Amicus Curiae Brief — Metropolitan Life Insurance v. Massachusetts

Pind A

COL ee

MerzopouiTtaN Lire Insurance Company,

Appellant,

v.

CoMMONWEALTH OF MassacHUSETTS,

Appellee.

Tue Travecers Ivsurnance Company,

Appellant,

v.

CoMMONWEALTH OF MassacHUSETTS,

Appellee.

On Appeals From the Supreme Judical Court

For The Commonwealth Of Massachusetts

BRIEF OF AMICI CURIAE AMERICAN PUBLIC HEALTH

ASSOCIATION, AMERICAN ACADEMY OF PEDIATRICS

AND SKIP OF NEW YORK, INC. IN SUPPORT OF

APPELLEE

Bruce H. ScHNEmER

(Counsel of Record)

Mapetarnz R. Bera

Srroook & Srroooxk & Lavan

Seven Hanover Square

New York, New York 10004

(212) 806-5400

Hersert SEMMEL

New York Lawyers FoR THE

Pusuio Interest, Inc.

36 West 44th Street

New York, New York 10036

(212) 575-5138

TABLE OF CONTENTS

TABLE OF AUTHORITIES.............4..

INTERESTS OF AMICI CURIAE..........

4

SUMMARY OF ARGUMENT............-+.-

qt. IN EXEMPTING FROM ERISA'S

PREEMPTION STATE LAWS WHICH

REGULATE INSURANCE, CONGRESS

INTENDED TO PRESERVE FOR EM-

PLOYEES THE PROTECTION WHICH

STATE LAWS HAVE TRADITIONALLY

AFFORDED THOSE INSURED BY

GROUP HEALTH POLICIES.........

A.

States Have Traditi-

onally Regulated Insur-

ance Benefits under

their Police Powers......

Since Federal Law does

not Address Minimum Lev-

els of Health Insurance

Benefits, State Laws are

not to be Preempted

Since that would Create

an Undesirable Regulato-

TW PREG cc ccecteveccsesese

C. The Executive, Legisla-

tive and Judicial

Branches of Government

have concurred that

ERISA's Enactment did

not Deprive the States

of their Authority to

Regulate the Content of

Health Insurance

eee eee

D. The States are at Liber-

ty to Regulate the Con-

tent of Health Insurance

Policies Available to

Employee Benefit Plans

as Purchasers of Insur-

E. This Court has Recog-

nized that Uniformity of

Benefits is not an Abso-

lute Requirement under

Pr ee ee

II. STATE-MANDATED BENEFIT LAWS,

THOUGH AFFECTING A SUBJECT OF

MANDATORY COLLECTIVE BARGAIN-

ING, ARE NOT PREEMPTED BY

FEDERAL LABOR POLICY..........

III. STATE-MANDATED BENEFIT LAWS

ARE PART OF THE REGULATION OF

THE "BUSINESS OF INSURANCE"

LEFT TO THE STATES BY CON-

GRESS IN THE McCARRAN-

FERGUSON ACT

CONCLUSION

-ii-

Page

~~ al ae epee ee

CASES

TABLE OF AUTHORITIES

Page

Alessi v.

Raybestos-Manhattan, Inc.,

451 U.S. 504 (1981)..........-. 42

Attorney General v. Travelers

Insurance Co., 385 Mass. 598 “

CU) \) Pe ee

Baltimore & Ohio Railroad v.

Department of Labor, 334 A.2da

636 (Pa.), appeal dismissed,

423 U.S. 806 (1975)........-..-- 44

y rp _Inc. Vv.

Bayside Enterprises

NLRB, 429 U.S. 298 (1977).....- 28

Bell v. New Jersey and

Pennsylvania, 103 S. Ct 2187 —

(+. |) eee ‘

Blau v. Lehman, 368 U.S. 403 -

6S) Re

Blue Chip Stamps v. Manor

Drug Stores, 421 U.S. 723 in

(1975)... cc ccccesecrvccccccess

Blue Cross v. Commonwealth,

269 S.E.2d 827 (Va. 1980)..... 10

Board of Governors. of FRS v.

First Lincolnwood Corp., 439

U.S. 234 (1978)....--- eee eee 28

Bowsher v. Merck & Co., 103

$.Ct 1587 (1983).....------e-- 31

-iii-

Page

Cate v. Blue Cross & Blue

Shield, 434 F. Supp. 1187

acne Ws BOPP Pesce vbeccoces 25

De Canas v. Bica, 424 U.S.

Moss bb 66rd Ceekee tesa 22,45

Eversole v. Metropolitan Life

Insurance Co., 500 F. Supp.

42G8 (©.0. GOh. I9GO).. .cccces 25

Florida Lime and Avocado

Growers, Inc. v. Paul, 373

Coe BE CEaUbE Es dee eecccece 22

Followill v. Emerson Electric

Co., 234 Kan. 791 (1984)...... 39

Gulf Oil Corp. v. Copp Paving

Co., 419 U.S. 186 (1974)...... 30,31

Haydel v. Sears, Roebuck &

Co., No. 47619 (N.Y. Sup. Ct.

App. Div., 3d Dep't Dec. 13,

ED oo 6 8 5' 05 600 FO UES oe 6 ce 38,39

Industrial Welfare Commission

v. Superior Court, 27 Cal.3d

690, appeal dismissed, 449

OS a 8 fee ne 44

Insurers' Action Council,

Inc. v. Heaton, 423 F. Supp.

921 (D. Minn. inh ebes é os ~«.c 25

Insurance Commissioner v.

Metropolitan Life Insurance

Co., 296 Md. 334 (1983)....... 11,20

-iv-

Ak Nl Te

Jones v. Rath Packing Co.,

430 U.S. 519 (1977).....--.-.-- 20

Malone v. White Motor Corp.,

435 U.S. 497 (1978).......-+.--- ae

McCarrah v. State Accident

Insurance Fund, 296 Or. 145

6) \) 38

New Hampshire-Vt. Health

Serv. v. Whaland, 119 N.H.

B86 (1979)... eee cere eee e cece 25

New Orleans v. Dukes, 427

U.S. 297 (1976)...---- see eeees 34

Prudential Insurance Co. Vv.

Benjamin, 328 U.S. 498 (1946). 53

Rostker v. Goldberg, 453 U.S.

57 (1981)... cece cccccsrsee 31

Securities and Exchange

Commission v. National

Securities, Inc., 393 U.S.

453 (1969)..... 2c eee reece ccees 48-49

Shaw v. Delta Air Lines

Inc., 103 S. Ct. 2890 (1983).. 9,22,

23,

36-38

Silkwood v. Kerr-McGee Corp.,

104 S. Ct. 615 (1984)........-. 22

Terminal Association 7

Brotherhood of Railroa

Trainmen, 318 U.S. 1 (1943)... 42-44

Todd v. Goostree, 493 S.W.2d

411 (Mo. Ct. App. 1973)......

Transportation Insurance Co.

v. Maksyn, 580 S.W.2d 334

Se is +b bund ebeeoeescece

Udall v. Tallman, 380 U.S. 1

Re 0 ete ied wadidiam ea os

Union Labor Life Insurance

Co. v. Pireno, 458 U.S. 119

§ *S re ee

United States v. Rutherford,

SES J.B. BGG CAST e pc cccccccccs

Wadsworth v. Whaland, 562

F.2d 70 (lst Cir. 1977),

cert. denied, 435 U.S. 980

Se ee ee ee a ak a

Wadsworth v. Whaland, 434

5 i ee

Wayne Chemical, Inc. v.

