Amicus Curiae Brief — FMC Corp. v. Holliday

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} cupreme Court, U.S.

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: APR 19 se

No. 89-1048 JOSEPH F. SPANIOL, JR,

CLERK

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IN THE

Supreme Court of the United States

OCTOBER TERM, 1989

FMC CORPORATION,

Petitioner,

Vv.

CYNTHIA ANN HOLLIDAY,

Respondent.

On Writ of Certiorari to the United States

Court of Appeals for the Third Circuit

BRIEF OF THE TRAVELERS INSURANCE COMPANY

AS AMICUS CURIAE IN SUPPORT OF PETITIONER

A. RAYMOND RANDOLPH

Counsel of Record

SUSAN KATZ HOFFMAN

M. DUNCAN GRANT

WALTRAUT &. ADDY

SUSAN K. LESSACK

PEPPER, HAMILTON & SCHEETZ

1300 19th Street, N.W.

Washington, D.C. 20036

(202) 828-1200

WILSON - Epes PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001

;

All AR

QUESTION PRESENTED

Whether the Employee Retirement Income Security

Act of 1974, as amended, pre-empts a State law insofar

as it prohibits self-funded employee benefit plans from

requiring plan beneficiaries to reimburse the plans for

medical expenses paid on their behalf and later recovered

by them as damages in tort cases involving motor

vehicles?

(i)

TABLE OF CONTENTS

QUESTION PRESENTED ..QW220220020.....eccccceceeeeeeteeteeeeeee-

TABLE OF AUTHORITIES 000000...0.0...ccccceeeceteeeteeees

INTEREST OF AMICUS CURIAE ..0000000220..00..00200000000---

SUMMARY OF ARGUMENT ......000000..eeceeeeeec eee

I. ERISA SHIELDS THE CONTENTS OF EM-

PLOYEE BENEFIT PLANS FROM STATE

Tt adehcaitihdnnntonesenpesncnennevarsissneecreeresesce

II. THE COURT OF APPEALS MISINTER-

PRETED ERISA’S SAVING CLAUSE .............

A. As Applied to Plans Covered by ERISA,

Pennsylvania’s Anti-Subrogation Law Was

Not Rescued from Pre-Emption by the Sav-

B. Under the Saving Clause It Is Irrelevant

That the Effect of Pennsylvania’s Law Was

Mainly on Insurance Companies ....................

III. THE COURT OF APPEALS MISCONSTRUED

THE DEEMER CLAUSE ......00.0.00...2.-.c2:::c:0s0c00+

a ddeicdareenneceneegunnesoensencsconsaserescesoeces

(iii)

Page

TABLE OF AUTHORITIES

CASES: Page

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

IED 1 cctsgusmiacaaneneutiis caivabimnaniatennemiiasnialemsmnteandesdtes ...---9, 15, 16

Attorney General v. Travelers Ins. Co., 433 N.E.2d

I 15

Baxter v. Lynn, 886 F.2d 182 (8th Cir. 1989) ........ 19

Davis v. Michigan Dep’t of Treasury, 109 S. Ct.

eC 15

Denardo v. Carneval, 444 A.2d 135 (Pa. Super. Ct.

SUI coschndsnsusendiristcccaamenstaaduatesiidedibiiimitddaiiiaiaiiiaddadiclaeancaee 6

Exxon Corp. v. Hunt, 475 U.S. 355 (1986) ............. 15

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

TUITE asseciscesmsesilsisinsnidpibinnantseenesiicseniceatiicédnansdaeameianiabieaddanaind: passim

Gallo v. Yamaha Motor Co., 526 A.2d 359 (Pa.

STi SII ‘scamcoeseviicnesioammenndetindemcibmnabebbestinaidss 6

INS v. Cardoza-Fonseca, 480 U.S. 421 (1987)........ 22

Liberty Mut. Ins. Group v. Iron Workers Health

Fund, 879 F.2d 1384 (6th Cir. 1989) —................ 7

Mackey v. Lanier Collections Agency & Serv., 486

is Se IED |< ccaros ca ccepedncaentnniaiiasannaienne 15

Metropolitan Life Ins. Co. v. Massachusetts, 471

ts ee I a ceased 12, 16, 17, 19

Musto v. American Gen. Corp., 861 F.2d 897 (6th

Cir. 1988), cert. denied, 109 S. Ct. 1745 (1989) .. 8

Northern Group Servs. v. Auto Owners Ins. Co.,

833 F.2d 85. (6th Cir. 1987), cert. denied, 486

ns nena 13

Northern Group Servs., Inc. v. State Farm Mut.

Auto. Ins. Co., No. 89-1053 (6th Cir. Mar. 21,

1990) (also reported, LEXIS, Genfed. Library,

1990 U.S. App. LEXIS 3979) ...............................- 18

Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987).. 13, 19

Shaw v. Delta Air Lines, Inc., 463 U.S. 85 (1983).. 6, 12,

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

(1982) ........ seitninabesnasataiaiidasmtiiabadaatiduetad a sieaiiatiiataedaiaiss 19

United Food & Commercial Workers v. Pacyga,

801 F.2d 1157 (9th Cir. 1986) ..........00 13, 14, 19

Viggiano v. Shenango China Div. of Anchor Hock-

ing Corp., 750 F.2d 276 (3d Cir. 1984) 0.0... 8

TABLE OF AUTHORITIES—Continued

ACTS: Page

Employee Retirement Income Security Act of

1974, as amended, 29 U.S.C. §§ 1001 et segq......... 1,6

§ 3(17), 29 U.S.C. § 1002(17) _..00 17

§ 103, 29 U.S.C. § 1023 ..... ELE OE SOE Bete ark 17

I i al 17

§ 302(b) (5) (B) (iii) (II), 29 U.S.C. § 1082

LT | | a eeeonee cane 17

§ 401(b) (2) (A), 29 U.S.C. § 1101 (b) (2) (A)... 17

§ 403 (b), 29 U.S.C. § 1103 (b) 0. 17

§ 404(a) (1) (A), 29 U.S.C. § 1104(a) (1) (A) .. 7

Ee i le IID seiicceeesccenecctenecacesencosecnesemiees 17

§ 514(a), 29 U.S.C. § 1144 (a) 000. ee. passim

§ 514(b) (2) (A), 29 U.S.C. § 1144 (b) (2) (A) passim

§ 514(b) (2) (B), 29 U.S.C. § 1144(b) (2) (B) ... 11, 14,

§ 514(c), 29 U.S.C. § 1144 (¢) 00.

