Amicus Curiae Brief — Metropolitan Life Insurance v. Massachusetts

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r rence Supreme Court, US

FILED

Nos. 84-325 & 84-356 JAN 25 1985

ALEXANDER L. STEVAS,

IN THE CLERK

Supreme Comet of the United Sarre

OCTOBER TERM, 1984

METROPOLITAN LIFE INSURANCE COMPANY,

i Appellant,

COMMONWEALTH OF MASSACHUSETTS,

Appellee.

TRAVELERS INSURANCE COMPANY,

Appellant,

Vv.

COMMONWEALTH OF MASSACHUSETTS,

Appellee.

On Appeal from the Supreme Judicial Court

for the Commonwealth of Massachusetts

BRIEF FOR

THE AMERICAN PSYCHOLOGICAL ASSOCIATION,

THE ASSOCIATION FOR THE ADVANCEMENT

OF PSYCHOLOGY, AND THE

MASSACHUSETTS PSYCHOLOGICAL ASSOCIATION

AS AMICI CURIAE IN SUPPORT OF APPELLEE.

DONALD N. BERSOFF

(Counsel of Record)

KIT KINPORTS

BRUCE J. ENNIS

ENNIS, FRIEDMAN, BERSOFF

& EWING

1200 ~ 17th Street, N.W.

Washington, D.C. 20036

(202) 775-8100

Counsel for Amici Curiae

January 25, 1985

eee

WILSON - Eras Printine Co.. Inc. - 789-0096 - WASHINGTON. D.C. 20001

TABLE OF CONTENTS

TABLE OF AUTHORITIES ...............-.---------------e--0-00-

INTEREST OF AMICI CURIAE...

INTRODUCTION AND SUMMARY OF ARGU-

I cetrertneitencnnnsseasnscnstemmeemannennseanenanmnacsmansnesmmeennncinses

ARGUMENT ....................... sedan tpetanegtitnnammenenanmne

II.

Il.

ERISA WAS NOT INTENDED TO PREEMPT

MANDATED BENEFIT STATUTES .............

A. Arguably, the Massachusetts Statute “Re-

lates to” Employee Benefit Plans Governed

B. The Massachusetts Statute Is a Law Regulat-

ing Insurance and Is Therefore Excepted

from ERISA’s Preemption Provision .............

C. The Massachusetts Statute Does Not Fall

Within the Scope of the “Deemer Provi-

sion”

THE McCARRAN-FERGUSON ACT WAS

INTENDED TO PRESERVE MANDATED

BENEFIT STATUTES .........

A. The Relevant Caselaw Compels the Conclu-

sion that Section 47B Is a Statute that Reg-

ulates the Business of Insurance

B. The Legislative History Compels the Conclu-

sion that Section 47B Is a Statute that Regu-

lates the Business of Insurance 4

APPELLANTS’ NARROW READING OF

THE INSURANCE SAVINGS CLAUSE IS

UNSUPPORTABLE ...

A. The Statutory Language, Legislative His-

tory, and Judicial Construction of the Rele-

vant Statutes Do Not Support Appellants’

Reading of the Insurance Savings Clause....

TABLE OF CONTENTS—Continued

Page

B. The Relevant Policy Considerations Do Not

Support Appellants’ Reading of the Insur-

ance Savings Clause ............... 24

CONCLUSION ... 28

iii

TABLE OF AUTHORITIES

Cases: Page

Addrisi v. Equitable Life Assurance Soc’y of

United States, 503 F.2d 725 (9th Cir. 1974),

cert. denied, 420 U.S. 929 (1975) 0.0020... 18

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

LESSON EE 2, 3, 5, 22

American Progressive Life & Health Ins. Co. v.

Corcoran, 715 F.2d 784 (2d Cir. 1983) .............. 11

Anglin v. Blue Shield, 693 F.2d 315 (4th Cir.

1982) LSS A 18

Attorney General v. Travelers Ins. Co., 385 Mass.

598, 488 N.E.2d 1228 (1982) —.............................. 4

Cate v. Blue Cross & Blue Shield, 434 F. Supp.

I _ scnssssescsencnces 14

Cochran v. Paco, Inc., 606 F.2d 460 (5th Cir.

a neusseneonenenseccos 21

Dawson v. Whaland, 529 F. Supp. 626 (D.N.H.

a enenesemesonecscens 18

Eversole v. Metropolitan Life Ins. Co., 500 F.

Supp. 1162 (C.D. Cal. 1980) ................................ 14

Feinstein v. Nettleship Co., 714 F.2d 928 (9th Cir.

1983), cert. denied, 104 S. Ct. 2346 (1984)... 17

General Sni't Corp. v. Mitchell, 523 F. Supp. 427

EE ET ET 14

Grant v. Erie Ins. Exchange, 542 F. Supp. 457

(M.D. Pa. 1982), aff'd mem., 716 F.2d 890 (3d

Cir.), cert. denied, 104 S. Ct. 349 (1983) ............. 18

Group Life & Health Ins. Co. v. Royal Drug Co.,

ee 16, 17, 24

Haynes v. United States, 353 U.S. 81 (1957)........ 24

Hewlett-Packard Co. v. Barnes, 425 F. Supp. 1294

(N.D. Cal. 1977), aff'd, 571 F.2d 502 (9th Cir.)

(per curiam), cert. denied, 439 U.S. 831 (1978).. 13-14

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

Cir.) (per curiam), cert. denied, 439 U.S. 831

(1978) iets 21

Insurance Comm’r v. Metropolitan Life Ins. Co.,

296 Md. 334, 463 A.2d 793 (1983) ............. 10, 11, 14, 26

‘iv

TABLE OF AUTHORITIES—Continued

Page

John Hancock Mutual Life Ins. Co. v. Commis-

sioner of Ins., 349 Mass. 390, 208 N.E.2d 516

ST ee ee ee NH, LEN 22

Lowe v. Aarco-American, Inc., 586 F.2d 1160 (7th

Siete, SUIIEIY dintesteisdibicisinsnssiestinialedaiiininicdiaia nts te) 18

Malone v. White Motor Corp., 485 U.S. 497

GITUITE dilinsnstlascsidltidibcaithiniilict laisse ae ot 22

Marks v. United States, 161 U.S. 297 (1896)........ 16

McDonald v. Thompson, 305 U.S. 263 (1938) ........ 14

Mcllhenny v. American Title Ins. Co., 418 F. Supp.

SN ee ae Oem 18

McLaughlin v. Connecticut General Life Ins. Co.,

565 F. Supp. 434 (N.D. Cal. 1983) WW... 14, 16

Metropolitan Life Ins. Co. v. Whaland, 119 N.H.

894, 410 A.2d 635 (1979) (per curiam).....11, 14,16, 26

Michigan United Food & Commercial Workers

Unions v. Baerwaldt, 572 F. Supp. 943 (E.D.

Mich. 1983), appeal docketed, No. 83-1570 (6th

Cir. Aug. 16, 1983) .................... 11

New Hampshire-Vermont Health Service v.

Whaland, 119 N.H. 886, 410 A.2d 642 (1979)

RRSP EA EO se ore 18

North Haven Board of Education v. Bell, 456 U.S.

UE I italia eit ane a ee 11, 18, 24

Perry v. Fidelity Union Life Ins. Co., 606 F.2d

468 (5th Cir. 1979), cert. denied, 446 U.S. 987

aE SASSER OO. leech ielr 18

Pierucci v. Continental Casualty Co., 418 F. Supp.

dk ane eRe el 18-19

Polish Nat’l Alliance v. NLRB, 322 U.S. 643

ID Seite neibeicianibaleieianilidniii a ee ae 21, 25

Prudential Ins. Co. v. Benjamin, 328 U.S. 408

ERS oe NN Renee ALN Bk 19, 20, 21, 27

Russo v. Boland, i103 Ill. App. 3d 905, 431 N.E.2d

gg EA Ge ae ake 14

SEC v. National Securities, Inc., 393 U.S. 458

FRESE cE RE Py Cr, 17

SEC v. Variable Annuity Life Ins. Co. of America,

359 U.S. 65 (1959) W000. ~“ 15, 23

TABLE OF AUTHORITIES—Continued

Page

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

(1OGB) nnn ncn an cnecenn cs ecencoennenncoensnenncensnesesnnensnnounenenaseness 3, 4, 7

St. Paul Elec. Workers Welfare Fund v. Markman,

490 F. Supp. 931 (D. Minn. 1980) -.................---- 11

St. Paul Fire & Marine Ins. Co. v. Barry, 438 U.S.

BBL (1DTB) .enncnnnnneeno.-n2nc-nconcenevecsecnsnnsnncnerooscnensecees 20

Standard Oil Co. v. Agsalud, 442 F. Supp. 695

(N.D. Cal. 1977), aff'd, 633 F.2d 760 (9th Cir.

1980), aff'd mem., 454 U.S. 801 (1981) -............. 27

Standard Oil Co. v. Agsalud, 633 F.2d 760 (9th

Cir. 1980), aff'd mem., 454 U.S. 801 (1981)-....... 4

Stone & Webster Engineering Corp. v. Ilsley, 690

F.2d 328 (2d Cir. 1982), aff'd mem., 103 S. Ct.

BEC4 (19GB) onan nce neen-n---n-nnnennnenneenerenenenenanensenseneee 4,5

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

(| On ee 16, 17

Wadsworth v. Whaland, 562 F.2d 70 (1st Cir.

1977), cert. denied, 435 U.S. 980 (1978) .....4, 11, 14, 21

Wayne Chemical, Inc. v. Columbus Agency Service

Corp., 426 F. Supp. 316 (N.D. Ind.), modified,

567 F.2d 692 (7th Cir. 1977) ...........--...--------------- 9, 21

Wayne Chemical, Inc. v. Columbus Agency Service

Corp., 567 F.2d 692 (7th Cir. 1977) .............-.-.---- 11

Western & Southern Life Ins. Co. v. State Board

of Equalization, 451 U.S. 648 (1981) -.................. 19, 20

Women in City Gov’t United v. City of New York,

515 F. Supp. 295 (S.D.N.Y. 1981) ......................- 22

Statutory Materials:

McCarran-Ferguson Act, 15 U.S.C. § 1011 et seq... 2,14

4 ee 15

CT A 15

EG ee 21

OO ——————————————————E 21

National Labor Relations Act, 29 U.S.C. § 151 et ,

OO cciccaspententnengitinnianieeiniaens

TABLE OF AUTHORITIES—Continued

Page

Employee Retirement Income Security Act of 1974,

29 U.S.C. § 1001 et seq. 2 cece cece eee 1

Ee se 26

I 10, 28

| ae a eee 2

BD WBA. © BEGB CB) 0B) aon nccceecceecccececcoceeseseereees es 27

er 2,7

29 U.S.C. § 1144(b) (2) (A) 5

29 U.S.C. § 1144(b) (2) (B) -... 12

29 U.S.C. § 1144(b) (5) (A) 11

29 U.S.C. § 1144(d) SR Tene a ee CO 16

CAL. INS. CODE § 10277 (West 1972)... 9

a “em STAT. ANN. § 38-174d (West Supp.

EE REPRE SE UR an I ee 1 aE 9

MD. ANN. Cope art. 48A, § 477E (1979)... 9

Mass. ANN. Laws ch. 175, § 22 (Michie/Law. Co-

ed ay 8

Mass. ANN. Laws ch. 175, § 47B (Michie/Law. Co-

ae ere ate Cr ee 1

Mass. ANN. LAWS ch. 175, § 47C (Michie/Law. Co-

RET Te cat aa tae 1,9

Mass. ANN. Laws ch. 175, §108(2)(a)(3)

(Michie/Law. Co-op. 1977) .................. 8

Mass. ANN. Laws ch. 175, §110D (Michie/Law.

Ph ing TE Leer Fe See Oe Si 8

ASS. ANN. LAWS ch. 175, §110(H) (Michie/

Law. Co-op. 1977) nine kandeace en aid 8

Mass. ANN. Laws ch. 175, §118C (Michie/Law.

ETE En a ee Neen 9

MAss. ANN. Laws ch. 175, §118L (Michie/Law.

Rae aT ae ee 9

Mass. ANN. Laws ch. 175, § 182(1) (Michie/Law.

FPO ae en ay a ee 9

Mass. ANN. Laws ch. 175, § 182(6) (Michie/Law.

Ne I ihn niaidiiiaiadiiaia ei tk a 9

MAss. ANN. Laws ch. 175, § 184(4) (Michie/Law.

PUY HUI ‘Snicdaiciiestitiiniahintinkaisinmeabioatectantetiiin ss. 8

vii

TABLE OF AUTHORITIES—Continued

Page

Mass. ANN. Laws ch. 175, §142 (Michie/Law.

CO-OP. 1977) .....-.---------c--ceeeo--ncencerenenecsnrescensenneeneenee 9

MINN. STAT. ANN. § 62A.149 (West Supp. 1984) .. 10

VA. CODE § 38.1-348.1 (1981) ........-----------------0------ 9

VA. CoDE § 38.1-824 (1981) ~......-...---—--------- e+e 9

Wis. STAT. ANN. § 632.89 (West 1980) _.................. 9

Wis. STAT. ANN. § 632.90 (West 1980) ..................... 10

Legislative Materials:

H.R. Rep. No. 873, 78th Cong., 1st Sess. (1943) .... 15

H.R. REp. No. 148, 79th Cong., 1st Sess., reprinted

in 1945 U.S. Cope Conc. & AD. NEws 670........ 15

H.R. Rep. No. 1280, 93d Cong., 2d Sess., reprinted

in 1974 U.S. Cope Conc. & AD. NEws 5038........ 6, 12

H.R. Rep. No. 1785, 94th Cong., 2d Sess. (1977).. 12, 13

S. 209, 96th Cong., 1st Sess., 125 Conc. REC. 933

0, ) Neen 11

S. REP. No. 1112, 78th Cong., 2d Sess. (1944)........ 15, 20

S. REP. No. 127, 93d Cong., 1st Sess. (1973), re-

printed in 1974 U.S. CopE Conc. & AD. NEWS

GED ceceremtens citiiestensacanigniteiaiaisesiMasimiieumeen 6

SENATE COMM. ON LABOR AND HUMAN RESOURCES,

96TH CONG., LEGISLATIVE CALENDAR (final ed.

Bir, GB, TBD eaccercetceretcscne pn ccrensttiinecinenencsmmennmmmnte 11

89 ConG. REc. (1943)

S caccnnsnenn vanes eccccscscosevecssoscovenevecnsanenesces 15

90 ConG. REc. (1944)

a I acecice steer cn eceicncesneccecnsccvesccencceerceosesnnenesenees 20

i, ID ses eenn ence anecneccnswscccnssncsnseneenesntcnscoenscoee 27

_ 21

Oi, I eccccesccees -crensernsscnescnesinecsatnesteatincssonmeenssnns 15

1 TEI ectecvecncnnsessssevetenenzesemionscccescinmusesineeinecnenenencess 15

Sa 22

Oh GI eeccccrrennerenseercrsnsencenpsncessesscnsssennsscnnscnnvemnnaetoes 19

Pr GG nnn naan nanan nnn nennnnnenenennsnesncneneneresceneseensnece 19

Dy GR ccccesesrcesesacsrvemntntecentvansontensbpeastemmmnemccentit 25

TIED cericncncncessncnmenqreecesnmeonpnssanssomnsbenntanaaatatnesnian 19

SO OE 19

viii

TABLE OF AUTHORITIES—Continued

Page

p. 6548 ssiiibidbaaitbaiiaditatindiaiilaninglbie 26

ITT Ls ccieitid nails linsisinipnatabieniliameadienseitlabiite 20, 27

alcatel ieee italian 27

I iicetait ies cainadlinia ada ceintieetannetliaila tidal 19

EEE SOR ene eee ON ee Oa RE 20

ir TT cea teat naiiadilnindiinsstapncesmnuncitemsidlanitbdianibiigaanentl 19

91 ConG. REc. (1945)

EERE ee ee 19

actin i ie hacnatidaaiaaditaniiiabaemneeliiiis 21

i ee eran e es 20

EE Re ae ee a 21

RT ECC Ce Oe Re Fe 19-20, 20

120 ConG. REc. (1974)

RE SEER SO ner Toa ee ee EE 7

SNE 6, 7, 27

EE ee nn ene nT me 7

125 Conc. REG. (1979)

AP RSEY REET ee Se a a 11

General Court Joint Committee on Insurance, Ad-

vances in Health Insurance in Massachusetts

RRS sa A 7-8, 16

Texts, Treatises, and Other Authorities:

P. AREEDA, ANTITRUST LAW: AN ANALYSIS OF

ANTITRUST PRINCIPLES AND THEIR APPLICATION

I i i 18

Brummond, Federal Preemption of State Insurance

Regulation Under ERISA, 62 IowA L. REV. 57

ERE RIE TEE Se cere Te rae, 6, 138, 19, 25

Comment, ERISA Preemption and Indirect Regu-

lation of Employee Welfare Plans Through State

Insurance Laws, 78 CoLuUM. L. REv. 1536 (1978).. 6, 7,

Manno, ERISA Preemption and the McCarran-

Ferguson Act: The Need for Congressional Act-

tion, 52 TEMPLE L.Q. 51 (1979) 2.0000. 9, 13, 19

TABLE OF AUTHORITIES—Continued

Okin, Preemption of State Insurance Regulation

by ERISA, 13 FoRUM 652 (1978) ....................--.-- 6, 9, 28

Peel, Regulatory Developments in Minimum Stand-

ards for Health Insurance Policies, 13 FORUM

GD Ge ectncertecntcientnncnctmnenienenngsinmnsnmncnen 8, 10

Weller, The McCarran-Ferguson Act’s Antitrust

Exemption for Insurance: Language, History

and Policy, 1978 DUKE L.J. 587 _..................-...-.-- 21, 25

INTEREST OF AMICI CURIAE

The American Psychological Association (APA) is a

voluntary nonprofit, scientific, and professional organiza-

tion with more than 60,000 members. It has been the

major association of psychologists in the United States

since 1892. The APA’s purpose, as reflected in its by-

laws, is to “advance psychology as a science and profes-

sion, and as a means of promoting human welfare.”

The Association for the Advancement of Psychology

(AAP) is a nonprofit corporation supported by the vol-

untary contributions of 6,000 psychologists. AAP seeks

to inform the three branches of government of the ethical,

professional, and scientific views of the psychological com-

munity.

The Massachusetts Psychological Association, with over

1650 members, is a state affiliate of the APA. It repre-

sents the scientific and professional interests of psycholo-

gists within Massachusetts, including psychologists work-

ing in academic and professional settings, both in public

and private institutions.

Amici file this brief pursuant to Rule 36.2 of the Rules

of this Court. The parties have consented to the filing of

the brief; their consents have been filed with the Clerk.

INTRODUCTION AND SUMMARY OF ARGUMENT

In 1973, the Massachusetts legislature enacted an in-

surance statute requiring all group health insurance pol-

icies to provide specified coverage for mental health bene-

fits. See Mass. Ann. Laws ch. 175, § 47B (Michie/Law.

Co-op. 1977) (Section 47B). The Massachusetts Supreme

Judicial Court—properly in the view of amici—rejected

appellants’ arguments that this statute is preempted by

the Employee Retirement Income Security Act of 1974

(ERISA), 29 U.S.C. § 1001 et seg., and by the National

Labor Relations Act (NLRA), 29 U.S.C. § 151 et seg.

