Opposition Brief — Rizzi v. Blue Cross of Southern California

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Dotan

supreme Court, U.S,

FILED

JUL 13. 1989

No. 88-2055 —*" A on JR.

In The

Supreme Court of the United States

October Term, 1988

ANTHONY M. RIZZI,

Petitioner,

BLUE CROSS OF SOUTHERN CALIFORNIA,

Respondent.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE CALIFORNIA COURT OF APPEAL

RESPONDENT?’S BRIEF IN OPPOSITION

Of Counsel. WILLIAM S. BOGGS

Counsel of Record

VILMA MARTINEZ CHARLES L. DEEM

MUNGER, TOLLES & OLSON GRAY, CARY, AMES & FRYE

355 South Grand Avenue 1700 First Interstate Plaza

35th Floor San Diego, California 92101-4219

Los Angeles, California 90071-1560 (619 ) 699-2758/2978

(213) 683-9100 Attorneys for Respondent

Blue Cross of Southern California

QUESTIONS PRESENTED

1. Does the Employee Retirement Income Security Act of

1974 preempt private causes of action under California In-

surance Code section 790.03(h) for alleged improper process-

ing of a claim for benefits under an employee benefit plan?

2. Is a health and hospitalization program established and

maintained by an employer through the purchase of insurance

an employee benefit plan within the meaning of the

Employee Retirement Income Security Act of 1974 if the

employer plays an administrative role in the plan, serving as

more than a mere conduit for the payment of insurance

premiums?

PARTIES TO THE PROCEEDINGS

Respondent Blue Cross of Southern Califomia has

changed its name to Blue Cross of California. Blue Cross of

California has no parent company, subsidiary, or affiliate.

ill

TABLE OF CONTENTS

QUESTIONS PRESENTED ......

PARTIES TO THE PROCEEDINGS

TABLE OF CONTENTS .........

50 ') SS: oS OS SS Oe S

ens £22) 22 2 2 OO OOD

1. There Is No Conflict Among the Circuits or

State Courts Concerning ERISA Preemption. . .

2. There Is No Conflict Among the Circuits

or State Courts Concerning the Elements of

en BRISA Plan. ...........

3. The Decision Has Little Impact on Future Claims.

4. This Identical Issue Was Twice Recently

Denied Review by Petition for Certiorari...... .

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SS Oo. 8.6 £68. 4 SS 28 Oe ee

iV

TABLE OF AUTHORITIES

Cases

Amos v. Blue Cross-Blue Shield of Alabama,

ee Fe Goer CRUG, BSD on ws ce ceca ewes

Anschultz v. Connecticut General Life

Insurance Co., 850 F.2d 1467 (11th Cir. 1988) ....

Coleman v. Balkcom, 451 U.S. 949 (1981) ..........

Commercial Life Insurance Co. v. Superior Court,

47 Cal. 3d 473 (1988), cert denied sub nom.

Juliano v. Commercial Life {Insurance Co.,

57 U.S.L.W. 3753 (U.S. May 15, 1989)

eh cane e eee ce nase 5.4 |

Credit Managers Ass'n v. Kennesaw Life & Acc. Ins.,

809 F.2d 617 (9th Cir. 1987) .............

Desmarais v. Joy Manufacturing Co.,

130 N.H. 299, 538 A.2d 1218 (1988) ....

Donovan y. Dillingham, 688 F.2d 1367

Oo ae Sm pee a

Fort Halifax Packing Co. v. Coyne,

OEE UB. LAIST) nk viv oi ves kcecc a's

Hoo v. United States, 108 S. Ct. 742 (1988)

