Amicus Curiae Brief — Metropolitan Life Insurance v. Massachusetts

: . Office - Supreme Court. US |

Nos. 84-325 and 84-356 Pye Le

SEP 2 1e4

IN THE

DER L. STEVAS.

Supreme Court of the United ee

OCTOBER TERM, 1984

METROPOLITAN LIFE INSURANCE COMPANY,

Appellant,

v.

COMMONWEALTH OF MASSACHUSETTS.

Appellee.

THE TRAVELERS INSURANCE COMPANY,

Appellant,

v.

COMMONWEALTH OF MASSACHUSETTS,

Appellee.

On Appeal From The Supreme Judicial Court

For The Commonwealth Of Massachusetts

BRIEF AMICUS CURIAE OF THE

ERISA INDUSTRY COMMITTEE IN SUPPORT

OF APPELLANTS’ JURISDICTIONAL STATEMENTS

JOHN M. VINE

(Counsel of Record)

ARVID E. ROACH JI

Covington & Burling

1201 Pennsylvania Avenue, N.W.

P.O. Box 7566

Washington, D.C. 20044

(202) 662-6000

Attorneys for

The ERISA Industry Committee

September 7, 1984

i

TABLE OF CONTENTS

Page

THE INTEREST OF AMICUS AND THE GREAT

PUBLIC SIGNIFICANCE OF THE ISSUES IN-

I Actinsttiieisdenittnandanidiiniantesnnanbicineatinenieduatmenmsescentn 2

THIS CASE PRESENTS SUBSTANTIAL FEDERAL

i deiiiheiiciicinihibhinstdeniduaiinbindianndnanmtannsasssiibionncies 5

Be ee ID aitciibitittitnitnrsipiiesintennsinictemnenincon 5

| oss ccrtenscndnennienceminanenmannsenenionens 11

ENT sisisctrenedesinccsneseuenesnentiny-crnepesennnnictascennins-cese 14

s

TABLE OF AUTHORITIES

CASES

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

(| ) eee eee

Allied Chemical & Alkali Workers v. Pittsburgh Plate

Glass Co., 404 U.S. 157 (1971) ...ccecceececceeeeeeeeeeeeeeeees

Attorney General v. Travelers Insurance Co., 385

Mass. 598, 433 N.E.2d 1223, vacated & remanded,

103 S. Ct. 3563 (1983), on remand, 391 Mass. 730,

Pt bE OT), | ee

Group Life & Health Insurance Co. v. Royal Drug

Ca., GED UB. FES CBG DP ccccccssnsssestenseressntntentatininaniins

Local 24, International Brotherhood of Teamsters v.

oe LS el ea

Lodge 76, International Association cf Machinists v.

Wisconsin Employment Relations Commission, 427

UP Gi i) |

Malone v. White Motor Corp., 435 U.S. 497 (1978)...

Metropolitan Life Insurance Co. v. Whaland, 410

ABE GSS (PETE. BGT) eccccccsccscssssnsssentinstnscsntiiietsamemans

Michigan United Food & Commercial Workers Fund

v. Baerwaldt, 572 F. Supp. 943 (E.D. Mich. 1983),

appeal docketed, No. 83-1570 (6th Cir. Aug. 16,

|) ae

New York Telephone Co. v. New York State Depart-

ment of Labor, 440 U.S. 519 (1979)... ....cccecceeeeeeees

Ozawa v. United States, 260 U.S. 168 (1922)..............

San Diego Building Trades Council v. Garmon, 359

UO: 7)

Shaw v. Delta Air Lines, Inc., 103 S. Ct. 2890

United States vy. American Trucking Associations,

Bree.. S9O USD. S36 ( EDGED) accccccecesassnsecsensesssenstncsenente

STATUTES AND LEGISLATIVE MATERIALS

Employee Retirement Income Security Act of 1974,

Pub. L. No. 93-406, 88 Stat. 829 (1984), 29 U.S.C.

gS ee

§ 3¢ 1), 2D U.S.C. § 1OGRC 1 ) ncecccccccccseccsssccnsssssssses

passim

12,13

7-9,11

5-11

lll

§ 514(a), 29 U.S.C. § 1144( a) cecccccecceccesceeeseeseesees

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

§ 514(b)(2)(B), 29 U.S.C. § 1144(b)(2)(B)....

§ 514(c)(2), 29 U.S.C. § 1144(C)(2) ceccocccesesseeses

Mass. Gen. Laws ch. 175, § 47B .o........cccccccccccccccecccceeeee

McCarran-Ferguson Act, ch. 20, 59 Stat. 33 (1945),

ce

§ 2(b), 15 U.S.C. § 1012(b)........ sendonwessouneseqvescosee

Tc nrsncs ccctnecsncsosssensseceenscsscees

National Labor Relations Act, ch. 372, 49 Stat. 449

Ss es OE BN, OO BI concn ccccsccccccccccecesers

H.R. Rep. No. 1785, 94th Cong., 2d Sess. ( 1977).......

