Petition for Writ of Certiorari — FMC Corp. v. Holliday

Supreme Court brief1990

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FILED

DEC 2

ANIOL, JR,

CLERK |

In The mane

No.

Supreme Court of the United States

October Term, 1989

FMC CORPORATION,

Petitioner,

CYNTHIA ANN HOLLIDAY,

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

THIRD CIRCUIT

H. Wooprurr Turner, Esa.*

CHarwes Ketry, Esa.

Patrick J. McELiinny, Esa.

KIRKPATRICK & LOCKHART

1500 Oliver Building

Pittsburgh, PA 15222

(412) 355-6500

Counsel for Petitioner,

FMC Corporation

December 29, 1989

*Counsel of Record

COCKLE LAW BRIEF PRINTING CO. (800) 275-4964

OR CALL COLLECT (402) 342-2831

QUESTION PRESENTED

Whether ERISA’s express preemption provisions, as

interpreted in Metropolitan Life v. Massachusetts, prohibit

states from applying state insurance regulations to self-

funded employee welfare benefit plans, as to which the

courts of appeals are in conflict?

PARTIES TO THE PROCEEDINGS

Petitioner, FMC Corporation, is a Delaware corpora-

tion with its principal place of business in Illinois. FMC’s

subsidiaries include: FMC do Brasil $.A., FMC Mid-

Atlantic Investments Limited, Mid-Atlantic Acceptance

Company Limited, FMC Gold Company, FMC Paradise

Peak Corporation, FMC Jerritt Canyon Corporation, FMC

International, A.G., FMC Wyoming Corporation, Foret,

S.A., Lithium Corporation of America. Respondent,

Cynthia Ann Holliday, is an individual and citizen of

Pennsylvania.

TABLE OF CONTENTS

Page

QUESTION PRESENTED .............000000000005-

PARTIES TO THE PROCEEDINGS ........... ee a

TABLE OF AUTHORITIES..................000005- v

OPINIONS BELOW.................-ccccccceeceeee 1

cc eecccecceeeeee sD

STATUTES INVOLVED ..............00005. a

STATEMENT OF CASE.............0 00 0cc0ccc cece. 3

REASONS FOR GRANTING THE WRIT... ...... 6

EE I 2

Dd.

APPENDIX

Opinion of the United States Court of Appeals

for the Third Circuit.........

se=epsepevpeeeaesepeeee sae & &

Order of the United States Court of Appeals for

the Third Circuit denying FMC Corporation's

Motion for Rehearing En Banc..................

Opinion of the United States District Court for

the Western District of Pennsylvania

Opinion of the United States District Court for

the Northern District of California in FMC Corp.

v. The Good Samaritan Hospital

7s eseeeteeseeuesee eee @ @& &@

TABLE OF AUTHORITIES

Page

Cases

Baxter v. Lynn, 886 F.2d 182, reh’g denied, k.2d

ns SC IN A ci cay ite eae 7, 10, 13

Cluldren’s Hospital v. Whitcomb, 778 F.2d 239 (5th

oe ne ery: exten eet ey dg 7, 10, 13

FMC Corp. v. Good Samaritan Hospital of the Santa

Clara Valley, (No, C-88-3092-FMS) (N.D. Cal.

CUED SN UVASS 5 bes ckCnee Wis echa tee oe 8, 20

FMC Corp. v. Holliday, 885 F.2d 79, reh’g denied, —_

F.2d Se MT ses dae t arenes cortket passim

Fort Halifax Packing Co., Ine. v. Coyne, 482 U.S. 1

SUNY vy os vac iecevessuhsci nd allie ote 19, 20, 21

Insurance Board of Bethlehem Steel Corporation v.

Muir, 819 F2d 408 (3d Cir. 1987) ........... 8, 10, 13

Arlmer ov. Central Counties Bank, 623 F Supp. 994

COPED. CW, COP xs eceskc rape tre toe et 13

Liberty Mutual Insurance Group v. lron Workers

Health Fund of Eastern Michigan, 879 F.2d 1384,

reh’e denied, —— F.2d = 3° fll 11, 19

Metropolitan Life Insurance Co. v. Massachusetts, 471

ee FM GUOUOD a is eva eae k cacsueds ban xin, passim

Northern Group Services, Inc. v. Auto Owners Insur-

ance Co., 833 F.2d 85 (6th Cir. 1987), cert. denied,

WOO We GR WI CUI coc ok vans ce cecverneecs passim

Pilot Life Insurance Co. v. Dedeaux, 481 US. 41

ROMO G ee CN ie ur unnceuerist sites puvseecses eu 9, 18

Powell v. Chesapeake and Potomac Telephone Co. of

Virginia, 780 F.2d 419 (4th Cir. 1985), cert. denied,

476 U.S. 1170 Per es eG

Reilly v. Blue Cross and Blue Shield United of Wiscon-

sin, 846 F.2d 416 (7th Cir.), cert. denied, 104 S. Ct.

OW SUN e aa secieccciiee a 7, 10, 13

TABLE OF AUTHORITIES -— Continued

Page

Shaw v. Delta Air Lines, Inc., 463 U.S. 85 (1983)... 9, 19, 20

United Food & Commercial Workers & Employers

Arizona Health & Welfare Trust v. Pacyze, 801 F.2d

og ek | ere rere 7, 10, 13

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

Ss oo NS 6a Ok ae Ad ae CeNeephenetedsvsesnnusssised OO

ae is TUNED i 5 4 64:4 C005 4b ha CADE DE ROAS 4% NSS ae |

ee OPM IIIS 6 9.5.0 9 40.4 Sd Rea can kAd aban hetanbess Loe 9

Be en PD ho ov 505 o0snncaondeuensedskaunseene eS

BP Eras TPP EIEEIOIORS bk vvcscosececesvensscansess 2,9

Be Gis RE cv es ccccccccceuessensurenes 2, 10

Fo CO. CUR GARR, FP BAPE: vce acess sinsncen i

OrnerR AUTHORITIES

Cae GO, TORE; SOOO COU cove vicccstccsecunccesacs mw

Saw GU: CREE. COO GOSS vss cnccccccssvccecscesss

“Employee Benefits in Medium and Large Firms,

1988”, U.S. Department of Labor, Bureau of

Labor Statistics, Bulletin 2336 (August 1988) ....... 3

P. McDonnell, A. Guttenberg, L. Greenberg, R.H.

Arnett Ill, “Self-Insured Health Plans,” HCFA

SL We ee PU AE SUED 6.4.06 sKsn cree vowensinsces

Staff of Senate Comm. on Labor and Public Wel-

fare, 94th Cong., 2d. Sess., Legislative History

of ERISA, 4670 (Comm. Print 1976)............... 18

PETITION FOR WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

The Petitioner, FMC Corporation (“FMC”), respect-

fully prays that a writ of certiorari issue to review the

judgment and opinion of the United States Court of

Appeals tor the Third Circuit, entered in the above-enti-

tled proceeding on September 11, 1989.

OPINIONS BELOW

The district court’s opinion (C1) is not officially

reported. The opinion of the United States Court of

Appeals for the Third Circuit is reported at 885 F.2d 79

(3d Cir. 1989). (Al)

—- e

JURISDICTION

The Court of Appeals entered its opinion and judy-

ment in this case on September 11, 1989. (Al) FMC’s

Motion for Rehearing En Banc, filed on September 21,

1989, was denied by the Court of Appeals on October 5,

1989. (B1)

The jurisdiction of this Court to review the decision

of the Court of Appeals is invoked under 28 U.S.C.

§1254(1).

STATUTES INVOLVED

Section 514(a) of the Employee Retirement Income

Security Act of 1974, as amended (“ERISA”), provides:

Except as provided in subsection (b) of this sec-

tion, the provisions of this subchapter and sub-

chapier III of this chapter shall supersede any

and all State laws insofar as they may now or

hereafter relate to any employee benefit plan

described in section 1003(a) of this title and not

exempt under section 1003(b) of this title. This

section shall take effect on January 1, 1975.

29 U.S.C. §1144(a).

Section 514(b)(2)(A) of ERISA provides:

Except as provided in subparagraph (B), noth-

ing in this subchapter shall be construed to

exempt or relieve any person from any law of

any State which regulates insurance, banking, or

securities,

29 U.S.C. §1144(b)(2)(A).

Section 514(b)(2)(B) of ERISA provides:

Neither an employee benefit plan described in

section 1003(a) of this title, which is not exempt

under section 1003(b) of this title (other than a

plan established primarily for the purpose of

providing death benefits), nor any trust estab-

lished under such a plan, shall be deemed to be

an insurance company or other insurer, bank,

trust company, or investment company or to be

engaged in the business of insurance or banking

for purposes of any law of any State purporting

to regulate insurance companies, insurance con-

tracts, banks, trust companies, or investment

companies.

29 U.S.C. §1144(b)(2)(B).

Section 1720 of the Pennsylvania Motor Vehicle

Financial Responsibility Law of 1984 (the “Motor Vehicle

Law”) provides:

In actions arising out of the maintenance or use

of a motor vehicle, there shall be no right of

subrogation or reimbursement from a claimant's

tort recovery with respect to workers’ compen-

sation benefits, benefits available under section

1711 (relating to required benefits), 1712 (relat-

ing to availability of benefits) or 1715 (relating

to availability of adequate limits) or benefits in

lieu thereof paid or payable under section 1719

(relating to coordination of benefits).

75 Pa. Cons. Stat. Ann. §1720 (Purdon 1984).

—_—@

STATEMENT OF THE CASE

FMC, like many other employers, operates a self-

funded employee benefit plan, the FMC Salaried Health

Care Plan (the “Health Plan”).' (C1)? The Health Plan

' Self-funded plans cover a vast number of American

workers. More than 9'/2 million Americans are covered by

health funds that are self-funded. “Employee Benefits in

Medium and Large Firms, 1988”, U.S. Department of Labor,

Bureau of Labor Statistics, Bulletin 2336 (August 1988). More-

over, a 1986 study by the Health Care Financing Administra-

tion (a division of the U.S. Department of Health and Human

Services) revealed that four out of every five companies and

unions, with 5,000 or more plan participants, operated selt-

tunded health care plans. P. McDonnell. A. Guttenberg, |

Greenberg, R.H. Arnett Ill, “Self-Insured Health Plans,” HCFA

Review, Vol. 8 No. 2 (1986). The HCFA study also found that

more than 50 percent of all employees with health insurance

participate in self-funded plans.

° The district court disposed of this case on cross-motions

for summary judgment, finding that there were no disputed

(Continued on following page)

covers medical expenses incurred by FMC employees and

their covered dependents. All funds used by the Health

Plan to provide medical benefits to the participants come

directly from FMC; FMC does not purchase insurance to

provide these benefits. (C1)

The fiscal integrity of the Health Plan is maintained

through, among other ways, the exercise of subrogation

rights. The Health Plan provides:

The FMC self-insured benefit program is auto-

matically assigned the right of action against

third parties in any situation in which benefits

are paid to employees or their dependents. If

you bring a liability claim against any third

party, benefits payable under this Plan must be

included in the claim, and when the claim is

settled you must reimburse the Plan for the

benefits provided.

(C2)

Cynthia Ann Holliday (“Holliday”) is the daughter ot

Gerald Holliday, an FMC employee. Mr. Holliday sub-

scribed to FMC’s Health Plan, and his daughter was a

covered dependent. (C1) The Health Plan paid a substan-

tial portion of the approximately $178,000 in medical

expenses incurred by Ms. Holliday in connection with

injuries she suffered in an automobile accident. (C1)

FMC learned that the Hollidays filed a tort action in

Pennsylvania state court (the “Pennsylvania Action”)

(Continued from previous page)

material facts. The facts referred to in this section were those

relied upon by the district court in its opinion.

against the negligent driver and notified the Hollidays

that it intended to exercise its subrogation rights with

respect to any recovery. (C2) The Hollidays rejected

FMC’s claim, contending that Section 1720 of the Motor

Vehicle Law prohibits such subrogation.4 (C3) Thereupon,

FMC sought a declaratory judgment from the district

court.°

Both FMC and Ms. Holliday moved for summary

judgment. The district court (Bloch, J.) found that there

were no disputed material facts, granted Ms. Holliday’s

* On May 2, 1989, the state court in the Pennsylvania

Action approved a settlement agreement whereby $49,875.50

plus accrued interest was placed in an escrow account in the

name of Ms. Holliday.

4+ Section 1720 provides:

In actions arising out of the maintenance or use of a

motor vehicle, there shall be no right of subrogation

or reimbursement from a claimant's tort recovery

with respect to workers’ compensation benefits, ben-

efits available under section 1711 (relating to

required benefits), 1712 (relating to availability of

benetits) or 1715 (relating to availability of adequate

limits) or benefits in lieu thereof paid or payable

under section 1719 (relating to coordination of

benetits).

75 Pa. Cons. Stat. Ann. §1720 (Purdon in 1984). Both the district

court and the Court of Appeals held, before reaching the

preemption question presented to this Court, that by its terms

Section 1720 applies to self-funded plans, such as the Health

Plan.

> The jurisdiction of the district court was invoked under

28 U.S.C. §1332 because of diversity of citizenship, FMC being

a citizen of Delaware, with its principal place of business in

Illinois, and Holliday being a citizen of Pennsylvania.

motion and denied FMC’s motion. FMC Corp. v. Holliday,

No. 88-1098 (W.D. Pa. March 14, 1989). (C1)

The Court of Appeals affirmed the district court’s

decision, holding: (1) that Section 1720 of the Motor Vehi-

cle Law applies to self-funded plans and thus precludes

FMC from exercising its contractual subrogation rights,

FMC, 885 F.2d at 83; and (2) that Section 514 of ERISA

does not preempt Section 1720 of the Motor Vehicle Law

from application to FMC’s self-funded Health Plan since

Section 1720 does not conflict with a core type of ERISA

matter. Id. at 83-90. The Court of Appeals’ holding on the

preemption question brings FMC to this Court.

a ———

.~ gm -—_—_—-

REASONS FOR GRANTING THE WRIT

1. A Substantial and Direct Conflict Among the

Courts of Appeals Exists and Will Be Kesolved

By a Decision in This Case.

In Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S.

724 (1985), this Court held that ERISA preempts the

application of state insurance laws to uninsured, or self-

funded, employee welfare benefit plans. Id. at 741, 747. In

so doing, this Court gave life to the distinction between

insured and self-funded plans which Congress created in

the so-called “deemer clause” of ERISA’s preemption

statute, Section 514(b)(2)(B). However, a conflict over

whether ERISA preempts all state insurance laws as

applied to self-funded plans now exists among the

circuits.

Since Metropolitan Life, seven Courts of Appeals have

considered whether Congress intended to preempt all

state insurance laws as applied to self-funded benefit

plans. Five Courts, the Fourth, Fifth, Seventh, Eighth and

Ninth, have followed Metropolitan Life, holding that Sec-

tion 514 of ERISA prohibits states from regulating self-

funded benefit plans. However, two Courts, including

the Court of Appeals in this case, have ignored Congress

and the plain language of the statute, have summarily

dismissed the relevant holding in Metropolitan Life as

dictum, and have created two different tests to determine

the scope of the “deemer clause.”” This direct conflict

® See Baxter v. Lynn, 886 F.2d 182, 186, reh’g denied, ___ F.2d

___ (8th Cir. 1989) (noting that even if state subrogation law

had been saved from preemption as a law that regulated insur-

ance, the “deemer clause” of Section 514 clearly prevents appli-

cation of the subrogation law to a self-funded benefit plan);

Reilly v. Blue Cross and Blue Shield United of Wisconsin, 846 F.2d

416, 425-26 (7th Cir.), cert. denied, 104 S. Ct. 145 (1988) (holding

that, regardless whether plaintiff’s state law claims fall within

insurance savings clause, Section 514 of ERISA preempts those

claims when made against self-funded benefit plan); United

Food & Commercial Workers v. Pacyga, 801 F.2d 1157, 1161-62 (9th

Cir. 1986) (holding that Section 514 of ERISA prevents applica-

tion of Arizona anti-subrogation law to self-funded benefit

plan); Powell v. Chesapeake & Potomac Telephone, 780 F.2d 419,

423 (4th Cir. 1985), cert. denied, 476 U.S. 1170 (1986) (holding

that Section 514 of ERISA prevents application of Virginia

insurance trade practice laws to self-funded benefit plan); Chil-

dren’s Hospital v. Whitcomb, 778 F.2d 239, 242 (5th Cir. 1985)

(holding that Section 514 of ERISA prevents application of a

Louisiana mandatory benefits law to a self-funded benefits

plan).

7 FMC Corp. v. Holliday, 885 F.2d 79, 89-90, reh’g de-

nied, _ F.2d __ (3d Cir. 1989) (holding that Pennsylvania

(Continued on following page)

calls for this Court to exercise its jurisdiction to define

clearly the breadth of ERISA’s preemption provisions. A

decision in this case will eliminate confusion and clarity

the multiple and conflicting obligations now imposed on

self-funded plans by the current disarray in the circuits.®

This Court in Metropolitan Life emploved a three-part

analysis following the structure of Section 514 in consid-

ering whether state regulation of self-funded benefit

(Continued from previous page)

anti-subrogation law as applied to self-insured benetit plan

was not preempted by Section 514 of ERISA because the Penn-

svlvania law did not “intentionally or unintentionally

address|] a core type of ERISA matter which Congress sought

to protect by the preemption provision”); Northern Group Ser

vices v. Auto Owners Insurance Co., 833 F.2d 85, 89-93 (6th Cir.

1987), cert. denied, 108 S. Ct. 1754 (1988) (holding that Michigan

coordination of benefits law as applied to selt-funded benetit

plan was not preempted by ERISA because in that case there

was no ERISA interest in uniformity which outweighed the

interest In state regulation of insurance).

There is also a Third Circuit decision in accord with the

majority of circuits and Metropolitan Life. See Insurance Board ot

Bethlehem Steel Corp. v. Muir, 819 F.2d 408, 410-13 (3d Cir. 1987)

(holding that Pennsylvania’s mandated benefits law could not

be applied to a self-funded benefit plan because it was pre-

empted by ERISA).

* The imposition of conflicting obligations is not merely

hypothetical. Indeed, FMC’s Health Plan itself has been sub-

jected to conflicting decisions on the specific issue of whether

the “deemer clause” prevents application of state anti-subroga-

tion laws to its self-funded plan. Compare FMC v. Holliday, 885

F.2d 79 (3d Cir. 1989) with FMC Corp. v. Good Samaritan Hospital

of the Santa Clara Valley, (No. C-88-3092 - FMS) (N.D. Cal.

December 5, 1988). (D1)

plans is preempted by ERISA.’ It is at the critical third

step, the analysis of the “deemer” clause, where the con-

flict among the circuits lies.

First, Section 514(a), ERISA’s broad preemption pro-

vision, provides that ERISA shall preempt “any and all

state laws insofar as they may now or hereafter relate to

any employee benefit plan.” §514(a), 29 U.S.C. §1144(a).

“The phrase ‘relate to’ was given its broad common-sense

meaning, such that a state law ‘relate[s] to’ a benefit plan

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

with or reference to such a plan.’ ” Metropolitan Life, 471

U.S. at 739, quoting Shaw v. Delta Air Lines, Inc., 403 U.S.

85, 97 (1983).

Second, Section 514(b)(2)(A), the so-cafled “insurance

savings” clause, provides that ERISA does not preempt

any state law “which regulates insurance, banking or

securities.” 29 U.S.C. §1144(b)(2)(A). A state law “regu-

lates insurance” if it meets the common-sense require-

ment that it is specifically directed toward some aspect of

the insurance industry, see FMC, 885 F.2d at 86, citing

Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, —— (1987), or if it

talls within the reference in the McCarran-Ferguson Act,

* The Court of Appeals below belittled this Court’s anal-

ysis as “stating the obvious more than providing guidelines tor

surmounting [the] difficulties” in interpreting ERISA’s preemp-

tion provisions. FMC, 885 F.2d at 84.

15 U.S.C. §1011 et seq., to the “business of insurance.”

Metropolitan Life, 471 U.S. at 742-43.19

Section 514(b)(2)(B), ERISA’s “deemer clause,” limits

the reach of the insurance savings clause, providing:

Neither an employee benefit plan nor any trust

established under such a plan, shall be deemed

to be an insurance company . . . for the purposes

of any law of any state purporting to regulate

insurance companies [orl insurance contracts.

29 U.S.C. §1144(b)(2)(B).

Thus, the “deemer clause,” as interpreted in Metro-

politan Life and by the Fourth, Fifth, Seventh, Eighth and

Ninth Circuits, along with the Third Circuit in Muir,

prohibits the application of any state insurance law to a

self-funded employee benefit plan.'' These cases applied

this bright-line test: if a state purports to apply its insur-

ance law to a self-funded plan, it is preempted by virtue

””

of the “deemer clause.

'0 The three factors relevant to whether a practice falls

within the “business of insurance” are “first,~vhether the prac-

tice has the effect of transferring or spreading a policyholder’s

risk; second, whether the practice is an integral part of the

policy relationship between the insurer and the insured; and

third, whether the practice is limited to entities within the

insurance industry.” Metropolitan Life, 471 U.S. at 743, quoting

Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119, 129 (1982)

(emphasis in original).

'! See Baxter, 886 F.2d at 186; Reilly, 846 F.2d at 425-26;

Muir, 819 F.2d at 410-13; Pacyga, 801 F.2d at 1161-62; Powell, 780

F.2d at 423; Whitcomb, 778 F.2d at 242.

The Court of Appeals below and the Sixth Circuit in

Northern Group Services turn their backs on this bright line

test, essentially rewriting Section 514(b)(2)(B) of ERISA,

and creating two different, but equally amorphous, tests

for determining when ERISA preempts state insurance

laws. These two decisions not only contravene precedent

and the clear language of the statute; they also make

constant litigation over the scope of the “deemer clause”

inevitable. '?

The test created by the Court of Appeals below to

govern the scope of the “deemer clause” is as follows:

[T]he proper inquiry under the deemer clause is

whether the state insurance regulation inten-

tionally or unintentionally addresses a core type

of ERISA matter which Congress sought to pro-

tect by the preemption provision. The court,

reviewing a state insurance law, should inquire

whether the law conflicts with any substantive

mandate in ERISA.

FMC, 885 F.2d at 89-90. The Court of Appeals acknow!l-

edged that the “deemer clause” and Metropolitan Life

require courts to observe the distinction between insured

and self-insured plans, but asserted that under FMC

“insured plans would per se survive the deemer clause,

while self-insured plans would merely be considered on a

"2 Indeed, such confusion is clearly evident in a recent

Sixth Circuit decision in which the panel purports to tollow

Northern Group Services but holds that the same Michigan insur

ance law which was held not to be preempted by the Northern

Group Services panel is, in fact, preempted by ERISA — but only

because of an “added gloss” given to the interpretation of the

Michigan statute. Liberty Mutual Insurance Group v. lron Workers

Health Fund of Eastern Michigan, 879 F.2d 1384, 1387-88, reh’g

denied, 5 F2d —_— (6th Cir. 1989).

case-by-case basis as to whether the state regulation

involved affects a central concern of ERISA.” FMC, 885

F.2d at 89.

On the other hand, the Sixth Circuit in Northern

Group Services employed a “presumption” against pre-

emption and a selective analysis of “[clertain aspects ot

the legislative history” to fashion the following test:

[I]n the absence of a showing of state purpose

specifically to regulate the content of welfare

benefits provided by ERISA, the effect of the

deemer clause should be assessed by a balanc-

ing of the interests in federal uniformity against

those of state primacy in the regulation of

insurance.

Northern Group Services, 833 F.2d at 92-93. Both FMC and

Northern Group Services require a case-by-case preemption

inquiry, in stark contrast with the bright-line analysis o!

Metropolitan Life and its progeny. Moreover, the Sixth

Circuit's test differs significantly from the test created by

the Third Circuit in that the former employs a balancing

test, weighing the federal interest in uniformity with state

interest in regulating insurance, while the Third Circuit

test will have district courts engaging, without direction,

in defining “core” ERISA concerns. Only state laws con-

flicting with such concerns will be preempted. Not only

do the tests set forth by the Sixth Circuit and the Third

Circuit differ from each other, but they also differ from

the majority of circuits and Metropolitan Life."

'3 In contrast to this Court in Metropolitan Life and the

majority of circuits, the courts in FMC and Northern Group

(Continued on following page)

Thus, a substantial contlict exists among the Courts of

Appeals on the question whether Section 514 of ERISA

absolutely preempts state insurance law as applied to selt-

funded benefit plans. Six of the eight Courts of Appeals

considering the issue have protected self-funded ben iit

plans from potentially conflicting and inconsistent stat’ g-

ulations.'* The other two panels have rewritten bi A’s

preemption section (see note 13, .upra), have set torth differ-

ent tests by which district courts are to decide the preemp-

tion issue and have opened the door for state encroachment

on this area of exclusive federal regulation.'> The

(Continued from previous page)

Services presume that self-insured plans are, in tact, “in the

business of insurance” and are thus subject to state insurance

regulation. This premise flies in the face of the plain language

ot ERISA’s deemer clause which flatly states that an emplovee

benefit plan is not to be deemed to be engaged in the business

of insurance for purposes of any state laws purporting to

regulate insurance. See Kilmer v. Central Counties Bank, 623

F.Supp. 994, 1001 (attempt to treat self-insured plan as if it

were an insurance company flies in the tace of the deemer

clause), The Court of Appeals makes this unsupported pre-

sumption, it candidly states, so that the three ERISA preemp-

tion provisions will “make sense.” (A23)

') Baxter v. Lynn, 886 F.2d 182, reh’y denied, — F.2d

(Sth Cir. 1989); Reilly v. Blue Cross and Blue Shield United of

Wisconsin, 846 F.2d 416 (7th Cir), cert. denied, 104 S.Ct. 145

(1988); Insurance Board of Bethlehem Steel Corp. » Muir, 819 F.2d

408 (3d Cir. 1987); United Food & Commercial Workers v. Pacyga,

801 F.2d 1157 (9th Cir. 1986); Powell v. Chesapeake & Potomac

Telephone, 780 F.2d 419 (4th Cir. 1985), cert. denied, 476 U.S. 1170

(1986); Children’s Hospital v. Whitcomb, 778 F.2d 239 (Sth Cir.

1985).

'5 FMC Corp. v. Holliday, 885 F.2d 79, reh’y denied, — F.2d

_ Gd Cir. 1989); Northern Group Services v. Auto Owners

Insurance Co., 833 F.2d 85 (6th Cir. 1987), cert. denied, 108 S.Ct.

1754 (1988).

existence of three separate tests by which district courts

and plan administrators are to determine whether a state

insurance law is preempted by ERISA squarely presents

this Court with the opportunity to resolve a substantial

and ripe conflict among the circuits and to prevent much

unnecessary litigation.