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

OO cccaiciacasteisatinsiaieatenasneciasepenasieiaeiacadantatadimipica ese tiis.

Pennsylvania Motor Vehicle Financial Responsi-

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

§§ 1701 et seq. (Purdon 1989 Supp.), amended

by Motor Vehicle Insurance, Pleadings, Opera-

tors of Commercial Vehicles, Act of Feb. 7,

1990, Pub. L. No. 11, § 1720, 1990 Pa. Legis.

Serv. No. 1 (Purdon)

BERS RSREE ERP aie ort ee ee SPP ae eee

I ae

Ey I otis csneisaiceniedaaediamiialasiegtnddannsamdidummaaaxdualsiae

REESE een OPE TOTTI C RP eos =

AEP NLR ek Ae SO ae PTT PI NPE ee

LEGISLATIVE HISTORY:

2 Legislative History of the Employee Retirement

Income Security Act of 1974 0. a

120 Cong. Rec. 29,942 (1974) ....00000000... decbeathadtsetes

17, 20

9,10

10, 18

TABLE OF AUTHORITIES—Continued

120 Cong. Rec. 29,933 (remarks of Sen. Williams)

III scctinceatdiadistietimaeaatinn ,

Employer-Sponsored Retiree Health Insurance:

Hearing Before the Subcomm. on Oversight of

the House Comm. on Ways and Means, 100th

Cong., 2d Sess. (1988) .....0.....2....0..ccccccceecccce cece

H.R. Conf. Rep. No. 1280, 98d Cong., 2d Sess.

H.R. Rep. No. 533, 98d Cong., Ist Sess. (1973)..........

S. Rep. No. 127, 98d Cong., Ist Sess. (1973) .............

S. Rep. No. 383, 938d Cong., lst Sess. (1973) .............

MISCELLANEOUS:

Farnham, No More Health Care on the House,

Fortune, Feb. 27, 1989 .........02.022.. eee eee eeee eee

Health Care Keeps Taking Bigger Bites of the

Economy, BusinessWeek, Feb. 19, 1990...............

Loomis, The Killer Cost Stalking Business, For-

NE on nee

Office of the Attorney General, Minimum Premium

Agreements and Administrative Service Plans,

Opinion No. 75-22 (June 30, 1975), 5 Pennsyl-

vania Bulletin 1804 (July 5, 1975) ............000.......

Pennsylvania Legis. J., 167th Sess. (Dec. 13,

Oceanis

Page

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Re ee ee

IN THE

Supreme Court of the United States

OCTOBER TERM, 1989

No. 89-1048

FMC CoRPORATION,

. Petitioner,

CYNTHIA ANN HOLLIDAY,

Respondent.

On Writ of Certiorari to the United States

Court of Appeals for the Third Circuit ,

BRIEF OF THE TRAVELERS INSURANCE COMPANY

AS AMICUS CURIAE IN SUPPORT OF PETITIONER

INTEREST OF AMICUS CURIAE

The Travelers Insurance Company (“Travelers”) and

its affiliates provide services to uninsured employee wel-

fare benefit plans covered by the Employee Retirement

Income Security Act of 1974, as amended, 29 U.S.C.

§$§ 1001 et seg. (“ERISA”). Travelers receives and proc-

esses benefit claims; prepares administrative forms;

prepares and distributes summary plan descriptions, plan

documents, and other forms and disclosures required by

ERISA; calculates funding requirements; makes cost

estimates; assists in plan design; and prepares materials

required by governmental agencies.

A significant number of the uninsured plans for which

Travelers provides such services cover participants in

more than one State. By permitting each State to con-

trol the terms and conditions of multi-state plans, the

decision below will require similarly-situated partici-

pants to be treated differently according to their State

of residence. This significantly disrupts the plans’ abil-

ities to estimate and project benefit costs, adds addi-

tional claims processing costs and benefit costs to the

plans’ funding burdens, increases total health care ex-

penses, and conflicts with the Congressional objective of

ensuring uniformity of regulation of uninsured ERISA

plans.

For these reasons, the decision below adversely affects

the plans of Travelers’ customers and, thus, the business

and operations of Travelers.*

SUMMARY OF ARGUMENT

The court of appeals rendered the pre-emption provi-

sions of ERISA needlessly complex. It read into those

provisions qualifications and limitations that cannot be

supported by statutory language or congressional intent.

It adopted, without explanation, an erroneous interpreta-

tion of ERISA’s saving clause that makes pre-emption

turn on the form of the State law, rather than its actual

effect. The court compounded this error by misinterpret-

ing the deemer clause, which the court found necessary

to consider only because of its misreading of the saving

clause.

The court’s critical mistake was its failure to recog-

nize that under ERISA a State law dealing with several

subjects is pre-empted on/y insofar as it “relates to” em-

ployee benefit plans. ERISA’s “saving” clause rescues

a State law that would otherwise be pre-empted if the

law regulates insurance. But the portion of a law di-

rected at self-funded plans cannot thereby be saved.

Such plans are not insurance companies and States can-

* Letters from the parties consenting to the filing of this Brief

have been filed with the Clerk of this Court. See Sup. Ct. R. 37.3.

not treat them as such. To the extent that a State law

regulates self-funded plans, ERISA therefore pre-empts

it because, to that extent, the State is not regulating

insurance.

Here, Pennsylvania’s anti-subrogation law applied to

both employee benefit plans and insurance companies.

After concluding that the Pennsylvania statute would

therefore be pre-empted as a law relating to ERISA

plans, the court turned to the saving clause. In this re-

gard, ERISA required the court to consider the Pennsyl-

vania law only insofar as it applied to plans, which is

all that would otherwise have been pre-empted.

Instead of doing so, the court treated the saving clause

as embodying an all or nothing proposition—either the

entire Pennsylvania anti-subrogation statute was pre-

empted or the entire statute was saved. Without expla-

nation, the court then interpreted the saving clause to

mean that if the principal effect of a State law is on

the insurance industry, the entire law—including the

portion regulating ERISA plans—escapes pre-emption as

a law regulating insurance. Pennsylvania’s law, the

court concluded, was therefore saved.

