Respondents Brief — FMC Corp. v. Holliday
Supreme Court brief1990
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No. 89-1048 JOSEPH
In The
Supreme Court of the United States
October Term, 1989
+
FMC CORPORATION
On Writ Of Certiorari To The United States
Court Of Appeals For The Third Circuit
4
BRIEF FOR THE PETITIONER
Sa
Supreme Court, U.@
FILED
’
:
QUESTION PRESENTED
Whether ERISA’s express preemption provisions, as
interpreted in Metropolitan Life v. Massachusetts, prohibit
states from applying state insurance regulations directly
)
to self-funded employee welfare benefit plans
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-At-
lantic 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,
5.A., Lithium Corporation of America. Respondent, Cyn-
thia Ann Holliday, is an individual and citizen of Penn-
sylvania.
il
TABLE OF CONTENTS
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STATEMENT OF THE CASE.......
SUMMARY OF ARGUMENT
ESS ys vices ces dcccccccscccces.
Section 514 of ERISA Preempts Direct State Regula-
tion of Self-Funded Employee Benefit Plans......
A. ERISA Requires Preemption of State Insurance
Reguiations As Applied Directly to Benefit
Ee
B. This Court’s Decision in Metropolitan Life Rec-
ognized That ERISA Allows States to Regulate
ERISA Benefit Plans Only Indirectly Through
Regulation of Insurance Companies And Their
EE
C. The Test Adopted by the Court of Appeals
Contravenes This Court’s Decision in Metro-
politan Life and Is Inconsistent With The Weight
of Appellate Authority ..............
. The Court of Appeals’ Misreading of ERISA’s
Legislative History Led To Unwarranted Re-
strictions On The Deemer Clause...
LO
10
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iv
TABLE OF CONTENTS —- Continued
| "a ye
E. Enforcing The Deemer Clause As a General
Limitation On The Insurance Saving Clause
Furthers The Purposes Of ERISA ....... ee od
eo ES 8) Sree error rire asm Ae eee 32
TABLE OF AUTHORITIES
Page(s)
CASES
Baxter v. Lynn, 886 F.2d 182 (8th Cir. 1989)...16, 18, 19
Children’s Hosp. v. Whitcomb, 778 F.2d 239 (5th Cir.
eo OT OEE OE EDIRNE gs Bee tee LEE: 17, 19
FMC Corp. v. Good Samaritan Hosp. of the Santa
Clara Vally, No. C-88-3092-FMS (N.D. Cal. 1988) .... 29
FMC Corp. v. Holliday, No. 88-1098 (W.D. Pa. 1989)..... 7
FMC Corp. v. Holliday, 885 F.2d 79 (3d Cir. 1989),
cert. granied, 110 S.Ct. 1109 (1990) ............ passim
Fort Halifax Packing Co. v. Coyne, 483 U.S. 1 (1987). .28, 29
Insurance Bd. of Bethlehem Steel Corp. v. Muir, 819
oe go Re ae og ery Po ree 17, 18, 22
Liberty Mutual Ins. Group v. lron Workers Health
Fund of E. Michigan, 879 F.2d 1384 (oth Cir. 1989) .... 31
Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S.
Fee CRs oo 50 4s ohne bees Cee UR eseeeedes) passim
Northern Group Services, Inc. v. Auto Owners Ins.
Co., 832 F.2d 85 (6th Cir. 1987), cert. denied, 108
ie Me Bi SE rr Pree a passim
Park’N Fly, Inc. v. Dollar Park and Fly, Inc., 469 U.S.
189 (1985)
Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987)
OE ee eb ee: Ped ir wh oT ©, 11. 13, 23
Vi
TABLE OF AUTHORITIES -— Continued
Page(s)
Powell v. Chesapeake & Potomac Tel. Co., 780 F.2d
419 (4th Cir. 1985), cert. denied, 476 U.S. 1170
recreate a 17, 19
Reilly v. Blue Cross and Blue Shield United of Wiscon-
sin, 846 F.2d 416 (7th Cir.), cert. denied, 109 S.Ct.
ee ee oe eae aye cen eu ka keee res 16, 19
SEC v. National Securities, Inc., 393 U.S. 453 (1969) .... 12
Shaw v. Delta Airlines, Inc., 463 U.S. 85 (1983)....... passim
Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119
Re eer ery ee arr ere te 13
United Food & Commercial Workers v. Pacyga, 801
F.2d 1157 (9th Cir. 1986) 17, 18, 19
STATUTES
Pete we 8 Oe eS rrr rere ee ee eee fz, i3
ee areas Oe OES E oe h oe ce se cate etre ta aes
a es Ie kN Tn ROUTE ee eect ae Ton 7
OS ee re errr eres 29
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et ny ra a vp ieee nee a as se eae ones 4
ee Sas te PE oa vo Volos Sia bake cay chew eee 2, 11
Be Ere Oe PIPERS 6 noe cS ccs cs saannncesnesss de ta
Bak ee | Eee nnn mre Far
72 Te. Come. Beet: Ame. & 1799... 662 ness. fe
=—
/> Pa. Cons. Stat. Ann. § 1720......... -+s>s, passim
TABLE OF AUTHORITIES - Continued
OrnerR AUTHORITIES
120 Cong. Rec. 29933 (1974)
120 Cong. Rec. 29942 (1974)
Black’s Law Dictionary (5th ed. 1979)
“Employee Benefits in Medium and Large Firms,
1988,” U.S. Dept. of Labor, Bureau of Labor
Statistics, Bulletin 2336 (August 1988)..............
Goetz, Regulation of Uninsured Employee Welfare
Benefit Plans Under State Insurance Laws, 1967
ie ee GO, ee ee eee ee
P. McDonnell, A. Guttenberg, L. Greenberg, R. H.
Arnett ill, “Self-Insured Health Plans,” HCFA
Review, Vol. 8 No. 2 (1986)
Staff of Senate Comm. on Labor and Public Wel-
fare, 94th Cong. 2d Sess., reprinted in Legislative
History of ERISA 4670 (Comm. Print 1976) ....... 2
H.R. Rep. No. 1785, 94th Congress, 2d Sess. 33
(1977)
RnewwTee how oe we SN eC me ot ee 2 nk ok Ob ae oe me
Page(s)
I
29
OPINIONS BELOW
The opinion of the United States District Court for
the Western District of Pennsylvania (C1) is not officially
reported. The opinion of the United States Court of Ap-
peals for the Third Circuit is reported at 885 F.2d 79 (3d
Cir. 1989). (A1).*
o®
od
JURISDICTION
The court of appeals rendered its opinion and enter-
ed judgment in favor of Defendant/Respondent, Cynthia
Ann Holliday, on September 11, 1989. (A1). FMC Corpo-
ration (“FMC”) filed a Motion for Rehearing En Banc on
September 21, 1989, which was denied by the court of
appeals on October 5, 1989. (B1).
