Amicus Curiae Brief — FMC Corp. v. Holliday

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le | FILED

No. 89-1048 ~ FEB 1 1990

—== — ~ JOSEFH F. SPANIOL, JR.

IN THE at

Supreme Court of the United States

OCTOBER TERM, 1989

FMC CORPORATION,

Petitioner.

CYNTHIA ANN HOLLIDAY,

Respondent.

On Petition for Writ of Certiorari to the

United States Court of Appeals for the Third Circuit

BRIEF OF THE CENTRAL STATES, SOUTHEAST AND

SOUTHWEST AREAS HEALTH AND WELFARE FUND AS

AN AMICUS CURIAE IN SUPPORT OF PETITIONER

ANITA M. D’ARCY

Counsel of Record

JAMES L. COGHLAN

STEPHEN J. HARRIS

COGHLAN, JOYCE, KUKANKOS,

URBUT AND D’ARCY

250 South Wacker Drive, Suite 1500

Chicago, Illinois 60606

(312) 906-8299

WILLIAM J. NELLIS

Secretary to the Board of Trustees

Central States, Southeast and

Southwest Areas Health and

Welfare Fund

8550 West Bryn Mawr Avenue

Chicago, Illinois 60631

(312) 693-8550

Attorneys for Amicus Curiae

Midwest Law Printing Co., Chicago 60611, (312) 321-0220

TABLE OF CONTENTS

TABLE OF AUTHORITIES ............-.++:

THE INTEREST OF THE AMICUS CURIAE ..

SUMMARY OF THE ARGUMENT .........-

REASONS FOR GRANTING THE WRIT:

REVIEW IS NECESSARY TO RESOLVE THE

CONFLICT BETWEEN THE DECISIONS OF

THIS COURT AND THAT OF THE UNITED

STATES COURT OF APPEALS FOR THE

THIRD CIRCUIT WHICH DECISION SEVERE-

LY LIMITS THE SCOPE OF ERISA PRE-

EMPTION OF STATE LAW REGULATION OF

SELF-FUNDED EMPLOYEE BENEFIT

DEE cacanckdcesebeesteeasonceunvencee

Il.

REVIEW IS NECESSARY TO RESOLVE THE

CONFLICT BETWEEN THE UNITED STATES

COURTS OF APPEAL ON THE sCOPE OF

ERISA PREEMPTION AS APPLIED TO SELF-

FUNDED EMPLOYEE BENEFIT PLANS ....

ei) Pt errr rrr ree ee

TABLE OF AUTHORITIES

Cases PAGE

Auto Club Ins. Assc. v. Frederick & Herrud, Inc.,

433 Mich. 900 (1989), petition for cert. filed,

Thorn Apple Valley Inc. v. Auto Club Ins.

Assoc., ___. U.S.L.W. ____ (U.S. Dec. 29, 1989)

(No. GD-11GD .. ooo cncscccescuuneneeeel 3

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

F2d _ Gt Cir. OGD cccvcnesussauees 17

Central States, Southeast and Southwest Areas

Pension Fund v. Central Transport, Inc., 472

US. GED CBR «nc cccdcccuncenchaueeeee 1

Central States, Southeast and Southwest Areas

Health and Welfare Fund v. Hawkeye-Security

Ins. Co., __. U.S. ___., 109 S.Ct. 783 (1989) .. 3

FMC Corp. v. Holliday, 885 F.2d 79 (8rd Cir.

Pett passim

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

(GBT)... occ cncscessesceunpenu nee 4,14

Hunt v. Sherman, 345 N.W.2d 750 (Minn. 1984) .. 18

Liberty Mutual Ins. Co. v. Tron Workers Health

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

reh’g denied, ____ F.2d _____ (6th Cir. 1989) .. 3

Metropolitan Life Ins. Co. v. Massachusetts, 471

UB. TG CGD ows sce cnssenc neue 5, 8, 11, 12

Northern Group Services, Inc. v. Auto Owners Ins.

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

__. «U.S. ——., 108 S.Ct. 1754 (1968) ......

seeveweunénuceweneeueemennnnnn 2, 3, 5, 8, 17, 18

Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1989). 7, 11

iii

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

United Food & Commercial Workers v. Pacyga,

801 F.2d 1157 (9th Cir. 1986) ............. 17

Winstead v. Indiana Ins. Co., 855 F.2d 430 (7th

Cir. 1988), cert. denied, _.__ U.S. ___., 109

i cee s ccc e cS see csercesccece 3

Statutes

Employee Retirement Income Security Act of 1974,

29 U.S.C. §1001, et seg.: Sections 3(1), 404(aX1XB),

514(bX2XB), 2(a), 402(aX1), 403(a), and 404(aX1XB),

is ci eke biked ne esesnccace 1

ee 1, 16

29 U.S.C. S$1144(ONZNB) .... 2... cece cece eee passim

keke sec cccececensesens i)

i ann akecceseseeecseses 13, 17

Ee eke ce evescesciocsocces 13, 17

nn 17

The Michigan No-Fault Insurance Act, Mich. Comp.

