Amicus Curiae Brief — Pacific Mutual Life Insurance v. Turnbow

No. 88-1546

IN THE

Siyprene Court of the United States

OCTOBER TERM, 1988

PACIFIC MUTUAL LIFE INSURANCE COMPANY, et al.,

Petitioners,

V.

HARRIETTE TURNBOW,

Respondent.

On Petition for Writ of Certiorari to the

Supreme Court of Nevada

MOTION FOR LEAVE TO FILE BRIEF AMICUS CURIAE

AND BRIEF AMICUS CURIAE OF

UNUM LIFE INSURANCE CO.

IN SUPPORT OF PETITIONER

Of Counsel: JAMES L. NOLAN

ANDREW J. BERNSTEIN (Counsel of Record)

UNUM Life Insurance Co. CHRISTOPHER 8S. VADEN

2211 Congress Street MARK D. SCHNEIDER

Portland, Maine 04112 JENNER & BLOCK

21 Dupont Circle, N.W.

Washington, D.C. 20036

(202) 223-4400

Counsel for Amicus Curiae

UNUM Life Insurance

April 19, 1989 Company

(207) 770-6857

WILSON - EPES PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001

IN THE

Supreme Court of the United States

OCTOBER TERM, 1988

No. 88-1546

PACIFIC MUTUAL LIFE INSURANCE COMPANY, et al.,

Petitioners,

Ve

HARRIETTE TURNBOW,

Respondent.

On Petition for Writ of Certiorari to the

Supreme Court of Nevada

MOTION FOR LEAVE TO FILE BRIEF AMICUS CURIAE

UNUM Life Insurance Company (“UNUM”) hereby

respectfully moves for leave to file the attached brief

amicus curiae. The attorney for petitioners has con-

sented; the attorney for respondent has refused consent.

UNUM and its affiliates * sell and service employee wel-

fare benefit plan insurance in all 50 states and the Dis-

trict of Columbia, and insure more employer-sponsored

long term disability plans (over 25,000) with a greater

number of insured employee participants (2,919,872)?

than any other insurer in the United States. UNUM

also insures over 8,000 group-employer sponsored life and

1UNUM Life Insurance Company of America and First UNUM

Life Insurance Company of New York, formerly known as Union

Mutual Stock Life Insurance Co. of America and Unionmutual Stock

Life Insurance Co. of New York, respectively.

“As of December ol, 1988.

3 Employee Benefits Plan Review, April, 1987.

health insurance plans. UNUM group policies insure

3,102 employer-established: and maintained benefit plans

issued through 29 multiple employer trusts (‘“METs’),

which make insured benefits available to employees of

small employers at lower, affordable rates.

The questions presented in the instant case are of great

importance to UNUM and to every other insurer that

issues insurance to employee welfare plans. As an

ERISA claims fiduciary for many of the employee wel-

fare benefit plans it insures nationwide, UNUM’s claim

practices with respect to its employee benefit plan in-

surance are subject to federal regulation under ERISA.

+

|

The decision of the Nevada Supreme Court will have

substantial adverse consequences for UNUM, other in-

surers of employee welfare plans, multi-employer trusts

and other instrumentalities providing coverage for em-

ployee welfare plans, as well as for ERISA plan partici-

pants and beneficiaries. Because of its extensive experi-

ence and involvement with ERISA plans, UNUM is

uniquely situated to advise the Court of the far-reaching

consequences of the Nevada Supreme Court’s decision in

this case.

For the foregoing reasons, UNUM Life Insurance Co.

respectfully urges the Court to accept and file the en-

closed brief amicus curiae.

Respectfully submitted,

Of Counsel: JAMES L. NOLAN

ANDREW J. BERNSTEIN (Counsel of Record)

UNUM Life Insurance Co. CHRISTOPHER S. VADEN

2211 Congress Street MARK D, SCHNEIDER

Portland, Maine 04112 JENNER & BLOCK

(207) 770-6857 21 Dupont Circle, N.W.