Although Section 47B arguably relates to employee

benefit plans and therefore falls within the scope of

ERISA’s preemption provision, it is excepted from pre-

emption by ERISA’s insurance savings clause, which was

meant to preserve the long line of state statutes, includ-

ing Section 47B, that regulate the contents of insurance

policies. The one exception to the insurance savings

clause, which prohibits States from deeming employee

benefit plans to be insurers, does not apply to Section

47B, which regulates only insurance companies.

The decision below is additionally supported by the

McCarran-Ferguson Act, 15 U.S.C. § 1011 et seqg., which

represents Congress’ judgment that, as a matter of fed-

eral policy, insurance regulation should be performed by

the States.

This case does not involve a conflict between Section

47B and ERISA, as appellants would have this Court be-

lieve. Rather, any conflict that does exist is between

ERISA and the McCarran-Ferguson Act. For this rea-

son, this Court’s usual reluctance to weigh conflicting pol-

icy considerations is particularly appropriate here.

ARGUMENT

I. ERISA WAS NOT INTENDED TO PREEMPT MAN-

DATED BENEFIT STATUTES.

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

§ 1144(a), provides that the Act “shall supersede any and

all State laws insofar as they may now or hereafter re-

late to any employee benefit plan described in section

1003(a) of this title and not exempt under section

1003(b) of this title.”

There is no question that the benefit plans at issue here

are “employee benefit plans” as defined in 29 U.S.C.

§ 1003. The only issues are whether Section 47B “re-

lates to” employee benefit plans within the meaning of

§ 1144, and, if so, whether the statute falls within one of

the express exceptions to § 1144.

A. Arguably, the Massachusetts Statute “Relates to”

Employee Benefit Plans Governed by ERISA.

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

(1981), the Court held that ERISA preempted a state

statute prohibiting the reduction of a retiree’s pension

benefits by the amount of workers’ compensation awards

the retiree received subsequent to retirement. After find-

ing that Congress had actually contemplated and ap-

proved such an offset of pension benefits, the Court con-

cluded that the statute “ ‘relate[s] to pension plans’ gov-

erned by ERISA because it eliminates one method for

calculating pension benefits . . . permitted by federal

law.” Id. at 524.

The Court’s conclusion was not altered by the fact that

the statute “intrudes indirectly, through a workers’ com-

pensation law rather than directly, through a statute

called ‘pension regulation.” Jd. at 525. Rather, the

Court concluded that “even indirect state action bearing

on private pensions may encroach upon the area of ex-

clusive federal concern.” /d.

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

(1983), the Court held that the New York Human Rights

Law and the State’s Disability Benefits Law “related to”

pension plans governed by ERISA. The Court reasoned

that “[a] law ‘relates to’ an employee benefit plan, in

the normal sense of the phrase, if it has a connection

with or reference to such a plan.” Jd. at 2900. Applying

this definition, the Court concluded that “the Human

Rights Law, which prohibits employers from structuring

their employee benefit plans in a manner that discrimi-

nates on the basis of pregnancy, and the Disability Bene-

fits Law, which requires employers to pay employees spe-

cific benefits, clearly ‘relate to’ benefit plans.” Jd.

ERISA does not specify which benefits must be included

in employee benefit plans. Accordingly, Section 47B does

not conflict with any provision of ERISA so as to “relate

to” benefit plans in the sense in which that term was used

in Alessi. But Alessi does suggest that the fact that the

mandated benefit statute is nominally an insurance law,

rather than a benefits plan law—-and therefore bears on

benefit plans only indirectly—would not save the Massa-

chusetts statute from preemption under ERISA? And be-

1 Although Section 47B does require employee benefit plans to

provide the mental health benefits specified in the statute, there has

cause Section 47B does require that insurance policies is-

sued to benefit plans provide specified mental health bene-

fits, it arguably “relates to” those employee benefit plans

just as the Disability Benefits Law did in Shaw.

The Massachusetts statute can, however, be distin-

guished from the New York laws at issue in Shaw. New

York’s Human Rights Law had been interpreted by the

state courts to prohibit any employer from maintaining

an employee benefit plan that treated pregnancy differ-

ently from other nonoccupational disabilities. See 103

S. Ct. at 2895. The Disability Benefits Law expressly

required all employers to provide the same benefits for

pregnancy-related disabilities as for any other disability.

See id. at 2896. The Massachusetts statute, by contrast,

requires that mental health benefits be provided to only

certain employees—those whose benefit plan is covered by

an insurance policy. The statute thus “relates to” only

those employee benefit plans, and not to benefit plans gen-

erally. Arguably, the statute’s indirect relation to only a

subset of employee benefit plans governed by ERISA takes

it outside the scope of the preemption provision.

Most of the courts that have considered ERISA’s effect

on mandated benefit statutes have, however, concluded

that such statutes do “relate to” employee benefit plans

governed by ERISA? Accordingly, although the point is

been no attempt to enforce Section 47B against employee benefit

plans and the Commonwealth apparently concedes that that part of

the statute is preempted by ERISA. The Massachusetts Supreme

Judicial Court, relying on state law, found that the portion of Sec-

tion 47B applicable to employee benefit plans was severable from the

portion applicable to insurance policies. See Attorney General v.

Travelers Ins. Co., 385 Mass. 598, 601, 483 N.E.2d 1228, 1225

(1982), reprinted in App. to Juris. Stmts. at 13a, 15a-16a. This

state law ruling is binding on this Court; accordingly, the only

question before the Court is the effect of ERISA on the portion of

Section 47B regulating insurance policies.

2 See, e.g., Stone & Webster Engineering Corp. v. Ilsley, 690 F.2d

323, 329 (2d Cir. 1982), aff'd mem., 108 S. Ct. 3564 (1983) ; Stand-

ard Oil Co. v. Agsalud, 633 F.2d 760, 766 (9th Cir. 1980), aff’d

mem., 454 U.S. 801 (1981); Wadsworth v. Whaland, 562 F.2d 70,

77 (1st Cir. 1977), cert. denied, 485 U.S. 980 (1978).

not free from doubt, amici will assume here that Section

47B does “relate to” employee benefit plans.

B. The Massachusetts Statute Is a Law Regulating

Insurance and Is Therefore Excepted from ERISA’s

Preemption Provision.

Even if Section 47B “relates to” employee benefit plans

within the terms of the ERISA preemption provision, the

statute is not preempted if it falls within one of the ex-

press exceptions to the reach of the preemption provision.

The relevant exception here, the so-called insurance sav-

ings clause, is set forth in 29 U.S.C. § 1144(b) (2) (A):

“Except as provided in subparagraph (B), nothing

in this subchapter shall be construed to exempt or

relieve any person from any law of any State which

regulates insurance... .”

This Court’s prior decisions are of little assistance in

determining whether Section 47B is a law which regulates

insurance within the meaning of this savings clause. In

both cases, the Court noted that state laws regulating in-

surance are excepted from ERISA’s broad preemption

provision.* But the insurance savings clause was not at

issue in either case, and therefore the Court did not

elaborate on the reach of that provision. In fact, the

Court made clear in Alessi that it was not ruling on the

applicability of ERISA’s preemption provision in cases

such as this. See 451 U.S. at 525 n. 21.

Congress’ intent in excepting state laws regulating in-

surance from the scope of the ERISA preemption provi-

sion cannot be determined from the language of that

statute. Nowhere in ERISA does Congress define the

phrase “law . . . which regulates insurance” or give any

clue to its meaning. But it should be noted that Congress

used very broad language in the insurance savings

clause: it preserves “any law of any State which regu-

lates insurance... .” (Emphasis added. )

8 See Shaw v. Delta Air Lines, Inc., 103 S. Ct. 2890, 2897 (1983) ;

Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 523 n. 19 (1981).

The legislative history does not address the scope of the

insurance savings clause. Until the ERISA bill emerged

from confererence, every prior version of the preemption

provision had superseded state law only in the specific

areas regulated by ERISA. The Conference Committee

broadened the preemption provision to include all state

laws that relate to pension plans, rather than only those

dealing with subjects regulated by ERISA, but the Com-

mittee did not comment on the reasons for the change.

See H.R. Rep. No. 1280, 93d Cong., 2d Sess., reprinted in

1974 U.S. Code Cong. & Ad. News 5038, 5162. With re-

spect to the insurance savings clause, the Conference Re-

port merely states: “The preemption provisions of title I

are not to exempt any person from any State law that

regulates insurance... .” IJd.4

Moreover, the Conference Committee’s changes were not

disclosed until the Conference Reports were filed with Con-

gress fewer than ten days before the statute was passed

in August 1974. See Brummond, Federal Preemption of

State Insurance Regulation Under ERISA, 62 Iowa L.

Rev. 57, 115-16 (1976). Thus, “the present language of

section 514 was inserted by the Conference Committee at

a very late hour, after no congressional hearings, and

with little explanatory comment... .” Id. at 116.5

* The legislative history of prior versions of the preemption provi-

sion is similarly unenlightening. See, e.g., S. REP. No. 127, 93d

Cong., 1st Sess. 35, 47 (1973), reprinted in 1974 U.S. Cope Conc.

& AD. NEWS 4838, 4871, 4883.

®In addition, Congress was preoccupied during this period with

the issues arising from President Nixon’s resignation on August 9,

1974. See 120 Conc. REc. 29,933 (1974) (remarks of Sen. Javits).

“(I]t would be naive to suppose that during this period any serious

attention could have been devoted to such matters as the status

of an obscure preemption provision in a 250-page federal statute.”

Brummond, Federal Preemption of State Insurance Regulation

Under ERISA, 62 Iowa L. REv. 57, 116 (1976); see also Okin,

Preemption of State Insurance Regulation by ERISA, 13 Forum

652, 678 (1978) ; Comment, ERISA Preemption and Indirect Regu-

lation of Employee Welfare Plans Through State Insurance Laws,

78 CoLuM. L. REv. 1536, 1542 & n. 42 (1978) (hereafter cited as

ERISA Preemption Comment).

The few substantive comments concerning preemption

made during the debate on the Conference Reports

focused on the scope of § 1144(a), not on the exceptions

to preemption like the insurance savings clause. See

ERISA Preemption Comment, supra note 5, at 1542 &

n. 42. And the three veiled references that were made to

the savings clause during the debate on the Conference

Reports are not helpful in ascertaining the intended

reach of that clause. See 120 Cong. Rec. 29,942 (1974)

(remarks of Sen. Javits) (referring merely to “certain

exceptions . . .”) ; see also id. at 29,197 (remarks of Rep.

Dent) ; id. at 29,933 (remarks of Sen. Williams). There

is no indication in ERISA’s legislative history that Con-

gress recognized the tension between the preemption pro-

vision itself, which preempted any state law relating to

employee benefit plans, and the insurance savings clause,

which preserved all state laws regulating insurance. Thus,

there is absolutely no indication that Congress intended

to preempt state statutes such as this one.

The language and legislative history of the insurance

savings clause therefore require a presumption that Con-

gress intended to give the clause its ordinary meaning:

the Court “must give effect to this plain language unless

there is good reason to believe Congress intended the lan-

guage to have some more restrictive meaning.” Shaw v.

Delta Air Lines, Inc., 103 S. Ct. at 2900.

Interpreting the insurance savings clause according to

its plain meaning indicates clearly that Massachusetts’

mandated benefit statute is a law that regulates insurance

within the meaning of that clause. Section 47B is con-

tained in the chapter of the state statutes that pertains

to insurance. It was proposed by the legislature’s Joint

Committee on Insurance. It was enacted because the leg-

islature found that “[a] need . . . exists for all people

to be safeguarded against the high and sometimes crip-

pling costs of professional mental health care today” and

that “in order for the cost to be reasonable, insurance for

mental illness must be a mandatory feature on all policies

sold in the state.” General Court Joint Committee on In-

surance, Advances in Health Insurance in Massachusetts

9, 5 (Aug. 1974). And it operates by regulating the

contents of insurance policies. Certainly, these factors

suggest that Section 47B is a law that regulates insurance.

This conclusion is corroborated by the tradition of state

insurance regulations—begun long before ERISA was en-

acted—that, like Section 47B, govern the contents of in-

surance policies in an effort to protect the interests of the

insured. One commentator has noted that the first man-

dated benefit legislation was enacted in California in

1949. See Peel, Regulatory Developments in Minimum

Standards for Health Insurance Policies, 138 Forum 680,

682 (1978). Since that time, state legislatures have

passed a wide variety of mandated benefit legislation.

In Massachusetts, for example, since at least 1956 all

group life insurance policies have been required to guar-

antee that any insured who leaves the group will remain

insured under the policy for a certain period unless he

is otherwise entitled to similar benefits. See Mass. Ann.

Laws ch. 175, § 134(4) (Michie/Law. Co-op. 1977). A

similar provision governing group health insurance pol-

icies was enacted in 1967. See id. §110D. In 1960, the

legislature enacted a statute requiring insurance policies

to provide coverage for those hospitalized or receiving

treatment in a state soldiers’ home. See id. § 22. In 1962,

the Commonwealth required all health insurance policies

that provide for termination of a dependent child’s cover-

age at a specified age to continue coverage if the child is

“mentally or physically incapable of earning his own liv-

ing on the termination date... .” Id. § 108(2) (a) (3).

In 1973, in addition to enacting Seciton 47B, the legisla-

ture required all group health insurance policies to pro-

vide certain specified benefits for the treatment of al-

coholism. See id. §110(H). These are only some of the

many provisions in the Massachusetts statutes regulating

insurance that have been in existence since ERISA was

enacted and that mandate specific insurance benefits.*

® See also, e.g., MASS. ANN. LAWS ch. 175, § 22 (Michie/Law.

Co-op. 1977) (prohibiting certain insurance policy provisions;

Thus, “a myriad of state enactments. . . have provided

for years the guidance as to what is and is not permissi-

ble in the writing of insurance for employee groups.”

Manno, ERISA Preemption and the McCarran-Ferguson

Act: The Need for Congressional Action, 52 Temple L.Q.

51, 56 (1979). See also Okin, supra note 5, at 656 (“State

insurance departments have long exercised jurisdiction

over the content of individual and group accident and

health policies issued in their state by insurance car-

riers.” ) .7

adopted before 1960) ; id. §47C (requiring all group health insur-

ance policies to provide coverage for newborn infants and adopted

children, including coverage of birth abnormalities; adopted on

August 9, 1974) ; id. §§ 118C, 118L (requiring all automobile insur-

ance policies to include certain coverage; adopted in 1968); id.

§ 182(1) (requiring life insurance policies to contain a provision

providing that the insured is entitled to a thirty-day grace period

within which to pay any premium due after the first year; adopted

by 1933); id. §§ 182(6), 142 (requiring life insurance policies to

include a provision entitling the insured to a loan on the policy at a

specified interest rate; adupted by 1943).

7 California, Florida, Michigan, Missouri, and Virginia enacted

legislation between 1968 and 1972 that requires insurers to extend

major medical coverage to dependents who are disabled when they

reach the age where they would otherwise be terminated from

coverage under the terms of the policy. See Wayne Chemical, Inc. v.

Columbus Agency Service Corp., 426 F. Supp. 316, 324 n. 8 (N.D.

Ind. 1977), modified on other grounds, 567 F.2d 692 (7th Cir. 1977) ;

VA. Cope § 38.1-848.1 (1981). In 1971, Wisconsin required group

health insurance policies to provide coverage for treatment of alco-

holism, see Wis. STAT. ANN. § 632.89 (West 1980), and Connecticut

required such policies to provide mental health benefits, see CONN.

GEN. STAT. ANN. § 88-174d (West Supp. 1984). Since 1971, Cali-

fornia has required that any group hospital, medical, or surgical

policy provide coverage for mentally or physically handicapped de-

pendents of the insured after the dependents reach the age of major-

ity. See CAL. INS. CoDE § 10277 (West 1972). In 1973, the Virginia

legislature passed a statute requiring all plans for furnishing pre-

paid medical services to pay for services rendered by licensed

psychologists, podiatrists, chiropractors, and optometrists. See

Va. CopE § 38.1-824 (1981). Since 1973, Maryland has required all

health insurance policies to provide mental health benefits, see MD.

ANN. CopE art. 48A, § 477E (1979); Minnesota has required that

When ERISA was enacted, therefore, there was already

a long tradition of state regulation of the contents of in-

surance policies. Congress must have been aware of that

fact—especially since at that very time insurance com-

panies and state insurance commissioners were develop-

ing policies on mandated benefit statutes.* And Congress

was obviously aware that some pension plans might pur-

chase insurance because ERISA defines “employee wel-

fare benefit plan” as a plan that provides certain benefits

“through the purchase of insurance or otherwise... .”

29 U.S.C. § 1002(1). If Congress had intended to end the

States’ longstanding tradition of regulating the contents

of insurance policies, it would likely have limited the in-

surance savings clause in some fashion. See Insurance

Comm’r v. Metropolitan Life Ins. Co., 296 Md. 334, 340,

463 A.2d 793, 796 (1983).° The fact that it did not sug-

all health insurance policies provide coverage for treatment of alco-

holism and drug dependence, see MINN. STAT. ANN. § 62A.149

(West Supp. 1984); and Wisconsin has required that every group

health policy offer certain coverage for treatment of tuberculosis,

see Wis. STAT. ANN. § 632.90 (West 1980).

8In fact, state mandated benefit statutes were sufficiently com-

mon prior to the enactment of ERISA to attract considerable atten-

tion by the insurance industry. In late 1971, the Health Insurance

Association of America (HIAA), which filed an amicus brief in

support of appellants’ jurisdictional statements, appointed a Task

Force on Minimum Standards for Health Insurance Policies. The

National Association of Insurance Commissioners (NAIC) began

deliberations on minimum standards legislation in late 1972; in

December 1973, the NAIC adopted a model mandated benefit

statute. In early 1974, the HIAA Task Force then began to

develop its recommendations for a model statute and, in May

1974, submitted a draft to the NAIC. See Peel, 18 Forum at 682-

86. The amicus brief filed by HIAA in this case indicates that the

association has a membership of 327 private insurance companies,

including both appellants, and that these companies write more than

eighty-five percent of the health insurance policies written by pri-

vate insurance companies in this country. See Brief Amicus Curiae

of Health Insurance Association of America in Support of Jurisdic-

tional Statements at 1. HIAA’s Vice President and General Counsel

is Joe W. Peel, the author of the article cited above.

* In fact, a bill waa introduced in 1979 to amend ERISA to provide

that state mandated benefit statutes are not preserved by the insur-

gests that the insurance savings clause was actually in-

tended to mean what it says and thus to preserve state

laws like Section 47B.

The overwhelming majority of courts that have con-

sidered this issue have concluded that mandated benefit

laws are laws that regulate insurance and thus within the

scope of the insurance savings clause.’®

C. The Massachusetts Statute Does Not Fall Within

the Scope of the “Deemer Provision.”

Although Section 47B must be considered a state law

regulating insurance, it is nonetheless preempted by

ance savings clause. See S. 209, 96th Cong., Ist Sess. § 155, 125

Conc. REc. 933, 937 (1979). The bill was intended to overrule the

court’s decision in Wadsworth v. Whaland, 562 F.2d 70 (1st Cir.