The court’s interpretation of the saving clause is com-

pletely untenable. It makes pre-emption turn on how a

State chooses to frame its legislation. If, for example,

Pennsylvania enacted a separate statute barring only

employee benefit plans from subrogating, ERISA would

require the law to be struck down. Such a statute would

- clearly “relate to” plans covered by ERISA and could not

be saved as a regulation of insurance since employee

benefit plans are not insurance companies, even under

Pennsylvania’s definition.

That Pennsylvania combined, in one section, its sub-

rogation ban against ERISA plans with a ban against

insurance companies should lead to no different result.

Both types of statutes equally frustrate Congress’s goals.

ERISA does not dictate what benefits plans must pro-

vide or what conditions plans may attach to those bene-

fits. Congress decided that to do so as a matter of fed-

eral law would threaten its objective of encouraging

employers to institute such plans voluntarily and to ex-

pand the coverage of existing plans. State laws, such as

Pennsylvania’s, pose precisely the same threat. By pre-

cluding plans from recovering medical expenses paid to

employees, Pennsylvania has necessarily increased the

costs of providing such coverage. Moreover, if Pennsy]-

vania is permitted to regulate plans in this manner,

multi-state plans will be subjected to a welter of differ-

ent and potentially conflicting State laws, a burden

ERISA’s pre-emption provisions were designed to

remove.

Under ERISA, it was therefore irrelevant that Penn-

sylvania imposed a mandatory and costly regulation on

employee benefit plans in the same statute applying that

regulation to the insurance industry. The court’s con-

clusion that the principal effect of the Pennsylvania law

was on insurance companies misses the crucial point—

namely, that ERISA pre-empts a State law insofar as

it governs employee benefit plans regardless whether that

is the State law’s primary objective, principal purpose or

secondary effect.

The court’s application of a test to determine whether

the practice of subrogation constitutes the “business of

insurance” was therefore wide of the mark. Pennsyl-

vania’s anti-subrogation law as applied to insurance com-

panies was not threatened with pre-emption and did not

have to be saved from that fate. The only aspect of the

law challenged here dealt with employee benefit plans,

not the business of insurance. The purpose of the saving

clause—to preserve State authority over the insurance

industry—-was not implicated.

In short. the court of appeals failed to appreciate that,

because ERISA pre-empts a State law only insofar as

it relates to employee benefit plans, that is the only

aspect of the State law to be considered under the saving

clause. Since the bar against plans like FMC’s from

seeking reimbursement for medical expenses was not

saved as an insurance regulation, the Pennsylvania law

as applied to employee benefit plans was pre-empted.

It was therefore unnecessary for the court of appeals

to proceed to the third step of ERISA pre-emption

analysis under the deemer clause, which provides that

States may not deem employee benefit plans to be insur-

ance companies in their laws regulating the insurance

industry. The court’s interpretation of the deemer clause

was, in any event, wrong.

The court read the clause to mean that States may

not regulate “core ERISA concerns” under the guise of

insurance regulation. As the court saw it, core ERISA

concerns were limited to reporting, disclosure and non-

forfeitability. The language of the deemer clause ob-

viously lends no support whatever to this interpretation.

Moreover, the court’s ruling resurrects limitations on

pre-emption Congress specifically rejected. Earlier ver-

sions of ERISA limited pre-emption to the areas de-

scribed by the court, but Congress decided that this was

too restrictive and therefore, in the final version of the

bill, significantly broadened its provisions.

The purpose of the deemer clause is to ensure that

States cannot immunize their laws from pre-emption by

defining employee benefit plans to be insurance com-

panies. Giving effect to the plain meaning of the clause

is sufficient to accomplish its purpose. The court’s reluc-

tance to do so was caused by its misinterpretation of the

saving clause, which allowed State laws to escape pre-

emption in their entirety despite the fact that they reg-

ulated plans. However, when the saving clause is prop-

erly interpreted along the lines discussed above, there

is no reason for supposing that the deemer clause means

anything other than what it actually says.

ARGUMENT

I. ERISA SHIELDS THE CONTENTS OF EMPLOYEE

BENEFIT PLANS FROM STATE CONTROL

Employee welfare benefit plans governed by the Em-

ployee Retirement Income Security Act of 1974

(“ERISA”), 88 Stat. 829, as amended, 29 U.S.C.

§§ 1001 et seg. (1985 & 1989 Supp.), provide benefits to

employees and their beneficiaries “for contingencies such

as illness, accident, disability, death, or unemployment.”

Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 91 n.5

(1983). Plans covered by ERISA may pay benefits di-

rectly from employer and/or employee contributions

(“self-funding”) or they may purchase insurance policies

for their beneficiaries. FMC Corporation’s (“FMC”)

plan is self-funded.

The FMC plan, inter alia, pays the medical expenses of

company employees and their family members injured in

motor vehicle accidents. FMC Corp. v. Holliday, 885 F.2d

79, 80 (3d Cir. 1989). As a condition to receiving these

medical benefits, the beneficiary must agree to reimburse

the plan if he or she later recovers medical expenses as

damages in an action against the tortfeasor. Jd. at 81.

Through such provisions, plans are relieved of the fi-

nancial burden caused by the fault of another and are

able to control costs for the benefit of all participants.

Without a reimbursement condition, employees who re-

ceive such recoveries in tort actions would be unjustly

enriched at the plans’ expense.’

State laws prohibiting reimbursement or subrogation

in motor vehicle accident cases necessarily raise the cost

1In Pennsylvania, as in other States, plaintiffs in tort cases may

recover damages for medical expenses incurred as a result of their

injuries regardless whether they paid the expenses themselves.

Denardo v. Carneval, 444 A.2d 135, 140 (Pa. Super. Ct. 1982)

(Pennsylvania law clear that tort victim entitled to damages re-

gardless of reimbursement from other sources); Gallo v. Yamaha

Motor Co., 526 A.2d 359, 367 n.13 (Pa. Super. Ct. 1987) (medical

insurance does not negate tort recovery for medical expenses).

of coverage for these plans.* Barring self-funded plans

like FMC’s from being reimbursed for medical expenses

requires the plans either to make up the losses through

increased employer or employee contributions, or to drop

or reduce their coverage of certain medical expenses.

See Liberty Mut. Ins. Group v. Iron Workers Health

Fund, 879 F.2d 1384, 1385 (6th Cir. 1989) (employee

benefit plan excluded coverage of medical expenses re-

sulting from automobile accidents).

