Amicus Curiae Brief — FMC Corp. v. Holliday

Supreme Court, U.S,

FILED

No. 89-1048

JR.

; CLERK

IN THE }

Siprrne Court of the Unitrn States

OCTOBER TERM, 1989

FMC CORPORATION.

Petitioner.

Vv.

CYNTHIA ANN HOLLIDAY,

Respondent.

On Petition for a Writ of Certiorari to the United States

Court of Appeals for the Third Circuit

_

BRIEF OF THE CHAMBER OF COMMERCE OF THE

UNITED STATES OF AMERICA, AS AMICUS CURIAE,

IN SUPPORT OF FMC CORPORATION’S PETITION

FOR A WRIT OF CERTIORARI

Of Counsel: HARRY A. RISSETTO *

STEPHEN A. BOKAT EK. CARL UEHLEIN, JR.

Mona C. ZEIBERG MARGERY SINDER FRIEDMAN

CHAMBER OF COM MERCE LARISSA OMELCHENKO TARAN

OF THE UNITED STATES 1800 M Street, N.W.

OF AMERICA Washington, D.C. 20036

1615 H Street, N.W. (202) 467-7130

Washington, D.C. 20062

(202) 463-5337

MORGAN, LEWIs & BOCKIUS

1800 M Street, N.W.

Washington, D.C. 20036

(202) 467-7000 * Counsel of Record

SSS EE ae

W'LSON EPES PRINTING Co., INC. - 789-CO96 - WASHINGTON, D.C. 29001

)

TABLE OF CONTENTS

SUBJECT INDEX

INTEREST OF AMICUS CURIAE ......00.00..0.00.02..2--- 1

SUMMARY OF ARGUMENT .....00.22.2..eeccceeeeeeeeeeeeees 2

EE Seba hssitesbohusceiicsineinelanlieteiluerecinsiseinbinnbniceatennnsi 5

THE WRIT SHOULD BE GRANTED BECAUSE

THE THIRD CIRCUIT’S DECISION IGNORES

THE COURT’S NECESSARY DISTINCTION BE-

TWEEN INSURED AND UNINSURED PLANS

—A LOGICAL DISTINCTION ROOTED IN HIS-

TORICAL STATE REGULATION OF THE BUSI-

NESS OF INSURANCE ..00000.....eeececeececeeeeeeeeeeeeeeees 5

THE WRIT SHOULD BE GRANTED AND THE

THIRD CIRCUIT’S DECISION REVERSED IN

ORDER TO PREVENT THE EXTENSIVE AD-

VERSE IMPACT OF A DECISION GRANTING

THE STATES LICENSE TO REGULATE ANY

AREA NOT CLASSIFIED AS A “CORE ERISA

ag RETEST ETE CTE 11

INTE cis ines bddieisdbladaniiisidnhacnioicsecimiaceteatiineniatieniation 17

ii

TABLE OF AUTHORITIES

Cases Cited Page

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

CEE) necenicsccssiviesescemssnsintacensmammismasinassa aan 14, 15

Barter v. Lynn, 886 F.2d 182 (8th Cir. 1989)... 11

FMC Corp. v. Holliday, 885 F.2d 79 (3rd Cir.

BD aceeetessccsccesecsevnisceevsunnanineibanisuiaeiannaaiannannn 6, 13

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

tj NE 9,11

Laborers Health and Welfare Trust Fund v. Ad-

vanced Lightweight Concrete Co., Inc., 484 U.S.

TD CBD accecesscncecesccnstsssnnessnceiunmninienaaeaaniaeeanen 2

Liberty Mutual Insurance Group v. Iron Workers

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

(+ 3 | re 10

Metropolitan Life Insurance Company v. Massa-

chusetts, 471 U.S. 724 (1985) ...0000 0. sidnetaatll passim

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

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

denied, 108 S.Ct. 1754 (1988) —00 ee. 6, 10

Pattern Makers League v. NLRB, 473 U.S. 95

CTD aciecceececccesenaccissnccneesseneseieiininnannnnannnnnnnnnn 2

Shaw v. Delta Air Lines, Inc., 463 U.S. 85 (1983) ..8, 14, 15

Trans World Airlines, Inc. v. Independent Federa-

tion of Flight Attendants, 109 S.Ct. 1225

CTE) oecscccencconecosusiecsnsisisssninsisassnaninaaainnnnnanannn 2

United Food & Commercial Workers v. Pacyga,

801 F.2d 1157 (9th Cir. 1966) ............................. 11

In Re: White Farm Equipment Co., 788 F.2d 1186

(le Sb | 15

Statutes Cited

Federal:

Employee Retirement Income Security Act

(“ERISA”) 29 U.S.C. § 1001 et seq. .................... 2

Ris Coe BC! | ee 7

BO UBC. © BOBR GED necceccescocsceesacee jest 13

39 U.S.C. § 2682 Ca) CB) —ccevccccenceonceseee 13

BO UB.C. § REGGE R) ancccenccecececcnssscusie 5,13

fii

TABLE OF AUTHORITIES—Continued

Page

29 U.S.C. § 1144(b) (2) (A) ...0..--- eee. 5

29 U.S.C. § 1144 (b) (2) (B) .............------.. ———

a sacussecnconsesnenes 13

McCarran-Ferguson Act, 15 U.S.C. § 1011 et seq... 3,7

State:

Ill. Ann. Stats., Chap. 73 §§ 964, 969 (Smith-Hurd

a estunemnsconscessnce 15

Ohio Rev. Code Ann. § 3901.38 (Anderson 1989) .. 15

Pa. Stat. Ann. tit. 40 §§ 1 to 720, Introduction

I I I ccc csrcecensccensensneccsasesece 7

Pa. Stat. Ann. tit. 40 § 93 (Purdon 1971) .............. 16

75 Pa. Cons. Stat. Ann. § 1720 (Purdon 1984)... 14

Tenn. Code Ann. § 68-11-219 (1988) —.....00000.... 15

Legislative History Cited

120 Cong. Rec. 29197 (1974) ..........2.22.ecceeceeeeeeeeeeeeeeeee 8

Other Authorities Cited

Burcke, Administrative Costs Lower Among Self

Insurers: Study, Bus. Ins., February 13, 1989,

a oii ccnccccscesenansssacersssceveseeseecsese 9

Collins, Regulation Best on State Level: Wash-

burn, Bus. Ins., May 2, 1988, at 69 ...................... 8

Donahue, 53% of Group Health Plans Are Now

Self-Insured: HIAA, Nat’] Underwriter, June

Nn. cesesnensocnce 12

Fisher, Agents, Consumer Groups Seek Regulatory

Standards, Nat’l. Underwriter, June 12, 1989,

Se . scscnnsnemeonarennnsonnes 8

Foster Higgins, Health Care Benefits Survey—

i cansamencscnnescocves 9,10, 12

Howard, States to Keep Ins. Regulation, Nat’l

Underwriter, June 26, 1989, at 3 000... 8

Jones, The Industry Doesn’t Need a Federal

‘Czar’, Nat’]1 Underwriter, November 7, 1988, at

sca sanesensneaneonnncsscnseces 8

iv |

TABLE OF AUTHORITIES—Continued IN THE ,

Page Supreme Court of the United States

Rappaport & Krist, Actuarial Aspects of Self- OCTOBER TERM, 1989

Insured Taft-Hartley Welfare Plans: Reserves,

Claim Forecasts and Setting Contribution

Levels, Emp. Ben. J., March 1986, at 14 ............ 12

Shalowitz, Self Insurance—Self-Funding Benefits No. 89-1048

at Peak of Popularity?, Bus. Ins., January 30, =

PG RI TIT innettoceeaneetaineh niente didiiieiat le 10

The Wyatt Company, A Survey of Health and Wel-

fare Plans Covering Salaried Employees of U.S.

Employers—i988 Group Benefits Survey—Sum-

gg IRRITANT IR ee ASE 12

FMC CORPORATION,

Petitioner,

Vv.

CYNTHIA ANN HOLLIDAY,

Respondent.

On Petition for a Writ of Certiorari to the United States

Court of Appeals for the Third Circuit

BRIEF OF THE CHAMBER OF COMMERCE OF THE

UNITED STATES OF AMERICA, AS AMICUS CURIAE,

IN SUPPORT OF FMC CORPORATION’S PETITION

FOR A WRIT OF CERTIORARI

INTEREST OF AMICUS CURIAE'

The Chamber is the largest federation of business,

trade, and professional organizations in the United

States. It represents the interests of over 180,000 cor-

1 This brief is being filed with the consent of the parties, pur-

suant to Supreme Court Rule 37.2. The consent letters have been

filed with the Clerk of the Court.

2

porations, partnerships and proprietorships, as well as

several thousand state and local chambers of commerce

and trade associations. An important function of the

Chamber is to represent the interests of its member em-

ployers in important labor relations matters before this

Court, the lower courts, the United States Congress, the

Executive Branch and independent regulatory agencies

of the federal government. Such representation consti-

tutes a significant aspect of the Chamber’s activities.