2. The Third Circuit’s Decision Below Is Erro-

neous and Conflicts With This Court’s Decision

in Metropolitan Life

Ihe Court of Appeals below flatly rejected this

Court’s decision in Metropolitan Life and criticized the

opinion because “the Court cited neither statutory text

nor legislative history”

between insured and self-funded plans, but instead relied

“on vague language in Congress’ post hoc study.” FMC,

885 F.2d at 89. The court below ultimately concluded that

reliance upon the distinction between insured and selt-

funded plans set forth in Metropolitan Life was “not

proper in the face of [the] direct consideration of congres-

sional intent” undertaken in both FMC and Northern

Group Services. FMC, 885 F.2d at 89. The Court of Appeals’

cavalier treatment of Metropolitan Life reveals that it either

ignored or misunderstood that decision.

in arriving at its distinction

In Metropolitan Life, this Court decided that ERISA

did not preempt a Massachusetts statute which, as

applied to plans that purchased insurance, required that

certain minimum mental-health-care benefits be provided

to Massachusetts residents covered by an insured

employee health-care plan. Metropolitan Life, 471 U.S. at

738-47.'© However, to decide whether the mandated-ben-

efits statute at issue was among those insurance laws

which Congress intended to protect from preemption

with the “insurance savings clause,” this Court first

analyzed the structure of Section 514 of ERISA, in partic-

ular the relationship between the “insurance savings

clause” and the “deemer clause.” Id. at 740-41.

Specifically, this Court defined the reach of the insur-

ance savings clause by determining the scope and pur-

pose of the “deemer clause.” The purpose of the “deemer

clause,” as decided in Metropolitan Life, is this:

[T]he deemer clause makes explicit Congress’

intention to include laws that regulate [the

terms of] insurance contracts within the scope of

the insurance laws preserved by the savings

clause. Unless Congress intended to include

laws regulating insurance contracts within the

scope of the insurance savings clause, if would

have been unnecessary for the deemer clause explic-

itly to exempt such laws from the saving clause when

they are applied directly to benefit plans.

ld. at 741 (emphasis added).'? Accordingly, state laws

regulating the terms of insurance contracts, such as the

anti-subrogation statute in the instant case, are explicitly

ow = Massachusetts conceded that the “mandated-benetits”

statute at issue could not be applied to self-tunded benefit

plans in light of the “deemer clause.” See Id. at 735 n.14.

'” Ironically, the Court of Appeals below acknowleged and

cited with approval this language from Metropolitan Life, but

proceeded to ignore it in reaching its novel result. (A17)

exempted “from the saving clause [and thus preempted

by ERISA] when they are applied directly to benefit

plans.” [d.'8

This Court's analysis in Metropolitan Life established a

bright-line test: If a benefit plan is self-funded, state

insurance laws are preempted. As the Court stated:

Our decision results in a distinction between

insured and uninsured plans, leaving the former

open to indirect regulation while the latter are

not. By so doing, we merely give life to a dis-

tinction Congress is aware of and one it has

chosen not to alter.

Metropolitan Life, 471 U.S. at 747 (footnote omitted). The

Court of Appeals’ dismissal of this language as dictum is

plainly unwarranted.

This Court not only concluded that ERISA preempts

State insurance laws applicd directly to benefit plans, see

id. at 741, 747, but also expressly considered in Metro-

politan Life some of the same legislative history upon

which the Third and Sixth Circuits based their contrary

decisions in FMC and Northern Group Services. Compare id

at 745-46 nn.23-24 with FMC, 885 F.2d at 87, and Northern

Group Services, 833 F.2d at 93 n.3. Nowhere, however, did

this Court mention the concern so prominent in the FMC

and Northern Group Services opinions, t.c., that by use ot

the “deemer clause” Congress sought to prevent only

“back-door” or “pretextual” attempts by the states to

'§ Section 1720 of the Pennsylvania Motor Vehicle Law

regulates the terms of insurance contracts as certainly as the

mandated benefits provision in Metropolitan Life did — only

Section 1720 limits the types of permissible provisions instead

of requiring certain additional provisions.

regulate ERISA plans. See FMC, 885 F.2d at 86-88; North-

ern Group Services, 833 F.2d at 92-93. Accordingly, the only

logical conclusion is that the outcome-oriented a nalysis of

the legislative history undertaken by the Third and Sixth

Circuits is incorrect. Therefore, this Court should eXxe;4rcise

its jurisdiction to prevent the perpetuation of the Third

Circuit's misunderstanding of Metropolitan Life.

3. This Case Presents an Important and Recurring

Question of Law.

This Court should exercise its jurisdiction to correct

the Court of Appeals’ erroneous decision in FMC because

the pernicious effects of FMC and Northern Group Services

will significantly and adversely affect the administration

of thousands of self-funded benefit plans.

First, the Court of Appeals below adopted its test for

restricting the scope of the “deemer clause” despite

acknowledging that Congress had considered and flatly

rejected precisely such a formulation with respect to

defining the scope of Section 514(a), ERISA’s broad pre-

emption clause, because “it raised the possibility of end-

less litigation over the validity of State action that might

impinge on Federal regulation.” FMC, 885 F2d at 8&8

(quoting Senator Javits).'° Thus, FMC and Northern Group

'’ Senator Javits, one of the architects of ERISA. explained

that Congressmen viewed earlier versions of House and Senate

bills detining the perimeters of preemption in relation to the

areas regulated by ERISA as problematic since “[sluch a for:

mulation raised the possibility of endless litigation over the

(Continued on following page)

Services invite precisely the type of endless litigation that

ERISA’s drafters sought to preclude.

Second, as the Court of Appeals below conceded,

central to Congress’ efforts in drafting the broad preemp-

tion provision was the goal of achieving federally uni-

form regulation of employee benefit plans. FMC, 885 F.2d

at 88.°° Congress believed that by preempting the field,

but for certain specified exceptions like the savings

clause, it had achieved its goals of encouraging

employers to establish benefit plans and of protecting

benefit plan participants and beneficiaries from encroach-

ments on their plans by eliminating the threat of conflict-

ing and inconsistent state and local regulation.?! The tests

(Continued from previous page)

validity of State action that might impinge on Federal regula-

tion, as well as opening the door to multiple and potentially

conflicting State laws hastily contrived te deal with some par-

ticular aspect of private welfare or pension benefit plans not

clearly connected to the Federal regulatory scheme.” 120 Cong.

Rec. 29942 (1974). To prevent this from occurring, Congress

deliberately made the preemption provisions expansive in

scope, as this Court observed in Pilot Lite.

°° See also 120 Cong. Rec. 29942 (1974) (statement ot Sena-

tor Jacob Javits) (“[Tlhe emergence of a comprehensive and

pervasive Federal interest and the interests of uniformity with

respect to laterstate plans required — but for certain exceptions

~ the displacement of State action in the field of private

employee benefit programs”) and 120 Cong. Rec. 29933 (1974)

(statement of Sen. Harrison Williams, Ir.) (preemption of the

field intended to apply in its broadest sense with only the

exceptions specified in the act).

*! See Staff of Senate Comm. on Labor and Public Welfare,

Y4th Cong. 2d Sess., Legislative History of ERISA 4670 (Comm.

(Continued on following page)

adopted by the Third and Sixth Circuits undercut these

Congressional goals by requiring courts to engage in a

case-by-case, outcome-oriented analysis that will prove a

useful vehicle for the application of conflicting and incon-

sistent state laws to employee benefit plans. The likeli-

hood of such outcome-oriented analysis is vividly

illustrated by the Sixth Circuit’s decision in Liberty

Mutual, where the Sixth Circuit panel purportedly

applied the test set forth in Northern Group Services but

reached an opposite conclusion regarding the preemption

of the same Michigan insurance statute at issue in North-

ern Group Services. See Liberty Mutual, 879 F.2d at 1387-88.

Third, both Courts of Appeals ignored the fact that

Congress established benefit plan regulation as exclu-

Sively a federal concern to minimize the need for inter-

state employers such as FMC to administer their plans

differently in each state in which they have employees.

Shaw v. Delia Air Lines, Inc., 463 U.S. 85, 105 (1983).

Congress recognized the administrative realities of

employee benefit plans and sought to promote an

employer's capacity to provide benefits to emplovees

scattered throughout many states in the most efficient

manner, i.e., through a single employee benefit plan.

(Continued from previous Page)

Print 1976) (statement of U.S. Rep. John Dent) (“I wish to make

note of what is to many the crowning achievement of this

legislation, the reservation to Federal authority the sole power

to regulate the field of employee benefit plans. With the pre-

emption of the field, we round out the protection afforded

Participants by eliminating the threat of conflicting and incon-

sistent state and local regulation.”)

Shaw, 463 U.S. at 105 n.25. As this Court stated in Fort

Halifax Packing Co., Inc. v. Coyne, 482 U.S. 1, 11 (1987):

It is thus clear that ERISA’s preemption provi-

sion was prompted by recognition that

employers establishing and maintaining

employee benefit plans are faced with the task

of coordinating complex administrative activ-

ities. A patchwork scheme of regulation would

introduce considerable inefficiencies in benefit

program operation, which might lead those

employers with existing plans to reduce bene-

fits, and those without such plans to refrain

from adopting them. Preemption ensures that

the administrative practices of a benefit plan

will be governed by only a single set of

regulations.

At the ultimate expense of plan participants and

beneficiaries, the Court of Appeals’ holding below will

indubitably subject the Health Plan to conflicting or

inconsistent state laws.22 Indeed, FMC’s Health Plan itself

has already been subjected to conflicting decisions

regarding the application of state anti-subrogation laws.

A district court in California held, in direct conflict with

this case, that a California anti-subrogation statute is

preempted as applied to FMC’s Health Plan. See Good

22 The Court of Appeals’ opinion below paves the way for

a direct assault on the fiscal integrity of self-funded plans, such

as that operated by FMC. The Health Plan regenerates itself

through subrogation, and the inability to exercise this contract

right, because of the Motor Vehicle Law’s anti-subrogation

provision, may force the Health Plan to reduce benefits to

participants and beneficiaries. Congress feared this very sce-

nario and drafted ERISA’s preemption provisions with a broad

brush to prevent its occurrence.

Samaritan, supra. (D1) It is precisely this burden, to both

plans and participants, that ERISA’s preemption provi-

sions are intended to avoid. See, Fort Halifax, 482 U.S. at

10.

Finally, a decision in this case will affect the opera-

tion of thousands of self-funded plans and the rights of

millions of plan participants. Outcome-oriented tests and

analyses, such as those created and utilized in the Third

and Sixth Circuits, not only undermine the Congressional

goal of a federal, uniform system of health benefit admin-

istration, but also will ultimately lead to the restriction of

plan benefits — or to the crippling of plans themselves - to

the potential detriment of millions of American workers.

Congress clearly did not intend such a result.

CONCLUSION

For the foregoing reasons, a writ of certiorari should

issue to the United States Court of Appeals for the Third

Circuit.

December 29, 1989 Respectfully submitted,

H. Wooprurre TURNER

CrHartes Kens

Patrick J. MCELHINNY

KiRKPATRICK & LOCKHART

1500 Oliver Building

Pittsburgh, PA 15222

(412) 355-6500

Attorneys for Petitioner,

FMC Corporation

APPENDIX A

FMC CORPORATION, Appellant,

Cynthia Ann HOLLIDAY, Appellee.

No. 89-3226.

United States Court of Appeals,

Third Circuit.

Argued July 25, 1989.

Decided Sept. 11, 1989.

Employer which operated health plan and which

employed father of injured motor vehicle passenger

appealed from an order of the United States District

Court for the Western District of Pennsylvania, Alan N.

Bloch, J., granting summary judgment in favor of pas-

senger in employer’s action seeking declaratory judg-

ment that it was entitled to subrogation against

passenger’s recovery for personal injuries. The Court of

Appeals, Gibbons, Chief Judge, held that: (1) employer's

subrogation claim was barred by Pennsylvania Motor

Vehicle Financial Responsibility Law, and (2) anti-sub-

rogation provision of statute was not preempted by

ERISA.

Affirmed.

Charles Kelly [argued], H. Woodruff Turner, Stephen

M. Rosenblatt, Kirkpatrick and Lockhart, Pittsburgh, Pa.,

for appellant.

Thomas G. Johnson [argued], Malcolm & Johnson,

Indiana, Pa., for appellee.

Before GIBBONS, Chief Judge, HUTCHINSON, Cir-

cuit Judge and WOLIN, District Judge”.

OPINION OF THE COURT

GIBBONS, Chief Judge:

FMC Corporation appeals from a summary judgment

in favor of the defendant Cynthia Ann Holliday, in FMC’s

action seeking a declaratory judgment that it is entitled to

subrogation against Ms. Holliday’s recovery for personal

injuries received in an automobile accident. FMC is an

employer operating a health plan and employs Ms. Holli-

day’s father. She was permanently injured, and FMC has

paid and will in the future pay her medical expenses

pursuant to that plan. The district court held that under

Pennsylvania law FMC had no subrogation rights, and

that Pennsylvania law was not preempted by section 514

of the Employee Retirement Income Security Act of 1974

(ERISA), 29 U.S.C. § 1144. FMC contends the district

court erred in both respects. We will affirm.

On January 16, 1987, Ms. Holliday, then age 15, was

seriously and permanently inured while riding as an

automobile passenger in Indiana County, Pennsylvania.

Her medical expenses to date exceed $178,000 and the

cost of future care is unknown. At the time of the accident

her father owned an automobile policy issued by State

Farm Mutual Automobile Insurance Company, which

‘Hon. Alfred M. Wolin, United States District Judge for the

District of New Jersey, sitting by designation.

paid the first $10,000 of his daughter’s medical bills. Mr.

Holliday also commenced a negligence action on behalf

of his daughter in the Court of Common Pleas of Indiana

County against Robert Lyons, the driver of the car in

which she was a passenger at the time of the accident.

That case proceeded to an eventual settlement on Septem-

ber 3, 1987, under which Lyons interpleaded his $100,000

automobile liability policy in favor of Ms. Holliday and

three other claimants injured in the accident. Ms. Holli-

day’s recovery was limited to $49,875.50 plus accrued

interest.

