Amicus Curiae Brief — Metropolitan Life Insurance v. Massachusetts

Nos. 84-325 and 84-356

IN THE

Supreme Court of the United States

OcTOBER TERM, 1984

METROPOLITAN LIFE INSURANCE COMPANY,

Appellant,

V.

,

COMMONWEALTH OF MASSACHUSETTS,

Appellee.

THE TRAVELERS INSURANCE COMPANY,

Appellant,

v.

COMMONWEALTH OF MASSACHUSETTS,

Appellee.

On Appeal From The Supreme Judicial Court

For The Commonwealth Of Massachusetts

BRIEF AMICUS CURIAE OF

THE ERISA INDUSTRY COMMITTEE

IN SUPPORT OF APPELLANTS

JOHN M. VINE

(Counsel of Record)

ARVID E. ROACH II

Covington & Burling

1201 Pennsylvania Avenue, N.W.

P.O. Box 7566

Washington, D.C. 20044

(202) 662-6000

Attorneys for

The ERISA Industry Committee

December 20, 1984

TABLE OF CONTENTS

THE INTEREST OF THE AMICUS CURIAE...............

SUMMARY OF ARGUMENT ....000.o. occ ccceeecseeseeeeeenees

I. SECTION 47B IS PRE-EMPTED BY ERISA......

II. SECTION 47B, AS APPLIED TO COLLEC-

TIVELY-BARGAINED EMPLOYEE BENEFIT

PLANS, IS PRE-EMPTED BY THE NLRA........

FS RII OS ons... consetnnntotesesintimniemsnnpeppnnscoesbimiianimnentenees

TABLE OF AUTHORITIES

CASES

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

ail ada os rene ereerepeneenigmiemmesnmanceseeees

Allied Chemical & Alkali Workers v. Pittsburgh Plate

I a, ) een

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

598, 433 N.E.2d 1223, App. 13a (1982), vacated &

remanded, 103 S. Ct. 3563, App. 10a (1983), on

remand, 39\ Mass. 730, 463 N.E.2d 548, App. la,

prob. juris. noted, 105 S. Ct. 320 (1984) ........cccccceeeeees

Azzaro v. Harnett, 414 F. Supp. 473 (S.D.N.Y. 1976),

aff'd mem., 553 F.2d 93 (2d Cir. ), cert. denied, 434

U.S. 824 ( 1977) eI aed ereenaneennnaners

Bell v. Employee Security Benefit Association, 437 F.

i Te © sccrssscaresemnivecssnsisteennmeesseeseoees

Blue Cross & Blue Shield of Alabama v. Peacock’s

Apothecary, Inc., 567 F. Supp. 1258 (N.D. Ala.

Rene EE

Chapman v. Houston Welfare Rights Organization, 441

STITT shea csinentiencnaueuennniemepemsenceneqneneenenerecvecce

Connell Construction Co. v. Plumbers & Steamfitters

Local Union No. 100, 421 U.S. 616 (1975) 0.0.0...

Dickerson v. New Banner Institute, Inc., 460 U.S. 103

DS Sa

Franchise Tax Board vy. Construction Laborers Vacation

i sesnnnsbnnonoosocoes

General Split Corp. v. Mitchell, 523 F. Supp. 427 (E.D.

Titanate harhirincaesaneuiasenanpnnenscumaenennweseesnesecsetece

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

ee

Hamberlin v. VIP Insurance Trust, 434 F. Supp. 1196

Ti isettinineicinepagiseenmapenmenmenaversnnevecvecoces

Health Care Plan of New Jersey, Inc. v. Schweiker, 553

F. Supp. 440 (D.N.J. 1982), aff'd mem., 707 F.2d

1391 (3d Cir. ), cert. denied, 1048. Ct. 71 (1983) .......

Page

8,9, 1 l,

14-16

15

passim

12

14

18

ll

16

11

i2

11

17

14

Page

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

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

CAE, GE, Ge Ws 8 0 BFE cecescevcccccsccevecccccesesesees 11

Local 24, International Brotherhood of Teamsters v.

Re a I I icictitsnciuiinissecionnsiieneinenseinie 6,15-18

Malone v. White Motor Corp., 435 U.S. 497 (1978)........ 16

Maryland Casualty Co. v. Cushing, 347 U.S. 409

ESE TET RE Hina Be ene One RRC. tS Senn IE SORES ae 17

Michigan United Food & Commercial Workers Fund v.

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

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

ER SAT aCe SNe ae RE ae Nee oe eR 14

New York Telephone Co. v. New York State Department

OF Be Be i Be 0 FFE Pecccerccscscnecseseccccentenscescovens 16

St. Paul Electrical Workers Welfare Fund v. Markman,

490 F. Supp. 931 (D. Minn. 1980) 2000.0... eeeeeeeeees 11

SEC v. National Securities, Inc., 393 U.S. 453 (1969) ... 11,17

SEC v. Variable Annuity Life Insurance Co., 359 U.S.

ae tasted ceasibaitdeisemninnennnncenndeniniatntisiniintenabimeaitenwenite 12,13,17

Shaw v. Delta Air Lines, Inc., 103 S. Ct. 2890 (1983)... 9-12.14

Sorrells vy. United States, 287 U.S. 435 (1932) wc... aD 12

Standard Oil Co. v. Agsalud, 442 F. Supp. 695 (N.D.

Cal. 1977), aff'd, 633 F.2d 760 (9th Cir. 1980), aff'd

a i seeusons 11

Stone & Webster Engineering Corp. v. Ilsley, 518 F.

