Amicus Curiae Brief — Massachusetts Mutual Life Insurance v. Russell

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\) | ov 15 1984

No. 84.9

In The

Supreme Court of the United States

October Term, 1983

fry

MASSACHUSETTS MUTUAL LIFE INSURANCE

COMPANY, and CECILIA STEVENSON,

Petitioners.

vs.

DORIS RUSSELL,

Respondent.

ry.

On Writ of Certiorari to the United States

Court of Appeals for the Ninth Circuit

BRIEF OF AMICI CURIAE PIPE TRUST,

IBEW-NECA TRUST, AIRCONDITIONING TRUST,

AND FLOOR COVERING TRUST IN SUPPORT

OF PETITIONERS

-~o—

Srvart H. Youna, Jr.

(Counsel of Record)

Hu, Farrer & BurriLu

34th Floor - Union Bank Square

445 South Figueroa Street

Los Angeles, California 9007:.

Telephone: (213) 620-0460

Attorneys for Amici Curiae

November 15, 1984

COCKLE LAW BRIEF PRINTING CO., (800) 835-7427 Ext. 333

TABL. OF CONTENTS

Page

Interest of Amici 1

Summary of Argument 6

Argument:

The Court of Appeals’ Holding is Inconsistent With

The Federal Regulatory Scheme Governing Multi-

employer, Taft-Hartley Trust Funds

Exposing Individual Fiduciaries to Punitive Damages

In Benefit Claims Cases Will Jeopardize The Entire

Field of Trust Funds, Since Such Damages Are Un-

insurable In Many Jurisdictions

Ill

A Court Should Not Imply A Congressional Intent To

Permit The Recovery of Punitive Damages, Where

Such Relief Will Impact Disparately Among the

Several States

The J_diciary Should Not Fashion New Remedies In

The Face of A Comprehensive Legislative Scheme

Conclusion

TABLE OF AUTHORITIES CITED

Cases

Page

Abbie Uriquen Oldsmobile Buick, Inc. v. United

States Fire Ins. Co., 95 Idaho 501, 511 P.2d 783

(1973) 15

Amato v. Bernard, 618 F.2d 559 (9th Cir. 1980) 0000. = 7

American Ins. Co. v. Saulnier, 242 F.Supp. 257

(D.C. Conn. 1965) 15

American Surety Co. v. Gold, 375 F.2d 523 (10th

Cir. 1966) 16

Anthory v. Frith, 394 8.2d 867 (1981) 15

Beaver v. Country Mutual Ins. Co., 95 Ill.App.3d

1122, 420 N.K.2d 1058 (1981) 15

California Union Ins. Co. v. Arkansas Louisiana Gas

Co., 264 Ark. 449, 572 S.W.2d 393 (1978) 15

Cedar Rapids v. Northwestern Nat. Ins. Co., 304

N.W.2d 228 (1981) i

Chemical Workers Local 1 v. Pittsburg Plate Glzss

Co., 404 U.S. 157 9

City Products Corp. v. Globe Indemnity Co., 88

Cal.App.3d 31 (1979) 13, 14

Continental Ins. Co. v. Hancock, 507 S.W.2d 146 (1973) 15

Crull v. Gleb, 382 S.W.2d 17 (1964) 16

Dorsey v. Honda Motor Co., 655 F.2d 650 (5th Cir.

1981) . 15

Electrical Workers v. Foust, 442 U.S. 60 (1979)_.10, 11

Esmond v. Liscio, 209 Pa. Super. 200, 224 A.2d 793 :

(1966) 16

Fagot v. Ciravola, 445 F. Supp. 342 (E.D. La. 1978)... 15

First National Bank v. Fidelity & Deposit Co., 283

Md. 228, 389 A.2d 359 (1978) 15

iil

TABLE oF AvuTHORITIES Crrep

CAsEs

Page

Ford Motor Co. v. Home Insurance Co., 116 Cal.

App.3d 374 (1981) 13

Grant v. North River Ins. Co., 453 F.Supp. 1361

(N.D. Ind. 1978) 15

Greenwood Cemetery, Inc. v. Travelers Indemn.

