Amicus Curiae Brief — FMC Corp. v. Holliday

| Surreme Court, U.S.

dis FILED

No. 89-1048 ‘y aPR 20 199

Oct OL, JR.

CLERK

In THE

Supreme Court of the United States

OCTOBER TERM, 1989

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 NATIONAL COORDINATING

COMMITTEE FOR MULTIEMPLOYER PLANS AS

AMICUS CURIAE IN SUPPORT OF PETITIONER

GERALD M. FEDER

DAVID R. LEVIN

DIANA L.S. PETERS *

FEDER & ASSOCIATES

1350 Connecticut Ave., N.W.

Washington, D.C. 20036

(202) 955-8305

Attorneys for National

Coordinating Committee

for Multiemployer Plans

Dated: April 20, 1990 * Counsel of Record

Sour

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

@ EE 00

TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES ..00000....0.0.0.0.ccccceceeeceeceeeeee iii

PRELIMINARY STATEMENT ....000000000....0cccseeeeeeeeeee 1

INTERES. OF THE MCCHP ann... .ccccccccccccccsseess- 2

SUMMARY OF ARGUMENTS ..0000000....eececcceceeeeeeeeeee 8

TEE ciiisiids Gereaccinccctmacaccncrseeaemaciaacnaenaaetden 10

I. THE THIRD CIRCUIT’S DECISION WILL

SUBSTANTIALLY LIMIT THE ABILITY OF

MULTIEMPLOYER PLAN TRUSTEES TO

DESIGN AND IMPLEMENT COST-

CONTAINMENT STRATEGIES IN _ RE-

SPONSE TO ESCALATING HEALTH CARE

COSTS, THEREBY UNDERMINING THE

ABILITY OF MULTIEMPLOYER PLANS TO

PAY THE BENEFITS PROMISED IN THE

gS Gates dak rashadnakiginscipamuamapamangsaimaaiaes 10

A. The Third Circuit’s ruling will interfere

with the efficient administration of multi-

employer welfare plans because of the nature

of such plans and the duties of their

NID siciccnutsctenncincosencindemiacduncdenmiaduneieingésbenadeiidabiian 10

B. State law should not be permitted to inter-

fere with core ERISA concerns by prevent-

ing plan sponsors from designing and imple-

menting uniform cost-containment strategies

in response to escalating health care costs... 14

II. SECTION 514(b)(2)(B) OF ERISA WAS

INTENDED TO PREEMPT ALL STATE

INSURANCE REGULATION AFFECTING

SELF-FUNDED EMPLOYEE BENEFIT

PLANS AND THE THIRD CIRCUIT'S RUL-

ING IS INCONSISTENT WITH DECISIONS

OF THIS COURT AND THE WEIGHT OF

APPELLATE AUTHORITY ............................... 22

ii

TABLE OF CONTENTS—Continued

A. The Third Circuit’s ruling abandons the

bright-line test for preemption that is neces-

sary for the uniform administration of

multiemployer plans ......2.........0000....cccc.-e00e000ee

B. This Court’s distinction between insured and

self-funded plans is consistent with the text

and legislative history of ERISA and should

be reaffirmed in the case at bar ........... .

I sinsiccnsnserpiptatantacencsttinecssieniniepiainndasiteassbbielian

Page

22

27

30

iii

TABLE OF AUTHORITIES

CASES: Page

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

F.2d a secgbuscntianes 22

Central States, Southeast and Southwest Areas

Pension Fund v. Central Transport, Inc., 472

U.S. 559 (1985) ............ SRE AO se re aoe RAP 3

Children’s Hosp. v. W hiteomb, 778 F.2d 239 (5th

3) | ns lelaeaaind deleeeaddaca teanbachpnignaagegtsientsesniseinns 22

Connolly v. Pension Beneft Guaranty Corp., 475

AE ET A ec 3

FMC Corporation v. . Holliday, 885 F.2d 19 (3d

NES ce 23, 25

Fort Halifax Packing Co. v. . Coyne, 482 US. 1

RINSED, ERIE a iOS SO 28, 29

Howard v. Alfrey, 697 F.2d 1006 “(ith Cir.

i) IEEE SSIS EET a on 21

Jim MeNefy, ‘Ine. v. . Todd, 461 US. 260 (1983) .. pale 3

Liberty Mutual Ins. Group v. Iron Workers Health

Fund of Eastern — 879 F.2d 1384 (6th

ic cea caciaseniesinbecninaientpenee 18, 26

Metropolitan Life Ins. Co. v. , Massachusetts, “471

U.S. 724 (19865) ............ ..4, 9, 18, 21, 22, 23, 25, 27, 28, 30

Nachman v. Pension Benefit Guaranty Corp., 446

U.S. 359 (1980) ......... sbiisatihittdeimeadacniieeeenes 14

Northern Group Services, Ine. v. ». Auto Owners Ins.

Co., 883 F.2d 85 (6th Cir. 1987), cert. denied

486 U.S. 1017 (1988) ............. 18, 19, 23, 25, 26

Pension Benefit Guaranty Corp. v. R.A. Gro, ¢

Co., 467 U.S. 717 (1984) ........ a

Powell v. Chesapeake & Potomac Tel. Co., 730 F 2d

419 (4th Cir. 1985), cert. denied, 476 U.S. 117

isa ncneennnten 22

Reilly v. Blue Cross & ue Shield Uv nited of Wie.

consin, 846 F.2d 416 (7th Cir. 1988), cert. de-

nied, 109 S. Ct. 145 (1988) ........... _ 22

United Food & Commercial Workers v. - Pacyga,

801 F.2d 1157 (9th Cir. we saaasrsnauneusaumeenens

Union Labor Life Ins. Co. v. . Pireno, 458 US

RT TI 1 fico niccesnamevnasetembantebsonsnubecinersnecsttahsaresese

iv

TABLE OF AUTHORITIES—Continued

STATUTES: Page

a ee Retirement Income Security Act of 1974

29 U. S. c. i a 2

29 U. S. C. § 1003(a) EE IED BALIN Slee Poe Ok BE eG awe 28

29 U. S. c. Ԥ 1024 (b) EOLA RO let TEL iach ae beod MB oy

29 U. Ss. Cc. § 1104 (a) (1) (B) . picadaiditanintidaaceneanne ai lee ate 17

Be rs OF BN CD CIPD dcetchncscccencksctnudedstanernensunees 7,14

29 U.S.C. ‘ RENTS Ieee ae oT a rh hoe 3, 28

29 U.S.C. R 1144(b) (2) i eidirier ks eet ele 28

SP Un B RBGO GID CD CBD aeccckcccseiccncoscnccccoscncindveecase 22, 28

Multiemployer Pension Plan Amendments Act of

1980, Pub. L. 96-364, 94 Stat. 1208 (1980)... 2

Labor-Management Relations Act of 1947 ............. 27

lana I oi esireiecncecemeceeecececsacencedonnsinanecs 27

Pennsylvania Motor Vehicle Financial Responsi-

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

oe ee UD I gi 3

LEGISLATIVE MATERIALS:

120 Cong. Rec. 29197 (1974) ..................c..ccccecccseceee. 29

120 Cong. Rec. 29938 (1974) | 29

126 Cong. Rec. $9835 (daily ed. July 24, 1980) . 2

126 Cong. Rec. $10100 (daily ed. July 29, 1980) 2

OTHER AUTHORITIES:

Burroughs & Zurawell, Health, Welfare Funds

Suffer Sharply from Higher Health Costs, 25

Pens. World No. 11 at 24 (Nov. 1989) 16

Consumer Spending Increased Most for ‘Health

Care, Transportation in 1988, Daily Lab. Rep.

(BNA) No. 39 at B-1 (Feb. 27, 1990)... 16

Data Watch: What's Driving Health Care Costs?,

7 Business and Health No. 1 at 6 (Jan. 1989)... 15

v

TABLE OF AUTHORITIES—Continued

Disputes Over Health Care Costs Root of Many

Strikes, Report Finds, 17 Pens. Rep. (BNA) 375

Sashes Benefits : in Medium ‘and Large Firms,

1988, DOL Bur. of Lab. Stat. Bull. No. 2336 at

Health Benefit Costs Up Sharply in 1 1988, Cham-

ber of Commerce Finds, 7 Benefits Today

(BNA) No. 1 at 16 (Jan. 12, 1990) . :

He maga Care Costs, 23 Bus. Ins. No. 40 at 6 (Oct.

He alth feet toed psec 11 Percent of GNP,

10 Emplo) yee Benefit Notes No. 2 at 3 (Feb.

NCCMP Chairman Georgine Urges Uniform No-

tional Health Care Policy, NCCMP Update

EIEN i tn Rae el

NYNEX Workers Ratify Three- Year Contract by

85 Percent Margin to End 17-Week Strike, 16

Pens. Rep. (BNA) 2094 (Dec. 11, 1989) .............

Survey Finds 20.4 Percent Increase in Employer

Medical Plan Costs in 1989, 17 Pens. Rep.

Tokarski, lth ‘Spending Expected to. Rise

10°¢, 20 Modern Healthcare No. 1 at 34 (Jan. 8,

Vincenzino, Trends i in n Me dical Care Coste: A Leok

at the 1990s, 71 Statistical Bull. No. 1 at 28

(Jan.-Mar. 1990) —... SPE MN Ne ob Ee Met he ae

Wille, Subrogation Third- Party ‘Reimbursement:

An Overlooked Way to Reduce Health Benefit

Coste, 1 Health Cost Management No. 9 at 3

Page

18

15

ll

18

15

16

20

IN THE

Supreme Court of the United States

OCTOBER TERM, 1989

No. 89-1048

FMC CORPORATION,

; Petitioner,

V.

CYNTHIA ANN HOLLIDAY,

Respondent.

On Writ of Certiorari to the United States

Court of Appeals for the Third Circuit

BRIEF OF THE NATIONAL COORDINATING

COMMITTEE FOR MULTIEMPLOYER PLANS AS

AMICUS CURIAE IN SUPPORT OF PETITIONER

PRELIMINARY STATEMENT

The National Coordinating Committee for Multiem-

ployer Plans (“NCCMP”) submits this brief amicus

curiae' to urge the Court to reverse the holding below.

Contrary to an express mandate of Congress and pre-

vious rulings of this Court, the ruling of the Third Cir-

cuit, if not reversed, will give a preemptive effect to

state automobile insurance statutes and presumably to

other state insurance laws as well. The ruling will

therefore inhibit the trustees of multiemployer employee

benefit plans from designing cost-containment strategies

to protect and improve the financial soundness of the

! Letters manifesting the consent of Petitioner and Respondent

have been filed with the Clerk of the Court.

9

a

plans (such as subrogation and coordination of benefits)

and bar them from implementing such strategies through

enforcement of their plan documents in any state in

which the plan provisions, though consistent with ERISA

and with federal employee benefits policy, are found to

be inconsistent with local insurance law.

financial stability of multiemployer plans and to fos'e:

the growth and maintenance of such plans. 20 US

$1001. The NCCMP files this brief because the deci?»

below is contrary to those goals.

INTEREST OF THE NCCMP

The NCCMP is a nonprofit, tax-exempt organization

that was formed after enactment of the Emplovee Retire-

ment Income Security Act of 1974.2 29 U.S.C. § 1001 .

seq. (“ERISA”), to participate in the development of

employee benefits legislation, government regulations

promulgated to implement ERISA, and other laws affect-

ing multiemployer plans. Currently, more than 190 multi-

employer plans and related international unions. located

in at least 37 states, are affiliated with the NCCMP.

These plans are representative of all of the nation’s mul-

tiemployer plans which cover more than nine million

workers. The decision below has far-reaching adverse

consequences for all multiemployer plans and. therefore,

is particularly adverse to the interests of NCCMP affil-

iates which represent the majority of participants in

such plans. |

By enacting ERISA, Congress sought to enhance the

Because of the broad range of experience of the

ATS >? en . = .

NCCMP’s constituent organizations and its close ongoing

* ERISA was amended in 1980 by the Multiemployer Pension Plan

Amendments Act of 1980, Pub. L. 96-2364, 94 Stat. 1208 (1980),

The NCCMP has been recognized as having had a “significant im-

pact” on this statute by the Senate cosponsors of that legislation.

See 126 Cong. Rec. S9835 (daily ed., July 24, 1980) and 810100

(daily ed., July 29, 1980).

contacts with hundreds of trustees charged with the ad-

ministration of multiemployer plans in accordance with

ERISA’s fiduciary duty rules and principles, the NCCMP

believes that it is qualified to provide the Court with in-

sight into the practical implications of the decision below

for multiemployer plans and to state the position of the

trustees, participants, and beneficiaries of such plans.