Columbus Agency Service

Corp., 567 F.2d 692 (7th Cir.

kd eee ETT TCU PERT TTETe

Williamson v. Lee Optical,

346 U.S. 463 (1955)... cccces

STATUTES AND REGULATIONS

D.C. Self-Government and Gov-

ernmental Reorganization Act,

Pub. L. No. 93-198, 87 Stat.

TRO Gers He 6db' Ss C00 es oe eae

-vi-

Employee Retirement Income

Security Act, 29 U.S.C.

§ 1002(1)...--- eee cece 20

§ 1144(a)... eee renee )

§ 1144(b)....-- eee erences passim

§ 1144(b)(2)(A)....------ passim

§ 1144(b)(2)(B)....------ 34

§ 1144(b)(3)...----- eee 37

§ 1144(d).....-- ee eee eee 51

Fair Labor Standards Act of

1938, 29 U.S.C.

Federal Welfare and Pensions

Plan Disclosure Act, 29

U.S.C.

§§ 301, et seq. (re-

pealed 1974).....--+-eeeeeeees 42,53

McCarran-Ferguson Act, 15

U.s.C.

§ 1012(b)....-- eee ee eeees 48,52

Occupational Safety and

Health Act of 1970, 29 U.S.C.

Barely ap ae RE 46

tate Seat, ohh a aa 0.9 6 06 45

Cal. Lab. Code §§ 1171 et

seq. (West 1971 and Supp. =

K:)-, > ee

-vii-

Page

D.C. Code § 35-1101 (Supp.

BOSE Pec coveseows wpe oped Tres 29

Ill. Rev. Stat., ch. 773,

DS eh eo 6 6b wbedcces 13

Md. Code, Art. 48A (1979)

DS Geeweees ce ceeedcéococe 12

S Pee eeé be Cb ecectceds 12

N.Y. Ins. L. (McKinney Supp.

1984) ' si

7 Phebe obe ted ne bo ees 13

§ 3202(b)(1)(B).......... 12

§ ES ee ee ee ere 12

- Scie? 664d eve ed ee we 12,13

0 Ee 12

Ms 6664.60 cbc céenvews 12

S CM atisebs «éeecbdewe® 12

Serres er eee a er 12

N.Y. Lab. L. (McKinney Supp.

1984-85) 7

FF fo errr. 45

N.Y. Lab L. (McKinney 1965

and Supp. 1984-85)

Re. 2 0 45

N.Y. Transp. L. § 211

(McKinney Supp. 1984-85)...... 45

CONGRESSIONAL BILLS

S. Rep. 209, 96th Cong., lst

Sess. § 155 (1979)......ccecce 28-29

-viii-

CONGRESSIONAL DEBATES

125 Cong. Rec. (1979)

sh cc acucckdasniws 28-29

Reds e04 cake eamewke oa 29

MISCELLANEOUS

Benfield, The Newborn Health

Insurance Clause Eradicated

in Ohio, 15 Clinical Pediat-

rics 19 (Jan. 1976)........... 15, 16

Brummond, Federal Preemption

of State Insurance Regulation

under ERISA, 62 Iowa L. Rev.

57 (1976)... ccc wcerececccees 11

Business Insurance, Mar. 10,

1975, at 4, COl. Ll. cccccees 32-33

Dkt. Nos. 77-765 and 77-772,

Memorandum of the United

States as Amicus Curiae ("So-

licitor General's Wadsworth

DERE Rec ccceseeseusbeseceecces 27, 32

Kimball, The Purpose of

Insurance Regulation: A

Preliminary Inquiry in the

Theory of Insurance Law, 45

Minn. L. Rev. 471 (1961)...... 11,19

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 Ass'n of Life

Ins. Counsel Proceedings 115

et, yy ee 23,24

N.Y. Times, Dec. 9, 1984, at

eS ee er Oe 19

President's Commission for

the Study of Ethical Problems

in Medicine and Biomedical

and Behavioral Research,

Deciding to Forego

Life-Sustaining Treatment, at

5 ie Lr EE 18

R. Goshay, Corporate

Self-Insurance and Risk

Retention Plans (1964) (cited

in M.R. Greene, Ris and In-

surance 78 (4th ed. 1977)..... 33

Schulkind, Morrissey &

Morton, Neonatal Health

Insurance, 13 Clinical Pedi-

atrics 209 (Mar. 1974)........ 15,16,

S. Rep. No. 127, 93d Cong.,

lst Sess. 13 (1973), re-

printed in 1974 U.S. Code

Cong. & Ad. News 4849-50...... 36

Nos. 84-325 and 84-356

In The

SUPREME COURT OF THE UNITED STATES

October Term, 1984

METROPOLITAN LIFE INSURANCE COMPANY,

Appellant

Ve

COMMONWEALTH OF MASSACHUSETTS,

Appellee

THE TRAVELERS INSURANCE COMPANY,

Appeilant

Vv.

COMMONWEALTH OF MASSACHUSETTS,

Appellee

On Appeals from the Supreme Judicial Court

for the Commonwealth of Massachusetts

BRIEF OF AMICI CURIAE AMERICAN PUBLIC HEALTH

ASSOCIATION, AMERICAN ACADEMY OF PEDIATRICS

AND SKIP OF NEW YORK, INC.

IN SUPPORT OF APPELLEE

INTERESTS OF AMICI CURIAE

American Public Health Association

The American Public Health Association

("APHA"), founded in 1872, is the oldest

and largest professional public health so-

ciety in the world, with a combined nation-

al and affiliate membership of over 50,000

health professionals. APHA members include

physicians, dentists, nurses, social

workers, health planners and administra-

tors, officials and employees of federal,

state and local public health agencies, and

other health professionals.

APHA strives to promote the health of

the American people by promoting the avail-

ability of health services, encouraging a

safe and healthful environment, launching

public health education programs, and pub-

lishing numerous materials reflecting de-

velopments in public health.

APHA has advocated comprehensive

health services and has urged public recog-

nition that mental and physical health are

related and that the physical health of the

population cannot be maintained without the

availability of mental health services. To

this end, APHA has urged governmental ac-

tion to insure the availability of out-

patient mental health services.

American Academy of Pediatrics

The American Academy of Pediatrics is

a not-for-profit Pan-American association

of 24,000 board-certified pediatricians

possessing at least five years of special-

ized study or practice in pediatrics. The

overall objective of the Academy is to max-

imize the quality of medical care available

to children.

In 1973, the Academy, with the assis-

tance of the Health Insurance Association

of America, developed the Model Newborn

Children Bill. The Model Bill requires any

health insurance policy that covers chil-

dren of an insured to cover newborns from

birth. All fifty states have now adopted

laws embodying the substance of the Model

Bill.

SKIP of New York, Inc.

SKIP of New York, Inc., a New York

non-profit corporation, assists families of

chronically ill and disabled children and

ventilator-dependent adults in obtaining

necessary health and social services. SKIP

assists families in arranging for children

to be cared for in their homes rather than

hospitals. State laws which mandate home

health care benefits in health insurance

policies are vital to SKIP's mission of

facilitating the integration of disabled

children into family life. In addition,

SKIP is concerned with maintaining state

laws and regulations requiring health in-

surance coverage of dependent children from

the date of birth and prohibiting the

exclusion from coverage of congenital con-

ditions and illnesses.’