Law Ann. §500.3101 et seg.: Section 500.3109a,

Mich. Comp. Law Ann. §500.3109%(a) .......... 2,17

The Pennsylvania Motor Vehicle Financial Respon-

sibility Law of 1984, 75 Pa. Cons. Stat. Ann.

Section 1720,

me Go, Geet. ARM. GETEO ... 2... cccccces 17

Other Authorities

A. Foster Higgins & Co., Health Care Benefits

Survey, 1988, Med. Benefits, Feb. 28, 1989 ...

Average Costs Rose 18.6 Percent Under Employer

Plans, Survey Finds, 16 Pens. Rep.(BNA) 250

SP A ED occa cas baceh Ganboeunnesuneek<

Costs Will Rise into the 1990s, Pushing Up Cor-

porations’ Benefits Costs, 16 Pens. Rep.(BNA)

fF Se Reser errr eae

DiBlase, Group Health Bills Equal A Third Of

Profits, Bus. Ins., May 29, 1989 ...........

Francis, U.S. Industrial Outlook 1989: Health Ser-

vices, Med. Benefits, Feb. 15, 1989 ........

Letsch, Levit & Waldo, National Health Expendi-

tures, 1987, 10 Health Care Fin. Rev. 109

NR I Ee a eee eas

Sharkey & Buckle, The Medicare Prospective Pay-

ment System: Impact On The Frail Elderly

And An Alternative Reimbursement Formula,

3 Notre Dame J. of L., Ethics & Pub. Pol’y 227

OE ccd cccucsxe cas saeuneassceveetineeaeus

No. 89-1048

IN THE

Supreme Court of the United States

OcTOBER TERM, 1989

FMC CORPORATION,

Petitioner,

CYNTHIA ANN HOLLIDAY,

Respondent.

On Petition for Writ of Certiorari to the

United States Court of Appeals for the Third Circuit

BRIEF OF THE CENTRAL STATES, SOUTHEAST AND

SOUTHWEST AREAS HEALTH AND WELFARE FUND As

AN AMICUS CURIAE IN SUPPORT OF PETITIONER

olin

THE INTEREST OF THE AMICUS CURIAE

——————_

The Central States, Southeast and Southwest Areas

Health and Welfare Fund (“Fund”) is a Taft-Hartley trust

and an employee welfare benefit plan as described in Sec-

tion 3(1) of the Employee Retirement Income Security Act

of 1974 (“ERISA”), 29 U.S.C. §1002(1).1 See Central States,

Southeast and Southwest Areas Pension Fund v. Central

Transport, Inc., 472 U.S. 589, 561-562 (1985). The Fund

self-funds all medical, hospital and disability benefits that

it provides to its more than 500,000 participants and

peneficiaries. These participants and beneficiaries reside

in over thirty-four states.

In compliance with their fiduciary duties under ERISA

to manage plan assets prudently and in the best interest

of all participants and beneficiaries, the Trustees of the

Fund have included cost-containment measures in the

plan, such as subrogation and coordination of benefits. See

99 U.S.C. §1104(aX1XB). Because of escalating medical

costs, these cost-containment measures are necessary to

»reserve plan assets for the payment of current and

future medical benefits and to eliminate duplication of

benefits with other insurance or plan coverages.

Multiemployer benefit plans are particularly affected by

substantial increases in medical care costs because their

income is primarily, if not solely, from employer contribu-

tions. The amount of each employer's contribution is fixed

by collective bargaining agreements negotiated by the

1 Both the petitioner, FMC Corporation, and ‘he respondent

Cynthia Ann Holiday, gave the Fund consent @ file this amicu

curiae brief, and copies of their attorneys’ letters confirming this

consent have been sent with this brief to the Clerk of the United

States Supreme Court.

union and employers every three to five years. If the

employers’ contributions are not sufficient to fund plan

benefits, the trustees of such plans have limited choices,

namely to reduce benefit levels and/or to institute cost-

containment measures.

The Fund is significantly and adversely affected by the

ruling in this case by the United States Court of Appeals

for the Third Circuit because the Fund does provide bene-

fits to participants and beneficiaries who reside in Penn-

sylvania. Due to the Third Circuit’s opinion in this case,

the Fund probably will not be able to enforce its subro-

gation provision in Pennsylvania and thus will be deprived

of an important cost-containment measure. Moreover, the

Fund will have to adopt different administrative proce-

dures to comply with this Pennsylvania insurance law,

thereby causing the Fund to incur another financial cost

and administrative burden.