Supp. 1297 (D. Conn. 1981), aff'd, 690 F.2d 323 (2d

Cir. 1982), aff'd mem., 103 S. Ct. 3564 (1983) 0.0.0.0... 11

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

| __RRRESLUORE HAT iinet IEEE Rene Onn Ov nO eee nt Oe 17

United States vy. American Trucking Associations, Inc.,

I si 12

United States v. Turkette, 452 U.S. 576 (1981) .......000..... 12

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

cert. denied, 435 U.S. 980 (1978) wo... eee eeeeeeeeee 13

STATUTES AND LEGISLATIVE MATERIALS

Employee Retirement Income Security Act of 1974,

Pub. L. No. 93-406, 88 Stat. 829 (1974), 29 U.S.C.

I a adi ain eta anieintennnetndainies passim

Pe Oe Si Ps) PUIIIE © D ecccnsccccccsccescicnenessetoncsntee 2,13

iv

Page

Fee eis Oe ID setcitccirtnivnnitepecuecensenniens 7

§ 514(b)(2)(A), 29 U.S.C. § 1144(b)(2)(A) ....... 7

§ 514(b)(2)(B), 29 U.S.C. § 1144(b)(2)(B)........ 7

§ 514(c)(2), 29 U.S.C. § 1144(c)(2) we 13

Health Maintenance Organization Act of 1973, Pub. L.

No. 93-122, § 2, 87 Stat. 931 (1973), 42 U.S.C.

Teaser atdciackhiiha aelnadeaes icin ahem ensantinshabaniideneianibinn 12

TE EF ane ee passim

McCarran-Ferguson Act, ch. 20, 59 Stat. 33 (1945), 15

5 | dl SSN SAD a eee ea nee STD 13,16,17

iy eis Te ENE OP ccdeccccectcncicnsestensionssacsscse 16

As I Tt TTI coach cath ednsetnenneclasenneninninisanie 17

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

CO ie Be is Ue a PII cciccnstntccesnscnsccensicasesien 2,6,15-18

ACTIVITY REPORT OF THE HOUSE COMMITTEE ON EDUCA-

TION AND Lasor, H.R. Rep. No. 1785, 94th Cong.,

A ee ee ttn idaniiiniicnniitsibdiinindidmnnsdinidtetnnees 14

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

VANCES IN HEALTH INSURANCE IN MASSACHUSETTS

i TIE A cciicencisciapenatsil ladiidininseiabeiadantibmaciedésbihasaieabinibaduabentiniibieese 7

120 Conc. Rec. 29197, 29933, 29942 (1974) (remarks

of Rep. Dent, Sen. Williams and Sen. Javits) .............. 14

OTHER

HEALTH INSURANCE ASSOCIATION OF AMERICA, SOURCE

Book OF HEALTH INSURANCE Data, 1982-1983

i PUTT es isscidebdncesbentsiaadeniicneiiiansigdenieiaiadnadbadasndaiaieiiiaieiademenete 4

Hirsch, Toward a New View of Federal Preemption, 1972

aps Tic: GASES ecinnicinctinietindiieebhbdinaatiaiadlebddntlesiediinmnieiiadinneesne 13

Hutchinson & Ifshin, Federal Preemption of State Law

Under the Employee Retirement Income Security Act

of 1974, 46 U. Cui. L. REV. 23 (1978) .0...... eee 14,18

U.S. DEPARTMENT OF LABOR, BUREAU OF LABOR STATIS-

TICS, EMPLOYEE BENEFITS IN MEDIUM AND LARGE

pk 8 eee ee ene 3

U.S. DEPARTMENT OF LABOR, LABOR-MANAGEMENT SER-

VICES ADMINISTRATION, GROUP HEALTH INSURANCE

COVERAGE OF PRIVATE FULL-TIME WAGE AND Sa-

I PE, POE OB UIIS BP ccncccccenccectessectvcnecetuccvnsetasse 4

is ET ccrttirertireemimnmiaiinneings 2

IN THE

Supreme Court of the United States

OcTOBER TERM, 1984

Nos. 84-325 and 84-356

METROPOLITAN LIFE INSURANCE COMPANY,

Appellant,

Vv.

COMMONWEALTH OF MASSACHUSETTS,

Appellee.

THE TRAVELERS INSURANCE COMPANY,

Appellant,

Vv.

COMMONWEALTH OF MASSACHUSETTS,

Appellee.

On Appeal From The Supreme Judicial Court

For The Commonwealth Of Massachusetts

BRIEF AMICUS CURIAE OF

THE ERISA INDUSTRY COMMITTEE

IN SUPPORT OF APPELLANTS

The issue presented in this case is whether state legislatures

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

benefits that must be provided by insured employee benefit

plans. This is an issue of paramount significance to the

employees and employers of this Nation.

2

The decision below holds that a Massachusetts statute

requiring particular mental health benefits to be included in all

health insurance policies covering state residents—a statute

expressly designed to prescribe the benefits to be provided by

all employee health benefit plans in Massachusetts—is not pre-

empted by the Employee Retirement Income Security Act of

1974 (“ERISA”) or the National Labor Relations Act

(“NLRA”). This result defeats a central purpose of ERISA

and the NLRA—to reserve the regulation of employee benefit

plans exclusively to federal law.

Unless reversed, the decision of the Massachusetts Su-

preme Judicial Court threatens to force employers either to

assume the great burden and expense of conforming their

insured employee benefit plans to ever-changing laws of fifty

different states, or to abandon insured employee benefit plans

altogether. Because of these grave consequences, the ERISA

Industry Committee submits this amicus curiae brief urging

reversal of the decision below. All parties have consented to

the filing of this brief.

THE INTEREST OF THE AMICUS CURIAE

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

association of over one hundred major corporations doing

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

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

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

Congress and the Executive Branch on issues affecting private

pension and welfare plans.

ERIC represents a broad cross-section of firms maintaining

health benefit plans and other welfare plans for their employ-

ees.1 ERIC members’ welfare plans cover tens of millions of

beneficiaries. Some of these plans are collectively-bargained,

while others cover non-union employees.

1“Welfare plans” are employee benefit plans that provide non-pension

benefits, such as health, accident or supplemental unemployment benefits.