1977), cert. denied, 485 U.S. 980 (1978). See 125 Conc. REc. 947

(1979) (remarks of Sen. Javits). Although the bill was reported to

the Senate, it apparently died without ever being debated. See

SENATE COMM. ON LABOR AND HUMAN RESOURCES, 96TH CONG.,

LEGISLATIVE CALENDAR 108, 111 (final ed. Jan. 4, 1981).

Admittedly, Congress’ failure to pass this bill does not necessarily

demonstrate its intent that the insurance savings clause exempt

mandated benefit statutes from preemption under ERISA. But this

postenactment history does indicate that Congress was at least

aware of the courts’ interpretation of the insurance savings clause,

and “it lends weight to the argument .. .” that the savings clause

was intended to except mandated benefit statutes. North Haven

Board of Education v. Bell, 456 U.S. 512, 534 (1982). Moreover, “the

relatively insubstantial interest given [this portion of S. 209] seems

particularly significant since Congress has proceeded to amend .. .”

ERISA’s preemption provision in another respect proposed by S. 209.

Id. Compare S. 209, 96th Cong., Ist Sess. § 155, 125 Conc. REc. 937

(1979), with 29 U.S.C. § 1144(b) (5) (A).

10 See, e.g., American Progressive Life & Health Ins. Co. v.

Corcoran, 715 F.2d 784, 787 (2d Cir. 1983); Wayne Chemical, Inc.

v. Columbus Agency Service Corp., 567 F.2d 692, 700 (7th Cir.

1977); Wadsworth v. Whaland, 562 F.2d at 77; St. Paw Elec.

Workers Welfare Fund v. Markman, 490 F. Supp. 931, 933 (D.

Minn. 1980) ; Insurance Comm’r v. Metropolitan Life Ins. Co., 296

Md. 334, 344-45, 463 A.2d 793, 798 (1983) ; Metropolitan Life Ins.

Co. v. Whaland, 119 N.H. 894, 901-02, 410 A.2d 635, 640 (1979)

(per curiam). But see Michigan United Food & Commercial Work-

ers Unions v. Baerwaldt, 572 F. Supp. 948 (E.D. Mich. 1983), appeal

docketed, No. 88-1570 (6th Cir. Aug. 16, 1983).

ERISA if it falls within the scope of the one exception

to the insurance savings clause. That exception, the so-

called “deemer provision,” provides that an employee

benefit plan may not “be deemed to be an insurance com-

pany or other insurer, . . . or to be engaged in the busi-

ness of insurance .. . for purposes of any law of any

State purporting to regulate insurance companies [or]

insurance contracts... .” 29 U.S.C. § 1144(b) (2) (B).

The plain meaning of that provision indicates that it

does not apply to the statute in question here. The

deemer provision clearly states only that a State may

nut deem an employee benefit plan to be an insurance

company and thereby attempt to apply its insurance

laws to the benefit plan.

No legislative history suggests that the deemer provi-

sion was intended to mean anything other than what it

says. The Report explaining the Conference Committee’s

amendments to the preemption provision merely restates

the language of the deemer provision without clarifying

its meaning. See H.R. Rep. No. 1280, 93d Cong., 2d Sess.,

reprinted in 1974 U.S. Code Cong. & Ad. News 5038,

5162. And there was no mention of the deemer provision

either during the debate on the Conference Report or in

prior Committee Reports.

Subsequent legislative history does, however, confirm

that the deemer provision should be interpreted accord~-

ing to its plain meaning. An activities report issued in

1977 by the Subcommittee on Labor Standards of the

House Committee on Education and Labor explains: “the

‘deemed’ language was utilized to create an irrebuttable

presumption that these [employee benefit] plans are not

insurance .. . for purposes of state regulation. ... The

irrebuttable presumption would not be overcome even if

an employee benefit plan engages in activities which

bring it within the insurance . . . activities generally

regulated by a state.” H.R. Rep. No. 1785, 94th Cong.,

2d Sess. 47 (1977). Thus, the Report makes clear that,

even though self-insured employee benefit plans may have

some of the characteristics of insurance, the deemer pro-

vision prohibits a state from applying its insurance regu-

lations to such benefit plans on the ground that they are

engaged in the business of insurance." The Report then

goes on to point out that an insurance policy sold to an

employee benefit plan is subject to state regulation:

“(Cjertain entrepreneurs have undertaken to mar-

ket insurance products to employers and employees

at large, claiming these products to be ERISA cov-

ered pians. ... The entrepreneur will then argue

that his enterprise is an ERISA benefit plan which

is protected, under ERISA’s preemption provision,

from state regulation. ... [T]hese plans are...

no more ERISA plans than is any other insurance

policy sold to an employee benefit plan.

“To the extent that such programs fail to meet the

definition of an ‘employee benefit plan,’ state regu-

lation of them is not preempted by section 514, even

though such state action is barred with respect to

the plans which purchase these ‘products.’” Id. at

48 (emphasis added). |

This subsequent history is not conclusive evidence of the

deemer provision’s meaning, but it does provide evidence

of Congress’ intent, especially in the absence of contem-

poraneous legislative history. See, e.g., North Haven

Board of Education v. Bell, 456 U.S. 512, 5385 (1982).

Thus, the courts have interpreted the deemer provision

to prohibit States from regulating self-insured employee

benefit plans under their insurance laws.” But the ma-

11 See, e.g., Brummond, supra note 5, at 77, 90-91; Manno, ERISA

Preemption and the McCarran-Ferguson Act: The Need for Con-

gressional Action, 52 TEMPLE L.Q. 51, 59 (1979). Because no self-

insured benefit plans are involved here, the Court need not rule on

the proper application of the ERISA preemption provision in cases

involving self-insured plans—for example, whether the deemer pro-

vision prohibits a state from applying its insurance regulations to

a self-insured benefit plan if additional factors, aside from the mere

fact of self-insurance, indicate that the plan is engaged in the

business of insurance. Likewise, the Court need not attempt to

define precisely what is a self-insured plan.

12 See, e.g., Hewlett-Packard Co. v. Barnes, 425 F. Supp. 1294,

1300 (N.D. Cal. 1977), aff'd, 571 F.2d 502, 504 (9th Cir.) (per

jority of courts have also concluded that the deemer pro-

vision does not apply to mandated benefit statutes, like

Section 47B, that regulate the contents of insurance poli-

cies sold to employee benefit plans.*

If the deemer provision is interpreted more broadly to

bar state regulation of insurance policies issued to em-

ployee benefit plans, it would nullify the insurance sav-

ings clause. ERISA preempts all state insurance laws

that “relate to” employee benefit plans, unless they are

excepted by the savings clause. And the deemer provision

prohibits States from directly regulating employee bene-

fit plans. If the deemer provision is also interpreted to

preempt all state laws that regulate the contents of in-

surance policies purchased by benefit plans, no state in-

surance laws relating to benefit plans would be left for

the savings clause to save—rendering the savings clause

superfluous, in violation of the well-established principle

that legislation should be construed so as to give effect

to each part. See, e.g., McDonald v. Thompson, 305 U.S.

263, 266 (1938). Thus, the deemer provision cannot be

read to preempt Section 47B, and that statute must fall

within the scope of the insurance savings clause.

II. THE McCARRAN-FERGUSON ACT WAS INTENDED

TO PRESERVE MANDATED BENEFIT STATUTES.

Any doubt about ERJSA’s effect on mandated benefit

statutes is laid to rest by the McCarran-Ferguson Act,

15 U.S.C. $ 1011 et seg., which provides in relevant part:

curiam), cert. denied, 439 U.S. 831 (1978); Russo v. Boland, 108

Ill. App. 3d 905, 909-10, 481 N.E.2d 1294, 1298 (1982).

18 See Wadsworth v. Whaland, 562 F.2d at 77-78; McLaughlin v.

Connecticut General Life Ins. Co., 565 F. Supp. 434, 448-44 (N.D.

Cal. 1983) ; Eversole v. Metropolitan Life Ins. Co., 500 F. Supp. 1162,

1169 (C.D. Cal. 1980); Cate v. Blue Cross & Blue Shield, 424

F. Supp. 1187, 1190 & n. 5 (E.D. Tenn. 1977); Insurance Comm’r

v. Metropolitan Life Ins. Co., 296 Md. at 344-45, 463 A.2d at 798;

Metropolitan Life Ins. Co. v. Whaland, 119 N.H. at 902-08, 410 A.2d

at 640; ERISA Preemption Comment, supra note 5, at 1540-41. But

see, €.g., General Split Corp. v. Mitchell, 523 F. Supp. 427, 430

(E.D. Wis. 1981).

“The business of insurance, and every person engaged

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

which relate to the regulation or taxation of such busi-

ness.” Id. § 1012(a).

The first paragraph of the Act declares the congres-

sional policy that “the continued regulation and taxation

by the States of the business of insurance is in the public

interest.” Id. § 1011. Thus, the Act represents Congress’

judgment that, as a matter of federal policy, the regula-

tion of insurance should be performed by the States.”

Congress recognized that the States had traditionally ex-

ercised this pover* and wanted to ensure the preserva-

tion of such authority in the States,** which, in Congress’

view, were best able to undertake such regulation.” As

this Court noted in SEC v. Variable Annuity Life Ins.

Co. of America, 359 U.S. 65, 68 (1959), “[w]hen the

States speak in the field of ‘insurance,’ they speak with

the authority of a long tradition.”

The McCarran-Ferguson Act is helpful in determining

the reach of ERISA’s preemption provision for two ad-

ditional, independent reasons. First, the meaning of the

McCarran-Ferguson Act’s reference to state “laws...

which relate to the regulation . . . of [the] business [of

insurance!,” 15 U.S.C. §1012(a), aids in defining the

meaning of the similar phrase, state “law which regu-

14 See, e.g., H.R. REP. No. 148, 79th Cong., 1st Sess. 3, reprinted in

1945 U.S. Cope Conc. & AD. News 670, 672; S. Rep. No. 1112, 78th

Cong., 2d Sess. 3, 7 (1944) ; 90 Conc. REc. 6525 (1944) (remarks of

Rep. Walter); SEC v. National Securities, Inc., 393 U.S. 453, 458

(1969).

15 See, e.g., H.R. REP. No. 148, 79th Cong., 1st Sess. 2, reprinted

in 1945 U.S. CopE Conc. & AD. NEws 670, 670-71; S. Rep. No. 1112,

78th Cong., 2d Sess. 2 (1944) (noting that the States “have regu-

lated insurance for over 90 years .. .’’).

16 See, e.g., H.R. REP. No. 873, 78th Cong., Ist Sess. 6 (1943); 89

Conc. REc. 10,659 (1943) (remarks of Rep. Miller).

17 See, e.g., S. REP. No. 1112, 78th Cong., 2d Sess. 5, 7 (1944);

90 CoNnG. REC. 6524 (1944) (remarks of Rep. Walter).

lates insurance,” found in the insurance savings clause.’*

Second, the final paragraph of ERISA’s preemption pro-

vision indicates that Congress expressly intended that

ERISA not alter or impair any federal statute, including

the McCarran-Ferguson Act. See 29 U.S.C. § 1144(d).

A. The Relevant Caselaw Compels the Conclusion that

Section 47B Is a Statute that Regulates the Business

of Insurance.

This Court’s decisions interpreting the McCarran-

Ferguson Act have identified three criteria relevant in

determining whether a particular practice falls within

the Act’s reference to the “business of insurance”: “first,

whether the practice has the effect of transferring or

spreading a policyholder’s risk; second, whether the prac-

tice is an integral part of the policy relationship between

the insurer and the insured; and third, whether the prac-

tice is limited to entities within the insurance industry.”

Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119, 129

(1982) (emphasis in original). Mandated benefit stat-

utes like Section 47B satisfy all three criteria.

The first criterion was set forth in detail in Group Life

& Health Ins. Co. v. Royal Drug Co., 440 U.S. 205, 212,

211 (1979), where the Court noted that one “indispensa-

ble characteristic of insurance” is “the spreading and

underwriting of a policyholder’s risk.” Section 47B un-

questionably relates to the spreading and underwriting

—of risk. The statute reflects a legislative judgment that

the costs of mental health care should be underwritten by

health insurance policies and that the risk of costly mental

health care should be shared. See General Court Joint

Committee on Insurance, Advances in Health Insurance

in Massachusetts 5 (Aug. 1974); Superior Court Find-

ings & Conclusions, reprinted in App. to Juris. Stmts. at

36a, 50a-5la. It therefore requires that insurance policies

insure against “the risk that policyholders will be unable

18 See, e.g., Marks v. United States, 161 U.S. 297, 302 (1896);

McLc ughlin v. Connecticut General Life Ins. Co., 565 F. Supp. 434,

443 (N.D. Cal. 1983); Metropolitan Life Ins. Co. v. Whaland, 119

N.H. 894, 901, 410 A.2d 635, 639 (1979) (per curiam).

to pay for [the cost of mental health care] during the

period of coverage.” Royal Drug, 440 U.S. at 213. By

requiring certain coverage in all insurance policies, Sec-

tion 47B “defines the scope of risk assumed by the in-

surer from the insured” and has a direct impact on “the

measure of the risk” that is transferred to the insurer.

Pireno, 458 U.S. at 131, 130.

The second criterion was set forth in detail in SEC v.

National Securities, Inc., 393 U.S. 453, 460 (1969),

where the Court noted that the McCarran-Ferguson Act

“was concerned with the type of state regulation that cen-

ters around the contract of insurance... . The rela-

tionship between insurer and insured, the type of policy

which could be issued, its reliability, interpretation, and

enforcement—these were the core of the ‘business of in-

surance.’ ”’ Congress’ “focus,” the Court continued, “was

on the relationship between the insurance company and

the policyholder. Statutes aimed at protecting or regulat-

ing this relationship, directly or indirectly, are laws regu-

lating the ‘business of insurance.’ ” Jd.

Section 47B clearly falls within the scope of this cri-

terion. The statute “centers around the contract of in-

surance” by prescribing terms that must be included

within that contract, and it determines “the type of

policy which [can] be issued.” And Section 47B is an

attempt by the legislature to “secure the interests of those

purchasing insurance policies,” id., by requiring that the

insurer provide certain safeguards to all policyholders.

Unlike Pireno, therefore, this case involves a statute that

is “an integral part of the policy relationship between the

insurer and insured.” 458 U.S. at 131.

The third criterion is likewise present in this case.

Mandated benefit statutes impose requirements solely on

insurers, and their purpose is to affect only the relation-

ship between insurers and their policyholders; they do

not “inevitably involve[] third parties wholly outside the

insurance industry... .” Jd. at 132.°

19 See also, e.g., Feinstein v. Nettleship Co., 714 F.2d 928, 932

(9th Cir. 1983), cert. denied, 104 S. Ct. 2846 (1984) (noting that

Thus, this Court’s prior decisions interpreting the

scope of the McCarran-Ferguson Act indicate clearly that

Section 47B is a law that regulates the business of in-

surance and is not to be superseded by any federal stat-

ute. This conclusion has likewise been reached by the

vast majority of courts which have considered the ques-

tion whether the type of benefits offered by an insurance

policy fall within the scope of the McCarran-Ferguson

Act. In Grant v. Erie Ins. Exchange, 542 F. Supp. 457

(M.D. Pa. 1982), aff'd mem., 716 F.2d 890 (3d Cir.),

cert. denied, 104 S. Ct. 349 (1983), for example, the

plaintiffs challenged the defendant insurance companies’

refusal to provide insurance coverage for work loss bene-

fits to persons who died in automobile accidents. Noting

that “‘[m]atters of ... extent of coverage... go to the

very heart of the relationship between the insurance

company and the policyholder ... ,’” the court held that

the McCarran-Ferguson Act was applicable in that case.

Id. at 462 (quoting McIlhenny v. American Title Ins.

Co., 418 F. Supp. 364, 369 (E.D. Pa. 1976) ).”

the term “entities within the insurance company” includes insurers

and insureds).

20 Likewise, in Anglin v. Blue Shield, 698 F.2d 315 (4th Cir.

1982), the plaintiff challenged Blue Shield’s refusal to offer him a

policy protecting himself and his minor child; Blue Shield would

offer such a policy only if it also covered the plaintiff’s wife. The

court concluded that the McCarran-Ferguson Act was applicable

because “(t]he allegations in the plaintiff’s complaint are the very

essence of the relationship between insurer and policyholder. He has

alleged that Blue Cross/Blue Shield has refused to offer the exact

coverage that he prefers.” Jd. at 320.

See also, e.g., Perry v. Fidelity Union Life Ins. Co., 606 F.2d 468,

476 (5th Cir. 1979), cert. denied, 446 U.S. 987 (1980) ; Lowe v. Aarco-

American, Inc., 5386 F.2d 1160, 1162 (7th Cir. 1976); Addrisi v.

Equitable Life Assurance Soc’y of United States, 503 F.2d 725 (9th

Cir. 1974), cert. denied, 420 U.S. 929 (1975); Dawson v. Whaland,

529 F. Supp. 626, 632 (D.N.H. 1982) ; Pierucci v. Continental Cas-

ualty Co., 418 F. Supp. 704 (W.D. Pa. 1976); New Hampshire-

Vermont Health Service v. Whaland, 119 N.H. 886, 893, 410 A.2d

642, 647 (1979) (per curiam); P. AREEDA, ANTITRUST LAW: AN

B. The Legislative History Compels the Conclusion

that Section 47B Is a Statute that Regulates the

Business of Insurance.

The legislative history of the McCarran-Ferguson Act

provides further confirmation that Congress intended

that federal laws like ERISA should not interfere with

state statutes like Section 47B. Although the phrase

“laws ... which relate to the regulation . . . of [the]

business [of insurance]” is not defined in the legislative

history of the McCarran-Ferguson Act, that history in-

dicates that Congress clearly understood that the Act

would protect state laws regulating the terms and con-

tents of insurance policies and the types of coverage and

benefits offered. For example, Sen. Ferguson, one of

the sponsors of the Act, observed that “a state law relat-

ing to... the fixing of the terms of a contract of insur-

ance ... would be permitted... .” 91 Cong. Rec. 480

(1945).** As this Court noted in Prudential Ins. Co. v.

Benjamin, 328 U.S. 408, 430 (1946), “Congress must

have had full knowledge of the nation-wide existence of

state systems of regulation and taxation . . .” when it

enacted the McCarran-Ferguson Act.

Moreover, that Act was intended to give the States

very broad power to regulate the business of insurance.

“The unequivocal language of the Act suggests no excep-

tions.” Western & Southern Life Ins. Co. v. State Board

of Equalization, 451 U.S. 648, 653 (1981) (emphasis

added). Thus, Sen. Ferguson noted that the Act gave

the States “full power to act by legislation... .” 91

ANALYSIS OF ANTITRUST PRINCIPLES AND THEIR APPLICATION 43

(1982 Supp.) ; Brummond, supra note 5, at 104; Manno, supra note

11, at 538.

21 See also, e.g., 90 CONG. REC. 6561 (1944) (remarks of Rep.

Anderson) (“the States [do] have a right to control risks . . . and

all the other things which the average insurance men recognize come

under State regulations”) ; id. at 6528 (remarks of Rep. Miller) ;

id. at 6536 (remarks of Rep. Howell) ; id. at 6538 (remarks of Rep.

Springer) ; id. at 6546 (remarks of Rep. Voorhis) ; id. at 6556 (re-

marks of Rep. Graham).