Co., 238 Ga. 313, 232 S.E.2d 910 (1977) 15

Harrell v. Travelers Indemn. Co., 279 Or. 199,

567 P.2d 1013 (1977) 15

Hensley v. Erie Ins. Co., 283 8.E.2d 227 (1981)... 15

Hurn v. Retirement Fund Trust, 803 F.2d 386 (9th

Cir. 1983) 9

Lazenby v. Universal Underwriters Ins. Co., 214

Tenn. 639, 383 S.W.2d 1 (1964) 15

Louis Moot v. Retirement Fund Trust, ete., et al.,

Civ. No. 84-3411 HLH (C.D. Cal.) 5

NLRB v. Amax Coal Co., 453 U.S. 322 (1981) —...3, 7, 11

N.rthwest Airlines v. Transport Workers Union,

451 U.S. 77 (1981) 17

Northwestern National Casualty Co., 307 F.2d 432

(5th Cir. 1962) 14, 16

Parker v. Agricultural Ins. Co., 109 Mise.2d 678,

440 N.Y.S.2d 964 (1981) 16

Peterson v. Superior Court, 31 Cal.App.3d 147

(1982) 13

Price v. Hartford Accident & Indemnity Co., 108

Ariz. 485, 502 P.2d 522 (1972) 15

Rehmar v. Smith, 555 F.2d 1362 (9th Cir. 1976)... 9

Ridgway v. Gulf Life Ins. Co., 578 F.2d 1026 (5th

Cir. 1978) 15

TaBLe or AuTHorities CITED

CaSEs

Page

Russell v. Massachusetts Mutual Life Insurance Com-

pany, 722 F.2d 482 (9th Cir. 1983) 6, 8, 11

Scheider v. United States Steel Corp., 486 F.Supp.

211 (W.D. Pa. 1980)

State v. Glens Falls Ins. Co., 137 Vt. 313, 404 A.2d

101 (1979)

Texas Industries v. Radcliffe, 451 U.S. 630 (1981)...

UMW Health & Retirement Funds v. Robinson, 455

U.S. 562 (1982)

Universal Indem. Ins. Co. v. Tenery, 96 Colo. 10,

39 P.2d 776 (1934)

Vaca v. Sipes, 386 U.S. 171 (1967)

Variety Farms, Inc. v. New Jersey Mfrs. Ins. Co.,

172 N.J. Super. 10, 410 A.2d 696 (1980)

Williams v. Pacific Marine Association, 421 F.2d

1287 (9th Cir. 1970)

Wojciak v. Northern Package Corp., 310 N.W.2d

675 (1981)

MISCELLANEOUS

Comptroller General of the United States, Report

to the Congress, GAO/HRD-84-1, at 8 (1984) 0.

Rvutes

Rules of the United States Supreme Court, Rule 36.2 _

TaBLe OF AUTHORITIES CITED

Page

REGULATIONS

Code of Federal Regulatioss, Title 29, Sec. 2560.503-

1(h) 6

Code of Federal Regulations, Title 29, See. 2560.503-

1‘h) (4) 7

SraTUTEs

California Civil Code, Sec. 1668 13

California Insurance Code, See. 533 13

Employee Retirement Income Security Act of 1974,

See. 3(3) (29 U.S.C. See. 1002(3) ) 3

Employee Retirement Income Security Act of 1974,

See. 3(21)(A) (29 U.S.C. See. 1002(21)(A)) 4

Employee Retirement Income aw Act of 1974,

Sec. 409 (29 U.S.C. See. 1109) ... ieee

Employee Retirement Income Security Act of 1974,

i. 410 (29 U.S.C. See. 1110) a

Employee Retirement Income Security Act of 1974,

See. 502(a)(1)(B) (29 U.S.C. See. 1132(a)(1)(B)).. 10

Kimployee Retirement Income Security Act cf 1974,

See. 502(a)(2) (29 U.S.C. See. 1132(a)(2)) ———--._

Employee Retirement Income Security Act of 1974,

See. 503 (29 U.S.C. See. 1133) 6

Labor-Management Relations Act, Sec. 301 (29 U.S.C.

See. 185) 9, 10

Labor-Management Relations Act, Sec. 302(¢) (5)

29 U.S.C. See. 186(¢) (5) ) 3, 7, 8, 9, 10, 17

(

United States Code, Title 29, Sec. 1001 6

TaBLe oF AuTHorRITIES CITED

Page

Sratutes—Continued

Employee Retirement Income Security Act of 1974,

Sec. 501 (29 U.S.C. Sec. 1131) 17

Employee Retirement Income Security Act of 1974,

Sec. 502(a)(1)(A), (a)(4), and (ce) (29 U.S.C.

Sec. 1132(a) (1) (A), (2) (4) ered (0) ence nneeceeeceeneeeeeeenernee 17

Employee Retirement Income Security Act of 1974,

See. 502(g)(1) (29 U.S.C. See. 1132(g)(1)) 17

No. 84-9

In The

Supreme Court of the United States

October Term, 1983

MASSACHUSETTS MUTUAL LIFE INSURANCE

COMPANY, and CECILIA STEVENSON,

Petitioners,

vs.

DORIS RUSSELL,

Respondent.

fy.

On Writ of Certiorari to the United States

Court of Appeals for the Ninth Circuit

sY.