This Court has jurisdiction over this appeal pursuant
to 28 U.S.C. § 1254(1) and its order dated February 20,
1°90, granting FMC’s Petition for a Writ of Certiorari.
,’
vy
STATUTES INVOLVED
Section 514(a) of the Employee Retirement Income
Security Act of 1974, as amended (“ERISA”), provides:
" The following opinions or orders have been reprinted in
PMC’s Petition tor Writ of Certiorari: Opinion of the court ot
appeals — Al. Order of the court of appeals denying rehearing
Bl. Opinion of the district court — Cl. Unreported opinion in
FMC Corp. v. Good Samaritan Hosp. of the Santa Clara Valley, (No.
C-88-3092-FMS) (N.D. Cal. 1988) - D1.
tl
Except as provided in subsection (b) of this sec-
tion, the provisions of this subchapter and
subchapter 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 US.C. § 1144(a).
'™
| Pennsylvania Motor Vehicle Financial Responsibility Law
ot
Section 514(b)(2) of ERISA provides:
(A) Except as provided in subparagraph (B),
nothing in this subchapter shall be construed to
exempt or relieve any person from any law of
any State which regulates insurance, banking, or
securities.
(B) Neither an employee benefit plan de-
scribed 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 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).
At all times relevant to this action, Section 1720 of the
1984 (the “Financial Responsibility Law”) provided
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
75 Pa. Cons. Stat. Ann. § 1720 as amended February 7
1990, effective July 1, 1990.
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).
Section 1720 was amended on February 7, 1990 to
provide, effective July 1, 1990:
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
paid or payable by a program, group contract or
other arrangement whether primary or excess
under section 1719 (relating to coordination of
benefits).
,
Section 1719 of the Financial Responsibility Law pro-
vides:
(a) General rule. - Except for workers’ compen-
sation, a policy of insurance issued or delivered
pursuant to this subchapter 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’ compensa-
tion.
(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).
Pa. Cons. Stat. Ann. § 1719 (Purdon 1984).
a
7
STATEMENT OF THE CASE
FMC operates a self-funded employee benefit plan,
the FMC Salaried Health Care Plan (the “Health Plan”),
that pays the medical expenses incurred by FMC employ-
ees and their covered dependents.' FMC provides all
funds used by the Health Plan to pay such medical bene-
fits; FMC does not purchase insurance to provide these
benefits.? (C1).
The Health Plan is an employee welfare benefit plan as
defined in ERISA, see 29 U.S.C. §§ 1002(1) and 10093(a)(1),
because it was established and is maintained by FMC to pro-
vide beneficiaries with medical, surgical and hospital care
benefits in the event of sickness, accident or disability.
(}.A. 106). A copy of the Health Plan is included in the Joint
Appendix. (J.A. 12-79).
’ Self-funded plans cover a vast number of American
workers. More than 9-1/2 million Americans are covered by
(Continued on following page)
> |
The Health Plan seeks to contain costs by, among
other ways, providing for the exercise of subrogation
rights and for coordination of benefits. The Health Plan
provides to FMC the following subrogation rights:
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).
In addition, the Health Plan provides for coordina
tion of benefits as follows:
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-
by “no-fault” automobile insurance, FMC
(Continued from previous page)
health plans that are self-funded. “Employee Benefits in Medi-
um and Large Firms, 1988”, U.S. Department of Labor, Bureau
of Labor Statistics, Bulletin 2336 (August 1988). Moreover, a
1986 study by the Health Care Financing Administration (a
division of the U.S. Department of Health and Human Ser-
vices) revealed that four out of every five companies and
unions with 5,000 or more plan participants operated sel!
funded health care plans. P. McDonnell, A. Guttenberg, |
Greenberg, R.H. Arnett IL, “Self-Insured Health Plans,” HCFA
xemew, Vol. 8 No. 2 (1986).
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 insurance will be paid
by the FMC Pian.
FMC Corp. v. Holliday, 885 F.2d 79, 80-81 (3d Cir. 1989),
cert. granted, 110 S.Ct. 1109 (1990).
Gerald Holliday, an FMC employee, subscribed to
*MC’s Health Plan, and his daughter, Cynthia Ann Holli-
day (“Holliday”), was a covered dependent. (C1). Ms.
Holliday was injured in a 1987 automobile accident. (C1).
Pursuant to the Health Plan’s coordination of benefits
provisions, the first $19,000 of Ms. Holliday’s medical
expenses were paid through her father’s State Farm auto-
mobile insurance policy, the so-called “no-fault” insurer
referred to in the Health Plan’s coordination of benefits
provisions. FMC, 885 F.2d at 81. The Health Plan then
paid a substantial portion of the remaining $178,000 in
expenses. (C1).
Thereafter, FMC learned that the Hollidays had filed
a tort action in Pennsylvania state court (the
“Pennsylvania Action”) against the negligent driver.’
* On May 2, 1989, the court in the Pennsylvania Action
approved a settlement agreement whereby $49,875.50 plus
(Continued on following page)
N
Invoking the terms of the Health Plan, FMC 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
Financial Responsibility 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. Tie district court (Bloch, J.) found that no
material facts were in dispute, denied FMC’s motion,
granted Ms. Holliday’s motion and entered judgment in
her favor. FMC Corp. v. Holliday, No. 88-1098 (W.D. Pa.
1989) (C1).
The court of appeals affirmed the district court’s
judgment, hoiding: (1) that Section 1720 of the Financial
Responsibility Law applies to self-funded plans and pre-
cludes FMC from exercising its subrogation rights under
the Health Plan, FMC, 885 F.2d at 83; (2) that Section 1720
of the Financial Responsibility Law does not conflict with
@ “core type of ERISA matter” that Congress sought
(Continued from previous page)
accrued interest was placed in an escrow account in the name
of Ms. Holliday pending the outcome of this action. FMC, 885
F.2d at 80.
