Opposition Brief — Cramer v. Ass'n Life Insurance

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1 Supreme Court, U.S.

stk oD

MAR 4 195]

No. 90-1277

OFFICE OF THE CLERK

In The

Supreme Court of the United States

October Term, 1990

CHARLES R. CRAMER, JR., ET AL.,

Petitioners,

versus

ASSOCIATION LIFE INSURANCE COMPANY, INC.,

Respondent.

Petition For Writ Of Certiorari To The Supreme Court

Of The State Of Louisiana

OPPOSITION TO PETITION FOR

WRIT OF CERTIORARI

By Attorneys,

BREAZEALE, SACHSE & WILSON

CHRISTINE LIPSEY

La. Bar Roll No. 1182

23rd Floor, One American Place

Post Office Box 3197

Baton Rouge, LA 70821-3197

Telephone: (504) 387-4000

Attorney of Record for

Respondent

COCKLE LAW BRIEF PRINTING CO., (800) 225-6964

OR CALL COLLECT (402) 342-2831

SPECIAL NOTIFICATIONS

Pursuant to Sup. Ct. R. 29.1, counsel for respondent

certifies that respondent is a fourth-tier company whose

immediate parent company is Western States Life Insur-

ance Company, whose parent company is The Mutual

Group (U.S.) Inc., whose parent company is Mutual Life

Assurance of Canada. Respondent has no subsidiaries.

TABLE OF CONTENTS

Page

Special Notifications...............ceeeeeeeeeeeeees i

Table of Antietiins ......0«<vadannss eee iii

Siatemnent of the Cie ..< occa Soke asaweaee eee 1

Summary of the Argument ............---+00eeee5> 5

ATEUMENE .. 1... cece eee e cece cree econ neeseennces 6

Cataiath . ono vn inkdibbane vse ye’

APPENDICES

Appendix A - La. R.S. 22:657...........-.0.5- 055. A-1

Appendix B - Opinion of the Louisiana Supreme

Court - Cramer v. Association Life Ins.

Co., 569 So. 2d 533 (La. 1990)....... B-1

iii

TABLE OF AUTHORITIES

Page

CAsEs:

Anschultz v. Connecticut Gen. Life Ins. Co., 850 F.2d

8 ee | eee ee 7, 12, 20

Brock v. Primedica, Inc., 904 F.2d 295 (5th Cir. 1990) .... 20

California v. Sierra Club, 451 U.S. 287, 101 S. Ct.

a | ee 23

Cramer v. Association Life Ins. Co., 569 So. 2d 533

re eS 5, 10, 11, 18, 24

FMC Corp. v. Holliday, 498 U.S. ___, 111 S. Ct. 403,

ee 17, 18

Fort Halifax Packing Co., Inc. v. Coyne, 482 U.S. 1,

107 S. Ct. 2211, 96 L.Ed. 2d 1 (1987)........... 23, 24

FTC v. National Casualty Co., 357 U.S. 560, 78 S. Ct.

Ce ee ee ee 14

Group Life & Health Ins. v. Royal Drug Co., 440 U.S.

205, 99 S. Ct. 1067, 59 L. Ed. 2d 261 (1979)....11, 13

Hahn v. Oregon Physicians Service, 689 F.2d 840 (9th

AE DEINGS SKUs ca 6 65.6.0-0 Whee OK oes eee bee cee 14

Hewlett-Packard Co. v. Barnes, 571 F.2d 502 (9th Cir.

1978), cert. denied, 439 U.S. 831, 99 S. Ct. 108, 58

ee eka d ods eK th auwsseseeseseses 16

Ingersoll-Rand Co. v. McClendon, __ U.S. __, 111

ye i a |) re 20

In re Life Ins. Co. of North America, 857 F.2d 1190

re kin 5 6d <n bow 6 now wds6-8 5 7, 20

Kanne v. Connecticut Gen. Life Ins. Co., 867 F.2d 489

(9th Cir. 1988), cert. denied US. _,109S.Ct.

3216, 106 L. Ed. 2d 566 (1989).................. 7, 20

TABLE OF AUTHORITIES - Continued

Page

Kelley v. Sears, Roebuck and Co., 882 F.2d 453 (10th

Cir. 1989)

Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S.

134, 105 S. Ct. 3085, __ LL. Ed. 2d ____ (1985)

Peer ELT RE ET RTT re eee 21, 23, 24

Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S.

724, 105 S.Ct. 2380, 85 L. Ed. 2d 728 (1985)

PTET ETP TE TT TET ToT Ter eT TS 7, 9, 10, 14, 17, 18

Northwest Airlines, Inc. v. Transport Workers, 451

U.S. 77, 101 S. Ct. 1571, 67 L. Ed. 2d 750 (1981) .... 22

Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 107 S. Ct.

oe ee ey errr rer Tere passim

Ramirez v. Inter-Continental Hotels, 890 F.2d 760

SL, CAE oe ee eae care ee 7, ta 20

Robertson v. People of State of California, 328 U.S.

440, 66 S. Ct. 1160, 90 L. Ed. 1366 (1946) ......... 14

Securities & Exch. Com’‘n v. National Securities, 393 U.S.

453, 89 S. Ct. 564, 21 L. Ed. 2d 668 (1969)....... 13, 14

Sommers Drug Stores v. Corrigan Enterprises, Inc.,

793 F.2d. 1456, cert. denied, 479 U.S. 1034, 107 S.

ee eee 22

Spirt v. Teachers Ins. & Annuity Ass'n, 691 F.2d 1054

Se I PN oer ah SC ace pesca ssckccaes¥eeess 16, 17

Touche Ross & Co. v. Redington, 442 U.S. 560, 99 S.

ee ee ee eee ere 22

Transamerica Mortgage Advisors, Inc. v. Lewis, 444

U.S. 11, 100 S. Ct. 242, 62 L.Ed. 2d 146 (1979) .... 22

Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119, 102

See ee Ed. | 9, 11

Women in City Govern. United v. City of New York,

515 F. Supp. 295 (S.D.N.Y. 1981)................5. 17

TABLE OF AUTHORITIES —- Continued

Page

STATUTES:

6 URE: OR). went ee eee 9

OF Sis Ie oth cv ecw a eeeessa eacaekeuse 6, 15, 16

rE ee | errr ere Tree rr 2, 17, 20

Be ee eT rrr rrr re ce 16

EP Wan Ue IE oN whe concn nenescekene taken 16

rT ee Pe Pee eer tinea 16

SD Sas Te We ww kus a5 0440 0055 ue ere eee 2, 4, 21

BP Se Te POs oc cde beannkushtanras 4, 5, 6, 7, 8, 15, 16

eS EG UD Pree re rrr ye 13

mm. TRO. Th SS <n ccc Chsin ce kee uy ae eee 12

FO eee TT er Pe ee 10

RB Tha BT 6 ores ans we kteadceneceeuv ees eeenl passim

‘Paes Te; Ce BO OR ee cas oe ees eee 12

OTHER RESOURCE MATERIAL: :

9 G. Couch, Cyclopedia of Insurance Law § 39.53 (2d

RE. | RE ORL PEM et eR psn e ee 1]

oe Se Eh | Rereerrrerer rey te tr 20

eS a Pear yeyre rr errr yn re

No. 90-1277

In The

Supreme Court of the United States

October Term, 1990

CHARLES R. CRAMER, JR., ET AL.

Petitioners,

versus

ASSOCIATION LIFE INSURANCE COMPANY, INC.

Respondent.

Petition For Writ Of Certiorari To The Supreme Court

Of The State Of Louisiana

OPPOSITION TO PETITION FOR

WRIT OF CERTIORARI

STATEMENT OF THE CASE

In September, 1986, petitioners, Charles R. Cramer, Jr.

and Neva Gage Cramer (Cramers), filed suit against

respondent, Association Life Insurance Company Inc.

(Association Life), claiming benefits due under a health

insurance policy entered into between Charles R. Cramer,

Jr..s employer, Advertising by Computer, Inc., and

respondent. The claim at issue concerns a request for

payment for the care and treatment of the Cramers’

daughter.

In addition to the petitioners’ claim for benefits

under the group medical policy, the Cramers alleged that

Association Life was arbitrary and capricious in its fail-

ure to pay their claim, thereby entitling them to recover a

penalty of 100% of the principal sued on and reasonable

attorneys’ fees, pursuant to La. R.S. 22:657 (see Appendix

A). Association Life denied that it owed any obligation to

the petitioners.

Respondent filed an amended and supplemental

answer pleading that the petitioners did not have a cause

of action for penalties and mandatory attorneys’ fees

under La. R.S. 22:657, alleging that such claims were

preempted by the Employee Retirement Income Security

Act of 1974 (ERISA), 88 Stat. 829, as amended, 29 U.S.C.

§ 1001, et seq., and its civil enforcement remedies found at

29 U.S.C. § 1132. Respondent also amended its original

answer to deny that the Cramers were entitled to a trial

by jury, due to ERISA’s preemption.

Association Life then filed an exception of no cause

of action or, alternatively, motion for partial summary

judgment asking the trial court to dismiss the Cramers’

claim for penalties and mandatory attorneys’ fees under

La. R.S. 22:657 and to strike the Cramers’ request for a

jury trial. Contemporaneous with the filing of its excep-

tion/motion, Association Life filed a motion in limine

requesting the trial court to issue an order denying peti-

tioners’ jury trial demand, because the case was pre-

empted by ERISA and the federal common law

interpreting ERISA, which precludes a trial by jury. Asso-

ciation Life aiso moved for an in limine order limiting the

evidence admissible at trial to that evidence which was

before it at the time its final claims decision was ren-

dered, as required by prevailing case law interpreting

ERISA.

The Cramers filed a cross motion for partial sum-

mary judgment, opposing Association Life’s exception of

no cause of action/motion for partial summary judgment

and requesting an order of the court stating that ERISA

was inapplicable to the case at bar. The Cramers also

opposed Association Life’s motion in limine.