ERISA § 3(1), 29 U.S.C. § 1002(1); 29 C.F.R. § 2510.3-1.

3

All of the members of ERIC do business in more than one

state, and a number have employees in all fifty states. Transfers

- of employees from one state to another are common. Many of

the welfare plans of ERIC’s members provide uniform benefits

in all states where beneficiaries are located. Such nationwide

benefit uniformity is important to employee morale and yields

significant savings in administrative expenses.

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

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

group insurance policies covering their beneficiaries. Under an

insured plan, the employer pays a premium to the insurance

company, and the insurance company generally assumes the

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

the term of the policy.2

Some ERIC members maintain non-insured plans. Under

these plans, the cost of benefits is the direct responsibility of the

employer, who is sometimes referred to as a “‘self-insurer.” As

a rule, “self-insurance” is an economically feasible alternative

to purchasing insurance from an insurance company only where

a plan is large enough to allow the risk to be spread over a large

population. While self-insurance has been growing, insured

welfare plans remain much more common. For example,

among medium and large firms nationwide, insured health

plans covered about four times as many individuals as self-

insured plans in 1982. U.S. DEPARTMENT OF LABOR, BUREAU OF

LABOR STATISTICS, EMPLOYEE BENEFITS IN MEDIUM AND LARGE

FIRMS, 1982, at 36 (1983).

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

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

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

surplus in a particular year ( premiums exceed claims and expenses ), the plan

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

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

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

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

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

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

by the insurance company and the employer.

4

Whether state governments can dictate the benefits of

insured welfare plans is a question of great importance to

ERIC’s members and their employees. Welfare-plan benefits

are a major issue in collective bargaining negotiations and a

major element in the compensation of non-union employees.

The companies participating in ERIC spend hundreds of

millions of dollars each year on insurance premiums and

administrative expenses for insured welfare plans.? Laws in-

creasing the costs of insured welfare plans can have a substan-

tial economic impact on a business.

If the states are permitted to enforce a crazy quilt of

mandatory-benefit laws against insured welfare plans, employ-

ees and employers alike will suffer. Companies that wish to

maintain insured plans will be forced ei:her (a) to adopt all-

encompassing benefit packages that satisfy the laws of every

state, which will greatly increase welfare-benefit costs and force

curtailment of other elements of compensation, or (b) to

provide a variety of different benefits on a state-by-state basis,

which will impose costly administrative burdens and cause

dissatisfaction and confusion among employees. Free give-and-

take in collective bargaining over the compensation of union

employees will be supplanted by state prescription of a key

element of compensation, as will employers’ ability to offer

their non-union employees attractive pay and benefit packages

at acceptable cost. Employees will be forced to accept benefits

they would not have chosen themselves, and to sacrifice

benefits they would have preferred. The only remaining

alternative for employers with insured plans will be to abandon

their insured plans altogether and shoulder the risks and costs

of “self-insurance”—risks and costs they decided not to incur

when they established insured plans.

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

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

AMERICA, SOURCE BOOK OF HEALTH INSURANCE Data, 1982-1983, at 6

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

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

SERVICES ADMINISTRATION, GROUP HEALTH INSURANCE COVERAGE OF PRI-

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

tn ical

5

In sum, if the decision below is not reversed, both employ-

ees and employers will be prevented from achieving the best

possible benefits at the most reasonable cost. The result will be

that fundamental policies of ERISA—national uniformity in

benefit-plan regulation and the growth and soundness of

employee benefit plans—will be frustrated. The ,NLRA’s

policy of leaving the basic terms and conditions of employment

of unionized employees to private collective bargaining also

will be defeated. ERIC’s members and their employees have a

vital interest in the vindication of these important Congression-

al policies.

SUMMARY OF ARGUMENT

Massachusetts’ mandated benefit statute is pre-empted by

both ERISA and the NLRA.

The Massachusetts statute is pre-empted by ERISA be-

Cause it was direcied at employee benefit plans, not at insur-

ance. ERISA’s broad pre-emption provision supersedes all

state laws relating to employee benefit plans. Uniform inter-

state employee benefit plans, which were the objective of

ERISA’s pre-emption provision, cannot flourish in an environ-

ment of varied and conflicting state regulations.

ERISA’s insurance savings clause, which excepts laws that

“regulate insurance” from pre-emption, does not apply to the

Massachusetts statute. The Massachusetts court’s literalistic

reading of this clause to exempt from pre-emption any state law

touching in any way on insurance would ailow a narrow

exception to consume the general rule; it would permit states to

regulate employee benefit plans without any limitation, merely

by adopting statutes that take the form of “insurance” laws.

The insurance savings clause must instead be read in a fashion

that harmonizes ERISA’s primary purpose of barring piecemeal

state regulation of employee benefit plans with ERISA’s addi-

tional objective of preserving state insurance regulations that

have secondary effects on employee benefit plans. The proper

standard is one based on whether, taking account of its purpose

and effect, the state law is primarily directed at employee

6

benefit plans or insurance. Since the Massachusetts statute was

indisputably directed at regulating employee benefit plans and

not at regulating the insurance industry, it is pre-empted by

ERISA.

To the extent it applies to collectively-bargained employee

benefit plans, the Massachusetts statute also is pre-empted by

the NLRA. A state mandated benefit law that purports to

override private union-management agreements concerning

mandatory subjects of bargaining is pre-empted under Local

24, International Brotherhood of Teamsters v. Oliver, 358 U.S.

283 (1959). No exception to the Oliver pre-emption doctrine

applies to such a statute. This Court has never determined

whether there is a “health and safety” exception to the Oliver

pre-emption doctrine, but even if some such exception exists it

cannot possibly extend so far as to permit the states to supplant

private bargaining over fundamental elements of com-

pensation. The exception to Oliver pre-emption for matters that

Congress has expressly committed to the states also does not

apply to state mandated benefit laws, for the McCarran-

Ferguson Act did not confer upon the states the power to

prescribe employee benefit levels; moreover, ERISA’s objective

of uniformity in interstate benefit plans is inconsistent with such

state legislation.