Accordingly, the Chamber has sought to advance those

interests by filing briefs in a wide spectrum of labor

relations litigation.°

The question presented by the instant case—whether

a State anti-subrogation law may be applied to an un-

insured employee welfare benefit plan—is of great con-

cern to all Chamber member employers that maintain

and operate self-insured employee benefit plans, and that

contribute to self-insured, collectively bargained, multi-

employer plans. The very large number of employer

members that operate and/or contribute to such plans

puts the Chamber in a position to provide the Court with

a more complete understanding of the certain and unend-

ing problems the Third Circuit’s decision will create in

the area of employee welfare benefit plan regulation.

SUMMARY OF ARGUMENT

In considering whether a state anti-subrogation law

applies to an uninsured employee welfare benefit plan

governed by the Employee Retirement Income Security

Act of 1974, 29 U.S.C. $$ 1001 et seg. (“ERISA”), the

United States Court of Appeals for the Third Circuit

expressly rejected this Court’s view of ERISA preemp-

2 E.q., Trans World Airlines, Inc. v. Independent Federation of

Flight Attendants, 109 S.Ct. 1225 (1989); Laborers Health and

Welfare Trust Fund v. Advanced Lightweight Concrete Co., Inc.,

484 U.S. 539 (1988); Pattern Makers League v. NLRB, 473 U.S.

95 (1985).

3

tion of state laws. The Court of Appeals found Pennsy]l-

vania’s anti-subrogation statute applicable to uninsured

plans, and in so doing, ignored a critical distinction be-

tween insured and uninsured plans that was created by

Congress and expressly recognized by this Court. While

this Court clearly held that ERISA preempts the applica-

tion of state laws to uninsured plans, the Third Circuit

decision sets the stage for dual and conflicting state and

federal regulation of these plans—a result which will

necessarily lead to increased administrative and ben-

efit costs. These increased burdens are precisely the

types of state-created pressures which Congress sought

to avoid through preemption.

The distinction between insured and uninsured plans

for ERISA preemption purposes is supported by several

factors. First, when Congress chose to “save” from pre-

emption state laws regulating insurance, it was doing no

more than continuing its historical deferral to state regu-

lation in this area. Recognizing that the insurance in-

dustry had traditionally been subject to extensive state

oversight, Congress vested regulation of the insurance

industry in the states through enactment of the 1945

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

By contrast, when Congress enacted ERISA in 1974, it

determined that adequate safeguards concerning the op-

eration of employee benefit plans were lacking, thus mak-

ing federal regulation of those plans desirable.

Second the nature and operation of employee benefit

plans make it inappropriate for them to be subject to

state insurance laws designed to regulate commercial

businesses and to protect consumers. While insurance

companies are businesses, selling consumer products to

the public, welfare benefit plans are non-profit entities

which exist to provide benefits only to a sponsoring em-

ployer’s employees. They do not market their products

to outside groups or to the public at large.

4

Third, Congress could not have accomplished its goal

of eliminating the threat of conflicting and inconsistent

employee benefit plan regulation without exempting un-

insured plans from state regulation. Although a plan

which purchases an insurance policy may rely on the

insurance company to comply with any state laws affect-

ing the company, an uninsured plan subject to state in-

surance laws would itself become responsible for sorting

through various and conflicting state requirements.

Moreover, if upheld, the approach adopted by the

Third Circuit, permitting a state law to apply to un-

insured plans as long as the state law does not address

“core ERISA concerns,” would serve as an open invita-

tion to the states to aggressively expand their regulation

of employee benefit plans. Although ERISA, by its de-

sign, does not address many subjects, and although Con-

gress expressly declined to extend even some of its “core”

elements to employee welfare plans, this Court has recog-

nized that the states are not free to fill in the gaps. If

left unreviewed, the decision of the Court of Appeals

will unleash a torrent of state legislative activity which

could adversely affect millions of employees. Studies show

that a large majority of welfare plans are uninsured.

Increased regulation by the states will be devastating to

the employers that have chosen to self-insure their plans,

and will ultimately result in diminished coverage for

workers and their dependents. This Court should grant

the requested Writ to prevent this upheaval, and to re

assert its analysis of the preemption of state laws relat-

ing to ERISA-covered plans.