4 Before reaching the preemption question presented to
this Court, both the district court and the court of appeals held
that Section 1720 applies to self-funded plans such as the
Health Plan. (C3-C7); FMC, 885 F.2d at 81-83.
’ The district court’s jurisdiction was invoked under 28
U.S.C. § 1332. FMC is incorporated in Delaware and has its
principal place of business in [Hlinois; Holliday is a citizen of
Pennsylvania.
to protect by the preemption provisions, and (3) that
Section 514 of ERISA does not, therefore, preempt Section
1720 as applied to FMC’s self-funded Health Plan. Id. at
83-90.
EMC filed a Petition for Writ of Certiorari citing the
public importance of the ERISA preemption issue and the
conflicting rulings of the several courts of appeals on this
‘ssue. The Petition was granted on February 20, 1990.
,
-—
SUMMARY OF ARGUMENT
The Court of Appeals for the Third Circuit erred by
holding that the Commonwealth of Pennsylvania,
through a state insurance !aw, could prohibit FMC from
including an enforceable subrogation provision in Its self-
funded employee benefit plan. The plain language of
ERISA’s preemption provisions allows states to regulate
insurance products purchased by an employee benefit
plan on the strength of the “insurance saving” clause,
Section 514(b)(2)(A), but prohibits states from treating a
benefit plan as if it were engaged in the business of
insurance and directly controlling the terms of a self-
funded benefit plan. As this Court held in Metropolitan
Life Ins. Co. v. Massachusetts, 471 U.S. 724 (1985), proper
interpretation of ERISA’s so-called “deemer clause,” Sec
tion 514(b)(2)(B), limits the scope of the insurance saving
clause, thus entirely shielding self-funded plans from the
effects of state insurance regulation, ERISA expressly pre-
empts the application of Section 1720 of the Financial
Responsibility Law to self-funded benefit plans, such as
the Health Plan.
To reach its result, the court of appeals misread
ERISA’s legislative history and erroneously narrowed the
scope of preemption as applied to self-funded plans to
situations where state insurance regulation impinges on
core ERISA concerns. As this Court recognized in Shaw v.
Delta Airlines, Inc., 463 U.S. 85 (1983), and Metropolitan
Life, Congress specifically rejected limiting preemption to
those situations where state laws conflicted with certain
of the substantive mandates of ERISA, but instead man-
dated broad preemption. The court of appeals mis-
construed the language of the deemer clause, drew
unwarranted conclusions from ERISA’s legislative history
and defined the scope of the deemer clause in a manner
directly contrary to congressional intent.
Finally, preemption of state Insurance regulations as
applied directly to benefit plans furthers the fundamental
purposes of ERISA. Congress sought nationally uniform
regulation of employee benefit plans to relieve plans from
the costly and complex administrative burden of comply-
ing with a patchwork scheme of conflicting state regula-
tions. The clarity of the rule that prohibits states from
directly regulating benefit plans, as opposed to the insur-
ance products the plans may purchase, reduces oppor
tunities for controversy, thus furthering Congress’ efforts
to protect plans from costly and protracted litigation.
This Court’s holding in Metropolitan Life advances those
congressional goals. FMC’s interpretation of the deemer
clause achieves those results. The court of appeals’ action
does not.
—————————————$
1Q
ARGUMENT
Section 514 of ERISA Preempts Direct State Regulation
of Self-Funded Employee Benefit Plans.
ERISA establishes a federal regulatory scheme for
employee benefit plans and, as a general matter, express-
ly preempts state regulation of such plans. As an excep-
tion to that broad federal preemption, ERISA’s insurance
saving clause permits state regulation of the insurance
industry. Metropolitan Life Ins. Co. v. Massachusetts, 471
U.S. 724 (1985), held that ERISA’s deemer clause forbids
direct state regulation of employee welfare benefit plans,
although ERISA’s insurance saving clause does permit
indirect regulation of employee benefit plans that pur-
chase state-regulated insurance products. Id. at 741, 747.
Accordingly, the Court of Appeals for the Third Circuit
erred in holding that an insurance regulation, t.e., Section
1720 of Pennsylvania’s Financial Responsibility Law,
could be applied to FMC’s self-funded Health Plan.
A. ERISA Requires Preemption of State Insurance
Regulations As Applied Directly to Benefit Plans.
“The purpose of Congress is the ultimate touchstone”
of every preemption question. Pilot Life Ins. Co. v. De-
deaux, 481 U.S. 41, 45 (1987) (citations omitted). Preemp-
tion “is compelled whether Congress’ command is
explicitly stated in the statute’s language or implicitly
contained in its structure and purpose.” Metropolitan Life,
471 U.S. at 738. Accordingly, any preemption inquiry
must “begin with the language employed by Congress
and the assumption that the ordinary meaning of that
language accurately expresses the legislative purpose.”
11
Id. at 740 (quoting Park’N Fly, Inc. v. Dollar Park and Fly,
Inc., 469 U.S. 189, 194 (1985)).
In considering the scope of preemption under ERISA,
this Court has employed a three-part analysis that fol-
lows the language and structure of Section 514. See, e.g.,
Pilot Life, 481 U.S. at 45. It is at the cr*tical third step, the
analysis of the deemer clause, where the Court of Ap-
peals for the Third Circuit erred.
First, ERISA’s broad preemption provision, Section
514(a), 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) of ERISA; 29 U.S.C.
§ 1144(a). “The phrase ‘relate to’ was given its broad
common-sense meaning, such that a state law ‘relatels]
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., 463 U.S. 85, 97 (1983)). Both the district court
and the court of appeals held that the Pennsylvania Leg-
islature intended Section 1720 of the Financial Respon-
sibility Law to apply to employee benefit plans and that,
under the terms of Section 514 of ERISA, Section 1720
“relates to” benefit plans such as the Health Plan. (C8-
C9); FMC, 885 F.2d at 84-85. Indeed, Section 1720's rela-
tion to and effect on the Health Plan is dramatic - it
prohibits FMC from exercising its contractual and com-
mon law subrogation rights.