ARGUMENT

Section 47B of Chapter 175 of the Massachusetts General

Laws requires that insurance policies providing hospital and

surgical benefits for state residents also provide specified mental

health benefits.4 Section 47B requires that these same benefits

be provided by “any employees’ health and welfare fund which

provides hospital expense and surgical expense benefits” in the

state.

Thus, Section 47B mandates health benefits for all em-

ployee benefit plans—both insured and non-insured plans. That

this was the express purpose of Section 47B is confirmed by the

4These include payment for sixty days’ hospitalization in a mental

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

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

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

7

available legislative material: the explanatory report of the joint

committee that originated the bill makes clear that the com-

mittee’s objective was to furnish mental health benefits for

employees. Mass. GEN. Court, Jt. COMM. ON INSURANCE,

ADVANCES IN HEALTH INSURANCE IN MASSACHUSETTS | (statute

aimed at “the working person”), 3 (statute directed at “work-

ers”), 4 (discussing employee group insurance policies)

(1974).

The goal—and the effect—of Section 47B was to govern

employee benefit plans. Section 47B was not a statute aimed at

governing insurance companies, with only incidental or secon-

dary effects on employee benefit plans. To the contrary, the

Massachusetts legislature set out to regulate employee benefit

plans and did so in unambiguous terms, addressing insurance

simply as one step to that objective.

I. SECTION 47B IS PRE-EMPTED BY ERISA

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

to any employee benef. plan.” ERISA § 514(a), 29 U.S.C.

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

state law “which regulates insurance.” Jd. § 514(b)(2)(A), 29

U.S.C. § 1144(b)(2)(A). (This is often referred to as the

“insurance savings clause.”) ERISA also provides that, in

applying the insurance savings clause, an employee benefit plan

shall not “be deemed to be an insurance company or other

insurer . . . or to be engaged in the business of insurance . . . for

purposes of any law of any State purporting to regulate

insurance companies [or] insurance contracts.” Jd.

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

referred to as the “deemer clause.”’)

The question confronting the Massachusetts Supreme Judi-

cial Court in this case was whether Section 47B was (a) exempt

from pre-emption as a law “which regulates insurance” within

the meaning of ERISA’s insurance savings clause, or (b) pre-

empted by ERISA’s basic pre-emption provision, particularly

when that provision is read in conjunction with the expression

of Congressional intent in the deemer clause to prevent state

insurance laws from being used as a pretext for state regulation

of employee benefit plans.

8

The Massachusetts court answered this question

twice—once in 1982, and then again in 1984 after a remand

from this Court. In its initial decision, the court began its

analysis by artificially bifurcating Section 47B. The Com-

monwealth had conceded that insofar as the statute required

specified benefits to be provided by non-insured employee

benefit plans, it was pre-empted by ERISA. The court con-

cluded that this aspect of the statute was severable, as a matter

of general state-law severability doctrine, from the clause

addressing insurance policies, and thus proceeded to review

Section 47B as if it had been enacted solely as a law concerning

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

Mass. 598, 601, 433 N.E.2d 1223, 1225, App. 13a, 15a-l6a

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

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

prob. juris. noted, 105 S. Ct. 320 ( 1984).

The court recognized that a literal reading of ERISA’s

insurance savings clause, exempting any state law bearing the

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

this would give the states virtually unlimited rein to govern

employee benefit plans under the pretext of insurance regu-

lation. As the court put it, this construction “might permit the

State, through its insurance laws, to reach far into areas

governed by ERISA, and thereby negate the unmistakable

intent of Congress to work a broad preemption.” Id. at 606, 433

N.E.2d at 1228, App. at 21a.

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

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

laws that, while dealing in some way with insurance, are pre-

empted. The court decided that the correct basis for distinction

was whether the state statute was in “clear conflict” with

affirmative regulatory provisions of ERISA. Jd. The court

thought it could discern in this Court’s decision in Alessi v.

Raybestos-Manhattan, Inc., 451 U.S. 504 (1981), intimations

that ERISA’s pre-emption was aimed solely at state laws that

“affected a subject covered by ERISA,” and that pre-emption

should therefore be found only where a state law conflicted

directly with substantive provisions of ERISA. 385 Mass. at

9

608, 433 N.E.2d at 1229, App. at 23a. Applying this standard,

the court concluded that Section 47B was not pre-empted

because ERISA’s affirmative regulation of welfare plans is

limited to reporting, disclosure, fiduciary conduct and plan

administration, and because ERISA, in contrast to Section 47B,

does not prescribe the “substantive content of plans.” Jd. The

court rejected the idea that ERISA was also actuated by

fundamental policies of encouraging private initiative in struc-

turing healthy, growing, broad-based employee benefit plans

and allowing plan sponsors to enjoy a climate conducive to

nationwide plan uniformity without interference from conflict-

ing state laws. Id.

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

vacated and remanded for further consideration in light of

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

opinion in Shaw stressed that the exceptions from pre-emption

in ERISA are “narrow.” Jd. at 2902, 2903. The decision in

Shaw also completely undermined both the Massachusetts

Supreme Judicial Court’s conflict-based notion of ERISA pre-

emption and the Massachusetts court’s rejection of private

initiative and uniformity as fundamental goals of ERISA.

Shaw held that ERISA pre-empted a New York anti-

discrimination law and a New York law requiring that sick-

leave benefits be paid to employees unable to work because of

pregnancy. The Court specifically noted that ERISA “does not

mandate that employers provide any particular benefits, and

does not itself proscribe discrimination in the provision of

employee benefits.” Jd. at 2897. Nonetheless, the Court found

the New York statutes pre-empted by ERISA’s broad pre-

emption of any state law that “relates to” employee benefit

plans—thus rejecting the notion of the Massachusetts court in

this case that conflict with affirmative provisions of ERISA is

the necessary predicate for pre-emption.

