Reply Brief — Pacific Mutual Life Insurance v. Turnbow

No. 88-1546

IN THE |

Supreme Court of the United States

OCTOBER TERM, 1988

PACIFIC MUTUAL LIFE INSURANCE COMPANY, et ai.,

Petitioners.

HARRIETTE TURNBOW,

Responde nt.

On Petition for a Writ of Certiorari

to the Supreme Court of Nevada

REPLY BRIEF FOR PETITIONERS

Of Counsel: DAVID L. BACON

KEEGAN G. LOW (Counsel of Record)

ROBISON, BELAUSTEGUI, JEFFERY ANNE TATUM

20BB & SHARP ANGEL GOMEZ III

71 Washington Street ADAMS, DUQUE & HAZELTINE

Reno, Nevada 89503 523 West Sixth Street

(702) 329-3151 Los Angeles, CA 90014

(213) 620-1240

May 18, 1989 Attorneys for Petitioners

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

Supreme Court of the United States

On Petition for 1 Writ of Certior ri

o the supreme (¢ url of Nevad

REPLY BRIEF FOR PETITIONERS

2

and Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987),

for the overwhelming majority of American health care

plans. In addition, by excluding the working self-

employed from ERISA’s civil enforcement provisions, the

decision creates a serious dysfunction in the statute and

will cause the “mutually exclusive pockets of federal and

state jurisdiction within a plan” against which this Court

warned in Fort Halifax Packing Co. v. Coyne, 482 U.S.

1, 11 (1987), and Shaw v. Delta Air Lines, Inc., 463 U.S.

85, 99, 107-08 (1983).

Essentially ignoring these important considerations of

national uniformity and ERISA’s intended preeminence,

respondent argues, without any support in the statute or

legislative history, that Congress intended very restrictive

health care plan and civil enforcement coverage. (Oppo-

sition at 8-9). Unless overturned, this erroneous inter-

pretation of ERISA health care regulation—which re-

flects a sharp conflict among at least five Circuits (Peti-

tion at 16-19)—will lead to 50 differing and conflicting

sets of regulation by the states not merely for varying

health care plans, but also for individual participants

within these plans—the very “patchwork scheme of regu-

lation” that ERISA was intended to avoid. Fort Halifax

Packing Co. v. Coyne, 482 U.S. 1, 11 (1987).

Consequently, the Turnbow decision is not of limited

effect, as respondent argues. (Opposition at 8-9). To the

contrary, since over 84% of employer-sponsored health

care plans are insured, and 93% of all employers, self-

funded and insured alike, delegate claims administration

(Petition at 26-27), the negative impact of Turnbow and

its recent California counterpart, Sayble v. Blue Cross of

Southern California, 256 Cal. Rptr. 820 (Cal. Ct. App.

1989), will continue to be extraordinary indeed.

Contrary to respondent’s view, this Court’s recent

unfunded vacation pay decision in Massachusetts v.

3

Morash, 57 U.S.L.W. 4429 (April 18, 1989), does not

support her position at all. (Opposition at 7-8). Instead,

it strongly confirms petitioners’ ERISA coverage and

preemption arguments. First, this Court observed that

the reasonable views of the Secretary of Labor are en-

titled to “deference,” citing Chevron U.S.A. Inc. v. Nat-

ural Resources Defense Council, Inc., 467 U.S. 837, 843

(1984), among other cases. Jd. at 4431. As shown in

the Petition at 11-14, the Secretary’s regulations govern-

ing insured health care plans in 29 C.F.R. § 2510.8-1())

(1987)—which the Nevada Supreme Court ignored—

plainly establish that The Bottle Stop’s plan was ERISA-

regulated. Second, this Court concluded that because

ordinary vacation benefits are types of regular compensa-

tion that are typically “fixed, due at known times, and

do not depend on contingencies outside the employee’s

control,” they present none of the employee welfare bene-

fit plan risks that ERISA was intended to address. In

contrast, the Court observed that ERISA section 3(1)

regulates plans which provide certain health care benefits

—including “medical, sickness [and] accident . . . bene-

fits’—which generally “accumulate over a period of time

and are payable only upon the occurrence of a contin-

gency outside of the control of the employee.” Jd.’

Respondent essentially argues that The Bottle Stop’s

health care plan, which covered her and three common

law employees, was not ERISA-regulated because it was

insured and was administered primarily by third par-

1The Court also quoted with approval from the Secretary of

Labor’s explanation why the proposed regulations excluded certain

types of regular compensation, including vacation leave, in contrast

to “hospitalization” benefits, from ERISA’s definition of “employee

welfare benefit plan’:

{Plaid vacations ... are not treated as employee benefit plans

because they are associated with regular wages or salary,

rather than benefits triggered by contingencies such as hos-

pitalization. (emphasis added). Jd. at 4431.

6

These decisions, by exposing insured health care plans to

conflicting regulation and suits under state law, will lead

to increased transaction costs and hence to a reduction

in benefits, a self-funding of plans, or to their abandon-

ment altogether. See amicus brief filed by the Solicitor

General, on behalf of the United States, at 7-8, in Pilot

Life Ins. Co. v. Dedeauz, 481 U.S. 1 (1987). As this

Court stated in Fort Halifax, “lflaced with the diffi-

culty or impossibility of structuring administrative prac-

tices according to a set of uniform guidelines, an em-

ployer may decide to reduce benefits or simply not to pay

them at all.” 482 U.S. at 13.

In summary, the Turnbow decision, though posing a

formidable obstacle to congressional aims, stands at the

wrong edge of the tide. Notwithstanding Congress’ ex-

press intent that ERISA encourage the growth and de-

velopment of employee benefit plans, ERISA section 2(a),

29 U.S.C. $1001(a), the lack of employer-sponsored

health insurance is an increasingly severe national prob-

lem more than a dozen years after ERISA’s enactment.

See Employee Benefit Research Institute study, Unin-

sured in the United States: The Nonelderly Population

Without Health Insurance, 1986 (1988). The study

shows that in 1986, 37 million persons, representing ap-

proximately 18 percent of the civilian population under

age 65 (nearly 1 out of 5), reported no health insurance

coverage from any source; that this proportion was sub-

stantially greater than the percentage reporting no

health insurance in the early 1980's; and that nearly 88%

of the uninsured population were either themselves work-

ers or lived in the families of workers, and the family

income in about one-half of these cases was less than

$15,000 per year. (EBRI study at 2-3). The Turnbow

decision—which is indefensible on any ground—will not

only deliberately undercut ERISA’s preeminence over

employer-sponsored health care plans, but will also

exacerbate this shortfall of health insurance nationwide.

T

For the foregoing reasons, as well as the grounds ad-

vanced in the Petition and by the amici curiae, a writ

of certiorari should issue to review the judgment and

opinion of the Nevada Supreme Court.

Respectfully submitted,

Of Counsel: DAVID L. BACON

KEEGAN G. Low (Counsel of Record)

ROBISON, BELAUSTEGUI, JEFFERY ANNE TATUM

Rose & SHARP ANGEL GOMEZ III

71 Washington Street ADAMS, DUQUE & HAZELTINE

Reno, Nevada 89503 _.. 5283 West Sixth Street

(702) 329-3151 Los Angeles, CA 90014

(213) 620-1240

May 1%, 1989 Attorneys for Petitioners