5

ARGUMENT

THE WRIT SHOULD BE GRANTED BECAUSE THE

THIRD CIRCUIT’S DECISION IGNORES THE COURT’S

NECESSARY DISTINCTION BETWEEN INSURED

AND UNINSURED PLANS—A LOGICAL DISTINC-

TION ROOTED IN HISTORICAL STATE REGULA-

TION OF THE BUSINESS OF INSURANCE

This case centers on the distinction between insured

and uninsured employee benefit plans. The distinction

was created by Congress and reaffirmed by this Court in

Metropolitan Life Insurance Company v. Massachusetts,

471 U.S. 724 (1985) (“Metropolitan Life”). Neverthe-

less, it was essentially ignored by the Third Circuit in

the case below. In Metrupolitan Life, this Court held that

where an employee benefit plan purchases an insurance

contract from an insurance carrier subject to state reg-

ulation, the plan may be subject to indirect state regula-

tion because ERISA expressly excludes from its broad pre-

emption provision state laws regulating insurance. 471

U.S. at 747; Section 514(b) (2)(A) of ERISA, 29 U.S.C.

§ 1144(b) (2) (A).*. Where an employee benefit plan is

uninsured, however, it may not be subject to state in-

surance laws because ERISA expressly prohibits the

states from deeming an employee benefit plan to be an

insurance company or in the business of insurance for

purposes of a state law regulating insurance. Metropoli-

tan Life, 471 U.S. at 747; Section 514(b)(2)(B) of

ERISA, 29 U.S.C. § 1144(b) (2) (B).*

3 Section 514(a) of ERISA generally provides that the provi-

sions of ERISA “shall supersede any and all State laws insofar as

they may now or hereafter relate to any employee benefit plan

..” Section 514(b) (2) (A), often referred to as the “savings”

cleans, states that except as provided in subparagraph (B), nothing

in Title I of ERISA “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(a), (b) (2) (A).

4Section 514(b)(2)(B) of ERISA, known as the “deemer”

clause, states that “Neither an employee benefit plan ... nor any

6

The Third Circuit rejected the Court’s recognition of a

clear distinction in the application of ERISA’s preemp-

tion provisions to insured and uninsured plans. In hold-

ing that Pennsylvania’s anti-subrogation law applies to

uninsured welfare plans, the Third Circuit followed the

lead of the United States Court of Appeals for the Sixth

Circuit in Northern Group Services, Inc. v. Auto Owners

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

108 S.Ct. 1754 (1988) (“Northern Group Services’),

which upheld the application of coordination of benefits

rules under a Michigan no-fault automobile insurance

law to uninsured plans. Both of these Circuit Courts

strained to reach a result preserving a uniform appli-

cation of state laws to ail employee benefit plans, “so

that benefit obligations are governed by a rational system

of state law and federal common law.” FMC Corp. v.

Holliday, 885 F.2d 79, 84 (3d Cir. 19891, quoting Norti-

ern Group Services, 833 F.2d at 89.

Yet, significant distinctions between the business of

insurance and the operations of employee benefit plans

motivated Congress to design a regulatory scheme under

ERISA that specifically prohibited the application of

state laws where true insurance is not involved. The

Court should grant certiorari to prevent any further en-

croachment by the states, in the name of insurance reg-

ulation, on the exclusively federal area of employee bene-

fit plans.

As an initial matter, when Congress chose to “save’’

from preemption state laws regulating insurance, it was

doing no more than continuing its historical deferral to

state regulation in this area. The insurance industry has

traditionally been subject to extensive state regulation—

trust established under such a plan, shall be deemed to be an in-

surance company or other insurer .. . or to be engaged in the

business of insurance . . . for purposes of any law of any State

purporting to regulate insurance companies {or} insurance con-

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

7

indeed, Pennsylvania insurance legislation dates back to

at least 1810. Pa. Stat. Ann. tit. 40 $$ 1 to 720, Intro-

duction p. XXI (Purdon 1971). Congress long ago an-

nounced its intention to vest regulation of the insurance

industry in the states. In 1945, Congress enacted the

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

(codified as amended at 15 U.S.C. §§ 1011-1015 (1976 &

Supp. V 1982)), declaring “that the continued regulation

and taxation by the several states of the business of in-

surance is in the public interest.” By contrast, Congress

determined when it enacted ERISA that despite the re-

cent growth in size, scope, and numbers of employee bene-

fit plans, adequate safeguards concerning their operation

were lacking, thus making federal regulation desirable.

See Findings and Declaration of Policy, Section 2(a) of

ERISA, 29 U.S.C. § 1001 (a).