At the time of the accident Mr. Holliday was also a

covered employee under FMC’s Salaried Health Plan,

which provided benefits for dependents. That plan con-

tains coordination of benefits clauses as follow:

If you or a covered member of your family are

eligible to receive benefits under another group

medical plan, Health Maintenance Organization

(HMO), government plan, or by “no-fault” auto-

mobile insurance which provides medical cover-

age, you may be eligible for benefits from those

Plans and your FMC plan. In the case of cover-

age by “no-fault” automobile insurance, FMC

will pay covered expenses not paid for by no-

fault insurance.

No-Fault

In some states with no-fault motor vehicle cov-

erage, the carrier is the primary insurer in these

jurisdictions. All medical expenses related to an

accident must be submitted to the carrier and

not the FMC Health Care Plan. Eligible expenses

not paid for by no-fault insura will be pai

by the FMC Plan. nce will be paid

Relying on these clauses FMC commenced paying Ms.

Holliday’s medical expenses only when the $10,000 no-

fault coverage under her father’s State Farm automobile

policy was exhausted. That $10,000 is not in dispute.

The FMC Salaried Health Plan also contains a sub-

rogation clause as follows:

The FMC self insured benefit program is auto-

matically assigned the right of action against

third parties in any situation in which benefits

are paid to employees or their dependents. If

you bring a liability claim against any third

party, benefits payable under this Plan must be

included in the claim, and when the claim is

settled you must reimburse the Plan for the

benefits provided. You are obligated to avoid

doing anything which would prejudice the

Plan’s rights of reimbursement, and you are

required to sign and deliver documents to evi-

dence or secure those rights. Unless vou sign the

Company's “third party reimbursement form,” the

Claims Administrator will not process any claim

where there is possible liability on behalf of a third

party.

(emphasis supplied). In order to obtain reimbursement of

medical expenses in excess of $10,000, Mr. Holliday

signed a third-party reimbursement form, and the

Salaried Health Plan thereafter paid his daughter’s medi-

cal expenses.

When FMC learned of the negligence action in Indi-

ana county it notified the Hollidays that it intended to

exercise its subrogation rights with respect to that lia-

bility claim. The Hollidays responded that 75

Pa.Cons.Stat.Ann. § 1720 of the Pennsylvania Motor Vehi-

cle Law prohibits such subrogation. This declaratory

judgment action followed .

Il.

FMC contends that the court erred in holding that the

exercise of its subrogation rights is barred by the relevant

Pennsylvania law. The governing statute is the Pennsyl-

vania Motor Vehicle Financial Responsibility Law, Act of

Feb. 12, 1984, No. 11, § 3, 1984 Pa.Laws 28, as amended

by Act of Feb. 12, 1984, No. 12, § 3, 1984 Pa. Laws 53, 75

Pa. Cons.Stat.Ann. §§ 1701-1798 (Purdon 1988). which is a

comprehensive effort to establish a uniform system for

the prompt payment of economic losses suffered by vic-

tims of vehicular collisions, including coverage for medi-

cal expenses arising out of the maintenance or use of a

motor vehicle. See Pennsylvania Legislative Journal, 167th

Sess., Oct. 4, 1983, at 1147 (comments of Sen. Holl); id.

167th Sess., Dec. 14, 1983, at 2241 (comments of Rep

Manderino). Two provisions of the Motor Vehicle Low

bear directly on this case: section 1720, which bars the

assertion of subrogation rights; and section 1719, which

helps define the scope of section 1720.

; ,

Section 1720 precludes subrogation with reference to

a broad range of insurance arrangements:

In actions arising out of the maintenance or use

of a motor vehicle, there shall be no right of

subrogation or reimbursement from a claimant’s

tort recovery with respect to workers’ compen-

sation benefits, benefits available under section

1711 (relating to required benefits), 1712 (relat-

ing to availability of benefits) or 1715 (relating

to availability of adequate limits) or benefits in

lieu thereof paid or payable under section 1719

(relation to coordination of benefits).

75 Pa.Cons.Stat.Ann. § 1720 (emphasis added). The coor-

dination of benefits provision reads:

(a) General rule. - Except for workers’ compen-

sation, a policy of insurance issued or delivered

pursuant to this sub-chapter shall be primary.

Any program, group contract or other arrange-

ment for payment of benefits such as described

in section 1711 (relating to required benefits)

1712(1) and (2) (relating to availability of bene-

fits) or 1715 (relating to availability of adequate

limits) shall be construed to contain a provision

that all benefits provided therein shall be in

excess of and not in duplication of any valid and

collectible first party benefits provided in sec-

tion 1711, 1712 or 1715 or workers’

compensation.

(b) Definition. - As used in this section the

term “program, group contract or other arrange-

ment” includes, but is not limited to, benefits

payable by a hospital plan corporation or a pro-

fessional health service corporation subject to 40

Pa.C.S. Ch. 61 (relating to hospital plan corpora-

tions) or 63 (relating to professional health ser-

vices plan corporations).

75 Pa.Cons.Stat.Ann. § 1719 (emphasis added).

The FMC Salaried Health Plan clearly falls within the

plain meaning of section 1719. First, the Motor Vehicle

Law elsewhere defines the term “benefits” to include

“medical benefits”. 75 Pa.Cons.Stat.Ann. § 1702. Second,

section 1719(b) expressly employs non-exclusive lan-

guage in defining the types of programs the statute cov-

ers. Finally, FMC effectively availed itself of section

1719’s coordination of benefits formula in the Salaried

Health Plan’s parallel clauses quoted above. FMC’s coun-

terarguments are without merit. In a reading anything

but plain, the corporation contends that the use in section

1719 of the phrase “group contract,” an insurance term of

art, indicates a clear intent to regulate only entities whose

primary purpose is providing insurance or health care

services. In itself a questionable interpretation of the term

“group contract,” FMC’s argument ignores section 1719's

use of two other patently non-exclusive terms, namely,

“program” and “other arrangement.” ERISA uses the

terms “plan, fund or program” to define ERISA plans, 29

U.S.C. § 1002(1); the phrase “other arrangements” could

scarcely be more broad on its face.

Pointing to the fact that subrogation is a long-estab-

lished principle in Pennsylvania law, FMC urges that the

Financial Responsibility law should be presumed not to

have made any change in that principle unless the legisla-

ture was more specific. That position, however, is incon-

sistent with Pennsylvania’s statute on statutory

interpretation providing, at least since 1937, that statutes

in derogation of the common law in general “be liberally

construed to effect their objects and promote justice.” 1

Pa.Cons.Stat.Ann. § 1928(c) (Purdon 1989).! FMC’s

Pennsylvania’s statute on statutory interpretation does

provide for strict construction for certain categories, but the

Motor Vehicle Law falls into none of them. The full provision

reads:

(Continued on following page)

reliance on Commonwealth v. Miller, 469 Pa. 24, 364 A.2d

886, 887 (1987), moreover, is unavailing since that case

(Continued from previous page)

§ 1928. Rule of strict and liberal construction

(a) The rule that statutes in derogation of the com-

mon law are to be strictly construed, shall have no

application to the statutes of this commonwealth

enacted finally after September 1, 1937.

(b) All provisions of a statute of the classes hereat-

ter enumerated shall be strictly construed:

(1) Penal provisions.

(2) Retroactive provisions.

(3) Provisions imposing taxes.

(4) Provisions conferring the power of eminent

domain.

(5) Provisions exempting persons and property

from taxation.

(6) Provisions exempting property trom the

power of eminent domain.

(7) Provisions decreasing the jurisdiction of a

court of record.

(8) Provisions enacted finally prior to Septem-

ber 1, 1937 which are in derogation of the com-

mon law.

ally construed to effect their objects and to promote

justice.

1 Pa.Cons.Stat.Ann. § 1928 (Purdon 1988).

deals with criminal statutes, which as a class are among

the exceptions to be strictly construed. It is well settled

that insurance statutes, in contrast, fall into the primary

class and are meant for liberal interpretation. Antanovich

v. Alfstate Ins. Co., 320 Pa.Super. 322, 327, 467 A.2d 345,

348 (1983), aff'd, 507 Pa. 68, 488 A.2d 571 (1985); Miller v.

United States Fideiity & Guar. Co., 304 Pa.Super. 43, 54, 450

A.2d 91, 97 (1982), aff'd, 503 Pa. 127, 468 A.2d 1097 (1983).

FMC’s alternative argument from statutory inter-

pretation, that the Financial Responsibility Law employs

language making it more restrictive than its predecessor

statute, fares no better. The earlier act, the Pennsylvania

No-fault Motor Vehicle Insurance Act of 1974,

Pa.Stat.Ann. tit. 40, §§ 1009.101-1009 701 (Purdon 1989)

(repealed), contained sweeping artisubrogation lan-

guage. Under section 1009.111(a)(4) of the No-fault Act,

“[i]Jn no event shall any entity providing benefits other

than no-fault benefits to an individual as described in

section 203 of this act, [Section 1009.203 of this title] have

any right of subrogation with respect to said benefits.”

FMC attempts to make use of the alteration of this word-

ing by first noting the common sense rule-of-thumb that

different words in a subsequent statute on the same or a

related topic indicate that the legislature must have

intended a different meaning. Klein v. Republic Steel Corp.,

435 F.2d 762, 765-66 (3d Cir.1970). It then argues that the

manifestly narrower language of the antisubrogation pro-

Vision in the current Motor Vehicle law betokens an intent

to excuse self-insured health care benefit programs such

as FMC’s. These arguments must be rejected. The current

statute's use of the terms “program, group contract or

other arrangement” appears hardly less broad than the

A110

“any entity” language of the No-fault Law. Moreover,

nothing in either the statute or the legislative history

indicates any substantive intent to exclude programs like

the FMC plan from the ambit of the bar to subrogation

The scant legislative history that does exist indicates to

the contrary, a desire to apply the prohibition broadly for

the sake of uniformity and consistency. See Pennsylvania

Legislative Journal, 167th Sess., Oct. 4, 1983, at 1147 (com-

ments of Sen. Holl); id., 167th Sess., Dec. 14, 1983, at 2241

(comments of Rep. Manderino).

We hold, therefore, that the district court did not err

when it ruled that FMC’s sudiogation claim is barred by

the Pennsylvania Financial! Kesponsibility Law. That

holding requires that we address FMC’s preemption

contention.

III.

FMC, relying on United Food & Commercial Workers &

Employers Arizona Health & Welfare Trust v. Pacyga, 801

F.2d 1157. (9th Cir.1986), contends that section 514 of

ERISA categorically exempts from state regulation all

self-funded employee benefit programs, and that such

preemption reaches state law modifications of the com-

mon law of subrogation. Ms. Holliday, relying on North-

ern Group Services, Inc. v. Auto Owners Insurance Co., 833

F.2d 85 (6th Cir.1987), contends that Congress did not

intend such categorical preemption. Rather, she urges,

Congress intended to shield employee benefit programs

only from state law that encroaches on ERISA concerns In

the guise of insurance regulation. The question of pre-

emption by ERISA of statutory changes in subrogation

All

law, when those changes are effected by state no-fault

insurance statutes, has not been presented to this court.”

ERISA’s section 514, 29 U.S.C. § 1144, is hardly a

model of legislative draftsmanship. The section deals

with preemption, but congressional intention must be

gleaned from the interrelationship among a “preemption”

clause, a “savings” clause, and a “deemer” clause.

The “preemption” clause broadly provides, in rele-

vant part:

Except as provided in subsection (b) of this sec-

tion, the provisions of this subchapter and sub-

chapter III of this chapter shall supersede any

and all State laws insofar as they may now or

hereafter relate to any employee benefit

plan. ...

29 U.S.C. § 1144(a). The “savings” clause, however,

appears to restore virtually all the state regulation that

the “preemption” clause invalidates, at least so far as

insurance laws are concerned. This provision states:

Except as provided in subparagraph (B), noth-

ing in this subchapter shall be construed to

exempt or relieve any persons from any law of

any State which regulates insurance, banking, or

securities.

29 U.S.C. § 1144(b)(2)(A). Finaily, the “deemer” clause in

subparagraph (B) apparently brings the reader full circle

2 FMC contends that Insurance Board of Bethlehem Steel

Corp. v. Muir, 819 F.2d 408 (3d Cir. 1987), requires a decision in

its favor. The issue before us was not addressed in that case.

Al2

by exempting employee benefit plans from state insur-

ance regulation:

Neither an employee benefit plan ... nor any

trust established under such a plan, shall be

deemed to be an insurance company or other

insurer, bank, trust company, or investment

company or to be engaged in the business of

insurance or banking for purposes of any law of

any State purporting to regulate insurance com-

panies, insurance contracts, banks, trust com-

panies, or investment Companies

29 U.S.C. § 1144(b)(2)(B).

The resulting interpretive difficulties were summa-

rized by the Court of Appeals for the Sixth Circuit, which

observed:

The difficult problem in interpreting the

preemption portion of ERISA § 514, 29 U.S.C.

§ 1144 is defining the scope of each of the three

critical clauses so that each has a meaning and

so that benefit obligations are governed by a

rational system of state law and federal common

law. Congress indicated its intention only in a

very general way and left to the federal courts

the problem of developing on a case-by-case

basis principles of preemption of state law.

Northern Group Services, 833 F.2d at 89. Stating the

obvious more than providing guidelines for surmounting

these difficulties, the Supreme Court has set forth a three-

part preemption test that mirrors each of the three provi-

sions. Under this test a court must inquire whether a state

law (1) relates to an employee benefit plan; (2) regulates

insurance, and (3) survives the “deemer” clause. Metro-

politan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 739-747,

105 S.Ct. 2380, 2388-2393, 85 L.Ed.2d 728 (1985).

Al3

A. The “Preemption Clause”

Neither party, nor any court that has dealt with the

matter, disputes that the “relates to” language of the

preemption clause should be read broadly in general, and

broadly enough in particular to cover state no-fault auto-

mobile insurance plans. See Northern Group Services, 833

2d at 87-89. Only the Pennsylvania Trial Lawyers Asso-

ciation, as amicus Curiae, suggests otherwise.

