merit in the argument that if there is any

conflict between ERISA remedies and section 790.03,

6 In Pilot Life, the Supreme Court stated that its analysis regard-

ing the exclusivity of remedies was the most important factor in its

determination of preemption. (Pilot Life, supra, 107 S.Ct. at p.

1558.)

l6a

subdivision (h) remedies, such conflict was created by

Congress when it enacted ERISA’s preemption clause

and saving clause. The argument asserts that the saving

clause allows states to regulate insurance and hence to

enact conflicting remedies. However, while the saving

clause may allow states to enact statutes that regulate

the substantive terms of insurance policies (see,

Metropolitan Life, supra, 471 U.S. at pp. 740-744), the

clause does not allow states to enact statutes that

provide conflicting procedural remedies (see Pilot Life,

supra, 107 S.Ct. at pp. 1555-1558). A contrary rule

would undermine ERISA’s important policy of promot-

ing uniformity in employee benefit-plan remedies, by

creating the potential for confticting standards of

recovery. (Powell v. Chesapeake & Potomac Tele-

phone Co. of VA. (4th Cir. 1985) 780 F.2d 419, 422.)

IV

We conclude that ERISA preempts private causes of

action under section 790.03, subdivision (h).? Of

course, our recent decision in Moradi-Shalal v.

Fireman's Fund Ins. Cos., supra, __ Cal.3d __, prospec-

tively eliminates private causes of action under section

790.03, subdivison (h). Accordingly, our holding of

preemption in this case is applicable only to cases

which survive Moradi-Shalal.

Although our decision in this case prevents Juliano

from stating a cause of action for breach of statutory

duties under section 790.03, subdivision (h), he never-

theless may amend his complaint to state a claim for

ERISA remedies. (See 29 U.S.C. § 1132(e)(1) [“State

7 We do not decide whether ERISA preempts an action by the

Insurance Commissioner to enforce the provisions of the Unfair

Practices Act (§ 790 et seq.) where such enforcement pertains to a

dispute involving an ERISA benefit plan.

17a

courts of competent jurisdiction and district courts of

the United States shall have concurrent jurisdiction of

actions under subsection (a)(1)(B) of this section’”’)].)

Let a peremptory writ of mandate issue directing the

Superior Court of San Diego County to vacate its order

denying defendants’ motion for judgment on the plead-

ings as to plaintiff’s fifth count for breach of statutory

duties under section 790.03, subdivison (h), and to

enter a new order consistent with this opinion.

PANELLI, J.

WE CONCUR:

LUCAS, C.J.

ARGUELLES, J.

EAGLESON, J.

KAUFMAN, J.

18a

COPY

COMMERCIAL LIFE INSURANCE COMPANY

v. SUPERIOR COURT

$003129

DISSENTING OPINION BY MOSK, J.

I dissent. I strongly disagree not only with the

majority’s result but also with their reasoning.

I.

With due deference to the United States Supreme

Court, I doubt that it gives the bench and bar helpful

guidance when it relies on “common sense” as authority

for a decision. Nevertheless the High Court has done

so in Pilot Life Ins. Co. v. Dedeaux (1987) _-~ U.S. __

[107 S.Ct. 1549] and the majority herein hold that

conclusion to be controlling.

In Pilot Life, the court finds a “broad common-sense

meaning” (id. at p. 1553), a “common-sense view”

(ibid.), “a common-sense understanding” (id. at p.

1554), a “common-sense view” (ibid.) and the opinion

concludes with a “common-sense understanding” (id. at

p. 1558).

In reliance on Pilot Life, the majority seem to as-

sume that there is some pandemic “common sense” that

can guide us in the place of reason and authority. It

would indeed be comforting if that were so. But unfor-

tunately it is not: “common sense” is in the eye, or

mind, of the beholder.

United States Supreme Court cases have used the

term “common sense” in a wide variety of contexts.

19a

Indeed, a cursory count indicates the expression can be

found in more than 500 cases over the past 4 decades

alone.

For example, the high court has used “common

sense” and “subjective” as synonyms. (See, e.g.,

United States v. Maine (1985) 469 U.S. 504, 525.) In

other cases, it has equated “common sense” with prob-

ability. (E.g., Basic Inc. v. Levinson (1988) Uo.