The trial court denied Association Life’s exception/

motion and granted the Cramers’ cross motion for partial

summary judgment, stating that ERISA was inapplicable

to the case at bar. The court also denied Association Life’s

motion in limine.

Upon Association Life’s application, the Louisiana

Court of Appeal, First Circuit, issued a writ of certiorari

to review the trial court’s ruling on the following issues:

1) Does ERISA apply to the case at bar, thus

requiring the application of ERISA’s civil

enforcement provisions contained in 29 U.S.C.

§ 1132 and thereby preempting and displacing

the plaintiffs’ state law claims for breach of con-

tract and penalties and mandatory attorneys’

fees under La. R.S. 22:657?

2) If ERISA does apply to the case at bar, are

the plaintiffs precluded from having a jury trial?

3) If ERISA does apply to the case at bar,

shouldn’t the evidence at trial be limited to that

before Association Life at the time of its final

claims decision, thus precluding a de novo trial

court review, and requiring application of an

arbitrary and capricious standard of review to

the claims decision made by Association Life?

The court of appeal held that the trial court erred in

not finding that ERISA is applicable to the instant case.

The court reached this conclusion, because the health

insurance benefits provided to the Cramers were afforded

under an employee welfare benefit plan within the con-

templation of ERISA.

However, the court of appeal determined that

ERISA’s preemption provision, § 514(a), 29 U.S.C.

§ 1144(a), does not preclude application of La. R.S. 22:657,

because § 657 is a law regulating insurance “saved” from

preemptior under ERISA § 514(b)(2)(A), 29 U.S.C.

§ 1144(b)(2)(A). The court of appeal also held that the

Cramers were entitled to a jury trial on the issue of

penalties and mandatory attorneys’ fees under La. R.S.

22:657. Additionally, the court found that the Cramers

were entitled to a de novo review of their claims and

would not be limited to offering evidence that was before

Association Life at the time it rendered its final claims

decision.

Association Life applied for supervisory writs to the

Louisiana Supreme Court alleging the court of appeal

erred as follows:

1) In finding that ERISA, specifically § 502, 29

U.S.C. § 1132, did not preempt the plaintiffs’ state law

claim for penalties and mandatory attorneys’ fees under

La. R.S. 22:657; and

2) In finding that plaintiffs were entitled to a trial

by jury of their claim under La. R.S. 22:657.

After granting Association Life’s application, the

Louisiana Supreme Court held that § 657, as applied to a

claim under an ERISA employee welfare benefit plan, is

preempted by ERISA because it fails to meet the “regula-

tion of insurance” elements of the McCarran-Ferguson

Act test, and because it conflicts with ERISA’s civil

enforcement provisions. The court reversed the appellate

court’s denial of Association Life’s motion for partial

summary judgment and remanded the case to the trial

court for further proceedings in accordance with the

supreme court’s ruling (see the Louisiana Supreme

Court’s decision, Cramer v. Association Life Ins. Co., 569 So.

2d 533 (La. 1990), attached as Appendix B).

The Cramers now petition for a writ of certiorari

claiming that the Louisiana Supreme Court improperly

extended this Court’s decision in Pilot Life Ins. Co. v.

Dedeaux, 481 U.S. 41, 107 S. Ct. 1549, 95 L. Ed. 2d 39 (1987)

to apply to the facts of the instant case.

SUMMARY OF THE ARGUMENT

This Court’s preemption analysis in Pilot Life, supra,

applies to La. R.S. 22:657, precluding § 657 from being

saved from preemption by ERISA § 514(b)(2)(A), 29

U.S.C. § 1144(b)(2)(A). Section 657 should be treated like

the Mississippi law of bad faith preempted in Pilot Life,

because it does not spread the policyholder risk and is

not integral to the insurer-insured relationship, thus fail-

ing the first two elements of the McCarran-Ferguson Act

test for “regulation of insurance.”

Consistent with the decision in Pilot Life, the federal

courts of appeal have uniformly held that statutory bad

faith claims do not satisfy the McCarran-Ferguson criteria

for regulation of insurance.

Further, in light of the Court’s interpretation of the

phrase “regulation of insurance” and Congress’ clear

authority to enact federal legislation in the area of

employee benefit plans when that legislation does not

impact on the regulation of insurance, the preemption of

§ 657 does not run afoul of 15 U.S.C. § 1012(b) and 29

U.S.C. § 1144(d).

The second ground for ERISA preemption of § 657 is

that it conflicts with ERISA’s “carefully integrated” civil

enforcement scheme. The Congressional history of ERISA

makes clear that ERISA’s enforcement scheme is intended to

be exclusive and not subject to conflicting state remedies.

Again, the federal courts have uniformly held that statutory

bad faith remedies conflict with ERISA’s civil enforcement

provisions and are, therefore, preempted.

Finally, the preemption of § 657 promotes, rather

than undermines, the goals of ERISA. The purpose of

ERISA’s enforcement scheme is designed to protect

employees’ interests in employee benefit plans. Should

Congress determine that the scheme is insufficient, Con-

gress has the ability to amend the act to remedy any

perceived insufficiency.

ARGUMENT

I. The Louisiana Supreme Court’s decision is consis-

tent with the rulings of this Court and the federal

appellate courts.

There are no important reasons for the granting of

petitioners’ request for writ of certiorari, because the

Louisiana Supreme Court’s decision does not conflict

with the decision of another state court of last resort or of

a United States court of appeals. Further, the decision of

the Louisiana Supreme Court is consistent with applica-

ble decisions of this Court. Sup. Ct. R. 10.

The Louisiana Supreme Court heid that La. R.S.

22:657 is preempted by ERISA because it is not a law that

regulates insurance and because it conflicts with ERISA’s

civil enforcement provisions. In reaching its conclusion,

the Louisiana Supreme Court looked to this Court’s anal-

ysis in Pilot Life, supra, and Metropolitan Life Ins. Co. v.

Massachusetts, 471 U.S. 724, 105 S. Ct. 2380, 85 L. Ed. 2d

728 (1985).

The court also observed that the vast majority of federal

jurisprudence interpreting “bad faith” statutes similar to

§ 657 have found that they are preempted by ERISA, citing

Ramirez v. Inter-Continental Hotels, 890 F.2d 760 (5th Cir. 1989);

Kanne v. Connecticut Gen. Life Ins. Co., 867 F.2d 489 (9th Cir.

1988), cert. denied _U.S.__, 109 S. Ct. 3216, 106 L. Ed. 2d

566 (1989); In re Life Ins. Co. of North America, 857 F.2d

1190 (8th Cir. 1988); and Anschultz v. Connecticut Gen. Life

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

II. The Pilot Life McCarran-Ferguson Act “regulation

of insurance” analysis of a state common law cause

of action for purposes of ERISA preemption applies

to La. R.S. 22:657 and compels the same conclusion

reached in Pilot Life.

A. Pilot Life common sense/McCarran-Ferguson

Act tests.

The source of ERISA’s preemption is, of course,

§ 514(a), 29 U.S.C. § 1144(a), the “preemption clause.” The

preemption clause provides that a state law will be super-

seded by ERISA if the state law relates to an employee

benefit plan.

Even though a state law relates to an employee bene-

fit plan, however, the “saving clause” exempts the state

law from ERISA’s application if it is a law which “regu-

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

ERISA’s “deemer” clause is found at § 514(b)(2)(B), 29

U.S.C. § 1144(b)(2)(B), which states that even though a

state law regulates insurance, it will be preempted if the

application of the state law would deem the employee

benefit plan to be an insurer.

The application of the preemption analysis to insured

plans occurred in Pilot Life, supra. The plaintiff-employee

in Pilot Life brought Mississippi common law claims for

breach of contract and bad faith against the insurer that

issued his employer’s group insurance policy. Pilot Life

argued that the plaintiff's claims were preempted by

ERISA.

This Court observed that there was no dispute that

the plaintiff's claims “related to” an employee benefit

plan, thus falling under ERISA’s preemption clause. The

Court’s next inquiry was whether Mississippi's common

law bad faith tort action was a law “regulating insurance”

saved from preemption by the saving clause.

The Court determined that the common sense under-

standing of the phrase “regulates insurance” did not sup-

port the argument that Mississippi’s law of bad faith fell

under the saving clause. Because any breach of contract

could give rise to punitive damages under Mississippi's

bad faith law, the Court concluded the law was not

directed toward the insurance industry. Pilot Life, supra,

107 S. Ct., at 1554.

The Court then referred to an analysis that it con-

ducted in Metropolitan Life, supra, in order to determine if

Mississippi’s law was a statute regulating insurance. In

Metropolitan Life, the Court utilized case law interpreting

the phrase “business of insurance” under the McCarran-

Ferguson Act, 15 U.S.C. § 1011, et seq.

Three factors have been developed to ascertain if a

statute or practice relates to the “business of insurance”

for purposes of the McCarran-Ferguson Act: 1) does the

practice transfer or spread a policyholder’s risk; 2) is the

practice an “integral part of the policy relationship

between the insurer and insured”; and 3) is the practice

“limited to entities within the insurance industry.” Pilot

Life, supra, 107 S. Ct., at 1553-54, quoting Union Labor Life

Ins. Co. v. Pireno, 458 U.S. 119, 129, 102 S. Ct. 3002, 3009,

73 L. Ed. 2d 647 (1982).

The Court found the Mississippi common law of bad

faith did not transfer or spread a policyholder’s risk.

With respect to the second McCarran-Ferguson Act factor,

the Court found any “connection to the insurer-insured

relationship attenuated at best” and stated as follows:

[T]he 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.

107 S. Ct., at 1555.

The Court, again observing that the Mississippi law

of bad faith was available in any breach of contract case,

stated that the law was not directed to the insurance

industry. Id.

B. Application of Pilot Life and Metropolitan Life

analysis to La. R.S. 22:657.