In fact, the NCCMP has recen‘ly participated as an

amicus curiae in Connolly v. PBGC, 475 U.S. 211

(1986); Central States, Southeast and Southwest Areas

Pension Fund v. Central Transport, Inc., 472 U.S. 559

(1985); PBGC v. R.A. Gray & Co., 467 U.S. 717

(1984); and Jim McNeff, Inc. v. Todd, 461 U.S. 260

(1983).

In the decision below, the Court of Appeals for the

Third Circuit, departing from the text of ERISA’s pre-

emption provision, 29 U.S.C. § 1144, as well as its con-

struction by this Court, courts of appeals of the majority

of other circuits, and numerous district courts, ruled

that Petitioner FMC Corporation, a self-funded single-

employer health benefit plan subject to ERISA, could not

enforce the plan’s subrogation provision because a Penn-

sylvania automobile insurance statute contains a genera!

provision barring subrogation.* Thus, FMC was _ held

barred from seeking any reimbursement of medical ex-

penses which the plan paid pursuant to a participant's

claim for benefits in connection with an injury resulting

from an automobile accident,’ although the claimant ex-

pressly agreed, as a condition for receiving the benetits

that he would reimburse the plan if he effected a re

ery from any third party and did, in fact, recover.

% The Pennsylvania Motor Vehicle Financial Responsibility Law

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

4 The claim was made by respondent's father, an employee of FMC

Corporation, on behalf of his minor daughter, a covered dependent,

who was injured while a passenger in the affected car. (The facts

are set forth in Petitioner’s Brief.)

4

While acknowledging that the Pennsylvania statute

“related to” an employee benefit plan, the Third Circuit

ruled that it was “saved” from ERISA preemption as a

state law regulating insurance. Although the FMC Plan

was admittedly a self-funded plan rather than one pro-

viding benefits through the purchase of insurance, the

court of appeals rejected the bright-line distinction be-

tween insured and self-funded plans set forth by this

Court in Metropolitan Life Ins. Co v. Massachusetts,

471 U.S. 724 (1985), and ruled that the “deemer” clause

was inapplicable to the FMC plan because the Pennsyl-

vania law did not conflict with a “core’ ERISA concern,

The NCCMP submits that the decision below will have

a significant adverse impact not only upon self-funded

single-employer plans but upon its own affiliated plans as

well as all of the nation’s self-funded multiemplover

plans, thereby undermining federal employee benefits law

and policy as established and envisioned by Congress.

Multiemployer plans are created pursuant to collec-

tive bargaining agreements and are funded by contribu-

tions made by more than one employer, which are pooled

for investment to pay benefits to all of the fund's par-

ticipants and beneficiaries. Typically, even small multi-

employer plans provide benefits to participants working

or residing in more than one state: large national plans

may have participants and beneficiaries in all 50 states.°

These states all have automobile insurance laws of vary-

ing kinds whose provisions may, in many cases, differ

‘By way of example, one of the relatively small welfare plans

affiliated with NCCMP, the Southern Electrical Health Fund

iti,

although administered in Geodletsville, Tennessee has processed

benefit claims as well as subrogation claims on be half of partici

pants working or residing in at least five other states Georgia,

Alabama, South Carolina, Tennessee and New Jersey. A lary

affiliate, such as the nationwide Hotel Employees and Restaurant

Employees Welfare Fund. which is centraily administered

Naperville, Illinois, has participants throughout the United States.

5

from the subrogation and coordination of benefits pro-

visions of individual plans.

The NCCMP is concerned, first, that unless the Third

Circuit’s ruling is reversed, the trustees and administra-

tors of multiemployer plans will be unable to establish

and implement uniform administrative guidelines for the

processing of claims and disbursement of benefits be-

cause plans having participants in different states—even

if self-funded—will be subject to different regulatory

requirements.

Second, it is well known that the cost of providing

medical benefits has soared in recent years and shows no

sign of abatement. At the same time, bargaining over

health benefits has become a central issue in negotiating

collective bargaining agreements and has been a major

cause of strikes and other work stoppages throughout

the country. As a result of economic pressures, self-

funded multiemployer plans have been required to adopt

a variety of cost-containment strategies while at the

same time striving to maintain, to the extent possible,

the benefits previously available to the plan’s participants

and beneficiaries and even to improve those benefits with-

out imposing additional financial burde-s.

Subrogation and coordination of benefits prevent plan

participants from recovering double payments for the

same illness or injury. As cost-containment strategies,

they are particularly favored by multiemployer plans be-

cause they help conserve plan assets without restricting

the benefits previously available and without imposing

additional costs either on employers ‘through increased

contribution rates! or on participants and beneficiaries

(through increased deductibles and co-payment require-

ments}.

The NCCMP is concerned that the Third Circuit's

ruling, if not reversed, will make it impossible for multi-

employer plans having participants in certain states to

6

utilize or to utilize fully subrogation and coordination of

benefits as cost-containment strategies, thereby reducing

the plan’s ability to provide the desired health benefits

at a cost contributing employers as well as plan partici-

pants and beneficiaries can reasonably afford, a result

which may well have a substantial adverse impact on col-

lective bargaining and could lead to a loss of participants

‘and contributions) not only for multiemployer welfare

plans but for sister pension plans in affected industries

as well."

Third, ERISA gives trustees ‘exclusive authority and

discretion to manage and control the assets of the plan.”

29 U.S.C. $1103. The statute, which has its roots in

trust law, does not particularize the steps trustees must

take to preserve, collect, increase, or disburse (in the

form of benefits) the trust assets they control except to

impose upon them certain fiduciary obligations. Hence,

the details of trust administration must be set forth in

a written trust agreement as well as in a written bene-

fit plan which, together with the rules and regulations

promulgated by the trustees to implement these plan

documents, have critical importance in ERISA’s admin-

istrative scheme. Typically, subrogation and coordina-

tion of benefits provisions are to be found in the benefit

plan itself which, in turn, is explained to participants and

beneficiaries in the “summary plan description” required

by law. 29 U.S.C. $$ 1022, 1024(b).

Although ERISA imposes upon trustees a_ fiduciary

duty to act in accordance with the plan’s documents, so

long as these documents are consistent with the objectives

® Typically, employers who contribute to multiemployer welfare

plans pursuant to collective bargaining agreements also contribute

to multiemployver pension plans. Higher contribution rates mean

that a greater percent of the total wage packaye will be devoted

to emplovee benefits or that the total cost of labor will increase.

Either result increases the risk that employers will baryvain out of

multiemplover plans, thereby depleting the contribution pool neces-

sary to pay benefits.