[108 S.Ct. 978, 991].) Justice Cardozo wrote of

“common-sense accommodation” in Gully v. First

National Bank (1936) 299 U.S. 109, 117, and in Mones-

sen Southwestern Ry. Co. v. Morgan (1988) _ U.S. __,

[108 S.Ct. 1837, 1852], reference is made to “common

experience or common sense.” Mills v. Maryland

(1988) U.S. , _ [108 S.Ct. 1860, 1875], discusses

“a common-sense core of meaning.” United States v.

Providence Journal Co. (1988) _U.S. __, __ [108 S.Ct.

1502, 1514], discerns a “common sense reading” of a

Statute, as does Boos v. Barry (1988) U.S. _, __ [108

S.Ct. 1157, 1162). Honig v. Doe (1988) __sSsUS. __,

[108 S.Ct. 592, 604], relies on a “common sense

proposition.” Carnegie-Mellon University v. Cohill

(1988) £US._, [108 S.Ct. 614, 622], holds a

proposition is “confirmed by common sense,” and

United Paperworkers Intern. Union v. MISCO, Inc.

(1987) _ _—*US. _, [108 S.Ct. 364, 374], concludes a

judgment is “firmly rooted in common sense.” For the

ultimate, the court in Norwest Bank Worthington v.

Ahlers (1988) U.S. _, __ [108 S.Ct. 963, 970], found

“great common sense.” How we are to distinguish

between “common sense” and “great common sense” is

perplexing.

As a review of the foregoing cases and others like

them establishes beyond any dispute, “common sense”

is a convenient term. But it is also practically devoid

of content.

20a

For instance, in attempting to justify the holding of

the court in Peak v. United States (1957) 353 U.S. 43,

on behalf of the majority Justice Douglas stated, “That

seems to us to be the common sense of the matter; and

common sense often makes good law.” (/d. at p. 46.)

But Justice Harlan, writing for himself and two others

in dissent, drily observed, “Thus is bad law made.” (/d.

at p. 52 [dis. opn. of Harlan, J.].) Can it be said that by

disagreeing with the majority on a point of law Justice

Harlan and his colleagues were guilty of not using

“common sense”? I think not.

In Roschen v. Ward (1929) 279 U.S. 337, 339,

Justice Holmes declared, “there is no canon against

using common sense in construing laws as saying what

they obviously mean.” Sounds simple. But as Justice

Story noted in Barlow v. United States (1833) 7 Pet. (32

U.S.) 404, 411, “There is scarcely any law whicl. does

not admit of some ingenious doubt.” Are the doubters

necessarily declining to use “common sense”? I think

not.

In The Kronprinzessin Cecilie (1917) 244 U.S. 12,

Justice Holmes referred to what is apparently a special-

ized form of “common sense”: “Business contracts

must be construed with business sense ....” (/d. at p.

24.) Apparently that did not satisfy the entire court, for

Justices Pitney and Clarke dissented. What kind of

sense they preferred was not indicated.

Members of the high court have not been altogether

unmindful of the problems associated with “common

sense.” In Jacksonville Bulk Terminals, Inc. v. Interna-

tional Longshoremen’s Association (1982) 457 USS.

702, one of the parties argued that a “common sense”

interpretation of a statute should be applied. Said Chief

Justice Burger in dissent, “the ‘common sense’ meaning

of a term is not controlling when Congress has provided

. an explicit definition of a labor dispute. ‘Common

sense’ and legislative history ought not to change the

ics lame acean eaten

2la

meaning of unambiguous words of a statute.” (/d. at p.

727 (dis. opn. of Burger, C.J.].)

In Jn re Primus (1978) 436 U.S. 412, then Justice

Rehnquist wrote in dissent that the miajority’s

“ ‘common-sense’ distinction [between speech propos-

ing a commercial transaction and other varieties of

speech] is subject to manipulation by clever prac-

titioners.” (/d. at p. 441 [dis. opn. of Rehnquist, J.].)