Mass. Gen. Court, Jt. COMM. ON INSURANCE, AD-

(i974) IN HEALTH INSURANCE IN MASSACHUSETTS

SST

120 Conc. Rec. 29197, 29933, 29942 (1974) (re-

marks of Rep. Dent, Sen. Williams, and Sen.

i ccedenenccee

OTHER

Brummond, Federal Preemption of State Insurance

Laws Under ERISA, 62 lowa L. Rev. 57 (1976)...

HEALTH INSURANCE ASSOCIATION OF AMERICA,

Source Book or HEALTH INSURANCE Data, 1982-

EES

Hutchinson & Ifshin, Federal Preemption of State

Law Under the Employee Retirement Income Secu-

rity act of 1974, 46 U. Cui. L. Rev. 23 (1978)........

Kilberg & Heron, The Preemption of State Law

Under ERISA, 1979 DUKE L.J. 383 ..0.....ccccccccccseeeeee

| US. DEPARTMENT OF LABOR, BUREAU OF LABOR

STATISTICS, EMPLOYEE BENEFITS IN MEDIUM AND

LARGE FIRMS, 1982 (1983) ...........cccccccceeeccecseeeeeeeeeeee

U.S. DEPARTMENT OF LaBor, LABOR-MANAGEMENT

SERVICES ADMINISTRATION, GROUP HEALTH Cov-

ERAGE OF PRIVATE FULL-TIME WAGE AND SALARY

GE

Page

11

9,13

IN THE

Supreme Court of the United States

OcTOBER TERM, 1984

Nos. 84-325 and 84-356

METROPOLITAN LIFE INSURANCE COMPANY,

Appellant,

Vv.

COMMONWEALTH OF MASSACHUSETTS,

Appellee.

THE TRAVELERS INSURANCE COMPANY,

Appellant,

Vv.

COMMONWEALTH OF MASSACHUSETTS,

Appellee.

On Appeal From The Supreme Judicial Court

For The Commonwealth Of Massachusetts

BRIEF AMICUS CURIAE OF THE

ERISA INDUSTRY COMMITTEE IN SUPPORT

OF APPELLANTS’ JURISDICTIONAL STATEMENTS

This case presents a question of fundamental importance

to the Nation’s employers and their employees—whether state

legislatures are free, in the guise of “insurance regulation,” to

dictate the benefits that must be provided by insured employee

benefit plans. The decision below holds that a Massachusetts

Statute requiring specific mental health benefits to be included

2

in all health insurance policies covering state residents—a

statute whose express purpose and principal effect were to

govern employee benefit plans—is not pre-empted by the

Employee Retirement Income Security Act of 1974 (“ERISA”)

or the National Labor Relations Act (“NLRA”). This result

threatens to force employers either to assume the great burden

and expense of conforming their insured employee benefit

plans to ever-changing laws of fifty different states, or to

abandon insured employee benefit plans altogether.

The ERISA Industry Committee submits this amicus curiae

brief, with the consent of the parties, to urge the Court to note

jurisdiction of these two appeals and give plenary consideration

to this important state-court decision.

THE INTEREST OF AMICUS AND THE GREAT

PUBLIC SIGNIFICANCE OF THE ISSUES INVOLVED

The ERISA Industry Committee (“ERIC”) is a nonprofit

association of over one hundred major corporations doing

business in a wide variety of American industries. A list of

ERIC’s members is set forth in the Appendix hereto. Through

ERIC, member companies express their views to the courts, the

Congress, and the Executive Branch on issues affecting privaic

pension and welfare plans.

ERIC represents a broad cross-section of firms maintaining

health benefit plans and other employee welfare plans. (“Wel-

fare plans” are employee benefit plans that provide non-

pension benefits, such as health, accident, or supplemental

unemployment benefits.) ERIC members’ welfare plans cover

tens of millions of beneficiaries. All of the members of ERIC

do business in more than one state, and a number have

employees in all fifty states. Transfers of employees from one

state to another are common. Many of the welfare plans of

ERIC’s members provide uniform benefits in all states where

beneficiaries are located. Such nationwide benefit uniformity is

important to employee morale and yields significant savings in

administrative expenses.