SUMMARY OF ARGUMENT

The states, exercising traditi-

onal powers to regulate the substantive

content of insurance policies, have man-

dated the inclusion of minimum levels of

benefits in all health insurance policies

issued in their jurisdictions. These laws

have assured millions of Americans of

health insurance coverage for newborn chil-

dren, out-patient mental health services,

drug and alcohol abuse treatment, home

health care and the services of numerous

health care professionals.

When it enacted ERISA, Congress

specifically exempted from federal preemp-

tion state laws which regulate insurance.

. The parties have consented to the fil-

ing of this brief. Copies of their letters

of consent have been filed with the Clerk

of the Court, pursuant to Rule 36.2.

In creating this exemption, Congress was

certainly mindful of the role that the

states had traditionally played to protect

insureds by regulating the substantive con-

tent of health insurance policies. Subse-

quent to ERISA's enactment, Congress, the

Department of Labor, the Solicitor General

and a number of courts have all concurred

in the view that it was not Congress' in-

tent to nullify powers exercised by the

states to protect insureds from risks of

health care expenses which the states, as a

matter of public policy, have determined to

be intolerable.

That the states are prevented

from similarly regulating the benefits of-

fered by self-insured employee benefit

plans cannot justify depriving the states

of their power to regulate the content of

health insurance policies which are proper-

ly within their regulatory jurisdiction.

Congress intended to balance the

burdens of compliance against the protec-

tions to be afforded employees. ERISA rec-

ognized that protections afforded employees

under state law may outweigh ease of admin-

istration and uniformity of benefits in

that balance.

That health insurance benefits

are a mandatory subject of collective bar-

gaining does not foreclose the states from

legislating minimum acceptable levels of

benefits in health insurance policies pur-

chased by employee benefit plans. The en-

actment of state laws regulating hours,

wages and working conditions has not been

found to unduly restrict the collective

bargaining process or otherwise interfere

with federal labor policy objectives.

Congress has reserved to the

states the regulation of the business of

insurance. The level of benefits provided

in an insurance policy constitutes an

integral part of the business of insurance

which Congress intended to leave for state

regulation. Neither ERISA nor federal

labor policy indicates an intent to alter

the boundary Congress has set for permissi-

ble state regulation.

ARGUMENT

I. IN EXEMPTING FROM ERISA'S PREEMPTION

STATE LAWS WHICH REGULATE INSURANCE, CON-

GRESS INTENDED TO PRESERVE FOR EMPLOYEES

THE PROTECTIONS WHICH STATE LAWS HAVE TRA-

DITIONALLY AFFORDED THOSE INSURED BY GROUP

HEALTH POLICIES.

At issue in these appeals is the

continued vitality of protections, mandated

by state law, which millions of Americans

have come to rely upon as part of their

health care insurance. Acceptance of ap-

pellants' argument would result in nulli-

fying a power which the states have exer-

cised to guarantee to insureds in their

states a minimum acceptable level of health

insurance and other insurance benefits,

without any substitution of federal

regulatory protection.

Each of the fifty states and the

District of Columbia has exercised this

power in one respect or another to regulate

the substantive content of health insurance

policies offered to employees in their ju-

risdictions. By mandatory legislation, the

states have sought to close gaps in exist-

ing health care coverage and to secure for

employees adequate insurance protection,

inter alia, for newborns, the handicapped

and others who would be overlooked by the

unregulated operation of the insurance mar-

ketplace. If the states are prohibited

from enacting required minimum benefits, a

regulatory void would exist in which em-

ployees may be exposed to risks of health

care expenses that, as a matter of policy,

the states have determined to be

unacceptable.

Section 514 of ERISA is a complex

statement of Congress’ intended delineation

of the respective authorities of the

federal and state governments to regulate

employee benefit plans. Speaking broadly,

Congress explicitly stated that FRISA was

to preempt any state laws that "relate to”

employee benefit plans. 29 U.S.C.

§ 1144(a). Simultaneously, however, Con-

gress carved out exceptions to the general

principle of federal preemption for permis-

sible state regulation. Id. § 1144(b). As

to these excepted areas of state interest,

the otherwise broad rule of preemption has

no application. See Shaw v. Delta Air

Lines, Inc., 103 S. Ct. 2890 (1983). These

appeals focus upon the “savings” clause,

the exception in which Congress declared

that ERISA should not "be construed to ex-

empt or relieve any person from any law of

any State which regulates insurance". 29

U.S.C. § 1144(b)(2)(A).

A. States Have Traditionally Regulated

Insurance Benefits Under Their Police

Powers

The regulation of insurance is a

necessary and proper exercise of a state's

police power. See, e.g., Blue Cross v.

Commonwealth, 269 S.E.2d 827, 835-37 (Va.

1980). In appellants' view, the traditi-

onal role of the states in insurance regu-

lation has been, and should be, limited to:

(i) the supervision of the insurance carri-

ers themselves, including regulations such

as minimum capitalization requirements,

criteria for the investment of funds and

character standards for insurance company

management; and (ii) the regulation of

business practices in the selling of insur-

ance, including the licensing of agents and

brokers, setting standards of conduct for

sales and advertising, and rate-making.

In addition to these areas, how-

ever, the states have traditionally exer-

cised their police power to regulate the

216=

substantive content of insurance contracts,

including the scope of coverage and bene-

fits offered. See generally Insurance

Commissioner v. Metropolitan Life Insurance

Co., 296 Md. 334 (1983) and cases cited

therein; Brummond, Federal Preemption of

State Insurance Regulation under ERISA, 62

Iowa L. Rev. 57, 83-84 (1976). This form

of regulation is in furtherance of the

state's interest in assuring that insureds

are treated fairly and equitably by insur-

ance carriers. Regulation of the content

of insurance policies "may be regarded as

ensuring that the insured gets what he pays

for, or - going somewhat further - as

requiring the company to give the insured

what he must have assumed he was paying

for. Kimball, The Purpose of Insurance

Regulation: A Preliminary Inquiry in the

Theory of Insurance Law, 45 Minn. L. Rev.

471, 491 (1961).

elie

The states regulate the content

of a wide variety of insurance contracts

through statutes mandating the minimum ac-

ceptable scope of coverage.* Provisions of

insurance contracts which are so familiar

as to appear commonplace, in fact, have

their origins in state regulation.’ In ad-

dition, states confer upon regulatory offi-

cials broad authority to disapprove

policies that are inequitable, misleading

or unreasonable in relation to the premium

: See, e.g., N.Y. Ins. Law §§ 3220

(group life), 3221 and 4235 (group accident

and health), 3216 (individual accident and

sickness), 3420 (liability), and 3404

(fire) (McKinney Supp. 1984).

° For example, state statutes mandate

the inclusion of clauses in life insurance

policies that limit exclusions from cover-

age for death by suicide to those occurring

within two years of the issuance of the

policy. See, e.g., Md. Code, Art. 48A;

§ 410(a)(5) (1979); N.Y. Ins. L.

§ 3202(b)(1)(B) (McKinney Supp. 1984).

State statutes also mandate minimum levels

of uninsured motorist coverage in automo-

bile insurance policies. See, e.g., Md.

Code, Art. 48A, § 541(c)(2)(1979); N.Y.

Ins. L. § 5103 (McKinney Supp. 1984).

-12-

charged. *

The states utilized this power to

govern the content of health insurance

policies prior to the enactment of ERISA.*

Appellants’ arguments that state-mandated

benefit laws are of recent creation, de-

Signed to usurp power in contravention of

federal policy, and a departure from the

historic and proper regulatory function of

the states is contrary to historical fact.