If this decision were limited to one state and one insur-

ance law, the financial and administrative burden on multi-

state employee benefit plans such as the Fund would not

be so threatening. However, this disregard of the scope

of ERISA preemption is not so limited and, in fact, is

increasing. In this case, the Third Circuit relied consider-

ably upon the reasoning and ruling of the United States

Court of Appeals for the Sixth Circuit in the case of

Northern Group Services, Inc. v. Auto Owners Ins., Co.,

833 F.2d 85 (6th Cir. 1987), cert. denied, _._ U.S. ___.,

108 S.Ct. 1754 (1988). In Northern Group, the Sixth Cir-

cuit held that a Michigan no-fault insurance statute, which

authorized motor vehicle insurance companies and their

insureds to subordinate motor vehicle no-fault benefits to

benefits provided by self-funded employee welfare benefit

plans in violation of the coordination of benefits terms of

those plans, was not preempted by ERISA because of the

priority of the state’s power to regulate insurance. 83°

F.2d at 94-95. To justify this holding, the Sixth Circuit

devised a new test for ERISA preemption, requiring that

if a self-funded employee benefit plan is to avoid state

regulation, it must first demonstrate a federa! interest in

national uniformity independent of and beyond the re-

quirements of Section 514 of ERISA, and that this specific

federal interest must then “. . . outweigh the MeCarran-

Ferguson interest in state regulation of insurance.” Id.

at 95.

Thus, there are currently two Circuits which have

issued decisions which undermine both ERISA preemption

and the efforts of employee welfare benefit plans to con-

tain costs so as to be able to provide benefits at estab-

lished benefit levels. As a result of the Northern Group

case, employee welfare benefit plans operating in Michigan

have initiated or been named as parties in expensive liti-

gation concerning whether their coordination provisions

are enforceable.2 Now that the Third Circuit has advanced

a different but equally vague and unsupportable test for

ERISA preemption, employee benefit plans can expect to

be involved in another flood of litigation. In the mean-

time, multi-state plans which provide benefits in Pennsyl-

vania will incur the financial and administrative costs of

having to comply with the Pennsylvania prohibition against

subrogation.

2 Only some of the many post-Northern Group cases are listed

below: Auto Club Ins. Asse. v. Frederick & Herrud, Inc., 433

Mich. 900 (1989), petition for cert. filed, Thorn Apple Valley, Inc.

» Auto Club Ins. Assoc., —— U.S.L.W. ___. (U.S. Dee. 29, 1989)

(No. 89-1125); Central States, Southeast and Southwest Areas Health

and Welfare Fund v. Hawkeye-Security Ins. Co., ——. U.S. ___.,

109 S.Ct. 783 (1989); Winstead v. Indiana Ins. Co., 855 F.2d 430

(7th Cir. 1988), cert. denied, _— U.S. ___, 109 S.Ct. 8839 (1989);

Liberty Mutual Ins. Co. v. lron Workers Health Fund of Eastern

Michigan, 879 F.2d 1384, reh'g denied, — F.2d ____ (6th Cir.

1989). Indeed, the Northern Group case came before the Sixth Cir.

cuit again for oral argument on January 25, 1990

ailiins

Perhaps the most threatening aspect of this increasing

disregard for the wide scope of ERISA preemption is the

signal that these decisions send to the states and insur-

ance lobbyists. By requiring employee benefit plans to

comply with state insurance laws which shift a substan-

tial financial burden from for-profit insurance companies

to employee benefit plans, the courts are encouraging the

states to enforce and enact similar insurance laws against

such plans.

If this trend continues, many employee benefit plans will

have to reduce substantially their benefit levels. The admin-

istrative nightmare and the substantial financial problems

caused by a patchwork scheme of federal and state regula-

tion of multi-state employee benefit plans foretold by this

Court is thus becoming a reality. Shaw v. Delta Air Lines,

Inc., 462 U.S. 85, 107-108 (1983); Fort Halifax Packing

Co. v. Coyne, 482 U.S. 1, 9-11 (1987). Accordingly, the

Fund urges this Court to issue a writ of certiorari in this

case and stem the tide of case law that will prove to be

a financial blow to the millions of participants and bene-

ficiaries of self-funded employee benefit plans.

SUMMARY OF THE ARGUMENT

The Fund urges this Court to issue a writ of certiorari

and to reverse the holding of the United States Court

of Appeals for the Third Circuit in this case for several

reasons. First, the Third Circuit’s interpretation of the

deemer clause of Section 514 of the Employee Retirement

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

1144(bX2XB), directly conflicts with the plain meaning and

legislative history of Section 514 and with several of this

Court’s decisions. By devising a new test for ERISA pre-

emption which states that the deemer clause allows pre-

emption of state insurance law only where the state law

conflicts with a “core ERISA concern,” the Third Cir-

cuit is undermining the clear and expressed purpose and

intent of Congress in including a broad preemption pro-

vision in ERISA which was to prevent patchwork regula-

tion of self-funded employee benefit plans by the states.