To allow States to dictate plan terms in this manner

not only would be contrary to the interests of the cov-

ered employees, but also would be at odds with one of

the fundamental goals of ERISA. Employee benefit

plans are not mandatory. Employers institute such plans

on a voluntary basis. Through ERISA, Congress sought

to encourage the formation of new plans and the expan-

sion in coverage of existing plans. As Congress knew,

these plans are costly undertakings for employers.* Con-

2In Pennsylvania, it was thought that subrogation in motor

vehicle accident cases resulted simply in taking money “from one

insurance company’s pocket and putting it into another insurance

company’s pocket.” Pennsylvania Legis. J., 167th Sess. at 2171

(Dec. 13, 1983) (remarks of Rep. Manderino). Apparently, the

hope was that by barring subrogation, litigation between insurance

companies would be reduced, and that more insurance premium

dollars would therefore be devoted to benefits rather than to proc-

essing claims.

Whatever might be said for this rationale, it does not apply to

self-funded employee benefit plans such as FMC’s. Such plans are

not profit-making enterprises. Under ERISA Section 404(a) (1)

(A), all plan assets, which include amounts collected through

subrogation and reimbursement, must be used for the “exclusive

purpose of providing benefits to participants and their benefici-

Scene’

3 Much of the bill for health care in the United States is now

paid by employer-sponsored plans. A recent survey indicates that

“Tb]usiness’s share of the nation’s doctor bill has grown to a

staggering 45% of operating profits.” Farnham, No More Health

Care on the House, Fortune, Feb. 27, 1989, at 71. The cost of

maintaining such plans is escalating even more rapidly than health

gress recognized that if federal law requ. q particular

benefits, this could defeat ERISA’s goa. The greater

the cost, the more likely employers would respond by

narrowing existing plans or refusing to establish new

ones. See Fort Halifax Packing Co. v. Coyne, 482 US.

1, 11-13 (1987). In ERISA, Congress therefore decided

not to “mandate that employers provide any particular

benefits” (Shaw, 463 U.S. at 91).

Congress did not intend the States to fill this void. Be-

cause State laws regulating the terms of voluntary plans

could have the same counterproductive effect Congress

care costs in general. In 1989, the cost of employer-provided

health care rose by 20 percent, to an average of $2,600 per

employee. See Health Care Keeps Taking Bigger Bites of the

Economy, BusinessWeek, Feb. 19, 1990, at 22. Employers facing

these enormous expenses are naturally intent on keeping them

under control. See Loomis, The Killer Cost Stalking Business,

Fortune, Feb. 17, 1989, at 58. See generally Employer-Sponsored

Retiree Health Insurance: Hearing Before the Subeomm. on Over-

sight of the House Comm. on Ways and Means, 100th Cong., 2d

Sess. (1988).

* See, e.g., S. Rep. No. 383, 93d Cong., Ist Sess. 18 (1973):

Generally, it would appear that the wider or more compre-

hensive the coverage, vesting, and funding, the more desirable

it is from the standpoint of national policy. However, since

these plans are voluntary on the part of the employer and both

the institution of new pension plans and increases in benefits

depend upon employer willingness to participate or expand a

plan, it is necessary to take into account additional costs from

the standpoint of the employer. If employers respond to more

comprehensive coverage, vesting and funding rules by decreas-

ing benefits under existing plans or slowing the rate of forma-

tion of new plans, little if anything would be gained from the

standpoint of securing broader use of employee pensions and

related plans.

The same rationale underlies ERISA’s regulation of employee wel-

fare benefit plans. Viggiano v. Shenango China Div. of Anchor

Hocking Corp., 750 F.2d 276, 279 (3d Cir. 1984); Musto v. Ameri-

can Gen. Corp., 861 F.2d 897, 912 (6th Cir. 1988), cert. denied,

199 S. Ct. 1745 (1989).

was determined to avoid, ERISA established “plan regu-

lation as exclusively a federal concern.” Alessi v.

Raybestos-Manhattan, Inc., 451 U.S. 504, 523 (1981);

see also id. at 511. Furthermore, if each State could de-

cide for itself what an employee benefit plan must con-

tain, multi-state plans would become subject to a welter

of different and potentially conflicting requirements. See

Fort Halifax, 482 U.S. at 11-13. The increased costs of

instituting a plan in an anti-subrogation State, for

example, could discourage multi-state employers from

offering all of their employees the same plan regardless

of the State of their employment. In that manner, the

law of one particular State could unduly influence or

control the terms of a plan that was regional in scope.°

II. THE COURT OF APPEALS MISINTERPRETED

ERISA’S SAVING CLAUSE

The Pennsylvania Motor Vehicle Financial Responsi-

bility Law, enacted in 1984, 75 Pa. Cons. Stat. Ann.

§§$ 1701 et seg. (Purdon 1989 Supp.), requires insurers

issuing liability insurance policies* covering motor ve-

hicles to include, among other things, “a medical benefit

in the amount of $10,000... .” §1711. Insurers issuing

5 See, e.g. S. Rep. No. 127, 93d Cong., 1st Sess. 29 (1973)

(“it is evident that the operations of employee benefit plans are

increasingly interstate. The uniformity of decision which the Act

is designed to foster will help administrators, fiduciaries and

participants to predict the legality of proposed actions without the

necessity of reference to varying state laws.”); H.R. Rep. No. 533,

93d Cong., Ist Sess. 12 (1973) (same); 126 Cong. Rec. 29,933

(remarks of Sen. Williams) (1974) (“It should be stressed that

with the narrow exceptions specified in the bill, the substantive and

enforcement provisions of the conference substitute are intended

to preempt the field for Federal regulations, thus eliminating the

threat of conflicting or inconsistent State and local regulation of

employee benefit plans.”’).

6 Liability insurance indemnifies the insured for tort or statutory

liability to third persons based on covered “occurrences” or acci-

dents.

first party benefit policies’ are also required to include,

in each such policy, coverage of liability in the minimum

amounts required by Section 1711. § 1715(c).