Among the earlier forms of mandatory bene-

fit laws adopted by the states were laws

requiring that policy coverage of minors

continue beyond the maximum age limit

. See, e.g., Ill. Rev. Stat., ch. 73,

§ 755(2) (1965); N.Y. Ins. L. § -3201

McKinney Supp. 1984).

. For example, in 1958, New York man-

dated that group health insurance policies

contain a provision permitting an individu-

al who terminated his employment to convert

the policy into an individual policy which

must include specified minimum levels of

coverage. See N.Y. Ins. L. § 3221

(McKinney Supp. 1984) (recodifying N.Y.

Ins. L. § 162(5) (McKinney 1966)).

(usually 19) where those dependents are in-

capable of self-sustaining employment be-

cause of

mental or physical handicap and are chiefly

dependent upon the subscriber for support. *

Another manner in which the

states have exercised this power is to re-

quire that group health insurance coverage

for infants commence from the moment of

birth. The need for such legislation grew

out of the fact that a significant number

of family health insurance policies ex-

cluded newborn infants from coverage for

See Table II in the Appendix to this

brief. The Appendix to the Brief of Amicus

Curiae Health Insurance Association of

America in Support of Jurisdictional State-

ments surveys the wide variety of benefits

mandated by state laws which include: out-

patient mental health services, drug and

alcohol abuse treatment, home health care

and the services of numerous health care

professionals. That survey, however, omits

two forms of coverage mandated by state law

which are of particular interest to these

amici: mandatory coverage of newborns from

birth and mandatory coverage of mentally or

physically handicapped dependents.

the first fourteen to thirty days of their

lives. Schulkind, Morrisey & Morton,

Neonatal Health Insurance, 13 Clinical Pe-

diatrics 209 (Mar. 1974) (hereinafter cited

as Schulkind); J.A. at 346, 454. Immediate

coverage of newborns usually could have

been obtained if requested; however, the

average insurance buyer was unaware of ei-

ther the newborn exclusion or of the option

to have the newborn included.’ Schulkind,

supra at 209. Since more infants die in

the first seven days of life than in the

remainder of the first year of life, those

insurance policies failed to give protec-

tion during the interval of greatest risk.

Benfield, The Newborn Health Insurance

’ Union members whose insurance policies

were the product of collective bargaining

were not immune from the surprise of dis-

covering their newborn's medical expenses

were not covered. See Benfield, The

Newborn Health Insurance Exclusion Clause

Eradicated in Ohio, 15 Clinical Pediatrics

19 (Jan. 1976).

o1S<

Exclusion Clause Eradicated in Ohio, 15

Clinical Pediatrics 19 (Jan. 1976). Faced

with a newborn who was premature or sick,

parents without insurance coverage for the

child were required to take on debts of

burdensome magnitude and even become depen-

dent on the state for support. See

Schulkind, supra at 210; J.A. at 454.°

In addition, because coverage did not begin

7 The sponsor of the New York legisla-

tion mandating coverage of newborns from

birth viewed the purpose of this legisla-

tion as being to "provide a more comprehen-

sive and fair family heath insurance plan

for insured families within the state."

1977 New York State Legislative Annual 214.

Mandatory coverage was necessary because:

[p]resently family plans do

not cover new born infants

until 10-days from birth.

Thus if the child is born

with a birth defect or mala-

dy the family must bear the

medical costs. This situa-

tion can severely burden the

financial well-being of the

family for some time to come

and also the physical well-

being of the child.

-16-

from the moment of birth, a family might

also learn that there would be no coverage

for the treatment of a child who was con-

genitally ill since this was a

"pre-existing condition", antedating the

policy's coverage.

In November 1973, the American

Academy of Pediatrics, with the assistance

of the Health Insurance Association of

America, developed the Model Newborn Chil-

dren Bill which required that health insur-

ance coverage be extended to infants from

the moment of birth. Since that time,

every state has mandated coverage affording

protections similar to the Model Bill. See

Appendix, Table I.

The protections accorded by state

laws mandating the coverage of newborns

from birth have grown increasingly impor-

tant. Advances in neonatal pediatric medi-

cine have made it possible for infants born

with life-threatening conditions to

ol Te

survive. Infants born prematurely,

weighing no more than two pounds at birth

now have the potential for survival. These

ever increasing technological capacities

create enormous opportunities, but at enor-

mous costs. An estimated 6% of live-born

infants are treated in a neonatal intensive

care unit, where the length of stay aver-

ages 8-18 days. In 1978, $1.5 billion was

spent on neonatal intensive care unit care.

President's Commission for the Study of

Ethical Problems in Medicine and Biomedical

and Behavioral Research, Deciding to Forego

Life-Sustaining Treatment 204 (Mar. 1983).

The hospital costs of a newborn with a

birth defect run from $800 to $1,000 a day,

with doctor bills adding another $200 to

$400 daily. A sixty day confinement for a

relatively simple to treat but common in-

fant ailment like bacterial pneumonia costs

$50,000 to $60,000. A single claim for a

premature child with heart and respiratory

y=

problems came to $707,000. N.Y. Times,

Dec. 9, 1984, at Fll, col. 3.* In the ab-

sence of state laws mandating coverage dur-

ing this high risk period of life, insurers

may revert to the prior practice of

excluding newborns from health insurance

coverage.

° Although the cost of neonatal care is

enormous, a relatively small number of fam-

ilies are involved. Mutual of Omaha esti-

mates that only one in 10,000 claims ex-

ceeds $50,000. N.Y. Times, Dec. 9, 1984,

at Fll, col. 3. These costs are inconse-

quential in the broad health care delivery

system in which more than 400 billion dol-

lars will be spent in 1985. The coverage

of neonatal medical treatment fits squarely

within the objective of insurance of

spreading and socializing a risk. See

Kimball, supra, 45 Minn. L. Rev. at

512-514.

-19-

B. Since Federal Law Does Not Address

Minimum Levels of Health Insurance

Benefits, State Laws Are Not to be

Preempted Since That Woudl Create

an Undesirable Regulatory Void.

Congress was fully aware of how

instrumental insurance was to the operation

of employee benefit plans. This under-

standing was reflected in, inter alia, the

statutory definition of an employee benefit

plan as one providing benefits "through the

purchase of insurance or otherwise." 29

U.S.C. § 1002(1).

"When ERISA was enacted,

Congress certainly knew that much of the

body of state law regulating insurance con-

cerned required coverages in various

categories of insurance." Insurance

Commissioner v. Metropolitan Life Insurance

Co., 296 Md. 334, 340 (1983). Yet, Con-

gress laid down a broad exemption from the

=-20-

general principle of federal preemption for

"any law of any State which regulates in-

surance." 29 U.S.C. § 1144(b)(2)(A).?*°

Since the regulation of insurance

is primarily a state function, the court

below made a reasonable and correct analy-

sis of the inter-relationship of state and

federal law.

Where .. . the field which

Congress is said to have

pre-empted has been traditi-

onally occupied by the

States, ... "we start with

the assumption that the his-

toric police powers of the

States were not to be super-

seded by the Federal Act un-

less that was the clear and

manifest purpose of Con-

gress."

os Indeed, to say that the savings clause

does not apply to state laws regulating in-

surance policies sold to ERISA plans would

render the saving clause meaningless. Ob-

viously, only those policies which are sold

to employee benefit plans could, in the

first instance, be preempted under

§ 514(a). There is no need to "save" an

insurance regulation which does not "re-

late" in any way to an employee benefit

plan.