Further, allowing the states to continue to regulate in-

surance companies, while preventing them from regulat-

ing employee benefit plans, had a logical as well as his-

torical basis. Insurance companies (which generally

operate on a for-profit basis) are businesses, selling tra-

ditionally-regulated consumer products to unrelated cus-

tomers. Insurance companies compete with each other

for business, and advertise and market their products

within the business community and to the publie at large.

By contrast, uninsured employee welfare benefit plans

are not in the business of selling consumer insurance

products. They are non-profit entities which exist to pro-

vide benefits only to a sponsoring employer’s employees.

They do not market their wares to outside groups or to

the public, and they do not attempt to broaden their base

by selling coverage to unrelated beneficiaries. These dis-

tinctions more than justify Congress’ refusal to permit

the states to extend application of their traditional,

consumer-protection insurance statutes directly to em-

ployee benefit plans.

5 State insurance laws are commonly understood to be consumer

protection statutes, regulating the sale of consumer products. See

8

Even more importantly, however, the Congressional

goal of “eliminating the threat of conflicting and incon-

sistent State and local regulation” ® of employee benefit

plans could not have been accomplished without the com-

prehensive ‘“deemer” clause. Allowing the states to regu-

late insurance companies did not threaten to burden

employee benefit plans, even where those plans purchase

insurance policies. However, Congress had to exempt un-

insured plans from state regulation to ensure that the

plans would not be overwhelmed by conflicting require-

ments.

When an employer or employee benefit plan purchases

insurance from an insurance company, the plan does not

itself become subject to state laws or responsible for de-

termining the insurance company’s compliance in various

states. It is the insurance company’s obligation to moni-

tor the state laws that are applicable to it, and to make

certain that the insurance contracts it sells are in com-

pliance with those laws. Assumption of the administra-

tive burden associated with differing state insurance laws

is an essential component of the insurance product pur-

chased by an employee benefit plan.

Thus, the states do not in fact regulate the employee

benefit plans that purchase insurance policies. Rather,

the insurance companies are regulated, and plans simply

choose among the types of policies that the various states

permit to be marketed.

By contrast, if the decision below is permitted to stand,

and if state insurance laws are applied to uninsured em-

Collins, Regulation Best on State Level: Washburn, Bus. Ins.

May 2, 1988, at 69; Howard, States to Keep Ins. Regulation, Nat'l

Underwriter, June 26, 1989, at 3; Fisher, Agents, Consumer Groups

Seek Regulatory Standards, Nat’! Unlerwriter, June 12, 1989, at 1;

Jones, The Industry Doesn’t Need a Federal ‘Czar’, Nat’] Under-

writer, November 7, 1988, at 19.

6120 Cong. Rec. 29197 (1974), (statement of Rep. John Dent),

quoted in Shaw v. Delta Airlines, Inc., 463 U.S. 85, 99 (1983).

9

ployee benefit plans, the plans themselves will be required

to monitor and comply with extensive state regulation.

This Court has already found that Congress intended

ERISA’s preemption provision to eliminate “[a] patch-

work scheme of regulation,” because the inefficiencies in-

troduced: thereby “might lead those employers with ex-

isting plans to reduce benefits, and those without such

plans to refrain from adopting them.” Fort Halifax

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

the Court recognized, “[p]reemption insures that the ad-

ministrative practices of a benefit plan will be governed

by only a single set of regulations.” Jd.

If the states are permitted to apply their insurance

laws directly to employee benefit plans, those plans and

their sponsoring employers will be forced to shoulder the

burden of the “patchwork scheme of regulation” which

Congress intended to eliminate. Further, just as this

Court predicted, the costs of compliance with a multitude

of state laws may force some employers to reduce benefits

and discourage others from adopting plans in the first

place.

There can be no doubt that administrative costs for

uninsured plans will irzrease if those plans must comply

with various state insurance laws. One of the reasons

that employers and plan trustees choose to self-insure is

that the administrative costs for uninsured plans are

generally lower than for insured plans.’ In addition, em-

ployers insuring their own plans can achieve savings by

holding onto cash until claims are paid, instead of paying

premiums in advance to an insurer.* Despite these sav-

7 Burcke, Administrative Costs Lower Among Self Insurers:

Study, Bus. Ins., February 13, 1989, at 28, citing Foster Higgins,

Health Care Benefits Survey—1988, at 24 (health care adminis-

trative expenses for self-insured employers total 5.2% of claims,

while insured employers’ administrative expenses total 6.69% of

paid claims).

5’ Foster Higgins, supra note 7, at 23.

10

ings, however, there has been a dramatic upturn in medi-

cal plan costs.° Although this increase has affected both

insured plans and uninsured plans, uninsured plans ex-

perienced its impact sooner."”