In short, I believe that the implied invocation of

“common sense” as authority for an opinion of this

court is insufficient and as such cannot be helpful to the

parties in this case or to the bench and bar in future

matters. As Justice Rehnquist explained, the term is

“subject to manipulation” and_ therefore lacks

substance.

Il.

Real party in interest Joseph V. Juliano (hereinafter

Juliano) brought the underlying action for damages

against petitioners Commercial Life Insurance Com-

pany and Automatic Data Processing, Inc. (hereinafter

collectively Commercial Life). In his complaint

Juliano alleged in substance that Commercial Life had

issued a policy of insurance, sponsored by his

employer, establishing an employee welfare benefit

plan that provided group term life insurance, accidental

death and dismemberment insurance, and benefits for

major medical expenses, prescription drugs and

medicines, and dental care; he was entitled to benefits

for treatment of diabetic retinopathy and was so in-

formed by Commercial Life; he received treatment

including ophthalmic surgery; at first, Commercial Life

paid a small portion of his medical bills, but then

wrongfully refused to pay the rest. Juliano asserted,

among other causes of action, a claim that Commercial

Life had violated its statutory duties under the Unfair

22a

Trade Practices Act (Ins. Code, § 790 et seq.), specifi-

cally, Insurance Code section 790.03, subdivision (h)

(hereinafter section 790.03(h)).

The majority hold that the Employee Retirement

Income Security Act of 1974 (hereinafter ERISA) (88

Stats. 829, as amended, 29 U.S.C. § 1001 er seq.)

preempts section 790.03(h) as relevant here and thereby

bars Juliano’s claim under that provision. As will

appear, they are wrong.

ERISA regulates, among other matters, “employee

welfare benefit plans” that, “through the purchase of

insurance or otherwise,” provide “medical, surgical, or

hospital care or benefits, or benefits in the event of

sickness, accident, disability, death, or unemployment

..” (ERISA § 3(1), 29 U.S.C. § 1002(1).) Within its

sphere, ERISA purports to preempt state law. The act

states in a preemption clause that its provisions “shall

supersede any and all State laws insofar as they may

now or hereafter relate to any employee benefit plan

..” (ERISA § 514(a), 29 U.S.C. § 1144(a).) ERISA,

however, may not and does not preempt state law in its

entirety. As relevant here, the cct declares in a saving

clause that “nothing in this [statute] shall be construed

to exempt or relieve any person from any law of any

State which regulates insurance ....” (ERISA

§ 514(b)(2)(A), 29 U.S.C. § 1144(b)(2)(A).)

It is plain that ERISA regulates the plan in which

Juliano participated. As stated above, Juliano’s em-

ployer sponsored a plan providing a variety of insur-

ance coverage and other benefits for its employees.

It is also plain that section 790.03(h) comes within

the class of state laws that ERISA purports to preempt.

The provision “relate[s) to ... employee benefit

plan(s}” (ERISA § 514(a), 29 U.S.C. § 1144(a)) be

defining “unfair claims settlement practices” (Ins.

Code, § 790.03, subd. (h)).

23a

But it is plainer still that section 790.03(h) is saved

from preemption by the express terms of ERISA: the

provision clearly “regulates insurance” (ERISA

§ 514(b)(2)(A), 29 U.S.C. § 1144(b)(2)(A)). As I read

their opinion, the majority do not seriously dispute that

section 790.03(h) comes within ERISA’s saving clause

— nor could they (see Lee v. Prudential Ins. Co. of

America (N.D.Cal. 1987) 673 F.Supp. 998, 1000-1001).

In spite of the foregoing, the majority hold that

section 790.03(h) is not saved from preemption and

hence that Juliano’s claim under the statutory provision

is barred. In support they assert that ERISA has estab-

lished a civil enforcement scheme that provides exclu-

sive remedies. That may be true. But ERISA’s scheme

defines remedies for the violation of rights granted

employees under the terms of plans within the coverage

of the act and under the act itself. (See ERISA

§ 502(a), 29 U.S.C. §1132(a).)' By contrast, the

| Section $02(a) of ERISA, codified at 29 United States Code

~ section 1132(a), provides as follows.