@2le

Jones v. Rath Packing Co., 430 U.S. 519,

525 (1977) (quoting Rice v. Santa Fe

Elevator Corp., 331 U.S. 218, 230 (1947)).

Since Congress expressly exempted state

laws regulating insurance from the

preemption it otherwise mandated, it was

appropriate for the court below to apply

general principles flowing from the Suprem-

acy Clause and infer federal preemption-

only to the extent that there was a clear

conflict between state and federal law.

See, e.g., Silkwood v. Kerr-McGee Corp.,

104 S.Ct. 615 (1984); DeCanas v. Bica, 424

U.S. 351 (1976); Florida Lime and Avocado

Growers, Inc. v. Paul, 373 U.S. 132

(1963).** Since ERISA does not purport to

11 The Court below did not, as appellants

contend, resurrect the "conflict-based"

analysis rejected by this Court in Shaw,

103 S. Ct. at 2900-01. The portion of the

Shaw opinion referred to focused on the

reading to be given to Congress' express

declaration of preemption in § 514(a).

Since Congress specifically exempted insur-

Footnote continued

@220

address required levels of health insurance

benefits, Shaw v. Delta Air Lines, Inc. 103

S. Ct 2890, 2897 (1983), it is apparent

that there is no conflict between state and

federal law. To say that the states may

not regulate the content of health insur-

ance policies even where federal law does

not address minimum benefits is to create

an unacceptable regulatory void, which Con-

gress cannot be assumed to have intention-

ally created. 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 Ass'n of

Footnote continued from previous page

ance regulation from the rule of

preemption that it expressly created in

§ 514(a), the court below did not commit

error in employing the analysis it did to

determine whether preemption should be im-

plied in § 514(b); that is, whether the

state enactment conflicts with federal law.

o23@

Life Ins. Counsel Proceedings 115, 151

(1976) *?

Cc. The Executive, Legislative and Judicial

Branches of Government Have Concurred

That ERISA's Enactment Did Not Deprive

the States of Their Authority to Regulate

the Content of Health Insurance Policies.

The First Circuit has authorita-

tively addressed the insurance exception in

section 514(b) and has held state-mandated

benefit laws to be a lawful exercise of

state regulation within ERISA's insurance

"savings" clause. See Wadsworth v.Whaland,

562 F.2d 70 (lst Cir. 1977), cert. denied,

435 U.S. 980 (1978).*?

12 ~The author of this article,

Franklin J. Okin, was, at the time of its

writing, Associate General Counsel of The

Travelers Insurance Company. According to

Mr. Okin, "It would be a subversion of the

purposes of ERISA and national policy to

say that the ERISA preemption provision was

designed to create a regulatory void."

Okin, supra at 151.

13 ~§6Other courts have similarly taken the

position that state statutes specifying

mandatory minimum benefits in insurance

policies are laws regulating insurance

Footnote continued

~24<

In Wadsworth, administrators of

various health and welfare funds contended

that ERISA preempted a New Hampshire law

requiring issuers of group health insurance

policies to include coverage for the treat-

ment of mental illness and emotional disor-

ders and that the state law was invalid

insofar as it required employee benefit

plans to purchase insurance policies that

included the state-mandated coverage. Id.

at 73.

Footnote continued from previous page

within the meaning of the "savings" clause

of § 514(b)(2)(A) of ERISA. Insurance Com-

missioner v. Metropolitan Life Insurance

Co., 296 Md. 334 (1983); Wayne Chemical,

Inc. v. Columbus Agcy. Serv. Corp., 567

F.2d 692, 699, 700 (7th Cir. 1977); New

Hampshire-Vt. Health Serv. v. Whaland, 119

N.H. 886 (1979); Eversole v. Metropolitan

Life Ins. Co.,, 500 F. Supp. 1162,

1168-1170 (C.D. Cal. 1980); Cate v. Blue

Cross & Blue Shield, 434 F. Supp. 1187

(E.D. Tenn. 1977); Insurers' Action Coun-

cil, Inc. v. Heaton, 423 F. Supp. 921,926

(D. Minn. 1976).

The First Circuit held that, pur-

suant to the "savings" clause, the states

were not forbidden "from affecting employee

benefit plans by regulating group insur-

ance." Id. at 78. The Court declined to

interpret ERISA in a manner that "would

nullify all state insurance laws concerning

group insurance when the group policy is

issued to an employee benefit plan" in the

absence of a clear Congressional intent to

so restrict "the state's primacy in regqu-

lating insurance". Id.

At this Court's invitation in its

consideration of plaintiffs' petitions for

a writ of certiorari in Wadsworth, 434 U.S.

1044 (1978), the Solicitor General

expressed the view of the United States

that a state statute mandating inclusion of

mental health coverage in group health in-

surance policies was not intended to be

preempted by ERISA. With respect to

section 514(b)(2)(A), the "savings" clause

at issue here, the Solicitor General stat-

ed:

This savings provision would

be meaningless unless it

saved from preemption state

laws regulating insurance

which also indirectly regu-

late 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 pro-

vision. [The New Hampshire

law mandating mental health

coverage] obviously "regu-

lates insurance," and thus

the court correctly found

that Congress intended that

law and others like it to

remain effective regardless

of ERISA's otherwise broad

preemption of state laws

relating to plans.

Dkt. Nos. 77-765 and 77~772, Memorandum for

the United States as Amicus Curiae (herein-

after cited as "Solicitor General's

Wadsworth Brief") at 7.}*

1* The Solicitor General made it plain

that he was also expressing the view of the

Department of Labor, the executive depart-

ment charged with administering ERISA. "As

this Court has often recognized, the con-

Footnote continued

o37e

In 1979, following the decision

in Wadsworth, Senators Williams and Javits,

the sponsors of the original ERISA bill,

proposed S.209, the ERISA Improvements Act

of 1979. While the proposed Act primarily

concentrated on remedying regulatory

deficiencies in pension plan administra-

tion, section 155 of the bill would have

preempted state-mandated benefit laws by

adding to section 514(b)(2)(B) the follow-

ing:

A State insurance law

which provides that a spe-

cific benefit 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

Footnote continued from previous page

struction of a statute by those charged

with its administration is entitled to sub-

‘stantial deference." United States v.

Rutherford, 442 U.S. 544, 553 (1979). See

also Board of Governors v. First

Lincolnwood Corp., 439 U.S. 234, 248

(1978); Bayside Enterprises, Inc. v. NLRB,

429 U.S. 298, 304 (1977); Udall v. Tallman,

380 U.S. 1, 16 (1965).

-28-

employee benefit plan within

the meaning of subsection

(a) and is not a law which

regulates insurance within

the meaning of subparagraph

(A).

$.209, 96th Cong... lst Sess. § 155, 125

Cong. Rec. 937 (1979). According to Sena-

tor Javits, the proposed amendment to

section 514 was intended to legislatively

overrule the decision in Wadsworth v.

Whaland. See 125 Cong. Rec. 947 (1979).

The bill, however, was never enacted.

Congress’ failure to enact the

amendment evidences its belief that the

holding in Wadsworth was not contrary to

1§ Interestingly, though, in 1979, Con-

gress was called upon to consider state-

mandated benefit laws in a different con-

text. In that year, the Council of the

District of Columbia passed a law mandating

newborn coverage in group health insurance

policies. The local law was transmitted to

Congress for its review, pursuant to the

District of Columbia Self-Government and

Governmental Reorganization Act, Pub. L.