Automobile insurance policies issued under the Penn-

sylvania law are “primary” with respect to other pay-

ment sources, except worker’s compensation. The injured

person recovers from the automobile insurance company

and, if the loss exceeds the policy’s first party benefit

limits, only then from “/a]ny program, group contract,

or other arrangement” providing medical and other bene-

fits. § 1719(a). Under Section 1720, however, there is

“no right of subrogation or reimbursement from a claim-

ant’s tort recovery” in a motor vehicle accident case with

respect to benefits payable from sources listed in Section

1719, the “‘coordination of benefits” provision.“ As inter-

preted by the court of appeals, the phrase “other ar-

rangement” in Section 1719(a), and consequently the

anti-subrogation provision in Section 1720, applies to all

7 First party benefits are paid to the insured without regard to

whether the insured was at fault.

’ At the time the case was decided Section 1720 provided that:

In actions arising out of the maintenance or use of a motor

vehicle, there shall be no right of subrogration or reimburse-

ment from a claimant’s tort recovery with respect to workers’

compensation benefits, benefits available under Section 1711

(relating to required benefits), 1712 (relating to availability

of benefits) or 1715 (relating to availability of adequate

limits) or benefits in lieu thereof paid or payable under sec-

tion 1719 (relating to coordination of benefits). 75 Pa. Cons.

Stat. Ann. § 1720 (Purdon 1984 Supp.) [emphasis added}.

This Section was amended on February 7, 1990, effective July 1,

1990, which changed the last clause to “or benefits paid or payable

by a program, group contract or other agreement whether primary

or excess under Section 1719 (relating to coordination of bene-

fits).” 75 Pa. Cons. Stat. Ann. § 1720, as amended by Motor

Vehicle Insurance, Pleadings, Operators of Commercial Vehicles,

Act of Feb. 7, 1990, Pub. L. No. 11, § 1720, 1990 Pa. Legis. Serv.

No. 1 (Purdon).

medical benefit plans regulated by ERISA. FMC Corp.,

885 F.2d at 82.

To decide whether the Pennsylvania law was pre-

empted, Section 514(a) of ERISA required the court of

apyeals to determine first whether the State law “re-

lated to” employee benefit plans.’ If it did, ERISA pre-

empted the “law” unless it came within Section 514(b)

(2) (A), which provides:

Except as provided in subparagraph (B), nothing

in this title shall be construed to exempt or relieve

any person from any law of any State which regu-

lates insurance, banking, or securities.

If the State law were saved from pre-emption by Section

514(b) (2) (A), the court would then proceed to the third

step of determining whether the law nevertheless fell

under the ‘“deemer” clause of Section 514(b) (2) (B)."

As we next discuss, after correctly holding that the

Pennsylvania statute “related to” employee benefit plans,

the court of appeals incorrectly determined that the law

as applied to swch pans came within the saving clause

exception to pre-emption in Section 514(b)(2)(A). As

a result of this error, the court found it necessary to

proceed to the third step of pre-emption analysis under

® Section 514(a) provides:

Except as provided in subsection (b) of this section, the provi-

sions of this title and title IV shall supersede any and all

State laws insofar as they may now or hereafter relate to any

employee benefit plan described in section 4(a) and not ex-

empt under section 4(b). This section shall take effect on

January 1, 1975.

‘0 The deemer clause provides:

Neither an employee benefit plan ... nor any trust established

under such a plan, shall be deemed to be an insurance com-

pany or other insurer, ... or to be engaged in the business of

insurance or banking for purposes of any law of any State

purporting to regulate insurance companies, insurance con-

tracts, banks, trust companies, or investment companies.

ERISA. Here too the court erred by resurrecting under

the deemer clause a pre-emption test Congress had spe-

cifically rejected when it revised these provisions in con-

ference.

A. As Applied to Plans Covered by ERISA, Pennsyl-

vania’s Anti-Subrogation Law Was Not Rescued

from Pre-Emption by the Saving Clause

Pennsylvania’s anti-subrogation law, as interpreted by

the court of appeals, plainly “relate[d] to an employee

benefit plan” within the meaning of Section 514(a) of

ERISA. FMC Corp., 885 F.2d at 84. See Shaw, 463

U.S. at 96-97. The Pennsylvania statute directly regu-

lated such plans, dictating the terms by which plans

could provide medical benefits for participants involved

in motor vehicle accidents. As a result, the reimburse-

ment condition in the FMC plan was rendered unenforce-

able under State law.”

Neither Pennsylvania’s Motor Vehicle Financial Re-

sponsibility Law nor the anti-subrogation provision in it

were, however, threatened with pre-emption in their en-

tirety. ERISA instead contemplates “pre-emption as ap-

plied.” Section 514(a) thus invalidates State laws “only

insofar as they relate to” employee benefit plans. Shaw,

11 Unlike FMC’s plan, some plans purchase insurance policies

for their beneficiaries. It might be argued that Pennsylvania’s

anti-subrogation law also “related to” those plans. The point is,

however, academic in light of Metropolitan Life Ins. Co. v. Massa-

chusetts, 471 U.S. 724 (1985), which holds that insurance policies

purchased by plans are not immune from State laws generally

regulating insurance companies.

On the other hand, Metropolitan Life makes clear that a State’s

regulation of self-funded plans raises a different issue regarding

pre-emption. The Court noted that Massachusetts, which required

certain insurance policies to contain mental health benefits, did not

require self-funded plans to do so, “effectively conceding that

fsuch] application . . . would be pre-empted by ERISA.” 471 U.S.

at 735-36 n.14.

463 U.S. at 85 n.17. The point is critical when the sav-

ing clause of Section 514(b) (2) (A) is considered.

The saving clause represents a narrow exception to

Section 514(a). It rescues some laws that would other-

wise fall under Section 514(a) insofar as they apply to

ERISA plans. To be saved, the law must constitute a

regulation of insurance. Since Section 114(a) would pre-

empt only the portion of a State law relating to plans,

that portion of the law must regulate insurance in order

to survive pre-emption.’* Therefore, with respect to the

Pennsylvania statute in this case, the question under the

saving clause was whether the anti-subrogation provision

as applied to employee benefit plans escaped pre-emption

as a law regulating insurance. That, however, is a ques-

tion the court of appeals never addressed.

Instead, the court embarked upon an entirely different

inquiry. Without explanation, the court interpreted the

saving clause to shield State laws in their entirety, re-

gardless of their effect on employee benefit plans, so long

as the “principal and substantial effect” of the law is

“on the insurance industry.” FMC Corp., 885 F.2d at

86."* The court did not make clear whether, in finding

12In Pilot Life Ins. Co. v. Dedeaurx, 481 U.S. 41 (1987), for

example, Mississippi's common law of bad faith applied to con-

tracts in general, including insurance contracts. The Court held

that ERISA pre-empted Mississippi’s law to the extent it governed

employee benefit plans. The rest of Mississippi’s law remained

standing because it did not relate to ERISA plans.