The negative financial impact of the decision below

weuld not be limited to increased administrative costs,

however. The Third Circuit analysis will also impose ad-

ditional benefit costs on uninsured plans. These plans

often operate with limited funds. Employers (and in the

case of multiemployer plans, union and management

trustees) select benefit levels and make coverage decisions

in a manner designed to maximize the protection avail-

able to all plan participants. Subrogation rules and coor-

dination of benefits provisions, like those held applicable

to uninsured plans by the Third Circuit, and by the Sixth

Cireuit in Northern Group Services, 833 F.2d 85, serve

to stretch an uninsured plan’s limited dollars by restrict-

ing benefits to those individuals who have no other avenues

of recovery. If state laws prohibit employers and plan

boards of trustees from using these features of plan de-

sign, benefit costs will go up."

The additional plan costs which will result directly

from enforcement of the decision below could effectively

“ Shalowitz, Self Insurance—Self-Funding Benefits at Peak of

Popwarity?, Bus. Ins., January 30, 1989, at 3.

10 Foster Higgins, supra note 7, at 22.

11 Perhaps the only alternative to increasing benefits in response

to the Third Circuit decision would be to eliminate coverage for

medical costs arising out of automobile accidents. See Liberty

Mutual Insurance Group v. Iron Workers Health Fund of Eastern

Michigan, 879 F.2d 1384 (6th Cir. 1989) (coordination of benefits

rules of Michigan no-fault insurance law preempted where health

plan excluded coverage for automobile accidents). This completely

unrealistic alternative would create a major gap in the protection

of participants and beneficiaries under uninsured plans, and would

raise employee morale issues which few employers and plan spon-

sors would consider acceptable.

11

eliminate the self-insurance option for employers and

plans. This is precisely the type of state-created pressure

Congress sought to avoid through preemption. See Fort

Halifax, 482 U.S. at 11. The Court should take this op-

portunity to reaffirm the broad preemptive power of

ERISA and to prevent the Third Circuit’s opinion from

threatening the existence of uninsured employee welfare

benefit plans.

THE WRIT SHOULD BE GRANTED AND THE THIRD

CIRCUITS DECISION REVERSED IN ORDER TO

PREVENT THE EXTENSIVE ADVERSE IMPACT OF

A DECISION GRANTING THE STATES LICENSE TO

REGULATE ANY AREA NOT CLASSIFIED AS A

“CORE ERISA CONCERN”

The Third Circuit’s disregard of the Court’s careful

analysis of ERISA’s preemption provision, “savings” and

‘“‘deemer” clauses is so fundamentally erroneous that it

would require reversal even without a consideration of

the impact of the decision on the employee benefit plan

community. Similarly, the substantial and direct con-

flict among the Courts of Appeals '* (described in full in

the Petition for A Writ of Certiorari) would justify this

Court’s intervention regardless of the ultimate number of

employers and employee benefit plans that could be af-

fected by the issue in dispute. What gives this case even

greater significance, however, is the fact that unless this

Court agrees to review the decision of the Third Circuit

and strikes down its faulty preemption analysis, a large

number of uninsured plans covering millions of this na-

tion’s employees will be adversely impacted. In addition,

unless the Third Circuit’s erroneous interpretation of

ERISA’s “deemer” clause is overturned, the states will

feel free to go far beyond anti-subrogation laws and co-

'* See, e.g., Baxter v. Lynn, 886 F.2d 182 (8th Cir. 1989)

(ERISA preempts application of state subrogation law to self-

insured benefit plan); United Food & Commercial Workers v.

Pacyga, 801 F.2d 1157 (9th Cir. 1986) (same).

12

ordination of benefits rules, and to impose the types of

extensive (and potentially conflicting) regulatory require-

ments which Congress expressly determined should not

apply to employee welfare benefit plans.

As to the extent of the potential impact of the decision

below, studies show that the majority of Americans with

group health coverage are covered by plans with some

aspects of self-insurance.'* One survey indicates that the

percentage of uninsured plans may be as high as 66%."

In addition, many large multiemployer plans self-insure.’®

The growth in self-insurance has been attributed to ever-

increasing health premium costs.'* Clearly, the self-

insurance option has been viewed by many employers as

a manageable alternative to the purchase of expensive in-

surance contracts. If the desirability of this alternative

is diminished as a result of the Third Circuit decision, the

result may be reduced health benefits coverage for mil-

lions of employees.