No. 93-198, 87 Stat. 774 (1973). Congress

did not disapprove and the enactment took

effect. D.C. Code § 35-1101 (Supp. 1983).

@29e

the original intent of Congress in enacting

ERISA with its exception to preemption for

state insurance laws, and that therefore,

no remedial legislation was necessary. See

Blue Chip Stamps v. Manor Drug Stores, 421

U.S. 723, 733 (1975); Blau v. Lehman, 368

U.S. 403, 412-13 (1962). In failing to

enact the amendment under the circumstances

"Congress [was] not merely expressing an

opinion . . . but [was] acting on what it

[understood] its own prior acts to mean."

Bell v. New Jersey and Pennsylvania, 103

S.Ct 2187, 2194 n. 12 (1983) (quoting Mount

Sinai Hospital v. Weinberger, 517 F.2d 329,

343 (Sth Cir. 1975)).

In light of the clear opportunity

that Congress had to amend. the preemption-

provision -- if it believed Wadsworth was

incorrectly decided -- its failure to enact

the amendment "strongly militates against a

judgment that Congress intended a result

that it expressly declined to enact." Gulf

@360-

Oil Corp. v. Copp Paving Co., 419 U.S. 186,

200, (1974). Congressional failure to ex-

pand federal authority is indicative of its

view of the limits to the prior legisla-

tion, as well as its reluctance to broaden

that legislation. Bowsher v. Merck & Co.,

103 S.Ct 1587, 1595 (1983); Bell v. New

Jersey and Pennsylvania, 103 S.Ct. at 2194.

See also Rostker v. Goldberg, 453 U.S. 57

(1981).

D. The States Are at Liberty to Regulate the

the Content of Health Insurance Policies

Available to Employee Benefit Plans as

Purchasers of Insurance.

As has been shown, state laws

mandating the inclusion of particular cov-

erage is a traditional exercise of the

state's authority to regulate insurance.

There is no evidence that Congress meant to

restrict the exercise of that power with

respect to group health insurance policies

purchased by an employee benefit plan.

@3ie

The 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 in-

surance buyers. Insurance

sales to them must conform

to the same rules as those

to any other insurance

buyer, and if a state

determines .. . that all

group health insurance sold

in the state must provide

coverage for mental and emo-

tional disturbance, the

plans may purchase no other.

Solicitor General's Wadsworth Brief at 8.

Appellants maintain that, since

state laws may not regulate self-insured

employee benefit plans, the cost of premi-

ums for state-mandated benefits will induce

some plans to self-insure to evade the ob-

ligations imposed by state law. To the ex-

tent that there has been an increase in the

number of self-insured plans, that trend

pre-dates the enactment of ERISA, and has

developed independently of the demands

placed upon employers by mandatory bene-

fits. See Business Insurance, Mar. 10,

@32

1975, at 4, col. 1; R. Goshay, Corporate

Self-Insurance and Risk Retention Plans

(1964) (cited in M.R. Greene, Risk and In-

surance 78 (4th ed. 1977)). The decision

of plan trustees to forego the security af-

forded by spreading the risk through insur-

ance involves complex considerations, the

incremental cost of premiums on the addi-

tional coverage state law requires being

only a relatively small factor.'?*

The states have determined as a

matter of public policy that health insur-

ance contracts must contain certain minimum

levels of protection for the insured. The

creation of comprehensive national health

+6 ~Except for the largest, and most sta-

ble employee benefit plans, it is unlikely

that the additional premium resulting from

mandated benefits will, without more, jus-

tify self-insurance. "If a firm cannot af-

ford insurance premiums, it is even more

unlikely that the firm can afford the loss

should it occur, or that the firm can af-

ford to set aside a self-insurance fund."

M.R. Greene, supra at 77.

@39-<

insurance may someday remove the need for

these protections. In the interim, howev-

er, the states remain free within their

regulatory jurisdictions to mandate minimum

levels of health insurance benefits.

"[R]eform may take one step at a time, ad-

dressing itself to the phase of the problem

which seems most acute to the legislative

mind." Williamson v. Lee Optical, 348 U.S.

483, 489 (1955). "Legislatures may imple-

ment their program step by step .

adopting regulations that only partially

ameliorate a perceived evil and deferring

complete elimination of the evil to future

regulations." New Orleans v. Dukes, 427

U.S. 297, 303 (1976).

If, because of ERISA's "deemer"

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

states are prevented from mandating minimum

levels of benefits for self-insured plans,

it does not mean that they are, or should

be, powerless with respect to insurance

-34-

that is within their jurisdictions. That

self-insurance may become more attractive

to plan administrators because of the cost

of state-mandated benefits is no cause to

nullify the states' lawful exercise of

their police power; to do so would permit

the circumvention of law to dictate the

principle of law.

E. This Court Has Recognized That

Uniformity of Benefits is Not an

Absolute Requirement under ERISA.

Appellants, and those amici sup-

porting their position, urge broad

preemption to eliminate any differences in

benefits and to ease plan administration.

Although Congress was concerned with the

burdens of compliance with regulation,

whether federal or state, it is abundantly

clear that Congress did not intend to evis-

cerate employee protections in the interest

of easing the real or claimed burden on

plan administrators. The Senate Committee

Report reflects the effort to achieve a

=) =

balance of the oftentimes competing inter-

ests:

The Bill reported by the

Committee represents an ef-

fort to strike an appropri-

ate balance between the in-

terests of employers and

labor organizations in main-

taining flexibility in the

design and operation of

their pension programs, and

the need of the workers for

a level of protection which

will adequately protect

their rights and just expec-

tations.

S. Rep. No. 127, 93d Cong., lst Sess. 13

(1973), reprinted in 1974 U.S. Code Cong. &

Ad. News 4850.

103 S.

Shaw v. Delta Air Lines, FP

Ct 2890 (1983), recognized that con-

siderations of uniformity of benefits and

ease of administration do not perforce out-

weigh

efits

state

inter

the protection of state-mandated ben-

in that balance. In Shaw, multi-

employers and an insurer challenged,

alia, the legality of the New York

Disability Benefits Law which mandated that

-36-

employers provide the same sick-leave bene-

fits to employees unable to work because of

pregnancy as for any other disability.

This Court found that the Disability Bene-

fits Law was not preempted by ERISA since

it came within section 514(b)(3)'s excep-

tion for employee benefit plans maintained

"solely" for purposes of complying with

state disability insurance laws. Id. at

2905. This Court held that

a state may force the em-

ployer to choose between

providing disability bene-

fits in a separately admin-

istered plan and including

the state-mandated benefits

in its ERISA plan. If the

State is not satisfied that

the ERISA plan comports with

the requirements of its dis-

ability insurance law, it

may compel the employer to

maintain a separate plan

that does comply.

Id. at 2906.