_—

BRIEF OF AMICI CURIAE PIPE TRUST,

IBEW-NECA TRUST, AIRCONDITIONING TRUST,

AND FLOOR COVERING TRUST IN SUPPORT

OF PETITIONERS

‘ INTEREST OF AMICI CURIAE

It is, undoubtedly, common practice for litigants to

sound alarums before this Court in hope of persuading

the Court that their cause, among all other causes, is

worthy of the Court’s attention. We refuse to dissemble

this Court by urging that lives may hang in the balance

upon the instant cause, or that it rises to the level of

eliciting some grave constitutional pronouncement. At

the same time, and at the risk of being classed with those

who would ery wolf, this Court should not remain unsus-

pecting about the grave consequences which will surely

attend the ruling of the Court of Appeals: An enterprise

carefully nurtured since its infancy with Congressional

succor, and just now achieving its maturity, will cease to

be in any form remotely approaching its historical per-

sona. The Amici Curiae have been and hope to remain

a part of that enterprise.

Pursuant to Rule 36.2 of the Rules of this Court, and

with the written consent of the parties, this Brief is filed

jointly on behalf of four Trust Funds: The Southern

California Pipe Trades Trust Funds (‘‘Pipe Trust’’),

The Southern California IBEW-NECA Trust Funds

(““IBEW-NECA Trust’’), the Airconditioning and Re-

frigeration Industry Trust Funds (‘Airconditioning

Trust’), and The Southern California Floor Covering

Trust Funds (‘‘Floor Covering Trust”), hereinafter some-

times referred to collectively as the ‘‘Trust Funds.” By

an Order entered October 1, 1984, this Court previously

granted, inter alia, the Motio.. of these Amici Curiae for

leave to file a brief in support of granting a petition for

a writ of certiorari in the instant matter. The petition

was granted by an Order entered on the same date.

Fach of these Amici Curiae Trust Funds is situated

in California and was created as a result of collective

bargaining on a multiemployer basis between labor and

management. Thus, for example, the Pipe Trust was

created in about 1957 as a result of collective bargaining

between the Southern California Pipe Trades District

Council No. 16 of the United Association for and on be-

half of its affiliated locai unions and the precessor mu!ti-

employer association to the Plumbing & Piping Industry

Council. The IBEW-NECA Trust, as another example,

was created in about 1965 as a result of collective bar-

gaining between Local Union No. 11 International Bro-

therhood of Electrical Workers, AFL-CIO, and the Los

Angeles County Chapter, National Electrical Contractors

Association. Each of these Trust Funds, under separate

trust indentures, provides both health and welfare bene-

fits and pension benef‘ts to tens of thousands of eligible

participants. Each of the Trust Funds is also an ‘‘em-

ployee benefit plan,’’ within the meaning of Section 3(3)

of the Employee Retirement Income Security Act of 1974

(“ERISA’’), as amended, 29 U.S.C. §1002(3), and is,

therefore, regulated by ERISA.

In addition to being regulated by ERISA, each of

these Trust Funds is a so-called ‘‘Taft-Hartley’’ trust

fund, meaning that each was created under the aegis of

Section 302(c)(5) of the Labor-Management Relations

Act, 29 U.S.C. Section 186(c)(5). Section 302(¢)(5),

among other things, requires and has always required,

that ‘‘employees and employers [be] equally represented

in the administration” of Taft-Hartley pension and

health and welfare funds. NLRB v. Amaz Coal Co., 453

U.S. 322, 329 (1981). Pursuant to this statutory mandate,

the labor organizations and employers who created the

instant Trusts have historically appointed their respec-

tive representatives to serve as trustees on these Trusts.

There are, and have been, 14 such Trustee represen-

tatives on the Pipe Trust, 14 on the IBEW-NECA Trust

(pension), 6 on the Airconditioning Trust, and 6 on the

Floor Covering Trust. Each of these Trustees is a fidu-

ciary within the meaning of Section 3(21)(A) of ERISA,

29 U.S.C. § 1002(21)(A). These Trustee representatives

are not professionals, in the sense of receiving compen-

sation for serving in the capacity of Trustee or even in

the sense of devoting a full-time effort to the position of

Trustee. On the contrary, almost all Trustees are em-

ployed full-time elsewhere, either by a participating la-

bor organization or by a contributing employer. Accord-

ingly, their service to the respective Tr, st Funds as Trus-

tee is on a volunteer basis and arises out of their per-

sonal commitment to better the industry. The position

of Trustee, is, by its nature, a part-time position, car-

ried out in addition to duties and responsibilities else-

where. While the position is part-time, the Trustees none-

theless carve out of their working life an enormous amount

of time and energy to devote to this volunteer effort.