The command of the preemption clause that ERISA

must preempt “any and all State laws insofar as they may

now or hereafter relate to any employee benefit plan”

suggests a wide application on its face. The Supreme

Court sanctioned the plain meaning approach in Shaw v.

Delta Air Lines, 463 U.S. 85, 96-98, 103 S.Ct. 2890,

2899-2901, 77 L.Ed.2d 490 (1983). Holding that a state law

directing health insurers to provide mental health care

benefits “clearly” related to ERISA, the Court opined that

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

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

reference to such a plan.” Shaw, 463 U.S. at 96-97, 103

S.Ct. at 2900; Metropolitan Life, 471 U.S. at 739, 105 S.Ct. at

2388. Moreover, if the preemption clause had been

intended to be read narrowly, the remaining two clauses

would have been unnecessary. Northern Group Services,

833 F.2d at 89.

Despite their split in outcome, the two Courts of

Appeals that have considered antisubrogation laws con-

cur in following Shaw. The Sixth Circuit held that Michi-

gan’s No-Fault Automobile Insurance Act, and

Al4

specifically the statute’s coordination of benefits provi-

sions, “directly ... allocate[d] obligations to make insur-

ance payments contrary to the express coordination-of-

benefits language of the [ERISA] plan.” Northern Group

Services, 833 F.2d at 89. In consequence, “[hJolding that

this state law does not ‘relate to’ the plan would run

contrary to the plain meaning of the text and to the

relevant case law and legislative history.” Id. Similarly, in

Pacyga the Court of Appeals for the Ninth Circuit had no

difficulty in determining that Arizona’s common law rule

against subrogation also “relate[d] to” ERISA plans, this

despite the Court’s ultimate use of the deemer clause to

find preemption nonetheless.* 801 F.2d at 1160. No other

holdings so squarely address the preemption clause

aspect of this case.

The Pennsylvania Trial Lawyers nonetheless argue

for a more limited application of the preemption clause,

relying on cases less apposite than Shaw. In the first, the

Supreme Court held that Georgia’s general garnishment

statute did not “relate to” ERISA benefit plans. Mackey v.

Lanier Collections Agency & Ser, __ U.S. __, 108 S.Ct.

2182, 100 L.Ed.2d 836 (1988). Far from overruling Shaw

and Metropolitan Life, Mackey instead finessed a narrow

> The Pacyga Court also noted that the Arizona subroga-

tion rule “purported to regulate” ERISA plans as well, a fur-

ther requirement for finding that a state law “relates to”

ERISA. 801 F.2d at 1160. This additional requirement is evi-

dently peculiar to the Ninth Circuit, Martori Bros. Distributors v

James-Massengale, 781 F.2d 1349, 1359 (9th Cir.1986), though the

Second Circuit uses a version of the “purports to regulate” test

to define the regulating “State” under 29 U.S.C. § 1144(c)(2), see

Rebaldo v. Cuomo, 749 F.2d 133, 137-38 & n. 1 (2d Cir.1984).

Al5

exception. The majority, in the face of a four-justice dis-

sent, reasoned that since creditors of ERISA plans are

commonly allowed to bring state civil law actions and

employ state methods of enforcing judgments, the credi-

tors of plan participants should be able to do the same.

Mackey, 108 S.Ct. at 2186-89. However questionable its

logic, the Mackey court’s exception to the Court’s usual

reading of the preemption clause rested exclusively on

state laws dealing with the enforcement of civil judg-

ments. The other cases offered are even less on point. Just

prior to Mackey, the Supreme Court held that a Maine

statute mandating a one-time severance payment in the

event of a plant closing also did not, in ERISA’s words,

“relate to any employee benefit plan.” Fort Halifax Packing

Co. v. Coyne, 482 U.S.1, 107 S.Ct. 2211, 96 L.Ed.2d 1 (1987).

The Coyne Court, however, took pains to distinguish stat-

utes that would affect an ERISA plan on an ongoing basis

from those affecting a one-time payment. 107 S.Ct. at

2220; see Northern Group Services, 833 F.2d at 88-89. No

more compelling is the Trial Lawyers’ reliance on Rebaldo

v. Cuomo, 749 F.2d 133 (2d Cir.1984). There the Court of

Appeals for the Second Circuit held that ERISA did not

preempt a state plan regulating hospital insurance rates

that only incidentally touched pension plans. This out-

come simply accords with Shaw’s common sense dictum

that “[s]ome state actions may affect employee benefit

plans in too tenuous, remote, or peripheral a manner to

warrant a finding that the law ‘relates to’ the plan.” 463

U.S. at 100 n. 21, 103 S.Ct. at 2901 n.21.

Thus we reject the amicus position that the preemp-

tion clause should be read narrowly. It is broad enough to

cover state antisubrogation laws.

Al6o

B. The “Savings Clause”

Both parties and the amicus agree that the type of

antisubrogation provision found in the Pennsylvania

Financial Responsibility Law “regulates insurance”

within the meaning of the savings clause. This position

accords with the two Circuits that have considered the

matter. Northern Group Services, 833 F.2d at 89-90; Pacyga,

801 F.2d at 1160-61. It also accords with the clause’s plain

meaning and statutory structure, and with formal stan-

dards for interpreting general insurance provisions, as

developed by the Supreme Court.* We agree that Penn-

sylvania’s Financial Responsibility Law plainly “regulates

insurance” within the meaning of the savings clause. The

statute’s coordination of benefits and antisubrogation

provisions directly control the terms of insurance Con-

tracts. Application of the clause therefore clearly com-

ports with the common sense view of statutory text

extended to the savings provision In Metropolitan Life, 471

4 Three years after ERISA’s enactment a congressional

oversight report noted:

In general these exemptions [to preemption] are

designed to save state law as it is applied to entities

which are not employee benefit plans... , t the

extent that such regulation does not relate to

employee benefit plans.

Subcomm. on Labor Standards, House Comm. on Educ. &

Labor, ERISA Oversight Report of The Pension Task Force 5

(1977). As the Court of Appeals for the Sixth Circuit opined,

“It}hese subsequent legislators (or their staff) did not seem to

recognize or consider the fact that the ‘savings’ clause would

not be necessary at all if it only saves state laws that do not

‘relate to’ ERISA plans.” Northern Group Services, 833 F.2d at 89.

Al7

U.S. at 740-43, 105 S.Ct. at 2389-2391. The Financial

Responsibility Law also meets the further common sense

requirement that a state law not merely affect some

aspect of the insurance industry, but be specifically

directed toward it. Pilot Life Ins. Co. v. Dedeaux, 481 U.S

41, 107 S.Ct. 1549, 1554, 95 L.Ed.2d 39 (1987). -

The placement within section 514 of the savings

clause bolsters this common sense interpretation. The

savings clause is followed directly by the deemer clause

which states that an employee benefit plan shall not be

deemed an insurance company “for purposes of any law

of any State purporiing to regulate .. . insurance con-

tracts.” 29 U S.C. § 1144(b)(2)(B). “By exempting from the

saving clause laws regulating insurance contracts that

apply directly to benefit plans, the deemer clause makes

explicit Congress’ intention to include laws that pagulate

insurance contracts within the scope of the insurance

— preserved by the saving clause.” Metropolitan Life,

art U.S. at 741, 105 S.Ct. at 2389-2390. Insofar as the

Financial Responsibility Law expressly regulates insur-

once contracts, it necessarily falls within the ambit of the

savings provision.

| Finally, the Supreme Court’s standard for determin-

ing when a practice constitutes “the business of insur-

ance,” developed with reference to the McCarran-

Ferguson Act of 1945, 15 U.S.C. §§ 1011-1015, removes

any doubt that the Financial Responsibility Law “regu-

lates insurance.” Three factors are relevant to the

determination:

a the practice has the effect of trans-

erring or spreading the policyholder’s risk; sec-

ond, whether the practice is an integral part of

Al8

the policy relationship between the insurer and

the insured; and third, whether the practice 1s

limited to entities within the insurance industry.

Metropolitan Life, 471 U.S. at 743, 105 S.Ct. at 2391 (quot-

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

102 S.Ct. 3002, 3009, 73 L.Ed.2d 647 (1982)). Every court

that has applied these criteria to coordination of benefits

requirements has found the first two criteria easily satis-

fied. See Northern Group Services, 833 F.2d at 90; Pacyga,

801 F2d at 1161. While the Financial Responsibility Law

does go beyond the third criterion insofar as it reaches

any “program, group, or other arrangement” including

health and hospital plans, its principal and substantial

effect is nonetheless on the insurance industry. See North-

ern Group Services, 833 F.2d at 90; Pacyga, 801 F.2d at 1161.

C. The “Deemer Clause’

lhe deemer clause, which states that no “employee

benefit plan... . shall be deemed to be an insurance

company _or to be engaged in the business of insur-

ance... for purposes of any law of any State purporting

to regulate insurance companies lor] insurance con-

tracts,’ creates an exception to the savings provision,

which itself created an exception to the general preemp-

tion clause. 29 U.S.C. § 1144(b)(2)(B). Preemption in this

case, therefore, turns on whether FMC’s Salaried Health

Plan falls within the deemer clause exception insulating

employee plans from state regulation. Neither the statu-

tory text, legislative history, nor case law provides a clear

answer; this is one reason that the two courts of appeals

which addressed it parted company on this precise point.

Of the two solutions, Northern Group Services comes closer

Al9

to the correct interpretation, namely, that the deemer

clause is meant mainly to reach back-door attempts by

states to regulate core ERISA concerns in the guise of

insurance regulation. See 833 F.2d at 91-94.

Support for this answer comes from the statutory

text. The deemer clause protects ERISA plans from being

deemed insurers, or otherwise in the business of insur-

ance, by any state law “purporting” to regulate insur-

ance. Remarks from two of the sponsoring senators

support the view that the use of “purporting” betokens a

congressional concern only for regulation that was

merely a pretext for impinging upon ERISA plans. Sena-

tor Javits stated that broad Federal preemption meant to

bar “[s]tate laws hastily contrived to deal with some par-

ticular aspect of private welfare or pension benefit plans

not clearly connected to the Federal regulatory scheme.”

120 Cong.Rec. 29,942, reprinted in 3 Legislative History of

the Employee Retirement Income Security Act of 1974, at

4770-71 (emphasis added). Senator Williams also dis-

played concern for pretextual state infringements, albeit

in the context of professional regulation having the force

of state law rather than state insurance laws themselves:

Consistent with thle] principle [of broad pre-

emption regarding any action that has the force

or effect of law] State professional organizations

acting under the guise of State-enforced profes-

sional regulation, should not be able to prevent

unions and employers from maintaining the

types of employee benefit programs which Con-

gress has authorized.

120 Cong.Rec. 23,933, reprinted in 3 Legislative History of

the Employee Retirement Income Security Act of 1974, at

A20

4746 (emphasis added). See Northern Group Services, 833

F.2d at 93 n. 3.

The legislative history more generally also offers sup-

port for a “pretextual” construction. Initially, both the

House and Senate versions of the bill preempted only

those state laws concerning ERISA’s “fiduciary, reporting

and disclosure responsibilities” or relating to “the subject

matter” it was to regulate. Both versions also contained a

savings clause for state insurance regulation, but neither

contained any deemer provision. The first version of the

deemer clause did not arise until the Houses replaced the

language of the original H.R. 2 with that of H.R. 12,906

just prior to passage of the preconference bill. This new

version, including a narrower progenitor of the preemp

tion clause and an earlier model of the savings provision,

read:

EFFECT ON OTHER LAWS

SEC. 514. (a) It is hereby declared to be

the express intent of Congress that... the

provisions of part 1 of this subtitle shall super-

sede any and all laws of the States and of politi-

cal subdivisions thereof insofar as they may

now or hereafter relate to the reporting and

disclosure responsibilities, and fiductary

responsibilities, of persons acting on behalf of

any employee benefit plan to which part 1

applies.

(b) Nothing in part 1 of this subtitle

shall be construed to exempt or relieve any

person from any law of any State which

regulates insurance, banking, or securities

or to prohibit a State from requiring that

there be filed with a State agency copies of

A2]

reports required by this title to be filed with

the Secretary. No employee benefit plan subject

to the provisions of this title (other than a plan

established primarily for the purpose of provid-

ing death benefits), nor any trust established

under such a plan, shall be deemed to be an

insurance company or other insurer, bank, trust

company, or investment company or to be

engaged in the business of insurance or banking

for purposes of any law of any State purporting

to regulate insurance companies, insurance con-

tracts, banks, trust companies, or investment

companies.

express intent of Congress that the provi-

sions of parts 2,3, and 4 of this subtitle shall

supersede any and all laws of the States and

of political subdivisions thereof insofar as

they may now or hereafter relate to the non-

forfeitability of participant’s benefits in

employee benefit plans... , the funding

requirements for such plans, the adequacy

of financing of such plans, portability

requirements for such plans, or the insur-

ance of pension benefits under such plans.

2 Legislative History of the Employee Retirement Income

Security Act of 1974, at 2920-22 (emphasis added). The

S > , ry j ; uw

Senate version included no comparable deemer language.

Before the conference, the committee declared itself

to be divided on whether the House version, with the

deemer clause, should be adopted. As a compromise,

“some of the staff” suggested that the language be incor-

porated, but only for a limited time subject to subsequent

study. 3 Legislative History of the Employee Retirement

Income Security Act of 1974, at 5283. .

A22

The conference bill combined these versions and rec-

ommendations in several ways. First, it adopted the cur-

rent broad preemption provision without reference to

specific core concerns of ERISA. Senator Javits explained

that the change sprang from the concern that the more

specific formulation “raised the possibility of endless liti-

gation over the validity of State action that might

impinge on Federal regulation,” and a desire to err on the

side of Federal uniformity. 120 Cong.Rec. 29,942, reprinted

in 3 Legislative History of the Employee Retirement

Income Security Act of 1974, at 4770. Second, the conter-

ence version retained the general savings language found

in both the Senate and House bills. Finally, the conference

committee decided to retain the deemer provision with-

out any time limit but with a mandate for a later congres-

sional study of the effects of Federal preemption.> 29

U.S.C. § 1222(a)(5).