* The court of appeals belittled this Court’s analysis ot
ERISA’s preemption provisions as “[s]tating the obvious more
than providing guidelines tor surmounting [the] difficulties” in
interpreting those provisions. FMC, 885 F.2d at 34.
12
on
Second, Congress sought uniform federal regulation
of benefit plans but also faced the reality that preempting
the area without exception would run afeul of its tradi-
tional deference to state regulation of the insurance in-
dustry. See McCarran-Ferguson Act, 15 U.S.C. §§ 1011 et
seq. (1976); see also Metropolitan Life, 471 U.S. at 743-44
(quoting SEC v. National Securities, Inc., 393 U.S. 453, 460
(1969)). Thus, Congress created Section 514(b)(2)(A), the
so-called insurance saving clause, which provides:
[NJothing 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)(A). The insurance saving clause does
not allow the states to regulate directly the terms of
employee benefit plans but rather preserves “the McCar-
ran-Ferguson Act’s reservation of the business of insur-
ance to the states,” Metropolitan Life, 471 U.S. at 744 n.21,
by leaving to the states the regulation of contracts of
insurance purchased by ERISA benefit plans.’
A state law “regulates insurance” if it meets the
common sense requirement that it is specifically directed
? Congress’ post-enactment understanding of the deemer
clause is consistent with the view that states may regulate
insurance products purchased by benefit plans but may not
directly regulate the plans themselves. See H.R. Rep. No. 1785,
94th Congress, 2d Sess. 33, 48 (1977) (“[Sltate regulation of
jinsurance products] is not preempted by Section 514 even
though such state action is barred with respect to the plans
which purchase these ‘products.’ "); see also Metropolitan Lite
471 US. at 747 n.25 (relying upon the same report to discern
congressional intent underlying the deemer clause).
13
toward some aspect of the insurance industry, or if it falls
within the McCarran-Ferguson Act’s definition of the
business of insurance. Pilot Life, 481 U.S. at 48 (citing 15
U.S.C. §§ 1011 et seq.).8 Both the district court and the
court of appeals determined that the Financial Respon-
sibility Law regulates insurance within the meaning of
the insurance saving clause, and FMC does not contest
this point on this appeal. See FMC, 885 F.2d at 86 (the
Financial Responsibility Law’s “coordination of benefits
and antisubrogation provisions directly control the terms
of insurance contracts”).
Third, ERISA’s deemer clause, Section 514(b)(2)(B),
limits the scope of the insurance saving clause, providing:
Neither an employee benefit plan nor any trust
established under such a plan, shall be deemed
to be an insurance company . . . or to be en-
gaged in the business of insurance . . . for the
purposes of any law of any state purporting to
regulate insurance companies for] insurance
contracts.
29 U.S.C. § 1144(b)(2)(B). Thus, the deemer clause pre-
cludes the states from treating an employee benefit plan
8’ The three factors relevant to whether a practice falls
within the “business of insurance” under the McCarran-Fer-
guson Act are “first, whether the practice has the effect of
transferring or spreading, a policyholder’s risk; second, whether
the practice Is an integral part of the policy relationship be-
tween 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)
14
as if it were engaged in the business of insurance.’ This
limitation has the effect of barring the states from apply-
ing directly to an employee benefit plan state insurance
laws that are saved from preemption by the insurance
saving clause. In other words, the deemer clause places
self-funded plans, such as the Health Plan, entirely be-
yond the reach of state insurance reguiation.!° The court
of appeals ignored the plain language of the deemer
clause and, invoking the insurance saving clause, applied
Section 1720 of the Financial Responsibility Law directly
to the Health Plan, invalidating its subrogation rights
B. This Court’s Decision in Metropolitan Life Recog-
nized That ERISA Allows States to Regulate ERISA
Benefit Plans Only Indirectly Through Regulation
of Insurance Companies And Their Products.
Metropolitan Life held that ERISA did not preempt a
Massachusetts statute that required insurers, and thus
insured employee health-care plans, to provide minimum
mental-health-care benefits to Massachusetts residents.
Metropolitan Life, 471 U.S. at 738-47."! This Court analyzed
* Black’s Law Dictionary detines “deem” as follows:
Deem. To hold; consider; adjudge; believe; condemn;
determine; treat as if; construe. Black’s Law Diction-
ary 374 (Sth ed. 1979) (emphasis added).
On the other hand, insured benefit plans are subject to
indirect regulation only because states may regulate the insur
ance products they purchase, not the plans themselves.
"| Massachusetts conceded that the “mandated-benetits’
statute «° issue could not reach self-funded benefit plans in
light of the deemer clause. Jd. at 735, n.14.
—
15
the structure of Section 514 of ERISA, in particular the
relationship between the insurance saving clause and the
deemer clause. Id. at 740-41.
Specifically, the reach of the insurance saving clause
was defined by reference to the purpose of the deemer
clause:
[T]he deemer clause makes exp!’ cit Congress’
intention to include laws that regulate [the
terms of] insurance contracts within the scope of
the insurance laws preserved by the saving
clause. Unless Congress intended to include
laws regulating insurance contracts within the
scope of the insurance saving 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.
Id. at 741 (emphasis added). Accordingly, state laws regu-
lating the terms of insurance contracts, such as the anti-
subrogation provision of the Financial Responsibility
Law, are explicitly exempted “from the saving clause
[and thus preempted by ERISA] when they are applied
directly to benefit plans.” [bid.'?
This Court concluded:
Our decision results in a distinction between
insured and uninsured plans, leaving the former
'2 Section 1720 of the Financial Responsibility Law regu-
lates the terms of insurance contracts as did the mandated
benefits provision in Metropolitan Life: Section 1720 limits the
provisions that may be included in insurance contracts
whereas the Massachusetts statute required such contracts to
include particular provisions.
16
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.
ld. at 747 (footnote omitted). Thus, Pennsylvania may
regulate the terms of insurance contracts, including those
purchased by employee benefit plans. The antisubroga-
tion provision of Section 1720 does just that. But Pennsy!l-
vania may not directly or indirectly regulate a self-
funded employee benefit plan that does not purchase any
insurance products. Contrary to the holding of Metro-
politan Life, the court of appeals’ decision erroneous’
permits Pennsylvania to encroach upon this federal,
preempted area.