Thus, each Trustee devotes in excess of 40 hours per

month to the affairs of the Trust Funds, preparing for

and attending meetings of the Trustees as a whole, as

well as various committee meetings such as administra-

tive, delinquency, appeals, investment (or finance), and

building committees.

The Court of Appeals held that, under KRISA, a

fiducary is personally liable for punitive damages and

extra-contractual compensatory relief in actions brought

by plan participants arising out of claims for benefits.

These Amici Curiae are vitally interested in the outcome

of this matter, since, under the direction of the Trustees,

the Trust Funds annually handle hundreds of thousands

of claims for benefits by participants and their depen-

dents. During the 1983 calendar year, the Pipe Trust

received 259,328 health and welfare claims and 339 pen-

sion applications; the Airconditioning Trust received

45,844 health and welfare claims and 35 pension applica-

tions; and the Floor Covering Trust received 8,751 health

and welfare claims and 45 pension applications. During

the 1983-4 fiscal year, the IBEW-NECA Trust received

141,909 health and welfare claims and 34 pension appli-

cations. Therefore, during a 12-month period, these four

Trust Funds alone processed a total of 455,832 health and

welfare claims and received 723 pension applications. Not

all of these applicants and claimants, of course, are happy

with the manner in which their claim or application is

processed. There can be no doubt that the promise of

punitive damages and extra-contractual compensatory

relief held out by the Court below will inspire or induce

a greater proportion of these unhappy claima~‘s to seek

judicial relief, most likely in federal court. y one-

tenth of one percent of these claims give ris litiga-

tion, the courts will be flooded with over 4° Lis per

year with respect to these four Trust Funds alone. More-

over, the personal assets of volunteer trustees will be ex-

posed many times over. This is not by any means an idle

fear: Following on the heels of the publication of the

Court of Appeals opinion, the Pipe Trust was served

with a summons and complaint in a case encaptioned

Louis Moot v. Retirement Fund Trust, etc., et al., CIV

No. 843411 HLH (C.D. Cal.) in which 13 of the Pipe

Trust’s Trustees are named as individual defendants. The

plaintiff, who alleges that he was improperly denied cer-

tain benefits, seeks damages for ‘‘physical and mental

pain and suffering” in the sum of $125,000 and punitive

damages ‘‘in a sum equal to 25% of the net worth of each

Aefendant.” The Amici Curiae, therefore, have a plain

and immediate interest in the outcome of this case.

They are not alone. According to a recent report by

the Comptroller General, there are 1,924 multiemployer

trusts nationwide which have a minimum of 100 partici-

pants. In total, there are almost 814 million participants

in these 1,924 trusts. Comptroller General of the United

States, Report to the Congress, GAO/HRD-84-1, at

8(1984). Assuming the claims experience of these trusts

is not dissimilar to that of the Amici Curiae, the federal

courts nationwide will likely enjoy an annual influx of

thousands of benefit claims cases if the opinion of the

Ninth Circuit remains the law. Even if a plaintiff has

no genuine expectation of recovering a bonanza in punitive

relief, a well-pleaded prayer for exemplary damages is an

effective form of ‘‘graymail” to exact a settlement in an

otherwise dubious claim.

—— '

—_

SUMMARY OF ARGUMENT

The Court of Appeals, in Russell v. Massachusetts

Mutual Life Insurance Company, 722 F.2d 482 (9th Cir.

1983) held that individual fiduciaries are personally liable

to plan participants for punitive and extra-contractual

compensatory damages under the Employee Retirement

Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001

et seq., in a case arising out of the untimely disposition

of a benefit claim. The Court of Appeals found this time-

less requirement in the provisions of Section 503 of

ERISA, 29 U.S.C. Section 1133, and, in particular, in the

regulation promulgated thereunder by the Secretary of La-

bor at 29 CFR Section 2560.503-1(h). This regulation, as

the Court of Appeals notes, requires that benefit decisions

be made “promptly,” but in any event no later than 120

days from the ‘‘receipt of a request for review.” Id. at

489. Failure to meet this time deadline, so the Court

held, is a breach of fiduciary duty and exposes individual

fiduciaries to the spectre of potentially enormous personal

liability. The Court reached this conclusion notwithstand-

ing the fact that the very same regulations issued by the

Secretary of Labor provide that if a benefit decision is

not rendered within the time required, “the claim shall

be deemed denied.” 29 CFR § 2560.503-1(h)(4). This is

the only remedy the Secretary of Labor contemplated for

untimely action upon a benefit claim, and was undoubted-

ly drafted so as to permit participants to avoid a conten-

tion that they failed to exhaust their administrative reme-

dies in the event they bring suit after the passage of 120

days. Amato v. Bernard, 618 F.2d 559 (9th Cir. 1980);

Scheider v. United States Steel Corp., 486 F.Supp. 211

(W.D. Pa 1980).