“A civil action may be brought —

“(1) by a participant or beneficiary —

“(A) for the relief provided for in subsection (c) of this section

(concerning requests to the administrator for information], or

“(B) to recover benefits due to him under the terms of his plan,

to enforce his mghts under the terms of the plan, or to clanfy his

rights to future benefits under the terms of the plan;

“(2) by the Secretary, or by a participant, beneficiary or

fiduciary for appropriate relief under section 1109 of this utle [for

breach of fiduciary duty];

(3) by a participant, beneficiary, or fiduciary (A) to enjoin any

act or practice which violates any provision of this subchapter or the

terms of the pian, or (B) to obtain other appropriate equitable relief

(i) to redress such violations or (ii) to enforce any provisions of this

subchapter or the terms of the plan;

“(4) by the Secretary, or by a participant, or beneficiary for

appropriate relief in the case of a violation of 1025(c) of this title

(continued)

24a

Unfair Trade Practices Act, of which section 790.03(h)

is a part, has established a civil enforcement scheme

that provides remedies for the breach of duties imposed

on insurers under the laws of the State of California.

In a word, the remedies of ERISA may be exclusive in

their own sphere, but they do not extend into the sphere

occupied by section 790.03(h). (Cf. Mackey v. Lanier

Collections Agency & Service (1988) __U.S. Se ee

[108 S.Ct. 2182, 2185-2191] [ERISA does not bar a

State garnishment action against a covered empioyee

welfare benefit plan: the federal act does not provide

an enforcement mechanism for collecting judgments

against covered plans and hence does not preempt state

law in that area].)

Thus, ERISA does not preempt section 790.03(h),

but expressly saves the provision as a law “regulat[ing]

insurance.” Fur.her, the civil enforcement scheme of

the federal statute does not displace the civil enforce-

ment scheme of the state act: the former concerns the

rights of employees under covered plans, the latter the

duties of insurers under state laws.

There is a growing and ominous trend toward federal

preemption of issues that belong within the sphere of

control by the individual states. And these inroads into

traditional federalism are taking place despite their

(ftn. continued

(concerning information to be furnished participants |};

“(S) except as otherwise provided in subsection (b) of this

section, by the Secretary (A) tO enjoin any act or practice which

violates any provision of this subchapter, or (B) to obtain other

appropriate equitable relief (i) to redress such violation or (11) to

enforce any provision of this subchapter; or

“(6) by the Secretary to collect any civil penalty under subsec

tion (i) of this section [for breach of fiduciary duty

25a

inconsistency with pious rhetoric emanating from

Washington about returning government to the people

at state and local levels.

The first Californian to sit on the United States

Supreme Court, Stephen Field, saw the problem clearly

as long ago as the period immediately following the

Civil War. In Ex parte Virginia (1879) 100 U.S. 339,

357, he wrote: “Now, if we look into the Constitution,

we shall not find a single word, from its opening to its

concluding line, nor in any of the amendments in force

before the close of the civil war, nor ... in those

subsequently adopted, which authorizes any interfer-

ence by Congress with the States in the administration

of their governments, and the enforcement of their laws

with respect to any matter over which jurisdiction was

not surrendered to the United States. The design of its

framers was not to destroy the States, but to form a

more perfect union between them, and, whilst creating a

central government for certain great purposes, to leave

to the States in all matters the jurisdiction of which was

not surrendered the functions essential to separate and

independent existence.”

Justice Field took the same position in Virginia v.

Rives (1879) 100 U.S. 313, 337: “It is difficult to

believe that the wise men who sat in the convention

which framed the Constitution and advocated its adop-

tion ever contemplated the possibility of a State being

required to assert its authority over offenders against its

laws in other tribunals than those of its own creation,

and least of all in an inferior tribunal of the new

government. I do not think I am going too far in assert-

ing that had it been supposed a power so dangerous to

the independence of the States, and so calculated to

humiliate and degrade them, lurked in any of the provi-

sions of the Constitution, that instrument would never

have been adopted.”

26a

In the instant case we have a State regulatory statute

at issue. In the Sinking-Fund Cases (1879) 99 U.S.