Cong. Rec. 1481 (1945).% And throughout the legislative

history, the observation was frequently made that the Act

was meant to give the States broad discretion “to regu-

late insurance as they each see fit.” S. Rep. No. 1112,

78th Cong., 2d Sess. 5 (1944) .*

Moreover, the latitude given the States to regulate the

business of insurance was not meant to apply only to the

precise forms of state regulation in existence in 1945

when the McCarran-Ferguson Act was passed. Rather,

the Act was intended to permit the States to take steps

to resolve any unforeseeable problems that might face

the insurance industry in the future. See 91 Cong. Rec.

483 (1945) (remarks of Sen. Radcliffe). Congress there-

fore recognized that the States would continue to make

use of “experimentation” in regulating insurance, §.

Rep. No. 1112, 78th Cong., 2d Sess. 6 (1944), to ensure

“[p]rogress in insurance,” which “can be made only by

constantly liberalizing coverage and constantly reducing

costs.” 90 Cong. Rec. 6550 (1944) (remarks of Rep.

Ploeser). Thus, “enactment of the McCarran-Ferguson

Act ‘put the full weight of [Congress’] power behind ex-

isting and future state legislation... .’” Western &

Southern Life Ins. Co. v. State Board of Equalization,

451 U.S. at 654 (quoting Prudential Ins. Co. v. Ben-

jamin, 328 U.S. at 431) (emphasis added).

The McCarran-Ferguson Act was also meant to protect

state insurance laws from preemption by federal statutes

that might later be enacted. Thus, Sen. Ferguson ex-

plained, “if Congress should tomorrow pass a law relating

to interstate commerce, and should not specifically apply

the law to the business of insurance, it would not be an

implied repeal of this bill, and this bill would not be af-

22 See also, e.g., 91 CONG. REc. 488 (1945) (remarks of Sen.

Radcliffe) ; 90 CoNG. REc. 6559 (1944) (remarks of Rep. Sumners) ;

St. Paul Fire & Marine Ins. Co. v. Barry, 488 U.S. 581, 551 (1978)

(referring to “the overall framework of plenary state regula-

tion ...”).

23 See also 91 CONG. REc. 1481 (1945) (remarks of Sen. Fergu-

son) ; 90 ConG. REc. 6418 (1944) (remarks of Rep. Allen).

fected ... .” 91 Cong. Rec. 481 (1945).* The Mc-

Carran-Ferguson Act therefore “remov(ed] obstructions

[to state regulation of insurance] which might be thought

to flow from [Congress’] power, whether dormant or

exercised, except as otherwise expressly provided in the

Act itself or in future legislation.” Prudential Ins. Co.

v. Benjamin, 328 U.S. at 429-30 (emphasis added) .*

24 Although the McCarran-Ferguson Act provides that a federal

law that “specifically relates to the business of insurance” may be

construed to preempt state insurance regulations, 15 U.S.C. § 1012(b)

(emphasis added), that provision is not applicable in this case.

ERISA is not a law that specifically relates to the business of insur-

ance. Rather, ERISA specifically relates to employee benefit plars.

Moreover, it is difficult to understand how ERISA can be viewed as

a statute explicitly designed to repeal the McCarran-Ferguse:n Act

and to preempt state insurance regulations when ERISA expressly

indicates no intent to displace state insurance laws and no intent to

supersede the McCarran-Ferguson Act. See Cochran v. Paco, Inc.,

606 F.2d 460, 464 (5th Cir. 1979) ; Wadsworth v. Whaland, 562 F.2d

70, 78 (1st Cir. 1977), cert. denied, 485 U.S. 980 (1978).

Two courts have found that some portions of ERISA do specifically

relate to the business of insurance within the meaning of the

McCarran-Ferguson Act. See Hewlett-Packard Co. v. Barnes, 571

F.2d 502, 505 (9th Cir.) (per curiam), cert. denied, 439 U.S. 831

(1978); Wayne Chemical, Inc. v. Columbus Agency Service Corp.,

426 F. Supp. 316, 320 n. 1 (N.D. Ind. 1977), modified on other

grounds, 567 F.2d 692 (7th Cir. 1977). But neither court articu-

lated a persuasive rationale for its conclusion.

25 The portion of the McCarran-Ferguson Act providing that

the Act does not “affect in any manner the application to the

business of insurance .. .” of the NLRA is not relevant to this

case—even though some of the employee benefit plans that pur-

chase insurance policies from appellants are the result of col-

lective bargaining. 15 U.S.C. § 1014. That provision was meant

to codify this Court’s decision in Polish Nat’l Alliance v. NLRB, 322

U.S. 643 (1944), which held that the labor relations of insurance

companies are subject to the NLRA. See, e.g., 91 Conc. REc. 1090

(1945) (remarks of Rep. Gwynne); 90 Conc. REc. 6419 (1944)

(remarks of Rep. Allen); Weller, The McCarran-Ferguson Act’e

Antitrust Exemption for Insurance: Language, History and Policy,

1978 DUKE L.J. 587, 594. Thus, that section provides only that the

McCarran-Ferguson Act does not “jeopardize the rights of insur-

ance workers .. .” under the NLRA;; it therefore has no application

Thus, the McCarran-Ferguson Act was drafted to pro-

tect the long tradition of state regulation of the business

of insurance. Because mandated benefit statutes like Sec-

tion 47B regulate the business of insurance within the

meaning of the McCarran-Ferguson Act, that statute re-

quires, as a matter of federal policy, that such state stat-

utes be preserved. Thus, this case involves more than a

conflict between a state law—Section 47B—and a federal

law—ERISA. Rather, it involves a conflict between two

federal laws—ERISA and the McCarran-Ferguson Act.

Resolution of such a conflict might be difficult if Con-

gress had not indicated on two separate occasions in

ERISA that the important policies underlying the Mc-

Carran-Ferguson Act should prevail. Given the two ex-

press exceptions to the reach of ERISA’s preemption pro-

vision—the insurance savings clause and the provision

indicating that ERISA is not intended to impair any

federal law—any conflict between ERISA and the Mc-

Carran-Ferguson Act must be resolved in favor of the

latter, and therefore in favor of mandated benefit statutes

like Section 47B.

to this case. 90 CoNG. REC. 6526 (remarks of Rep. Brehm). See

also, e.g., Women in City Gov’t United v. City of New York, 515

F. Supp. 295, 304 (S.D.N.Y. 1981) ; John Hancock Mutual Life Ins.

Co. v. Commissioner of Ins., 349 Mass. 390, 397-98, 208 N.E.2d 516,

522 (1965).

Likewise, the NLRA does not itself preempt Section 47B. See

Malone v. White Motor Corp., 435 U.S. 497, 504-05 (1978) (noting

that “nothing in the NLRA . . . expressly forecloses all state regula-

tory power with respect to those issues, such as pension plans, that

may be the subject of collective bargaining,” and that in another

statute, the predecessor to ERISA, Congress had “recognized and

preserved state authority to regulate pension plans .. .” without dis-

tinguishing those established by collective bargaining); see also

Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 526 n. 23 (1981)

(noting that where Congress preserves the States’ role, the NLRA

does not preempt state regulation).

Ill. APPELLANTS’ NARROW READING OF THE IN-

SURANCE SAVINGS CLAUSE IS UNSUPPORT-

ABLE.

Appellants propose that ERISA’s insurance savings

clause be construed to preserve only “the traditional

areas of state insurance regulation . . .”—for example,

“licensing and examination of insurers, . . . minimum

capital and surplus requirements, ... [and] general over-

sight of insurance companies.” Brief for Appellant

Metropolitan Life Insurance Co. at 34-35. There is ab-

solutely no support for this exceedingly narrow reading

of the savings clause.

A. The Statutory Language, Legislative History, and

Judicial Construction of the Relevant Statutes Do

Not Support Appellants’ Reading of the Insurance

Savings Clause.

Appellants’ proposed construction of the savings clause

distorts the plain meaning of that clause, which broadly

preserves “any law of any State which regulates insur-

ance... .” It cannot be read to preserve only those

insurance laws that are to appellants’ liking.

Moreover, appellants’ interpretation of the insurance

Savings clause renders it completely superfluous. ERISA’s

preemption provision supersedes only those state laws that

“relate to” employee benefit plans. But the types of in-

surance regulations appellants consider “traditional” are

in no way related to employee benefit plans. Rather, they

relate solely to insurance companies. If the insurance

savings clause is interpreted to preserve only those types

of insurance regulations, it has no meaning whatsoever

because such regulations are not even arguably preempted

by ERISA.

In addition, there is no support for appellants’ limited

definition of traditional areas of state insurance regula-

tion. In fact, there is a very long tradition of state

statutes, like Section 47B, that prescribe the contents of

insurance policies and that mandate that certain benefits

be included in those policies. See SEC v. Variable An-

nuity Life Ins. Co. of America, 359 U.S. 65, 79 (1959)

(acknowledging “[t]he traditional state insurance de-

partment regulation of contract terms...”). That tradi-

tion was solidly established when ERISA was enacted in

1974—and even when the McCarran-Ferguson Act was

enacted in 1945. If Congress had meant to exclude such

traditional forms of state insurance regulation from the

savings clause, it certainly would have so stated and

would not have applied that clause to “any law of any

State which regulates insurance... .” **

B. The Relevant Policy Considerations Do Not Support

Appellants’ Reading of the Insurance Savings

Clause.

Because appellants’ construction of the insurance sav-

ings clause is not supported by the relevant statutory

language, legislative history, or caselaw, they perforce

rely on policy considerations supposedly favoring their

reading of that clause. But “[t]hese policy considera-

tions were for Congress to weigh, and [this Court is]

not free to ignore the language and history of [ERISA

and the McCarran-Ferguson Act] even were [the Court]

to disagree with the legislative choice.” North Haven

Board of Education v. Bell, 456 U.S. 512, 586 n. 26

(1982). Moreover, “[r]Jeferral to the legislators is par-

ticularly appropriate in this case, as the policy aspects

may not be as one-sided as those painted by [appel-

lants].” Group Life & Health Ins. Co. v. Royal Drug Co.,

440 U.S. 205, 256 n. 26 (1979) (Brennan, J., dissenting).

26In a case similar to this one, this Court rejected the Federal

Government’s narrow reading of the term “health insurance” as it

appeared in another federal statute. The Court relied on the ab-

sence of a definition of the term in the statute or legislative history,

and on the lack of support for the limited definition in the statutory

language or legislative history. Accordingly, the Court concluded

that the Federal Government had “offer[ed] no persuasive reasons

why the term ‘health insurance’ in [26 U.S.C.] § 22(b) (5) should be

limited to the particular forms of insurance conventionally made

available by commercial companies.” Haynes v. United States, 353

U.S. 81, 84 (1975). Similar reasoning requires rejection of appel-

lants’ narrow definition of the term “insurance” in the insurance

savings clause.

Leaving the task of balancing the relevant policies to

Congress is additionally appropriate in this case because

it involves a conflict between two federal statutes and

because Congress has already rejected attempts to amend

ERISA so as to preempt state mandated benefit laws.

See note 9, supra. Because amici believe that this Court

should not involve itself in weighing the conflicting pol-

icy considerations at issue in this case, we discuss them

only briefly and limit the discussion to points not ad-

dressed in the amicus brief of the Committee for Compre-

hensive Insurance Coverage.

Appellants’ construction of the insurance savings clause

would create an immense regulatory vacuum in the field

of insurance. It would result in the preemption of all

state statutes prescribing the contents of insurance pol-

icies—at least insofar as those statutes applied to policies

sold to employee benefit plans governed by ERISA. For

example, the statutes cited at pages 8-10 above would all

be subject to preemption.?’ There is no federal system for

the regulation of insurance to replace this comprehensive

and traditional scheme of state regulation. And ERISA

does not attempt to control the substance of health and

welfare benefits. In fact, the bulk of ERISA is directed

at pension plans, not at welfare plans like those at issue

in this case.** Ceasing all governmental regulation of

welfare benefit plans, other than ERISA’s disclosure and

27 Appellants’ attempt to dismantle the traditional state regula-

tion of the contents of insurance policies, leaving no federal regula-

tion in its place, is the latest in a long line of attempts by the

insurance companies to avoid regulation. Sec, e.g., Polish Nat'l

Alliance v. NLRB, 322 U.S. 6438, 648-49 (1944); 90 CoNG. REC.

6537-38 (1944) (remarks of Rep. Celler); Weller, supra note 25,

at 590, 592, 614.

28 The statute’s title suggests that Congress was primarily con-

cerned with pension benefit plans. Moreover, the scarcity of regula-

tory provisions applicable to welfare benefit plans and the congres-

sional hearings indicate that reform of private pension plans was

Congress’ main objective. See Brummond, supra note 5, at 61-63,

114, 115; ERISA Preemption Comment, supra note 5, at 1536 n. 4,

1546 n. 70.

fiduciary requirements, is completely inconsistent with

the legislative history of the McCarran-Ferguson Act,

which indicates that Congress wished to avoid “the grave

danger, unless something is done at once, that the insurance

companies will be absolutely unregulated.” 90 Cong. Rec.

6548 (1944) (remarks of Rep. Hobbs). It is likewise in-

consistent with the legislative history of ERISA, which

indicates that Congress wished to preserve the existing

scheme of state insurance regulation, and that Congress

was concerned with the inadequacy of governmental regu-

lation of employee benefit plans, see, eg., 29 U.S.C.

§ 1001.”

Appellants’ proposal would be exceedingly difficult to

administer. In defining “the traditional areas of state

insurance regulation,” they suggest a distinction between

“the wide range of state laws designed to protect the in-

surance purchaser from improper or imprudent conduct

by the insurance company” and “state laws whose purpose

and effect is to control plan content or the relationship

between the plan itself and the plan’s beneficiaries.”

Brief for Appellant Metropolitan Life Insurance Co. at

34. Not only is state control over the content of insurance

policies a traditional area of state insurance regulation,

but the very purpose of such control is to protect the pur-

chaser of insurance. Accordingly, appellants’ attempted

distinction has no meaning. Even appellants concede that

their construction of the insurance savings clause may

lead to “difficult Jine-drawing problems.” Jd. at 35.

In addition to ignoring the substantial policies dis-

served by their reading of the insurance savings clause,

appellants exaggerate the importance of the policies al-

legedly supporting their proposal. Appellants argue, for

example, that mandated benefit statutes make it more dif-

ficult for interstate employers to provide uniform benefits

29 See also Insurance Comm’r v. Metropolitan Life Ins. Co., 296

Md. 334, 343-44, 463 A.2d 793, 798 (1983); Metropolitan Life Ins.

Co. v. Whaland, 119 N.H. 894, 908, 410 A.2d 635, 640 (1979) (per

curiam).

and therefore create increased administrative costs for

such employers. Although Congress may have wished to

minimize the need for interstate employers to administer

their plans differently in different states, it was also will-

ing to sacrifice that interest to accommodate the States’

interests. For example, ERISA permits continued en-

forcement cf state laws relating to workmen’s compensa-

tion, unemployment compensation, and disability insur-

ance, although they vary substantially from state to state.

See 29 U.S.C. § 1003(b) (3). Moreover, the insurance

savings clause permits the States to enforce at least some

insurance laws relating to employee benefit plans, even

though those laws likewise differ among the States. Thus,

“lmjere incantation of the congressional goal of uni-

formity in regulation cannot resolve this question of statu-

tory construction.” Standard Oil Co. v. Agsalud, 442 F.

Supp. 695, 706 (N.D. Cal. 1977), aff'd, 633 F.2d 760 (9th

Cir. 1980), aff'd mem., 454 U.S. 801 (1981).

Moreover, because state laws have traditionally pre-

scribed the contents of insurance policies, diversity in

this area has long been the norm for interstate employee

benefit plans. And it was precisely such diversity that

the McCarran-Ferguson Act was intended to preserve.”

There is no evidence in ERISA’s legislative history that

Congress intended to sacrifice this diversity; in fact, Con-

gress’ concern for uniformity appears to have been

limited to regulation of benefit plans, and not to regula-

tion of insurance companies selling policies to those plans.

See, e.g., 120 Cong. Rec. 29,933 (1974) (remarks of Sen.

Williams).

8° See, e.g., Prudential Ins. Co. v. Benjamin, 328 U.S. 408, 431

(1946) (“Congress intended to declare, and in effect declared, that

uniformity of regulation, and of state taxation, are not required in

reference to the business of insurance by the national public inter-

est, except in the specific respects otherwise expressly provided

for’) ; 90 ConG. REc. 6418-19 (1944) (remarks of Rep. Allen) ; id. at

6550 (remarks of Rep. Robsion); id at 6551 (remarks of Rep.

Ploeser) .

Appellants also argue that mandated benefit statutes

encourage employee benefit plans to become self-insured.

However, there is no evidence in ERISA’s language or

legislative history that self-insurance is contrary to Con-

gress’ intent. In fact, Congress clearly recognized that

some employee welfare benefit plans would not purchase

insurance policies. See 29 U.S.C. § 1002(1). Moreover,

the States have every incentive to discourage self-

insurance to maximize the impact of mandated benefit

statutes and other state insurance regulations, as well as

to prevent “a loss of revenue from the traditional state

source of insurance company taxation, the premium tax

... -” Okin, supra note 5, at 671.

Thus, although judicial balancing of the countervailing

policy considerations is especially inappropriate in this

case and should instead be left for Congress, the relevant

policies support the decision below.

CONCLUSION

Amici urge this Court to affirm the decision below.

Respectfully submitted,

DONALD N. BERSOFF

(Counsel of Record)

KIT KINPORTS

BRUCE J. ENNIS

ENNIS, FRIEDMAN, BERSOFF

& EWING

1200 - 17th Street, N.W.

Washington, D.C. 20036

(202) 775-8100

Counsel for Amici Curiae

January 25, 1985

APPELLEE’S

BRIEF -

In the

Supreme Court of the United States.

OCTOBER TERM, 1984.

METROPOLITAN LIFE INSURANCE COMPANY,

APPELLANT,

COMMONWEALTH OF MASSACHUSETTS,

APPELLEE.

THE TRAVELERS INSURANCE COMPANY,

APPELLANT,

COMMONWEALTH OF MASSACHUSETTS,

APPELLEE.

ON APPEALS FROM THE SUPREME JUDICIAL COURT FOR

THE COMMONWEALTH OF MASSACHUSETTS.

Brief for the Appellee.

FRANCIS X. BELLOTTI,

Attorney General,

SALLY A. KELLY,

Assistant Attorney General,

Counsel of Record,

SuSAN M. ROBERTS,

Assistant Attorney General,

One Ashburton Place,

Boston, Massachusetts 02108.

(617) 727-3672

Attorneys for the Appellee

BATEMAN & SLADE, INC BOSTON, MASSACHUSETTS

Questions Presented.

1. Whether a Massachusetts statute requiring that all health

insurance policies issued in the state include minimum mental

health benefits is protected from preemption by the Employee

Retirement Income Security Act of 1974 (ERISA), because of

an express ERISA exemption for state insurance laws (29

U.S.C. § 1144 (b)(2)(A)).

II. Whether a Massachusetts statute requiring that all health

insurance policies issued in the state include minimum mental

health coverage is preempted by the National Labor Relations

Act (NLRA), 29 U.S.C. §§ 151 et seq.

(i)

(ii)

Table of Contents.