Further, Shaw cited Alessi for the proposition that ERISA,

in “establishing benefit plan regulation ‘as exclusively a federal

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

employers to administer their plans differently in each State in

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

U.S. at 523). Shaw pointed out that allowing “varied and

10

perhaps conflicting” state laws to be enforced against employee

benefit plans would undercut employers’ freedom to administer

efficient, uniform employee benefit plans and would leave

employers with a series of unattractive options. Among these

options would be setting up different plans in each state—with

“the inefficiency of such a system presumably... paid for by

lowering benefit levels” —and adopting uniform plans that met

the requirements of all states—which would require the em-

ployer to “reduce wages or eliminate those benefits not required

by any State” in order to “offset the additional expenses.” Jd. at

2904 n.25. These very same adverse consequences are the

inevitable result of the Massachusetts court’s decision in this

case.

On remand, however, despite the clear rejection in Shaw of

the Massachusetts Supreme Judicial Court’s earlier reasoning,

that court refused to alter its decision. Shaw’s repeated

characterization of ERISA’s pre-emption exceptions as “nar-

row” was dismissed as “dictum,” and the Supreme Judicial

Court instead insisted on its own view of the insurance savings

clause as “broad.” 391 Mass. at 733-35, 463 N.E.2d at 550-51,

App. at 4a-6a. The court acknowledged that Shaw “rejected a

conflict-based analysis” of ERISA’s general pre-emption provi-

sion, but nonetheless reaffirmed (though did not rely upon)

its own conflict-based theory of ERISA’s .insurance savings

clause. Jd. at 734, 463 N.E.2d at S551, App. at Sa. Finally,

while conceding that it was required to “accept as author-

itative” this Court’s conclusion in Shaw that ERISA was

intended to foster private initiative and uniformity in benefit

plans, the Massachusetts Supreme Judicial Court reversed

course and treated these policies as irrelevant. Jd. at 734, 463

N.E.2d at 551, App. at 6a. While in its earlier decision the

court had recognized that ERISA’s insurance savings clause

cannot be applied literally, and had sought to interpret the

clause based on the court’s views of the policies animating

ERISA, now, faced with an authoritative Supreme Court

decision rejecting its notions of Congress’ intent, the Massachu-

setts court set aside intent and reaffirmed its prior decision

based simply on the “language” of the insurance savings clause

—language the court had previously recognized to be the

11

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

at 551, App. at 6a.

The court below erred in finding that Section 47B is not

pre-empted by ERISA. The Massachusetts court’s original

“conflict-based” approach to the insurance savings clause was

clearly discredited by Shaw, and was effectively abandoned on

remand. But the Court’s ultimate literalist reading of the

clause—a reading that the court itself had initially described as

converting a limited exception into a limitless loophole—is

equally untenable.

The Massachusetts court’s literalist construction of the

insurance savings clause allows basic policies behind ERISA to

be defeated by statutes that are labelled “insurance regulation”

but are actually aimed at governing employee benefit plans.

This cannot be permitted, for, as this Court said in Alessi,

“EERISA’s authors clearly meant to preclude the States from

avoiding through form the substance of the pre-emption provi-

sion.” 451 U.S. at 525; see also SEC v. National Securities, Inc.,

393 U.S. 453, 460 (1969).5 The words of a Congressional

statute must be interpreted “ ‘in light of the purposes Congress

sought to serve.’ ”’ Dickerson v. New Banner Institute, Inc., 460

U.S. 103, 118 (1983) (quoting Chapman v. Houston Welfare

5 Contrast, for example, this case with Hewlett-Packard Co. v. Barnes,

425 F. Supp. 1294 (N.D. Cal. 1977), aff'd, 571 F.2d 502 (9th Cir.), cert.

denied, 439 U.S. 831 (1978); 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); St. Paul Electrical Workers Welfare Fund v. Markman, 490 F.

Supp. 93! (D. Minn. 1980); Stone & Webster Engineering Corp. v. Iisley, 518

F. Supp. 1297 (D. Conn. 1981), aff'd, 690 F.2d 323 (2d Cir. 1982), aff'd

mem., 103 S. Ct. 3564 (1983); and General Split Corp. v. Mitchell, 523 F.

Supp. 427 (E.D. Wis. 1981), decisions that held that ERISA’s pre-emption

provision barred California, Hawaii, Minnesota, Connecticut and Wisconsin

statutes that dictated various aspects of the health benefit coverage to be

provided by employee benefit pians in each state. If the decision below were

correct, these states could have circumvented the decisions in these cases

simply by rewriting their statutes in the form of “insurance regulation.”

12

Rights Organization, 441 U.S. 600, 608 (1979)) (cited in Shaw,

103 S. Ct. at 2900).6 Congress’ purpose in Section 514 of

ERISA was to make certain that the only laws that would

govern employee benefit plans would be federal laws. Con-

gress thereby sought to promote uniformity in the terms of

those plans and to foster their growth through private initiative,

unfettered by restrictive or conflicting state regulations. Shaw,

103 S. Ct. at 2904. To be certain to achieve this purpose,

Congress adopted a pre-emption provision “virtually unique” in

its breadth (Franchise Tax Board v. Construction Laborers

Vacation Trust, 103 S. Ct. 2841, 2854 n.26 (1983) )—a provi-

sion pre-empting any state law that would even “relate to”

employee benefit plans.