Unlike Mississippi’s common law of bad faith, La.

R.S. 22:657 is found in the Louisiana Insurance Code,

which was enacted to regulate the business of insurance.

La. R.S. 22:2.1 The fact that § 657 is in the Louisiana

Insurance Code does not, however, automatically make it

a statute that “regulates insurance” within the contempla-

tion of ERISA’s saving clause, the McCarran-Ferguson

Act factors, and Pilot Life.

While the Louisiana Supreme Court did not rule on

whether § 657 satisfies the common sense test for regula-

tion of insurance, it is conceded that it does. Likewise,

§ 657 meets the third McCarran-Ferguson Act factor, as

the Louisiana Supreme Court found. Cramer, supra, at 537.

Petitioners contend that the Louisiana Supreme

Court erred in not finding that the first McCarran-Fer-

guson Act factor — transference of the policyholder risk -

is satisfied by § 657. Petitioners argue that a risk is

transferred “only in the event that a valid claim is paid

promptly and in full.” p. 9, petition for writ of certiorari.

1 In pertinent part, § 22:2(A)(1) states: “Insurance is a

business affected with the public interest and it is the purpose

of this code to regulate that business in all its phases.”

Petitioners’ argument has no support in the law. This

Court, in Union Labor Life Ins. Co. v. Pireno, supra, at 131,

102 S. Ct., at 3009, determined that a transfer of risk from

the insured to the insurer occurs when the contract is

entered. See also, 9 G. Couch, Cyclopedia of Insurance Law

§ 39.53 (2d ed. 1985). Inherent in insurance are risks,

some of which involve losses which will be spread over

all the risks, thereby reducing the insurer’s possible lia-

bility. Group Life & Health Ins. v. Royal Drug Co., 440 US.

205, 211, 99 S. Ct. 1067, 1073, 59 L. Ed. 2d 261 (1979).

The Louisiana Supreme Court properly rejected peti-

tioners’ argument that a claims handling statute does not

spread the policyholder risk. The court below stated as

follows in response to petitioners’ argument:

In a health insurance contract, the risk spread

among policyholders is the risk that an insured

will require medical care for a covered illness.

The insurance contract does not seek to spread

the risk that the insurer will improperly handle

a settlement claim.

Cramer, supra, at 537.

The Louisiana Supreme Court found support for its

conclusion in this Court’s finding in Pilot Life that Missis-

sippi’s common law bad faith remedy did not spread the

policyholder risk, observing that the fact that § 657 is a

statutory remedy rather than a common law remedy is “a

distinction without relevance to the issue of whether La.

R.S. 22:657 acts to spread a policyholder’s risk.” Id., at

538.

Petitioners also suggest that the Louisiana Supreme

Court erred in determining that § 657 is not an integral

part of the insurer-insured relationship, thus failing the

second McCarran-Ferguson criteria. The court found that

§ 657, as the Mississippi common law of bad faith in Pilot

Life, is unrelated to the substantive relationship between

insurer and insured and is “primarily aimed at the pro-

cedural aspect of processing and settling claims.” Id., at

537.

The court’s finding is supported not only by this

Court’s decision in Pilot Life but also by the federal courts

of appeal. Several federal appellate courts have found

that bad faith statutes similar to § 657 do not satisfy the

first and second McCarran-Ferguson factors. The Fifth

Circuit, in Ramirez v. Inter-Continental Hotels, supra,

applied the McCarran-Ferguson analysis to § 16, article

21.21 of the Texas Insurance Code. Section 16 offers a

private right of action for damages and attorneys’ fees to

individuals injured by “unfair methods of competition

and unfair and deceptive acts or practices in the business

of insurance ... ”. The court found that the statute

neither transferred the policyholder risk nor defined the

terms of the insurer-insured relationship. Ramirez, supra,

at 763.

The Eleventh Circuit addressed Fla. Stat. § 624.155 in

Anschultz v. Connecticut Gen. Life Ins. Co., supra. The insur-

ance code statute provides a private remedy to individ-

uals injured by violations of the state insurance code. The

Eleventh Circuit concluded that § 624.155 does not satisfy

the first and second McCarran-Ferguson factors, because

the statute merely affords the beneficiary remedies upon

breach of an employee welfare benefit plan.

In Kelley v. Sears, Roebuck and Co., 882 F.2d 453 (10th

Cir. 1989), the court reviewed claims against Allstate

based on Colorado’s common :aw of bad faith and on

Colo. Rev. Stat. § 10-3-1104, which prohibits unfair prac-

tices in the insurance industry. While acknowledging that

the bad faith statute is associated with the insurance

industry, the court found that it did not spread the poli-

cyholder risk or control the substantive terms of the

insurance contract.

Petitioners ignore the foregoing jurisprudence which

holds that bad faith claims-handling statutes do not

define the substantive terms of the insurer-insured rela-

tionship. Petitioners choose to rely instead on language in

this Court’s interpretation of the McCarran-Ferguson Act

in Securities & Exch. Com’n v. National Securities, 393 U.S.

453, 460, 89 S. Ct. 564, 568, 21 L. Ed. 2d 668, (1969) that

“reliability, interpretation, and enforcement” of an insur-

ance policy are at the “core of the “business of insur-

ance’.” Petitioners argue that La. R.S. 22:657, “which

insures the reliability of a policy and helps insure its

accurate interpretation and also enforces the prompt and

fair payment of claims” must be integral to the insurer-

insured relationship. p. 10, petition for writ of certiorari.

Petitioners overlook this Court’s explanation of Con-

gressional concern which prompted the passage of the

McCarran-Ferguson Act, i.e., Congress’ concern “with the

relationship between insurance ratemaking and the antitrust

laws, and with the power of the States to tax insurance

companies.” National Securities, supra, at 459, 89 S. Ct., at 568.

See also, Royal Drug, supra, at 218, 99 S. Ct., at 1076.

Of particular significance is the Court’s language in

National Securities which distinguishes insurance companies

from the business of insurance for purposes of application

of the McCarran-Ferguson Act and gives examples of

areas subject to state insurance regulatjon:

The statute did not purport to make the States

supreme in regulating all the activities of insur-

ance companies; its language refers not to the

persons or companies who are subject to siate

regulation, but to laws “regulating the business

of insurance.” Insurance companies may do

many things which are subject to paramount

federal regulation; only when they are engaged

in the “business of insurance” does the statute

apply. Certainly the fixing of rates is part of this

business; that is what South-Eastern Underwriters

was all about. The selling and advertising of

policies, FTC v. National Casualty Co., 357 U.S.

560, 78 S. Ct. 1260, 2 L. Ed. 2d 1540 (1958), and

the licensing of companies and their agents, cf.

Robertson v. People of State of California, 328

U.S. 440, 66 S. Ct. 1160, 90 L. Ed. 1366 (1946), are

also within the scope of the statute. Congress

was concerned with the type of state regulation

that centers around the contract of insurance,

the transaction which Paul v. Virginia held was

not “commerce.”

National Securities, supra, at 459, 89 S. Ct., at 568.

(emphasis in the original).?

Inasmuch as claims practices statutes such as § 657

have nothing to do with activities such as ratemaking,

underwriting, selling and advertising of policies, or

2 Other cases have found that core activities such as

underwriting and risk-spreading functions fall within the

McCarran-Ferguson Act exemption for business of insurance.

Hahn v. Oregon Physicians Service, 689 F.2d 840, 843 (9th Cir.

1983). Of course, in Metropolitan Life, supra, this Court found

that mandated benefit laws regulate the business of insurance.

licensing of insurance companies, they clearly are not

statutes which “regulate insurance” within the meaning

of the McCarran-Ferguson Act. Such statutes may be

directed to, and have an effect on, insurance companies

but are subject to federal preemption because they are not

laws which regulate the business of insurance.

While § 657 may meet the common sense test for

regulation of insurance and the third McCarran-Ferguson

Act factor, it is inescapable that the first and second

McCarran-Ferguson factors are not met. Thus, § 657 is not

a law “regulating business” within the meaning of the

McCarran-Ferguson Act. The Louisiana Supreme Court’s

determination that § 657 does not spread the policyholder

risk and is unrelated to the substantive relationship

between the insurer and insured is correct.

C. The effect of 15 U.S.C. § 1012(b) and 29 U.S.C.

§ 1144(d) on La. R.S. 22:657.

In section III of their petition for writ of certiorari

(pp. 15-16), petitioners argue that the preemption of § 657

runs afoul of both 15 U.S.C. § 1012(b)? and 29 U.S.C.

§ 1144(d).4 Petitioners claim that ERISA’s preemption of

3 15 U.S.C. § 1012(b) states, in pertinent part: “No Act of

Congress shall be construed to invalidate, impair, or supersede

any law enacted by any State for the purpose of regulating the

business of insurance, or which imposes a fee or tax upon such

business, unless such Act specifically relates to the business of

insurance.”

4 29 U.S.C. § 1144(d) states, in pertinent part: “Nothing in

this subchapter shall be construed to alter, amend, modify,

invalidate, impair, or supersede any law of the United

States... ”.

§ 657 abrogates both § 1012(b) of the McCarran-Ferguson

Act and § 1144(d) of ERISA.

For the reasons explained, supra, § 657 is not a law

which regulates insurance within the meaning of

§ 1012(b). Further, with respect to ERISA, there are some

cases that say that the issue of whether a particular state

law regulates insurance need not be reached because

ERISA is an act which specifically relates to the business

of insurance. Hewlett-Packard Co. v. Barnes, 571 F.2d 502,

505 (9th Cir. 1978), cert. denied, 439 U.S. 831, 99 S. Ct. 108,

58 L. Ed. 2d 125 (1978) and Spirt v. Teachers Ins. & Annuity

Ass'n, 691 F.2d 1054, 1065 (2d Cir. 1982). See also, 29 U.S.C.