700, a state-created corporation was involved. On that

Subject Justice Field was emphatic: “In a word, the law

of the State undertakes to control and manage the

corporation, in all particulars required for the service,

convenience, and protection of the public; and can there

be a doubt in the mind of any one that over its own

creations the State has, within its own territory, as

against the United States, the superior authority? ...

Under the Constitution the management of local affairs

is left chiefly to the States, and it never entered into the

conception of its framers that under it the creations of

the States could be taken from their control.” (/d. at

pp. 768-769.)

In our case the law regulating insurance was brought

.nto existence by the State. Under these circumstances

it could not have been contemplated, within constitu-

tional limitations, that enforcement of this state crea-

tion should pass exclusively to Washington.

IV.

In conclusion, I would hold that Juliano’s section

790.03(h) cause of action is not barred. Accordingly, I

dissent.

MOSK, J.

I CONCUR: BROUSSARD, J.

APPENDIX B

January 25, 1989

WINGERT, GREBING, ANELLO & CHAPIN

Attorneys at Law

1750 Bank of America Plaza

150 ““B” Street

Sand Diego, CA 92101-8090

Attention: Robert Caietti, Esq.

Re: JOSEPH V. JULIANO vs. AUTOMATIC DATA

PROCESSING, INC., etc., et al.

Action No.: 542 103

Our File No.: FB 103

Dear Mr. Caietti:

This letter will confirm the telehpone conversation between

us on January 23, 1989. At such time, it was agreed that

any and all claims of Joseph V. Juliano arising out of the

events or circumstances alleged or referred to in Action

No. 542103 or which could be the subject of Action No.

542103 in accordance with the California Supreme Court’s

decision in this matter, have been fully and finally settled

and resolved as against any and all defendants, persons

or entities for the total sum of $35,000. It is agreed and

understood-that each side will bear its own costs. It is

further understood and agreed that a dismissal with prej-

udice of the entire action, will be signed and filed with

the court and, further, that a full and final release of any

and all claims will be signed by Mr. Juliano.

[ will immediatley request that a draft be prepared in the

sum of $35,000 and made payable to Joseph V. Juliano

and Wingert, Grebing, Anello & Chapin, attorneys at law.

Upon receipt of the settlement draft, I will immediately

forward it to you along with release and request for dis-

missal forms to be signed by your office and Mr. Jualiano.

28a

If you could file the request for dismissal with the court,

since you are in San Diego, that would be appreciated.

However, if you prefer, you can return the signed release

and request for dismissal forms to our office. We will then

arrange for the filing of the request for dismissal. We will

provide your office with a conformed copy.

I would like to thank you for vour courtesy throughout

our discussions in this matter.

Very truly yours,

HILL, GENSON, EVEN, CRANDALL &

WADE

A Professional Corporation

EDMOND D. WADE

EDW/Idl

bee: First Benefit Services, Inc.

Attn: Myrna Beer

COMMERCIAL LIFE INSURANCE CO.

Attn: Peg Fahey

29a

WINGERT, GREBING, ANELLO & LAVOY

A Partnership Including Professional Corporations

Attorneys At Law

1750 Bank of America Plaza

450 “B”’ Street

San Diego, California 92101-8090

January 30, 1989

Edmond D. Wade, Esq.

HILL, GENSON, EVAN, CRANDALL & WADE

505 Shatto Place

Los Angeles, CA 90020

Re: Juliano v. ADP

Our File: B-459

Dear Ed:

Pursuant to our conversation on Friday, January 27th,

attorney William Shernoff has discussed the matter with

Joseph Juliano subsequent to our agreement to settle this

matter for $35,000 payable to Joe Juliano in exchange for

Mr. Juliano foregoing pursuit of any further appeals in

~ this matter.

Commercial Life’s position is that a settlement agree-

ment has been entered into between the parties, and that

Commercial Life contends its rights pursuant to that set-

tlement agreement are not effected based on what has

transpired to this point.

Understanding that, the file will be sent via United Par-

cel Service on Monday, January 30th for his review. In

talking with Mr. Shernoff he has indicated that he will

review the file as expeditiously as possible and provide

any recommendations resulting from that review as soon

as he can.