3

Most of the welfare plans of ERIC’s members are insured

plans—that is, they provide benefits through the purchase of

group insurance policies covering their beneficiaries. Under an

insured plan, the employer pays a premium to the insurance

company, and the insurance company generally assumes the

risk as to the actual level of benefits that will be payable during

the term of the policy.1 Some ERIC members maintain non-

insured plans. Under these plans, the cost of benefits is the

direct responsibility of the employer, who is sometimes referred

to as a “self-insurer.” As a rule, “self-insurance” is an econom-

ically feasible alternative to purchasing insurance from an

insurance company only where a plan is large enough to allow

the risk to be spread over a large population. While self-

insurance has been growing, insured welfare plans remain

much more common. For example, among medium and large

firms nationwide, insured health plans covered about four times

as many individuals as self-insured plans in 1982. USS.

DEPARTMENT OF LABOR, BUREAU OF LABOR STATISTICS, EM-

PLOYEE BENEFITS IN MEDIUM AND LARGE FIRMS, 1982, at 36

(1983).

Whether state governments can dictate the benefits of

insured welfare plans is a question of great importance to

ERIC’s members and their employees. The companies

participating in ERIC spend hundreds of millions of dollars

each year on insurance premiums and administrative expenses

‘Some insurance policies, particularly for large plans, are “experience

rated,” which means that the premium is based on the actual claims

experience under the policy. Generally, under such policies, if the plan has a

surplus in a particular year ( premiums exceed c«!aims and expenses), the plan

receives a refund or credit of some portion of the premiums, while if the plan

incurs a deficit (claims and expenses exceed premiums), the employer can

choose between not renewing the policy, in which case the insurance company

absorbs the deficit, or renewing the policy and paying some or all of the

deficit over a period of time. Under experience-rated policies of this kind,

risks are not borne entirely by the insurance company, but rather are shared

between the insurance company and the employer.

4

for insured welfare plans.2 Laws increasing the costs of insured

welfare plans can have a substantial economic impact on a

business. Welfare-plan benefits are a major issue in collective

bargaining negotiations and are a major factor in compensation

decisions for non-union employees.

If the states are permitted to enforce a crazy quilt of

mandatory-benefit laws against insured welfare plans, both

employers and employees will suffer. Companies with insured

plans will be forced either to adopt all-encompassing benefit

packages that satisfy the laws of every state, which will greatly

increase total benefit costs, or to provide a variety of different

benefits on a state-by-state basis, which will impose costly

administrative burdens and cause dissatisfaction and confusion

among employees. Free give-and-take in collective bargaining,

as well as employers’ ability to offer their non-union employees

attractive pay and benefit packages at acceptable cost, will be

supplanted by state prescription of a key element of com-

pensation. Employees will be forced to accept benefits they

would not have chosen themselves, and to sacrifice benefits they

would have preferred. The only other alternative for such

employers will be to abandon their insured plans completely

and shoulder the risks and costs of “self-insurance”—risks and

costs they decided not to incur when they established insured

plans. In sum, both employers and employees will be pre-

vented from achieving the best possible benefits at the most

reasonable cost.

The result will be that fundamental purposes of ERISA—

national uniformity in benefit-plan regulation and the growth

and soundness of employee benefit plans—will be frvstr. :d.

These grave consequences, as well as the importance of .he

legal questions presented, call for this Court’s review of the

decision below.

2 Nationally, health insurance premiums totalled $85 billion in 1981,

most of which was paid by employers. HEALTH INSURANCE ASSOCIATION OF

America, Source Book or HEALTH INSURANCE Data, 1982-1983, at 6

(1982). Some three-fourths of the full-time employees of private firms are

covered by health plans. U.S. DEPARTMENT oF LaBor, LABOR- MANAGEMENT

SERVICES ADMINISTRATION, GrouP HEALTH INSURANCE COVERAGE OF PRI-

VATE FULL-TIME WAGE AND SALARY Workers, 1979, at 15 (1981).

5

THIS CASE PRESENTS SUBSTANTIAL

: FEDERAL QUESTIONS

Section 47B of Chapter 175 of the Massachusetts General

Laws requires that insurance policies that provide hospital and

surgical benefits for state residents also must provide specified

mental health benefits.? Section 47B also requires that these

same benefits be provided by “any employees’ health and

welfare fund which provides hospital expense and surgical

expense benefits” in the state. Thus, the statute’s clear purpose

is to mandaf2 health benefits for all employee benefit plans, both

insured and non-insured. This is confirmed by the only

legislative material available. The explanatory report of the

joint committee that originated the bill makes clear that the

committee’s objective was to furnish mental health benefits for

“workers.” Mass. GEN. Court, JT. COMM. ON INSURANCE,

ADVANCES IN HEALTH INSURANCE IN MASSACHUSETTS I, 3, 4

(1974).