Questions Presented (i)

Table of Authorities (iii)

Statement of the Case 2

Summary of Argument 9

Argument 12

1. AS A STATE LAW REGULATING THE CON-

TENT OF INSURANCE POLICIES, § 47B IS

NOT PREEMPTED BY ERISA. 12

A. Preemption is Not Lightly Inferred, Particularly

in an Area of Law Such as Insurance Regulation

Which Has Historically Been a Concern of the

States. 12

B. ERISA was Not Intended to Displace State Law

Governing Insurance and Instead Explictly Pro-

vides for Continued Enforcement of Such Laws. 14

C. Section 47B is a State Insurance Law. 29

1]. SECTION 47B IS NOT PREEMPTED BY THE

NLRA BECAUSE IT DOES NOT CONFLICT

WITH THE POLICY OR PROCEDURES OF FED-

ERAL LABOR LAW. 34

A. Section 47B is Not Preempted by the NLRA

Because It Regulates the Types of Insurance Poli-

cies Issued in Massachusetts and Does Not Regu-

late Substantive Terms of Collective Bargaining

Agreements. 36

B. Section 47B is Not Preempted Because the States

May Regulate in Both the Mental Health and In-

surance Areas. 43

Conclusion 52

Table of Authorities Cited.

CASES.

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

(1981) passim

Allen-Bradley Local v. Wisconsin Employment Rela-

tions, 315 U.S. 740 (,942) 35, 45

(ili)

TABLE OF AUTHORITIES CITED.

American Family Life Assur. Co. v. Commissioner of

Ins., 388 Mass. 468, 446 N.E.2d 1061 (1983) 32

American Progressive Life & Health Ins. Co. v. Cor-

eoran, 715 F.2d 784 (2d Cir. 1983) 32

Atty. Gen. v. Travelers Ins. Co., 391 Mass. 730 (1984) 9,

50n

Atty. Gen. v. Travelers Ins. Co., 385 Mass. 598 (1982),

vacated and rem’d __ U.S. —__, 103 S.Ct. 3563

(1983) 8

Barsky v. Board of Regents, 347 U.S. 442 (1954) 43

Beer Co. v. Massachusetts, 97 U.S. 25 (1878) 43

Belkziap, Inc. v. Hale, 463 U.S. 491, 103 S.Ct. 3172

(1983) 39

Blue Cross of Virginia v. Commonwealth, 221 Va. 349,

269 S.E.2d 827 (1980) 32

Brown v. Hotel & Restaurant Employees & Bartenders

International Union, __ U.S. __, 104 S.Ct. 3179

(1984) 35, 39n, 40, 41

California Auto Association v. Maloney, 341 U.S. 105

(1951) 31

Chicago & North Western Transp. Co. v. Kalo Brick &

Tile Co., 450 U.S. 311 (1981) 13

Commonwealth v. Alger, 61 Mass. (7 Cush.) 53 (1851) 43

Consumer Product Safety Comm. v. GTE Sylvania,

Inc., 447 U.S. 102 (1980) 24

Day-Brite Lighting, Inc. v. Missouri, 342 U.S. 421

(1952), reh. den., 343 U.S. 921 38, 41n, 46

De Canas v. Bica, 424 U.S. 351 (1976) 41, 45, 46

Farmer v. United Brotherhood of Carpenters & Joiners,

430 U.S. 290 (1977) 37n

Florida Lime & Avocado Growers, Inc. v. Paul, 373

U.S. 132 (1963) 13

Garner v. Teamsters Union, 346 U.S. 485 (1953) 35

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

U.S. 205 (1979) 30, 47

Health Ins. Ass’n of America v. Hartnett, 44 N.Y.2d

302, 376 N.E.2d 1280 (1978) 32

(iv)

TABLE OF AUTHORITIES CITED.

Hines v. Davidowitz, 312 U.S. 52 (1941) 13, 35

Hoopeston Canning Co. v. Cullen, 318 U.S. 313 (1943) 30

In re Slaughter-House Cases, 83 U.S. 36 (1873) 43

Insurers’ Action Council, Inc. v. Markman, 653 F.2d

344 (8th Cir. 1981) 32

International Ass’n of Machinists & Aerospace Workers,

v. Wisconsin Employment Relations Comm’n, 427

U.S. 132 (1976) 39, 40, 41

John Hancock Mut. Life Ins. Co. v. Commissioner of

Ins., 349 Mass. 390, 308 N.E.2d 516 (1965) 50n

Jones v. Rath Packing Co., 430 U.S. 519 (1977) 13

Malone v. White Motor Corp., 435 U.S. 497(1978) 27n, 35,

38, 39, 47

Massachusetts Nurses Ass’n v. Dukakis, 726 F.2d 41

(Ist Cir. 1984) 37, 44

Mills Music, Inc. v. Snyder, __ U.S. __, 53 U.S.L.W.

4035 (Jan. 8, 1985) 14

Motor Coach Employees v. Lockridge, 403 U.S. 274

(1971) 35

Mountain Timber Co. v. Washington, 243 U.S. 219

(1917) 38, 45

New York Life Ins. Co. v. Hardison, 199 Mass. 190, 85

N.E. 410 (1908) 31

New York State Dept. of Social Services v. Dublino,

413 U.S. 405 (1973) 12

New York Tel. Co. v. New York State Dept. of Labor,

440 U.S. 519 (1979) 37, 40, 41, 42, 44, 47

NLRB v. Insurance Agents’ International Union, 361

U.S. 477 (1960) 38

NLRB v. Jones & Laughlin Steel Corp., 301 U.S. 1

(1937) 35

Park ’n Fly, Inc. v. Dollar Park and Fly, Inc., __ U.S.

__., 53 U.S.L.W. 4044 (Jan. 8, 1985) 14

Perez v. Campbell, 402 U.S. 637 (1971) 13

Philbrook v. Glodgett, 421 U.S. 707 (1975) 14

Prudential Ins. Co. v. Benjamin, 328 U.S. 408 (1946) 13

Red Lion Broadcasting Co. v. F.C.C., 395 U.S. 367

(1968) 24

(v)

TABLE OF AUTHORITIES CITED.

Retail Clerks International Association v. Schermer-

horn, 375 U.S. 96 (1963) 35

Rice v. Santa Fe Elevator Corp., 331 U.S. 218 (1947) 13

San Diego Bldg. Trades Council v. Garmon, 359 U.S.

236 (1959) 39

Schwartz v. Texas, 344 U.S. 199 (1952) 12

Sears, Roebuck & Co. v. San Diego County Dist.

Council of Carpenters, 436 U.S. 180 (1978) 37n, 42

SEC v. National Secur., Inc., 393 U.S. 453 (1969) —10, 30,

34, 47, 50

Shaw v. Delta Airlines, Inc., 463 U.S. 85, 103 S.Ct.

2890 (1983) passim

Silkwood v. Kerr McGee Corp., __ U.S. ——, 104

S.Ct. 615 (1984) 44

Sioux Tribe of Indians v. United States, 316 U.S. 317

(1942) 24

Teamsters, Chauffeurs & Helpers Union v. Morton,

377 U.S. 252 (1964) 4|

Teamsters Union v. Oliver, 358 U.S. 283 (1959) 40, 42

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

(1982) 47

United States v. Menashe, 348 U.S. 528 (1955) 22

Wadsworth v. Whaland, 562 F.2d 70 (Ist Cir. 1977),

cert. denied, 435 U.S. 980 (1978) 20, 21, 26, 32

Wayne Chemical, Inc. v. Columbus Agency Service

Corp., 567 F.2d 692 (7th Cir. 1977) 17n, 31, 32

West Coast Hotel Co. v. Parrish, 300 U.S. 379 (1937) 38, 45

Western & Southern Life Ins. Co. v. State Bd. of Equal-

ization, 451 U.S. 648 (1981) 13, 36

STATUTES.

Federal:

Employee Retirement Income Security Act of 1974,

29 U.S.C. §§ 1001 et seq.

§ 1001(a)(A) 27n

§ 1002(1) 17

(vi)

TABLE OF AUTHORITIES CITED.

29 U.S.C. § 1051(1) 27n

§ 1081(a)(1) 27n

§ 1144(a) 6, 14, 18

§ 1144(b) 6

§ 1144(b)(2)(A) (i), 6, 15, 26

§ 1144(b)(2)(B) 15, 28n

§ 1144(d) 15, 16, 18

§ 1221 24

§ 1222(a)(5) 24

§§ 1301-1309 27n

Fair Labor Standards Act, 29 U.S.C §§ 201-219 49

Federal Trade Commission Act, 15 U.S.C. 88 41-58 48, 49

Labor Management Relations Act,

29 U.S.C. §§ 141-187 31

McCarran-Ferguson Act,

15 U.S.C. § 1011 et seq. 8, 10, 16, 47

§ 1012 16, 49

§ 1012(b) 48, 49, 50

§ 1014 48, 49

Merchant Marine Act, 46 U.S.C. 49

National Labor Relations Act,

29 U.S.C. §§ 151 et seq. passim

42 U.S.C. § 289k-1, P.L. 93-282, 88 Stat. 135 (1974) 44n

42 U.S.C. § 290aa 44n

42 U.S.C. § 300e-10 24

42 U.S.C. § 300k et seq., P.L. 93-641, 88 Stat. 2226

(1975) 44n

42 U.S.C. § 2000e et seq. 18

42 U.S.C. §§ 2681 et seq., P.L. 88-164, 77 Stat. 290

(1963)

42 U.S.C. § 2689, et seq., P.L. 94-63, 89 Stat. 309

(1975) 44n

Sherman Act, 15 U.S.C. §§ 1-7 48, 49

Taft-Hartley Act (see Labor Management Relations

Act) 28

(vil)

TABLE OF AUTHORITIES CITED.

State:

Massachusetts General Laws

c. 15ID

c. 175, § 47B

§ 110D

§ 113 et seq.

§ 134(4)

c. 176A, § 8A

c. 176G, § 4

Ariz. Rev. Stat. Ann. § 20-1402(4)(b)

Conn. Gen. Stat. Ann. § 38-174D

Ill. Ann. Stat. c. 73, § 979(7)

Md. Ann. Code. art. 48A, § 477E

Minn. Stat. Ann. § 62A.149

Wis. Stat. § 211.02(1) (1959)

1971 Wis. Laws c. 325

CONGRESSIONAL BILLS, COMMITTEE REPORTS,

DEBATES, HEARINGS.

S. 209, 96th Cong., Ist Sess. (1979)

H.R. 2, 93d Cong., Ist Sess., § 514(a)

91 Cong. Rec. 481 (1945)

483 (1945)

120 Cong. Rec. 4742 (1974)

5002 (1974)

15757 (1974)

29197 (1974)

29933 (1974)

125 Cong. Rec.»931 (1979)

S. Rep. No. 127, 93d Cong., x Sess., 1974 U.S. Code

Cong. & Ad. News 4838

U.S. Code Cong, & Ad. News 3057-3058 (1973)

Activity Report of the House Comm. on Education

and Labor, H.R. Rep. No. 1785, 94th Cong. 2d Sess.

48 (1977)

(viii)

27n

passim

27n

29n

27n

29n

2In

24n

22n

27n

TABLE OF AUTHORITIES CITED.

U.S. Sen. Comm. on Labor and Human Resources,

ERISA Improvement Act of 1979: Summary and

Analysis of Consideration, 46 (1979) 27

MISCELLANEOUS.

Books & Articles:

Archives of General Psychiatry, v.41, No. 10(Oct. 1984) 43n

Cox, Recent Developments in Federal Labor Law Pre-

emption, 41 Ohio St. L. J. 277 (1980) 37n, 42

General Joint Commission on Insurance, Advances in

Health Insurance in Massachusetts, 1974 2

Goetz, The Regulations of Uninsured Employee Wel-

fare Plans Under State Insurance Laws, 1967 Wis. L.

Rev. 319 28n

Harwood, Economic Costs to Society of Alcohol and

Drug Abuse and Mental Illness, 1980 (Report Sub-

mitted to Alcohol, Drug Abuse & Mental Health Ad-

ministration, Contract # ADM 283-83-002) 46n

McGuire, Financing Psychotherapy, Ballinger Publish-

ing Co. (1981) 37n

Okin, Federal Preemption of State Law Under ERISA:

An Examination of the Effects of the Federal Man-

date in the Light of Authoritative Precedent Under the

Supremacy Clause, the McCarran-Ferguson Act and

the Legislative History, 24 A. of Life Ins. Couns.

Proc. 115 (1976) 23n

Pfennigstorf & Kimball, Employee Legal Service

Plans: Conflicts Between Federal and State Regula-

tion, 1976, A.B. Found. Research J. 787 = 16n, 23n, 28

Robins, Lifetime Prevalence of Specific Psychiatric

Disorders In Three Sites, 41 Archives of General

Psychiatry 949 (1984) 43n

Sharfstein, Dispelling Myths about Mental Health

Benefits, Business & Health, Oct., 1984 37n

Turza and Holloway, Preemption of State Laws Under

ERISA, 5 Journal of Pension Planning & Compli-

ance, 361 (1979) 23n, 27n, 28

(ix)

TABLE OF AUTHORITIES CITED. No. 84-325, 84-356.

Wells, Cost Sharing and the Demand For Ambulatory

Mental Health Services, Rpt. of Rand Corp. & U.S. In the

Dept. Health & Human Services, Library of Con-

gress No. R 2960 HHS (1982) 43n Supreme Court of the United States.

Other:

U.S. Supreme Court Rule 30 2n

OCTOBER TERM, 1984.

U.S. Supreme Court Rule 34.2 2

METROPOLITAN LIFE INSURANCE COMPANY,

APPELLANT,

COMMONWEALTH OF MASSACHUSETTS,

APPELLEE.

THE TRAVELERS INSURANCE COMPANY,

APPELLANT,

Vv.

COMMONWEALTH OF MASSACHUSETTS,

APPELLEE.

ON APPEALS FROM THE SUPREME JUDICIAL COURT FOR

THE COMMONWEALTH OF MASSACHUSETTS.

Brief for the Appellee.

(x)

Statement of the Case.

The Commonwealth is “dissatisfied”, within the meaning

of Supreme Court Rule 34.2, with the appellants’ Statements

of the Case' because the appellants continue to press factual

and policy arguments which are inconsistent with the findings

of the Massachusetts legislature and the trial court. Accord-

ingly, the Commonwealth submits the following to supplement

the appellants’ statements.

1. This case involves preemption-based challenges to a Mas-

sachusetts insurance law that prescribes certain terms to be

contained in insurance policies issued in the Commonwealth

which provide coverage for hospital and surgical expenses.

The statute under attack is codified at Mass. G. L. c. 175,

§ 47B (West Supp. 1984-1985) (hereinafter, § 47B).’

There can be no question that the Massachusetts state legis-

lature adopted § 47B to address the problem of treating mental

illness in the Commonwealth and not to avoid the strictures

of ERISA. (General Court Joint Committee on Insurance, “Ad-

vances in Health Insurance in Massachusetts,” 1974, A. 426-

458).°

In passing the measure in December, 1973, the legislature

felt compelled to act because federal policy in the area at that

time did not adequately address Massachusetts’ or other states’

' Brief of Appellant Metropolitan Life Ins. Co. (Metropolitan) at 3-9; Brief

of Appellant Travelers Ins. Co. (Travelers) at 2-9.

? Section 47B is set forth in its entirety at J.S. App. 87a-89a. J.S. App.

refers to the separately bound appendix to the Jurisdictional Statements filed

by appellants.

*“A.” refers to the separately bound Joint Appendix filed by the parties

pursuant to Rule 30.

problems (A. 427). Specifically, the legislature perceived that

mental health treatment in Massachusetts was inadequate in

two basic respects: (1) the large majority of persons who evi-

denced a need for mental health treatment, namely members

of the poor and working segments of society, were not receiving

it because they could not afford it, and (2) those persons within

the groups who were receiving treatment were generally insti-

tutionalized in state-run facilities and were not receiving treat-

ment from community mental health centers, where, it was

generally thought, persons could be treated on an out-patient

basis and could continue to function within the mainstream of

society (A. 430-432).*

The legislature recognized that both these treatment in-

adequacies were at least partially the result of the state of the

market for mental health insurance. Because they could not

afford it, persons who needed help were unable to obtain

mental health insurance which would help pay for their treat-

ment. That payment would in turn support payment of expenses

at community-based mental health centers, which would en-

courage their proliferation across the state and diminish the

need for and utilization of state institutions (A. 432-433).

The legislature’s recognition that the problems with the treat-

ment of mental illness in Massachusetts stemmed from prob-

lems associated with selling mental health insurance in the

Commonwealth is precisely on point. Testimony presented by

the Commonwealth at trial (A. 219-233), which the trial court

‘The legislature also understood (and testimony was presented which indi-

cated) that because mental illness was not being treated, or was being treated

on an institutionalized basis, Massachusetts was also suffering indirect costs

to its economy. Indirect costs include the losses of income and the decreased

productivity of workers which result from disability or death due to mental

illness and include the incorrect over-utilization of non-psychiatric medical

care for mental problems (J.S. App. Sla; A. 209-212, 218-219).

adopted as part of its findings, (J.S. App. 50a), indicated that

the market for mental health insurance had become retracted.

This retraction of the market was found to be the result of the

phenomenon of adverse selection; insurance companies found

they could not compete by offering an adequate package of

mental health insurance coverage (A. 223-225).

The principle of adverse selection deserves full explanation.

It simply means that in a voluntary market poor insurance risks

choose to buy mental health insurance. “Good risks” for mental

health insurance, i.e., people who do not anticipate using the

mental health benefit, do not buy the insurance because pre-

miums are established based on an average price for both good

and bad risks, and are therefore too expensive to attract good

risks (A. 222). “Bad risks”, i.e., people who predict that they

will utilize the benefit, buy the insurance, because for them,

the average price is attractively low (A. 222). Thus, in a

voluntary market, insurance companies which sell mental

health benefits draw an “adverse selection” of the population,

i.e., a group dominated by bad risks who will utilize the benefit

(A. 223-224).

Ironically, if an insurer reacts to the adverse selection

phenomenon by raising premiums, the insurers actually attract

a worse collection of bad risks (A. 224). This is so because

the good risks who buy the benefit at the “average price,”

refuse to buy the benefit at the “adverse selection” price. In

addition, competition among insurance companies for “good

risks” exacerbates the effects of adverse selection; companies

which reduce the extent of coverage offered and therefore are

able to lower their premiums cause good risks to abandon the

insurer with the “adverse selection” of risks. Thus, a competi-

tive and voluntary market creates continual retraction of the

mental health insurance market. This cycle destroys the mar-

ketability of mental health benefits (A. 224-225).

Massachusetts’ solution to the mental health treatment prob-

lem was to enact a statute, § 47B, which regulates the types

of insurance policies sold in the Commonwealth. All policies

providing coverage for hospital and surgical expense are now

required to provide minimum benefits for inpatient and outpa-

tient mental health treatment.°

Mandating of minimum levels of mental health insurance

as prescribed by § 47B in a market controlled by adverse

selection served to correct the retracted state of the insurance

market (A. 225-227). Because minimum coverage levels were

required, companies did not have to engage in the “ruinous

competition for the good risks, leaving the bad risks with their

competitors.” (A. 225.) Under a mandated benefits policy,

“(t]he government mandate can mimic the result of a market

if it were able to work correctly by setting prices appropriate

for individuals.” (A. 226.) The good risks and the bad risks

are spread around so that the insurance companies can survive

while continuing to provide the benefits (A. 225-226). Mental

health insurance is available for everyone to purchase at a

price which they can afford (A. 225-226).°

This discussion of the purpose of § 47B is not a post hoc

rationalization offered by the state’s attorney. Instead these

arguments emerge from an unusal legislative report detailing

a number of the public policy goals of the statute. These include

(1) the need to provide the public with affordable comprehen-

sive inpatient and outpatient mental health care, (2) the foster-

‘Section 47B also requires employee benefit plans to provide the same

minimum health benefits. With the enactment of ERISA in 1974, however,

the Attorney General acknowledged that application of its terms to such plans

was preempted. Therefore, the Commonwealth has not sought to enforce § 47B

directly against uninsured employee benefit plans. See discussion of the pre-

ERISA state regulation of employee benefit plans at 27-29, infra.