§§ 1002(17), 1081(a)(2), 1081(b), and 1101(b)(2).

This argument is bolstered by the fact that ERISA

envisions that insurance will play .a significant role in the

implementation of employee benefit plans. In defining an

employee welfare benefit plan, Congress states that it is a

plan, fund, or program established by an employer or

employee organization “for the purpose of providing for

its participants or their beneficiaries, through the purchase

of insurance or otherwise” .. . certain benefits. 29 U.S.C.

§ 1002(1) (emphasis added). It is inescapable that Con-

gress was aware that insurance would be integral to some

plans and that benefits provided through insurance

would be subject to ERISA administration and enforce-

ment.

Focusing on the reasons for the passage of the

McCarran-Ferguson Act (assurance that the states’

insurance industry would not be subject to federal trade

regulation and antitrust legislation), the courts have

found as follows:

[T]he Act should not be applied indis-

criminately to subsequent federal legislation,

the overriding purpose of which is not the regu-

lation of commerce but the protection of other

important federal interests. . . .

Women in City Govern. United v. City of New York, 515 F.

Supp. 295, 303 (S.D.N.Y. 1981). See also, Spirt, supra, at

PP p p

1065.

It is apparent that the McCarran-Ferguson Act is not

a limitation on Congress’ power to enact laws which may

“incidentally affect the business of insurance” when areas

of national concern are involved. Id. Since the intent of

ERISA is to protect the participants of employee benefit

plans, this certainly would seem to be protection of an

important federal interest. 29 U.S.C. § 1001(b).

D. FMC Corp. v. Holliday has no effect on the

Louisiana Supreme Court’s decision in this

case.

Relying on this Court’s recent decision in FMC Corp.

v. Holliday, 498 U.S. __, 111 S. Ct. 403, 112 L. Ed. 2d 356

(1990), petitioners claim that the Louisiana Supreme

Court ignored the distinction between regulation of an

ERISA plan and regulation of an insurer who sells poli-

cies to an ERISA plan. p. 14, petition for writ of certiorari.

FMC concerned ERISA’s preemption of a Pennsylva-

nia anti-subrogation law as applied to a self-funded plan.

Citing Pilot Life and Metropolitan Life, the Court found

that the law regulated insurance, because it is aimed at

the insurance industry and “directly controls the terms of

insurance contracts by invalidating any subrogation pro-

visions that they contain.” FMC, 111 S. Ct., at 403. The

law in question was found to be preempted even though

it directly regulated insurance, because the deemer clause

prevented the self-funded plan from being “deemed” to

be an insurer.

One of the differences between FMC and the case at

bar is that the Pennsylvania anti-subrogation law is not

an enforcement law, as § 657, but is more akin to the

mandated benefits law in Metropolitan Life, supra. Further,

the deemer clause controlled in FMC because a self-

insured plan was involved rather than an insured plan

such as the plan herein.

FMC cannot be relied on tor the proposition that

insured plans escape the application of ERISA because

state laws regulating insurance are saved from ERISA’s

preemption. As stated, supra, Congress expected that

insurance would play a key role in implementing ERISA

plans and that insured plans, as well as self-funded plans,

would be subject to ERISA’s controls and enforcement.

III. La. R.S. 22:657 conflicts with the civil enforcement

provisions of ERISA.

In addition to conducting the McCarran-Ferguson

analysis to determine if § 657 is saved from preemption,

the Louisiana Supreme Court considered “the role of the

saving clause in ERISA as a whole to determine if appli-

cation of the state law in question would interfere with

the goals sought to be achieved by ERISA.” Cramer, supra,

at 538. The court looked to this Court’s decision in Pilot

Life and was strongly influenced by the determination

that ERISA’s civil enforcement scheme is exclusive, pre-

cluding state law remedies that Congress rejected when

enacting ERISA:

In sum, the detailed provisions of § 502(a) set

forth a comprehensive civil enforcement scheme

that represents a careful balancing of the need

for prompt and fair claims settlement pro-

cedures against the public interest in encourag-

ing 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 ben-

eficiaries were free to obtain remedies under

state law that Congress rejected in ERISA. “The

six carefully integrated civil enforcement provi-

sions found in § 502(a) of the statute as finally

enacted .. . provide strong evidence that Con-

gress did not intend to authorize other remedies

that it simply forgot to incorporate expressly.”

Russell, supra, at 146, 105 S. Ct., at 3093

(emphasis in original).

Pilot Life, 107 S. Ct., at 1556.

Pilot Life’s interpretation of Congressional intent is

supported by ERISA’s legislative history, particularly as

is found in a portion of the Senate Conference Report on

ERISA describing administration and enforcement:

It should be stressed that with the narrow

exceptions specified in the bill, the substantive

and enforcement provisions of the conference

substitute are intended to preempt the field for

Federal regulations, thus erage, | the threat of

conflicting or inconsistent State and local regulation

of employee benefit plans. This principle is

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.

Sen. Conf. Rep. (1974), p. 29933 (emphasis added).

Pilot Life’s holding regarding the exclusivity of

ERISA’s civil enforcement provisions has uniformly been

followed by the federal appellate courts that have consid-

ered the issue, specifically, the Fifth Circuit in Brock v.

Primedica, Inc., 904 F.2d 295, 297 (Sth Cir. 1990) and Ram-

irez, supra, at 763; the Eighth Circuit in In re Life Ins. Co.,

supra, at 1194; the Eleventh Circuit in Anschultz, supra, at

1469; the Ninth Circuit in Kanne, supra, at 100; and the

Tenth Circuit in Kelley, supra, at 456.

Additionally, this Court very recently reaffirmed its

determination that ERISA’s civil enforcement remedies

are exclusive in Ingersoll-Rand Co. v. McClendon, __ US.

_._, 111 S. Ct. 476, 465-86, __ ~‘L. Bd. 2¢ ____ (1990).

Congress made the policy determination that the

administration and enforcement of ERISA should be uni-

form throughout the country. Surely, a Congressional

consideration was the multi-state employer who could be

subject to fifty sets of regulations and enforcement

remedies with respect to ERISA plan benefits. Such an

administrative nightmare could discourage employers

from providing benefits to employees — a result at odds

with ERISA’s stated goal of protecting the “interests of

participants in employee benefit plans and their benefici-

aries.” 29 U.S.C. § 1001(b).

Despite the overwhelming jurisprudential support

concerning Congress’ intent and the exclusivity of

ERISA’s civil enforcement remedies, petitioners argue

that Congress, through the 1989 House Report of the

Committee on Education and Labor, is in favor of the

courts developing federal common law remedies, even if

such remedies are not specifically included in 29 U.S.C.

§ 1132. Apparently included in these common law

remedies would be the award of extracontractual or puni-

tive damages for failu:2 to timely pay claims.

Petitioners’ argument is not supported by Congress’

stated intent prior to the enactment of ERISA. Further

this Court in Massachusetts Mut. Life Ins. Co. v. Russell, 473

U.S. 134, 144, 105 S. Ct. 3085, 3091, L. Ed. 2d ___ (1985)

discussed the issue of implied extracontractual damages

with respect to ERISA § 409(a) and determined that this

section did not provide express authority for an award of

extracontractual damages to a beneficiary. It is acknowl-

edged that the Court did not reach the issue of extra-

contractual damages under ERISA § 502(a)(3), 29 U.S.C.

§ 1132(a)(3) because the respondent in Russell disclaimed

reliance on § 502(a)(3). Id., at 139, 105 S. Ct., at 3088, n.5.°

However, the Russell rationale also applies to

§ 502(a)(3) and undermines petitioners’ argument that the

federal courts are encouraged, without Congressional

action, to award extracontractual or punitive damages in

response to a bad faith claim:

5 § 502(a)(3) states, in pertinent part, as follows:

A civil action may be brought . . . by a participant,

beneficiary, or fiduciary (A) to enjoin any act or

practice which violates any provision of this sub-

chapter of the terms of the plan, 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... .

We are reluctant to tamper with an enforcement

scheme crafted with such evident care as the

one in ERISA. As we stated in Transamerica

Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 19,

100 S. Ct. 242, 246, 62 L. Ed. 2d 146 (1979):

“[W]here a statute expressly provides a particu-

lar remedy or remedies, a court must be chary of

reading others into it.” See also Touche Ross &

Co. v. Redington, 442 U.S. 560, 571-574, 99 S. Ct.

2479, 2486-2488, 61 L. Ed. 2d 82 (1979). “The

presumption that a remedy was deliberately

omitted from a statute is strongest when Con-

gress has enacted a comprehensive legislative

scheme including an integrated system of pro-

cedures for enforcement.” Northwest Airlines,

Inc. v. Transport Workers, 451 U.S. at 97, 101 S.

Ct., at 1583.

In contrast to the repeatedly emphasized

purpose to protect contractually defined bene-

fits, there is a stark absence in the statute itself

and in its legislative history of any reference to

an intention to authorize the recovery of extra-

contractual damages.

Id., at 147, 105 S. Ct., at 3093, (1985) (footnotes omitted).

In Sommers Drug Stores v. Corrigan Enterprises, Inc.,

793 F.2d. 1456, 1464-65, cert. denied, 479 U.S. 1034, 107 S.

Ct. 884, 93 L. Ed. 2d 837, and 479 U.S. 1089, 107 S. Ct.

1298, 94 L. Ed. 2d 154 (1987), the court concluded that

§ 502(a)(3) does not permit recovery of extracontractual

or punitive damages because the phrase “equitable

relief,” as is used in the law of trusts, does not include

punitive damages.

Thus, unless Congress acts to amend ERISA and pro-

vides for extracontractual damages, “[t]he federal judici-

ary will not engraft a remedy on a statute, no matter how

salutary, that Congress did not intend to provide.”

Russell, supra, at 145, 105 S. Ct., at 3092, quoting California

v. Sierra Club, 451 U.S. 287, 297, 101 S. Ct. 1775, 1781, 68 L.