7

of the statute, 29 U.S.C. § 1104(a)(1)(D), the Third

Circuit’s ruling would bar trustees from uniformly en-

forcing a plan’s subrogation and coordination of benefits

provisions, even though such provisions are consistent

with ERISA, in the event such provisions are found to

be inconsistent with state law.

In its opinion, the Third Circuit enunciated a new and

confusing test to determine whether a state insurance

law should survive ERISA preemption. Under the new

test, state law would be “saved” from preemption wi/ess

it conflicts with a “core” ERISA concern. In upholding

the Pennsylvania insurance law in question, the court of

appeals failed to appreciate that application of this state

statute would undermine core ERISA concerns in fio

respects directly related to ERISA’s fiduciary duty pro-

vision; the state law should therefore have been held pre-

empted even under the court’s own test. First, since the

state statute would permit only selective enforcement of

the FMC benefit plan, its application undermines a para-

mount federal interest in the uniform enforcement of

plan documents except those that are inconsistent with

ERISA; second, since the stute statute would prevent

enforcement, specifically, of the plan’s subrogation pro-

vision, its application undermines the plan sponsor’s

cost-containment program which was designed to con-

serve and maximize plan assets so that the plan could

continue to pay scheduled benefits in spite of escalating

health care costs.

The NCCMP fears that the Third Circuit’s new test

will erode the ‘“deemer” clause and “save” a whole va-

riety of state statutes and common law rules regulating

insurance, banking and securities, since courts are likely

to differ on what they perceive as “core” ERISA con-

cerns. The NCCMP is therefore concerned that the rul-

ing, unless reversed, will not only increase the probabil-

itv of litigation but will ultimately undermine the in-

tegrity and enforceability of plan documents generally.

8

Such a result will therefore undermine the ability of

multiemployer plan trustees to recover monies owed to

the trusts not only pursuant to such cost-containment

programs as subrogation but in other areas of trust

administration as well. Contrary to ERISA’s goals, this

result will ultimately undermine the ability of welfare

and pension plans to maintain and pay the benefits

promised to and relied upon by the plan’s participants

and beneficiaries.

The NCCMP’s brief focuses on issues which it believes

may not be adequately presented elsewhere, including:

(a) The particularly adverse impact that the holding

below will have on the multitude of multiemployer plans

represented by the NCCMP as well as upon national em-

ployee benefits policy; and

(b) The fundamental conflict between decisions of

this Court. as well as those of other federal circuits, and

the decision of the Court below.

SUMMARY OF ARGUMENTS

ERISA does not regulate the substantive details of

trust administration or the substantive content of self-

funded multiemployer welfare plans. However, the stat-

ute does impose certain fiduciary duties on the trustees

of such plans: to act with prudence and reasonableness

in the circumstances, to conserve plan assets, to pay

benefits to participants and beneficiaries, and to comply

with governing plan documents. By permitting a state

insurance law to preclude enforcement of a plan pro-

vision that is consistent with ERISA, the Third Circuit’s

ruling has undermined the ability of multiemployer plan

trustees, generally, to rely on the plan’s governing docu-

ments to implement a uniform administrative system for

the collection, disbursement, and conservation of trust

assets.

By permitting a state insurance law to preclude en-

forcement of a plan’s subrogation provision, the Third

_ ee

9

Circuit’s ruling has undermined the ability of multiem-

ployer plan trustees to respond effectively to escalating

health care costs, specifically, by designing and imple-

menting uniform cost-containment strategies that are

least burdensome to all of the plan’s participants and

beneficiaries as well as to employers funding the plan

through collectively-bargained contributions. The trust-

ees are therefore hampered in taking prudent, reason-

able action that is likely to be least disruptive of labor

peace and least likely to result in employers bargaining

out of the plan, thereby reducing the contribution pool

needed to pay scheduled benefits.

There can be no state interest in permitting plan par-

ticipants to reap a double recovery for medical expenses

paid while health care costs are threatening to destroy

the private welfare system. However, by giving pref-

erence to a state’s insurance scheme, the Third Circuit

has undermined “core” ERISA concerns without even

recognizing or correctly identifying their existence. The

NCCMP therefore urges this Court to reaftirm the

bright-line interpretation of the “deemer” clause set

forth in Metropolitan Life, which has been followed by a

majority of appellate courts, and thereby protect multi-

employer benefit plans and their participants and bene-

ficiaries from a patchwork of state insurance regula-

t? ns, as Congress intended.

10

ARGUMENTS

I. THE THIRD CIRCUIT’S DECISION WILL SUB-

STANTIALLY LIMIT THE ABILITY OF MULTI-

EMPLOYER PLAN TRUSTEES TO DESIGN AND

IMPLEMENT COST-CONTAINMENT STRATEGIES

IN RESPONSE TO ESCALATING HEALTH CARE

COSTS, THEREBY UNDERMINING THE ABILITY

OF MULTIEMPLOYER PLANS TO PAY THE

BENEFITS PROMISED IN THE PLAN.

A. The Third Circuit’s ruling will interfere with the

efficient administration of multiemployer welfare

plans because of the nature of such plans and the

duties of their trustees.

The Third Circuit’s ruling places substantial restric-

tions on the ability of plan sponsors of all self-funded

welfare plans to respond flexibly, as Congress intended,

to the escalating costs of health care by designing

and implementing cost-containment programs to con-

serve fund assets while continuing to pay the scheduled

benefits promised in the plan. To help the Court evaluate

the particularly adverse effect that the ruling is likely

to have on the administration and financial soundness of

multiemployer plans, the NCCMP presents a brief re-

view of the nature of these plans, the duties of their

trustees, and the centrality of plan documents to

ERISA’s administrative scheme.

Multiemployer employee welfare benefit plans are

plans created by the parties to collective bargaining

agreements for the purpose of providing health and wel-

fare benefits to workers and their families.‘ These plans

are self-funded primarily through the ongoing contribu-

tions of several, hundreds or even thousand of employers

7 Many multiemplover plans also provide some type of coverage

to retirees and their families. The cost of providing coverage to

retirees places a particular burden on multiemployer plans, although

such coverage is sorely needed.

1]

in one or more industries involving participants work-

ing or living in several or many states. The contribu-

tions are pooled for investment to provide benefits to all

participants and beneficiaries of the plan.’ Moreover,

8’ Employers contributing to plans affiliated with the NCCMP are

primarily in the building and construction trades. However, a

substantial number of employers are also in the food, hotel and

cover asbestos workers, bakery, confectionery and tobacco workers,

boilermakers, bricklayers, carpenters, cement masons, electrical

workers, commercial and retail food workers, garment workers,

glassworkers, glaziers, ironworkers, hotel and restaurant employees,

laborers, millwrights, operating engineers, painters, plumbers and

pipefitters, roofers, seafarers and other maritime employees, and

textile workers. These plans have administrative headquarters in

at least 37 states and cover participants and beneficiaries through-

out the country. Large and small employers contribute to the plans

pursuant to master labor agreements and individual collective bar-

gaining agreements.