Washington, D.C. 2003

(202) 2253-4400

Counsel for Amicus Curiae

UNUM Life Insurance

Dated: April 19, 1989 Company

TABLE OF CONTENTS

TABLE OF AUTHORITIES

INTEREST OF AMICUS

INTRODUCTION AND SUMMARY OF ARGU-

MENT

ARGUMENT

I. THIS COURT SHOULD GRANT CERTIO-

RARI TO DETERMINE WHETHER A

GROUP EMPLOYEE WELFARE BENEFIT

PLAN IS SUBJECT TO ERISA WHETHER

OR NOT THE EMPLOYER HAS INDEFI-

NITELY “GUARANTEED” THE CONTINUA-

TION OF HEALTH INSURANCE BENE-

FITS

A. Congress Intended That Employee Benefit

Plans Be Governed Exclusively By A Uni-

form Body Of Federal Law

B. The Nevada Supreme Court Created A

Novel Requirement That For A Plan To Be

Governed By ERISA The Employer Must

Guarantee The Continuation Of Employee

Welfare Benefits. The Legitimacy Of Thi

New Requirement Raises An _ Important

Question Of Federal Law Requiring Review

C. The Nevada Supreme Court Has Determined

That The Owner Of An Unincorporated

Business Is Excluded From Coverage As An

ERISA Plan Participant, Raising An Im-

portant Question Of Federal Law Requiring

Review

Il. THIS COURT SHOULD GRANT CERTIO

RARI TO RESOLVE A CONFLICT BE

TWEEN A STATE COURT OF LAST RESORT

AND FOUR UNITED STATES COURTS OF

APPEALS ON AN IMPORTANT QUESTION

OF FEDERAL LA\

TABLE OF CONTENTS— ontinued

Court Created New

ERISA Plans That

Are Inconsistent With The Rules Applied

12

By The Federal Courts

A. The Nevada Supreme

Definitional Rules For

B The Turnbow Decision Creates The Very

Patchwork Of Inconsistent

ERISA Was Enacted To Avoid

State Regulation

CONCLUSION

iii

TABLE OF AUTHORITIES

ASES: Page

Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504

(19381) y

1-T-O, Inc. v. Pension Benefit Guaranty Cornp.,

634 F.2d 1013 (6th Cir. 1980) 16

Blau v. Del Monte, 748 F.2d 1348 (9th Cir. 1984),

as amended March 5, 1985, cert. denied, 474

U.S. 865 (1985) 17

Chase v. Trustees of Western Conference yf

Teamsters Pension Trust Fund, 753 F.2d 744

(9th Cir. 1985) 15

Dodd v. John Hancock Mutual Life Insurance C

688 F. Supp. 564 (E.D. Cal. 1988) 7,13, 15

Donovan v. Dillingham, 688 F.2d 1367 (11th Cir

L982) 7.13.17

Ed Miniat, Inc. v. Globe Life Insurance G

Inc., 805 F.2d 732 (7th Cir. 1986), cert

nied, 482 U.S. 915 (1987) 7,12

Fort Halifa r Packing Co. } Coyne. 1s 1! S

(1987)

Giardono v. Jones, 867 F.2d 409 (7th Cir. 1989

Creat Lake s Steel v. De ge nao f. 716 F.2d

(6th Cir. 1983)

Holland v. Burlington Industries, 772 F.2d 114

(4th Cir. L985), ati’d me m. sub non By

Burlington Industries, 477 U.S. 901 (1986)

Kanne v. Connecticut General Life J

859 F.2d 96 (9th Cir. 1988) 9

Mackey v. Lanier Collection Agency 4

Inc., U.S. , 108 S.Ct. 218 1928

Massachusetts Mutual Life Insurance (| PR

ell, 473 U.S. 134 (1985)

Mi tropolitan Life Ins vane ("an Ta } 1»

U.S ae (1987)

Michiaqan United Food and Comme JT oY

Unions v. Baerwaldt, 572 F. Supp. 943 (1

Mich. 1983)

Peckham v. Board of Trustees, 653 F.2d 424 (10+)

Cir. 1981)

IN THE

Supreme Court of the United States

OCTOBER TERM, 1988

No. 88-1546

PACIFIC MUTUAL LIFE INSURANCE COMPANY, et al.,

. Petitioners,

HARRIETTE TURNBOW,

Respondent.

On Petition for Writ of Certiorari to the

Supreme Court of Nevada

BRIEF AMICUS CURIAE OF

UNUM LIFE INSURANCE COMPANY

INTEREST OF AMICUS

The interest of amicus UNUM Life Insurance Co. is

set forth in the accompanying motion for leave to file

brief amicus curiae,

INTRODUCTION ANIM@UMMARY OF ARGUMENT

In Pilot Life Insurance Co. v. Dedeaux, 481 U.S. 41

(1987), this Court made clear that Congress intended all

suits brought by beneficiaries or participants asserting

improper processing of claims under ERISA-regulated

health insurance plans to be treated as federal questions

governed by § 502(a), 29 U.S.C. $1132(a).' Congress

and the Court expected that a federal common law of

rights and obligations under ERISA-regulated plans

1481 U.S. at 56.

would develop.* Congress’ intent was manifest in the

broad pre-emptive provisions it included in ERISA.

In Pilot Life as in other pre-emption cases resolved by

this Court,’ there was no doubt that the defendant plan

and the plaintiff participant or beneficiary were subject

to ERISA. The cases instead concerned various conse-

quences that flowed from ERISA coverage. In each of

these cases, the Court recognized the broad sweep Con-

gress intended to give federal principles in the area of

employee benefits.

In this case an insured covered by employer-provided

group health insurance sought to persuade a court that

she is entitled to pursue state law remedies, including

punitive damages, in a suit against her insurer for im-

proper administration of her insurance coverage. She

could no longer assert that her right to state law reme-

dies, survives within ERJSA—that legal claim was effec-

tively foreclosed by this Court’s decision in Pilot Life.