Amici Curiae contend that in reaching its decision,

the Court of Appeals failed to take into account the re-

quirements of Section 302(c)(5) of the Labor-Manage-

ment Relations Act and the express Congressional

policy favoring multiemployers trusts. NLRB v. Amax

Coal Co., 453 U.S. at 338 n. 22. Moreover, by implying

new remedies into a comprehensive statutory scheme, the

Court of Appeals ignored the disparate impact its ruling

would have among the several states, despite the clear

Congressional purpose of achieving vniformity in the regu-

lation of Taft-Hartley Trust Funds and contrary to prior

rulings of this Court in analogous circumstances.

——

ARGUMENT

The Court of Appeals’ holding is inconsistent

with the Federal Regulatory Scheme governing

Multiemployer, Taft-Hartley Trust Funds.

There is no mention of Section 302(¢)(5) of the

Labor-Management Relations Act in the opinion of the

Court of Appeals. Similarly, there is no mention of multi-

employer trust funds. Yet, it seems clear that the ruling

of the Court of Appeals applies to all persons regulated

by ERISA, including the fiduciary-trustees of multiem-

plover Taft-Hartley funds, such as these Amici Curiae.

The Court of Appeals’ failure to consider the rela-

tionship of Section 302(c)(5) to ERISA led that Court

to embrace certain plainly erroneous premises. Moreover,

these fallacious premises served as the underpinnings for

its ultimate conclusion which, it is urged, betrays those

faulty premises. For example, the Court of Appeals

noted that ‘‘ERISA was intended to serve as a substi-

tute for various existing state protective laws and regu-

lations . .. It would be anomalous if Congress eliminated

the protections offered by state law without providing

comparable federal protections. ’’ Russell v. Massachu-

setts Mutual, 722 F.2d at 488.

However, it is clear that multiemployer Taft-Hartley

trust funds were regulated by federal law, to the exclu-

sion of state law, long prior to the passage of ERISA.

Moreover, this regulation by federal laws other than

ERISA has not been supplanted by ERISA. On the con-

trary, it continues to date and must, therefore, be re-

conciled with ERISA.

In a pre-ERISA suit seeking benefits from a Taft-

Hartley trust fund, the Ninth Cireuit itself held that state

laws pertaining to commercial insurance contracts are

‘‘not consistent with the federal policy of treating parties

to collective bargaining contracts as parties of equal

strength.” Rehmer v. Smith, 555 F.2d 1362, 1369 (9th

Cir. 1976).

Some thirteen years ago, this Court observed that

under Section 301 of the Labor-Management Relations

Act, 29 U.S.C. Section 185, retirees have a cause of ac-

tion in the context of a Taft-Hartley Trust Fund for

breach of the obligation to pay pension benefits. Chemt-

cal Workers Local 1 v. Pittsburg Plate Glass Co., 404 US.

157, at 176-77 n. 17. It has also been held that punitive

damages are not available under Section 301. Williams v.

Pacific Marine Association, 421 F.2d 1287 (9th Cir. 1970).

Therefore, contrary to the pronouncement of the Court of

Appeals, the protections afforded participants in Taft-

Hartley trust funds prior to ERISA were offered by fed-

eral law, not state law. These protections did not encom-

pass punitive relief. Accordingly, when Congress enacted

ERISA, it did not supplant state law to the disadvantage

of participants in Taft-Hartley Funds. As to these funds,

ERISA did no more than augment existing federal regu-

lation.

In addition, this Court and the Ninth Cireuit have

both stated that ERISA did not supplant Section

302(c)(5). UMW Health & Retirement Funds v. Robin-

son, 455 U.S. 562, 575 (1982); Hurn v. Retirement Fund

Trust, 803 F.2d 386, 391 (9th Cir. 1983). As the Court in

Hurn put it, “ERISA was not to affect any federal laws

not specifically mentioned.’’ Id.

In view of this on-going federal regulation of multi-

employer trust funds, and the solicitious attitude of Con-

gress towards these funds, it is peculiar that the Court

of Appeals should adopt a rule at this late date which

may ultimately lead to the demise of such funds. The

imposition of punitive damages upon individual trustees

of these funds is, it is submitted, plainly at odds with

Section 301 and Section 302(c)(5) and the decisions of

this Court thereunder. This conflict created by the deci-

sion of the Court of Appeals is exacerbated by the Court’s

discussion of the duties imposed by ERISA regarding the

processing of benefit claims. The Court notes that these

duties are in part identical to standards imposed upon

labor organizations under Vaca v. Sipes, 386 U.S. 171

(1967) and its progeny. Yet this court has unequivocally

held that punitive damages are unavailable in breach of

fair representation cases. Electrical Workers v. Foust,

442 U.S. 60 (1979). It is difficult to imagine that Congress

intended individual fiducaries to process claims with the

same or similar standard of care obtaining in fair repre-

sentation cases, and at the same time intended that dis-

gruntled benefit claimants could secure punitive relief

against individual Taft-Hartley trustees. Therefore, these

Amici Curiae urge the Court to reconcile this conflict

created by the Court of Appeals.