'n October 1989, Robert A. Georgine, NCCMP Chairman, testi-

fied before the House Subcommittee on Labor Management Rela-

tions on the need for federal preemption of state laws as part of a

nati nal health policy. Mr. Georgine summarized the nature of

multiemployer plans and their corresponding funding problem as

follows:

To fully appreciate the Coordinating Committee's position, «

must understand the nature of multiemplover plans. The pri-

mary source of multiemployer plan financing is current em.-

ployer contributions. Since those contributions are based typ

cally on work performed by covered workers (e.g., dollars-per-

hour-worked), the plan’s income fluctuates according to in-

creases and decreases in covered work. Contribution rates are

set normally for the term of an employer's collective bargaining

agreement (omen three to five vears). Accordingly, multiem-

ployer plans cannot increase their income quickly or easily.

Unlike single employer plans, they do not have access to a

corporate treasury.

The plan’s board of trustees must balance the plan’s benefit

structure with expected income. This is often an exercise in

allocating a “fixed economic pie” amory the needs and wants

of the workers and families covered by the plan.

NCCMP Update at 5 (Winter 1989-1990).

12

a key feature of multiemployer plans is that participants

can move from one contributing employer to another

within the plan without losing their benefit rights, mak-

ing such plans a model for portability.

While the parties to collective bargaining agreements

negotiate the rate of contributions the employer will

job classifications of employees to be covered by the

agreement, the trustees of multiemployer plans generally

have sole authority and exclusive power to determine the

type and range of benefits the plan can and will provide

and to establish eligibility requirements, given the plan’s

financial resources and such actuarial considerations as

the number and age of participants and previous claims

experience. Typically, the trust agreement governing the

plan will establish the trustees’ authority in this area,'”

and will empower them to establish benefit schedules and

eligibilty requirements, to establish a uniform scheme for

processing and reviewing benefit claims, to construe the

plan, to make binding resolutions of benefit disputes, and

to amend the trust agreement and ‘or plan in response to

perceived needs.

The plan of benefits itself, as distinct from the trust

agreement, normally enumerates the plan’s eligibility

1° For example, Article Five, Section Six of the Trust Agreement

governing the Hotel Employees and Restaurant Employees Welfare

Fund empowers the Trustees “to adopt rules and regulations for

the administration of the Welfare Fund and Welfare Plan and to

promulgate the amount and nature of benefits payable to emplovees

and dependents, the eligibility requirements for receiving benefits

with respect to participation, length of service, and other conditions

for obtaining welfare benefits, which the Trustees, in their sole

poses of this Trust, and from time to time to alter, amend or

change eligibility requirements as may be justifiable, to provide

for portability of service for the payment of benefits, and to ente:

into reciprocity agreements with other welfare funds or plans;

provided, however, that the exercise of such authority shall be on

an actuarially sound basis.”

13

requirements, the specific benefits provided, the specific

benefits excluded, restrictions and limitations on benefits

provided (including life-time ceilings and coordination

of benefits), the participants’ obligations ‘including de-

ductibles, co-payment requirements, and subrogation),

as well as information concerning the submission of

claims and the right to appeal. In turn, the contents of

the benefit plan must be summarized in a “summary

plan description” which the plan must furnish to its

participants in accordance with rules set forth in

ERISA. 29 U.S.C. $§ 1022, 1024(b).

Given ERISA’s roots in the traditional law of trusts,

it is not surprising that plan documents play a centra!

role in ERISA’s structural design and adminis:

scheme. A significant and noteworthy featur

statute is that Congress refrained from atte:

regulate either the substantive details of trus!

tration or the substantive content of welfa

plans. Having recognized that employee bene!

differ from each other in so many respects, ERIS-

drafters did not enumerate a comprehensive | f

cific acts which the trustees were required to pert

of specific benefits the trustees were required to }

in order to fulfill their fiduciary obligation to cons

the trust assets committed to their care and contro! and

to provide benefits to participants and beneficiaries."'

Rather, ERISA imposes a few affirmative duties on

es and contains a few specific prohibitions, leav-

: . on to be articulated

baal

iilored to the

plan or trust, and

have recognized

red to provide

t's Ins. Co. v. Massa-

Ins. Grovp v. Tron

S79 F.2d 1384 (6th Cir.

14

which function as the blueprint for its governance. What

Congress did mandate, however, is that trustees have a

fiduciary obligation to act in accordance with the plan’s

governing documents, i.e., to apply and enforce them to

the extent these documents are consistent with ERISA.

29 U.S.C. § 11041a)(1!'(D).

Given the structure, design, and trust law roots of

ERISA, a paramount federal interest clearly exists in

protecting the integrity of plan documents by permitting

plan sponsors uniformly to apply and enforce any pro-

vision, term, or rule that is consistent with that statute.

Indeed, since trustees have a fiduciary duty to adminis-

ter employee benefit plans in accordance with the plan

documents, maintaining the integrity of these instru-

ments is a “core” ERISA concern. The Third Circuit

failed to examine the subrogation provision of FMC’s

plan in this light and, in barring its enforcement, took

no account of the structural design of ERISA and the

administrative realities of employee benefit plans.

B. State law should not be permitted to interfere with

core ERISA concerns by preventing plan sponsors

from designing and implementing uniform cost-

containment strategies in response to escalating

health care costs.

Since ERISA was enacted to promote the financial

stability of employee benefit plans and to assure that

their participants receive the benefits upon which they

rely, Nachman v. PBGC, 446 U.S. 359 (1980), the Third

Cireuit’s ruling, which limits the scope of ERISA’s pre-

emption provision by expanding the reach of the “sav-

ings” clause, must be assessed against the background of

America’s health care crisis. Reports are legion that the

costs of providing health care have escalated out of all

proportion and are threatening to destroy private wel-

fare plans. Consequently, there can be no state interest

in permitting a plan participant to obtain a double re-

covery for medical expenses paid by the plan. In _ per-

lo

mitting a state insurance law to preclude enforcement of

a plan’s subrogation provision, the Third Circuit issued

a ruling that conflicts with federal law and policy by

failing to take into account the environment in which

the plan operates and to which it must respond.