After disparaging the Court’s preemption test set forth

in Metropolitan Life, 471 U.S. at 739-747, as “|s]tating

the obvious more than providing guidelines,” the Third

Circuit ruled that ERISA’s “deemer” clause will not pre-

13 Donahue, 53% of Group Health Plans Are Now Self-Insured:

HIAA, Nat’l Underwriter, June 13, 1988, at 13 (based on a 1987

survey of 771 employers by the Health Insurance Association of

America).

\* The Wyatt Company, A Survey of Health and Welfare Plans

Covering Salaried Employees of U.S. Employers—-1988, Group

Benefits Survey—Summary Highlights, at 32 (core employer group

of 170 employers surveyed). See also Foster Higgins, supra note 7,

at 23 (based on input of over 1600 employers with benefit pro-

grams covering over 10 million employees, 65% of employers with

1000 employees or more self-insure). ;

15 Rappaport & Krist, Actuarial Aspects of Self-Insured Taft-

Hartley Welfare Plans: Reserves, Claim Forecasts and Setting

Contribution Levels, Empl. Ben. J., March 1986, at 14.

16 Donahue, supra note 13, at 13.

13

vent application of a state insurance law to an uninsured

employee welfare benefit plan unless the state law ad-

dresses a “core type of ERISA matter” or “core ERISA

concerns.” See FMC, 885 F.2d at 84, 88, 90. According

to the Third Circuit, “core ERISA concerns”’ include the

areas of reporting, disclosure, and nonforfeitability. See

FMC, 885 F.2d at 88.'? Thus, as long as a state law pur-

porting to regulate “insurance” addresses areas other

than reporting, disclosure and nonforfeitability of bene-

fits, its provisions may be applied to uninsured employee

welfare plans.

As this Court’s prior decisions on ERISA preemption

demonstrate, the “core ERISA concerns” approach

adopted by the Third Circuit could not have been a result

intended by Congress. Although ERISA imposes com-

prehensive requirements on employee pension benefit

plans, Congress deliberately did not regulate health and

welfare plans as extensively. Welfare plans were ex-

pressly excluded from the complex and finely-tuned pro-

visions on vesting, participation, benefit accrual, mini-

mum funding, and plan termination insurance applicable

to pen..on plans. See Sections 201(1), 301/a)(1), and

4021(a}i(1) of ERISA, 29 U.S.C. $$ 1051/1), 1081/a)

(1), 1321(a)(1). Yet, Congress’ failure to extend all

aspects of ERISA regulation to welfare plans cannot be

construed to give the states authority to roam. As this

Court has recognized:

Nor, given the legislative history, can § 514(a) be

interpreted to pre-empt only state laws dealing with

7 Although the opinion is far from clear, the Third Circuit's

discussion of the legislative history of ERISA’s preemption provi-

sion suggests that the area of fiduciary responsibility would also

be a “core ERISA concern.” See FMC, 885 F.2d at 87-88. In

addition, the Third Circuit’s designation of nonforfeitability as a

“eore ERISA concern” suggests that other subject areas covered

by ERISA, but which (like nonforfeitability) are not applicable

to welfare plans, might also be considered “core” matters. See

Section 201(1) of ERISA, 29 U.S.C. § 1051(1) (excluding employee

welfare benefit plans from ERISA’s nonforfeitability rules).

14

the subject matters covered by ERISA—reporting,

disclosure, fiduciary responsibility, and the like. The

bill that became ERISA originally contained a lim-

ited pre-emption clause, applicable only to state laws

relating to the specific subjects covered by ERISA.

The Conference Committee rejected these provisions

in favor of the present language and indicated that

the section’s pre-emptive scope was as broad as its

language.

Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 98 (1983).

It was the broad scope of ERISA preemption that the

Court focused on in Metropolitan Life when it held that

mandated benefit laws do not apply to uninsured plans,

even where they are drafted as state insurance laws

“saved” from ERISA preemption. Mandated benefit laws

generally do not address the areas of reporting, disclos-

ure, or nonforfeitabilitv, and, indeed, go far beyond any

ERISA requirement applicable either to welfare or pen-

sion plans.'* Would the Third Circuit analysis lead to the

conclusion that mandated benefit laws thus do not address

“core ERISA concerns”? If so, even the state law dis-

eussed by this Court in Metropolitan Life could be found

not to be preempted by ERISA.

Even more disturbing is that in rushing to its desired

judgment, the Third Circuit failed to recognize that a

state anti-subrogation law in fact addresses the “core

ERISA concern” of nonforfeitability. The Pennsylvania

antisubrogation law at issue in this case prohibits any

right of subrogation or reimbursement from a _ partici-

pant’s tort recovery with respect to medical claims paid.