Moreover, the Third Circuit’s holding directly conflicts

with the decisions of this Court in Shaw v. Delta Air

Lines, Inc., 463 U.S. 85 (1983), and Metropolitan Life Ins.

Co. v. Massachusetts, 471 U.S. 724 (1985). Contrary to

the Third Circuit’s ruling, this Court in Shaw held that

ERISA preemption is not limited to state laws that deal

only with the subject matters covered by ERISA. 463

U.S. at 98. Moreover, the Third Circuit’s holding violates

the distinction mandated by Congress and recognized by

this Court in the Metropolitan Life case, wherein this

Court stated that insured employee benefit plans are sub-

ject to indirect state regulation while self-funded plans are

not. 471 U.S. at 747.

A writ of certiorari should also be granted because the

decision of the Third Circuit further splits the United

States Courts of Appeal on the issue of the scope of

ERISA preemption for self-funded employee benefit plans.

Both the Third Circuit in this case and the Sixth Circuit

in the case of Northern Group Services, Inc. v. Auto

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

ee EE , 108 S.Ct. 1754 (1988), have advanced dif-

ferent but equally vague and unsupportable tests for

ERISA preemption. The Third and Sixth Circuits’ restric-

tive interpretations of Section 514 conflict with the inter-

pretations given by the Eighth, Seventh, Ninth, Fourth

and Fifth Circuits.

This conflict among the Circuits presents serious public

policy problems. The decisions of the Third and Sixth Cir-

ales

cuits prohibit self-funded employee benefit plans from en-

forcing plan cost-containment measures that are critical

to such plans. As a result of escalating medical care costs

and the limited financial resources of such plans, many

such plans have adopted subrogation and coordination of

benefits provisions as cost-containment measures. If such

plans are prohibited from utilizing these cost-containment

measures, comparable reductions in benefit levels will

have to occur.

Moreover, this split among the Circuits has caused, and

will continue to cause, wide-spread litigation which em-

ployee benefit plans can little afford. If the precedents

set by the Third and Sixth Circuits are followed, multi-

state employee benefit plans will incur the substantial and

potentially crippling administrative and financial costs of

having to adopt separate plans and administrative proce-

dures for each state in-which their participants and bene-

ficiaries reside.

REASONS FOR GRANTING THE WRIT

REVIEW IS NECESSARY TO RESOLVE THE CONFLICT

BETWEEN THE DECISIONS OF THIS COURT AND THAT

OF THE UNITED STATES COURT OF APPEALS FOR

THE THIRD CIRCUIT WHICH DECISION SEVERELY

LIMITS THE SCOPE OF ERISA PREEMPTION OF

STATE LAW REGULATION OF SELF-FUNDED EM-

PLOYEE BENEFIT PLANS.

The Third Circuit’s decision in the instant case direct-

ly conflicts with the plain meaning and legislative history

of Section 514 of ERISA and with several of this Court’s

decisions which construe Section 514 of ERISA. In the

instant case, the Third Circuit devised a new test for

ERISA preemption, allowing preemption of a state insur-

ance law only where the state law conflicts with a “core

ERISA concern.” FMC Corp. v. Holliday, 885 F.2d 79,

86, 89-90, reh’g denied, ___ F.2d ___. (8rd Cir. 1989).

To justify adoption of this “core conflict test,” which sub-

ordinates Congress’ goal to establish uniform, comprehen-

sive federal regulation of employee benefit plans to the

states’ power to regulate insurance, the Third Circuit ad-

vances an unsupportable interpretation of the deemer

cause in Section 514, selectively cites legislative history

out of context and criticizes a prior ruling by this Court,

as lacking statutory and legislative history foundation, con-

cerning the distinction drawn between preemption as ap-

plied to self-funded employee benefit plans and insured

employee benefit plans. Jd. at 86-89. The Third Circuit’s

decision also constitutes a direct conflict with this Court’s

holding that ERISA preemption is not limited to state

laws that deal with the subject matters covered by ERISA.

Shaw v. Delta Air Lines, Inc., 463 U.S. at 98.

Without identifying an ambiguity in the deemer clause,

the Third Circuit engages in a selective review and strained

analysis of the legislative history underlying the deemer

clause to determine its scope. The Third Circuit then con-

cludes that “. . . the deemer clause guards against any

insurance regulation that infringes on such ERISA areas

as reporting, disclosure and non-forfeitability.” FMC Corp.

v. Holliday, 885 F.2d 79, 88, reh’g denied, ___ F.2d ___

(3rd Cir. 1989).