Although Mr. Juliano has indicated that he wants us to

hold off on the settlement for about a week, realistically

30a

I foresee it being at least two weeks. Please be assured

that I will keep you advised of all developments that arise

from this point forward until Mr. Shernoff is able to re-

view the file and make the appropriate recommendations

as a result thereof.

Should you have any questions or comments, please do

not hesitate to contact me. Thank you.

Very truly yours,

WINGERT, GREBING, ANELLO & LaVOY

/s/Robert M. Caietti

Robert M. Caietti

3la

APPENDIX C

IN THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

e No. 85-5641

THEODORE KANNE AND BEATRIZ KANNE,

Plaintiffs-A ppellees,

v.

CONNECTICUT GENERAL LIFE INSURANCE COMPANY

Defendant-A ppellant.

ON APPEAL FROM THE UNITED STATES DISTRICT

COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA

BRIEF AMICUS CURIAE FOR THE UNITED STATES

INTRODUCTION

In Pilot Life Ins. Co. v. Dedeaux, 107 S.Ct. 1549 (1987),

the Supreme Court addressed plaintiff's common law claims

of improper handling of his request for disability payments.

At the request of the Court, the United States filed a

brief amicus curiae in which the United States argued

that plaintiff's claims were preempted by the Employment

Retirement Income Security Act of 1974 (ERISA).'

‘We are advised that the United States’ amicus curiae brief from

the Pilot Life case has been made available to this Court. The position

taken in this brief is intended to reaffirm and emphasize the United

States’ view that ERISA’s remedial scheme cannot be lawfully displaced

or superseded by inconsistent state laws. See pages 18-19 of the United

States’ Pilot Life brief.

32a

The plaintiffs’ claims, in the instant case, would appear,

for all practical purposes, to be virtually identical to the

claims asserted in Pilot Life. Plaintiffs, supported by the

amicus curiae brief recently filed by the State of Califor-

nia, contend that this case can be distinguished from Pilot

Life on the ground that the claims here are derived from

a statute (as opposed to the common law), and that statute

is directed specifically toward the insurance industry

(rather than being applicable to insurance companies only

incidentally).

In our view, focusing on whether plaintiffs’ cause of

action derives from statutory or common law makes the

problem unnecessarily complicated. The California statute

plainly creates a cause of action for improper handling of

a claim for benefits under an ERISA-covered plan. Because

the Supreme Court held in Pilot Life that ERISA’s re-

medial scheme was intended to be comprehensive and of

preemptive effect, this Court’s June 4, 1987 holding that

Pilot Life controlled this case was necessarily correct.

ARGUMENT

APPELLEES CLAIMS ARE PREEMPTED BY ERISA

1. In Pilot Life the Supreme Court unanimously held

that inconsistent state civil remedies for tortious conduct

in the processing or handling of benefit claims could “‘com-

pletely undermine{ ]’’ the “careful balancing” struck in ER-

ISA Section 502(a) (29U.S.C. 1132(a)) between the ‘‘need

for prompt and fair settlement procedures’ and ‘“‘the pub-

lic interest in encouraging the formation of employee ben-

efit plans.” 107 S. Ct. at 1556.2 The Court stated:

> The Court, citing Massachusetts Mutual Life Ins. Co. v. Russell, 473

U.S. 134, 146 (1985), admonished that ERISA’s civil remedies were

“carefully integrated’; remedies which were omitted could not be re-

garded as matters Congress ‘“‘simply forgot

sess?

33a

The deliberate care with which ERISA’s civil enforce-

ment remedies were drafted and the balancing of pol-

icies embodied in its choice of remedies argue strongly

for the conclusion to ERISA’s civil enforcement rem-

edies were intended to be exclusive. * * *

Id. at 1556-56.

Thus the Supreme Court found in ERISA’s comprehen-

sive enforcement scheme a limitation upon the scope of

the insurance saving clause, Section 514(bX2\A) (29 U.S.C.