Ed. 2d 101 (1981).

For the foregoing reasons, the Louisiana Supreme

Court was correct in finding that La. R.S. 22:657 conflicts

with ERISA’s comprehensive enforcement scheme.

IV. Preemption of La. R.S. 22:657 furthers the goals of

ERISA.

Petitioners suggest that this Court’s decision in Fort

Halifax Packing Co., Inc. v. Coyne, 482 U.S. 1, 107 S. Ct.

2211, 96 L. Ed. 2d 1 (1987) supports their argument that

preemption of La. R.S. 22:657 does not further the pur-

pose of ERISA preemption. In Fort Halifax, the Court held

that a one-time severance payment to employees in the

event of a plant closure was not preempted by ERISA

because the benefit did not relate to an employee benefit

plan. The Court observed that “[t]he theoretical possi-

bility of a one-time obligation in the future simply creates

no need for an ongoing administrative program for pro-

cessing claims and paying benefits.” Id., 107 S. Ct., at

2218.

In an effort to distinguish between plans and plans

which purchase insurance to implement a plan, peti-

tioners cite language from Fort Halifax that “Congress

pre-empted state laws relating to plans, rather than sim-

ply to benefits.” 107 S. Ct., at 2217 (emphasis in the

original).

Petitioners ignore the fact that insured plans are, in

fact, plans and not simply benefits. Insured plans involve

an ongoing administrative program for processing claims

and paying benefits unlike the one-time severance benefit

in Fort Halifax. More important, unlike the situation in

Fort Halifax where the statute was not an enforcement

statute which conflicted with a federal statute, La. R.S.

22:657 is an enforcement statute which conflicts with a

federal statute, ERISA § 502. Id. 107 S. Ct., at 2221. More-

over, § 657 differs from Fort Halifax’s severance benefit

because it is not an attempt “to address uniquely local,

social, and economic problems.” Id.

Petitioners also argue that preemption of claims-

handling statutes will create a situation where insurers

will engage in massive abuses and will undermine

ERISA’s express purpose of protecting beneficiaries. p.

13, petition for writ of certiorari.

The Louisiana Supreme Court’s response to this

argument was that ERISA’s comprehensive civil enforce-

ment scheme was “designed specifically to protect the™

interests of the employee.” Cramer, supra, at 538. Included

in the remedies provided for is the discretionary award of

reasonable attorneys’ fees, which addresses any “possible

concern that attorney’s fees might present a barrier to

maintenance of suits for small claims, thereby risking

underenforcement of beneficiaries’ statutory rights... ”.

Russell, supra, at 149, 105 S. Ct., at 3093.

Rather than protecting employees, punitive damages

could leave employees with no benefits at all. Congress

certainly considered that exposure to punitive damages

could dissuade employers from providing employee ben-

efits. If an insurer who funds a plan has exposure for

double an underlying claim (as with § 657), it is inevita-

ble that rates would have to be increased. Increased pre-

miums could result in an employer reducing or

eliminating coverage. Congress did not intend to design a

scheme that is contrary to the interests of employees and

their beneficiaries.

CONCLUSION

The Louisiana Supreme Court’s decision in this case

is correct. La. R.S. 22:657 is properly preempted by ERISA

because it is not a law that regulates insurance and

because it conflicts with ERISA’s civil enforcement provi-

sions. The Louisiana Supreme Court’s finding is consis-

tent with applicable decisions of this Court and the

United States courts of appeals. Therefore, petitioners’

petition for Writ of certiorari should be denied.

By Attorneys:

BREAZEALE, SACHSE & WILSON

23rd Floor, One American Place

P.O. Box 3197

Baton Rouge, LA 70821-3197

Telephone: (504) 387-4000

CHRISTINE LIPSEY

Louisiana Bar Roll No. 1182

Attorney of Record for

Respondent, Association Life

Insurance Company Inc.

APPENDICES

A-1

APPENDIX A

§ 657. Payment of claims; health and accident policies;

prospective review; penalties; self-insurers

A. All claims arising under the terms of health and

accident contracts issued in this state, except as provided

in Subsection B, shall be paid not more than thirty days

from the date upon which written notice and proof of

claim, in the form required by the terms of the policy, are

furnished to the insurer unless just and reasonable

grounds, such as would put a reasonable and prudent

businessman on his guard, exist. The insurer shall make

payment at least every thirty days to the assured during

that part of the period of his disability covered by the

policy or contract of insurance during which the insured

in entitled to such payments. Failure to comply with the

provisions of this Section shall subject the insurer to a

penalty payable to the insured of double the amount of

the health and accidents benefits due under the terms of

the policy or contract during the period of delay, together

with attorney’s fees to be determined by the court. Any

court of competent jurisdiction in the parish where the

insured lives or has his domicile, excepting a justice of

the peace court, shall have jurisdiction to try such cases.

Amended by Acts 1990, No. 872, § 1, eff. July 25, 1990.

B-1

APPENDIX B

Charles R. CRAMER, Jr. and

Neva Gage Cramer

Vv.

ASSOCIATION LIFE

INSURANCE COMPANY.

No. 90-CC-0804.

Supreme Court of Louisiana.

Nov. 8, 1990.

Employee brought action against insurer under

employer’s health plan for failure to pay- benefits. The

Nineteenth Judicial District Court, East Baton Rouge Par-

ish, Joseph F. Keogh, J., held for employee on issue of

applicable law, and certiorari review was sought. The

Court of Appeal, 563 So.2d 267, denied writ in part and

made writ preemptory in part. Supervisory writs were

applied for. The Supreme Court, Cole, J., held that state

statute providing penalty for late payment of health and

accident benefits and mandating award of attorney’s fees

for collection of benefits, was preempted by ERISA.

Reversed and remanded.

Calogero, C.J., dissented and assigned reasons.

Lemmon, J., dissents and will assign reasons.

Christine Lipsey, Breazeale, Sachse & Wilson, Baton

Rouge, for Association Life Ins. Co., Inc., defendant-

applicant.

Allen M. Posey, Jr., Baton Rouge, for Charles Cramer

and Neva Cramer, plaintiff-respondent.

Richard Tyler, amicus curiae.

B-2

David Radlauer, amicus curiae.

Woodrow E. Eno, amicus curiae.

W. Shelby McKenzie, amicus curiae.

ON WRIT OF CERTIORARI TO THE COURT OF

APPEAL, FIRST CIRCUIT

COLE, Justice.

FACTS

On September 24, 1986, plaintiffs, Charles and Neva

Cramer, Jr., filed suit against defendant, Association Life

[Insurance Company, Inc. (ALIC), claiming benefits due

under a health insurance policy purchased by Mr.

Cramer’s employer, Advertising By Computer, Inc.

(ABC). Plaintiffs also sought penalties and reasonable

attorney’s fees pursuant to La.R.S. 22:657 because of

defendant’s alleged arbitrary and capricious failure to

pay their claim. Defendant, in its original answer, denied

any obligation to plaintiffs. In an amended and supple-

mental answer, defendant asserted plaintiffs do not have

a cause of action for penalties and mandatory attorney’s

fees under La.R.S. 22:657 because such claims are pre-

empted by the Employee Retirement Income Security Act

of 1974, as amended, 29 U.S.C.A. § 1001, et seg. (ERISA).

On December 15, 1988, defendant filed the peremp-

tory exception raising the objection of no cause of action,

and, alternatively, a motion for partial summary judg-

ment, claiming plaintiffs’ claim for statutory penalties

and attorney’s fees under R.S. 22-657 was preempted by

ERISA. At the same time, defendant filed a motion in

B-3

limine requesting the trial court to deny plaintiffs’

demand for a jury trial because the case is governed by

ERISA and the federal common law interpreting ERISA

precludes a trial by jury. Plaintiffs filed a cross motion for

partial summary judgment, opposing defendant's excep-

tion and motion for summary judgment, and requested

an order of the court declaring ERISA inapplicable to the

instant case.

The trial court ruled that ERISA was inapplicable to

the instant case, denied defendant’s exception, denied

defendant’s motion for partial summary judgment and its

motion in-limine to preclude a jury trial, and granted

plaintiffs’ motion for summary judgment. Defendant then

applied for supervisory writs to the Court of Appeal,

First Circuit. The Court of Appeal issued a writ of cer-

tiorari to review the trial court’s ruling on the following

issues:

1) whether ERISA applies to the case at bar,

thus requiring the application of ERISA’s civil

enforcement provisions and thereby preempting

plaintiffs’ claim for penalties and mandatory

attorney’s fees under La.R.S. 22:657;

2) if ERISA applies, are plaintiffs precluded

from having a jury trial;

3) if ERISA applies, should the evidence at

trial be limited to that before defendant at the

time of its final claims decision, thus precluding

a de novo trial court review and requiring appli-

cation of an arbitrary and capricious standard of

review to the claims decision made by defen-

dant?

After reviewing the case, the Court of Appeal ruled

1) ERISA applies to the case at bar because an “employee

B-4

benefit plan,” as the term is defined in ERISA, existed at

the time the plaintiffs’ claims arose; 2) plaintiffs’ claim for

penalties and mandatory attorney’s fees is not preempted

by ERISA; 3) plaintiffs are entitled to a jury trial of those

issues pertaining to benefits under the Louisiana Insur-

ance Code, but are not entitled to a jury trial of any issue

governed by ERISA; and 4) the evidence at trial should

not be limited to that before the defendant at the time of

its final claims decision, and the arbitrary and capricious

standard is not applicable in the instant case.