Instead, the plaintiff urged two even more fundamental

objections to ERISA pre-emption of her state law claims:

(1) that her employer-funded group insurance was not

an “employee welfare benefit plan” as that phrase is used

in ERISA, because the plan documents lack “some indica-

tion that [the] employer is committed to or has guaran-

teed the continuation of such benefits” (Cert. Pet. at

4a); and (2) that as the owner-operator of her unincor-

porated business, she was not a plan “participant” as

that term is used in ERISA, and so not subject to the

statute. The Nevada Supreme Court, reversing the deci-

2 Id.

3E.9., Mackey v. Lanier Collections Agency & Service, Inc.,

U.S. , 108 S. Ct. 2182 (1988); Metropolitan Life Insurance Co.

v. Taylor, 481 U.S. 58 (1987); Massachusetts Mutual Life Insur-

ance Co. v. Russell, 473 U.S. 134 (1985); Alessi v. Raybestos

Manhattan, Inc., 451 U.S. 504 (1981); Shaw v. Delta Air Lines, Inc.,

463 U.S. 85 (1983).

3

sion of the trial court, accepted both of the claimant’s

arguments.

In Pilot Life this Court stressed the importance Con-

gress placed on uniformity of standards in all aspects of

group employee health and welfare insurance provided

through employee benefit plans. The centerpiece of Con-

gress’ plan to achieve such uniformity was the pre-

emption provisions of ERISA. The Nevada Supreme

Court has undermined this Congressional plan by creat-

ing unique standards for determining what is a plan and

who is a plan beneficiary. As a result, the federal in-

terest in uniform application of the law has_ been

thwarted. Point I(A).

In particular, the Nevada Supreme Court has imposed

a “guarantee of continued benefits” standard that is a

required feature of employee pension plans, but has not

heretofore been considered a requirement of employee

health and welfare plans. This requirement is not found

in the words of ERISA, or in the Department of Labor

regulations interpreting the statute. The legitimacy of

this new requirement raises an important issue of fed-

eral law requiring the review of this Court. Point I(B).

The Nevada Supreme Court has held alternately that

a self-employed owner-operator who is listed in the plan

as a beneficiary along with her employees is not a plan

participant covered by ERISA. In so ruling, the court

rejected the Department of Labor’s understanding of the

status of such owner-operators. As a result of the court’s

ruling, owner-operators have all of the benefits of ERISA

as a result of plan and insurer compliance with Depart-

ment of Labor regulations, while those providing the plan

benefits gain none of the certainty and uniformity en-

visioned by ERISA’s sponsors and lose the statute’s pre-

emption of state causes of action. Congress could not

have intended such an anomalous result, and only this

Court can resolve this inconsistency. This Court there-

4

fore should review this important question of federal law.

Point I(C).

The decision of the Nevada Supreme Court is in con-

flict with the decisions of four United States Courts of

Appeals, and involves an area of ERISA law that is in

a state of general confusion. This Court should review

this matter to resolve this conflict. Point II(A).

Inconsistent understanding of crucial underlying

ERISA concepts such as the definition of a “plan” and a

“participant” strike at the heart of the uniform ad-

ministration of employee benefit plans. Nevada’s defini-

tion of “plan,” moreover, invites employers to attempt to

avoid ERISA compliance. Clarification of these central

statutory terms is urgently needed. Point II(B).

ARGUMENT

I. THIS COURT SHOULD GRANT CERTIORARI TO

DETERMINE WHETHER A GROUP EMPLOYEE

WELFARE BENEFIT PLAN IS SUBJECT TO

ERISA WHETHER OR NOT THE EMPLOYER HAS

INDEFINITELY “GUARANTEED” THE CONTINU-

ATION OF HEALTH INSURANCE BENEFITS.

A. Congress Intended That Employee Benefit Plans Be

Governed Exclusively By A Uniform Body Of Fed-

eral Law.

In Pilot Life this Court observed that ERISA protects

“participants in employee benefit plans and their bene-

ficiaries, by requiring the disclosure and reporting to

participants and their beneficiaries of financial and other

information with respect thereto, by establishing stand-

ards of conduct, responsibility, and obligation for fidu-

ciaries of employee benefit plans, and by providing for

appropriate remedies, sanctions, and ready access to Fed-

eral courts.” * The legal issues raised by the decision of

the Nevada Supreme Court have national importance be-

4481 U.S. at 44, citing 29 U.S.C. §1001(b).

5

cause the effect of the decision is to deny ERISA protec-

tion to a large population of beneficiaries heretofore cov-

ered in Nevada, while similarly situated beneficiaries

across the rest of the Nation remain covered.