Exposing individual fiduciaries to punitive dam-

ages in benefit claims cases will jeopardize the

entire field of trust funds, since such damages are

uninsurable in many jurisdictions.

ERISA contains an express statutory provision gov-

erning suits by participants arising out of claims for bene-

fits [ERISA Section 502(a)(1)(B), 29 U.S.C. Section

1132(A)(1)(B)]}. Despite this express statutory scheme,

the Court of Appeals held that a participant may elect to

characterize a denial of benefits as a breach of fiduciary

duty. As such, so the Court of Appeals held, the partici-

pant may sue under ERISA Section 502(a)(2), 29 U.S.C.

Section 1132(a)(2) and obtain for his or her own account

the ‘‘remedial relief” against fiduciaries referred to in

ERISA Section 409, 29 U.S.C. Section 1109. The Court of

Appeals further concluded that this ‘‘remedial relief”

encompassed both compensatory damages (such as dam-

ages for mental and emotional distress) and punitive dam-

ages. The Court of Appeals reached this conclusion not-

withstanding the possibility that a punitive award could

impair the stability of Taft-Hartley funds, ef. Electrical

Workers v. Foust, 442 U.S. at 705, and notwithstanding

the express Congressional policy of favoring multiem-

ployer trusts. NLRB v. Amax Coal Co., 453 U.S. at 338

n. 22,

In finding that the ‘‘remedial relief” available to

benefit claimants encompassed compensatory damages,

the Court of Appeals noted that such damages were re-

coverable against the fiduciary personally, and not as

against the benefit plan itself. Russell v. Massachusetts

Mutual, 722 F.2d at 490, n. 8. Of course, in this ease, the

only fiduciary sued was Massachusetts Mutual Life In-

surance Company, as distinguished from the individual

members of the company’s disability committee. Accord-

ingly, the only ‘‘personal’’ liability which might attach in

the instant case will be borne by an entity, as distinguished

from any individual. Nevertheless, the Court of Appeals’

rationale applies equally to individuals, such as the Trus-

tees of these trust funds, where they occupy fiduciary

positions and are named defendants. Apparently, in the

belief that it was softening the blow behind its holding,

the Court of Appeals observed that “ERISA does allow

for certain forms of fiduciary indemnification under Sec-

tion 1110.” Id.

Section 410 of ERISA, 29 U.S.C. Secticn 1110, how-

ever, does not in fact provide for ‘‘fiduciary indemnifi-

cation” in the traditional sense of the ~hrase. On the con-

trary, ERISA made unlawful exculpat: -y clauses histori-

cally employed in trust indentures, designed to insulate

trustees from personal liability. Thus, Section 410 express-

ly provides, in relevant part, that ‘‘any provision in an

agreement or instrument which purports to relieve a fidu-

ciary from responsibility or liability for any responsibility,

obligation, or duty under this part [Part 4 of ERISA, en-

titled ‘‘Fiduciary Responsibility”] shall be void as against

public policy.’’ Section 410 does go on to provide that a

plan may purchase insurance for itself or for its fidu-

ciaries, so long as such insurance ‘permits recourse by

the insurer against the fiduciary in case of a breach of a

fiduciary obligation by such fiduciary.” In addition, un-

der Section 410, fiduciaries are permitted to buy their

own insurance, or employers or unions are permitted to

buy insurance for the fiduciary. In short, pursuant to

Section 410, a fiduciary is permitted to obtain liability

insurance, so long as someone other than the plan pays

the premium. Insurance may be available to protect an

individual trustee against claims by participants for com-

pensatory damages. However, it will be noted that the

Court of Appeals did not drop any such palliative foot-

note when it concluded that individual fiduciaries were

also exposed to punitive damages in benefit claims cases.

This is so because, at least in the State of California where

the instant ease arose, an insurance carrier is barred by

both statutory and decisional law from providing insur-

ance against punitive damages.

Thus, California Civil Code § 1668 provides as fol-

lows: |

**§ 1668. Contracts contrary to policy of law.

CERTAIN CONTRACTS UNLAWFUL. All con-

tracts which have for their object, directly or indi-

rectly, to exempt anyone from responsibility for his

own fraud, or wilful injury to the person or property

of another, or violation of law, whether wilful or negli-

gent, are aga’nst the policy of law.”