Defendant applied to this Court for supervisory writs to

challenge the rulings of the Court of Appeal. Specifically,

defendant challenges 1) the Court of Appeal’s ruling that

ERISA does not preempt plaintiffs’ state law claim for penal-

ties and mandatory attorney’s fees under La.R.S. 22:657; and

2) the Court of Appeal’s ruling that plaintiffs are entitled to a

jury trial of the claim under R.S. 22:657. Plaintiffs, in their

response to defendant’s arguments, do not challenge the

Court of Appeal’s ruling that ERISA applies to the instant

case. Therefore, the primary issue before this Court is

whether ERISA preempts La.R.S. 22:657. If La.R.S. 22:657 is

preempted by ERISA, then plaintiffs have no cause of action

for penalties and mandatory attorney’s fees, and are not

entitled to a jury trial.

The Employee Retirement Income Security Act of

1974 (ERISA), 29 U.S.C. § 1001, et seq., is a comprehensive

set of regulations governing employee pension and wel-

fare plans. An employee welfare-benefit plan is defined

in ERISA as one which provides to employees “medical,

B-5

surgical, or hospital care or benefits, or benefits in the

event of sickness, accident, disability [or] death,”

whether these benefits are provided “through the pur-

chase of insurance or otherwise.” ERISA imposes upon

pension plans a variety of substantive requirements relat-

ing to participation, funding, and vesting. 29 U.S.C.

§§ 1051-1086. Additionally, ERISA establishes various

uniform procedural standards concerning reporting, dis-

closure, and fiduciary responsibility for both pension and

welfare plans.

To effectuate the substantive and procedural provi-

sions of ERISA, Congress created within the Act an exten-

sive civil enforcement scheme. 29 U.S.C. § 1132. Under

the civil enforcement provisions of ERISA, a plan partici-

pant or beneficiary may sue to recover benefits due under

the plan, to enforce the participant’s rights under the

plan, or to clarify rights to future benefits. Relief may

take the form of accrued benefits due, a declaratory judg-

ment on entitlement to benefits, or an injunction against a

plan administrator’s improper refusal to pay benefits.

Additionally, in an action under the civil enforcement

provisions, the court in its discretion may allow an award

of attorney’s fees. Pilot Life Insurance Co. v. Dedeaux, 481

U.S. 41, 107 S.Ct. 1549, 95 L.Ed.2d 39 (1987). However, the

civil enforcement provisions do not allow exemplary

damages. Sommers Drug Stores Co. Employees Profit Sharing

Trust v. Corrigan Enterprises, Inc., 793 F.2d 1456, 1464 (5th

Cir. 1986), cert. denied 479 U.S. 1034, 107 S.Ct. 884, 93

L.Ed.2d 837, and 479 U.S. 1089, 107 S.Ct. 1298, 94 L.Ed.2d

154 (1987).

Recognizing that the broad provisions of ERISA over-

lap with numerous state regulatory laws, Congress put in

B-6

ERISA three provisions relating to the preemptive effect

of the federal legislation, often referred to as the pre-

emption clause, the savings clause, and the deemer

clause. The pre-emption clause! states:

Except as provided in subsection (b) of this sec-

tion [the savings clause], 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 . . . (Emphasis added.)

The savings clause? states:

Except as provided in subparagraph (B) [the

deemer clause], nothing in this subchapter shall

be construed to exempt or relieve any person

from any law of any State which regulates insur-

ance, banking, or securities. (Emphasis added.)

The deemer clause? states:

Neither an employee benefit plan . . . nor any

trust established under such a plan, shall be

deemed to be an insurance company or other

insurer ... Or to be engaged in the business of

insurance . . . for purposes of any law of any

State purporting to regulate insurance com-

panies [or] insurance contracts . . . (Emphasis

added.)

As noted by the United States Supreme Court, the

three pre-emption sections of ERISA are not a model of

legislative drafting. Metropolitan Life Insurance Co. v. Mass-

achusetts, 471 U.S. 724, 105 S.Ct. 2380, 85 L.Ed.2d 728

1 26 U.S.C. § 1144(a).

2 29 U.S.C. § 1144(b)(2)(A).

3 29 U.S.C. § 1144((b)(2)(B).

B-7

(1985). However, the sections generally can be said to

work as follows: if a state law relates to employee benefit

plans it is preempted unless the law “regulates insur-

ance,” in which case the savings clause saves the law

from pre-emption; but, a state law that purports to regu-

late insurance may not deem an employee benefit plan to

be an insurance company.

In this case, plaintiffs seek punitive damages and

attorney’s fees for defendant’s alleged arbitrary and

capricious failure to pay medical benefits under an

employee welfare benefit plan. Plaintiffs rely on La.R.S.

22:657 for the recovery of such damages. R.S. 22:657

provides, in pertinent part:

All claims arising under the terms of health and

accident contracts issued in this state . . . shall

be paid not more than thirty days from the date

upon which written notice and proof of claim

. . are furnished to the insurer unless just and

reasonable grounds .. . exist. Failure to comply

with the provisions of this Section shall subject

the insurer to a penalty payable to the insured

of double the amount of the health and accident

benefits due under the terms of the policy or

contract during the period of delay, together

with attorney’s fees to be determined by the

court.

4 The court noted that the apparent clarity of the preemp-

tion sections on their faces is deceiving. The court stated,

“ _. . while the general preemption clause broadly preempts

state law, the saving clause appears broadly to preserve the

State’s lawmaking power over much of the same regulation.

While Congress occasionally decides to return to the States

what it has previously taken away, it does not normally do

both at the same time.” 105 S.Ct. at 2389.

B-8

The above-cited portion of § 657 provides for manda-

tory attorney’s fees and penalties in cases where an insur-

ance company arbitrarily fails to pay benefits. As noted

above, however, the ERISA civil enforcement provisions

do not allow punitive damages for the arbitrary failure to

pay employee welfare benefits, and attorney’s fees in

such actions are discretionary not mandatory. Thus, a

concern in resolving the issue in the present case is

whether La.R.S. 22:657 is a law which “regulates insur-

ance” within the meaning of the savings clause such that

the provision is not preempted by ERISA.

In interpreting the pre-emption clauses of ERISA, we

have the benefit of two United States Supreme Court

cases which clarify their scope and meaning. In Pilot Life

Insurance Co. v. Dedeaux, supra, the Court held to be

preempted by ERISA state common law tort and breach

of contract actions asserting improper processing of a

claim for benefits under an employee benefit plan. In

Metropolitan Life Insurance Co. v. Massachusetts, supra, the

court found a Massachusetts minimum health-care bene-

fits law not to be preempted by ERISA. A careful reading

of these two cases reveals the proper atialysis to be used

in determining whether a specific state law is preempted

by ERISA. A careful reading of these two cases reveals

the proper analysis to be used in determining whether a

specific state law is preempted by ERISA.

First, we must determine if the state law at issue

“relates to” an employee benefit plan such that it is

within ERISA’s preemption clause. In Pilot Life, the court

noted that the phrase “relate[s] to” should be given its

broad, common-sense interpretation. Thus, the court

held, a state law “relates to” a benefit plan if it “has a

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connection with or reference to such a plan.” It is not

necessary for the law to be specifically designed to affect

employee benefit plans. 105 S.Ct. at 2389. The court

applied the common-sense test to the cause of action

raising improper handling of a claim for benefits under

an employee benefit plan, and found the state law

“undoubtedly meet[s] the criteria for pre-emption” under

the pre-emption clause. 107 S.Ct. at 1553.

Applying the common-sense test to R.S. 22:657, it is

clear the statute “relates to” an employee benefit plan.

The basis for the plaintiff’s suit is the defendant-insurer’s

alleged arbitrary and capricious failure to pay benefits

under an employee benefit plan. R.S. 22:657 is specifically

directed to an insurance company’s handling of a claim

under such an employee benefit plan.

Having found R.S. 22:657 “relates to” an employee

benefit plan, we next determine if the statute “regulates

insurance” and thus comes within the savings clause. To

make this determination, we again turn to Pilot Life. In

Pilot Life, the Supreme Court found Mississippi’s common

law of bad faith was preempted as it applied to a plain-

tiff’s claim for the improper handling of an employee

benefit plan. The Court first noted Mississippi’s common

law of bad faith was not specifically directed at insurance

companies, but rather was a law of general application.

Thus, the law did not fit the common sense meaning of

the phrase “regulates insurance.” However, the Court did

not rest its holding solely on the common sense inter-

pretation of the phrase. Instead, the Court sought guid-

ance from federal jurisprudence interpreting the phrase

“business of insurance” as used in the McCarran-

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Ferguson Act,5 and from the role of the saving clause

within the entire structure of ERISA.

Three criteria have been used to determine whether a

particular practice falls under “the business of insurance”

for purposes of the McCarran-Ferguson Act. First,

whether the practice has the effect of transferring 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. 107 S.Ct. at 1553. As applied to Mississippi’s

common law of bad faith, the court found that none of

the factors was met. The common law of bad faith does

not effect a spreading of policyholder risk. Further,

although the common law of bad faith may be said to

concern the policy relationship between the insured and

the insurer, the connection to such relationship is ten-

uous. The law of bad faith does not define the substance

of the relationship, but merely provides for a remedy

when there has been a breach of the contract defining the

relationship. Lastly, the court noted Mississippi's com-

mon law of bad faith is a law of general application not

limited to entities in the insurance industry.

> The McCarran-Ferguson Act provides, in pertinent part:

“(t]he business of insurance, and every person engaged

therein, shall be subject of the laws of the several States which

relate to the regulation or taxation of such business.” 15 U.S.C.

§ 1012(a).

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Applying the McCarran-Ferguson criteria to the facts

of this case reveals much of what the court in Pilot Life

said about Mississippi’s common law of bad faith applies

to R.S. 22:657. Although § 657 is limited to insurance

companies and thus meets the third factor of the McCar-

ran-Ferguson test, factors one and two are not met. The

statute is not an integral part of the insurer-insured rela-

tionship. The insurer-insured relationship is defined in

the substantive provisions of the insurance contract, and

consists of the respective obligations of each party to the

contract. Just like the common law of bad faith found by

the Supreme Court in Pilot Life not to be integral to the

insurer-insured relationship, R.S. 22:657 merely provides

a remedy, albeit statutory, for an insurance company’s

breach of a previously defined substantive relationship.