Two years ago this Court announced in Pilot Life that

ERISA comprehensively regulates employee benefit plans

which, through the purchase of insurance or otherwise,

provide medical, surgical or hospital care, or benefits in

the event of sickness, accident, disability or death.° The

pre-emption provisions of ERISA, the Court observed,

are deliberately expansive and designed to establish plan

regulation as exclusively a federal concern.° The Court

placed significant reliance on the fact that the House and

Senate sponsors emphasized both the breadth and impor-

tance of ERISA’s pre-emption provisions.’

Congress’ intent was to federalize the regulation of al/

employee benefit plans in order to eliminate the threat of

conflicting or inconsistent regulation of such plans and

create a uniform body of Federal law.* In Pilot Life,

5 481 U.S. at 44.

6 481 U.S. at 46.

7Jd. The Court noted the centrality of Representative Dent’s

description of the “reservation to Federal authority the sole power

to regulate the field of employee benefit plans as ERISA’s crowning

achievement” and Senator Williams’ explanation that the Act in-

tended to pre-empt the field in order to eliminate the threat of con-

flicting or inconsistent State and local regulation of employee benefit

plans, which principle was intended to apply in its broadest sense

to all actions of State or local governments, or any instrumentality

thereof which have the force or effect of law. /d.

8 The underlying purpose of pre-emption is to eliminate the

threat of conflicting and inconsistent state and local regulation.

Federal pre-emption avoids this result by ensuring that the admin-

istration of an employee benefit plan will be governed by a single set

of federal laws. Fort Halifax Packing Co. v. Coyne, 482 U.S. 1,

10 (1987).

6

the Court concluded that Congress made clear its inten-

tion that all suits brought by beneficiaries or participants

under ERISA-regulated plans must be treated as federal

questions governed by ERISA, and that Congress ex-

pected a federal common law of rights and obligations

under ERISA plans would develop.’

Notwithstanding the Court’s ruling in Pilot Life, the

Nevada Supreme Court ruled that state law remedies

were available to a beneficiary of an employee benefit

plan claiming improper administration of insurance cov-

erage—the exact claim this Court ruled in Pilot Life was

pre-empted.’® It did so by recognizing two novel limita-

tions on the definition of an ERISA plan, and an ERISA

plan participant. The ruling at issue, while favoring the

beneficiary here, if allowed to stand will cause great

harm and mischief to Nevada plan participants and bene-

ficiaries. It also subjects amicus and other insurers offer-

ing group health insurance to employer-sponsored plans

to conflicting standards: the same claim dispute in Ne-

vada will be treated as governed by Nevada law, while

in other States it will be subject to ERISA remedies and

ERISA preemption. The Nevada opinion therefore raises

important questions of federal law. No Court other than

this one can resolve the inconsistent application of

ERISA caused by the Nevada decision. Review by this

Court is therefore urgently needed.

® 481 U.S. at 56.

10 In this case the Nevada Supreme Court reversed a trial court

decision which, on the basis of ERISA’s pre-emption of state law

remedies for the mishandling of insurance claims, granted summary

judgment against plaintiff (Cert. Pet. at 6a-7a). The Nevada Su-

preme Court remanded the case for plaintiff to proceed to trial on

all her insurance bad faith causes of action (Cert. Pet. at 5a).

7

B. The Nevada Supreme Court Created A Novel Re-

quirement That For A Plan To Be Governed By

ERISA The Employer Must Guarantee The Contin-

uation Of Employee Welfare Benefits. The Legiti-

macy Of This New Requirement Raises An Impor-

tant Question Of Federal Law Requiring Review.

ERISA defines “employee welfare benefit plan” to mean

(insofar as relevant here):

any plan, fund, or program which was heretofore or

is hereafter established or maintained by an em-

ployer ... to the extent that such plan, fund, or pro-

gram was established or is maintained for the pur-

pose of providing for its participants or their bene-

ficiaries, through the purchase of insurance or other-

wise, (A) medical, surgical, or hospital care or bene-

fits, or benefits in the event of sickness, accident, dis-

ability, death or unemployment... .

ERISA § 3/1), 29 U.S.C. § 1002(1). Parsing the lan-

guage of this statutory definition, federal courts of ap-

peals have established a five element test to determine

whether insurance benefits are subject to ERISA. To be

an ERISA plan, there must be: (1) a plan, fund or pro-

gram, (2) established or maintained, (3) by an em-

ployer or by an employee organization, or by both, (4)

for the purpose of providing medical, surgical, hospital

care, sickness, accident, disability, death, or other bene-

fits not relevant here, (5) to participants or their bene-

ficiaries. Kanne v. Connecticut General Life Insurance

Co., 859 F.2d 96, 98 (9th Cir. 1988); Ed Miniat, Ine. v.

Globe Life Insurance Group, Inc., 805 F.2d 732, 738 (7th

Cir. 1986), cert. denied, 482 U.S. 915 (1987): Donovan

v. Dillingham, 688 F.2d 1367, 1371 (11th Cir. 1982) (en

bane). Accord, Dodd v. John Hancock Mutual Life In-

surance Co., 688 F. Supp. 564, 566-67 (E.D. Cal. 1988).