In 1987, according to data of the United States Health

Care Financing Administration and Department of Com-

merce, national health expenditures represented a record

11.1% of the Gross National Product. 10 Employee

Benefit Notes No. 2 at 3 (Feb. 1989). This figure is

expected to reach nearly 12% in 1990 compared with

9.1% in 1980. Trends in Medical Care Costs: A Look at

the 1990s, 71 Statistical Bull. No. 1 at 28 (Jan.-Mar.,

1990).

One well-publicized study states that the cost of

employer-provided medical plans skyrocketed 20.4% in

1989 and is expected to rise at a rapid pace.'* Health

spending could reach $661 billion in 1990, reports the

Commerce Department in its recently released 1990 U.S.

'217 Pens. Rep. (BNA) 260 (Feb. 5, 1990), reporting on a survey

conducted by A. Forster Higgins & Co., a benefit consultant. Sur-

veys of health care costs abound, Although all agree that the cost

of providing medical benefits has escalated in recent years, the

results of the surveys vary depending upon the companies and plans

surveyed. One study by a Connecticut-based firm, Corporate Health

Strategies, which surveyed 21 emplovers having more than 200,000

employees below the age of 65, reported that the cost of providiny

health benefits soared 71% between 1983 and 1988. 23 Bus. Ins.

No. 40 at 6 (Oct. 2. 1989). On the average, the increases appear to

range from 10° to 25. Increased costs are attributable, in vary-

ing degree, to the following factors: medica! inflation (increase in

hospital charges and physicians’ fees): demand for and use of the

latest and most sophisticated technology: increased claims for

catastrophic problems such as ATDS, transplants, and neonatal care;

shifting of costs by hospitals and dectors from the public to the

private sector: increased utilization of impatient and outpatient

services; malpractice premiums and the use of “defensive” medicine

Dota Wateh> What's Drivtea Health Care Caosts?, 7 Business and

Health No. 1 at 6 (Jan. 1989).

16

Industrial Outlook. 20 Modern Healtheare No. 1 at 34

(Jan. 8, 1990). Correspondingly, the cost of health in-

surance is rising more than three times as fast as wages.

7 Benefits Today (BNA) No. 1 at 16 (Jan. 12, 1990).

In 1988, according to data recently released by the Bu-

reau of Labor Statistics, before-tax household income

rose 4.4% while health insurance costs to consumers

jumped 21°7. Daily Lab. Rep. (BNA) No. 39 at B-1

(Feb. 27, 1990). This upward spiral is not abating.

According to a Department of Labor report, purport-

ing to provide representative data for 31.1 million full-

time employees in private nonagricultural industries, a

growing trend is emerging toward self-funded plans.

Employee Benefits in Medium and Large Firms, 1988,

DOL Bur. of Lab. Stat. Bull. No, 2336 at 36 (Aug.

1989). However, self-funded plans have experienced in-

creased health care costs ranging from 10% to 20% and

project 1990 cost increases of up to 25°. 23 Bus. Ins.

No. 52 at 18 ( Dec. 25, 1989).

Collectively-bargained multiemployer plans are almost

universally self-funded. In addition to the problems

posed by inflationary health care costs, these plans are

also affected by fluctuations in the economic climate.

Thus, in periods of economic growth, contributions tend

to increase because there are more “hours worked.” At

such times, workers also tend to postpone medical treat-

ment. Conversely, in periods of economic downturn, con-

tributions decrease while claims on the funds grow.

Hence, many welfare funds are unable to keep pace with

the rising cost of the medical benefits promised in their

plans, particularly since such funds also tend to invest

conservatively, with an eye toward safety and liquidity.

Burroughs & Zurawell, Health, Welfare Funds Suffer

Sharply from Higher Health Costs, 25 Pen. World No.

11 at 24 «Nov. 1989).""

One NCCMP amMfilhate, an upstate Vew York la ed (arpents !

Welfare Fund, reported that it is currently experiencing a contrib

17

ERISA imposes on the trustees of multiemployer plans

a fiduciary obligation to act “with the care, skill, pru-

dence, and diligence under the circumstances then pre-

vailing that a prudent man acting in like capacity and

familiar with such matters would use in the conduct of

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

29 U.S.C. § 1104(a)(1)(B).

Not surprisingly, the trustees of multiemployer wel-

fare plans have been forced to consider and adopt a

variety of cost-containment strategies to assure the con-

tinued viability of the plans. Among these strategies

are: increased deductibles, ceilings on annual and or

lifetime benefits; caps on claims for specific types of cov-

ered benefits (typically, treatment for alcohol and sub-

stance abuse, AIDS, and mental disorders); complete

elimination of coverage for certain problems and proce-

and retirees; and higher co-payment requirements. Al-

ternatively, or additionally, employers have been re-

quired to contribute at higher rates in order for existing

plan benefits to be maintained and for benefits to be

improved.

However, unions and employers have both resisted one

or more of these strategies, and bargaining over health

coverage has led increasingly to labor disputes. For

example, a 17-week strike at NYNEX Corporation, hav-

ing 40,000 employees at the New York Telephone Com-

pany represented by the Communications Workers of

America, centered on health insurance coverage. A sim-

ilar strike by the Company's 20,000 employees repre-

tion decline due to a recessionary climate in the home building in-

dustry. At the same time, the Fund, which provides benefits to

about 600 gaetive employees and 100 retirees and their dependents,

has received increased claims for substance abuse and alec hol-

related problems. In response, the plan has recently imposed a

navment requirement sib ON) and pl wed a Cup on luims La

clinical and holoyical treatment

18

sented by the International Brotherhood of Electrical

Workers at the New England Telephone Company was

over the same issue. Both unions were ultimately suc-

cessful in preserving benefits with no employee co-

payments. 16 Pens. Rep. (BNA) 2094 (Dec. 11, 1989).

A 10-month strike by the United Mine Workers against

the Pittston Coal Group also centered on health cover-

age as did strikes in other industries from retail food to

auto parts. 16 Pens. Rep. (BNA) 2025 (Nov. 27,

1989).

A three-year study prepared by the Service Employees

International Union, Labor and Management: On a Col-

lision Course over Health Care, while recommending a

“systemic change” in the way health care is provided,

states that the number of strikes over who wil] pay the

rising costs of health care has increased by more than

300° since 1986, and that such work stoppages in 1989

alone cost the United States economy more than $1.1

billion dollars in lost wages and productivity. 17 Pens.

Rep. (BNA) 375 (Feb. 26, 1990).