> The study that resulted, part of the 1977 Activity Report

of the House Committee on Education and Labor, suggests an

opposite interpretation of the deemer clause. According to the

report:

the “deemed” language was utilized to create an

irrebuttable presumption that these plans are not

insurance, trust companies, etc., for purposes of state

regulation. As a drafting technique the “deemed” is

used in section 514(b) not to bar the use of a legal

fiction by the states but to create what may amount to

a legal fiction in a given circumstance. The irrebutt-

able presumption would not be overcome even if an

employee benefit plan engages in activities which

(Continued on following page)

A23

The net effect of these changes reinforces the view

that Congress intended the deemer clause to protect core

ERISA concerns within the context of the insurance regu-

lation exception to preemption. The “purporting” lan-

Suage, present at the creation and previously dealt with,

suggests that such concerns arose as early as H.R. 12,906.

More important, the retention of the deemer clause in the

face of the expanded preemption clause indicates that the

deemer clause in effect was meant to do the more narrow,

specified work which the original version of the preemp-

tion clause was meant to do. Read in this way the legisla-

tive history and the three clauses make sense: first, the

preemption clause preempts nearly any state law relating

to employee benefit plans; second, the savings clause

carves out the narrow but sizable exception of state laws

regulating insurance; and finally, the deemer clause

guards against any insurance regulation that infringes on

such ERISA areas as reporting, disclosure, and

nonforfeitability.

(Continued from previous page)

bring it within the insurance, trust, or securities

activities generally regulated by a state.

Subcomm. on Labor Standards, House Comm. on Educ. &

Labor, ERISA Oversight Report of the Pension Task Force 10

(1977) (emphasis in original).

As the Court of Appeals for the Sixth Circuit pointed out,

however, a “post hoc explanation . . . is entitled to little weight

when it conflicts with a reasonable interpretation of statutory

text and prior legislative history.” Northern Group Services, 833

F.2d at 92 (citing Consumer Product Safety Comm'n v. GTE Syl-

vania, Inc., 447 U.S. 102, 117-18 & n. 13, 100 S.Ct. 2051, 2061 &

n. 13, 64 L.Ed.2d 766 (1980)).

A24

Remarks of Senator Javits support this reading.

Although not an exclusive list, all the examples of mate

law that the senator considered subject to preemption

dealt with matters central to ERISA, of the type enumer-

ated in the original preemption clause:

In view of Federal preemption, State laws

compelling disclosure from private wenae =

pension plans, imposing fiduciary ga mean wap

on such plans, imposing criminal penalties. c | :

failure to contribute to plans - unless a criminal

statute of general application - establishing

State termination insurance programs, et CeteTa,

will be superseded.

120 Cong.Rec. 29,942, reprinted in 3 Legislative pss 2

the Employee Retirement Income Security Act of £5 e

4771. Any reading other than one confined to the centra

aspects of ERISA would either have the deemer ore

swallow the savings clause or read into the statute other

distinctions that are not there.

The latter course is that followed by the Pacyga court

and urged by FMC. In their view the deemer clause

incorporates a bright line distinction between rade

benefit plans that purchase insurance and those, ; t

eMC’s, which are self-insured. Plans that purchase Insur-

ance are subject to state regulation regardless of the

deemer clause. Self-insured plans purportedly are not.

See Pacyga, 801 F.2d at 1161.

The principal, if not sole, basis for this distinction is

Supreme Court dicta. In Metropolitan Life, the Court

upheld a Massachusetts law mandating that apy bene-

fits be included in certain health pians. 471 U.S. 724, 105

S.Ct. 2380. The majority, reasoning that the state law

A 25

“regulated insurance” within the meaning of the savings

clause, rejected the appellant's argument that the clause

covered only direct regulation of traditional insurance

activities. Apparently since the health plans at issue

could not be considered ERISA employee benefit plans,

the appellant did not assert an alternative deemer clause

argument. The Court nonetheless stated:

We are aware that our decision results in a

distinction between insured and uninsured

plans, leaving the former open to indirect regu-

lation while the latter are not. By so doing we

merely give life to a distinction created by Con-

gress in the “deemer clause,” a distinction Con-

gress is aware of and one it has chosen not to

alter.

Metropolitan Life, 471 U.S. at 747, 105 S.Ct. at 2393. For

support the Court cited neither statutory text nor legisla-

tive history. Instead, relying on vague language in Con-

gress’ post hoc study the Court opined, in a footnote:

A 1977 Activity Report of the House Com-

mittee on Education and Labor recognized the

difference in treatment between insured and

non-insured plans:

“To the extent that [certain programs selling

insurance policies] fail to meet the definition

of an ‘employee benefit plan’ [subject to the

“deemer clause” ], state regulation of them is

not preempted by section 514, even though

such state action is barred with respect to

the plans which purchase these ‘products.’ ”

H.R. Rep. No. 94-1785, p. 48. A bill to amend

the saving clause to specify that mandated-

benefit laws are preempted by ER'SA was

reported to the Senate in 1981 but was not

acted upon.

A26

Metropolitan Life, 471 U.S. at 747 n. 25, 105 S.Ct. at 2393 n.

25.

Both the Pacyga court and FMC rely almost entirely

on the foregoing dicta. In Pacyga, the court held that

ERISA preempted Arizona antisubrogation law with

regard to self-insured employee benefit plans. The court

reasoned that such plans fell within the protection of the

deemer clause on the basis of the distinction set forth in

Metropolitan Life. Pacyga, 801 F.2d at 1161-62. The Pacyga

opinion’s terse treatment lacks any reference to statutory

text, structure, or history.° It simply points to the formal

distinction made in the Metropolitan Lite footnote. Impor-

tation of that formal distinction to a different content is

not proper in the face of direct Consideration of congres-

sional intent. Nor, as the Nortiters Group Services opinion

has pointed out, need there necessarily be a conflict. The

distinction between insured and self-insured plans does

not disappear. Rather, under Metropolitan Life insured

plans would per se survive the deemer clause, while self-

insured plans would merely be considered on a case-by-

case basis as to whether the state regulation involved

6 Several other decisions have likewise imported the Met-

ropolitan Life dicta, but the cases are distinguishable. See Pilot

Life Ins. Co. v. Dedeaux, 481 U.S. 41, 107 S.Ct. 1549, 95 L.Ed.2d

39 (1987); Shiffler v. Equitable Life Assurance Soc’y, 838 F.2d 78

(3d Cir.1988). None of these cases dealt with the history or

purpose of the deemer clause. The reason they did not, more-

over, was that the claims brought forward fell prey not to the

deemer clause, but directly to the preemption clause because

the state laws involved did not “regulate insurance” under the

savings provision. See, e.g., Pilot Life, 481 U.S. at 57 & n. 4, 107

S.Ct. at 1558 & n. 4; Shiffler, 838 F.2d at 81-82.

A27

affects a central concern of ERISA. Northern Group Ser-

vices, 833 F.2d at 94-95.

In light of the available interpretive materials the

proper inquiry under the deemer clause is whether the

State insurance regulation intentionally or unintentionally

addresses a core type of ERISA matter which Congress

sougm to protect by the preemption provision. The court,

reviewing a state insurance law, should inquire whether

that law conflicts with any substitute mandate in ERISA.

The parties and the amicus have suggested no such con-

flict. Thus the savings clause applies and the deemer

Clause does not.

ITT.

We have rejected FMC’s contention that the anti-

subrogation provision in the Pennsylvania Financial

Responsibility Law is inapplicable and its contention that

if that provision applies it is preempted. The judgment

appealed from will therefore be affirmed.

APPENDIX B By the Court,

UNITED STATES COURT OF APPEALS eye

FOR THE THIRD CIRCUIT > Chet Tadeo

No. 89-3226 DATED: October 5, 1989

FMC CORPORATION,

Appeliant

CYNTHIA ANN HOLLIDAY

SUR PETITION FOR REHEARING

Present: GIBBONS, Chief Judge, HIGGINBOTHAM,

SLOVITER, BECKER, STAPLETON, MANSMANN,

GREENBERG, HUTCHINSON, SCIRICA, COWEN and

NYGAARD, Circuit Judges, and WOLIN, District Judge”

The petition for rehearing filed by Appellant in the

above entitled case having been submitted to the judges

who participated in the decision of this court and to all

the other available circuit judges of the circuit in regular

active service, and no judge who concurred in the deci-

sion having asked for rehearing, and a majority of the

circuit judges of the circuit in regular active service not

having voted for rehearing by the court in banc, the

petition for rehearing is denie :.

*District Judge Alfred M. Wolin as to panel rehearing only.

APPENDIX C

IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF PENNSYLVANIA

FMC CORPORATION, a

corporation,

)

Passa )

Plaineitt, ) Civil Action

Vs. ) No. 88-1098

CYNTHIA ANN HOLLIDAY, (

an individual,

)

Defendant.

MEMORANDUM OPINION

BLOCH, District J.

Plaintiff and defendant having agreed that the mate-

rial facts of this action are uncontroverted, this matter is

before the Court on cross-motions for summary judg-

ment. The material facts are as follows.

Defendant Cynthia Ann Holliday (Holliday) was

seriously injured in an automobile accident in Indiana

County, Pennsylvania, on January 16, 1987, when she was

15 years old. She required extensive medical treatment,

costing in excess of $178,000.

At all relevant times, Holliday’s father was an

employee of plaintiff FMC Corporation (FMC). As such,

he subscribed to the FMC Salaried Health Care Plan (the

Plan), a self-insured emplovee welfare benefit plan. Pur-

suant to the Plan, FMC paid a substantial amount in

medical benefits toward Holliday’s treatment.

The Plan contained a coordination of benefits provi-

sion, pursuant to which it coordinated its benefits with

those of other medical plans and “no-fault” auto insur-

ance providing medical coverage. Thus, FMC did not pay

any benefits until certain insurers, such as the Holliday’s

automobile insurance company, had paid the maximum

amount that they would pay.

In addition, the Plan summary provides:

The FMC self insured benefit program is auto-

matically assigned the right of action against

third parties in any situation in which benefits

are paid to employees or their dependents. If

you bring a liability claim against any third

party, benefits payable under this Plan must be

included in the claim, and when the claim is

settled you must reimburse the Plan for the

benefits provided. You are obligated to avoid

doing anything which would prejudice the

Plan’s rights of reimbursement, and you are

required to sign and deliver documents to evi-

dence or secure those rights. Unless you sign the

Company’s “third-party reitabursement form,”

the Claims Administrator will not process any

claim where there is possible liability on behalf

of a third party.

(Plan summary, at 49). Gerald Holliday, defendant's

father, had signed such a third-party reimbursement

form.

On April 20, 1987, Gerald Holliday, as parent and

natural guardian of the defendant, commenced a negli-

gence action in the Court of Common Pleas of Indiana

County, Pennsylvania, against the driver of the vehicle in

which defendant was a passenger at the time of the

accident. FMC has notified defendant that it intends to

exercise its subrogation rights with respect to any

amounts obtained as a result of this lawsuit. Defendant

Holliday contends that §1720 of the Pennsylvania Motor

Vehicle Financial Responsibility Law of 1984 (the Penn-

sylvania law), 75 Pa.C.S.A. §1720, prohibits such subroga-

tion. FMC argues that the Employee Income Retirement

Security Act (ERISA) preempts the Pennsylvania law.

This Court may grant summary judgment “if the

pleadings, depositions, answers to interrogatories and

admissions on file, together with the affidavits, if any,

show that there is no genuine issue as to any material fact

and that the moving party is entitled to a judgment as a

matter of law.” Fed. R. Civ. P. 56(c). The parties in this

case have agreed that there is no genuine issue as to any

material fact. This Court holds that the defendant is enti-

tled to judgment as a matter of law.

!. The Pennsylvania law applies to the Plan

Initially, of course, this Court must determine

whether the Pennsylvania law would apply to the Plan at

all. If §1720 would not prohibit FMC from obtaining

subrogation, then this Court need not decide whether

ERISA preempts that section. There would be no applica-

ble Pennsylvania law which might be preempted.

Section 1720 of the Pennsylvania law, 75 Pa.C.S.A

§1720, provides:

In actions arising out of the maintenance or

use of a motor vehicle, there shall be no right of

subrogation or reimbursement from a claimant's

tort recovery with respect to workers’ compen-

sation benefits, benefits available under section

1711 (relating to required benefits), 1712 (reiat-

ing to availability of benefits) or 1715 (relating

to availability of adequate limits) or benetits in

lieu thereof paid or payable under section 1719

(relating to coordination of benefits).

FMC clearly does not provide the required benefits

or motor vehicle insurance referred to in §§1711, 1712 or

1715 of the Pennsylvania law, 75 Pa.C.S.A. §§1711, 1712,

1715. It does, however, provide the benefits referred to in

$1719. This section provides:

(a) General rule. - Except for workers’ com-

pensation, a policy of insurance issued or deliv-

ered pursuant to this subchapter shall be

primary. Any program, group contract or other

arrangement for payment of benefits . . . shall be

construed to contain a provision that all benefits

provided therein shall be in excess of and not in

duplication of any valid and collectible first

party benefits provided in section 1711, 1712 or

1715 or workers’ compensation.

(b) Definition. - As used in this section the

term “program, group contract or other arrange-

ment” includes, but is not limited to, benetits

payable by a hospital plan corporation or a pro-

fessional health service corporation. . . .

75 Pa.C.S.A. §1719 (emphasis added).

FMC contends that it is not a “program, group con-

tract or other arrangement” under §1719 for two reasons.