In recognition of the broad reach of ERISA coverage,

the Department of Labor has promulgated regulations

that narrowly define those few employee group health

8

benefit arrangements that are not “employee welfare

benefit plans.’”’ With respect to plans funded by group

insurance, the regulations exclude from ERISA coverage

only those group insurance programs offered by an in-

surer to employees which meet each of the following cri-

teria: (1) the employer makes no contributions; (2)

participation in the program is completely voluntary for

employees; (3) the sole functions of the employer with

respect to the program are, without endorsing the pro-

gram, to permit the insured to publicize the program to

employees, to collect premiums through payroll deductions

and to remit them to the insurer; and (4) the employer

receives no consideration in connection with the pro-

gram, other than reasonable compensation for administra-

tive services actually rendered in connection with the

payroll deductions. 29 C.F.R. § 2510.3-1(j) (1988). In

these limited circumstances, an employer may be in-

volved in a welfare plan without “establishing” or “main-

taining” it. Until the decision in the instant case, most

courts have held that a plan is included under ERISA

coverage unless all four of these regulatory criteria are

met. See, e.g., Shiffler v. Equitable Life Assurance Soc.,

663 F. Supp. 155, 160-61 (E.D. Pa. 1986), aff'd, 838

F.2d 78, 82 n.4 (3d Cir. 1988); Kanne, 859 F.2d at 99.

The welfare plan below did not meet all four of the

requirements the DOL has set for non-ERISA plans.

Indeed, the plan did not meet even one of these require-

ments.'' The Nevada Supreme Court did not find to the

11 The record in this case, unquestioned by the Nevada Supreme

Court, established that plaintiff was the owner of a business known

as “The Bottle Stop” (Cert. Pet. at la-2a); that in 1974 “The

Bottle Stop” subscribed to Beneficial Employees Security Trust’s

American Series Plan to procure health care benefits, including

major medical benefits of up to $1,000,000 for herself and her full-

time employees (Cert. Pet. at 3-4, la-2a); that the plan specified

that partners or owners were considered “employees” for purposes

of the plan if they worked 30 hours or more per week (Cert. Pet.

at 3-4); that plaintiff, who managed the business and worked in it

9

contrary, but nevertheless determined that it was not an

ERISA plan because it failed to meet a requirement cre-

ated out of whole cloth by the court: that ERISA plans

provide “some indication that an employer is committed

to or has guaranteed the continuation of .. . benefits.”

Cert. Pet. at 4a."

The legitimacy of this new requirement identified by

the Nevada Supreme Court raises an important question

of Federal law. If the court is correct. then many if not

most plans now thought to be subject to ERISA are in

fact not ERISA plans. Indeed, no welfare plans of which

amicus is aware make any such guarantee of continuing

benefits.

There is, to be sure, a commonly recognized “guarantee

of continued benefits” requirement elsewhere in ERISA.

Congress in enacting ERISA believed it was important

that employers be required to guarantee the continuation

of pension benefits—and so established detailed vesting

requirements to ensure that employees’ continued bene-

fits be guaranteed.” The Nevada court has understood

along with three other employees, had coverage and received her

benefits under the plan through May, 1983, when it was terminated,

and also received the one year extension of benefits provided there-

after (Cert. Pet. at 4-5, 2a).

12 Apparently, The Bottle Stop’s continuous maintenance of the

program, annual filings on its behalf with DOL, and payment of

premiums for period of over eight years (sec Cert. Pet. at 3-4, la-

2a) did not constitute such an indication of commitment to the

court below.

1S See ERISA § 203(a), 29 U.S.C. § 1053(a) ; 29 C.F.R. § 2530.203-

1. Those standards effectively require the continuation of pension

plans with respect to employees holding vested rights. However.

Congress opted for less comprehensive vesting rules in order to

strike a balance “between providing meaningful reform and keeping

costs within reasonable limits.” S. Rep. No. 383, 93d Cong., 2d Sess.

18, reprinted in 1974 U.S. Code Cong. & Admin. News 4890, 4904.

Congress’ election not to mandate any vesting or continuity require-

ments for welfare plans must be regarded as a conscious choice not

to require a guarantee of continuation of such plans, unlike pension

plans.

10

ERISA to impose the same requirements on health and

welfare benefits—if they are to be considered “plans”

subject to ERISA. This ruling could disqualify virtually

every Nevada employee welfare plan '* now reporting to

the Secretary of Labor.'* No other court has imposed

such a requirement on health and welfare plans. Plainly,

Congress intended no such requirement to be imposed on

such plans. The Nevada court’s opinion is so evidently

incorrect that a summary reversal might well be appro-

priate. At the least, the Court should grant plenary

review to address this important question of Federal law

and ensure national uniformity in the application of

ERISA.