It was in this context that Congress made a “narrow”

exception (Shaw, 103 S. Ct. 2902, 2903) for any state law

“which regulates insurance.” Perhaps in some other context it

might be linguistically permissible to describe any law dealing

in any way with insurance as a law “which regulates insur-

ance.” But in this context, reading the statutory language “in

light of the purposes Congress sought to serve,” such an

interpretation is mot permissible. Such a construction would

allow a state law whose primary object is to govern employee

benefit plans to prevail over Congress’ central purpose of

reserving the governance of such plans to federal law. This

would give the states unlimited power to regulate insured

6 See also Azzaro v. Harnett, 414 F. Supp. 473 (S.D.N.Y. 1976), aff'd

mem., 553 F.2d 93 (2d Cir.), cert. denied, 434 U.S. 824 (1977) (in light of

Congress’ broad pre-emptive purpose in enacting ERISA § 514, exception in

subsection (b)(1) for “any cause of action which arose, or any act or

omission which occurred, before January |, 1975” cannot be construed as

leaving states with ongoing power to investigate present benefit status of

persons whose benefits accrued before January |, 1975); Health Care Plan of

New Jersey, Inc. v. Schweiker, 553 F. Supp. 440, 444-47 (D.N.J. 1982), aff'd

mem., 707 F.2d 1391 (3d Cir.), cert. denied, 104 S. Ct. 71 (1983) (analyzing

pre-emption under Health Maintenance Organization Act of 1973, 42 U.S.C.

§ 300e-10, in terms of Congressional purposes ); SEC v. Variable Annuity Life

Ins. Co., 359 U.S. 65, 80 (1959) (Brennan, J., concurring); United States v.

American Trucking Ass’ns, Inc., 310 U.S. 534, 543 (1940); United States v.

Turkette, 452 U.S. 576, 580 (1981); Sorrells v. United States, 287 U.S. 435,

450 (1932).

- eee ee ww

13

employee benefit plans, even though ERISA specifically recog-

nizes the primary role played by insured plans by defining

“employee welfare benefit plan” as one that provides benefits

“through the purchase of insurance or otherwise.” ERISA

§ 3(1), 29 U.S.C. § 1002(1). Thus, here, as is often true of pre-

emption savings clauses, “a literal application of the clause

would not serve the statutory purpose.” Hirsch, Toward a New

View of Federal Preemption, 1972 U. Itt. L.F. 515, 540-41.

An appropriate interpretation of the insurance savings

clause must recognize that Congress meant to leave traditional

insurance regulation to the states—regulation, for example, of

capitalization, fiduciary and investment standards, the form of

policies and sales practices—but not to leave the states free to

adopt laws formally classified as insurance laws yet having the

primary purpose and effect of governing employee benefit

plans. Construing the insurance savings clause in this way

clearly requires pre-emption of the present statute—which was

directly and explicitly aimed at employee benefit plans 7— while

leaving the states free to enact insurance laws with secondary or

incidental effects on employee benefit plans.®

Under a proper reading of Section 514 of ERISA, if a state

Statute in some way concerns insurance and also “relates to”

employee benefit plans, the pre-emption analysis must turn on

the statute’s overall object, considered in light of its purpose

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

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

29 U.S.C. § 1144(c)(2). This is exactly the intent and result of Section 47B.

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

regarded this fact, and failed to come to grips with the federal-/aw statutory

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

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

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

savings clause. Cf. SEC v. Variable Annuity Life Ins. Co., 359 U.S. 65 (1959)

(variable annuity contracts are not “insurance” within the meaning of the

McCarran-Ferguson Act and other federal statutes, despite their treatment as

“insurance” in the insurance statutes of several states ).

8 Thus, contrary to the assertion in Wadsworth v. Whaland, 562 F.2d 70,

78 (Ist Cir. 1977), cert. denied, 435 U.S. 980 (1978), a proper interpretation

of the insurance savings clause does not “emasculate” the clause; it prevents

the savings clause from emasculating ERISA’s basic pre-emption provision.

14

and effect. Pre-emption should be found where the statute is

principally directed at governance of employee benefit plans,

and not where it is principally directed at regulation of insur-

ance. Only in the latter case can the statute properly be

considered one “which regulates insurance” within the meaning

of ERISA’s insurance savings clause.

This standard, unlike the lower court’s literalist rule,

harmonizes ERISA’s primary mandate of pre-emption with the

“narrow” exception made by the insurance savings clause.?

And it is the only standard that can be squared with Congress’

intent in enacting Section 514 of ERISA. The deemer clause

clearly demonstrates a Congressional concern that the insurance

savings clause not become a pretext for state action evading

ERISA’s establishment of “benefit plan regulation ‘as ex-

clusively a federal concern’” (Shaw, 103 S. Ct. at 2904

(quoting Alessi, 451 U.S. at 523)). The legislative history

confirms that ERISA’s pre-emption provisions were adopted in

order to preclude “multiple,” “conflicting,” and “inconsistent”

state laws regulating employee benefit plans. See 120 CONG.

Rec. 29197, 29933, 29942 (1974) (remarks of Rep. Dent, Sen.

Williams and Sen. Javits) (quoted in Shaw, 103 S. Ct. at 2901

& n.20).10

9 Accord, Michigan United Food & Commercial Workers Fund v.

Baerwaldt, 572 F. Supp. 943 (E.D. Mich. 1983), appea! docketed, No. 83-

1570 (6th Cir. Aug. 16, 1983); Hutchinson & Ifshin, Federal Preemption of

State Law Under the Employee Retirement Income Security Act of 1974, 46 U.

Cui. L. Rev. 23, 66-69 (1978).

10 Moreover, a Congressional committee with responsibility for ERISA,

including among its members principal sponsors of the statute, declared in a

report on ERISA pre-emption issued shortly after ERISA’s enactment that

“the Federal interest and the need for uniformity are so great that enforce-

ment of state regulation should be precluded,” and suggested that this policy

was threatened by unduly broad constructions of “our efforts to ensure

minimum disruption to the regulatory efforts of the states in the fields of

insurance, banking and securities.” Activity REPORT OF THE House Com-

MITTEE ON EDUCATION AND Lasor, H.R. Rep. No. 1785. 94th Cong., 2d Sess.