A. ERISA Pre-Emption

In this action, the appellants argued that Section 47B was

pre-empted by both ERISA and the NLRA. The ERISA pre-

emption issue received the primary attention of the court below.

ERISA pre-empts all state laws insofar as they “relate to

any employee benefit plan.” ERISA § 5!4(a), 29 U.S.C.

§ 1144(a). Exempted from this pre-emption, however, is

any state law “which regulates insurance.” ERISA

§ 514(b)(2)(A). 29 U.S.C. § 1144(b)(2)(A). This is often

referred to as the “insurance savings clause.” ERISA also

provides that, in applying the insurance savings clause, an

employee benefit plan shall not “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 companies [or] insurance contracts.” ERISA

§ 514(b)(2)(B), 29 U.S.C. § 1144(b)(2)(B). This is often

referred to as the “deemer clause.”

3 These include payment for sixty days’ hospitalization in a mental

hospital, benefits for hospitalization in a general hospital for mental or

nervous conditions that are equal to the benefits provided for other illnesses,

and $500 per year for certain out-patient mental health benefits.

6

The question confronting the Massachusetts Supreme Judi-

cial Court below was whether Section 47B is a law “which

regulates insurance” within the meaning of ERISA’s insurance

savings clause—and thus exempt from pre-emption—or is

preempted by ERISA’s basic pre-emption provision, particu-

larly as read together with the expression of Congressional

intent in the deemer clause to prevent state insurance laws from

being used as a pretext for state regulation of employee benefit

plans.

The court began its analysis of this question by artificially

bifurcating Section 47B. The state had conceded that insofar as

the statute applied explicitly to non-insured employee benefit

plans, it was pre-empted by ERISA. The court concluded that

this aspect of the statute was severable as a matter of general

state-law severability doctrine, and thus proceeded to review

Section 47B as if it had been solely a law directed at insurance

policies. Attorney General v. Travelers Insurance Co., 385

Mass. 598, 601, 433 N.E.2d 1223, 1225, App. 13a, 1Sa-l6a

(1982), vacated & remanded, 103 S. Ct. 3563, App. 10a

(1983), on remand, 391 Mass. 730, 463 N.E.2d 548, App. la

(1984).

The court next recognized that a literal reading of the

insurance savings clause, exempting any state law bearing the

label “insurance” from pre-emption, was untenable, as this

would give states virtually unlimited rein to govern employee

benefit plans under the pretext of insurance regulation. As the

court put it, this construction “might permit the State, through

its insurance laws, to reach far into areas governed by ERISA,

and thereby negate the unmistakable intent of Congress to

work a broad preemption.” Jd. at 606, 433 N.E.2d at 1228,

App. at 21a.

The court was thus faced with the task of drawing a line

between non-pre-empted state insurance laws and those state

laws that, while purporting on their face to inyolve insurance,

are pre-empted. The court decided that the appropriate basis

for distinction was whether the state statute was in “clear

conflict” with affirmative regulatory provisions of ERISA. Id.

Since ERISA’s affirmative regulation of welfare plans is limited

to reporting, disclosure, fiduciary conduct, and plan adminis-

>

tration, and ERISA, in contrast to Section 47B, does not

prescribe the “substantive content of plans,” the court con-

cluded that Section 47B was not pre-empted. The court

rejected the idea that ERISA was also actuated by fundamental

policies of encouraging private initiative in structuring healthy,

growing, broad-based employee benefit plans and allowing

plan sponsors to enjoy < climate conducive to nationwide plan

uniformity without interference from conflicting state laws.

Instead, the court thought it could discern in this Court’s

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

(1981), intimations that ERISA’s pre-emption was aimed

solely at state laws that “affected a subject covered by ERISA.”

385 Mass. at 608, 433 N.E.2d at 1229, App. at 23a.

On appeal, 103 S. Ct. 3563, App. 10a (1983), this Court

vacated and remanded for further consideration in light of

Shaw v. Delta Air Lines, Inc., 103 S. Ct. 2890 (1983). Shaw,

which repeatedly stressed that the exceptions from pre-emption

in ERISA are “narrow” (id. at 2902, 2903), undermined both

the Massachusetts Supreme Judicial Court’s conflict-based no-

tion of ERISA pre-emption and the Massachusetts court’s

rejection of private initiative and uniformity as fundamental

goals of ERISA.

Shaw held that ERISA pre-empted a New York

antidiscrimination law and a New York law requiring that sick-

leave benefits be paid to employees unable to work because of

pregnancy. In so holding, the Court specifically noted that

ERISA “does not mandate that employers provide any particu-

lar benefits, and does not itself proscribe discrimination in the

provision of employee benefits’—thus clearly rejecting the

notion of the Massachusetts court in this case that conflict is the

necessary predicate for pre-emption. Jd. at 2897.