*It is important to note that the 1973 statute contained parallel provisions

providing for the inclusion of protection against mental illness costs, not just

in health insurance policies and employee health and welfare plans, but also

in hospital and medical services contracts. Mass. St. c. 1174, §§ 3-6, codified

at Mass. G. L. c. 176A, § 8A (West Supp. 1984-1985) and c. 176B, § 4a

(West Supp. 1984-1985). Three years later, when health maintenance organi-

zations had emerged as significant providers of medical services, the require-

ments of § 47B were made applicable to them. Mass. G. L. c. 176G, § 4

(West Supp. 1984-1985).

ing of community-based mental health care as an alternative

to state-subsidized institutionalization, (3) the reduction of

medical care expenditures for mentally-related illness and (4)

the provision of relief to the Commonwealth from some of the

financial burden of resolving mental health problems (J.S.

App. 52a-53a).

2. The statutes said to preempt § 47B are ERISA and the

NLRA (J.S. App. 85a-87a, 89a-91a). ERISA contains a series

of express preemption clauses: § 514(a), 29 U.S.C. § 1144(a)

generally preempts state laws which relate to employee benefit

plans; § 514(b), 29 U.S.C. § 1144(b) saves from preemption

state laws which regulate insurance. The NLRA contains no

express preemption scheme; therefore, the question of state

law preemption by the NLRA turns on the implied intent of

Congress.

3. This case originated on June |, 1979, when the Attorney

General filed a civil complaint in the Superior Court of Mas-

sachusetts (A. 6-49). In that complaint, the Attorney General

requested both a declaration that, the provisions of ERISA and

the NLRA notwithstanding, the Metropolitan and Travelers

insurance companies were required to issue policies containing

the benefits required by § 47B, and injunctive relief effectuat-

ing the declaration (A. 11-12). The defendant insurance com-

panies had not themselves challenged the statute, and no

ERISA plan was a party to the suit (A. 6-12). A preliminary

injunction issued on August 28, 1979 (A. 57-59). The case

was heard on its merits between September 22 and 29, 1980.

The Findings and Conclusions of the trial court are set forth

at J.S. App. 36a-62a.

Throughout this litigation, the Commonwealth has asserted

that § 47B is exempt from preemption because ERISA’s plain

language saves “any law . . . of any state which regulates

insurance. . . ” 29 U.S.C. § 1144(b)(2)(A) and because Con-

gress did not intend for statutes regulating the types of insurance

policies which may be issued in Massachusetts to be preempted

by the NLRA (J.S. App. 86a, 89a-91a). The courts of the Com-

monwealth have consistently reached the same conclusion re-

garding ERISA, albeit by a somewhat narrower reading of the

insurance savings clause than that proposed here. As to both

the NLRA and ERISA, the courts also based their decisions

on an examination of the practical interplay of § 47B with

ERISA and the NLRA (J.S. App. 4a-7a, 17a-34a, 36a-62a).

The trial court rejected the insurers’ arguments that § 47B

conflicted and interfered with the purposes of ERISA (J.S.

App. 51la-56a). The insurers argued that variations from state

to state in insurance laws such as § 47B would effect a lack

of uniformity in multistate employee benefit plans and also

argued that § 47B imposes cost burdens and encourages bank-

ruptcy or promotes self-insurance of employee benefit plans.

In rejecting these arguments, which the insurers continue to

stress even now, the trial court found as a matter of fact that

(1) the administrative burden imposed by mandated ben-

efit laws, including diverse eligibility requirements for

each state, is no more complex or burdensome to interstate

commerce than various other multistate regulatory schemes

such as workmen’s compensation laws;

(2) the insurers presented no credible evidence that even

assuming every state had enacted mandated benefit laws

with varied eligibility requirements, such diversity and non-

uniformity would be any more complex or burdensome

to interstate commerce than other diverse multistate reg-

ulatory schemes, such as workmen’s compensation laws;

(3) the insurers introduced no credible evidence establish-

ing that the trend toward self-insurance is more pro-

nounced in Massachusetts by virtue of the enactment of

§ 47B;

(4) the insurers presented no credible evidence of the

actual cost insurers would incur if they complied with

§ 47B;

(5) the insurance companies produced no credible evi-

dence that they could not absorb the cost of compliance

with § 47B; or that aay ERISA plan in the United States

had gone bankrupt because of compliance with a mandated

benefit statute; and

(6) the insurers produced no credible evidence that the

cost-impact of § 47B has forced any policy holder to

self-insure or that the trend toward self-insurance is more

pronounced in Massachusetts because of § 47B.

(J.S. App. 54a-S6a).

The trial court also rejected the insurers’ preemption argu-

ments under the NLRA. It found that statutes mandating bene-

fits are no more disruptive to the collective bargaining process

than statutes requiring coverage for pregnancy-related disabilities,

and that collective bargaining agreements frequently differ from

State to state due to differences in state law (J.S. App. 55a).

4. Following entry of an amended final judgment on De-

cember |, 1980, this case has twice been before the Supreme

Judicial Court of the Commonwealth (SJC), which has twice

rejected the insurance companies’ arguments.

In its first opinion, the highest court of the state noted that

ERISA’s Savings clause for state insurance laws was broad

enough to permit a reading saving § 47B from preemption.

Atty. Gen. v. Travelers Ins. Co., 385 Mass. 598 (1982), va-

cated and rem’d U.S. , 103 S.Ct. 3563 (1983) (J.S.

App. 21a). The SJC held that § 47B was not preempted because

of the language of ERISA’s preemption and savings clauses

and the absence of any conflict between ERISA and § 47B

(J.S. App. 22a-25a). On the matter of the NLRA, the court

concluded that the statute, as a health regulation implemented

through the mechanism of insurance, was saved from preemp-

tion by Congress’ intent that the NLRA not supersede either

local health regulation or state insurance laws within the mean-

ing of the McCarran-Ferguson Act, 15 U.S.C. §§ 1011 et seq.

(J.S. App. 25a-30a). The court also viewed § 47B as not

having an absolute limit restricting unions’ and employers’

abilities to negotiate the terms of collective bargaining agree-

ments (J.S. App. 31a).

On appeal, this Court vacated the SJC’s decision and re-

manded the case for reconsideration in light of Shaw v. Delta

Air Lines, Inc., 463 U.S. 85, 103 S.Ct. 2890 (1983) (J.S.

App. 10a).

On remand, the SJC focused on the ERISA issues to the

exclusion of the insurers’ renewed NLRA arguments, and again

found that ERISA did not preempt § 47B. Attorney General

v. Travelers Ins. Co., 391 Mass. 730 (1984) (J.S. App. la-9a).

Considering the issues now in light of Shaw, the SIC found

significance in the fact that Shaw does not address the insurance

savings clause in ERISA (J.S. App. 4a). Using Shaw’ s analysis

that effect must be given to ERISA’s plain language, 103 S.

Ct. at 2900, the court reiterated its previous view that in light

of the absence of any conflict between ERISA’s purposes and

the operation of § 47B, and the plain words exempting from

preemption “any law of any state which regulates insurance,

§ 47B should survive (J.S. App. 6a).

The SJC concluded that to read ERISA as preempting § 47B

would “read into the statute an intent that is not expressed by

plain words or by necessary implication” and would “require

an unnaturally narrow reading of the phrase ‘any law .. .

which regulates insurance... .” (J.S. App. 6a). The court

held that § 47B was a “bona fide regulation of insurance” and

was “within the spirit, as well as the letter, of the insurance

exception to ERISA preemption” and therefore should not be

preempted (J.S. App. 7a). It is this conclusion which the

insurance companies ask this Court to reverse.

Summary of Argument.

1. Neither the plain language of ERISA, its legislative

history, nor its clear purpose support the premise that state

statutes regulating the content of insurance policies that may

be sold in the state are preempted when applied to insurance

policies purchased to provide benefits in employee welfare

plans.

By means of ERISA, Congress sought to combat fraud and

abuse in pension plan management by requiring extensive dis-

closure and the application of fiduciary standards to the man-

agement of pension funds. To a far lesser extent, but for the

same purposes, Congress sought to regulate welfare plans.

When Congress enacied ERISA and broadly preempted state

laws relating to pensions and employee welfare plans, Congress

specifically saved from preemption state insurance laws.

Throughout the development of ERISA, Congress always con-

templated the continued regulation of insurance by the states.

Congress recognized in ERISA, as it earlier had in the McCar-

ran-Ferguson Act, 15 U.S.C. §§ 1011 et seq., that state insur-

ance laws constituted a well-developed body of laws which

the states had created and enforced and which should not be

interfered with by federal legislation. Accordingly, by explic-

itly exempting state insurance laws from preemption, Congress

made a conscious policy decision to allow the states to continue

to regulate insurance, including insurance purchased to provide

benefits in employee welfare plans.

Section 47B is a state insurance law within the meaning of

ERISA’s savings clause. Section 47B, which was enacted prior

to the enactment of ERISA, lies squarely within the traditional

realm of state regulation of insurance enunciated by this Court

in SEC v. National Secur., Inc., 393 U.S. 453 (1969) because

it regulates the terms of the contract between the insured and

the insurer, alters the voluntary insurance market and spreads

the risk and cost of mental illness among Massachusetts’ citi-

zens, thereby ensuring that the benefits of treatment are avail-

able at a reasonable cost to all citizens in need.

Finally, the insurers’ policy arguments regarding the effect

of mandated benefit laws, such as § 47B, on employee benefit

plans and’ insurance are misdirected, overstated and find no

support in the record or in the literature of insurance regulation,

economics or mental health.

2. Because § 47B is a law which simply requires that all

health insurance policies issued in the state provide minimum

coverage for health benefits, it does not impact on the collective

bargaining process nor interfere in any way with federal labor

law policy; hence, given the presumed validity of state laws,

it should not be preempted by the NLRA.

The declared policy of Congress in enacting the NLRA was

the promotion of the collective bargaining process and the

encouragement of labor and management to negotiate their

differences in good faith to achieve industrial peace and elimi-

nate obstructions to the free flow of interstate commerce.

Preemption of state laws requires a clear conflict with or frust-

ration of this policy. Those state laws which have been preemp-

ted by the NLRA have suffered invalidation because they frus-

trated the federal scheme in some way, either by interfering

with the National Labor Relations Board’s (NLRB’s) ability

to referee the collective bargaining process, or by “stacking

the deck” in favor of one party over the other by denying a

party an economic weapon in the collective bargaining process

which Congress meant it to have. As a law which prescribes

the types of insurance policies sold in Massachusetts, § 47B

falls into neither of these categories of impermissible interfer-

ence.

The appellants argue that § 47B does not merely regulate

the types of health insurance which may be sold in Massachu-

setts; they maintain that § 47B dictates specific terms which

must be contained in collective bargaining agreements, and

consequently, that the exercise by the state in compeiling the

agreements to contain certain terms is a frustration of congres-

sional intent in fashioning federal labor policy. The Common-

wealth demonstrates, however, that the argument is fallacious.

Nowhere in the federal scheme of labor-management relations

is there an indication of congressional intent to permit the

practice that the appellants hope to achieve, namely that unions

and employers, acting together, may agree to terms in a collec-

tive bargaining agreement which employers would otherwise

be prohibited by state law from establishing. Collective bar-

gaining was not intended by Congress to be a refuge for em-

ployers and unions from the operation of state laws which they

perceive to be burdensome.

Congress has long recognized that states have the right to

legislate and protect their citizens’ health and their workers’

employment conditions. Similarly, Congress has historically

deferred to state regulation in the field of insurance. Congres-

sional recognition of state authority in these areas is indicative

of its intent to permit the states to continue to so regulate, in

spite of any remote effect on labor-management relations.

Argument.

I. As A STATE LAW REGULATING THE CONTENT OF

INSURANCE POoL.iciges, § 47B is Not PREEMPTED BY ERISA.

A. Preemption is Not Lightly Inferred, Particularly in an

Area of Law Such as Insurance Regulation which has His-

torically Been a Concern of the States.

In determining whether § 47B is preempted, “our task is to

ascertain Congress’ intent in enacting the federal statute at

issue.” Shaw v. Delta Air Lines, Inc., 103 S. Ct. at 2890. A

thoughtful examination of ERISA and its legislative history

leads inexorably to the conclusion that Congress intended state

insurance laws like § 47B to survive preemption. This is so

first because “[t}he exercise of federal supremacy is not lightly

to be presumed.” New York State Dept. of Social Services v.

Dublino, 413 U.S. 405, 413 (1973), quoting Schwartz v.

Texas, 344 U.S. 199, 202-203 (1952).

This black letter proposition is no different with respect to

ERISA. Indeed, in Alessi v. Raybestos-Manhattan, Inc., 451

U.S. 504 (1981), the first case construing the preemption lan-

eo we

guage of ERISA, this Court reiterated this basic principle gov-

erning preemption in the following terms:

[p]reemption of state law by federal statute or regulation

is not favored ‘in the absence of persuasive reasons either

that the nature of the regulated subject matter permits no

other conclusion, or that Congress has unmistakably so

ordained.’ Chicago & North Western Transp. Co. v. Kalo

Brick & Tile Co., 450 U.S. 311, 317 (1981), quoting

Florida Lime & Avocado Growers, Inc. v. Paul, 373

U.S. 132, 142 (1963). See, Jones v. Rath Packing Co.,

430 U.S. 519, 526-526 (1977); Perez v. Campbell, 402

U.S. 637, 649 (1971); Rice v. Santa Fe Elevator Corp.,

331 U.S. 218, 230 (1947); Hines v. Davidowitz, 312

U.S. 52, 61-62 (1941).

Alessi v. Raybestos-Manhattan Inc., 451 U.S. at 522.

This is especially true where, as here, the law sought to be

preempted lies in an area such as insurance that Congress has

historically left to the states to regulate.

We start with the assumption that the historic police pow-

ers of the states were not to be superseded by the Federal

Act unless that was the clear and manifest purpose of

Congress.

Jones v. Rath Packing Co., 430 U.S. 519, 525 (1977), quoting

Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230 (1947).

Insurance law is perhaps the paradigm of such an area, since

in the McCarran-Ferguson Act Congress has used its plenary

authority to effectively approve what would otherwise amount

to discriminatory commercial regulation by the states. Western

& Southern Life Ins. Co. v. State Bd. of Equalization, 451

U.S. 648, 652-653 (1981); Prudential Ins. Co. v. Benjamin,

328 U.S. 408 (1946). The Commonwealth submits, therefore,

that only the clearest manifestation of a congressional intent

to supersede state insurance laws would support appeliants’

claim of preemption. No such intent can be inferred in this case.

B. ERISA was Not Intended to Displace State Laws Govern-

ing Insurance and Instead Explicitly Provides for Contin-

ued Enforcement of Such Laws.

|. The Plain Language of the Statute.

The search for manifestations of congressional purpose is

unusually easy in this case because the text of the statute itself

makes it clear that no intent to preempt state insurance laws

exists. As this Court has recently observed in the context of

Statutory construction, the exercise “must begin with the lan-

guage employed by Congress and the assumption that the or-

dinary meaning of that language accurately expresses the legis-

lative purpose.” Park 'n Fly, Inc. v. Dollar Park and Fly,

TG mais : , 53 U.S.L.W. 4044, 4046 (Jan.

8, 1985); Mills Music, Inc. v. Snyder, U.S. , .

53 U.S.L.W. 4035, 4038 (Jan., 1985). It is to the text of the

Statute, therefore, that we first turn.

ERISA contains a series of preemption clauses, each of

which must be read together to give the entire statute meaning.

E.g., Philbrook v. Glodgett, 421 U.S. 707, 708-719 (1975).

Section 514(a), 29 U.S.C. § 1144(a), ERISA’s general

preemption clause, provides that,

Except as provided in subsection(b) of this section, the

provisions of this subchapter and subchapter III shall

supersede any and all state laws insofar as they may now

or hereafter relate to any employee benefit plan described

in section 1003(a) of this title and not exempt under

section 1003(b) of this title.

This general rule of preemption is followed by a “savings

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

which the Commonwealth primarily relies in asserting that its

statute may operate in the face of ERISA. That clause provides

in pertinent part that ERISA shall not relieve any person from

compliance with state insurance laws:

Except as provided in subparagraph (B), 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.

These two clauses are followed by the “deemer clause” which

provides:

Neither an employee benefit plan . . . nor any trust estab-

lished under such a plan, shall be deemed to be an insur-

ance 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... .

29 U.S.C. § 1144(b)(2)(B).’ Finally, this last clause is further

modified by a congressional directive that ERISA is not con-

strued to invalidate other federal legislation:

Nothing in this subchapter shall be construed to alter,

amend, modify invalidate, impair or supersede any law

of the United States... .

29 U.S.C. § 1144(d).

Conceptually, then, ERISA’s general preemption clause is

limited by the insurance savings clause. It, in turn, is explicated

’The language of the deemer clause constitutes explicit recognition that

Congress was aware that insurance regulation included regulation of the “con-

tracts” issued by insurers, as well as the insurers themselves.

by the d2emer clause, which serves to limit and define the

breadth of the insurance savings clause. By forbidding the

states from deeming or considering employee benefit plans to

be insurers, Congress expressly stopped the practice of several

of the states of regulating employee benefit plans by treating

them as insurers.*

Congress’ express prohibition against considering employee

benefit plans to be insurance companies or insurance contracts

reveals the breadth of the insurance savings clause because

the deemer clause functions as the only explicit limitation in

ERISA on the insurance savings clause. It would not be neces-

Sary to even insert such a deemer clause, unless the insurance

Savings clause is extremely broad — so broad that it would

otherwise permit the savings clause to swallow up the rule of

general preemption and allow the states to directly regulate

employee benefit plans through state insurance laws. What

these successive provisions mean, therefore, is simply that

ERISA permits continued state regulation of insurance, but

rejects state regulation of employee benefit plans.’

That Congress should choose this path accords with the

central premise of the McCarran-Ferguson Act (McCarran Act)

that the states are the primary regulators of insurance. 15

U.S.C. §§ 1011 et seq. By virtue of Congress’ later inclusion

in ERISA of the insurance savings clause and its express

acknowledgment that ERISA does not alter or supersede exist-

ing federal law, 29 U.S.C. § 1144(d), Congress affirmed this

basic McCarran-Ferguson principle.

This reading of ERISA’s preemption clauses is further but-

tressed by Congress’ express acknowledgment and acceptance

of the role of insurance in the ERISA scheme. ERISA, for ex-

ample, provides that employee benefit plans may provide bene-

“See historical discussion of state regulation of employee welfare plans at

27-29, infra.