The Third Circuit’s analysis and conclusion are errone-

ous for several reasons. First, this Court has held that

the plain meaning of the deemer clause is unambiguous:

“The deemer clause makes clear that a state law that

‘purport{[s] to regulate insurance’ cannot deem an em-

ployee benefit plan to be an insurance company.” Pilot

Life Ins. Co. v. Dedeaur, 481 U.S. 41, 45 (1987). Thus,

iin

the deemer clause is the specified exception to the sav-

ings clause, which preserves state insurance and other

laws from ERISA preemption, and the deemer clause pro-

hibits employee benefit plans from being regulated by “. . .

any law of any State purporting to regulate insurance

companies, insurance contracts. .. .”” 29 U.S.C. §1144(bX2XB).

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

724, 733 (1985). Moreover, this Court has emphasized that,

in construing Section 514 of ERISA, the plain language must

be enforced unless there is a good reason to believe Con-

gress intended a more restrictive meaning to apply. Shaw

v. Delta Air Lines, Inc., 463 U.S. at 97. Therefore, the Third

Circuit’s narrow construction of the deemer clause is in con-

flict with principles this Court has recognized and expressed.

The Third Circuit’s analysis of the deemer clause also fails

due to its highly selective and biased review of the legislative

history underlying Section 514 of ERISA. In examining the

legislative history, the Third Circuit argues that preemp-

tion under the deemer clause is basically limited to state laws

that constitute “. . . back-door attempts by states to regulate

core ERISA concerns in the guise of insurance regulation.”

885 F.2d at 86, cited in, Northern Group Services, Inc. v.

Auto Owners Ins. Co., 833 F.2d 85, 91-94 (6th Cir. 1987),

cert. denied, ____ U.S. ___, 108 S.Ct. 1754 (1988). To sup-

port this argument, the Third Circuit selectively quotes com-

ments of ERISA legislative sponsors which relate only to

their concern with state laws being “hastily contrived’’ to

regulate ERISA plans. However, the very quotations util-

ized by the Third Circuit serve to underscore Congress’

primary concern in including a broad preemption provision

in ERISA, which was that employee benefit plans be sub-

ject to uniform federal regulation. The Senator Javits quota-

tion, that ERISA preemption extended to “ (s]tate laws

hastily contrived to deal with some particular aspect of

private welfare or pension benefit plans not clearly connected

alien

to the Federal regulatory scheme,’ ”’ clearly expresses his

concern with the states’ passing laws after ERISA’s enact-

ment to regulate areas of plan administration and operation

not specifically governed by ERISA. 885 F.2d at 87. Senator

Williams’ statement also stressed Congress’ concern that

state professional regulations “‘. . . should not be able to pre-

vent unions and employers from maintaining the types of

employee benefit programs which Congress has authorized.”

Id.

Uniform federal regulation of employee welfare and pen-

sion benefit plans was one of the fundament:l and over-

riding purposes of Congress in enacting ERISA. So as

to remove any doubt concerning the purposes that ERISA

was to serve, Congress set forth its findings and declara-

tion of policy in Section 2 of ERISA, which, in part, pro-

vides:

The Congress finds that the growth in size, scope,

and numbers of employee benefit plans in recent

years has been rapid and substantial; that the opera-

tional scope and economic impact of such plans is in-

creasingly interstate; that the continued well-being

and security of millions of employees and their de-

pendents are directly affected by these plans; that

they are affected with a national public interest; that

they have become an important factor affecting the

stability of employment and the successful develop-

ment of industrial relations;

*x* * * *k *

29 U.S.C. §1001(a).

Moreover, ERISA’s legislative sponsors stressed the im-

portance of uniform federal regulation of employee benefit

plans. In quoting Senator Williams, the Third Circuit ig-

nores his explanation of the scope of ERISA preemption:

It should be stressed that with the narrow excep-

tions specified in the bill, the substantive and enforce-

ottiin

ment provisions of the conference substitute are in-

tended to preempt the field for Federal regulations,

thus eliminating the threat of conflicting or inconsis-

tent State and local regulation of employee benefit

plans. This principle is intended to apply in its broad-

est sense to all actions of State or local governments,

or any instrumentality thereof, which have the force

or effect of law.

Shaw v. Delta Air Lines, Inc., 463 U.S. at 99, quoting

120 Cong. Rec. 29933. The Third Circuit also selectively

edits Senator Javits’ remarks, which continued after the

statement quoted by the Third Circuit: “Although the de-

sirability of further regulation—at either the State or Fed-

eral level—undoubtedly warrants further attention, on

balance, the emergence of a comprehensive and pervasive

Federal interest and the interests of uniformity with

respect to interstate plans required—but for certain excep-

tions—the displacement of State action in the field of

private employee benefit programs.” /d. at 99-100 n.20.