13 State laws relate to plans but nevertheless regulate insurance

when they control the terms of insurance policies purchased by

plans to cover participating employees. See note 11, supra.

'*The court merely cited two other court of appeals decisions

adopting, without explanation, a similar construction of Section

514(b)(2)(A). See Northern Group Servs. v. Auto Owners Ins.

Co., 833 F.2d 85, 89 (6th Cir. 1987), cert. denied, 486 U.S. 1017

(1988) (Michigan’s coordination of benefits law fell within the

saving clause because it “is aimed principally at different types

of insurance coverage.) (emphasis in original); United Food &

this “principal and substantial effect” test satisfied, it

evaluated the Pennsylvania Motor Vehicle Financial Re-

sponsibility Law as a whole or only the section dealing

with subrogation." Neither did the court explain what

factors a judge should consider in measuring the “effect”

of a particular law. For their part, the parties simply

agreed that the Pennsylvania law regulated insurance

and devoted their arguments to the effect of Section 514

(b) (2) (B), the deemer clause. 885 F.2d at 85.

The court’s interpretation of the saving clause is not

correct. Pre-emption cannot depend upon whether the

“principal and substantial effect” of a State’s law is on

insurance, To say that a State law primarily affects one

thing is to concede that it also affects something else,

here employee benefit plans. But State laws controlling

plans do not escape pre-emption for that reason. It is of

no importance that a State’s regulation of ERISA plans

is contained in a broad legislative package aimed at the

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

1986) (Arizona’s anti-subrogation law was within the saving clause

although it applied to both “insurance companies and private par-

ties”). Pacyga held, however, that the Arizona law ran afoul of

the deemer clause and was therefore pre-empted. 801 F.2d at 1161-

62.

15 The court seemed to be assessing Pennsylvania’s Motor Ve-

hicle Financial Responsibility Law in its entirety:

We agree that Pennsylvania’s Financial Responsibility Law

plainly “regulates insurance” within the meaning of the sav-

ings clause. 885 F.2d at 85-86.

Insofar as the Financial Responsibility Law expressly regu-

lates insurance contracts, it necessarily falls within the ambit

of the savings provision. Id. at 86.

.. . the Financial Responsibility Law “regulates insurance

cca ae

Only once in its analysis of the saving clause did the court specifi-

cally mention the anti-subrogation provision. Jd. (“The statute's

coordination of benefits and anti-subrogation provisions directly

control the terms of insurance contracts.” ).

insurance industry.’* Otherwise, the saving clause be-

comes dependent on how the State has framed its legis-

lation rather than on the ERISA policies it was intended

to implement.

To illustrate, suppose a State’s anti-subrogation meas-

ure were directed at employee benefit plans alone. No

one could have the slightest doubt that such a law would

be pre-empted.'’ Even if the State added a second sec-

tion dealing only with subrogation by insurance com-

panies, the first section would still control employee bene-

fit plans, and could not be saved from pre-emption as a

law regulating insurance.

Yet there is only one distinction between the State law

just hypothesized and Pennsylvania’s anti-subrogation

provision—namely, the Pennsylvania prohibition against

insurance companies and employee benefit plans is con-

tained in one statutory section rather than two. As far

as ERISA is concerned, however, that is a distinction

without a difference.'* The effect on a plan’s terms, its

16 See Alessi, 451 U.S. at 525 (“ERISA’s authors clearly meant

to preclude the States from avoiding through form the substance

of the pre-emption provision.” ).

17 A State law along the following lines, for example, would

clearly be invalid: “an employee benefit plan shall have no right

to be reimbursed by an employee to whom the plan has provided

medical benefits when such employee has recovered medical ex-

penses in a suit against the tortfeasor.” Cf. Mackey v. Lanier

Collections Agency & Serv., 486 U.S. 825, 82930 (1988). Such a

law would plainly “relate to any employee benefit plan’ within the

meaning of Section 514(a) and could not be saved from pre-

emption by Section 514(b)(2)(A) because it would not be a law

“which regulates insurance.” See pp. 17-18, infra.

'S Invalidating Pennsylvania’s statute as applied to employee

benefit plans, as we suggest, may raise the question whether this

portion of the State law is severable from the rest of the statute.

This is solely a matter of State law. See, e.g., Davis v. Michigan

Dep't of Treasury, 109 S. Ct. 1500, 1509 (1989); Exrron Corp. v.

Hunt, 475 U.S. 355, 376 (1986). See also Attorney General v.

Travelers Ins. Co., 433 N.E.2d 1223, 1225 (Mass. 1982), the case

finances and its administration is identical. ERISA’s

goal of encouraging voluntaiy employer action is equally

threatened in both situations. The danger of conflicting

State regulation of multi-state plans is precisely the

same. Regardless whether the State’s legislation mainly

deals with insurance or some other subject, when a State

applies its law to plans covered by ERISA it is regulat-

ing those plans, not insurance companies.’®

B. Under the Saving Clause It Is Irrelevant That the

Effect of Pennsylvania’s Law Was Mainly on Insur-

ance Companies

The language and purpose of the saving clause do not

support the lower court’s construction. The clause sim-

underlying Metropolitan Life, in which the State court held that

the provisions relating to the insurance industry, which were net

pre-empted, were severable from the provisions pertaining directly

to employee benefit plans, which all parties assumed were pre-

empted.

Pennsylvania law provides that “[i]f any provision of any stat-

ute or the application thereof to any person or circumstance is

held invalid, the remainder of the statute ... shall not be affected

thereby” unless the court finds that the remaining provisions are

so “inseparably connected” with the void provision that the General

Assembly would not have enacted the “remaining valid provisions,”

or unless the court finds that the “remaining valid provisions,

standing alone, are incomplete and are incapable of being executed

in accordance with the legislative intent.” 1 Pa. Cons. Stat. Ann.

§ 1925 (Purdon 1989 Supp.) (emphasis added).

19 See Alessi, 451 U.S. at 524, treating as immaterial the fact that

a State statute’s primary purpose was not to govern the terms of

ERISA plans, when in fact the statute had that effect.