Further, Shaw cited Alessi for the proposition that ERISA,

in “establishing benefit plan regulation ‘as exclusively a federal

concern,’” was aimed at minimizing “the need for interstate

employers to administer their plans differently in each State in

which they have employees.” Jd. at 2904 (quoting Alessi, 451

U.S. at 523). In words equally applicable here, Shaw pointed

out that allowing “varied and perhaps conflicting” state laws to

be enforced against employee benefit plans would undercut

employers’ freedom to administer efficicnt, uniform employee

benefit plans and would leave employers with a series of

unattractive options. Among these options would be setting up

different plans in each state—with “the inefficiency of such a

system presumably... paid for by lowering benefit levels” —

and adopting uniform plans that met the requirements of all

states—which would require the employer to “reduce wages or

eliminate those benefits not required by any State” in order to

“offset the additional expenses.” Jd. at 2904 n.25. These very

same adverse consequences are the inevitable result of the

Massachusetts court’s decision in this case.

Despite the clear rejection in Shaw of the Massachusetts

Supreme Judicial Court’s earlier reasoning, the court refused on

remand to alter its decision. Shaw’s repeated characterization

of ERISA’s pre-emption exceptions as “narrow” was dismissed

as “dictum,” and the Supreme Judicial Court instead insisted on

its own view of the insurance savings clause as “broad.” 391

Mass. at 733-35, 463 N.E.2d at 550-51, App. at 4a-6a. The

court acknowledged that Shaw “rejected a conflict-based anal-

ysis” of ERISA’s general pre-emption provision, but nonethe-

less reaffirmed its own conflict-based theory of ERISA’s insur-

ance savings clause. Jd. at 734, 463 N.E.2d at 551, App. at Sa.

Finally, the court, while conceding that it was required to

“accept as authoritative” this Court’s conclusion in Shaw that

ERISA was intended to foster private initiative and uniformity

in benefit plans, now treated these policies as irrelevant. Jd. at

734, 463 N.E.2d at 551, App. at 6a. While the Massachusetts

court’s earlier decision had recognized that ERISA’s insurance

savings clause cannot be applied literally, and had sought to

interpret it based on the court’s views of the, policies animating

ERISA, now, faced with an authoritative Supreme Court

decision rejecting its notions of Congress’ intent, the court set

aside intent and reaffirmed its prior decision on the basis of the

“language” that it had previously recognized to be the begin-

ning—not the end—of the analysis. Jd. at 735, 463 N.E.2d at

551, App. at 6a.

9

The ERISA pre-emption issue presented in this case is a

substantial federal question for the following reasons:

1. It is an important question of first impression. No

prior decision of this Court interprets ERISA’s insurance

savings clause. The lower courts are divi’ed on the

matter,* as are the commentators.5

2. The treatment of the issue by the court below is

unsatisfactory. In reaffirming its earlier decision, the

Massachusetts Supreme Judicial Court evaded the many

conflicts between that decision and this Court’s holdings in

Shaw and Alessi. Moreover, while the court recognized (at

least in its first opinion) that the insurance savings clause

could not be interpreted literally because this would turn it

into a loophole that could consume ERISA’s primary

mandate of preemption—a conclusion that was clearly

correct ®&—the “clear conflict” standard that the court

4 Compare, e.g., Metropolitan Life Insurance Co. v. Whaland, 410 A.2d

635 (N.H. 1979) (state mandatory benefit law not pre-empted), with, e.g.,

Michigan United Food & Commercial Workers Fund v. Baerwaldt, 572 F.

Supp. 943 (E.D. Mich. 1983), appeal docketed, No. 83-1570 (6th Cir. Aug.

16, 1983) (state mandatory benefit law pre-empted ).

5 Compare, e.g., Brummond, Federal Preemption of State Insurance Laws

Under ERISA, 62 lowa L. Rev. 57, 115-21 (1976) (opposing pre-emption ),

with, e.g., Hutchinson & Ifshin, Federal Preemption of State Law Under the

Employee Retirement Income Security Act of 1974, 46 U. Cui. L. Rev. 23, 68-

69 (1978) (favoring pre-emption). See also Kilberg & Heron, The Preemp-

tion of State Law Under ERISA, 1979 Duke L.J. 383, 402 (courts have

“given little guidance in determining when a state law which is merely labeled

as an ‘insurance law’ may be a guise to regulate employee benefit plans and

when such a law is a legitimate exercise of the state’s traditional authority in

the area of insurance”).