As to the task force report denigrated by the Third Cir-

cuit, it was Senator Javits who explained that the mem-

bers of the conference responsible for the final draft of

ERISA had assigned the Congressional Pension Task Force

with the responsibility of studying and evaluating ERISA

preemption to determine what modifications in preemption

policy would be necessary. Jd. Another ERISA sponsor,

Representative Dent, who was not quoted by the Third

Circuit, also stressed the breadth of ERISA preemption:

Finally, 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

preemption of the field, we round out the protection

afforded participants by eliminating the threat of con-

flicting and inconsistent State and local regulation.

Id. at 99.

iil

Based upon a thorough and unbiased examination of the

legislative history underlying Section 514 of ERISA, this

Court has repeatedly held that ERISA preemption can-

not be limited to only those state laws which regulate the

matters covered by ERISA, including reporting, disclosure

and fiduciary responsibility. Jd. at 98. On the contrary,

this Court has held that Section 514 was intended “. . .

to displace all state laws that fall within its sphere, even

including state laws that are consistent with ERISA’s sub-

stantive requirements.” Metropolitan Life Ins. Co. v.

Massachusetts, 471 U.S. at 739. In fact, Congress consid-

ered and rejected bills which allowed preemption of only

subject matters expressly governed by ERISA and which

did not include a deemer clause reserving regulation of

ERISA plans to the federal government. 463 U.S. at 98;

Pilot Life Ins. Co. v. Dedeaux, 481 U.S. at 46. These bills

were rejected not only because they would have required

ERISA plans to comply with multiple and potentially con-

flicting state laws, but also because they raise the possibil-

ity of “endless litigation” on issues of whether state

regulation impinged upon federal regulation. 463 U.S. at

99 n.20. Moreover, after a period of monitoring by the

Congressional Pension Task Force and hearings by a House

Subcommittee, a report evaluating ERISA’s preemption

provisions was issued, and it stated that: “ ‘the Federal

interest and the need for national uniformity are so great

that enforcement of state regulation should be precluded.’ ”

Id. at 100 n.20, quoting H.R. Rep. No. 94-1785, p. 47

(1977).

Despite this overwhelming authority supporting the

wide scope of ERISA preemption, the Third Circuit fur-

ther contends that any interpretation of the deemer clause

other than that it prohibits insurance regulation of the

“central aspects of ERISA” would render the savings

clause meaningless or read in distinctions that are not sup-

- |

ported by the statute. 885 F.2d at 88. Although the Third

Circuit does not explain how any other interpretation of

the deemer clause would “swallow” the savings clause,

it criticizes this Court’s interpretation of the savings and

deemer clauses in the Metropolitan Life case, wherein this

Court stated that insured plans are subject to indirect

state regulation while self-funded employee benefit plans

are not. Jd. at 89. The Third Circuit implies that this

Court erroneously created this distinction between self-

funded and insured plans without reliance upon statutory

language or legislative history, but instead based this

distinction upon the “vague language in Congress’ post-

hoc study.” Id.

Again, the Third Circuit chooses to ignore the statutory

language and legislative history of Section 514 of ERISA.

The deemer clause prevents an employee benefit plan

from being deemed an insurance company or other insurer

or as being engaged in the business of insurance “

for purposes of any law of any State purporting to regu-

late insurance companies, insurance contracts. . . .”” 29

U.S.C. §1144(bX2XB). However, the deemer clause does

not preempt state laws regulating insurance contracts pur-

chased by an employee benefit plan. The regulation of the

content of insurance contracts is not subject to preemp-

tion due to the plain meaning of the savings clause. Thus,

if an employee benefit plan chooses to self-fund its bene-

fits, it cannot be deemed an insurance company which

under the laws of most, if not all, states must submit its

benefit plan containing provisions concerning eligibility,

benefit levels and terms and conditions for receiving bene-

fits to the state department of insurance for review and

approval as to its compliance with the state insurance code

and other regulations. See Metropolitan Life Ins. Co. v.

Massachusetts, 471 U.S. at 727-728. On the other hand,

those plans which decide to purchase insurance coverage

for their members from insurance companies must comply

with the state law limitations placed on those insurance

contracts. This indirect regulation of insured plans is thus

expressly sanctioned by Congress. Moreover, the fact that

plans may choose to self-fund benefits, and thus be en-

titled to adopt benefit rules without regard to state law,

or to purchase insurance policies subject to state law

restrictions comports with both the statutory provisions

of ERISA’s entrusting plan fiduciaries with exclusive au-

thority to manage and control plan assets and with the

legislative history which establishes that plan fiduciaries

have broad discretion in determining how the plan is to

be administered. See 29 U.S.C. §§1102(aX1), 1103(a).

The Third Circuit argues in the alternative that its pro-

posed test concerning the application of the deemer clause

would not eradicate the distinction drawn by this Court

between insured and self-funded employee benefit plans.