C. The Test Adopted By the Court of Appeals Contra-
venes This Court’s Decision in Metropolitan Life
and Is Inconsistent With The Weight of Appellate
Authority.
Since Metropolitan Life, seven courts of appeals have
interpreted the deemer clause. With two exceptions, those
courts have read Metropolitan Life and the deemer clause
to mandate preemption of all state insurance laws as
applied directly to self-funded plans.'* Only the Courts ot
'3 The courts of appeals are in conflict in their interpreta-
tion of the deemer clause: Compare Baxter v. Lunn, 886 F.2d 182,
186 (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 ciearly prevents applica
tion of the subrogation law to a self-funded benefit plan) and
Reilly v. Biue Cross and Blue Shield United of Wisconsin
(Continued on tollowing page)
17
Appeals for the Third Circuit in FMC and the Sixth Cir-
cuit in Northern Greup Services Inc. v. Auto Owners Ins. Co.,
833 F.2d (6th Cir. 1987), cert. denied, 108 S.Ct. 1754 (1988),
have disregarded Metropolitan Life. Indeed, the Third
(Continued from previous page)
546 F.2d 416, 425-26 (7th Cir.), cert. denied, 109 S.Ct. 145 (1988)
(holding that, regardless whether plaintiff’s state law claims
tall within insurance saving clause, Section 514 of ERISA pre-
empts those claims when made against self-funded benefit
plan) and Insurance Bd. of Bethlehem Steel Corp. v. Muir, 819 F.2d
408, 410-13 (3d Cir. 1987) (holding that Pennsylvania’s manda-
ted benefits law could not be applied to a self-funded benefit
plan because it was preempted by ERISA) and United Food &
Commercial Workers v. Pacyga, 801 F.2d 1157, 1161-62 (9th Cir.
1986) (holding that Section 514 of ERISA prevents application
of Arizona antisubrogation law to self-funded benerit plan) and
Powell v. Chesapeake & Potomac Tel. Co., 780 F.2d 419, 423 (4th
Cir. 1985), cert. denied, 476 U.S. 1170 (1986) (holding that Sec-
tion 514 of ERISA prevents application of Virginia insurance
trade practice laws to self-funded benefit plan) and Children’s
Hosp. 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) with
FMC Corp. v. Holliday, 885 F.2d 79, 89-90 (3d Cir. 1989), cert.
granted, 110 S.Ct. 1109 (1990) (holding that Pennsylvania anti-
subrogation law as applied to self-funded benefit plan was not
preempted by Section 514 of ERISA because the Pennsylvania
law did not address “a core type of ERISA matter which
Congress sought to protect by the preemption provision”) and
Northern Group Services, Inc. v. Auto Owners Ins. 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 self-funded benefit plan was not preempted by ERISA be
cause there was no ERISA interest in uniformity which out-
weighed the interest in state regulation of insurance).
18
Circuit’s decision in this case cannot be reconciled with a
prior decision of the same court which interpreted the
deemer clause to preempt state insurance regulations as
applied to self-funded plans. See Insurance Bd. of Be-
thlehem Steel Corp. v. Muir, 819 F.2d 408, 411 (Gd Cir
1987).14
In contrast to the decisions in FMC and Northern
Group Services, the great majority of federal courts of
appeals that have considered the application of state in-
surance laws to self-funded benefit plans has relied upon
the deemer clause and the reasoning of Metropolitan Life;
those courts have consistently held that state insurance
law cannot reach self-funded employee benefit plans.
The decisions by the Courts of Appeals for the Eighth
Circuit in Baxter v. Lynn, 886 F.2d 182 (8th Cir. 1989), and
for the Ninth Circuit in United Food & Commercial Workers
v. Pacyga, 801 F.2d 1157 (9th Cir. 1986), are particularly
apposite to this case. In Baxter and Pacyga, participants in
self-funded benefit plans were injured in motor vehicle
accidents, collected medical benefits from their plans and
asserted claims for damages against third-party
tortfeasors. Baxter, 886 F.2d at 184; Pacyga, 801 F.2d at
1158-59. In both cases, the employee benefit plans sought
reimbursement of medical expenses paid on behalf of the
plans’ participants pursuant to subrogation provisions
'4 The Muir court noted that ERISA’s preemption scheme
allows states to regulate any entity engaged in the business of
insurance but does not permit direct regulation of ERISA bene
fit plans. Id. at 411.
19
contained in the plans; the beneficiaries insisted that state
law prohibitions against subrogation voided the plans’
subrogation rights. Baxter, 886 F.2d at 184; Pacyga, 801
F.2d at 1159. In both cases, the courts of appeals, relying
on Metropolitan Life, concluded that the deemer clause
operated to prevent state antisubrogation laws from
reaching self-funded benefit plans. Baxter, 886 F.2d at 186;
Pacyga, 801 F.2d at 1161-62.
Although confronted with different factual circum-
stances, other federal appellate courts in the majority
have reached the same fundamental conclusion: ERISA’s
broad preemption provision, Section 514(a), and the
deemer clause, Section 514(b)(2)(B), Operate to preempt
state Insurance laws as applied directly to self-funded
employee benefit plans. For example, in Powell v. Chesa-
peake & Potomac Tel. Co., 780 F.2d 419 (4th Cir. 1985), cert.
denied, 476 U.S. 1170 (1986), a beneficia ry of a self-funded
plan sought damages for her employer's alleged breach
of an implied covenant of good faith and fair dealing and
for violations of the Virginia Unfair Trade Practice Act,
both of which apply to insurers. Id. at 422. The court held
that the deemer clause protected the employer from such
claims. Id. at 423. Similarly, in Reilly v. Blue Cross and Blue
Shield of Wisconsin, 846 F.2d 416 (7th Cir.), cert. denied, 109
S.Ct. 145 (1988), the court relied upon the deemer clause
to hold that a plan beneficiary’s state law claims for bad
faith and punitive damages could not reach the self.
funded plan at issue. Id. at 425-26. Finally, in Children’s
Hosp. v. Whitcomb, 778 F.2d 239 (Sth Cir. 1985), a state
Insurance statute required emplovers to structure their
benefit plans to provide the same level of benefits for
mental health problems and for all other illnesses. Id. at
241. Relying upon Metropolitan Life, the court determined
20
that the deemer clause prohibited application of this stat-
ute to self-funded plans. Id. at 242.