§ 533 of the California Insurance Code similarly pro-

vides as follows:

§ 533. Wilful act of insured; negligence.

An insurer is not liable for a loss caused hy the

wilful act of the insured; but he is not exonerated by

the negligence of the insured, or the insured’s agent

or others.”

The California courts have concluded that these two

code sections prevent an individual from insuring against

punitive damages. City Products Corp. v. Globe Indem-

nity Co., 88 Cal.App.3d 31 (1979); Ford Motor Co. v. Home

Insurance Co., 116 Cal.App.3d 374 (1981); Peterson v.

Superior Court, 31 Cal.App.3d 147 (1982). Moreover, even

if a policy of insurance by its terms expressly includes

coverage for punitive damages, an insurance carrier is

still not liable to indemify an insured against a judgment

for punitive damages. Thus, in the City Products case,

for example, the policy in dispute covered ‘‘all swms the

insured shall become legally obligated to pay as damages.”

[Emphasis supplied] Jd. at 33. Notwithstanding the

breadth of coverage contained in the contract of insurance,

the court in City Products reasoned as follows:

‘‘The policy considerations in a state where ... puni-

tive damages are awarded for punishment and deter-

rence, would seem to require that the damages rest

ultimately as well as nominally on the party actually

responsible for the wrong. If that person were per-

mitted to shift the burden to an insurance company,

punitive damages would serve no useful purpose.

Such damages do not compensate the plaintiff for

his injury, as compensatory damages already have

made the plaintiff whole.’’

City Products, 88 Cal.App.3d 31, 39, quoting Northwest-

ern National Casualty Co., 307 F.2d 432 (5th Cir. 1962).

Accordingly, in California, punitive damages imposed

under the standard enunciated by the Court of Appeals

will rest ultimately as well as nominally on the individual

Tatt-Hartley trustees who have volunteered their time

for the betterment of the industry. The im terrorem etfect

of being exposed to such personal financial jeopardy, in

the face of ultimate responsibility for processing hun-

dreds of thousands of claims, will deter all but the most

doughty — or the most foolhardy — from serving a

trusteeship.

Ill

A court should not imply a Congressional intent to

permit the recovery of punitive damages, where

such relief will impact disparately among the sev-

eral states.

While California will leave Tafi-Hartley trustees

personally exposed to punitive damages, in other juris-

dictions individuals fiduciaries will not function under

such a spectre. Thus, at least 14 states have concluded

that an individual may insure against punitive damages:

(1) Arizona, Price v. Hartford Accident & Indemnity Co.,

108 Ariz. 485, 502 P.2d 522 (1972); (2) Arkansas, Califor-

nut Union Ins. Co. v. Arkansas Louisiana Gas Co., 264

Ark. 449, 572 S.W.2d 393 (1978); (3) Georgia, Green-

wood Cemetery, Inc. v. Travelers Indem. Co., 238 Ga. 313,

232 S.E.2d 910 (1977); (4) Idaho, Abbie Uriquen Oldsmo-

bile Buick, Inc. v. United States Fire Ins. Co., 95 Idaho

d01, 511 P.2d 783 (1973); (5) Llowa, Cedar Rapids v.

Northwestern Nat. Ins. Co., 304 N.W.2d 228 (1981); (6)

Kentucky, Continental Ins. Co. v. Hancock, 507 S.W.2d 146

(1973); (7) Louisiana, Fagot v. Ciravola, 445 F.Supp. 342

(ED La 1978); (8) Maryland, First National Bank v.

Fidelity & Deposit Co., 283 Md. 228, 389 A.2d 359 (1978) ;

(9) Mississippi, Anthony v. Frith, 394 8.2d 867 (1981);

(10) Oregon, Harrell v. Travelers Indemn. Co., 279 Or.

199, 567 P.2d 1013 (1977); (11) Tennessee, Lazenby v.

Universal Underwriters Ins. Co., 214 Tenn. 639, 383 S.W.2d

1 (1964); (12) Texas, Ridgway v. Gulf Life Ins. Co., 578

F.2d 1026 (Sth Cir. 1978); (13) Vermont, State v. Glens

Falis Ins. Co., 137 Vt. 313, 404 A.2d 101 (1979); (14) West

Virginia, Hensley v. Erie Ims. Co., 283 8.E.2d 227 (1981).

On the other hand, and in addition to California, at

least 12 states have concluded that liability insurance

coverage for an award of punitive damages is void as

against public policy: (1) Colorado, Universal Indem. Ins.