C. The Nevada Supreme Court Has Determined That

The Owner Of An Unincorporated Business Is Ex-

cluded From Coverage As An ERISA Plan Partici-

pant, Raising An Important Question Of Federal

Law Requiring Review.

As an alternative rationale supporting its decision, the

Nevada court ruled that plaintiff could not be considered

an ERISA plan “participant” because she was the owner

of an unincorporated business. This holding, too, is flatly

inconsistent with the Department of Labor regulations

governing plan participation. As a result of the court’s

ruling, many beneficiaries previously treated as _ pro-

tected by ERISA will not be covered by the statute in

Nevada. while they are covered in all jurisdictions that

apply the Department of Labor’s regulations. Once again,

this alternative holding raises important questions of

Federal Jaw that affect the day-to-day operations of a

great many employee benefit p!ans.

14 Based upon a survey of trade associations and the Department

of Labor by amicus, it is estimated that there are now five million

employee welfare plans.

15 See 29 C.F.R. §$§ 2520.104a-1 to -7 (setting out the Labor De-

partment’s reporting and filing requirements).

11

While ERISA defines “participant” to be “any em-

ployee of an employer . . . eligible to receive benefits,”

29 U.S.C. § 100217), it has long been the understanding

of the Department of Labor and the insurance industry

that ERISA covers individual proprietors and partners

along with their employees, at least when the plan docu-

ment includes the proprietors.'* The Department of La-

bor regulations describe the self-employed as “partici-

pants,” at least where, as in this case, the plan covers

both the self-employed and common law employees."

By failing to accept the DOL’s treatment of the self-

employed as beneficiaries, the Nevada court has placed

insurers in an unfair and unnecessarily confused situa-

tion. For virtually all other purposes under ERISA, in-

surers and plans must treat the self-employed as partici-

pants protected by ERISA, entitled to all of the protec-

tions the law provides.'"* On the other hand, in Nevada

at least, while the self-employed gain all of the benefits

that come from ERISA, in suits against insurers they

are entitled to bring state law claims and seek state law

remedies not governed by ERISA’s regulatory scheme

and free from the pre-emption clauses of the Act. How-

ever Congress intended to treat the self-employed who are

beneficiaries of group insurance along with their em-

ployees, it certainly did not intend this inconsistent treat-

16 See N.A.LC. Group Health Insurance Definition and Group

Health Insurance Standard Provisions Model Act, Section 1.

729 C.F.R. § 2510.3-3(b) (1987). While for some purposes the

DOL defines “employee” more narrowly to exclude self-employed

individuals, see 29 C.F.R. § 2510.3-3, the DOL has made clear in

its regulations that this narrow definition of “employee” is to be

used only to determine whether a “plan” exists, and is not to be

used to determine whether a self-employed worker is a participant

ina plan. See DOL Reporting and Disclosure Regulations, 40 Fed.

Reg. 34525, 34528 (August 15, 1975). See also DOL Opinion Let-

ters 79-8A and 81-54A.

18 See cases cited at pages 15-16, infra.

12

ment that has resulted from the Nevada court’s ruling.

And only this Court is now in a position to remedy this

inconsistent application of ERISA created by the Nevada

opinion.

Where a plan is funded by the purchase of group in-

surance, ERISA’s goal of uniform treatment of benefit

claims is best served when self-employed individuals are

also employee participants of the employee welfare bene-

fit plan to which they subscribe. Once again we believe

that the Nevada Supreme Court’s opinion in this regard

is so plainly wrong and so out of harmony with prevail-

ing practice, that a summary reversal would be appro-

priate. In any event, this Court should at least grant

plenary review to assure consistent application of the

important federal principles adopted in ERISA.

Il. THIS COURT SHOULD GRANT CERTIORARI TO

RESOLVE A.CONFLICT BETWEEN A STATE

COURT OF LAST RESORT AND FOUR UNITED

STATES COURTS OF APPEALS ON AN IMPOR-

TANT QUESTION OF FEDERAL LAW.

A. The Nevada Supreme Court Created New Defini-

tional Rules For ERISA Plans That Are Inconsist-

ent With The Rules Applied By The Federal Courts.

The Nevada Supreme Court’s disqualification of the

plan under review from ERISA coverage creates a clea

split between the highest court of a state and four United

States Courts of Appeals. The Seventh, Ninth, Tenth and

Eleventh Circuits have held that employer adoption of a

group insurance plan for its employees creates an ERISA

plan, so long as it meets the tests established by the Sec-

retary of Labor. See Kanne v. Connecticut General Lif

Insurance Co., 859 F.2d 96, 98 (9th Cir. 1988) (plan

offered through a MET); Ed Miniat, Inc. v. Globe Life

Insurance Group, Inc., 805 F.2d 732, 738 (7th Cir. 1986),

cert. denied, 482 U.S. 915 (1987); Roe v. General Ameri-

can Life Insurance Co. 712 F.2d 450, 452 (10th Cir.