Shaw's effect is to subject a

multi-state employer to the very sort of

non-uniformity of benefits that appellants

@37e

claim is anathema to ERISA and requires the

preemption of all state-mandated benefit

laws. Under Shaw, plan administrators are

not to be relieved of their obligation to

comply with the laws of the respective

states and provide the coverage those

states require. Although these laws are in

some instances conflicting as to the scope

of their coverage, ERISA does not require

their preemption. There is no demonstrable

reason why differences in state law as to

mandatory health insurance coverage should

require a different result.?*’

17 The difference in coverage which state

law may require is illustrated by the

rulings of the various states on claims of

disability caused by on-the-job stress,

without any physical injury. For example,

McGarrah v. State Accident Insurance Fund,

296 Or. 145 (1983), held that under the

Oregon State Workers’ Compensation Law,

"stress-caused claims for benefits arising

out of mental and physical disorders are

compensable if they flow from the condi-

tions of the worker's employment, providing

causation . . . has been proven." Id. at

163. Accord Haydel v. Sears, Roebuck &

Footnote continued

=90-

Footnote continued from previous page

Co., No. 47619 (N.Y. Sup. Ct. App. Div. 3d

Dep't Dec. 13, 1984). In contrast, howev-

er, Transportation Insurance Co. v. Maksyn,

580 S.W.2d 334 (Tex. 1979), held that the

Texas Workers' Compensation Law "drew its

line for compensability for occupational

diseases by limiting coverage to those

cases in which physical activities cause

harm or injury and by denying coverage when

mental activities cause the harm or inju-

ry." Id. at 338. In other states, compen-

sation may depend on whether the on-the-job

stress was caused by a one-time incident

rather than a prolonged stressful situa-

tion. Compare Followill v. Emerson

Electric Co., 234 Kan. 791 (1984) (Kansas

Workers’ Compensation Act does not extend

coverage to a disability caused by post-

traumatic stress disorder resulting from a

single on-the-job accident in which claim-

ant suffers no physical injury) with Todd

v. Goostree, 493 S.W.2d 411 (Mo. Ct. App.

1973) (holding that a neurotic disability

caused by a one-time emotional shock is a

compensable "injury" within the statutory

definition of the Missouri Workers' Compen-

sation Law).

o39e

II. STATE-MANDATED BENEFIT LAWS, THOUGH

AFFECTING A SUBJECT OF MANDATORY COLLECTIVE

BARGAINING, ARE NOT PREEMPTED BY FEDERAL

LABOR POLICY.

State laws mandating the inclu-

sion of certain benefits in collectively

bargained group health insurance contracts

are not preempted by federal labor law or

policy. Appellants do not find the sweep-

ing preemption they urge in any federal

labor statute; nor do they contend that a

finding of preemption is necessary to pre-

serve the primacy of the National Labor Re-

lations Board's jurisdiction in the labor-

management field. Rather, appellants

maintain that since employee benefits are a

compulsory subject for collective bargain-

ing, state-mandated benefit laws are an in-

trusion into an area which federal labor

policy requires be unregulated and left en-

tirely to the free play of economic forces.

in Malone v. White Motor Corp.,

435 U.S. 497 (1978), this Court confronted

-40-

a similar claim that federal labor policy

required preemption of the Minnesota Pen-

sion Act which established minimum funding

and vesting standards for employee pen-

sions. The plaintiff-employers asserted

that the state statute was preempted-

because it imposed on them financial obli-

gations which, by the express terms of a

collective bargaining agreement, they were

not required to assume. Id. at 502. The

Court rejected the notion that merely be-

cause they are a subject of compulsory bar-

gaining, pension benefits are therefore

placed beyond the lawful reach of state

regula ion:

There is little doubt that

under the federal statutes

governing labor-management

relations, an employer must

bargain about wages, hours,

and working conditions and

that pension benefits are

proper subjects of compulso-

ry bargaining. But there is

nothing in the NLRA ..

which expressly forecloses

all state regulatory power

with respect to those is-

sues, such as pension plans,

a4}

_

that may be the subject of

collective bargaining.

Id. at 504-05. The Court concluded that a

congressional intent to preempt state leg-

islation regulating pension plans could not

be implied from the federal labor statutes.

Id. at $0S.**

The extension of the doctrine of

labor law preemption which appellants seek

would prohibit state regulation of any mat-

ters affecting, however remotely, subjects

of mandatory collective bargaining. This

narrow view of state authority was rejected

by this Court over forty years ago in

Terminal Railroad Association v.

‘* The Court went on to find a contrary

congressional intent --- to permit state

regulation --- evident in the enactment of

the Federal Welfare and Pension Plans Dis-

closure Act. 29 U.S.C. §§ 301 et seq. (re-

pealed 1974). Thus, it was the Court's

conclusion in Malone that nothing intrinsic

to the history of the enactment of federal

labor statutes compels preemption of state

regulation. But cf. Alessi v.

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

526 and n.23 (1981).

-42-

Brotherhood of Railroad Trainmen, 318 U.S.

1 (1943). At issue in that case was a

state regulation requiring the company to

provide cabooses on its trains. The em-

ployer, who was subject to the Railway

Labor Act, maintained that the regulation

was preempted since the presence of ca-

booses was a working condition and thus a

mandatory subject of collective bargaining.

The Court did not find a state's regulation

of minimum standards of working conditions

to be an interference with federal labor

objectives. In upholding the state's regu-

latory authority, the Court explained:

The Railway Labor Act, like

the National Labor Relations

Act, does not undertake gov-

ernmental regulation of

wages, hours or working con-

ditions. Instead it seeks

to provide a means by which

agreement may be reached

with respect to them. The

national interest expressed

by those acts is not primar-

ily in the working condi-

tions as such. ‘

State laws have long

regulated a great variety of

o430

conditions in transportation

and industry, such as sani-

tary facilities and condi-

tions, safety devices and

protections, purity of water

supply, fire protection, and

innumerable others... .

It cannot be that the mini-

mum requirments laid down by

state authority are all set

aside. We hold that the en-

actment by Congress of the

Railway Labor Act was not a

preemption of the field of

regulating working condi-

tions themselves and did not

preclude the State

from making the order in

question.

Id. at 6-7 (footnote omitted). See also

Industrial Welfare Commission v. Superior

Court, 27 Cal. 3d 690, appeal dismissed,

449 U.S. 1029 (1980) (federal labor laws do

not preempt state regulations establishing

minimum wages, maximum hours, or standard

conditions of employment); Baltimore & Ohio

Railroad v. Department of Labor, 334 A.2d

636 (Pa.), appeal dismissed, 423 U.S. 806

(1975) (no preemption by the Railway Labor

‘Act of state statute requiring railroads to

pay employees weekly).

-44-

That a matter is a subject for

mandatory collective bargaining does not

preclude the states from adopting minimum

standards below which the terms of a col-

lective bargaining agreement may not go.

Although wages, hours and occupational

health and safety standards are subjects

for mandatory collective bargaining, states

have adopted numerous requirements setting

minimum standards for each.’* Rather than

+s "States possess broad authority under

their police powers to regulate the employ-

ment relationship to protect workers within

the state. Child labor laws, minimum and

other wage laws, laws affecting occupation-

al health and safety, and workmen's compen-

sation laws are only a few examples."

DeCanas v. Bica, 424 U.S. 351, 356 (1976).

See, e.g., Cal. Lab. Code § 850 (West 1971)

(maximum hours and days for persons who

sell or compound drugs and medicines);

Cal. Lab. Code § 1171 et seq. (West 1971

and Supp. 1984) (authorizing state Indus-

trial Welfare Commission to set minimum

standards for wages, hours and working con-

ditions); N.Y. Lab. Law § 190 et seg.

(McKinney Supp. 1984-85) (frequency and

methods of paying wages); N.Y. Transp. L.

§ 211 (McKinney Supp. 1984-85) (maximum

hours for truck and bus drivers); N.Y. Lab.