Two cost-containment strategies that do nut increase

the financial burden either on employers or on employees

and do not require the reduction or elimination of bene-

fits are coordination of benefits and subrogation. These

strategies are therefore favored by the trustees of multi-

employer plans.''

The NCCMP will limit its discussion to subrogation since the

Third Circuit’s decision involved only the antisubrogation provision

of the Pennsylvania automobile insurance statute, However, the

court of appeals, in enunciating its new test to determine whether

a state law should survive ERISA preemption, relied heavily on a

1987 Sixth Circuit decision which, for similar reasons, “saved” the

coordination of benefits provision of Michigan's no-fault statute

from preemption and therefore barred enforcement of a conflicting

coordination of benefits provision in a self-insured plan subject. to

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

833 F.d 85 (6th Cir. 1987). Coordination of benefits are rules that

prevent duplicate recovery where a participant is covered by more

than one plan or policy. Cost containment is achieved by a plan by

19

Like coordination of benefits, subrogation prevents a

participant from obtaining a double recovery. Cost con-

tainment is achieved by requiring the participant to

reimburse the plan for expenses paid in connection with

an injury arising from an accident if and to the extent

the participant recovers these expenses from a_ third

party. Most subrogation claims arise in connection with

automobile accidents. However, plans can seek reim-

bursement from the participant’s recovery in other li-

ability insurance contexts as well, for example, home

owners, malpractice, dram shop, or worker’s compensa-

tion,"

Multiemployer plan subrogation programs typically

operate as follows. If the claim form submitted by the

participant indicates facts suggesting that a third party

may be liable for the expenses, the participant (and, if

deeming itself “secondary” and the “other insurance” primary.

Under Michigan’s no-fault statute, however, health insurance is

considered primary an: no-fault automobile insurance secondary if

the no-fault insurer offers and the insured elects to coordinate

benefits with his or her health insurance.

In Northern Group Services, the Sixth Circuit ruled that the

no-fault insurance would be considered secondary regardless of the

language of the health insurance plan, stating that there was no

ERISA interest in uniformity that outweighed the MeCarran-

Ferguson Act interest in state regulation of insurance. As applied

to multiemployer plans, the Sixth Circuit's decision is no less

inimical to ERISA’s core co..cerns than the Third Circuit's ruling

at bar, since the effect of the two decisions is to preclude multi-

employer plans from fully utilizing the only cost-containment

strategies that do not limit benefits or impose additional costs on

participants and beneficiaries or employers.

'* Most plans expressly exclude coverage for work-related injuries.

However, whether an injury is work-related is often in dispute.

Typically, the plan will pay the participant’s medical expenses on

condition that the plan will be reimbursed if the participant recovers

trom ihe worker's compensation carrier. The advantage to the

participant in this and similar situations is that his or her medical

expenses will be paid when needed and disputes will be resolved at

a later time.

20

appropriate, the dependent) is required to sign an agree-

ment promising to reimburse the plan in the event of a

recovery as a condition to receiving the benefits claimed.

The participant is not required to file suit against a

third party, but may not do anything to prejudice the

plan’s recovery. At a minimum, the participant is there-

fore required to notify the plan whether or not he or she

intends to file a claim with an insurance company or to

file suit against a tortfeasor and, if so, to provide the

plan with relevant information. The plan may take such

action itself, although it is not required to do so. Us-

ually, the plan, through counsel, simply files subrogation

liens with all relevant insurance companies and attor-

neys, thereby notifying them of its subrogation interest.

Though a plan may sometimes intervene in a partici-

pant’s action to protect its lien, such action is frequently

unnecessary. The majority of persona! injury claims are

settled out ef court and insurance companies and attor-

neys tend to honor subrogation liens tiled by multiem-

ployer plans.

Although statistics are not yet available to “prove”

the effectiveness of subrogation programs,’ it is clear

that such programs constitute a cost-effective, efficient

way for plans to respond to escalating health care costs."

16 One 1984 study suggests that a vigorous subrogation program

can result in the recoupment of 1 to 2° of all medical claims paid

and can be much more. Wille, Subrogation Third Party Reimburse-

ment: An Overlooked Way to Reduce Health Benesit Costs, 1 Health

Cost Management No. 9 at 3 (June 1984).

17 The NCCMP cannot offer the Court statistics on the success

rate of its affiliates’ subrogation programs, in part, because this

method of cost-containment is relatively recent. However, by way

of example, the Southern Electrical Health Fund has recently

initiated a vigorous subrogation program. In the past six months,

a total of 63 files were opened, involving claims totalling $515,596.01,

Twenty-one cases have since been closed, of which seven were deemed

uncollectible for procedural reasons. The fourteen remaining cases

yielded payments of $63,064.24. The plan expects to collect a further

$149,570.57 on twelve additional claims. Ten pending claims, in-

\.

21

However, if the Third Circuit’s ruling is not reversed.

these programs (and other cost-containment measures

such as coordination of benefits) will be seriously ham-

pered because a key feature of multiemployer plans is

that their participants reside or work in different states

and may also move from state to state in covered em-

ployment without losing their eligibility for benefits.

Given the variety of state laws regulating automobile

and other types of liability insurance, including worker’s

compensation, multiemplover plans will be faced not only

with administrative uncertainty and increased adminis-

trative costs as a result of differing state schemes but

also with a potentially significant loss of revenue since

some of these state laws bar subrogation ‘and or coor-

dination of benefits) and a participant could select one

of these fora specifically to prevent the plan’s recovery. .

Howard v. Alfrey, 697 F.2d 1006 (11th Cir. 1983).

Such results are not tangential to “core’’ FRISA con-

cerns, as the Third Circuit erroneously believed; they are

contrary to and undermine the basic purposes and prin-

ciples of the statute.

‘ In sum, there can be no state interest in permitting

plan participants to obtain a double recovery for medical

expenses while the nation’s health care system is in

crisis and escalating costs are threatening to destroy

private welfare plans. Given the Third Circuit’s illustra-

tive failure to recognize a “core” ERISA concern, the

NCCMP urges this Court to reject the test enunciated

by the court of appeals, to reaffirm the bright-line dis-

tinction it articulated in Metropolitan Life, and to re-

verse the holding below.

volving $115,273.53, do not appear favorable. However, if SEITF

succeeds in collecting $212,634.81, as expected, the plan will have

recovered 41.40% of its current subrogration claims solely by filing

liens and without litigation. In an average month, the plan extends

coverage to about 2,557 eligible participants. In 1989, it paid

$6,821,861.45 in claims (an increase of 16.55 over 1988). In 1989,

employer contributions totalled $7,015,539.94 (a 2.9% increase over

1988). Thus, the plan’s expected recovery on its 63 initial subroga-

tion claims is roughly 3.10 of total claims paid in 1989.

