# Opposition Brief — Cramer v. Ass'n Life Insurance > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385009_1652%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Opposition Brief - **Published:** January 1, 1991 - **Citation:** 499 U.S. 938 ## Text 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 A a4 CHARLES R. CRAMER, JR., ET AL., Petitioners, versus ASSOCIATION LIFE INSURANCE COMPANY, INC., Respondent. aA vw Petition For Writ Of Certiorari To The Supreme Court Of The State Of Louisiana A vr OPPOSITION TO PETITION FOR WRIT OF CERTIORARI A. 4 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. il TABLE OF CONTENTS Page Special Notifications...............ceeeeeeeeeeeeees i Table of Antietiins ......0« 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 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). B-11 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 B-12 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 B. 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. B-15 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 B-18 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. --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385009_1652%3A2. Public record. Not legal advice.