Despite the language of ERISA, despite Metropolitan
Life and despite the great weight of authority from other
courts of appeals, the Third Circuit applied the ant:-
subrogation provision of the Financial Responsibility Law
to FMC’s self-funded Heaith Plan and fashioned a new
test that sharply limits the accepted meaning of the deem-
er clause and expands the reach of the insurance saving
clause:
[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 that law conflicts with any substitute
(sic) mandate in ERISA.
FMC, 885 F 2d at 89-90. Notwithstanding its promulgation
of this new test, the court of appeals acknowledged that
the deemer clause, as interpreted in Metropolitan Life,
requires courts to prohibit the application of at least some
state insurance laws directly to self-funded plans. The
court then turned its back on the Metropolitan Life inter-
pretation of the deemer clause, labelling it “dicta,” and
held that “insured plans would per se survive the deemer
clause, while self-insured plans would merely be consid-
ered on a case-by-case basis as to whether the state regu-
lation involved affects a central concern of ERISA.” FMC,
885 F.2d at 89.'
' In Northern Group Services, the Court of Appeals tor the
Sixth Circuit also acknowledged that the deemer clause
(Continued on following page)
21
The fundamental flaw in the reasoning in FMC is its
determination that self-funded plans are, in fact, “in the
business of insurance” for non-core ERISA matters and
are thus subject to state insurance regulation. That prem-
ise flies in the face of the deemer clause’s plain statement
that an employee benefit plan is not to be deemed, for
any purposes or at any time, to be engaged in the busi-
ness of insurance. The Third Circuit’s novel and unsup-
ported presumption rests not on the strength of binding
case authority or legislative history but on its stated
desire to have ERISA’s interlocking preemption provi-
sions “make sense.” FMC, 885 F.2d at 88. However, this
Court's reading of the deemer clause in Metropolitan Life
as a limitation on the reach of the insurance saving clause
makes perfect sense of the statutory scheme and is entire-
ly in accord with congressional intent.'®
(Continued from previous page)
requires courts to limit the application of state insurance laws
to self-funded plans. Northern Group Services, 833 F.2d at 94-95.
That court, however, fashioned yet another test to determine
whether regulation of self-funded plans was preempted:
[I]n the absence of a showing of state purpose specif-
ically to regulate the content of welfare benefits pro-
vided by ERISA, the effect of the deemer clause
should be assessed by a balancing of the interests in
federal uniformity against those of state primacy in
the regulation of insurance.
Id. at 92-93,
' The FMC court underscored its refusal to apply the
\ietropolitan Life holding that state insurance laws may not be
apphed directly to self-funded plans by criticizing this
(Continued on tollowing page)
N
ho
Moreover, the test fashioned by the court of appeals
in FMC is remarkably similar to the preemption test that
was rejected in Metropolitan Life. This Court held there
that “[nJothing in the language, structure, or legislative
history of [ERISA] supports the [Massachusetts] Supreme
Judicial Court’s attempt to save only state regulations
unrelated to the substantive provisions of ERISA.” Metro-
polttan Life, 471 U.S. at 746-47. Similarly, nothing in the
language, structure or legislative history of ERISA sup-
ports the attempt of the court below to preempt state
regulation of self-funded benefit plans only where state
laws affect a core type of ERISA matter or conflict with
any substantive mandate in ERISA. FMC, 885 F.2d at
R9-9() 17
Thus, the deemer clause, as interpreted by this Court
in Metropolitan Life, by the Third Circuit in Muir, and by
the Fourth, Fifth, Seventh, Eighth and Ninth Circuits,
prohibits the application of any state insurance law to a
self-funded employee benefit plan. The court in FMC
erred when it failed to apply this bright-line test.
(Continued from previous page)
Court’s opinion, stating that this Court had “cited neither
statutory text nor legislative history” in reaching its conclusion
regarding the scope of the deemer clause. FMC, 885 F.2d at 89.
'’ While the test rejected in Metropolitan Life related to the
Insurance saving clause, this Court’s reasoning applies with
full force to the test fashioned in FMC. Both the Supreme
Judicial Court of Massachusetts and the Third Circuit sought to
alter the scope of the saving clause, the former seeking to limit
it, the latter seeking to expand it, through the vehicle of con-
tlict-based tests. No justification exists for either attempt
23
Moreover, as demonstrated below, it fashioned a preemp-
tion standard that is inconsistent with the legislative his-
tory of ERISA and fundamentally subversive of Congress’
purposes in broadly preempting state regulation of em-
ployee benefit plans.
D. The Court Of Appeals’ Misreading Of ERISA’s Leg-
islative History Led To Unwarranted Restrictions
On The Deemer Clause.
The court of appeals relied on an unsupportable
reading of ERISA’s legislative history to reject the teach-
ing of Metropolitan Life, expand the insurance saving
clause and restrict the role of the deemer clause. The
result is impairment of the general preemption mandated
by Section 514(a). Under the court’s novel test, states may
deen self-funded plans to be engaged in the business cf
insurance for the purpose of regulating “non-core” as-
pects of plans, a concept for which there is not the slight-
est support in either ERISA or its legislative history.
Congress made the express preemption provisions of
ERISA “deliberately expansive,” and “House and Senate
sponsors emphasized both the breadth and importance of
the preemption provisions.” Pilot Life, 481 U.S. at 45-46
(citations omitted). [n tact, the bill's original preemption
provision—-limiting preemption “only to state laws relat-
ing to specific subjects relating to ERISA”—was changed
to reflect Congress’ desire to preempt the entire field with
regard to benefit plans. S/raw, 463 U.S. at 98-99. In Shaw,
this Court relied on that change to hold that Section
514(a) preempts more than “laws dealing with the subject
24
matters covered by ERISA —- reporting, disclosure, fiduci-
ary responsibility and the like.” Id. at 98.
