# Appendix — Juliano v. Commercial Life Insurance

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 1989
- **Citation:** 490 U.S. 1075

## Text

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

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385002_1065%3A3. Public record. Not legal advice.