,

1983) ;"" Donovan v. Dillingham, 688 F.2d 1367. 1371

lith Cir. 1982 en banc) (plan offered through a

MET : Accord. Dodd i. John Hancor I. Mutual Life In-

trance Co., 688 F. Supp. 564, 566-67 (E.D. Cal. 1988)

Rizzi v. Blue Cross of Southern Cal fornia, 253 Cal. Rptr.

241, 443-47 (Cal. Ct. App. 1988). The Nevada decision.

in stark contrast, imposes an additional requirement: that

loyer guarantee the continuation of benefits.

;

There is no doubt that the plan found not to he an ERISA

a

—

~

—

plan by the Nevada court would be considered a plan by

I the courts of appeals to nave considered this

i

;

In addition, the Nevada court’s imposition of an addi-

tonal “guarantee of continuation” test not contained in

the text of ERISA squarely conflicts with holdings by

the Federal courts of appeals that the only criteria for

1; ‘ . . ] ’ ar } ; ‘ ar }

aing a covered empiovee welfare penen plan are tnose

‘ s+ ¢ +] 2? } ‘ ‘ 4 | I

The Nevada court, moreover. is not the only court that

Im]

0 avoid the pre-emptive effect of ERISA. In Saybl.

BR Me ("ros OT No it] 7) vi Calitorn a. 255 Cal. Rpt re ] 14

1

Cal. Ct. App. 1989), the California intermediate appel-

has imposed additional. non-statutory criteria in order

late court held that “the existence of an ERISA plan de-

s

pends on the extent to which the employer is involved in

the administration of the benefit program.” Jd. at 148.2

) ' ,

Ir} / ‘ { rT CXT ‘ | ’ ‘ ry ed y ‘ | , ‘ i +} " +

1 1 }

" eo iiz } 2a ; | ? emy oy ’ , ? ad ‘ sal ;

rar for wt } em] on I qd 10 if the d il ¢ pren ry

‘ - - '

688 F.2d 1367, 1371 (11th Cir. 1982) (en ban iccord. Kanne

- 9.1 :

f nectie if (,ene7 /] ‘ ] ire 4 f xO | 2d 96 QR a+}

, 7

{ , LOR kd V nial Tn {, ‘ ] ly ‘rance (57 ine . )

t - wi | ' 4 - wa

1 452 {08 ‘ Cll LORE ( i. a ed, 482 U.S. 915 19874

' 4 rt | { in | T T "a

i i } i

\ 7 t reo} no } thy ntorr d t; nr +, +

in " I I py a

| ( ? ‘ thls i VM na de} ’ T} ,

15

716 F.2d 1101, 1104-05 (6th Cir. 1983 See

Schwartz v. Gordon, 761 F.2d 864, 869 (2d Cir. 1985

(Plans which cover both self-employed individuals and

heir employees governed by ERISA: “when the assets of

employees and a self-employed employer are commingled,

for example, the only way to assure the needed protection

for the former is to protect the latter as well.”); Dodd,

688 F. Supp. at 570; 29 C.F.R. § 2510.3-3(b).

On the other hand, the Nevada Supreme Court's alter

nate holding that a self-employed owner is not covered by

ERISA finds support in a Tenth Circuit decision holding

tl individuals with dual status as employers and em-

ployees were ineligible for inclusion under ERISA.

least where the plan documents expressly excluded as

eligible participants self-employed individuals, employers,

and owners of contributing business organizations, Peck-

ham v. Board of Trustees, 653 F.2d 424, 426-27 (10tl

Cir. 1981 Peckham I). Trial court decisions are in

a similar state of confusion. Compare Dodd v. John

Hancock Mutual Life Insurance Co., 688 F. Supp. 564,

o(1-72 (E.D. Cal. 1988) (the owner of a corporation

in be an “employee” and a participant under ERISA) :

th Pitre v. Louisiana Health Service and Indemnity

Co., 122 F.R.D. 497, 500 (W.D. La. 1988) (ERISA

pl the claim of a partner in a law firm).

See also, Peckham v. Board of Trustees, 724 F.2d 100

Oth Cir. 1983) (Peckham II) (employers named in

plan as participants may invoke ERISA jurisdiction to

sue for restitution of contributions) (appeal following

remand in 653 F.2d 424, supra); Chase v. Trustees of

Western Conference of Teamsters Pension Trust Fu

i

193 F.2d 744, 748-49 (9th Cir. LORD) (owning driver

f taxicabs should be considered “participants” for pur-

se of seeking restitution of plan contributions) ; Giar-

no v. Jones, 867 F.2d 409, 411-12 (7th Cir. 1989

16

(sole proprietor who only employed non-union employees

and who therefore was only subscriber to union sponsored

health care plan was not an ERISA “participant’”) ;

Tagyart, 617 F.2d 1208 (no ERISA plan is established

where a corporation simply buys insurance for its sole

employee/owner). Review of the decision below is neces-

sary to resolve the conflict and confusion evidenced by

these disparate decisions.