Hood v. Prudential Insurance Co.,

522 So. 2d 265 (Ala. 1988) ............

In re Life Insurance Co. of North America,

857 F.2d 1190 (8th Cir. 1988) ............

Kanne v. Connecticut General Life Insurance Co.,

867 F.2d 489 (9th Cir. 1989), cert. denied,

57 U.S.L.W. _ (U.S. June 26, 1989)

[poe ec anG cee saa ks

39

6

6

369

Table of Authorities Continued

Cases Page

Moradi-Shalal v. Fireman’s Fund Insurance Cos.,

GG CM. SU Tee Cle kon hose eee 8

Pilot Life Insurance Co. v. Dedeaux,

MGA UD SEA) . 5 60s 6 cxceessceerenetes passim

Roberson v. Equitable Life Assurance Society,

869 F.2d 1498 (9th Cir. 1989), aff’ g without op.,

661 F. Supp. 416 (C.D. Cal. 1987) ............. 3

Sampson v. Mutual Benefit Life Insurance Ce,

O63 F230 106 (iat Ce. TPS) ows ov cs edescinc 4

Sayble v. Blue Cross of Southern California,

208 Cal. App. 3d 1108, op. decertified,

___ Cal. 3d __, 89 Los Angeles Daily

Journal D.A.R. 7398 (June 8, 1989) ............ 7

Taggart Corp. v. Life & Health Benefits

Administration, 617 F.2d 1208 (Sth Cir. 1980),

cert. denied sub nom. Taggart Corp. v. Elfros,

O05 UZ. VE UIIEAD ck 6 cena xs sb taken 7

Wayne Chemical, Inc. v. Columbus Agency Service

Corp., 367 F.2d Goa (7: Cor. T8977) oo hia Ses 7

Federal Statutes and Regulations

CRM. 499003 1G) a 6

USE SI 5 or ee 2

29 S04 100MA) «2.000 oe en ee

URE SW joo os ee 6

SO. 6M Oe eee 5

State Statutes

California Insurance Code § 790.03(h) .......... passim

No. 88-2055

in The

Supreme Court of the United States

October Term, 1988

ANTHONY M. RIZZI,

Petitioner,

Vv.

BLUE CROSS OF SOUTHERN CALIFORNIA,

Respondent.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE CALIFORNIA COURT OF APPEAL

RESPONDENT’S BRIEF IN OPPOSITION

Respondent, Blue Cross of Southern California, respect-

fully requests that this Court deny the petition for a writ of

certiorari seeking review of the decision of the California

Court of Appeal, Fourth Appellate District.

OPINION BELOW

The opinion below is adequately set forth in the petition.

STATEMENT OF THE CASE

Rather than correct the numerous factual inaccuracies in

petitioner’s statement of the case, respondent incorporates by

reference the statement of facts in the opinion below. In brief,

petitioner’s complaint alleges, inter alia, that respondent

violated CaliforniaInsurance Code section 790.03(h) by

denying petitioner’s claim for medical benefits under his

employer’s group health insurance policy. In accordance with

established law and this Court’s decision in Pilot Life In-

surance Co. v. Dedeaux, 481 U.S. 41 (1987), the trial court

granted summary judgment against petitioner on the ground

that his claims were preempted by the Employee Retirement

Income Security Act of 1974 ("ERISA"), 29 U.S.C. section

1001 et seq. The California Court of Appeal, Fourth Appellate

District, affirmed the judgment, and the California Supreme

Court denied petitioner’s petition for review.

REASONS WHY THE PETITION

SHOULD BE DENIED

1. There Is No Canflict_ Among the Circuits or State

Courts Concerning ERISA Preemption.

This Court set forth the standard for determining

ERISA preemption in Pilot Life Insurance Co. v. Dedeaux,

481 U.S. 41 (1987), in which the Court established a two-part

test to decide whether ERISA preempts state law claims. The

first part of the test requires the court to determine whether

the state law actually regulates the business of insurance or

merely relates to insurance companies. /d. at 50-51. The

second and “most important[ ]” part of the test examines the

remedies permitted under state law to determine whether they

supplement or supplant ERISA’s remedies for claims relating

to employee benefit plans. Under the second test, this Court

concluded that ERISA preempts all state law causes of action

that conflict with ERISA’s exclusive remedies for claims

under an employee benefit plan. /d. at 51-52. Petitioner does

oy)

not contest the propriety of the Pi/ot Life test, only its applica-

tion by the court below.’

The decision of the court below is consistent with the

decisions of all the federal and state appeals courts that have

considered the scope of ERISA preemption under the Pilot Life

decision. Petitioner seeks review by this Court because he is

not satisfied with the consistent application of the Pilot Life

ruling by all the appellate courts.