6 The purpose of a statute, and not its literal words, must be followed

where literalism would produce a result “plainly at variance with the policy of

the legislation as a whole.” United States v. American Trucking Ass’ns, Inc.,

310 U.S. 534, 543 (1940) (quoting Ozawa v. United States, 260 U.S. 168, 194

(1922)). As the Massachusetts court recognized in its first decision, this

would be the effect of a literal reading of ERISA’s insurance savings clause.

Such a construction would give states unlimited power to regulate insured

employee benefit plans. ERISA specifically recognizes the particular impor-

tance of insured plans, in defining “employee welfare benefit plan” as a plan

that provides benefits “through the purchase of insurance or otherwise.”

ERISA § 3(1), 29 U.S.C. § 1002(1).

10

advanced as an alternative is untenable. It allows basic

policies behind ERISA—fostering uniformity in employee

benefit plans and encouraging their growth and soundness

through private initiative—to be defeated by statutes that

are labelled “insurance regulation” but are actually aimed

at governing employee benefit plans. As this Court said in

Alessi, “ERISA’s authors clearly meant to preclude the

States from avoiding through form the substance of the

pre-emption provision.” 451 U.S. at 525.

This Court should assume jurisdiction of this case and

adopt a construction of ERISA’s insurance savings clause

that preserves legitimate state insurance regulation without

undermining Congress’ overriding objective of freeing

employee benefit plans from conflicting and intrusive state

regulation. The proper conclusion is that Congress meant

to leave traditional insurance regulation to the states—

regulation, for example, of capitalization, the form of

policies, fiduciary and investment standards, and sales

practices—but not to leave the states free to adopt laws

formally classified as insurance laws but with the primary

effect of governing employee benefit plans. Construing the

insurance savings clause in this way clearly requires pre-

emption of the present statute—which was expressly aimed

at employee benefit plans 7—while leaving the states wide

scOfee to enact insurance laws with secondary or incidental

effects on employee benefit plans.

+

7 ERISA’s pre-emption provisions are directed at state laws that regulate

“the terms and conditions of employee benefit plans.” ERISA § 514(c)(2),

29 U.S.C. $ 114(c)(2). This was exactly the intent and result of Section 47B.

The Massachusetts Supreme Judicial Court’s bifurcation of the statute dis-

regarded this fact, and failed to come to grips with the federal-law question of

statutory interpretation—independent of any state-law severability issue—of

whether, in light of its purpose and effect, Section 47B could be considered a

law “which regulates insurance” within the meaning of ERISA’s insurance

savings clause.

ll

3. The court below ignored or misconstrued materials

that illuminate Congress’ intent. One source of guidance is

the deemer clause, which the Massachusetts court dealt

with only in passing, asserting without explanation that it

reinforced the court’s conclusion. 385 Mass. at 606, 433

N.E.2d at 1228, App. at 2la (deemer clause described as

“one indication of the breadth of the savings clause”’).

Rather than supporting the decision below, the deemer

clause demonstrates a Congressional concern that the

insurance savings clause not become a pretext for state

action evading ERISA’s establishment of “benefit plan

regulation ‘as exclusively a federal concern’” ( Shaw, 103

S. Ct. at 2904 (quoting Alessi, 451 U.S. at 523)).

Another source of guidance is the legislative history of

ERISA. That history makes clear that ERISA’s pre-

emption provisions were adopted in order to preclude

“multiple,” “conflicting,” and “inconsistent” state laws

regulating employee benefit plans—not just, as the court

below thought, in areas affirmatively regulated by ERISA,

but in all areas. See 120 Cona. Rec. 29197, 29933, 29942

(1974) (remarks of Rep. Dent, Sen. Williams, ana Sen.

Javits) (quoted in Shaw, 103 S. Ct. at 2901 & n.20).®

B. NLRA Pre-Emption

Many insured welfare plans are collectively bargained.

Section 47B undeniably intrudes on the freedom of labor and

management to negotiate the terms of employment contracts.

The impact is significant. Health benefits, for example, are a

principal issue in labor negotiations. State-mandated benefits

of one kind force workers to sacrifice other, preferred benefits

of a different kind.

8 See alsoH.R. Rep. No. 1785, 94th Cong., 2d Sess. 47 (1977) (report of

oversight hearings on ERISA pre-emption, declaring that “the Federal

interest and the need for uniformity are so great that enforcement of state

regulation should be precluded,” and suggesting that this policy is threatened

by unduly broad constructions of “our efforts to ensure minimum disruption

to the regulatory efforts of the states in the fields of insurance, banking and

securities”). The committee’s reference to “sn inimum” disruption of state

regulation is significant. It clearly implies t..t a literal reading of the

insurance savings clause—which would permit no disruption of state insur-

ance regulation—was not intended.

12

In Local 24, International Brotherhood of Teamsters v.