First, FMC argues that, because this section specifically

lists certain types or corporations incorporated to provide

health care benefits or services, only those “programs,

group contracts or other arrangements” come within the

section. To accept this reasoning would be to ignore the

express language of the statute providing that those types

of corporations are not the only types constituting a

“program, group contract or other arrangement” under

§1719. The statute clearly states that the term “programs,

group contracts or other arrangements” is not limited to

the listed corporations.

Second, FMC contends that a comparison of §1720 to

the subrogation provision of the prior Pennsylvania No-

Fault Motor Vehicle Insurance Act (the No-Fault Act)

indicates that the Pennsylvania legislature did not intend

to prohibit subrogation on the part of entities such as the

Plan. FMC notes that §111(a)(4) of the No-Fault Act pro-

vided that “[iJn no event shall any entity providing bene-

fits other than no-fault benefits ... have any right of

subrogation with respect to said benefits.” 40 PS.

$111(a)(4) (emphasis added). FMC claims that, by chang-

ing the description of those prohibited subrogation rights

from “any entity” to “program, group contract or other

arrangement,” the legislature must have intended to

exclude plans such as the one at issue from being affected

by the subrogation provision.

It is true that when words of a later statute differ

from those of a previous one on the same or a related

subject, it is presumed that the legislature intended them

to have a different meaning. Klein v. Republic Steel Corp.,

435 F.2d 762, 765-66 (3d Cir. 1970). It is not true, however,

that this Court may assume that the different meaning

intended is that which the plaintiff advocates. FMC

attempts to convince this Court that the Court should

make this assumption because, in another portion of the

Pennsylvania law, the Pennsylvania legislature has

afforded a right of subrogation to Assigned Claims Plans.

75 Pa.C.S.A. §1756.

Assigned Claims Plans are plans designed to provide

medical benefits to, inter alia, people not entitled to

receive first-party benefits under the Pennsylvania law.

75 Pa.C.S.A. §1752. FMC argues that the Pennsylvania

legislature could not have intended to allow Assigned

Claims Plans a right of subrogation but prohibit subroga-

tion on the part of employee welfare benefit plans provid-

ing benefits in addition to first-party benefits.

lt is entirely possible that this is exactly what the

Pennsylvania legislature intended to do. Motor vehicle

insurance companies are required by law to establish

Assigned Claims Plans. Those who would recover under

such plans may not be otherwise paying insurance pre-

miums for their coverage. Furthermore, in these

instances, the Assigned Claims Plans pay benefits instead

of first-party benefits, because the recipients are not eligi-

ble to receive first-party benefits. In such an instance, the

legislature may have intended to allow Assigned Claims

Plans some right of subrogation while other entities, pro-

viding benefits in addition to first-party benefits, are not

able to obtain subrogation. Without more convincing evi-

dence that the Pennsylvania legislature did not intend

$1720 to apply to employee welfare benefit plans, this

Court will not read out of the statute the language which

explicitly indicates that the term “program, group con-

tract or other arrangement” includes more than certain

types of health care or health service corporations.

Moreover, as defendant points out, FMC has availed

itself of the benefits of the Pennsylvania law's “coordina-

tion of benefits” provision as set forth at §1719. FMC

required that the Hiollidays’ motor vehicle insurer pay up

to its policy limits before FMC would provide benefits.

Thus, by its own actions, FMC has indicated that it is the

type of entity referred to in §1719.

Thus, if it is not preempted, §1720 of the Pennsylva-

nia law would prohibit FMC’s exercise of subrogation

rights in any amount Holliday recovered in the case in

the Indiana County court.

Il. ERISA'S preemption provisions

Section 1514(a) (sic) of ERISA, 29 U.S.C. §1144(a),

provides generally that ERISA “shall supersede any and

all State laws insofar as they may now or hereafter relate

to any employee benefit plan.” There is one exception to

this broad preemption provision, contained in a “savings

clause,” providing:

Except as provided in subparagraph (B), noth-

ing in this subchapter shall be construed to

exempt or relieve any person from any law of

any state which regulates insurance, banking, of

securities.

29 U.S.C. § 1144(b)(2)(A).

The savings clause does not automatically exempt all

state laws regulating insurance from preemption, how-

ever, because it is modified by the so-called “deemer

clause,” which provides:

Neither an employee benefit plan... nor

any trust established under such a plan, shall be

deemed to be an insurance company or other

insurer, bank, trust company, or investment

company or to be engaged in the business of

insurance or banking for purposes of any law of

any State purporting to regulate insurance com-

panies, insurance contracts, banks, trust com-

panies, Or investment companies.

29 U.S.C. §1144(b)(2)(B).

Thus, in order to determine whether ERISA preempts

the Pennsylvania law in this case, this Court must first

determine whether the Pennsylvania law relates to an

employee benefit plan. Next, this Court must determine

whether, even if the Pennsylvania law relates to an

employee benefit plan, it is exempted from preemption

by the savings clause because it regulates insurance.

Finally, if the answers to the first two inquiries are affir-

mative, this Court must determine whether the “deemer

clause” nevertheless operates to prevent the Pennsylva-

nia law from being saved from preemption. See Pilot Life

Insurance Co. v. Dedeaux, 481 U.S. 41, 45 (1987).

A. The Pennsylvania law “relates to” the Plan

A state law relates to an employee benefit plan if it

has a connection with or reference to such a plan. Shaw v.

Delta Air Lines, Inc., 463 U.S. 85, 97 (1983). Preemption is

not limited to state laws specifically designed to affect

employee benefit plans. Id. at 98. Instead, ERISA pre-

empts even common-law causes of action which seek

remedies for improper processing of a claim for benefits

under an ERISA plan. Pilot Life, 481 U.S. at 48.

FMC argues that §1720 of the Pennsylvania law does

not “relate to” the Plan because the Pennsylvania legisla-

ture did not intend this provision to apply to employee

welfare benefit plans such as the plan at issue. This

argument is without merit. This Court has already deter-

mined that the Pennsylvania law does indeed apply to

the Plan.

Furthermore, the Pennsylvania law need not have

been specifically designed to affect employee benefit

plans to relate to such plans. Shaw, 463 U.S. at 98. The

phrase “relate to” has been given the broadest common-

sense meaning. Shiffler v. Equitable Life Assurance Society of

the United States, 838 F.2d 78, 81 (3d Cir. 1988). Therefore,

as long as a lawsuit would have a connection with an

employee benefit plan, it relates to it so that any state

causes of action upon which the suit is based are

preempted.

Finally, this Court notes that it would be anomalous

for FMC to assert that the law does not relate to the Plan

when FMC is the party asserting preemption. ERISA pre-

empts state law only if that law relates to an employee

benefit plan. Thus, this Court must assume that FMC’s

statement that it will only “assume arguendo” that the

Pennsylvania law relates to the Plan was inserted into

PNIC’s brief merely in order to preserve FMC’s argument

that the law does not apply to the Plan in the first place.

Bo The Pennsylvania law regulates insurance

io determine whether a state law regulates insur

ince, this Court must examine the law both to determine

whether it comports with a common-sense understanding

of the phrase “regulates insurance’ and to ascertain

vhether it affects the business of insurance as that busi

less is defined in the McCarran-Ferguson Act. See Pile!

C10

Life 481 U.S. at 50-51; Metropolitan Life Insurance Co. v.

Massachusetts, 471 U.S. 724, 743 (1985). No one factor is

dispositive; rather, each is instructive. Union Labor Life

Insurance Co. v. Pireno, 458 U.S. 119, 129 (1982); Insurance

Board Under Social Insurance Plan of Bethlehem Steel Corp. v.

Muir, 819 F.2d 408, 411 (3d Cir. 1987); United Food and

Commercial Workers v. Pacyga, 801 F.2d 1157, 1161 (9th Cir.

1986).

In this case, the parties have agreed that this law

regulates insurance. Thus, the Pennsylvania law is saved

from preemption by 29 U.S.C. §1144(b)(2)(A), unless the

“deemer clause” prohibits the law from being saved from

preemption.

C. The deemer clause does not operate to bring the Penn-

sylvania law back within the scope of ERISA

preemption -

As previously noted, the deemer clause provides that

state laws purporting to regulate insurance may not

directly regulate employee benefit plans by “deeming”

them to be insurance companies for the purposes of such

laws. Plat Life, 481 U.S. at 45. The Plan at issue is a self-

insured plan. That is, FMC does not provide benefits for

its employees by taking out a group insurance policy

with an insurance company. Instead, FMC provides the

funds needed to pay any medical benefits due under the

Plan out of its own assets.

FMC contends that to apply the Pennsylvania law to

a self-insured plan, one must first “deem” the plan to be

an insurance company. Thus, such application of the

Pennsylvania law would violate the deemer clause. As a

C11

result, the Pennsylvania law as it applies to self-insured

plans is preempted, even though it regulates insurance.

Following this reasoning, a number of courts have

held that certain state laws regulating insurance are

nonetheless preempted as they apply to self-insured

plans. See, e.g., Pacyga, 801 F.2d 1157 (Arizona anti-sub-

rogation law preempted as applied to self-insured plans);

Powell v. Chesapeake and Potomac Telephone Co., 780 F.2d

419 (4th Cir.), cert. denied, 476 US. 1170 (1986) (common-

law claims relating to mishandling of benefits requests

preempted as applied to self-insured plan); Children’s

Hospital v. Whitcomb, 778 F.2d 239 (5th Cir. 1985) (Louisi-

ana anti-discrimination benefits statute preempted as

applied to self-insured plans); Kilmer v. Central Counties

Bank, 623 F. Supp. 994 (W.D. Pa. 1985) (portion of No-

Fault Act permitting double recovery of benefits pre-

empted as applied to self-insured plans).

Application of this reasoning would result in certain

employee benefit plans being free from state laws regu-

lating insurance merely because they chose to self-insure.

Indeed, the Supreme Court itself has stated in dicta that,

through the deemer clause, Congress has distinguished

between insured and self-insured plans in such a way

“By doing so we merely give life to a distinction created

by Congress in the ‘deemer clause,’ a distinction Con-

gress is aware of and one it has chosen not to alter.”

Metropolitan Life, 471 U.S. at 747 (footnote omitted). See

also Board of Trustees of Montana Teamsters Employers v.

Coyne, 628 F. Supp. 561, 564 (D. Mont. 1986).

On the contrary, however, it is possible to read the

three interlocking preemption provisions of ERISA - the

C12

preemption section, the savings clause and the deemer

clause — to give life to the deemer clause yet not presume

that Congress intended to make an illogical distinction

between insured and self-insured plans. In Northern

Group Services, lic. v. Auto Owners Insurance Co., 833 F.2d

85 (6th Cir.), cert. denied, 108 S.Ct. 1754 (1988), the Sixth

Circuit Court of Appeals held that the deemer clause

does not automatically immunize self-insured employee

benefit plans from state laws regulating insurance. 833

F.2d at 91. In Northern Group Services, certain employee

benefit plans, some insured by others and some self-

insured, attempted to make no-fault automobile insurers

primarily liable and their own plans secondarily liable for

benefits. When the no-fault automobile insurers objected,

citing Michigan insurance law, the plans argued that the

Michigan law was preempted, by virtue of the deemer

clause in the case of the self-insured plans.

The Court noted that Congress has expressly

declared in two different ERISA subsections that ERISA

does not preempt state laws regulating insurance. Id.; see

29 U.S.C. §§1144(b)(2)(A); 1144(d). It stated:

In the face of this redoubled statutory pre-

servation of the principle favoring state regula-

tion of insurance, it appears contrary to the

overali legislative purpose to read the deemer

clause broadly to bar all state regulation of self-

insured plans. In this area of traditional state

regulation, “the presumption is against

preemption.”

833 F.2d at 92, quoting Metropolitan Life, 471 U.S. at 741.

The Court in Northern Group Services noted that the

legislative history of the deemer clause was ambiguous.

C13

In fact, certain portions of the legislative history indicate

that Congress’ central concern in adopting the ERISA

preemption scheme was “to avoid intentional - and per-

haps pretextual — attempts by states to restrict the discre-

tion of ERISA plans to engage in practices that otherwise

would be permitted by federal law.” 833 F.2d at 93. In

Northern Group Services, as in this case, the parties did not

argue that the state was, intentionally or by pretext,

attempting to focus specifically on ERISA plans in the

statutes at issue.

The Court in Northern Group Services held:

In the absence of a showing of state purpose

specifically to regulate the content of welfare

benefits provided by ERISA, the effect of the

deemer clause should be assessed by a balan-

cing of the interests in federal uniformity

against those of state primacy in the regulation

of insurance.

Id.

The Court in Northern Group Services ruled that

exempting self-insurers from the Michigan law requiring

that insurers coordinate benefits so that no-fault auto-

mobile insurers were secondarily liable would disrupt the

state’s ability to administer a uniform scheme of coor-

dination of benefits. Such disruption would frustrate the

state’s goal of cost containment, create unpredictability

and possibly undermine the financial stability of no-fault

insurers. Similarly, in this case, exempting self-insurers

from the Pennsylvania law prohibiting subrogation

would disrupt the state’s ability to administer a generally

uniform scheme of prohibiting subrogation, except in

certain specific instances in which Assigned Claims Plans

C14

are required by law to provide benefits to those who

would not otherwise receive them. In those incidents, as a

matter of equity, the state has chosen to permit subroga-

tion. Otherwise, the state’s uniform goal of prohibiting

subrogation remains intact.

Furthermore, by holding that §1720 of the Pennsylva-

nia law as applied to self-insured plans comes within the

deemer clause and is thus preempted by ERISA, this

Court would be permitting plans to ensure that they

could obtain subrogation merely by deciding to self-

insure.