*Pfennigstorf & Kimball, Employee Legal Service Plans: Conflicts Between

Federal and State Regulation, 1976 A. B. Found. Research J. 787, 818

(hereinafter Pfennigstorf).

fits “through the purchase of insurance or otherwise.” 29

U.S.C. § 1002(1). Read with the “savings” and “deemer

clauses,” one must conclude that Congress intended continued

state regulation of insurance and its concomitant protection of

the insureds. '°

2. The Prior Opinions of this Court Addressing ERISA

Preemption Support the Reading of ERISA Advanced

by Massachusetts.

In spite of the literal language of ERISA, the insurers assert

that ERISA’s preemption scheme somehow alters the tradi-

tional preemption test. They assert that this Court’s two deci-

sions addressing ERISA preemption, Alessi v. Raybestos-Man-

hattan, Inc., 451 U.S. 504 (1981), and Shaw v. Delta Air

Lines, Inc., 463 U.S. 85, 103 S. Ct. 2890 (1983), confirm

their view that through ERISA Congress sought to foreclose

any non-federal regulation that affects employee benefit plans.

But the insurers substantially mischaracterize the holdings and

discussions in Alessi and Shaw. Both cases explicitly confirm

that preemption is not favored unless the state law in question

is specifically and clearly excluded by ERISA. Alessi at 522;

Shaw at 2905.

Because this case involves state regulation of insurance,

Alessi does not avail the petitioners. In Alessi, this Court struck

down a state law which prohibited a practice, “set-off,” which

ERISA explicitly permits. 451 U.S. at 517-525. Given the

clear conflict between the two statutes and the breadth of

ERISA’s preemption clause, the Court concluded that the op-

eration of ERISA evidenced an unmistakable intent of Congress

that the New Jersey statute fall to the Supremacy Clause.

Nevertheless, the Court rejected the notion, now advanced by

the insurers, that ERISA expresses a congressional desire to

When employee benefit plans supply benefits through the purchase of

insurance, the covered employees acquire significant rights under state law

against the insurer. See Wayne Chemical, Inc. v. Columbus Agency Service

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

foreclose any state regulation which relates in any way to

employee benefit plans, noting that “[tjhe scope of federal

concerns, however, is limited by ERISA itself. The statute

explicitly preserves state regulation of insurance, banking and

securities.” 451 U.S. at 523 n.19.

In Shaw, this Court considered whether the New York

Human Rights Law and Disability Benefits Law fell within

any of the specific exceptions in ERISA to the general rules

of preemption contained in § 514a, 29 U.S.C. § 1144(a). In

construing those statutory provisions this Court followed the

plain meaning of the pertinent exemptions from preemption.

103 S.Ct. at 2903, 2905.''

In considering the Human Rights Law, the Court first found

that it was a law which relates to an employee benefit plan

and then proceeded to weigh the effect of an exemption that

is not a subject of the case at bar, the exemption contained in

§ 514(d) providing that § 514(a) shall “not be construed to

alter, amend, modify, invalidate, impair or supersede any law

of the United States.” Section 514(d), 29 U.S.C. § 1144(d).

The Court’s analysis carefully tracked the language of the

exemption and relied heavily on the congressional intent ex-

pressed in Title VII of the Civil Rights Act of 1964, 78 Stat.

253, as amended, 42 U.S.C. §§ 2000e et seq. Noting the

significant role of state laws in the enforcement of Title VII,

the Court concluded that complete preemption of the Human

Rights Law would disrupt the joint federal-state enforcement

scheme contemplated by Title VII and would therefore “modify

and impair federal law” within the meaning of § 514(d). 103

S.Ct. at 2903. Thus, the Court found no preemption to the

the same as other occupational disabilities. The Disability Benefits Law required

employers to pay certain benefits to employees unable to work because of

non-occupational injuries or illnesses and as amended, mandated the same

benefits for pregnancy as for any other disability. The employers in Shaw

provided their employees with various medical and disability benefits through

welfare plans subject to ERISA, but did not provide pregnancy benefits.

extent that the Human Rights Law extended the same substan-

tive protections as Title VII, but found that the Supremacy

Clause prohibited its application insofar as the Human Rights

Law created substantive rights additional to those provided by

Title VII.

In making this ruling, the Court strongly intimated that the

reading of the savings clause advanced here by the Common-

wealth is correct. The Court compared and contrasted the ex-

tremely broad scope of § 514(b), the savings clause relied on

by the state, with the narrow exemption worked by § 514(d).

In analyzing the Human Rights Law vis a vis § 514(d), the

Court looked at its precise relationship to Title VII and upheld

it only in part. The Court contrasted this piecemeal approach

to the general § 514(b) exemption for state banking, insurance

and securities laws. /d. at 2903-2904.

It is also significant to the arguments advanced by the insur-

ers that the Court acknowledged that while a state may not

force an employer to comply with the state disability law as

part of its multi-benefit plan, a state may force an employer

to maintain a separate disability benefit plan and thereby com-

ply with the Disability Benefits Law:

In other words, while the state may not require an em-

ployer to alter its ERISA plan, it may force the employer

to choose between providing disability benefits in a sepa-

rately administered plan and include the state-mandated

benefits in its ERISA plan. If the state is not satisfied

that the ERISA plan comports with the requirements of

its disability insurance law, it may compel the employer

to maintain a separate plan that does comply.

103 S.Ct. at 2905-2906. In other words, the Court noted its

approval of a statutory scheme that would indirectly dictate

the contents of an ERISA plan and thereby detract from uni-

formity of multi-state benefit plans.

Thus, despite the insurers’ protestations, both Alessi and

Shaw confirm the historic presumption against preemption of

state law and counsel adherence to the plain language of

ERISA’s exceptions to preemption. Equally important, neither

Alessi nor Shaw turned on the application of the savings clause

for insurance, the key to this controversy, and each intimated

that the section could protect a staic law such as § 47B from

preemption.

The Commonwealth reads the ERISA preemption scheme

as plainly saving § 47B. Such a reading accords with the

holding in Wadsworth v. Whaland, 562 F.2d 70 (Ist Cir.

1977), cert. denied, 435 U.S. 980 (1978). The Wadsworth

court recognized that the savings clause reading urged by the

insurers renders the savings clause meaningless. Wadsworth

at 78. In the absence of the savings clause the only state

insurance laws that would be preempted by ERISA’s general

preemption clause would be those that indirectly regulate em-

ployee welfare plans. Other insurance laws would not be

preempted because they neither relate to nor affect employee

benefit plans. As the Solicitor General wrote in his memoran-

dum opposing the grant of certiorari in the Wadsworth case:

The court of appeals recognized, however, that Chapter

57 indirectly regulated employee benefit plans (and all

other insureds) by limiting the choices available to them if

they choose to buy insurance. Because Section 514(b)(2)

subjects to preemption even those state laws which indi-

rectly regulate plans, the court of appeals found Chapter

57 would be subject to preemption. At this point, how-

ever, Section 514(b)(2)(A) comes into play; that sub-sec-

tion saves from preemption any state law which ‘regulates

insurance’. This savings provision would be meaningless

unless it saved from preemption state laws regulating

insurance which also indirectly regulate employee benefit

plans, since no other state law regulating insurance would

be subject to preemption under the Act even in the absence

of the savings provision. Chapter 57 obviously ‘regulates

insurance’, and thus the court correctly found that Con-

gress intended that law and others like it to remain effec-

tive regardless of ERISA’s otherwise broad preemption

of state laws relating to plans.

Memorandum for the United States As Amicus Curiae, On Peti-

tions For Writs of Certiorari at 6-7, Wadsworth v. Whaland,

562 F.2d 70 (ist Cir., 1977), cert. denied, 435 U.S. 980

(1978). The Commonwealth wholeheartedly agrees with this

proposition.

3. The Legislative History Regarding

ERISA Preemption.

The appellants reject the Commonwealth’s straight-forward

reading of the statutory text as being overly simplistic. Their

alternative reading of the statute, clumsy as it might be, can

only withstand scrutiny if clearly supported by the legislative

history, for it finds no support in the statutory language itself.

That legislative history, while offering scant information re-

garding the insurance savings clause, supports the Common-

wealth’s literal reading of the savings clause. First, even the

earliest versions of ERISA contained exceptions from preemp-

tion for traditional areas of state concern such as insurance

and banking. Second, the changes which were made in the

statute as it made its way through Congress do not suggest

any narrowing of the scope of the insurance savings clause.

Pre-enactment versions of ERISA in both the House of Rep-

resentatives and the Senate contained almost identical preemp-

tion clauses which were a great deal narrower than the general

preemption clause now in ERISA."

Appellants argue that the broadening of the preemption

clause by the Conference Committee means that Congress

meant to foreclose any non-federal regulation of employee

benefit plans. (See Metropolitan Brief at 14 and 15). But this

reading renders the savings clause for insurance meaningless.

See § 514(a) of H.R. 2, 93d Cong. Ist Sess. (1973), 120 Cong. Rec.

4742 (1974), and 120 Cong. Rec. 5002 (1974).

Such a reading not only flies in the face of the maxim of

Statutory construction that no part of a law is superfluous,

United States v. Menashe, 348 U.S. 528 (1955), but also

reveals an internal inconsistency in appellants’ argument. If,

as the insurers argue, the legislative history reveals that all

non-federal regulation that relates to employee benefit plans

is preempted, why do appellants argue that certain state insur-

ance regulations are valid? (See Metropolitan Brief at 11).

In fact, the legislative history reveals that by means of the

broadened preemption, Congress primarily sought to make

clear that states could not regulate or prohibit prepaid legal

services plans. Appellants obscure this purpose by shortening

the quotes from Senator Williams and Representative Dent

that they reproduce in their brief. (See Metropolitan Brief at

14-15). For example, Senator Williams really said:

It should be stressed that with the narrow exceptions

specified in the bill, the substantive and enforcement pro-

visions of the conference substitute are intended to

preempt the field for Federal regulations, thus eliminating

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. Consistent with

this principle, state professional associations acting under

the guise of State-enforced professional regulation,

should not be able to prevent unions and employers from

maintaining the types of employee benefit programs which

Congress has authorized — for example, prepaid legal

services programs — whether closed or open panel —

authorized by Public Law 93-95... .

120 Cong. Rec. 29933 (1974) (emphasis added)."*

'‘ Both Pfennigstorf and Turza agree that the broadened preemption language

was a response by Congress to pressure from labor and consumer lobbies who

Likewise, Representative Dent explained that the broadening

of ERISA’s general preemption clause was intended to prohibit

the states from prohibiting prepaid legal service plans. He

analogized ERISA’s preemption scheme to the preemption

scheme in the Health Maintenance Organization Act:

Finally, I wish to make note of what is to many the

crowning achievement of this legislation, the reservation

to Federal authority of the sole power to regulate the field

of employee benefit plans. With the preemption of the

field, we round out the protection afforded participants by

eliminating the threat of conflicting and inconsistent State

and local regulation. We followed to a large extent the same

approach as in Public Law 93-222, 98 statute (414) where

the regulation of health maintenance organizations was

foreclosed to State authority — Section 113(a).

The conferees, with the narrow exceptions specifically

enumerated, applied this principle in its broadest sense

to foreclose any non-federal regulation of employee ben-

efit plans. Thus, the provisions of Section 514 would

reach any rule, regulation, practice or decision of any

State, subdivision thereof or any agency or instrumentality

thereof — including any professional society or associa-

tion operating under code of law — which would affect

any employee benefit plan as described in Section 4(a)

and not exempt under Section 4(b).

120 Cong. Rec. 29197 (1974) (emphasis supplied).'*

wanted to experiment with prepaid legal service plans and also a reaction to

1974 actions by the American Bar Association relating to participation. See

Turza & Holloway, Preemption of State Laws Under ERISA, 5 Pension Planning

& Compliance 361, 365, 458 (1979) (hereinafter Turza); Pfennigstorf at 802-

803, 829.

Interestingly enough, the then associate counsel of Appellant Travelers In-

surance Company agreed with this view. See Okin, Federal Preemption of

State Law Under ERISA: An Examination of the Effects of the Federal Mandate

in the Light of Authoritative Precedent Under the Supremacy Clause, the

McCarran-Ferguson Act and the Legislative History, 24 A. of Life Ins. Couns.

Proc. 115, 149 (1976).

‘* And to leave no doubt as to the meaning of the broadened preemption,

Senators Taft, Javits, and Williams engaged in an extended colloquy in which

The HMO preemption scheme prohibits the states from regulat-

ing who can be providers of medical services in a health mainte-

nance organization. See 42 U.S.C. § 300e-10, U.S. Code

Cong. & Ad. News 3057-3058 (1973). Thus, Congressman

Dent’s analogy makes even clearer that he sought to prevent

Congress from creaiing an ERISA preemption scheme that

would allow the states to bar lawyers from participating in

prepaid legal services plans.

Obviously, the broadening of the general preemption clause

speaks to the breadth of ERISA’s general preemptive effect,

but to argue, as appellants do, that the broadening somehow

narrows and obviates the insurance savings clause is disingenu-

ous at best, and in light of the legislative history, deliberately

misleading at worst.

Ordinarily, subsequent legislative history must be viewed

cautiously as a barometer of legislative intent in enacting a

particular statute. Consumer Product Safety Comm. v. GTE

Sylvania, Inc., 447 U.S. 102, 117 (1980). In certain cir-

cumstances, however, it can be “virtually conclusive,” Sioux

Tribe of Indians v. United States, 316 U.S. 317, 329-330

(1942), and entitled to great weight. Red Lion Broadcasting

Co. v. F.C.C., 395 U.S. 367, 381 (1968). This is such an

unusual case. Here, events beginning in 1977 and culminating

with passage of the ERISA Improvement Act of 1979 shed

considerable light on the intent of Congress.

In 1977, Congress, as contemplated by §§ 3021 and 3022

of ERISA, 29 U.S.C. §§ 1221-1222, which established the

Joint Pension Task Force, reviewed the effects and desirability

of “federal preemption of state and local law with respect to

pensions and similar plans.” 29 U.S.C. § 1222(a)(5). The

resulting study confirms that Congress intended to bar the

States from continuing to regulate employee benefit plans but

to allow the states to continue to regulate insurance and those

they each emphasize that the states may not regulate prepaid legal service plans

by mandating open or closed panels but may continue to enforce ethical rules.

See 120 Cong. Rec. S. 15757-S.15758 (daily ed. Aug. 22, 1974).

—

who sell it. Activity Report of House Comm. On Education

and Labor, H.R. Rep. No. 1785, 94th Cong., 2d Sess. 48

(1977).

That Congress viewed insurance as not subject to the federal

act is emphasized in the Report by the lengthy discussion of

insurance “entrepreneurs” who had begun to market insurance

products but claimed that such products were employee benefit

plans and therefore sheltered from regulation by state insurance

laws.

It has come to our attention . . . that certain entrepreneurs

have undertaken to market insurance products to employ-

ers and employees at large, claiming these products to be

ERISA covered plans . . . . The entreprenuer will then

argue that his enterprise is an ERISA benefit plan which

is protected, under ERISA’s preemption provision, from

state regulation. . . . [T]hese plans are established and

maintained by entrepreneurs for the purpose of marketing

insurance products or services to others. They are not

established or maintained by the appropriate parties to

confer ERISA jurisdiction. . . . They are no more ERISA

plans than is any other insurance policy sold to any em-

ployee benefit plans. To the extent that such programs

fail to meet the definition of ‘employee benefit plan’ state

regulation of them is not preempted by Section 514, even

though such state action is barred with respect to the

plans which purchase these ‘products.’

Activity Report of House Comm. On Education and Labor,

H.R. Rep. No. 1785, 94th Cong., 2d Sess. 48, 49 (1977) (em-

phasis supplied). Thus, the Oversight Task Force recognized

and confirmed the distinction in ERISA so criticized by appel-

lants, namely that states may regulate insurance products

purchased by employee welfare plans, but may not regulate

the plans themselves. Indeed, the Report went so far as to

urge state insurance commissioners “to take appropriate action

to prevent the continued wrongful avoidance of proper state

regulation of these entities.” /d.

While the Task Force was completing its work, the First

Circuit Court of Appeals decided Wadsworth v. Whaland, 562

F.2d 70 (Ist Cir. 1977), cert. denied, 435 U.S. 980 (1978).

The rationale underlying the decision was entirely consistent

with the Report. Indeed, in his brief to this Court opposing

certiorari, the Solicitor General articulated the premise now

advanced by the Commonweaith in the following terms:

[t]he fact that the purchaser of insurance is an employee

benefit plan is immaterial; Congress did not intend to

confer any special exemption or privilege on them as

insurance buyers.

Memorandum for the United Siates as Amicus Curiae On Pet-

itions for Writs of Certiorari at 8, Wadsworth v. Whaland,

562 F.2d 70 (1st Cir. 1977), cert. denied, 435 U.S. 980 (1978).

After this Court denied certiorari in 1978, Congress was

promptly confronted with an attempt to overturn the First Cir-

cuit’s holding that a state mandated benefit law, similar to

§ 47B, was immune from preemption by virtue of the savings

clause. The vehicle for such a change was a proposed redefin-

ition of insurance in 29 U.S.C. § 1144(b)(2)(A):

A state insurance law which provides that a specific ben-

efit or benefits must be provided or made available by a

contract or policy of insurance issued to an employee

benefit plan is a law which relates to an employee benefit

plan within the meaning of subsection (a), [the general

preemption clause], and is not a law which regulates

insurance within the meaning of subparagraph (A) [the

insurance savings clause].

S. 209, 96th Cong., Ist Sess. § x (1979).

This attempt to amend ERISA failed. Jd. See U.S. Sen.

Comm. on Labor and Human Resources, The ERISA Improve-

ment Act of 1979: Summary and Analysis of Consideration,

46, 88 (1979); see also 125 Cong. Rec. 931, 937 (1979); and

Turza at 465-467.

Under these unique circumstances, the fact that Congress

did not amend the insurance savings clause when it knew

mandated benefit laws were being sheltered from preemption

by virtue of ERISA’s savings clause for state insurance laws

is “virtually conclusive” evidence of the Commonwealth’s

view that Congress intended such state regulation to continue.

If the appellant insurance companies disagree with the policy

underlying that decision, their recourse is again to Congress

4. The Historical Background — As It Reflects On

The Purposes of ERISA.

Nothing in the historical background of ERISA supports a

departure from the plain language of the insurance savings

clause and its legislative history. ERISA’s preeminent purpose

is pension regulation.'* Welfare plans'* receive much less atten-

tion in ERJSA."’ For the same reasons that eventually led

Congress to enact ERISA in 1974, Massachusetts and several

other states passed laws in the 1950’s regulating employee

welfare plans and pension plans.'* Long before ERISA was

'‘The major reason for pension reform was the scandalous loss of pensions

due to fraud and abuse by unions and pension trustees. 29 U.S.C. §§ 1301-1309.

For a history of pension plan regulation see, S. Rep. No. 127, 93d Cong.

(1974), reprinted in U.S. Code Cong. & Ad. News 4838, 4839.

‘An employee welfare benefit plan is described as one which provides

“medical, surgical, or hospital care or bene(its, or benefits in the event of

sickness, accident, disability or death . . . whether the benefits are provided

through the purchase of insurance or otherwise. 29 U.S.C. § 1001 (a)(A)

(emphasis supplied).

'’ Welfare plans, for example, are subject to the reporting and disclosure

standards of Title 1, but exempt from the participation, vesting and funding

standards established for pension plans. 29 U.S.C. §§ 1051(1), 1081(a)(1).