47 (1977) (emphasis added). The committee’s reference to “minimum”

disruption of state regulation indicates that a literalist reading of the insurance

savings clause, permitting no disruption of state laws dealing with insurance,

was not intended. The commitiee’s report is entitled to significant weight in

construing the insurance savings clause. See, e.g., Bell v. Employee Security

Benefit Ass’n, 437 F. Supp. 382, 392 (D. Kan. 1977); Hamberlin v. VIP Ins.

Trust, 434 F. Supp. 1196, 1199 (D. Ariz. 1977).

15

Therefore, because there can be no doubt, upon consid-

eration of both the purpose and effect of Section 47B, that it

was directed at the governance of employee benefit plans rather

than at the regulation of insurance, the Court should hold that

Section 47B is pre-empted by ERISA.

II. SECTION 47B, AS APPLIED TO COLLECTIVELY-

BARGAINED EMPLOYEE BENEFIT PLANS, IS PRE-

EMPTED BY THE NLRA

Insofar as it applies to collectively-bargained plans, Section

47B also is pre-empted by the NLRA.

Many insured welfare plans are collectively bargained.

Section 47B undeniably intrudes on the freedom of unions and

management to negotiate the terms of employment contracts.

The impact is significant. Health benefits are a principal issue

in labor negotiations. State-mandated benefits of one kind

often force workers to sacrifice other, preferred benefits of a

different kind.

In Local 24, International Brotherhood of Teamsters v.

Oliver, 358 U.S. 283, 296-97 (1959), this Court held that the

NLRA, by guaranteeing the right to private determination of

the terms of collective bargaining agreements, pre-empts state

laws that purport to prescribe such terms. Health benefits are a

mandatory subject of bargaining. Allied Chemical & Alkali

Workers v. Pittsburgh Plate Glass Co., 404 U.S. 157, 159

(1971). Thus, Oliver squarely stands for the conclusion that the

NLRA pre-empts Section 47B as applied to collectively-

bargained insured plans.

This conclusion is supported by the Court’s decision in

Alessi, supra. There, in determining that ERISA pre-empted

state laws prohibiting workers’ compensation benefits from

being offset against pensions, the Court, citing Oliver, stated

that its holding was reinforced, insofar as collectively-bargained

pension plans were concerned, by “the additional federal

interest in precluding state interference with labor-management

negotiations.” 451 U.S. at 525. Pre-emption was compelled,

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

and the federal policy to keep calculation of pension benefits a

16

subject of either labor-management negotiations or federal

legislation.” Jd. at 526 n.22. See also Malone v. White Motor

Corp., 435 U.S. 497 (1978) (plurality opinion); Connell Con-

struction Co. v. Plumbers & Steamfitters Local Union No. 100,

421 U.S. 616 (1975).

The Massachusetts Supreme Judicial Court cited two rea-

sons for finding that Section 47B was not pre-empted by the

NLRA. First, the court found that there was a “public health”

exception to NLRA pre-emption. The court reached this

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

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

safety regulation.” 385 Mass. at 613, 433 N.E.2d at 1232, App.

at 29a-30a. Second, the court concluded that there is no NLRA

pre-emption where some other federal statute expresses a

Congressional intent to permit state regulation. The court

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

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

should not be construed as superseding state laws enacted “for

the purpose of regulating the business of insurance.” 385 Mass.

at 613-14, 433 N.E.2d at 1232, App. at 30a.

This Court has never held that there is a “public health”

exception to the Oliver doctrine. Even if there were such an

exception, it could not possibly reach so far as to permit states

to dictate fundamental terms of collective bargaining agree-

ments. If welfare-benefit terms of labor contracts were within a

reserved state power to regulate “public health,” it is difficult to

see why every element of compensation would not come within

such an exception. Such a doctrine would permit unlimited

state control of collective bargaining.

Similarly, this Court has never held that the McCarran-

Ferguson Act, which was enacted long before state legislatures

first attempted to prescribe substantive terms of collective

bargaining agreements through the vehicle of “insurance” laws,

expresses a Congressional intent to permit such state legislation.

The recent decision in Malone v. White Motor Corp., supra,

indicates that any such intent must be “evident.” 435 U.S. at

513 (plurality opinion); see also New York Telephone Co. v.

New York State Department of Labor, 440 U.S. 519, 540-45

17

(1979) (plurality opinion); id. at 546 n.* (Brennan, J., con-

curring); id. at 547, 551 (Blackmun, J., concurring); SEC v.

Variable Annuity Life Insurance Co., 359 U.S. 65, 80 (1959)

(Brennan, J., concurring); Maryland Casualty Co. v. Cushing,

347 U.S. 409, 412-13 (1954). This is a test that the court below

did not apply and that there is no reason to believe the

McCarran-Ferguson Act can pass. See SEC v. National

Securities, Inc., 393 U.S. 453, 458-59 (1969) (in enacting the

McCarran-Ferguson Act in 1945, “Congress was mainly con-

cerned with the relationship between insurance ratemaking and

the antitrust laws, and with the power of the states to tax

insurance companies,” and did not intend to confer upon the

States any power to regulate insurance that they had not

previously been held to possess). Moreover, for the reasons

already discussed above in connection with ERISA pre-

emption, a statute enacted with the express purpose of regu-

lating employee benefit plans cannot properly be regarded as a

statute adopted “for the purpose of regulating the business of

insurance.”"! Finally, Section 4 of the McCarran-Ferguson Act,

15 U.S.C. § 1014, expressly provides that the Act shall not

affect “application [of the NLRA] to the business of insur-

ance”; the Massachusetts court’s notion that this provision was

directed solely at application of the NLRA to insurance-firm

employees and not to other interactions between the NLRA

and state insurance laws (385 Mass. at 614 n.25, 433 N.E.2d at

1232 n.25, App. at 30a n.25) seems to be entirely that court’s

creation, without support in either the language or the legisla-

tive history of Section 4.