885 F.2d at 89. The Third Circuit explains that “. . . under

Metropolitan Life insured plans would per se survive the

deemer clause, while self-insured pians would merely be

considered on a case-by-case basis as to whether the state

regulation involved affects a central concern of ERISA.”

Id.

The Third Circuit’s contention that its proposed test is

actually in compliance with this Court’s guidelines in

Metropolitan Life lacks merit. The Third Circuit has failed

to identify any statutory, legislative history or Supreme

Court case law authority for redrafting the deemer clause

so as to limit preemption to those state laws which af-

fect a “central concern” of ERISA. Furthermore, the

Third Circuit does not define what constitutes a “central

concern” of ERISA. Acknowledging the vagueness of its

test, the Third Circuit admits that ERISA preemption of

state law as applied to self-funded employee benefit plans

will have to be decided on a case-by-case basis.

—14—

Because the Third Circuit rejects uniformity of regula-

tion of employee benefit plans as a ‘central concern’ of

ERISA, it is apparent that the Third Circuit is suggesting

a highly restrictive definition of “central concern” of

ERISA. Thus under the Third Circuit’s test, multi-state

plans which, as this Court has recognized, already have

the task of coordinating complex administrative activities

will also have to endure the considerable inefficiencies,

administrative burdens and financial costs of complying

with a patchwork scheme of regulation. See Fort Halifax

Packing Co: v. Coyne, 482 U.S. at 11. Such a result can-

not be allowed to stand under the plain meaning and leg-

islative history of Section 514 and the decisions of this

Court.

II.

REVIEW IS NECESSARY TO RESOLVE THE CONFLICT

BETWEEN THE UNITED STATES COURTS OF APPEAL

ON THE SCOPE OF ERISA PREEMPTION AS APPLIED

TO SELF-FUNDED EMPLOYEE BENEFIT PLANS.

In the petition of FMC Corporation for writ of certiorari,

the conflicts among the circuits concerning the issue of

the scope of ERISA preemption as to self-funded em-

ployee benefit plans is thoroughly discussed. To avoid

repetition, the Fund hereby adopts FMC’s arguments.

The Fund, however, will discuss the adverse public policy

consequences that will result unless this split among the

circuits is promptly resolved.

The problem of rising medical care costs for self-funded

employee benefit plans cannot be overstated. For every

year since 1965, inflation in medical care prices has been

higher than the general rate of inflation for the economy

on a whole.’ In 1987, the price of health care in this coun-

3 Sharkey & Buckle, The Medicare Prospective —— System:

Impact On The Frail Elderly And An Alternative Reimbursement

Formula, 3 Notre Dame J. of L., Ethics & Pub. Pol’y 227, 228

(1988).

affine

try exceeded $500 billion, increasing 9.8 percent from

1986.4 In 1988, total health care expenditures rose 10.2

percent from 1987 to an estimated $558.7 billion or about

$2,200.00 per capita.5 Total health care expenditures for

1989 are expected to rise to approximately $618.4 billion.®

If health care trends continue, medical care costs could

triple to $1.5 trillion by the year 2000.7

In 1988, employers with insured programs experienced

an average increase in health plan costs of 13.7 percent;

whereas, self-funded plans experienced an average in-

crease of 24.8 percent in health plan costs for 1988.° In

one survey of 2,000 employers who either purchased in-

surance coverage or self-funded health benefits, total

health care costs equaled 37.2 percent of those employers’

profits.®

As a result of these substantial and escalating costs of

providing medical care, employee benefit plans throughout

the country have had to reduce benefits, institute cost-

containment measures, establish cost-management pro-

grams or a combination of the above. Although most of

these measures involve a transfer of costs to the partici-

pants and beneficiaries or a restriction in the type or

4 Letsch, Levit & Waldo, National Health Expenditures, 1987,

10 Health Care Fin. Rev. 109 (Winter 1988).

5 Francis, U.S. Industrial Outlook 1989: Health Services, Med.

Benefits, Feb. 15, 1989, at 1.

6 Jd. at 2.

7 Costs Will Rise into the 1990s, Pushing Up Corporations’ Bene-

fits Costs, 16 Pens. Rep(BNA) 1979 (November 20, 1989).

8 A. Foster Higgins & Co., Health Care Benefits Survey, 1988,

Med. Benefits, Feb. 28, 1989, at 1. See also, Average Costs Rose

18.6 Percent Under Employer Plans, Survey Finds, 16 Pens. Rep.

(BNA) 250 (Feb. 13, 1989). This survey covered 1,600 employers

and 10 million employees and dependents.

® DiBlase, Group Health Bills Equal A Third Of Profits, Bus.

Ins., May 29, 1989, at 1.