A number of courts have previously ruled on the issue of

ERISA preemption of California Insurance Code _ section

790.03(h). The California Supreme Court specifically ruled that

ERISA preempts causes of action asserted under

section 790.03(h) for improper claims procedures regarding an

employee benefit plan. Commercial Life Insurance Co. v.

Superior Court, 47 Cal. 3d 473, 484 (1988), cert. denied sub

nom. Juliano v. Commercial Life Insurance Co., 57 U.S.L.W.

3753 (U.S. May 15, 1989) (No. 88-1530).

The United States Court of Appeais for the Ninth Circuit

similarly ruled that private causes of action under

section 790.03(h) are preempted by ERISA. Kanne _y.

Connecticut General Life Insurance Co., 867 F.2d 489 (9th Cir.

1989), cert. denied, 57 U.S.L.W. _____ (U.S. June 26, 1989)

(No. 88-1659); Roberson v. Equitable Life Assurance Society,

869 F.2d 1498 (9th Cir. 1989), aff’ g without op., 661 F. Supp.

416 (C.D. Cal. 1987). Thus, the California Court of Appeal

The Califomia Court of Appeal applied the two-part Pilot Life test to

hold petitioner’s claims were preempted by ERISA. Although the court

below suggested that Califomia Insurance Code section 790.03 is a state law

directly aimed at the insurance industry (under the first part of the test), the

court found that the section supplemented the exclusive remedies available

under ERISA. Thus, the court below held that ERISA preempted petitioner's

claims under section 790.03(h).

decision in this case is consistent with the holdings of the

California Supreme Court and the Ninth Circuit Court of Ap-

peal.

Several other courts have had an opportunity to apply

this Court’s decision in Pilot Life to preemption issues under

ERISA, including several circuit courts of appeal. Every court

that considered the question since Pilot Life has reached the

same conclusion: ERISA preempts all state law claims,

whether asserted under state common law or state statutory law.

E.g., Amos v. Blue Cross-Blue Shield of Alabama, 868 F.2d

430, 431 (11th Cir. 1989) (ruling that “ERISA... is...a

barrier to state law causes of action, the effect of which

completely displaces state law claims”); Sampson v. Mutual

Benefit Life Insurance Co., 863 F.2d 108, 110 (1st Cir. 1988)

(ruling that ERISA preempts similar Massachusetts law); /n re

Life Insurance Co. of North America, 857 F.2d 1190, 1194 (8th

Cir. 1988) (dismissing state common law claims and a claim

under a Missouri statute that prohibited a “vexatious refusal to

pay” insurance benefits); Anschultz v. Connecticut General Life

Insurance Co., 850 F.2d 1467 (11th Cir. 1988) (finding that

Florida common law and statutory causes of action for

improper claims processing are preempted by ERISA).

Similarly, in those states that have considered the issue

of ERISA preemption, courts of final appeal have all ruled that

ERISA preempts state causes of action arising out of the

processing of insurance claims of ERISA programs. E.g., Hood

v. Prudential Insurance Co., 522 So. 2d 265 (Ala. 1988)

(holding that ERISA preempts Alabama claims for bad faith

refusal to pay an insurance claim); Desmarais v. Joy

Manufacturing Co., 130 N.H. 299, 538 A.2d 1218 (1988)

(ruling that ERISA preempts claims under New Hampshire

common law). Therefore, the California Court of Appeal

decision in this case is consistent with the decisions of all these

other state and federal court decisions.

The consistency of the decisions indicates that a grant of

certiorari and review of this case would serve little purpose.

This Court’s decision concerning ERISA preemption, as set

forth in Pilot Life, provides clear guidance to the lower courts.

The clarity of this guidance is attested to by the consistency

among the federal and state courts in applying the holding in

Pilot Life. As the Eighth Circuit stated in Jn re Life Insurance

Co. of North America, 857 F.2d at 1194, “[t}he Court in Pilot

Life could not have stated with any greater clarity that the

remedies afforded under ERISA are exclusive, and no state law

purporting to supply additional remedies will escape the

preemptive effect of § 1144(a) as laws ‘which regulate

insurance’ under [ERISA].” Absent the need to clarify or

resolve a conflict, this Court should not grant certiorari. See

Hoo v. United States, 108 S. Ct. 742 (1988) (White, J.,

dissenting).