Section 514(c) defines “State law” to mean “all laws, decisions,

rules, regulations, or other State action having the effect of law,”

and defines “State” to mean a State, its political subdivisions and

agencies which “purport[] to regulate, directly or indirectly, the

terms and conditions of” employee benefit plans (emphasis added).

As Alessi holds, even if the State regulation is not directly aimed

at employee benefit plans, it is pre-empted to the extent that such

plans are swept within the scope of the State law.

ply provides that nothing in Section 514(a) shall relieve

any person from the duty of complying with a State law

regulating insurance. The purpose of the clause is to

preserve the States’ long-standing authority, reflected in

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

over the business of insurance. Metropolitan Life, 471

U.S. at 742. Congress anticipated that many plans,

rather than being self-funded like FMC’:, would purchase

insurance. H.R. Conf. Rep. No. 1280, 93d Cong., 2d Sess.

292, 296 (1974). If the insurance policies purchased by

those plans were not subject to State law, there could be

a gap in regulation because ERISA does not itself control

the business of insurance.”

But none of this leads to the conclusion that State laws

dictating the contents of employee benefit plans are saved

from pre-emption whenever they are contained in a statu-

tory provision primarily aimed at the insurance industry.

Plans covered by ERISA are not insurance companies nor

are they engaged in the business of insurance,*' and State

laws regulating insurance cannot be applied to them. In-

2» There is thus a distinction “between insured and uninsured

plans, leaving the former open to indirect regulation while the lat-

ter are not,” but that is “a distinction created by Congress.”

Metropolitan Life, 471 U.S. at 747. See note 11, supra.

21 Throughout ERISA, Congress clearly distinguished between

plans, on the one hand, and insurance companies or insurance

carriers, on the other. See, e.g., Sections 3(17) (definition of

“separate account”); 103 (annual report requirements) ; 301 (defin-

ing insurance contract plan as, inter alia, plan with benefits guar-

anteed by an insurance carrier); 302(b)(5)(B) (iii) (II) (as

amended) (interest rate for determining plan’s current liability

shall be consistent with assumptions that would be used by in-

surance companies); 401(b)(2)(A) (defining insurer in context

of plan to which guaranteed benefit policy is issued by an insurer) ;

40°3(b) (establishment of trust requirement not applicable to assets

of plan consisting of insurance policies issued by insurance com-

pany or to assets of such insurance company or plan assets held by

such company); 408 (exemptions from prohibited transactions) ;

514(b) (2) (insurance savings clause and deemer clause).

deed, the Pennsylvania Attorney General so instructed

the State’s insurance commissioner shortly after ERISA

was enacted.** Yet the court of appeals, by allowing the

“»rincipal effect” of State law to control, has obliterated

the clear-cut distinction between plans and insurance, a

distinction ERISA’s pre-emption provisions were care-

fully designed to preserve.

In deciding that the Pennsylvania law mainly affected

insurance, the court of appeals used a three-part test to

determine whether the practice of subrogation constituted

the “business of insurance.” FMC Corp., 885 F.2d at

22 See Office of the Attorney General, Minimum Premium Agree-

ments and Administrative Service Plans, Opinion No. 75-22 June

30, 1975), 5 Pennsylvania Bulletin 1804, 18C5 (July 5, 1975). After

observing that the relationship between a self-funded plan and its

participants is not one of seller and purchaser, with profits accru-

ing to the seller, the Pennsylvania Attorney General concluded that

self-funded plans “which assume part or all of the risk of in-

demnity to employes do not constitute the transaction of insurance

business under Pennsylvania insurance laws and are not subject to

regulation by the Insurance Department.” The Attorney General

further noted that ERISA:

specifically regulates employer-sponsored programs and ex-

empts-them from regulation under state insurance laws... .

Accordingly, where an employer assumes full responsibility

for paying out benefits, the plan would be governed com-

pletely by [ERISA}. Where a minimum premium agreement

is in operation, the employer's liability under its own plan

would be regulated by [ERISA], but the premium agreement

and any other contractual relationships between an employe

benefit plan and an insurer would remain subject to regula-

tion by state law....

The foregoing Opinion, which the court of appeals did not men-

tion, tends to call into doubt the court’s holding that §§ 1719 and

1720 of the Pennsylvania Motor Vehicie Financial Responsibility

Law were intended to apply to employee benefit plans. See Northern

Group Servs., Inc. v. State Farm Mut. Auto. Ins. Co., No. 89-1053

(6th Cir. Mar. 21, 1990) (also reported, LEXIS, Genfed. Library,

1990 U.S. App. LEXIS 3979).

86. But that test, developed in case law under the

McCarran-Ferguson Act, had no bearing on this case.

There was no need to determine whether, as a general

matter, subrogation in motor vehicle accident cases was

part of the insurance business. Even if it were—and

there is room for disagreement about the issue “*—

23 The test is:

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 between the insurer

and the insured; and third, whether the practice is limited

to entities within the insurance industry. °

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

phasis in original), quoted in Pilot Life, 481 U.S. at 49, and Metro-

politan Life, 471 U.S. at 743.

*4There is a split in the circuits about whether, under this

three-part test, an anti-subrogation law regulates the business of

insurance. The Ninth Circuit agrees with the court below. Pacyga,

801 F.2d at 1161. (Pacyga held that Arizona’s anti-subfogation

law, although within the saving clause, was pre-empted by the

deemer clause. Jd. at 1161-62.)

On the other hand, the Eighth Circuit has held that a State’s

common law rule against subrogation was not saved from pre-

emption under Section 514(b)(2)(A) in light of the fact that

“subrogation does not transfer the risk from a policyholder to

his or her insurer.” Baxter v. Lynn, 886 F.2d 182, 186 (8th Cir.

1989). This appears correct. With respect to the Pennsylvania

law, the provider of benefits is merely engaging in the practice of

seeking reimbursement for expenses already paid on the injured

party’s behalf. It is not changing the risk allocation between the

plan or insurer and the injured party.

In addition, the anti-subrogation law in Barter and the Penn-

sylvania law in this ease fail to satisfy part three of the test be-

cause neither the practice of subrogation nor the laws outlawing

it are “limited to entities within the insurance industry.” Pireno,

458 U.S. at 129, quoted in Pilot Life, 481 U.S. at 49, and Metro-

politan Life, 471 U.S. at 7438.