Co. v. Tenery, 96 Colo. 10, 39 P.2d 776 (1934); (2) Con-

necticut, American Ins. Co. v. Saulnier, 242 F.Supp. 257

(D.C. Conn. 1965); (3) Florida, Dorsey v. Honda Motor

Co., 655 F.2d 650 (5th Cir. 1981); (4) Illinois, Beaver v.

Country Mutual Ins. Co., 95 Ill. App.3d 1122, 420 N.E.2d

1058 (1981); (5) Indiana, Grant v. North River Ins. Co.,

453 F.Supp. 1361 (N.D. Ind. 1978): (6) Kansas, 4 mertcan

Surety Co. v. Gold, 375 F.2d 523 (10th Cir .966); (7) Min-

nesota, Wojciak v. Northern Package Corp., 310 N.W.2d

675 (1981); (8) Missouri, Crull v. Gleb, 382 S.W.2d 17

(1964); (9) New Jersey, Variety Farms, Inc. v. New

Jersey Mfrs. Ins. Co., 172 N.J.Super 10, 410 A.2d 696

(1980); (10) New York, Parker v. Agricultural Ins. Co.,

109 Mise.2d 678, 440 N.Y.S.2d 964 (1981); (11) Pennsyl-

vania, Esmond v. Liscio, 209 Pa. Super. 200, 224 A.2d 793

(1966); (12) Virginia, Northwestern Natl. Casualty Co.

v. McNulty, 307 F.2d 432 (5th Cir. 1962).

Based on the foregoing, it is clear that the rule

adopted by the Court of Appeals, were it to be embraced

by other Cireuits (which it has not), would fall unevenly

upon individual fiduciaries, depending on the fortuity of

which state law governed the terms of any contract of in-

surance. The Court of Appeals ruling will even have a

disparate impact within the Ninth Cireuit, for it will be

noted from the foregoing that the states of Arizona,

Idaho and Oregon each permit insurance against punitive

damages, whereas California does not.

It may be urged that the argument herein cuts too

far, for if adopted it would preclude Congress from ever

enacting a statute calling for punitive relief because of

the disparate impact such a statute may have among the

several states. However, such a broad proposition is not

advocated herein. Rather, because of the disparate im-

pact among the several states, it should not lightly be

presumed that Congress intended punitive relief be avail-

able, particularly where, as in the instant case, there is

seanty evidence of any such Congressional intention.

The Judiciary should not fashion new remedies in

the face of a comprehensive legislative scheme.

ERISA describes a comprehensive and elaborate

scheme for enforcement. See, e.g., ERISA Section 501,

502(a)(1)(A),(a)(4), and (ce), and 502 (g)(1), 29 U.S.C.

§§ 1131, 1132 (a)(1)(A), (a)(4) and (ce), and 1132(g)(1).

However, this elaborate scheme nowhere mentions puni-

tive damages.

In an analogous context, this Court recently had oc-

casion to pass upon the propriety of implying an addi-

tional remedy into a comprehensive legislative scheme.

Northwest Airlines v. Transport Workers Union, 451 U.S.

77 (1981); see also, Texas Industries v. Radcliffe, 451 U.S.

630 (1981). In Northwest Airlines, the issue was whether

the Equal Pay Act or Title VII of the 1964 Civil Rights

Act would permit a defendant to seek indemnification or

contribution from a third party. In holding that these

statutes would not permit such a remedy, this Court

opined as follows:

“The presumption that a remedy was deliberately

omitted from a statute is strongest when Congress

has enacted a comprehensive legislative scheine in-

cluding an integrated system of procedures for en-

forcement. Both the qual Pay Act and Title VII

of the Civil Rights Act of 1964 are such statutes. The

judiciary may not, in the face of such comprehensive

legislative schemes, fashion new remedies that might

upset carefully considered legislative programs.’’

Id., 451 U.S. at 97.

It is hard to imagine a more comprehensive legisia-

tive scheme than KRISA. When the requirements of

§ 302(c)(5) are added to those of ERISA, it becomes even

clearer that judicially crafted remedies are unwarranted.

CONCLUSION

Based on the foregoing, together with such argu-

ments as may be advanced by the Petitioners herein, the

Amici Curiae respectfully urge this Court to reverse the

Court of Appeals and conclude that neither punitive dam-

ages nor extra-contractual compensatory damages are

available in the circumstances of this case.

Respectfully submitted,

Stuart H. Youna, Jr.

Hu, Farrer & Burriny

Atiorneys for Amici Curiae

Southern California Pipe

Trades Trust Funds,

Southern California IBEW-

NECA Trust Funds,

Airconditioning and

Refrigeration Industry Trust

Funds, and Southern

California Floor Covering

Trust Funds.

November 15, 1984

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