Most of the legislative history and reports concern pension plans. Pfennigstorf

at 791 n.21.

‘1958 Mass. Acts. c. 655, codified at Mass. G.L. c. 151D. Chapter 151D

was repealed and re-created by 1973 Mass. Acts, c. 1169. See also Wis. Stat.

§ 211.02(1) (1959); Pfennigstorf at 792-793; Turza at 370-371; Malone v.

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

enacted state insurance laws also provided protection for em-

pioyees, particularly insofar as they regulated insurance pur-

chased to provide benefits for employee welfare plans.'°

In addition, several of the states attempted to regulate em-

ployee welfare plans through state insurance laws by deeming

employee welfare plans to be insurers or insurance com-

panies.” One motivation for states to deem employee benefit

plans to be insurers was that employers in the 1950’s had

begun to “self-insure” rather than purchase insurance benefits

from commercial insurers in order to obtain substantial savings

in the decreased state premium taxes and IRS taxes.'

By deeming employee welfare plans to be insurers the states

preserved state taxing power,” and provided protection to em-

ployees. Such state regulation raised the possibility of conflict

with existing federal law including the Internal Revenue Code

and the Taft-Hartley Act of 1947. Pfennigstorf & Kimball,

Employee Legal Service Plans: Conflicts Between Federal and

State Regulation, 1976 A.B. Found. Research J. 787, 793

(hereinafter Pfennigstorf). It is against this background of scan-

dal and a patchwork of federal and state regulation of welfare

and pension plans that Congress enacted ERISA on Labor Day

in 1974. And, with knowledge of this patchwork of federal

and state regulation, Congress deliberately and explicitly chose

'’ Welfare plans first developed informally as employers occasionally paid

the medical and hospital bills of ill workers. In approximately 1910, insurance

companies started to sell group insurance plans to employers. Finally, in 1930,

Blue Cross and Blue Shield developed, and from that point on broad welfare

plans evolved. Turza at 367 n.32.

* Turza at 371; Pfennigstorf at 795-796. See generally Goetz, The Regulation

of Uninsured Employee Welfare Plans Under State Insurance Laws, 1967 Wis.

L. Rev. 319. This so-called “deeming” is the historical reason that led Congress

in ERISA to specifically prohibit such deeming. 29 U.S.C. § 1114(b)(2)(B).

*' See Pfennigstorf at 795; Turza at 371. The appellants ignore the history

of self-insurance and the trial court's findings of fact (J.S. App. 55a) and claim

that mandating benefits leads to self-insurance. (Metropolitan Brief at 30). In

fact, financial interests of employers often argue for self-insurance, and the

profit motive of insurers argues against it. See generally, 1963 Vol. 1 NAIC

Proceedings 76.

2 Id.

to preserve the ability of states to regulate insurance. As dem-

onstrated below, that authority unquestionably includes the

power to mandate the policy terms between the insured and

the insurer.”

C. Section 47B is a State Insurance Law.

It remains only to demonstrate that § 47B is a law which

regulates insurance within the meaning of ERISA to complete

the analysis.

The insurers argue strenuously that § 47B is not a “tradi-

tional” insurance law and hence is not protected by the savings

clause for state insurance laws. They assert that laws which

control the content of insurance policies, such as § 47B, were

not what Congress had in mind when it saved state insurance

laws from preemption (Metropolitan Brief at 34).

But the insurers’ argument is fatally flawed in two basic

respects: first, it ignores the long history of this Court’s deci-

sions holding that the states may control the content of insur-

ance policies; second, it ignores the absurd result of insurers’

argument, that is, the creation of a regulatory vacuum if state

insurance laws such as § 47B, and others identical in nature

to § 47B, are preempted but not replaced by a federal regime.

*‘It is indisputable that numerous mandated benefit laws, including Mas-

sachusetts’, existed prior to ERISA’s enactment, including in at least seven

states statutes that mandated some form of mental illness benefit. See Ariz.

Rev. Stat. Ann. § 20-1402(4)(b) (West Supp. 1983-1984) (enacted 1971);

Conn. Gen. Stat. Ann. § 38-174d (West Supp. 1984) (enacted 1971); Ill. Ann.

Stat. c. 73, § 979(7) (Smith-Hurd Supp. 1983-1984) (enacted in 1972); Mass.

Gen.Laws c. 175, § 47B (enacted in 1973); Md. Ann. Code art. 48A, § 477E

(Michie Supp. 1983) (enacted in 1973); Minn. Stat. Ann. § 62A.149 (West

Supp. 1984) (enacted in 1972); 1971 Wis. Laws c. 325 (enacted in 1971). See

also, Metropolitan Jurisdictional Statement at 8-9 n.5; Brief of Health Insurance

Association of America as Amicus Curiae In Support of Jurisdictional State-

ments in this case at Appendices, September, 1984. Presumably, these and all

other insurance laws which control the content of insurance policies would fall

to preemption under the insurers’ analysis.

1. Mandating Benefits and Controlling the Content of

Insurance Policies is a Traditional Function of State

Insurance Laws.

In SEC v. National Secur., Inc., 393 U.S. 453 (1969), this

Court explained that the “core” of insurance regulation con-

sisted of affecting “[t]he relationship between insurer and in-

sured, the type of policy which could be issued, its reliability,

interpretation, and enforcement. . . . Statutes aimed at protect-

ing or regulating this relationship [between the insurance com-

pany and the policyholder], directly or indirectly, are laws

regulating the business of insurance.” Jd. at 460. This Court

has also held that state insurance commissioners have “full

power to prescribe the forms of contracts [and] the terms of

protection of the insured.” Hoopeston Canning Co. v. Cullen,

318 U.S. 313, 321 (1943). This Court has also held that the

“spreading and underwriting of a policyholder’s risk” are the

“primary elements” of insurance. Group Life & Health Ins.

Co. v. Royal Drug Co., 440 U.S. 205, 211 (1979). Despite

this recognition that control of the content of insurance con-

tracts is a traditional part of insurance regulation, insurers

argue that “state laws whose purpose and effect is to control

plan content” are not insurance laws (Metropolitan Brief at

34). Hence, we delve further into the question of what insur-

ance laws are.

2. Section 47B, Like Myriad State Insurance Laws, Func-

tions to Spread the Risk and Control the Cost of Insur-

ance and Thereby Make Coverage Accessible.

Appellants assert that because § 47B “seek[s] to improve

access to mental health care” and “make mental health care

more readily available to all state residents,” § 47B is not an

insurance law, but instead an invalid attempt to control the

content of employee benefit plans and destroy the voluntary

selection of benefits by employers and employees (Metropoli-

tan Brief at 22-23). In light of the history of state regulation

of insurance content and this Court’s validation of the same,

it is no surprise that the insurers cannot drum up even one

citation for their “content” neutrality and voluntary market

arguments.

Massachusetts, for example, has a long history of regulating

the content of insurance policies. As early as 1908, Mas-

sachusetts prescribed mandatory provisions for insurance

policies. New York Life Ins. Co. v. Hardison, 199 Mass. 190,

85 N.E. 410 (1908). Since 1956, Massachusetts has required

all group life insurance policies to include a provision ensuring

that any insured who leaves the group shall remain insured by

the policy for a certain time period, unless the insured is

otherwise entitled to similar benefits. Mass. Gen. Laws cc. 175,

§ 134(4). In 1967, the legislature required that all group health

insurance policies contain a similar provision. Mass. Gen.

Laws c. 175, § 110D. In the area of automobile insurance, in

particular, Massachusetts mandates both the kinds of policies

which insurers must offer to sell and the kinds of coverage

which insureds must purchase. See Mass. Gen. Laws c. 175,

§§ 113 et seg. There is essentially no voluntary market for

automobile insurance in Massachusetts. In 1969, the legislature

established specific amounts of compulsory automobile liabil-

ity insurance, and also required that all automobile insurance

policies include coverage for damages caused by uninsured

motorists. Mass. Gen. Laws c. 175, §§ 113C, 113L.

Conceptually, there is no distinction between mandatory

minimum auto insurance and mandatory minimum mental ill-

ness benefits. Even the insurers do not argue that auto insurance

__ is not traditional, yet under their analysis, automobile insurance

laws would fall to preemption if auto insurance were offered

as a welfare plan benefit. See California Auto Association v.

Maloney, 341 U.S. 105 (1951) (state law upheld requiring

insurers to participate in a mandatory assigned risk pool to

assure the availability of auto insurance). Such an absurd result

highlights the poverty of the insurers’ “traditional” and “non-

traditional” distinction and the weakness of their content neu-

trality argument.

Massachusetts is not alone in regulating the content of insur-

ance policies or the relationship between insureds and insurers.

In Wayne Chemical, Inc. v. Columbus Agency Service Corp.,

426 F. Supp. 316 (1977), aff d, 567 F.2d 692 (7th Cir. 1977),

the district court, adopting the First Circuit’s analysis in Wads-

worth v. Whaland, 562 F.2d 70 (1st Cir. 1977), cert. denied,

435 U.S. 980 (1978), upheld a law that imposes on insurers

who write health insurance the requirement that insurers extend

the major medical coverage of dependents who are disabled at

the time they reach the limiting age of the policy. The district

court noted that at least twenty-five states had such mandatory

benefit laws. Wayne Chemical, Inc. v. Columbus Agency Serv-

ice Corp., 426 F. Supp. at 324 n.8. Under the insurers’

analysis, all these mandated benefit laws would fall under the

Supremacy Clause.

Yet many of these mandated benefit laws have already with-

stood judicial scrutiny. In /nsurers’ Action Council, Inc. v.

Markman, 653 F.2d 344 (8th Cir. 1981), for instance, the

Circuit Court upheld a mandated mental health benefits law.

Similarly, in Health Ins. Ass'n of America v. Harnett, 44

N.Y.2d 302, 376 N.E. 2d 1280 (1978), the court sustained a

law mandating the provision of maternity benefits based on

the clear authority of the state legislature to regulate insurance

companies. See American Family Life Assur. Co. v. Commis-

sioner of Ins., 388 Mass. 468, 446 N.E.2d 1061 (1983) (valid-

ity of Massachusetts regulation controlling the content of insur-

ance policies by banning the sale of policies that provide bene-

fits only for cancer); see also Blue Cross of Virginia v. Com-

monwealth, 221 Va. 349, 269 S.E.2d 827 (1980); American

Progressive Life & Health Ins. Co. v. Corcoran, 715 F.2d

784 (2d Cir. 1983); Wayne Chemical, Inc. v. Columbus Agency

Service Corp., 567 F.2d 692 (7th Cir. 1977); Wadsworth v.

Whaland, 562 F.2d 70 (1st Cir. 1977), cert. denied, 435 U.S.

980 (1980). In addition, the Solicitor General, representing

the Department of Labor, has taken the position that mandated

benefit laws are not preempted by ERISA. See Memorandum

of the United States As Amicus Curiae On Petitions For Writs

of Certiorari, Wadsworth v. Whaland, supra. Such virtual

unanimity highlights the intellectual bankruptcy of insurers’

arguments.

3. The Insurers’ Arguments About the Effect of § 47B on

Employee Benefit Plan Administration are Fatally

Flawed.

Appellants argue that an underlying goal of Congress in

ERISA was “to leave the substantive content of employee

welfare and pension plans to private determination” (Met-

ropolitan Brief at 27). Insurers also assert that by obviating

free choice of benefits and promoting nonuniformity from state

to state, mandated benefit laws create disturbing distinctions

between insured and uninsured plans — distinctions that Con-

gress did not intend. Insurers also contend that mandated bene-

fit laws increase costs and encourage employee benefit plans

to self-insure.

These arguments ignore several facts. First, ERISA itself

is notably silent as to the content of welfare plans. Second,

there is no evidence that Congress did not intend the distinction

between insured and uninsured plans that so troubles appel-

lants. Indeed, as discussed at 24-27, subsequent legislative

history makes clear that Congress is cognizant that because of

the insurance savings clause, state insurance laws affect and

control part of the content of insured plans, while uninsured

plans operate without regard to state insurance laws. .

The insurers’ uniformity argument suffers from one major

and quite obviously fatal flaw: the national status-quo, without

regard to this case, is that multitudinous nonuniformities from

state to state exist in insured employee benefit plans. By accept-

ing state insurance laws, Congress accepted that variations

from state to state would exist in employee welfare plans.

And, as the trial judge found “there is no credible evidence

that [the diversities created by mandated benefit laws] are any

more complex or burdensome to interstate commerce than

various other diverse multi-state regulatory schemes such as

workmen’s compensation laws.” (J.S. App. 56a.) In addition,

this Court in Shaw has already upheld an exception to ERISA

preemption for state disability laws that also results in national

nonuniformity. Shaw v. Delta Airlines, Inc., 103 S.Ct. at 2906.

The cost arguments of the insurers actually distort the cost

impact of mandated benefit laws. Insurers argue against the

express findings of the trial court that mandated benefit laws

increase the cost of insurance; The Health Insurance Associa-

tion of America, Amicus Curiae on Behalf of Appellants,

alleges, without citation, a 20% increase in cost (Metropolitan

Brief at 23-26); (Brief of Health Insurance Association of

America as Amicus Curiae at 7). In fact, by eliminating “ad-

verse selection,” mandated benefit laws actually spread the

cost of mental illness insurance among all insureds and insur-

ance companies (J.S. App. 50a-51la). Such spreading of the

risk and cost is a fundamental purpose of insurance laws in

general and mandated benefit laws in particular. SEC v. Na-

tional Secur., Inc., 393 U.S. at 460; (A. 225).

In the same manner, insurers have been notably unable to

produce any proof, now or at trial, that mandated benefit laws

contribute to the trend toward self-insurance. Several commen-

tators have suggested that the savings in state and federal taxes

associated with self-insurance, as well as the obvious savings

of insurers’ profit margin, are the underlying rationale for the

general trend toward self-insurance. See Turza & Holloway,

Preemption of State Laws Under ERISA, 5 J. Pension Planning

& Compliance, 361, 371 (1979); Pfennigstorf at 795. While

it may be intuitatively attractive to argue that a mandated bene-

fit law encourages self-insurance, insurers simply have no evi-

dence to support such an argument. In any event, such policy

arguments should be addressed to Congress, not this Court.”

II. SECTION 47B Is Not PREEMPTED BY THE NLRA

BECAUSE IT Does Not CONFLICT WITH THE POLICY OR

PURPOSES OF FEDERAL LABor Law.

The standard for preemption of a state statute by the NLRA

is no different from that used to determine preemption of state

“Indeed, the trial judge found that there was no credible evidence that the

trend toward self-insurance was more pronounced in Massachusetts because

of § 47B and that the ‘trend’ “has permeated various types of insurance

mechanisms due to sharply escalating prices for various types of insurance

coverage. . . . examples include health, product liability and professional

liability insurance” (J.S. App. 55a).

law by ERISA: “the purpose of Congress is the ultimate

touchstone.” Malone v. White Motor Corp., 435 U.S. 497,

504 (1978), quoting Retail Clerks International Association

v. Schermerhorn, 375 U.S. 96, 103 (1963). While the standard

is the same, the level of guidance given by Congress to deter-

mine whether state law is superseded by the NLRA is far less

than that provided by Congress in ERISA. See Brown v. Hotel

& Restaurant Employees & Bartenders International Union

Local 54, __ U.S. ——, 104 S. Ct. 3179, 3185 (1984).

Unlike ERISA, the NLRA contains no provision whatsoever

for how state or, for that matter, federal law interacts with it.

See Garner v. Teamsters Union, 346 U.S. 485, 488 (1953).

What is clear about state law preemption under the NLRA

is that Congress did not intend that the states be precluded

from continuing to exercise their police powers. Allen-Bradley

Local v. Wisconsin Employment Relations, 315 U.S. 740, 749

(1942). Local regulation will be sustained unless it conflicts

with federal law or frustrates the federal scheme. Malone v.

White Motor Corp., 435 U.S. at 504. This Court has recognized

that it “cannot declare preempted all local regulation that

touches or concerns in any way the complex interrelationships

between employees, employers and unions; obviously, much

of this is left to the states.” Motor Coach Employees v. Lock-

ridge, 403 U.S. 274, 289 (1971) (emphasis supplied). Instead,

conflict exists when, by virtue of the operation of the state

statute, the purpose of the federal act cannot be accomplished.

Hines v. Davidowitz, 312 U.S. 52, 67 n.20 (1941).

The purpose of the NLRA is also abundantly clear. The

declared policy of Congress is to encourage the process of

collective bargaining between labor and management and

thereby to promote the overall design of achieving industrial

peace and eliminating obstruction to the free flow of commerce.

29 U.S.C. § 151; see NLRB v. Jones & Laughlin Steel Corp.,

301 U.S. 1, 45 (1937). It is equally clear that the negative

implications of the Commerce Clause have no bearing on state

insurance laws. With the McCarran-Ferguson Act, Congress

effectively eliminated such implication. Western & Southern

Life Ins. Co. v. State Bd. of Equalization, 451 U.S. 648, 656

(1981) (Commerce Clause is inapplicable to the business of

insurance).

Section 47B, governing only the types of health insurance

policies which may be issued in Massachusetts and sold to the

general public, which includes labor and management, is an

example of a law which is properly left to the police power

of the states. It does not conflict with the expressed federal

labor law policy and, therefore, withstands the insurers’ chal-

lenges to its preemption by the NLRA.

A. Section 47B Is Not Preempted by the NLRA Because it

Regulates the Types of Insurance Policies Issued in Mas-

sachusetts and Does Not Regulate Substantive Terms of

Collective Bargaining Agreements.

1. Examination of § 47B.

In order to determine whether § 47B is preempted by the

NLRA, its purpose and function must be assessed to determine

the existence of conflict with the federal law or policy. There

can be no question that the Massachusetts legislature adopted

§ 47B to address problems associated with mental health treat-

ment in the Commonwealth (A. 426-458). Treatment was gen-

erally unavailable to those needing it because they could not

afford the cost. The treatment which was provided was on a

State-subsidized, institutionalized basis and thought by many

to be draconian (A. 430-432). Recognizing that the retracted

state of the voluntary mental health insurance market due to

adverse selection was at the root of the state’s mental health

treatment problems, the legislature enacted § 47B. It was de-

signed to correct the market, spread the risk of covering so-

called “bad risks” to all insurance companies issuing accident

and sickness policies, support the financing of community

mental health treatment centers across the state, and reduce

the number of persons receiving treatment in state mental in-

stitutions — all to achieve the ultimate goal of improving mental

health care in the Commonwealth* (see Statement of the Case,

at 2-6 supra). .

Because the purpose of § 47B is to improve the perceived

inadequacies of treatment of mental illness in Massachusetts

stemming from the unavailability of adequate benefits coverage

and the financial inability of people who needed the coverage

to buy it, the function of § 47B is marked by its singular focus

on insurance policies and their market. Section 47B is law

of general application which regulates the types of accident

and sickness insurance policies that may be issued and sold

to anyone in Massachusetts. It requires only that such policies

must provide coverage for Massachusetts residents in accord-

ance with the minimum benefits set forth in the statute.”

Section 47B is not, by any standard, an attempt to affect

the collective bargaining process, nor is it aimed at dictating

the substantive terms which must be a part of collective bargain-

ing agreements. See Massachusetts Nurses Ass'n v. Dukakis,

726 F.2d 41 (ist Cir. 1984). R

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