As discussed in the text, however, we do not believe this test

has any bearing on the question presented in this case.

ERISA posed no threat to Pennsylvania’s ban on the

practice by insurance companies. The question here was

whether application of the same restriction to employee

benefit plans could escape pre-emption. Because a_law

barring plans from subrogating does not regulate insur-

ance, the answer was clear—ERISA pre-empted Pennsyl-

vania’s anti-subrogation provision insofar as it applied

to plans.

III. THE COURT OF APPEALS MISCONSTRUED THE

DEEMER CLAUSE

Because Section 514(b) (2) (A) did not save the Penn-

sylvania statute insofar as it regulated employee benefit

plans, that should have been the end of the matter. Hav-

ing misconstrued the saving clause, however, the court of

appeals found it necessary to consider the effect of Sec-

tion 514(b) (2) (B), the deemer clause, which provides:

Neither an employee benefit plan... nor any trust

established under such a plan, shall be deemed to be

an insurance company or other insurer, .. . or to be

engaged in the business of insurance or banking for

purposes of any law of any State purporting to reg-

ulate insurance companies, insurance contracts,

banks, trust companies, or investment companies.

The clause is unambiguous. While the saving clause

preserves the States’ authority to regulate insurance even

when employee benefit plans are thereby affected, the

deemer clause assures that the States will not abuse this

authority by defining plans covered by ERISA as insur-

ance companies or as entities engaged in the business of

insurance.”

25 For example, if Pennsylvania had barred only insurance com-

panies from subrogating in motor vehicle accident cases, and then

defined “insurance companies” to include employee benefit plans,

the deemer clause would prevent the law from avoiding pre-

emption insofar as it dealt with such plans.

The court of appeals, however, thought that “the

deemer clause is meant mainly to reach back-door at-

tempts by states to regulate core ERISA concerns in the

guise of insurance regulation.” 885 F.2d at 86. “Core

ERISA concerns” were, in the court’s view, “reporting,

disclosure and nonforfeitability.” Jd. at 88. The con-

sequence of the court’s ruling is that the States are free

to regulate all other aspects of employee benefit plans

so long as they do so in a law primarily regulating insur-

ance.

Why Congress would have intended to permit such

broad State authority over employee benefit plans is diffi-

cult to understand. Still less is it apparent how the lan-

guage of the deemer clause can support the court’s notion

that States may define employee benefit plans as insur-

ance companies in “non-core” areas but not in areas at

the “core” of ERISA. The clause itself contains no such

qualifications. It provides, without exception, that such

plans cannot be considered insurance companies under

State laws regulating insurance.

To make matters worse, the court of appeals based its

reading of the deemer clause on legislative proposals Con-

gress expressly rejected. One of the last versions of

ERISA’s pre-emption provision, for example, would have

specifically superseded all state laws “as they may now

or hereafter relate to the reporting and disclosure respon-

sibilities, and fiduciary responsibilities, of persons acting

on behalf of any employee benefit plan to which part 1

applies.” Jd. at 87, quoting from “2 Legislative History

of the Employee Retirement Income Security Act of 1974

at 2920-22.” In light of this history, the court thought

that the deemer clause, as enacted, “was meant to do the

more narrow, specified work which the original version

of the preemption clause was meant to do.” 885 F.2d at

88. In further support of its conclusion, the court relied

on the following remarks of Senator Javits, supporting

the final version:

In view of Federal preemption, State laws com-

pelling disclosure from private welfare or pension

plans ... unless a criminal statute of general ap-

plication .. . will be superseded.

120 Cong. Rec. 29,942 (1974), cited by the court below,

885 F.2d at 88.

The court is clearly mistaken. The earlier versions of

ERISA’s pre-emption clauses were considerably narrower

than those enacted. Congress made a deliberate choice to

abandon those limited proposals in favor of broad pre-

emption. As the Court explained in Shaw, 463 U.S. at

98, the “bill that became ERISA originally contained a

limited pre-emption clause, applicable only to state laws

relating to the specific subjects covered by ERISA. The

Conference Committee rejected these provisions in favor

of the present language, and indicated that the section’s

pre-emptive scope was as broad as its language.”

By reading back into the deemer clause the limitations

Congress rejected, the court below violated one of the

cardinal principles of statutory interpretation. As the

Court held in INS v. Cardoza-Fonseca, 480 U.S. 421, 442-

43 (1987), “‘|flew principles of statutory construction

are more compelling than the proposition that Congress

does not intend sub silentio to enact statutory language

that it has earlier discarded in favor of other language.’

Nachman v. Pension Benefit Guar. Corp., 446 U.S. 359,

392-93 (1980) (Stewart, J., dissenting).” Moreover,

Senator Javits’ remarks, quoted by the court, do not have

the significance the court attributed to them. Senator

Javits merely gave an example of a State law that would

be pre-empted under the bill as enacted. That the same

law would have been pre-empted under the earlier version

is hardly surprising in light of the fact that Congress

deliberately made the final pre-emption section much

broader in scope. By no means can Senator Javits’ re-

marks support the court’s conclusion that Congress in-

tended to limit the final provision to the narrower scope

of the discarded version.

The court of appeals offered another rationale for its

interpretation of the deemer clause:

Any reading other than one confined to the central

aspects of ERISA would either have the deemer

clause swallow the savings clause or read into the

statute other distinctions that are not there.

885 F.2d at 88. Apparently the court thought that it

would be senseless for the deemer clause to strike down

all laws regulating both insurance companies and em-

ployee benefit plans when the saving clause rescues those

laws in their entirety.

But the problem the court identified was of its own

making. If the court had correctly interpreted the sav-

ing clause, the Pennsylvania statute would have been

pre-empted insofar as it applied to self-funded ERISA

plans. The court would then not have felt constrained to

read into the deemer clause “distinctions that are not

there,” as it did. Jd. The deemer clause simply prevents

States from shielding their laws by deeming employee

benefit plans to be insurance companies. The plain mean-

ing of the clause, together with a proper interpretation

of the saving clause, fully accomplishes Congress’s ob-

jectives of immunizing self-funded plans from State reg-

ulation while preserving the States’ traditional authority

over the insurance industry.

CONCLUSION

For the foregoing reasons, the judgment of the court

of appeals should be reversed.

Respectfully submitted,