Weighing this injury to the state scheme against the

federal interest in uniform administration of ERISA

plans, it is clear that the injury to the state scheme far

outweighs any federal interest in developing a “federal

common law” of subrogation rights of self-insured ERISA

plans. This area of insurance law, like the area of coor-

dination of benefits, has been developed by each state

over a period of years. See 833 F.2d at 93-94. Injury to the

State scheme would be especially great when federal law

would encroach upon state law in an area in which states

enjoy “general authority and autonomy” - insurance reg-

ulation. Id.

As noted in Northern Group Services, this approach

does not necessarily contra ‘ene the Metropolitan Life dicta

quoted earlier in this opinion. The rule enunciated by the

Court in Northern Group Services and followed by this

Court today preserves a distinction between plans

insured by others and those which are self-insured.

Insured plans are per se open to indirect regulation. Self-

insured plans are subject to state regulation only when no

C15

independent tederal interest in national uniformity, out-

weighing the state interest in insurance regulation, exists

to inform and guide the creation of a federal common law

in the area at issue. Id. at 95.

Thus, under this reasoning, because no such indepen-

dent federal interest exists, §1720 of the Pennsylvania law

as applied to self-insured plans such as the one at issue is

not excluded from the savings clause by the deemer

clause. ERISA does not preempt §1720 because of the

savings clause, so the terms of the Pian do not govern the

subrogation issue. FMC may not assert subrogation rights

to any recovery Holliday obtains in the suit pending

before the Court of Common Pleas of Indiana County.

An appropriate Order will be issued.

Date: 3/14/89 /s/ Alan N. Bloch

United States District

. | Judge

4 te Counsel of record.

Clo

IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF PENNSYLVANIA

FMC CORPORATION, a

corporation,

)

ie )

Plaintiff, ) Civil Action

vs. ) No. 88-1098

CYNTHIA ANN HOLLIDAY, :

an individual, ‘

)

Defendant.

JUDGMENT ORDER

AND NOW, this 14th day of March, 1989, upon con-

sideration of Plaintiff's Motion for Summary ludgment

filed in the above captioned matter on December 2, 1988,

IT IS HEREBY ORDERED that said Motion is DENIED.

AND, further, upon consideration of Defendant's

Motion for Summary Judgment filed in the above cap-

tioned matter on December 5, 1988, IT IS HEREBY

ORDERED that said Motion is GRANTED.

/°/ Alan N. Bloch

United States District

Judge

cc: Charles Kelly, Esquire

1500 Oliver Building, Pittsburgh, PA 15222

Thomas Johnson, Esquire

406 Indiana Theatre Building, Indiana, PA 15701

APPENDIX D

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

FMC CORP. EMPLOYEE )

WELFARE BENEFITS PLAN _ )

COMMITTEE, et al., ) C-88-3092-FMS

Plaintiff(s), ORDER GRANTING

' , PARTIAL

| ) SUMMARY

THE GOOD SAMARITAN . JUDGMENT

Agape going GE ) (Filed December 5

SANTA CLARA VALLEY, ‘ 1988) casts,

Defendant(s). )

This is a motion for summary declaratory judgment

on a part of the plaintiffs’ claim. Plaintiffs request the

Court to declare that they have a right to subrogate their

claims to those of a third party against the defendant. The

Court heard argument on the plaintiffs’ motion regularly

on November 16, 1988 at 10:00 a.m.

Summary judgment is proper only when there is no

genuine issue of material fact and the moving party is

entitled to judgment as a matter of law. Fed. R. Civ. P.

s6(c); Sankovitch v. Life Ins. Co. of No. America, 638 F.2d

136, 138 (9th Cir. 1981). In deciding a motion for sum-

mary judgment, the Court draws all inferences of fact in

favor of the party opposing the motion. /d.; Bieghler v.

Aleppe, 633 F.2d 531 (9th Cir. 1980). Defendant, in oppo-

sing plaintiffs’ motion, has submitted no sworn affidavits

or declarations. Nor has defendant made a motion under

Fed. R. Civ. P. 56(f) indicating that it has not yet had the

opportunity to gather the facts necessary to effectively

controvert the facts asserted by the movant. Defendant

does attempt to catalogue a number of “triable issues of

fact” in its brief in opposition to plaintiffs’ motion. But it

is well established that assertions mede in legal mem-

oranda and at oral argument are not evidence and cannot

create issues of fact. Flaherty v. Warehouseman Local 334,

574 F.2d 484 (9th Cir. 1978). Thus, the Court finds no

genuine issues of material fact as to those facts asserted

in plaintiffs’ declarations. Nevertheless, even where no

evidence is presented in opposition to the motion, sum-

mary judgment should not be granted if the evidence in

support of the motion is insufficient to entitle the movant

to judgment as a matter of law. Hoover v. Switlik Parachute

Co., 663 F.2d 964, 967 (9th Cir. 1981).

FACTUAL BACKGROUND

Plaintiffs are an employee welfare benefits plan (the

“plan”) and the committee entrusted with administering

the plan. Defendant is in the business of providing health

care. One of the employees covered by the plan, a Mrs. Lo

Nero, has sued the defendant in state court for medical

malpractice (the “state court action”). Mrs. Lo Nero is not

a party to this action. In her state court action, Mrs. Lo

Nero is seeking her medical expenses, among other

things. The plan alleges in this action that it has paid at

least some of the medical expenses that Mrs. Lo Nero is

seeking to recover in the state court action. In Count | of

the Complaint in this action, the plan seeks a declaratory

judgment that it has a right of subrogation to recover

what it has allegedly paid out on behalf of Mrs. Lo Nero.

The remainder of the Complaint contains counts for the

actual subrogation action. The only count at issue on this

motion is Count I for declaratory judgment.

DISCUSSION

The parties agree that the issue of plaintiffs’ right of

subrogation turns on two questions: 1) w hether Califor-

nia Civil Code Section 3333.1, which prohibits subroga-

tion for collateral source payments in medical malpractice

actions, is preempted by the Employee Retirement

Income Security act of 1974, as amended (“ERISA”), 24

U.S.C. 1001 et seq. and 2) whether the plan, at the rele-

vant times, contained a right of subrogation at all.

Preemption

Section 3333.1 provides in relevant part that

77s

(b) No source of collateral benefits introduced

[as evidence by a medical malpractice plaintiff]

shall recover any amount against the plaintiff

nor shall it be subrogated to the rights of the

plaintiff against a defendant.

Neither party disputes that the purpose and effect of

this statute is to overturn the collateral source rule as it

applies to medical malpractice actions and to prohibit

subrogation in such actions. Barme 0 Wood, 37 Cal.3d 174

(1984).

The ERISA statute is broadly preemptive of state

laws. If a state law “relates to” employee welfare benefit

plans, ERISA preempts it. 29 U.S.C. 1144(a), Pilot Life Ins

Co. v. Dedeaux, 107 S. Ct. 1549, 1553 (1987). Congress,

however, did not intend the preemptive provisions o!

ERISA to divest the states of their power to regulate the

insurance industry. “[Flederal laws should not be con

strued to supersede state laws ‘regulating the business of

insurance.’ ” Metropolitan Life Ins. Co. v. Massachusetts, 471

U.S. 724, 736 (1984); 15 U.S.C. 1012(b). Congress expressly

“saved” from ERISA preemption any state laws “which

regulate insurance.” 29 U.S.C. 1144(b) (the “savings

clause”). Thus, if Section 3333.1 is a law regulating insur-

ance, then it is not preempted by ERISA.

More precisely, if the a (sic) state law comes within

the savings clause, it is not preempted as against insur-

ance companies. Although Congress was careful to leave

undisturbed by the ERISA legislation the reservation to

the states of the task of insurance regulation, Congress

was also careful to distinguish between insurance com-

panies and ERISA plans. Congress recognized that the

similarities between them would result in their being

state laws that affect both. In order to keep legitimate

state insurance regulations from encroaching on the

exclusively federal domain of ERISA plan regulation,

Congress qualified the savings clause wiih the “deemer

clause” which provides that

[nJeither an employee benefit plan... nor any

trust established under such a plan, shall 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 com-

panies [or] insurance contracts... .

29 US.C. 1144(b)(2)(B). Under the deemer clause, if a

state law regulating the business of insurance has appli-

cation on its face to ERISA plans as well, the state law is

Dreempted insofar as it applies to the ERISA plans. Metro-

politan Life, 471 U.S. at 747; United Food & Commercial

Workers v. Pacyga, 801 F.2d 1157, 1160-62 (9th Cir. 1986)

Thus, the preemption analysis in this case runs as

follows. If Section 3333.1 relates to the plaintiff plans, it is

preempted by the ERISA statute. If, however, Section

3333.1 is a state law regulating the business of insurance,

it is “saved” from preemption and is fully operative. But,

if the plaintiff plans are not insurance companies actually

providing insurance contracts but rather must be

“deemed” to be insurance companies by Section 3333.1 in

order to come within that law’s purview, then the plans

are protected by the deemer clause from the operation of

Section 3333.1. See Pacyga, 801 F.2d at 1159-62.

Defendant concedes that Section 3333.1 “relates to”

the plans and is thus subject to preemption. Def. Opp. at

6. The next question is whether Section 3333.1 regulates

the business of insurance. Defendant contends that it

does. Plaintiff asserts that it does not. In Pilot Life, the

Supreme Court stated that in order to regulate insurance,

a statute “must not just have an impact on the insurance

industry, but be directed to that industry.” 96 L.Ed.2d at

96. It is true that Section 3333.1 on its face makes no

mention of the insurance industry or any of its elements

and that the law has application outside the insurance

industry. On the other hand, Section 3333.1 is part of the

Medical Injury Compensation Reform Act of 1975

(MICRA), the comprehensive effort of the California leg-

istature to address what it saw as catastrophic skyrocket

ing in medical malpractice insurance premiums. The

question of whether Section 3333.1 regulates insurance

within the meaning of the ERISA savings clause is a close

one.

Assuming, without deciding, in the defendant's favor

that Section 3333.1 does regulate the insurance industry

and therefore does come within the protection of the

ERISA savings clause, the question becomes whether

ERISA’s deemer clause protects the plaintiffs from the

operation of Section 3333.1.

In attempting to understand the operation of the

deemer clause, the Metropolitan Life and Pacyga cases are

most instructive. In Metropolitan Life, the Court distin-

guished between insured and uninsured employee wel-

fare benefits plans. “Plans may self-insure or they may

purchase insurance for their participants. Plans that pur-

chase insurance — so-called ‘insured plans’ - are directly

affected by state laws that regulate the insurance indus-

try.” 471 U.S. at 732. The Court held that insured plans

may be regulated by the states because the deemer clause

need not come into play since insured plans do not have

to be “deemed” anything in order to come under state

insurance statutes. State insurance statutes simply end up

indirectly regulating insured plans by regulating the

insurance those plans purchase. Uninsured plans are dif-

ferent. They would not be indirectly regulated through

insurance regulation and would have to be “deemed”

part of the insurance industry in order to come within

legitimate state insurance regulation. This is precisely

what the deemer clause prohibits. “We are aware that our

decision results in a distinction between insured and

uninsured plans, leaving the former open to indirect reg-

ulation while the latter are not.” Id. at 747; see also Pacuga

801 F.2d at 1161.

The pian at issue here is a self-funded uninsured

plan. Decl. of Morrissey in Support of Motion at 2-3

Although there is no evidence submitted bv the plaintiffs

to the effect that the plan Carries no insurance at all or

that the plan provides no other services for which it is

insured, these matters would still not take the plan out of

the protection of the deemer clause. Pacyga, 801 Least

1161-62; Moore v. Provident Life and Accident Ins. Co., 786

F.2d 922 (9th Cir. 1986).

In sum, Section 3333.1 is preempted by ERISA at least

insofar as it would have applied to the plaintiffs here. ‘ he

defendant cannot avail itself of the operation of Section

3333.1 to avoid plaintiffs’ right to subrogate.

Contractual Right of Subrogation

Plaintiffs assert that if Section 3333.1 Is preempted

and therefore not an obstacle to subrogation, the plain-

tiffs have a contractual right ef subrogation. Plaintiffs

assert that the document setting forth the terms of the

plan at issue is a valid and enforceable contract vesting In

the plan itself rights of subrogation in two situations: 1)

where a beneficiary recovers from a third party the value

of benefits received from the plan, the plan may be reim-

bursed for those benefits, or 2) where a beneficiary does

not, or cannot, assert its claim directly against a culpable

third party, the plan may assert the substantive right!

the beneficiary. Decl. of Morrissey in Support of Plain-

tiffs’ Motion at 3.

In opposition, defendant points out that the plan's

terms, as they existed in 1986, did not include the express

right of subrogation. The plan today has an express sub-

rogation term written into the plan in 1987. Decl. of

Morrissey at 3. In 1986, when the claimed right of sub-

rogation at issue here would have arisen, the plan had no

such express language.

Plaintiffs claim that language in the 1986 plan in-

forming beneficiaries that they “will never receive more

than 100% of the medical expenses incurred” was always

interpreted by the plan’s trustees to give the plan the

rights of subrogation enumerated above and that the 1987

amendment to the plan making express these rights of

subrogation were merely cosmetic and did not expand in

any way the plan’s subrogation rights. Decl. of Morrissey

at 3. Defendant has submitted no evidence that such was

not the case. Furthermore, it is well settled that the inter-

pretation of a plan’s provisions by its administrator will

not be overturned absent arbitrary, capricious or legally

erroneous conduct. Nevill v. Shell Oil Co., 835 F.2d 209 (9th

Cir. 1987). On the record before it, this Court rules that,

Section 3333.1 being inapplicable to the parties herein,

plaintiffs’ (sic) possess the right to subrogate in the man-

ner alleged in Count | of the Complaint in this action and

therefore, Plaintiffs’ Motion For Partial Summary Judg-

ment as to Count | of the Complaint is hereby GRANTED.

SO ORDERED.

December 5, 1988

San Francisco, California

/s/ Fern M. Smith

FERN M. SMITH

United States District Judge

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