Oliver, 358 U.S. 283 (1959), this Court held that the NLRA

pre-empts state laws that prescribe terms of collectively-

bargained labor agreements. Health benefits are a mandatory

subject of bargaining. Allied Chemical & Alkali Workers v.

Pittsburgh Plate Glass Co., 404 U.S. 157, 159 (1971). Thus,

Oliver would seem to be square authority that the NLRA pre-

empts Section 47B as applied to collectively-bargained insured

plans.

This conclusion is supported by the Court’s decision in

Alessi, supra. There, in holding that ERISA pre-empted state

laws prohibiting workers’ compensation benefits from being

offset against pensions, the Court found its conclusion rein-

forced, insofar as collectively-bargained pension plans were

concerned, by “the additional federal interest in precluding

state interference with labor-management negotiations.” 451

U.S. at 525 (citing Oliver). Pre-emption was compelled, the

Court held, by the “direct clash between the state statute and

the federal policy to keep calculation of pension benefits a

subject of either labor-management negotiations or federal

legislation.” Jd. at 526 n.22.

The Massachusetts Supreme Judicial Court nonetheless

found that Section 47B was not pre-empted by the NLRA, on

two grounds. First, the court found that there was a “public

health” exception to NLRA pre-emption. The court reached

this conclusion based on a remark in Oliver (358 U.S. at 297)

that the state law pre-empted in that case was not a “local

health or safety regulation.” 385 Mass. at 613, 433 N.E.2d at

1232, App. at 29a-30a. Second, the court concluded that there

is no NLRA pre-emption where some other federal statute

expresses a Congressional intent to permit state regulation. The

court found such an intent in Section 2(b) of the McCarran-

Ferguson Act, 15 U.S.C. § 1012(b), which provides that

federal statutes should not be construed as superseding state

laws enacted “for the purpose of regulating the business of

insurance.” 385 Mass. at 613-14, 433 N.E.2d at 1232, App. at

30a.

This holding, like the lower court’s ERISA pre-emption

holding, presents a substantial question of federal law. This

Court has had little occasion to apply the doctrine of Oliver that

13

state laws directly dictating the substance of labor-management

agreements are pre-empted by the NLRA.? Rather, most of

this Court’s NLRA pre-emption decisions have focused on pre-

emption of state laws affecting the process of labor-

management relations. See, e.g., san Diego Building Trades

Council v. Garmon, 359 U.S. 236 (1959); Lodge 76, Inter-

national Association of Machinists v. Wisconsin Employment

Relations Commission, 427 U.S. 132 (1976). The Court has

never decided whether there is in fact a “public health”

exception to the Oliver doctrine, much less defined its scope.

Lower courts are divided on the issue. See, e.g., Hutchinson &

Ifshin, supra note 5, at 75.

Nor has this Court ever addressed whether the McCarran-

Ferguson Act, which was enacted long before state legislatures

first attempted to prescribe substantive terms of collective

bargaining agreements through the vehicle of insurance laws,

expresses a Congressional! intent to permit such state legislation.

The recent decision in Malone v. White Motor Corp., 435 U.S.

497, 513 (1978) (plurality opinion), indicates that any such

intent must be “evident” '°—a test that the court below did not

apply, and one it seems unlikely the McCarran-Ferguson Act

could pass. Moreover, it is not clear that a statute enacted with

the express purpose of regulating employee benefit plans

subject to ERISA is properly regarded as a statute “regulating

the business of insurance” within the meaning of the McCarran-

Ferguson Act.'' Finally, the Massachusetts court’s summary

dismissal in a footnote (385 Mass. at 614 n.25, 433 N.E.2d at

1232 n.25, App. at 30a n.25) of Section 4 of the McCarran-

Ferguson Act, 15 U.S.C. § 1014—which provides that the

* The continuing validity of the doctrine was recognized, however, in

Malone v. White Motor Corp., 435 U.S. 497, 512-14 (1978) (plurality

opinion ), and, as noted above, in Alessi.

10 See also New York Telephone Co. v. New York State Department of

Labor, 440 U.S. 519, 540-45 (1979) (plurality opinion); id at 546 n.*

(Brennan, J., concurring); id. at 547, 551 (Blackmun, J., concurring).

1 Cf. Group Life & Health Insurance Co. v. Royal Drug Co., 440 U.S.

205 (1979) ( Blue Shield Pharmacy Agreements are not exempt from antitrust

laws as “the business of insurance” under the McCarran-Ferguson Act,

particularly in light of the principle that exemptions from the antitrust laws

are to be narrowly construed ).

14

McCarran-Ferguson Act shall not affect “application [of the

NLRA|] to the business of insurance”—does not reflect the sort

of careful analysis called for by the important issue of labor-law

pre-emption posed by these cases.