In contrast to its creation of a sweeping general pre-
emption provision, Congress, through the insurance sav-
ing clause, fashioned an exception to allow the states to
maintain their historical power to regulate insurance cov
erage, while ensuring, through the deemer clause, that
states could not expand this exception by treating benefit
plans themselves as though they were insurance compan-
ies subject to state regulation. The court of appeals, in
creating its deemer clause test, undermined the congres-
sional will to make Section 514(a) expansive by erro-
neously narrowing the scope of preemption as applied to
self-funded plans to situations where the state insurance
regulation impinges on a “core” ERISA concern, such as
“reporting, disclosure, and nonforfeitability.” FMC, 885
F.2d at 88. Nothing in ERISA or its legislative history
suggests that Congress sought to expand the breadth of
the insurance saving clause to the detriment of ERISA’s
general preemptive scope, a result inherent in the court of
appeals’ deemer clause test.
Moreover, in concluding that the deemer clause is
limited to core ERISA concepts, the courts of appeals in
FMC and in Northern Group Services revisited the same
legislative history that led this Court to a contrary deci-
sion concerning the respective reach of the insurance
saving and deemer clauses in Metropolitan Life. Compare
Metropolitan Life, 471 U.S. at 745-46, nn. 23-24, with FMC,
885 F.2d at 87 and Northern Group Services, 833 F.2d at 93,
25
n.3. Nowhere in Metropolitan Life did this Court mention
the concern so prominent in the FMC and Northern Group
Services Opinions, i.e., that by use of the deemer clause
Congress sought to prevent only “back-door” or “pretex-
tual” attempts by the states to regulate ERISA plans. See
FMC, 885 F.2d at 86-88 and Northern Group Services, 833
F.2d at 92-93. In fact, the analysis of the legislative history
undertaken by the Third and Sixth Circuits is incorrect.
The court below attached special significance to Con-
gress’ use of the phrase “purporting to regulate” in the
deemer clause, noting that “the use of ‘purporting’ beto-
kens a congressional concern only for regulation that was
merely a pretext for impinging upon ERISA plans.” FMC,
885 F.2d at 86-87. This construction is at odds with the
ordinary meaning of the statutory language.'’ Laws
which purportedly regulate insurance companies or con-
tracts are merely laws which have the appearance or legal
'* Black's Law Dictionary defines “purport” and “pretext”
as follows:
Purport, n. Meaning; import; substantial meaning;
substance; legal effect. The “purport” of an instru-
ment means the substance of it as it appears on the
face of the instrument, and is distinguished from
“tenor,” which means an exact copy.
Purport, v. To convey, imply or profess outwardly; to
have the appearance of being, intending, claiming,
etc.
Pretext. Ostensible reason or motive assigned or as-
sumed as a color or cover tor the real reason or
motive; false appearance, pretense.
Black’s Law Dictionary 1069, 1112 (Sth ed. 1979) (citations
omitted).
26
effect of regulating insurance companies or contracts.
Congress’ use of “purportedly” does not imply that the
deemer clause was directed at deceit or surreptitiousness
on the part of state legislatures.
Furthermore, the test devised by the Third Circuit
does not correspond to the reasoning used to justify its
adoption. The test does not simply eradicate pretextual
use by state legislatures of insurance, banking or securi-
ties regulation for the purpose of regulating ERISA plans;
it actually exempts all non-core matters, whatever they
might be, from the scope of the deemer clause.
The court of appeals also relied on changes to the
scope of ERISA’s broad preemption section during the
legislative process to justify its treatment of the deemer
clause. This reliance is misplaced. The court noted that
the first version of the deemer clause appeared in a bill
which contained the original, narrow version of Section
514(a), .e., the version preempting only those state laws
relating to the reporting, disclosure or fiduciary aspects
of ERISA. FMC, 885 F.2d at 87. Thereafter, when the
Conference Committee expanded Section 514(a) to pre-
empt all state laws which relate to any employee benefit
plan, it kept the deemer clause without change. Id. at
87-88. Because the deemer clause was virtually un-
changed, the court below concluded that “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 preemption clause was meant to
do.” Id. at 88.
a]
SJ
That conclusion defies logic. Congress’ revisions to
Section 514(a) have no bearing on the meaning of the
deemer clause, the purpose of which, as made clear by
this Court in Metropolitan Life, is to define and limit the
scope of the insurance saving clause. In fact, the Courts of
Appeals for the Third and Sixth Circuits have miscon-
ceived the purposes of Congress, leading them to an
incorrect and undesirable result.
E. Enforcing The Deemer Clause As A General Limita-
tion On The Insurance Saving Clause Furthers The
Purposes Of ERISA.
The many benefits which Congress sought to achieve
through its enactment of a broad preemption provision
are preserved by the deemer clause’s limitation on the
Insurance saving clause.
First, Congress established benefit plan regulation as
exclusively a federal concern to minimize the need tor
interstate employers such as FMC to structure and ad-
minister their plans differently in each state in which they
have empioyees. Shaw, 463 U.S. at 105.'° Congress recog-
nized the administrative realities of employee benefit
plans and sought to promote an employer’s capacity to
'% See also 120 Cong. Rec. 29942 (1974) (statement of Sena-
tor Jacob Javits) (“[Tlhe emergence of a comprehensive and
pervasive Federal interest and the interests of uniformity with
respect to interstate plans required — but for certain exceptions
the displacement of State action in the field of private em-
plovee benefit programs”) and 120 Cong. Rec. 29933 (1974)
(statement of Sen. Harrison Williams, Jr) (preemption of the
field intended to apply in its broadest sense with only the
exceptions specified in the act).
28
provide benefits to employees scattered throughout many
states in the most efficient manner, 1.e., through a single
employee benefit plan. Id. at 105 n.25. As this Court
stated in Fort Halifax Packing Co. v. Coyne, 482 US. 1
(1987):
It is thus clear that ERISA’s preemption provi-
sion was prompted by recognition that employ-
ers establishing and maintaining employee
benefit plans are faced with the task of coor-
dinating complex administrative activities. A
patchwork scheme of regulation would intro-
duce considerable inefficiencies in benefit pro-
gram 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 regula-
tions.
id. at 11.
The court of appeals’ holding subjects benefit plans
to conflicting or inconsistent state laws at great costs to
the plans — and at the ultimate expense of plan partici-
pants and beneficiaries.2° Indeed, FMC’s Health Plan has
already been subjected to conflicting decisions regarding
°° The court of appeals’ opinion paves the way for a direct
assault on the cost-containment efforts of self-funded plans,
such as the Health Plan. That Plan contains costs through
subrogation. The inability to exercise this contract right, be-
cause of the Financial Responsibility Law’s antisubrogation
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.