Instead of regulating the substantive terms or content of

insurance policies, R.S. 22:657 is primarily aimed at the

procedural aspect of processing and settling claims.

Also, the statute does not effect a spreading of poli-

cyholder risk. As we appreciate the use of the term

“spreading of risk” in the context of an insurance policy,

the risk focused upon is that risk for which the insurance

company has specifically contracted to reimburse its

insured. In Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119,

102 S.Ct. 3002, 73 L.Ed.2d 647 (1982), the Supreme Court

interpreted the phrase “spreading of policyholder risk” in

the context of the McCarran-Ferguson Act. The court

stated, “[t]he transfer of risk from insured to insurer is

effected by means of the contract between the parties —

the insurance policy — and that transfer is complete at the

time that the contract is entered.” 458 U.S. at 130, 102

S.Ct. at 3009. The court went on to note, “ .. . the

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fundamental principle of insurance [is] that the insurance

policy defines the scope of risk assumed by the insurer

from the insured.” 458 U.S. at 131, 102 S.Ct. at 3010. Thus,

when looking to see if a particular practice acts to

“spread the risk,” we must focus upon the actual risks

that were transferred from the insured to the insurer and

determine if the practice acts to alter the contractual

apportionment of those risks.

In this case, the Court of Appeal found, and plaintiffs

argue, R.S. 22:657 meets the first factor of the McCarran-

Ferguson factors because it acts to spread the risk that an

insurer will improperly handle a settlement claim. How-

ever, the Court of Appeal’s reasoning misconstrues the

proper focus of the phrase “spreading a policyholder’s

risk.” The employee benefit plan in question pertains to

health insurance. In a health insurance contract, the risk

spread among policyholders is the risk that an insured

will require medical care for a covered illness. The insur-

ance contract does not seek to spread the risk that the

insurer will improperly handle a settlement claim. In fact,

if the Court of Appeal’s reasoning were correct, the

Supreme Court in Pilot Life would have found the Missis-

sippi law in question to be a practice which acts to spread

a policyholder’s risk when applied in the context of an

employee benefit plan. To the contrary, however, the

Supreme Court found Mississippi’s law did not have such

an effect, and this Court can discern no principled reason

why the same conclusion is not warranted in this case.

The mere fact that R.S. 22:657 is a statutory remedy while

the law in Pilot Life was a common law remedy is a

distinction without relevance to the issue of whether R.S.

22:657 acts to spread a policyholder’s risk.

B-13

Our finding that R.S. 22:657 fails to meet two of the

three McCarran-Ferguson criteria does not necessarily

end our analysis. As the Court in Pilot Life indicated, the

McCarran-Ferguson test is not the sole consideration to

be addressed in determining whether a particular state

law is preempted by ERISA. A reviewing court should

also consider the role of the saving ciause in ERISA as a

whole to determine if application of the state law in

question would interfere with the goals sought to be

achieved by ERISA. In Pilot Life, the court referred to the

comprehensive civil enforcement scheme of ERISA, and

noted it is one of the essential tools for accomplishing the

stated purposes of the Act. The court went on to hold

Congress clearly expressed an intent that the civil

enforcement provisions of ERISA be the exclusive vehicle

for actions by ERISA-plan participants and beneficiaries

asserting improper processing of a claim for benefits. The

court stated, “[t]he policy choices reflected in the inclu-

sion of certain remedies and the exclusion of others under

the federal scheme would be completely undermined if

ERISA-plan participants and beneficiaries were free to

obtain remedies under state law that Congress rejected in

ERISA.” 107 S.Ct. at 1556.

In this case, plaintiffs, ERISA-plan participants, are

seeking to use R.S. 22:657 as a vehicle to obtain relief for

the alleged improper handling of their claim for benefits.

As noted previously, R.S. 22:657 allows punitive damages

to be recovered for an insurer’s arbitrary refusal to pay

benefits, and mandates the payment of attorney’s fees.

The civil enforcement scheme of ERISA does not allow

punitive damages and attorney’s fees are discretionary

B-14

not mandatory. Pilot Life, supra. Thus, thete is a clear

conflict between R.S. 22:657 and the substantive provi-

sions of ERISA’s civil enforcement scheme. Consequently,

the clear language used by the Supreme Court in Pilot Life

compels us to hold that R.S. 22:657, as applied to an

ERISA plan, is preempted by the civil enforcement provi-

sions of ERISA.

In finding R.S. 22:657 not to be preempted, the Court

of Appeal stated, “[tlo hold otherwise would violate the

most fundamental of all substantial policies of ERISA,

viz. to protect the interest of the employee.” Cramer v.

Association Life Ins. Co., Inc., 563 So.2d 267, 275 (La.App.

Ist Cir. 1990). This statement overlooks the fact that Con-

gress created a comprehensive civil enforcement scheme

designed specifically to protect the interests of the

employee. Under 29 U.S.C. § 1132, plaintiffs have a cause

of action against defendant for the recovery of accrued

benefits due, and may recover reasonable attorney’s fees

if the trial court determines the facts warrant such an

award. Merely because Congress chose not to adopt the

type of remedy available in R.S. 22:657 does not mean

employees’ interests are not being protected adequately.

Indeed, as the court in Pilot Life noted, the civil enforce-

ment provisions in ERISA represent a “careful balancing

of the need for prompt and fair claims settlement pro-

cedures and the public interest in encouraging the forma-

tion of employee benefit plans.” 107 S.Ct. at 1556. To

disrupt Congress’ carefully thought-out remedies by

allowing plaintiffs to raise a claim under R.S. 22:657

would be to ignore the strong evidence that Congress

intended ERISA’s civil remedies to be exclusive.

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Our holding in this case is supported by the vast

majority of the federal jurisprudence interpreting statutes

similar to R.S. 22:657. In Ramirez v. Inter-Continental

Hotels, 890 F.2d 760 (5th Cir.1989), the court held that

Texas Insurance Code article 21.21 § 16 was preempted by

ERISA. The Texas statute furnishes a right of action and

allows treble damages and attorneys’ fees to persons

injured by certain enumerated unfair methods of compe-

tition and unfair and deceptive acts or practices in the

business of insurance. Plaintiff attempted to use the stat-

ute to recover punitive damages for the insurer’s failure

to pay benefits allegedly due plaintiff. Referring to the

McCarran-Ferguson factors mentioned in Pilot Life, the

court found the statute does not transfer or spread poli-

cyholder risk, and does not define the terms of the rela-

tionship between the insurer and the insured.

Additionally, the court found the effect of the statute to

be indistinguishable from the effect of the common law

addressed in Pilot Life. The court stated, “[t]o interpret

the savings clause as authorizing such inconsistent state

remedies would be to defeat Congressional intent by

destroying the exclusivity of ERISA’s civil enforcement

provisions.” 890 F.2d at 763-64. See also, Kanne v. Connecti-

cut Gen. Life Ins. Co., 867 F.2d 489 (9th Cir.1988), cert.

denied, _ U.S. ___, 109 S.Ct. 3216, 106 L.Ed.2d 566 (1989)

(California statute prohibiting unfair insurance claims

processing held preempted by ERISA); In re Life Ins. Co. of

N. Am., 857 F.2d 1190 (8th Cir.1988) (Missouri statute

prohibiting vexatious refusal to pay insurance claims

held preempted by ERISA); Anschultz v. Connecticut Gen.

Life Ins. Co., 850 F.2d 1467 (11th Cir.1988) (Florida statute

providing private right of action to persons injured by

B-16

violations of state’s insurance code held preempted by

ERISA).

Particularly persuasive is the unanimity of the Loui-

siana federal district courts in holding R.S. 22:657 to be

preempted in ERISA.® In each of these cases, the court has

found R.S. 22:657 to be in conflict with the comprehensive

civil enforcement provisions of ERISA. The Court of

Appeal in the instant case felt the lower federal court

holdings were not persuasive because each was rendered

prior to this Court’s ruling in Soniat v. Travelers Ins. Co.,

538 So.2d 210 (La.1989). However, Soniat deals with a

statute which is clearly distinguishable from R.S. 22:657.

In Soniat, this Court considered whether La.R.S.

22:213(B)(7)? was preempted by ERISA. Specifically, we

considered whether ERISA preempts the portion of § 213

which prevents the cancellation of a policy from prejudic-

ing the rights of a policyholder concerning claims arising

prior to the cancellation. In finding R.S. 22:213 to be

6 Taylor v. Blue Cross/Blue Shield of New York, 684 F.Supp.

1352 (E.D.La.1988); Sublett v. Premier Bancorp Seif Funded Medi-

cal Plan, 683 F.Supp. 153 (M.D.La.1988); Rasmussen v. Metro-

politan Life Ins. Co., 675 F.Supp. 1497 (W.D.La. 1987).

7 At the time the events involved in Soniat took place,

La.R.S. 22:213(B)(7) provided: “Cancellation: the insurer may

cancel this policy at any time by written notice delivered to the

insured, or mailed to his last address as shown by the records

of the insurer, and shall refund the pro rata unearned portion

of any premium paid. Such cancellation shall be without prejudice

to any claim originating prior thereto .. . ” (Emphasis added).

B-17

within the savings clause of ERISA and thus not pre-

empted, we reviewed the McCarran-Ferguson factors and

found they were met. More importantly, however, we

noted that R.S. 22:213(B)(7) “does not conflict with the

substantive provisions of ERISA and . . . does not create a

conflict with ERISA’s civil enforcement scheme.” 538

So.2d at 215.

Additionally, a careful reading of Soniat reveals the

statute involved in that case is more closely analogous to

the mandated-benefit law held by the court in Metro-

politan Life not to be preempted by ERISA than it is to R.S.