—16—

length of medical care, two cost-containment measures,

subrogation and coordination of benefits, do not. On the

contrary, subrogation and coordination of benefits provi-

sions prevent the duplication of benefits by the plan where

other coverage exists and covers the particular injury or

illness. Subrogation and coordination provisions also en-

sure that primary responsibility for providing benefits for

specific risk injuries is not transferred from specific risk

insurers, such as motor vehicle insurers, to employee bene-

fit plans.

The Fund’s Plan Document provides for subrogation

against any person or entity responsible for providing a

recovery to a Fund participant or beneficiary for injuries

sustained as a result of an accident or illness. The Fund’s

coordination provision provides that where no-fault or per-

sonal injury protection (“PIP”) motor vehicle insurance

coverage exists, the no-fault or PIP coverage shall be

primarily responsible for providing benefits to a mutually

covered beneficiary who has sustained injuries as a result

of a motor vehicle accident and the Fund shall provide

excess coverage.

The Fund’s Trustees included these subrogation and co-

ordination provisions in compliance with their fiduciary

duties to manage the plan assets “‘. . . solely in the in-

terest of the participants and beneficiaries . . .” and, in

managing these assets, to exercise “. . . the care, skill,

prudence, and diligence under the circumstances then pre-

vailing that a prudent man actirg in a like capacity and

familiar with such matters would use in the conduct of

an enterprise of a like character and with like aims.” 29

U.S.C. §1104(aX1XB). These subrogation and coordination

provisions provide substantial cost-savings to the Fund,

allowing it to cover rising medical costs without having

to enact comparable benefit cuts or restrictions.

ulin

The application of state laws to prohibit the Fund from

enforcing its subrogation and coordination provisions de-

prives the Fund of very valuable and necessary cost-

containment measures. As a result, the Trustees are

limited primarily to changes in the benefit plan design

that transfer the costs of rising medical care to the Fund’s

participants and beneficiaries or restrict their medical care

options.

State laws such as Section 1720 of the Pennsylvania Motor

Vehicle Financial Responsibility Law and Section 500.3109a

of the Michigan No-Fault Insurance Act effectively usurp

the Trustees’ exclusive authority and responsibility under

ERISA to control and manage plan assets in the best in-

terest of all participants and beneficiaries. See 29 U.S.C.

§1102(aX1) (the plan must be administered pursuant to a

written instrument and named plan fiduciaries have au-

thority “. . . to control and manage the operation and ad-

ministration of the plan.”’); 29 U.S.C. §1103(a) (“. . . the

trustee or trustees shall have exclusive authority and dis-

cretion to manage and control the assets of the plan. . “

except for certain circumstances not applicable to this

case); 29 U.S.C. §1104(aX1XD) (plan fiduciaries are required

to perform their duties solely in the interest of all partici-

pants and beneficiaries in accordance with the provisions

of the plan document).

There are a substantial number of state laws either pro-

hibiting or restricting subrogation and coordination in the

contexts where the Fund utilizes these cost-containment

measures. See, e¢.g., Baxter v. Lynn, 886 F.2d 182, 185

reh’g denied, ___ F.2d ____ (8th Cir. 1989) (Missouri com-

mon law limitation on subrogation); United Food & Com-

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

(Arizona anti-subrogation law); Northern Group Services,

Inc. v. Auto Owners Ins. Co., 833 F.2d 85 (6th Cir. 1987),

cert. denied, ____ U.S. ___., 108 S.Ct. 1754 (1988) (Mich-

igan statute making all health coverages primarily respon-

sible and making no-fault motor vehicle coverages second-

arily responsible for benefits concerning injuries sustained

in motor vehicle accidents); Hunt v. Sherman, 345 N.W.2d

750 (Minn. 1984) (Minnesota common law restriction on sub-

rogation). If the decision in this case is allowed to stand,

there is little doubt that states with such laws will in-

creasingly attempt to enforce them and other states will

consider adopting similar laws.

The proverbial floodgates of litigation, which have al-

ready been opened by the vague and differing preemption

tests adopted by the Third and Sixth Circuits, will be

pushed further open. Thus, employee benefit plans, which

are struggling to meet increasing medical costs, will have

to expend considerable plan assets on expensive litigation

in states throughout the nation. Moreover, these plans

cannot avoid this litigation because, inter alia, they can-

not afford to eliminate these cost-containment measures

and they cannot afford to administer a different plan in

each state in which they operate. Thus, the nightmare of

patchwork regulation of employee benefit plans by the

states, which Congress intended to avoid by enacting Sec-

tion 514 of ERISA, is becoming a reality.

CONCLUSION

For the reasons discussed herein, this Court should

grant the petition for writ of certiorari filed by FMC

Corporation to resolve the conflict between this Court’s

interpretation of Section 514 of ERISA and that of the

Third Circuit, to reconcile the conflicts between the

Courts of Appeal and to forestall the future adverse

effects of state insurance laws’ being applied to self-funded

employee benefit plans.

Respectfully submitted,