2. There Is No Conflict Among the Circuits or State

Courts Concerning the Elements of an ERISA Plan.

An employee health care program funded through the

employer’s purchase of insurance is an employee benefit plan

within the meaning of ERISA. Congress specifically provided

that employee benefit plans may be funded “through the

purchase of insurance... .” 29 U.S.C. § 1002, subd. (1). In

this Court’s recent decision in Pilot Life, there was apparently

no dispute that the employee medical program funded through

the purchase of insurance was an ERISA plan. .

Contrary to petitioner’s suggestion, guidance is not

needed from this Court regarding the elements necessary for

the establishment of an ERISA plan. This Court recently

discussed the guidelines for determining the existence of an

ERISA plan in Fort Halifax Packing Co. v. Coyne, 482 U.S. |

(1987). In Fort Halifax, the Court recognized that Congress

intended ERISA to provide financial coordination and control

when employees and their beneficiaries are dependent on the

employer’s fiscal responsibility, such as when an employer

faces periodic demands on its assets by assuming the

responsibility to make regular payments on behalf of the

program. /d. at 9. Employers who establish medical programs

for their employees face such periodic demands on their assets

whether they self-insure or fund the programs through the

purchase of insurance.

In this case the California Court of Appeal followed the

standards announced by this Court, as well as the guidelines set

forth in detail in the act itself and the regulations thereunder.

29 U.S.C. §§ 1002(1), 1003(a); 29 C.F.R. § 2510.3-1(j ). The

decision is supported by established case precedent. See Kanne

v. Connecticut General Life Ins. Co., 867 F.2d 489, 492-93 (9th

Cir. 1989), cert. denied, 57 U.S.L.W. ____ (U.S. June 26,

1989) (No. 88-1659); Credit Managers /..s'n v. Kennesaw Life

& Acc. Ins., 809 F.2d 617, 625 (9th Cir. 1987); Donovan vy.

Dillingham, 688 F.2d 1367 (11th Cir. 1982). These cases

provide that an employer may establish an ERISA employee

benefit plan through the purchase of insurance, so long as the

employer is more than a mere advertiser or endorser of group

insurance. In Credit Manager’s, the United States Court of

Appeal for the Ninth Circuit stated:

An employer . . . can establish an ERISA plan rather

easily. Even if an employer does no more than

arrange for a “group-type insurance program,” it can

establish an ERISA plan, unless it is a mere advertiser

who makes no contributions on behalf of its

employees.

Credit Managers Ass'n v. Kennesaw Life & Acc. Ins., 809

F.2d at 625.

Unsatisfied with the Califomia Court of Appeal’s

application of established guidelines to the facts of this case,

petitioner asks this Court to add to ERISA’s statutory

framework, a requirement that an insurance policy purchased

for an ERISA plan disclose that the policy is purchased under

ERISA. Petitioner’s suggestion is without case or statutory

support.

Petitioner’s authorities are not in conflict with the

decision of the Califomia Court of Appeal and are

distinguishable on their facts.” In Wayne Chemical, Inc. vy.

Columbus Agency Service Corp., 567 F.2d 692 (7th Cir. 1977),

the United States Court of Appeals for the Seventh Circuit held

that the employer had not established or maintained an ERISA

plan because the employer had no knowledge of the alleged

health insurance coverage arranged by an insurance and health

plan brokerage company. Similarly, Taggart Corp. v. Life &

Health Benefits Administration, 617 F.2d 1208 (5th Cir. 1980),

cert. denied sub nom. Taggart Corp. v. Efros, 405 U.S. 1030

(1981) is factually distinguishable from this case. In Taggart,

the United States Court of Appeals for the Fifth Circuit ruled

that insurance purchased by an insurance mutual fund acting on

behalf of a number of employers did not constitute an ERISA

plan because the organization that established and maintained

the program was neither an employer nor an employee

organization. /d. at 1210

Thus, the Wayne and Taggart courts based their holdings

on the employers’ lack of involvement, not on the plans being

: The California Supreme Court has decertified one case upon which

petitioner relies, Sayble v. Blue Cross of Southern California, 208 Cal.