22:657 or the comm@n law of bad faith involved in Pilot

Life. For the reasons discussed below, we believe the

United States Supreme Court in Metropolitan Life and Pilot

Life has created a distinction between state laws which

regulate the substantive terms of the insurance contract,

such as the statute involved in Soniat, and those which

merely regulate aspects of transacting the business of

group insurance, such as R.S. 22:657.

In Metropolitan Life, Phe Supreme Court addressed the

question of whether Massachusetts Gen. Laws Ann., ch.

175, § 47B (West Supp.1985) is preempted by ERISA. The

statute requires any general health-insurance policy

issued to a Massachusetts resident that provides hospital

and surgical coverage, or any benefit plan that has such

coverage, to provide as well a certain minimum of men-

tal-health protection. The Court held the statute “regu-

lates insurance” and thus is not preempted by ERISA. Of

particular importance is the Court’s discussion of the

various types of state insurance regulation that exist, and

the reason why § 47B was not the type of state regulation

intended to be preempted by ERISA. The Court noted

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state insurance regulations can be categorized as follows:

regulation of the insurance carrier, regulation of the

aspects of transacting the business of group insurance,

and regulation of the content of the insurance contracts.

As an example of the kinds of state laws which regulate

the content of the insurance contract, the Court men-

tioned those requiring policies to contain grace periods

and conversion privileges. The Court also construed man-

dated-benefit regulations, like § 47B, to fall within the

regulation of the content of the insurance contract.

After categorizing § 47B as a type of law regulating

the content of the insurance contract, the Court noted that

ERISA “does not regulate the substantive content of wel-

fare-benefit plans.” 105 S.Ct. at 2385. The Court then

found § 47B not to be preempted by ERISA, and made the

following observations which illuminate the rationale

both for the holding in Metropolitan Life and the later

holding in Pilot Life:

To state the obvious, § 47B regulates the terms of

certain insurance contracts, and so seems to be

saved from pre-emption by the saving clause as

a law ‘which regulates insurance.’ This com-

monsense view of the matter, moreover, is rein-

forced by the language of the subsequent

subsection of ERISA, the ‘deemer clause[,]’

which states that an employee-benefit plan shall

not be deemed to be an insurance company ‘for

purposes of any law of any State purporting to

regulate insurance companies, insurance con-

tracts, banks, trust companies, or investment

companies.’ (emphasis added). By exempting

from the saving clause laws regulating insur-

ance contracts that apply directly to benefit

plans, the deemer clause makes explicit Con-

gress’ intention to include laws that regulate

B-19

insurance contracts within the scope of the

insurance laws preserved by the saving clause.

105-S-Ct. at 2389-90. When the quoted language is consid-

ered in light of the Court’s earlier categorization of the

types of state insurance regulation, it is clear the Court in

Metropolitan Life was restricting its holding to those state

laws which regulate the contents of the insurance con-

tract. In other words, the Court’s holding does not

address those types of state laws which regulate the

carrier or which regulate aspects of transacting the busi-

ness of group insurance.

The precise scope of the holding in Metropolitan Life is

mentioned because it is important to a complete under-

standing of the rationale use by the Supreme Court in

Pilot Life. In Pilot Life, the Mississippi law focused upon,

when applied to an employee-benefit plan, did not fall

within the category of laws which regulate the content of

the insurance contract. Rather, the law, when applied to

an employee-benefit plan, more appropriately fit within

the Metropolitan Life Court’s second category of laws reg-

ulating insurance, namely one which regulates aspects of

transacting the business of insurance. Consequently, the

Court in Pilot Life had to address a law which, unlike the

law in Metropolitan Life, governed matters also governed

by ERISA. By finding the Mississippi law to be pre-

empted because of its conflict with ERISA’s civil enforce-

ment scheme, the Court in Pilot Life essentially created a

8 In fact, as an example of a law which regulates aspects of

transacting the business of insurance, the Court in Metropolitan

Life referred to laws regulating claims practices. 105 S.Ct. at

2383, n. 2.

B-20

distinction between state laws which regulate the content

of the insurance contract, such as mandated benefit laws,

and state laws which regulate aspects of transacting the

business of insurance, such as remedia! laws pertaining

to claims handling. State laws which fall into the latter

category are preempted by ERISA because ERISA itself

contains a comprehensive civil enforcement scheme

which regulates the practice of claims handling. State

laws which fall into the former category are not pre-

empted because ERISA itself contains no regulation of the

su stantive terms of insurance contracts.

With the above distinction in mind, it is clear our

holding in Soniat does not conflict with our holding

today. The statute involved in Soniat, by preventing the

cancellation of a policy from prejudicing the rights of a

policyholder concerning claims arising prior to the can-

cellation, regulates the substantive terms of any health

insurance contract issued in Louisiana. It essentially

redefines a “covered” illness for purposes of the insur-

ance contract. Thus, the statute falls within the same

category of regulations as was involved in Metropolitan

Life. R.S. 22:657, on the other hand, has no effect on the

substantive terms of the insurance contract. It merely

grants a remedy for the breach of a previously defined

contractual relationship. Thus, it falls within he category

of regulations which regulate aspects of transacting the

business of insurance, which are preempted by ERISA.

II.

Because we find La.R.S. 22:657 is preempted by

ERISA, it follows that plaintiffs are not entitled to a trial

B-21

by jury. The Court of Appeal’s ruling indicates the only

state law claims raised by plaintiffs are those arising

under R.S. 22:657. Because the R.S. 22:657 claims are

preempted, plaintiffs’ only remaining claims arise under

ERISA. Federal law is clear that no right to a trial by jury

exists under ERISA on an action to recover benefits, or to

clarify or enforce rights under an employee welfare bene-

fit plan. Crews v. Central States, Southeast and Southwest

Areas Pension Fund, 788 F.2d 332, 338 (6th Cir.1986); How-

ard v. Parisian, Inc., 807 F.2d 1560, 1567 (11th Cir.1987).

CONCLUSION

We hold La.R.S. 22:657, as applied to a claim under

an employee welfare benefit plan subject to ERISA, is

preempted by ERISA both because it fails to meet the

McCarran-Ferguson criteria and because it conflicts with

the civil enforcement provisions of ERISA. The Court of

Appeal’s denial of defendant’s motion for partial sum-

mary judgment is reversed and the case is remanded to

the trial court for further proceedings in accordance with

our ruling.

REVERSED AND REMANDED.

CALOGERO, C.J., dissents and assigns reasons.

LEMMON, J., dissents and will assign reasons.

CALOGERO, Chief Judge, dissenting.

I dissent from the majority’s conclusion that La.R.S.

22:657, providing for penalties and attorney’s fees to be

paid by an insurer who unjustly delays the payment of a

claim, is preempted by ERISA. This statute regulates

B-22

insurance, and therefore ERISA’s “saving clause” excepts

the statute from preemption.

The majority relies on the United States Supreme

Court’s decision in Pilot Life in finding that R.S. 22:657

does not fall within the saving clause. In Pilot Life, the

United States Supreme Court weighed two major consid-

erations which guided it in Metropolitan Life in determin-

ing whether a state law comes under the saving clause.

These were: 1) a “common sense view” of the language of

the clause itself, and 2) the criteria used to interpret the

term “business of insurance” for purposes of the McCar-

ran-Ferguson Act. Pilot Life, 481 U.S. at 48, 107 S.Ct. at

1553, 95 L.Ed.2d at 48.

Under the common sense test, La.R.S. 22:657 clearly

falls within the saving clause. In allowing for attorney’s

fees and penalties to be assessed against an insurer who

unjustly fails to pay a claim within thirty days, the statute

is directed at regulating the duties of an insurer in any

health and accident contract. La.R.S. 22:657 therefore reg-

ulates the “business of insurance” and passes the com-

mon sense test. In Pilot Life, the Court found that the

Mississippi common law of bad faith was not saved

under a common sense view because the law was not

directed specifically toward the insurance industry, but

was firmly planted in principles of tort and contract law.

The statute in question here is clearly directed toward the

insurance industry and should be found to fall under the

language of the saving clause.

As for the second consideration employed in Pilot

Life, | find that two of the three McCarran-Ferguson crite-

ria have been met. I agree with the majority that this

B-23

statute does not have the effect of spreading the poli-

cyholder’s risk and that the first criterion has not been

met. However, I disagree with the majority’s finding that

the statute is not an integral part of the insurer-insured

relationship. Timely payment of a claim is the central

obligation of an insurance contract and a matter of major

importance in the relationship between the parties to that

contract. This statute imposes a duty on the insurer to

pay a claim within a certain time and establishes a pen-

alty for breaching that obligation. The statute affects an

integral part of the relationship and meets the second

McCarran-Ferguson factor. As to the third factor, even the

majority concedes, and I agree, that the statute is directed

toward entities within the insurance industry.

No one of the McCarran-Ferguson criteria is deter-

minative, and therefore not all three are necessary to find

a statute to regulate the business of insurance. Pireno, 458

U.S. at 129, 102 S.Ct. at 3009, 73 L.Ed.2d at 657. Two of the

three McCarran-Ferguson factors are met. I find that this,

along with the fact that the statute passes the common

sense test of regulating the business of insurance, estab-

lishes that La.R.S. 22:657 falls under the saving clause and

is not preempted by ERISA.

It should also be noted that the primary basis for our

finding in Soniat that La.R.S. 22:213B(7) was not pre-

empted was the fact that it is part of the Insurance Code,

whose stated purpose it to “regulate insurers and the

insurance business.” Soniat, 538 So.2d at 214. The statute

in question here is also part of that body of law and

- should be considered to regulate insurance and fall under

the saving clause.

ey wed

B-24

In conclusion, while ERISA does apply to this case

because it deals with an “employee benefit plan,” a state

law cause of action still exists because La.R.S. 22:657 is

not preempted by ERISA. The plaintiff therefore should

have a claim for penalties and attorney’s fees and should

be allowed a jury trial on these issues. I would affirm the

Court of Appeal’s decision.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.