Law § 240 et seq. (McKinney 1965 and Supp.

1984-85) (workplace safety standards).

-45-

leaving these subjects to the free play of

economic forces, Congress has enacted leg-

islation setting minimum standards and has,

in certain instances, specifically autho-

rized the states to adopt still more pro-

tective regulations for the benefit of em-

ployees.?°®

Federal labor policy does not re-

quire that the states be confined to a more

restricted role with respect to health in-

surance benefits than with respect to other

subjects of mandatory bargaining. The con-

tention that if an employer is required to

purchase state-mandated insurance coverage

there is less money available for wages and

other benefits is no less true of state

regulation which may compel an employer to

20 For example, both the Fair Labor Stan-

dards Act of 1938 and the Occupational

Safety and Health Act of 1970 authorize the

states to adopt more protective regulations

for the benefit of employees. 29 U.S.C.

§ 218 (1975); 29 U.S.C. §§ 651(b)(11), 667

(1975).

hire additional workers to comply with max-

imum hour restrictions or to install par-

ticular safety equipment to satisfy occupa-

tional safety requirements. The setting of

minimum standards does not dictate the

outcome of the bargaining process or inter-

fere with the objectives of the federal

labor laws.

III. STATE-MANDATED BENEFIT LAWS ARE PART

OF THE REGULATION OF THE "BUSINESS OF IN-

SURANCE" LEFT TO THE STATES BY CONGRESS IN

THE MCCARRAN-FERGUSON ACT.

The court below recognized that

"t]he McCarran-Ferguson Act [15 U.S.C.

§ 1011 et seq.) establishes a congressional

policy in favor of State regulation of in-

surance." Attorney General v. Travelers

Insurance Co., 385 Mass. 598, 613-14

(1982). Congressional deference to state

regulation of insurance bears upon both ap-

pellants' contention of ERISA preemption-

and their contention of federal labor law

preemption.

47

The McCarran-Ferguson Act pro-

vides, in relevant part:

No Act of Congress shall be

construed to invalidate, im-

pair, or supersede any law

enacted by any state for the

purpose of regulating the

business of insurance ‘

unless such Act specifically

relates to the business of

insurance.

15 U.S.C. § 1012(b).

Although the McCarran-Ferguson

Act did not define the term "business of

insurance," this Court has repeatedly em-

phasized that the “business of insurance"

which is left to state regulation includes

state laws regulating the relationship be-

tween the company and the insured:

The relationship between in-

surer and insured, the type

of policy which could be

issued, its reliability, in-

terpretation, and enforce-

ment - these were the core

of the "business of insur-

ance:" .. . whatever the

exact scope of the statutory

term, it is clear where the

focus was - it was on the

relationship between the

insurance company and the

policyholder. Statutes

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aimed at protecting or regu-

lating this relationship,

directly or indirectly are

laws regulating the "busi-

ness of insurance."

Securities and Exchange Commission v.

National Securities, Inc., 393 U.S. 453, 460

(1969) (emphasis suppiied). The Court has

identified three criteria relevant to de-

termining whether a particular practice is

part of the "business of insurance":

first, whether the practice

has the effect of trans-

ferring or spreading a

policy-holder's risk;

second, whether the practice

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 indus-

try.

Union Labor Life Insurance Co. v. Pireno,

458 U.S. 119, 129 (1982). State-mandated

benefit laws regulate the "business of in-

surance" as defined by this Court and con-

stitute the exercise of a power specifical-

ly reserved to the states. This is

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illustrated by the state-mandated benefit

that coverage of newborns begin from the

moment of birth.

Mandatory coverage of newborns

unquestionably has the effect of spreading

the risk of potentially catastrophic ex-

penses of neonatal medical treatment. J.A.

346, 454-55. There can be little doubt

that the benefits provided are an integral

part of the policy relationship between in-

surer and insured. Although the scope of

benefits is integral to that relationship,

it was often only after families incurred

ruinous expenses for the care of a congeni-

tally ill child that the insured learned

that the coverage relied upon simply was

not there because of policy exclusions.

J.A. 346, 361, 387, 390, 454-55. Finally,

statutes mandating benefits to be included

in insurance policies are limited to

entities within the insurance industry.??

22 See generally Schulkind, supra at

209-10.

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ee oe res

,

The McCarran-Ferguson Act's pro-

tection of state regulation of the business

of insurance is significant in interpreting

both the scope of preemption intended by

ERISA and the proper role for state-

mandated insurance coverage in the collec-

tive bargaining process.

Section 514(d) instructed that

ERISA was not to "be construed to alter,

modify, invalidate, impair, or supersede

any laws of the United States," 29 U.S.C. §

1144(d), including, but obviously not lim-

ited to, the McCarran-Ferguson Act. Con-

gress surely did not intend to impair the

power of the states, reenforced by federal

law, to regulate the relationship between

the insurer and the insured. There is no

basis for suggesting that a narrower mean-

ing is to be attributed to a "law.

which regulates insurance," 29 U.S.C.

§ 1144(b)(2)(A) than this Court has given

to a "law enacted .

for the purpose of

eSie

regulating the business of insurance," 15

U.S.C. § 1012(b). Were this so, ERISA

would certainly "alter, modify, invalidate,

impair, or supersede" the McCarran-Ferguson

Act.

The McCarran-Ferguson Act's en-

dorsement of state regulation of insurance

provides some insight into Congress’ inten-

tions. As this Court observed in Malone,

the federal labor statutes do not evidence

an intent on the part of Congress to pre-

clude state legislation that affects em-

ployee benefits. By contrast, in the

McCarran-Ferguson Act, Congress manifested

an intent to preserve the power of the

states to regulate insurance, including the

power to requlate the contents of insurance

policies. Congress’ demonstrated interest

in preserving state insurance regulation is

"a far more reliable indicium of congres-

sional intent" with respect to the power of

the states to mandate insurance coverage,

$20

including coverage purchased to satisfy

contractual obligations resulting from col-

lective bargaining. Malone, 435 U.S. at

s0s.**

CONCLUSION

For the foregoing reasons, the

American Public Health Association, the

American Academy of Pediatrics, and SKIP of

New York, Inc. most respectfully urge this

Court to affirm the decision of the Supreme

Judicial Court of Massachusetts.

22 The parallelism between § 10 of the

Federal Welfare and Pension Plans Disclo-

sure Act, 29 U.S.C. §§ 301 et seq. (repeat-

ed 1974), and the McCarran-Ferguson Act ex-

tends further. In both acts, Congress

recognized that state regulation was not

static and sought to preserve not only ex-

isting state law, but "future" enactments

as well. Compare Malone, 435 U.S. at

510-11 with Prudential Ins. Co. v.

Benjamin, 328 U.S. 408, 431 (1946).

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»S3<

Dated: January 25, 1985

Respectfully submitted,

BRUCE H. SCHNEIDER

(Counsel of Record)

MADELAINE R. BERG

STROCCK & STROOCK & LAVAN*

Seven Hanover Square

New York, New York 10004

(212) 806-5400

HERBERT SEMMEL

New York Lawyers for the

Public Interest, Inc.

36 West 44th Street

New York, New York 10036

(212) 575-5138

Attorneys for Amici Curiae

American Public Health

Association,

American Academy of

Pediatrics, and SKIP of

New York

* Peter Friedman, a recent law school

graduate awaiting admission to the bar

of the State of New York, assisted in

the preparation of this brief.

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