"Cf. Group Life & Health Ins. Co. v. Royal Drug Co., 440 U.S. 205

(1979) (Blue Shield Pharmacy Agreements, which are referred to in Blue

Shield insurance contracts to determine the level of reimbursement for

prescription drugs, are not exempt from antitrust laws as “the business of

insurance” under the McCarran-Ferguson Act, particularly in light of the

principle that exemptions from the antitrust laws are to be narrowly con-

strued ); Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119 (1982) (same:

rendering of opinions by chiropractors’ peer review committee concerning

whether particular services are covered by insurance policies ).

18

Accordingly, neither of the grounds cited by the lower

court for disregarding Oliver has merit, and this Court should

hold that Section 47B, as applied to collectively-bargained

plans, is pre-empted by the NLRA.'2 This issue need not be

reached, however, if the Massachusetts Supreme Judicial

Court’s holding as to ERISA pre-emption is reversed.

CONCLUSION

The decision below should be reversed.

Respectfully submitted,

JOHN M. VINE

(Counsel of Record)

ARVID E. Roach Il

Covington & Burling

1201 Pennsylvania Avenue, N.W.

P.O. Box 7566

Washington, D.C. 20044

(202) 662-6000

Attorneys for

The ERISA Industry Committee

December 20, 1984

12 Accord, Hutchinson & Ifshin, supra note 9, at 74-75; see also Blue

Cross & Blue Shield of Alabama v. Peacock’s Apothecary, Inc., 567 F. Supp.

1258, 1277 (N.D. Ala. 1983).

APPENDIX

la

MEMBERS OF THE ERISA INDUSTRY COMMITTEE

Aetna Life and Casualty Compan:

Alexander & Alexander Services, Inc.

Allied Corporation

Aluminum Company of America

AMAX Inc.

American Telephone & Telegraph Company

Apache Corporation

ASARCO Incorporated

Atlantic Richfield Company

Bankers Trust Company

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

Bell Communications Research

Bell South Corporation

Bethlehem Steel Corporation

The Boeing Company

Bristol-Myers Company

Buck Consultants, Inc.

Caterpillar Tractor Co.

Champion International Corporation

The Chase Manhattan Bank, N.A.

Ciba-Geigy Corporation

Citibank, N.A.

The Coca-Cola Company

Columbia Gas System Service Corp.

Combustion Engineering, Inc.

Connecticut General Life Insurance Co.

2a

Consolidated Foods Corporation

The Continental Group, Inc.

Coopers & Lybrand

Dart & Kraft Inc.

Deere. & Company

Delta Air Lines Inc.

Digital Equipment Corp.

R. R. Donnelley & Sons Company

The Dow Chemical Company

Dresser Industries, Inc.

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

Eastman Kodak Company

Eli Lilly and Company

Equitable Life Assurance Society of the United States

Esmark, Inc.

Exxon Corporation

Federated Department Stores, Inc.

FMC Corporation

Ford Motor Company

General Electric Company

General Mills, Inc.

General Motors Corporation

W. R. Grace & Co.

The Greyhound Corporation

Grumman Corporation

GTE Corporation

Gulf & Western Industries, Inc.

3a

Frank B. Hall Consulting Company

John Hancock Mutual Life Insurance Co.

A. S. Hansen, Inc.

Hazlehurst & Associates, Inc.

H. J. Heinz Company

Hewitt Associates

Honeywell Inc.

ICI Americas, Inc.

Ingersoll-Rand Company

International Business Machines Corporation

International Harvester Company

International Telephone & Telegraph Corporation

Internorth, Inc.

Johnson & Higgins, Inc.

Johnson & Johnson

Knight-Ridder Newspapers, Inc.

The LTV Corporation

Manufacturers Hanover Trust Company

William M. Mercer, Inc.

Metropolitan Life Insurance Company

Minnesota Mining & Manufacturing Co.

Mobil Oil Corporation

Monsanto Company

Mutual of America

NYNEX Corporation

Jccidental Petroleum Services, Inc.

Olin Corporation

4a

Owens-Corning Fiberglas Corporation

Owens-Illinois, Inc.

J. C. Penney Company, Inc.

Pennzoil Company

PPG Industries, Inc.

Procter & Gamble Company

The Prudential Insurance Company of America

Ralston Purina Company

RCA Corporation

Republic Steel Corporation

R. J. Reynolds Industries, Inc.

Rockwell International

Sears, Roebuck and Co.

Shell Oil Company

The Southland Corporation

Sperry Corporation

Standard Oil Company of California

Standard Oil Company of Indiana

Standard Oil Company of Ohio

Sun Company, Inc.

Tampa Electric Company

Tenneco Inc.

Texaco Inc.

Textron Inc.

Time Incorporated

Towers, Perrin, Forster & Crosby Inc.

The Travelers Insurance Company

Sa

TRW Inc.

Union Camp Corporation

Union Carbide Corporation

United States Steel Corporation

United States Tobacco Company

United Technologies Corporation

Unocal Corporation

Westinghouse Electric Corporation

The Wyatt Company

Xerox Corporation

— oe 2

CERTIFICATE OF SERVICE

I certify that on this 20th day of December 1984 I served

the foregoing brief on each of the parties by sending three

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

Sally A. Kelly, Esq.

Administrative Counsel to the

Attorney General

Commonwealth of Massachusetts

Twentieth Floor

One Ashburton Place

Boston, Massachusetts 02108

Jay Greenfield, Esq.

Paul, Weiss, Rifkind, Wharton & Garrison

345 Park Avenue

New York, New York 10154

Steven A. Kaufman, Esq.

Ropes & Gray

225 Franklin Street

Boston, Massachusetts 02110

Arvid E. Roach II