1144(bX2\A)). The Court further determined that a state

cause of action that seeks remedies for the improper proc-

essing of a claim for benefits under an insured plan falls

squarely within the same subject matter covered by Sec-

tion 502(a). Jbid. The Court therefore concluded that ER-

ISA’s insurance saving clause does not save a state cause

of action that is displaced by Section 502(a). Id. at 1558.

2. As the Court noted in Pilot Life, Congress modeled

ERISA’s enforcement scheme after Section 301 of the La-

bor-Management Relations Act of 1947 (LMRA), 29 U.S.C.

185, which provides an exclusive enforcement procedure

for violations of contracts between an employer and a labor

organization. The ERISA Conference Committee report

explained that under the Act, “civil actions may be brought

by a participant or beneficiary to recover benefits due

under the plan, to clarify rights to receive future benefits

under the plan, and for relief from breach of fiduciary

responsibility,’ but ‘‘{ajll such actions in Federal or State

courts are to be regarded as arising under the laws of the

United States in similar fashion to those brought under

section 301 of the [LMRA].”’ H.R. Conf. Rep. 93-1280, 93d

Cong., 2d Sess. 327 (1974). As the Court in Pilot Life

pointed out, this legislative history demonstrates “‘the clear

congressional intention that all suits brought by benefici-

aries or participants asserting improper processing of

34a

claims under ERISA-regulated plans be treated as federal

questions by §502(a).”” Pilot Life, 107 S. Ct. at 1557.°

3. The Court in Pilot Life also concluded that in order

to “‘regulate’’ insurance, a law must not only have an

impact on the insurance industry, but must be specifically

directed toward that industry. Because the causes of action

in Pilot Life involved the application of general contract

and tort principles to an insurance contract, and not a law

peculiarly applicable to the insurance industry, the Court

concluded that the common law did not ‘regulate insur-

ance’ within the meaning of Section 514(b\2\A). Plaintiffs

and the State of California suggest that because the cause

of action in this case derives from a state statute specif-

ically directed toward the insurance industry, Pilot Life is

not controlling. This is not correct. As explained above,

the Supreme Court independently held that because the

causes of action in that case sought remedies for the im-

proper processing of a claim for benefits, it was necessary

to consider the preemptive effect of ERISA’s civil en-

forcement scheme. The Court’s conclusion that ERISA’s

insurance saving clause does not save a state cause of

action that is displaced by Section 502(a) is controlling

here. “The expectations that a federal common law of

rights and obligations under ERISA-regulated plans would

develop, indeed the entire comparison of ERISA’s § 502(a)

3 Congress determined that under Section 502(a) of ERISA, as under

Section 301 of the LMRA, “substantive principles of federal labor law

must be paramount in the area covered by the statute.’ Pilot Life,

107 S. Ct. at 1557, quoting Teamsters v. Lucas Flour Co., 369 U.S.

95, 103 (1962). The Court did not attempt to define the contours of

the federal common law under Section 502; rather, the Court acknowl-

edged Congress’ intent that ‘‘ ‘a body of Federal substantive law will

be developed by the courts to deal with issues involving rights and

obligations under private welfare and pension plans.’’’ Jd. at 1557-

1558, quoting 120 Cong. Rec. 29942 (1974) (remarks of Sen. Javits).

Because plaintiffs-appellees do not assert an ERISA cause of action,

there is no occasion for this Court to consider the scope of the federal

common law in this case.

35a

to § 301 of the LMRA, would make little sense if ...

[ERISA’s enforcement scheme] could be supplemented or

supplanted by varying state laws.” 107 S. Ct. at 1558.

CONCLUSION

The decision of the panel filed June 4, 1987, should be

reinstated.

Respectfully submitted,

RICHARD K. WILLARD

Assistant Attorney General

; JAMES M. SPEARS

Of Counsel: Deputy Asst. Atty. General

GEORGE R. SALEM

Solicitor of Labor JOHN F. CORDES

ALLEN H. FELDMAN BRUCE G. FORREST

Associate Solicitor Attorneys

BETTE J. BRIGGS Ciml Division—Room 7416C

Attorney Department of Justice

Department of Labor Washington, D.C. 20530

(FTS/202 633-2496)

s/ Bruce G. Forrest