B. The Turnbow Decision Creates The Very Patchwork

Of Inconsistent State Regulation ERISA Was En-

acted To Avoid.

The confusion among the state and Federal courts on

these issues is undermining one of the primary goals

Congress sought to accomplish in enacting ERISA. A

major thrust of the program was to promote uniformity

and eliminate the patchwork of inconsistent state and

local regulation that plagued private employee benefit

plans in the American economy, and retarded the devel-

opment and the growth of private health insurance. ‘A

virtually unanimous Congress enacted ERISA in order to

encourage the establishment and growth of private” em-

ployer benefit plans. Rettig v. Pension Benefit Guaranty

Corp., 744 F.2d 133, 135 (D.C. Cir. 1984) (footnote

omitted ) .*4

ERISA’s integrated federal scheme for employee bene-

fits, along with its pre-emption of state law and reme-

dies, serves to ensure uniformity in application of the

Act’s standards to employee welfare plans. Congress

acted to promote the “uniformity of decision” necessary

“4 See also A-T-O, Inc. v. Pension Benefit Guaranty Corp., 634

F.2d 1013, 1021 (6th Cir. 1980); Michigan United Food and Com-

mercial Workers Unions v. Baerwaldt, 572 F. Supp. 943, 949 (E.D.

Mich. 1983), rev'd on other grounds, 767 F.2d 308 (6th Cir. 1985),

cert, denied, 474 U.S. 1059 (1986) (“Implicit in the whole purpose

of the Act is a desire to encourage private pension and welfare

plans by promulgating uniform, reasonable, and non-oppressive fed-

eral requirements.” )

17

for “administrators, fiduciaries and participants to pre-

dict the legality of proposed actions.” S. Rep. No. 127,

93d Cong., 2d Sess. , reprinted in 1974 U.S. Code

Cong. & Admin. News 4838, 4865.5

By permitting plan administrators, employers and

beneficiaries reasonably to expect a measure of consist-

ency in implementation of welfare plans among varied

locations and in varied circumstances, the Act provides

the predictability central to effective implementation of

a private system of employee welfare.

The lesson of the Turnbow decision is that in Nevada

an employee welfare plan, to qualify as an ERISA plan,

must have an employer’s “statement of intent to guar-

antee the continued furnishing of benefits’ (Cert. Pet. at

4a), whereas plans in other states will remain subject to

ERISA in the absence of such a requirement and par-

ticipants and beneficiaries under the plans will continue

to enjoy ERISA’s protections. The Nevada court’s deci-

sion is moreover an open invitation to employers to opt

out of ERISA and its mandatory Federal requirements

by announcing that they will not guarantee the con-

tinuity of benefits. As such, the decision is in consider-

able tension with the many court decisions that have held

that Congress did not intend to allow employers offering

benefit plans to “opt out” of ERISA coverage by failing

to adhere to its filing and notice requirements.” Of

*5 E'.9., Holland v. Burlington Industries, 772 F.2d 1140, 1147 (4th

Cir. 1985) (Congress’ “major policy objective” was “uniformity in

employee benefit laws”) (emphasis in original), aff’d mem. sub nom.

Brooks v. Burlington Industries, 477 U.S. 901 (1986); Scott v. Gulf

Oil Corp., 754 F.2d 1499, 1501 (9th Cir. 1985), citing Shaw v. Delta

Air Lines, Inc., 463 U.S. 85 (1983); see also 120 Cong. Rec. 29,197

(1974) (statement by Rep. Dent); 120 Cong. Rec. 29,933 (1974)

(statement by Sen. Williams).

“6 See, e.g., Blau v. Del Monte, 748 F.2d 1348, 1355 (9th Cir.

1984), as amended March 5, 1985, cert. denied, 474 U.S. 865 (1985):

Donovan v. Dillingham, 688 F.2d at 1372.

18

course, only in Nevada may an employer “opt out’ of

ERISA. Similarly, in Nevada a self-employed operator

of a business can never be an ERISA plan participant;

if she crosses over to California’ she is covered by

ERISA. This is the very patchwork of regulation Con-

gress sought to eliminate.

CONCLUSION

For the foregoing reasons, amicus urges this Court to

grant the petition for certiorari.

Respectfully submitted,

Of Counsel: JAMES L. NOLAN

ANDREW J. BERNSTEIN (Counsel of Record)

UNUM Life Insurance Co. CHRISTOPHER S. VADEN

2211 Congress Street MARK D. SCHNEIDER

Portland, Maine 04112 JENNER & BLOCK

(207) 770-6857 21 Dupont Circle, N.W.

Washington, D.C. 20036

(202) 223-4400

Counsel for Amicus Curiae

UNUM Life Insurance

April 19, 1989 Company