App. 3d 1108 (1989), op. decertified,___ Cal. 3d ___, 89 Los Angeles

Daily Journal D.A.R. 7398 (June 8, 1989), ordering that the reporter not

publish the opinion in the official reports.

funded through the purchase of insurance. Accordingly, these

decisions do not conflict with the decision of the court below

that petitioner’s employer had established and maintained an

employee benefit plan through the purchase of group health

insurance.

Therefore, the Califomia Court of Appeal decision in this

case is consistent with ERISA’s statutory framework, with prior

decisions of this Court, and with all other reported decisions

regarding the elements of an ERISA plan. Accordingly, a grant

of certiorari and review of this case is unnecessary and would

serve little purpose.

3. The Decision Has Little Impact on Future Claims.

Certiorari is inappropriate here because the decision in

this case wil! have minimal impact. This case concerns the

preemption of a private nght of action under California

Insurance Code section 790.03(h). The Califomia Supreme

Court has recently ruled that section 790.03(h) does not

provide a private right of action. Moradi-Shalal v. Fireman's

Fund Insurance Cos., 46 Cal. 3d 287, 292, 305 (1988). In

Moradi-Shalal, the court overruled earlier precedent to abolish

any private right of action under California Insurance Code

section 790.03(h) for all claims filed after the date the decision

became final.

As a result of the California Supreme Court’s decision in

Moradi-Shalal, the issue of preemption of Califomia Insurance

Code section 790.03(h) is now moot for all future claims.

Accordingly, a decision by this Court would have limited

precedential value, affecting only a relatively few cases filed

before the Moradi-Shalal decision. Such limited precedential

value provides further reason why this Court should deny

petitioner’s petition for writ of certiorari. See Coleman y.

Balkcom, 451 U.S. 949, 956 (1981) (Rehnquist, J., dissenting).

4. This Identical Issue Was Twice Recently Denied Review

by Petition for Certiorari.

In December 1988, the California Supreme Court ruled

that ERISA preempts a private cause of action brought under

California Insurance Code section 790.03(h) where the action

asserts a claim arising from an employee benefit plan. On

May 15, 1989, this Court denied certiorari in that case.

Commercial Life Insurance Co. v. Superior Court, 47 Cal. 3d

473 (1988), cert denied sub nom. Juliano v. Commercial Life

Insurance Co., 57 U.S.L.W. 3753 (U.S. May 15, 1989)

(No. 88-1530).

In February 1989, the United States Court of Appeals for

the Ninth Circuit similarly ruled that ERISA preempts claims

relating to employee benefit plans, including causes of action

brought under California Insurance Code section 790.03(h).

This Court recently denied certiorari in that case. Kanne v.

Connecticut General Life Ins. Co., 867 F.2d 489 (9th Cu.

1988), cert. denied, 57 U.'S.L.W. ___ (U.S. June 26, 1989)

(No. 88-1659).

CONCLUSION

No amount of rhetoric can transform this case into one jus-

tifying review by this Court. The decision of the California

Court of Appeal is consistent with ERISA’s statutory

framework, with prior decisions of this Court, and with all

other reported decisions regarding ERISA preemption and the

elements of an ERISA plan. There is no important question of

constitutional law or public policy requiring review by this

10

Court. Therefore, respondent respectfully requests that the

petition for a writ of certiorari be denied.

Dated: June 30, 1989

Respectfully submitted,

WILLIAM S. BOGGS

Counsel of Record

CHARLES L. DEEM

GRAY, CARY, AMES & FRYE

1700 First Interstate Plaza

San Diego, California 92101-4219

(619) 699-2758/2978

Attorneys for Respondent

Blue Cross of Southern California

Of Counsel:

VILMA MARTINEZ

MUNGER, TOLLES & OLSON

355 South Grand Avenue, 35th Floor

Los Angeles, California 90071-1560

(213) 683-9100