CONCLUSION

The Court should note probable jurisdiction in these cases.

Respectfully submitted,

JOHN M. VINE

(Counsel of Record)

ARVID E. ROACH II

Covington & Burling

1201 Pennsylvania Avenue, N.W.

P.O. Box 7566

Washington, D.C. 20044

(202) 662-6000

Attorneys for

The ERISA Industry Committee

September 7, 1984

APPENDIX

la

MEMBERS OF THE ERISA INDUSTRY COMMITTEE

Aetna Life and Casualty Company

Alexander & Alexander Services, Inc.

Allied Corporation

Aluminum Company of America

AMAX Inc.

American Telephone & Telegraph Company

Apache Corporation

ASARCO Incorporated

Atlantic Richfield Company

Bankers Trust Company

Bank of America N.T. & S.A.

Bell Communications Research

Bethlehem Steel Corporation

The Boeing Company

Bristol-Myers Company

Buck Consultants, Inc.

Caterpillar Tractor Co.

Champion International Corporation

The Chase Manhattan Bank, N.A.

Citibank, N.A.

The Coca-Cola Company

Colu.nbia Gas System Service Corp.

Combustion Engineering, Inc.

Connecticut General Life Insurance Co.

Consolidated Foods Corporation

2a

The Continental Group, Inc.

Coopers & Lybrand

Dart & Kraft Inc.

Deere & Company

Delta Air Lines Inc.

Digital Equipment Corp.

R. R. Donnelley & Sons Company

The Dow Chemical Company

Dresser Industries, Inc.

E. I. du Pont de Nemours & Company, Incorporated

Eastman Kodak Company

Eli Lilly and Company

Equitable Life Assurance Society of the United States

Esmark, Inc.

Exxon Corporation

Federated Department Stores, Inc.

FMC Corporation

Ford Motor Company

General Electric Company

Generai Mills, Inc.

General Motors Corporation

W. R. Grace & Co.

The Greyhound Corporation

Grumman Corporation

GTE Corporation

Gulf & Western Industries, Inc.

Frank B. Hall Consulting Company

3a

John mancock Mutual Life Insurance Co.

A. S. Hansen, Inc.

Hazlehurst & Associates, Inc.

H. J. Heinz Company

Hewitt Associates

Honeywell Inc.

ICI Americas, Inc.

Ingersoll-Rand Company

International Business Machines Corporatior

International Harvester Company

International Telephone & Telegraph Corporation

Internorth, Inc.

Johnson & Johnson

Knight-Ridder Newspapers, Inc.

LTV Corp.

Manufacturers Hanover Trust Company

William M. Mercer, Inc.

Metropolitan Life Insurance Company

Minnesota Mining & Manufacturing Co.

Mobil Oil Co-poration

Monsanto Company

Mutual of America

Occidental Petroleum Services, Inc.

Olin Corporation

Owens-Corning Fiberglas Corporation

Owens-Illinois, Inc.

J. C. Penney Company, Inc.

4a

Pennzoil Company

PPG Industries, Inc.

Procter & Gamble Company

The Prudential Insurance Company of America

_ Ralston Purina Company

RCA Corporation

Republic Steel Corporation

R. J. Reynolds Industries, Inc.

Rockwell International Corporation

Sears, Roebuck and Co.

Shell Oil Company

The Southland Corporation

Sperry Corporation

Standard Oil Company of California

Standard Oil Company of Indiana

Standard Oil Company of Ohio

Sun Company, Inc.

Tampa Electric Company

Tenneco Inc.

Texaco Inc.

Textron Inc.

Time Incorporated

Towers, Perrin, Forster & Crosby Inc.

The Travelers Insurance Company

TRW Inc.

Union Camp Corporation

Union Carbide Corporation

|

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Sa

United States Steel Corporation

United States Tobacco Company

United Technologies Corporation

Unocal Corporation

Westinghouse Electric Corporation

The Wyatt Company

Xerox Corporation

CERTIFICATE OF SERVICE

I certify that on this 7th day of September 1984 I served

the foregoing brief on each of the parties by sending three

copies thereof by first-class mail, postage prepaid, to:

Sally A. Kelly, Esq.

Administrative Counsel to the

Attorney General

Commonwealth of Massachusetts

Twentieth Floor

One Ashburton Place

Boston, Massachusetts 02108

Jay Greenfield, Esq.

Paul, Weiss, Rifkind, Wharton & Garrison

345 Park Avenue

New York, New York 10154

Steven A. Kaufman, Esq.

Ropes & Gray

225 Franklin Street

Boston, Massachusetts 02110

Arvid E. Roach II