See 75 Pa. Cons. Stat. Ann. £1720 (Purdon 1984). It

essentially requires plans to treat a health benefit as

“vested’’—immune from certain reimbursement claims by

185 ERISA leaves the question of which benefits will be provided

under a plan to the private parties creating it. See Alessi v.

Raybestos-Manhattan, Inc., 451 U.S. 504, 511 (1981).

15

the plan, and, therefore, nonforfeitable."” Even if the

Third Circuit’s approach could be sustained under the

reasoning of this Court’s prior decisions, the proper

analysis would lead to the preemption of Pennsylvania’s

anti-subrogation law on the ground that it improperly

requires vesting of welfare plan benefits. That the Third

Circuit did not even address this point demonstrates the

danger in allowing to let stand a preemption test that

would give wide latitude to the states and the lower

courts in determining what is central to ERISA and

what is not.

If jeft undisturbed, the Third Circuit decision will

serve as an open invitation to expansive state regulation

of employee welfare plans. Indeed, it would be difficult

to predict the ingenuity which the states could apply in

devising creative new requirements for plan regulation

which could fit within the Third Circuit analysis. One

can assume, however, that various ‘and conflicting)

anti-subrogation rules and coordination of benefit laws

will be imposed throughout the states, along with rules

relating to benefits processing and the timeliness of pay-

ment of claims.“” The states may also attempt to impose

'9Cf. Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504 (New

Jersey law prohibiting offset of pensioner’s workers’ compensation

benefits against his pension is preempted by ERISA; although

offset would ordinarily constitute impermissible forfeiture under

ERISA, it is specifically permitted under lawful regulations of

Internal Revenue Code). Congress, of course, expressly declined

to extend ERISA’s vesting requirement to health and welfare

benefits. See In Re: White Farm Equipment Co., 788 F.2d 1186

(6th Cir. 1986) (no absolute rule requiring mandatory vesting of

retiree medical benefits; Congress expressly exempted welfare

plans from stringent vesting, participation and funding require-

ments). See also Metropolitan Life, 471 U.S. at 732 (ERISA does

not regulate substantive content of welfare benefit plans), citing

Shaw v. Delta Air Lines, Inc., 463 U.S. at 91.

2" See, e.g., Ill. Ann. Stats., Chap. 73 $$ 964, 969 (Smith-Hurd

1988); Ohio Rev. Code Ann. $3901.38 (Anderson 1989); Tenn.

Code Ann. § 68-11-219 (1988).

16

minimum asset (actuarial reserve) requirements and

other traditional “insurance” obligations on uninsured

plans.*! Uninsured plans covering participants in more

than one state will be thrust into the state law com-

pliance business, forced to sort through new and con-

flicting requirements, all in contravention of the

federally-designed scheme of uniform employee benefit

plan regulation.

Accordingly, Amicus Curiae urges this Court to grant

the Writ to resolve the irreconcilable differences between

the Third Circuit’s treatment of the case below and the

contrary views expressed by this Court, Congress, and

the other Courts of Appeals which have addressed this

issue; and to prevent the certain adverse impact on wel-

fare plans which will result from this unwarranted ex-

pansion of state regulation.

*1 See, e.g., Pa. Stat. Ann. tit. 40 § 93 (Purdon 1971).

17

CONCLUSION

The potential impact of the Third Circuit’s decision

demonstrates why this Court should once again address

the scope of ERISA’s preemption provisions. If left un-

disturbed, the decision below will disrupt ERISA’s

carefully-constructed scheme of uniform federal regula-

tion, and will threaten the viability of the nation’s unin-

sured welfare benefit plans. This Court should grant

the Writ to remove that threat.

For the foregoing reasons, Amicus Curiae, the Cham-

ber of Commerce of the United States, urges that the

petition of FMC Corporation be granted.

Respectfully submitted,

Of Counsel: HARRY A. RISSETTO *

STEPHEN A. BOKAT E. CARL UEHLEIN, JR.

MoNnaA C. ZEIBERG MARGERY SINDER FRIEDMAN

CHAMBER OF COMMERCE LARISSA OMELCHENKO TARAN

OF THE UNITED STATES 1800 M Street, N.W.

OF AMERICA Washington, D.C. 20036

1615 H Street, N.W. (202) 467-7130

Washington, D.C. 20062

(202) 463-5337

MORGAN, LEWIS & BocKIUS

1800 M Street, N.W.

Washington, D.C. 20036

(202) 467-7000 * Counsel of Record

January 26, 1990