VY
—
the application of state antisubrogation laws. A district
court in California held, in direct conflict with this case,
that a Califernia antisubrogation statute is preempted as
applied to FMC’s Health Plan. See FMC Corp. v. Good
Samaritan Hosp. of the Santa Clara Valley, No. C-88-3092
PMS (N.D. Cal. 1988) (D1). It is precisely the burden of
having to comply with multiple and conflicting insurance
regulations that ERISA’s preemption provisions are in-
tended to avoid. See Fort Halifax, 482 U.S. at 10.
Second, Congress believed that ease of administra-
tion resulting from nationally uniform regulation encour-
ages employers to establish benefit plans without
sacrificing protection of plan participants and benefici-
aries.2! Elimination of conflicting and inconsistent regula:
tion encourages the establishment of plans by reducing
their administrative and litigation costs. Id. at 11. How
ever, this incentive for employers did not come at the
expense of plan participants and beneficiaries. Plan par-
ticipants and beneficiaries are protected by the reporting,
disclosure and fiduciary requirements of ERISA, see 29
U.S.C. § 1001(b), and by the economic realities of the
employer-employee relationship. See Goetz, Regulation of
2) See Staff of Senate Comm. on Labor and Public Weltare,
¥4th Cong. 2d Sess., reprinted in Legislative History of ERISA
4670 (Comm. Print 1976) (statement of U.S. Rep. John Dent) C |
wish to make note of what is to many the crowning achieve
ment of this legislation, the reservation to Federal authority the
sole power to regulate the ticld of employee benetit plans.
With the preemption of the field, we round out the protection
afforded participants by climinating the threat of contheting
and inconsistent state and local regulation.”).
CE EE nT
30
Uninsured Employee Welfare Plans Under State Insurance
Laws, 1967 Wis. L. Rev. 319, 345 (1967). Thus, application
of state insurance statutes directly to benefit plans frus-
trates congressional goals without returning any real ben-
efits to plan participants.
Finally, the clarity of the rule which limits states to
regulation of insurance products and insurance compan-
ies and which prevents states from regulating the plans
themselves will substantially reduce the likelihood ot
litigation concerning the validity of state action.2? Con-
gress rejected a case-by-case approach with respect to
Section 514(a) because “it raised the possibility of endless
litigation over the validity of state action that might
impinge on Federal regulation.” FMC, 885 F.2d at &8
(quoting Senator Javits).?* The vague, case-by-case tests of
the Third and Sixth Circuits invite precisely the type ot
endless litigation that ERISA’s drafters sought to
22 The large number of courts that have struggled with the
issue Of application of state insurance regulation directly to
benefit plans demonstrates the need for a bright-line rule gov-
erning the issue. See, e.g., note 13, supra.
°* Senator Javits, one of the architects of ERISA, explained
that Congressmen viewed earlier versions of House and Senate
bills defining 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
validity of State action that might impinge on Federal regula-
tron, as well as opening the door to multiple and potentialls
conthicting State laws hastilv contrived to deal with some par-
ticular aspect of private welfare or pension benefit plans not
clearly nnected to the Federal regulatory scheme.” 120 Cong.
Rec. 2944 ;
31
preclude.*4 If the holding below is allowed to stand,
much ingenuity will be brought to bear by future advo-
cates on the subject of which matters are core ERISA
concerns and which are not.
If the “core ERISA matter” test were to be adopted,
plan administrators would be burdened with ascertain-
ing, for each state in which covered empioyees reside,
which insurance regulations may be applicable to their
plans and which of those regulations implicate core
ERISA concerns.** Adding to this substantial and costly
burden is the fact that the Third Circuit’s core concern
test provides scant guidance upon which plan admin-
istrators and participants may base their everyday deci-
sions regarding the applicability of state insurance
regulation. Ultimately, plan administrators and_ partici-
pants will repeatedly resort to the courts for that guid-
ance, thus frustrating Congress’ efforts to discourage
24 The malleability of the case-by-case appreach is vividly
illustrated by the Sixth Circuit's decision in Liberty Mutual Ins.
Group v. Iron Workers Health Fund of E. Michigan, 879 F.2d 1384
(oth Cir. 1989), where the Sixth Circuit applied the test set forth
in Northern Group Services but reached an opposite conclusion
regarding the preemption of the same Michigan insurance
statute that was at issue in Northern Group Services. See Liberty
Mutual, 879 F.2d at 1387-88
°* On the other hand, insurers providing insurance poli-
cies to benefit plans would not be burdened with the task of
determining which insurance regulations implicate core ERISA
concerns because state insurance regulations are always appli
cable to their policies.
32
litigation over the permissible scope of state regulation.
The bright-line rule established by ERISA itself and artic-
ulated in Metropolitan Life makes such litigation unnecess-
ary.
»
—
CONCLUSION
Congress expressly rejected an opportunity to pre-
empt only those state laws which conflict with core
ERISA concerns when it enacted Section 514(a). Accor-
dingly, in Shaw, this Court recognized Congress’ decision
and rejected an attempt to limit preemption under Section
514(a) only to those “laws dealing with subject matters
covered by ERISA - reporting, disclosure, fiduciary re-
sponsibility and the like.” Shaw, 463 U.S. at 98. Similarly,
in Metropolitan Life this Court rejected an interpretation o!
the insurance saving clause that saved from preemption
“only state laws that were unrelated to the substantive
provisions of ERISA.” Metropolitan Life, 471 U.S. at 736.
Now, yet another judicial incarnation of the same con-
flict-oriented test has arisen, only this time it is the deem-
er clause that is at issue and the test takes the form o!
“core ERISA concerns.” Like other conflict-oriented tests
previously rejected by this Court, this latest variant must
also be dismissed. The decision of the Court of
Appeals for the Third Circuit should be reversed, and
judgment should be entered in favor of FMC.
Respectfully submitted,
H. Wooprurre TURNER
Caries Key
Patrick J. MCELHiNnny
Kikkratrick & LOCKHART
1500 Oliver Building
Pittsburgh, Pennsylvania 15222
(412) 355-6500
Attorneys for Petitioner,
FMC Corporation
Of Counsel:
W. Ronatp Coorrr
kKMC Corporation
200 East Randolph Drive
Chicago, Illinois 6060!
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.