22

. SECTION 514(b)(2)(B) OF ERISA WAS INTENDED

7 TO PREEMPT ALL STATE INSURANCE REGULA-

TION AFFECTING SELF-FUNDED EMPLOY EE

BENEFIT PLANS AND THE THIRD CIRCUIT'S

RULING IS INCONSISTENT WITH DECISIONS OF

THIS COURT AND THE WEIGHT OF APPELLATE

AUTHORITY.

The NCCMP supports the arguments set forth in Peti-

tioner’s brief and will limit its discussion here to those

aspects of the Third Circuit’s ruling that are particu-

larly adverse to the efficient, cost-effective administration

of multiemployer plans and their financial soundness.

A. The Third Circuit’s ruling abandons the bright-line

test for preemption that is necessary for the uniform

administration of multiemployer plans.

In Metropolitan Life Ins. Co. v. Massachusetts, supra,

this Court, after examining the language of ERISA, its

legislative history, and its own previous decisions, con-

cluded that Congress was fully aware that two distinct

types of benefit plans were covered by ERISA (insured

and self-funded), and that Congress intended to exempt

self-funded plans from the direct effects of all state in-

surance regulation.

The Courts of Appeals for the Fourth, Fifth, Seventh,

Eighth and Ninth Circuits have followed the bright-line

distinction set forth in Metropolitan Life in a variety of

factual contexts,'* implicitly or explicitly recognizing the

adverse consequences of an alternative approach for the

administration and financial soundness of self-funded

plans.

18 Powell v. Chesapeake & Potomac Tel. Co., 780 F.2d 419 (4th

Cir. 1985), cert. denied, 476 U.S. 1170 (1986); Children’s Hosp. +.

Whitcomb, 778 F.2d 239 (5th Cir. 1985); Reilly v. Blue Cross &

Blue Shield United of Wisconsin, 846 F.2d 416 (7th Cir. 1988),

cert. denied, 109 S. Ct. 145 (1988); Barter v. Lynn, 886 F.2d 182

(Sth Cir. 1989) ; United Food & Commercial Workers v. Pacyga, 801

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

23

In contrast, the Third and Sixth Circuits,’ reasoning

that this Court’s distinction between insured and self-

funded plans is dictum, departed from Metropolitan Life

and established new tests by which to determine whether

a state insurance law or regulation is “saved” from the

reach of the “deemer” clause and therefore from federa:

preemption.

In the Third Circuit’s view, the proper inquiry is

not whether a plan is insured or self-funded, but whether

the “state insurance regulation intentionally or uninten-

tionally addresses a core type of ERISA matter which

Congress sought to protect by the preemption provision.”

885 F.2d at 90. However, while eschewing the Metro-

politan Life distinction, as well as its “categorical” ap-

plication by the Ninth Circuit in Pacyga, supra, the

court of appeals nevertheless states (as does the Sixth

Circuit) that the distinction does not “disappear.”

Rather, insured plans per se survive the “deemer”

clause, which would therefore permit application of state

insurance law, while self-funded plans would be con-

sidered on a “case by case” basis to determine whether

the state law “conflicts with a substitute mandate in

ERISA.” Jd.

Opining that the “deemer” clause was primarily in-

tended to protect ERISA plans from “intentional” or

“pre-textual” attempts by states to regulate them in the

guise of insurance, the Sixth Circuit ruled in Northern

Group Services, supra, that “for the deemer clause to

override the savings clause in a given case, there must be

some ERISA interest in uniformity to outweigh the

McCarran-Ferguson interest in state regulation of insur-

ance.” 833 F.2d at 95.

The tests suggested by both courts are confusing and

likely to lead to administrative uncertainty for multiem-

"FMC Corporation +. Holliday, 885 F.2d 79 (2d Cir. 1989) :

Northern Group S¢ rvices, Inc. v. Auto Owners Ins. Co., 833 F.2d 85

(6th Cir. 1987).

24

ployer plans as well as to an increased potential for liti-

gation and conflicting results.

If state insurance regulation is not per se preempted

as applied to self-funded multiemployer plans, the first

difficulty facing a plan administrator is the question of

which state law will govern in the event of a perceived or

claimed conflict with the plan document. As noted ear-

lier, multiemployer plans administered in one state tend

to cover participants who live and/or work in different

states or who move from one state to another in covered

employment. Typically, the trust agreement governing

the plan will provide that the !aw of the state in which

the trust is administered will govern the operation of the

trust except as preempted by ERISA. If ERISA does not,

as a matter of federal law, mandate enforcement of all

plan documents and a participant is involved in an acci-

dent in another state, the plan administrator will have to

determine, first, which state’s law is likely to apply so as

to determine how benefits should be coordinated or

whether a subrogation claim should be made. Since com-

plex conflict of laws issues may arise, subrogation and

coordination of benefits will no longer be routine matters,

and it may become necessary for the plan to involve coun-

sel increasingly in the processing of claims. Thus, sub-

rovation and coordination of benefits will lose some of

their effectiveness as cost-containment mechanisms. More-

over, either federal courts will have to develop a body of

federal conflicts law to resolve disputes between state

laws and plan documents or the enforcement of plan docu-

ments will be subject not only to state insurance laws

but also to state conflicts rules in derogation of a para-

mount federal interest in the uniform federal regulation

of employee benefit plans.

Even if there is no difficulty in determining which

state’s law should apply, federal courts, when asked to

resolve a conflict between enforcement of a plan document

and state law, will be required, in each “given case,” to

25

undertake an exhaustive review of the state law in ques-

tion (including its legislative history and cases constru-

ing it) in order to determine such questions as: whether

the state scheme seeks to regulate insurance or to regulate

a plan in the guise of insurance; whether its effect on a

plan is intentional or unintentional; if unintentional,

whether its effect conflicts with a “substitute ERISA

mandate;” and, if so, whether the substitute mandate is

a “core type of ERISA matter” or one requiring “uni-

formity.” As the Third and Sixth Circuits’ opinions in-

dicate, different and conflicting answers to such questions

will be inevitable and may result in substantive ho'dings

that are inimical to central tenets of ERISA. This has

already occurred in the ruling below as well as in North-

ern Group Services, supra.

In Holliday, the Third Circuit barred enforcement of

a plan’s subrogation provision and permitted a_partici-

pant to enjoy a double recovery to the detriment of the

plan because it failed to recognize as a “core type of

ERISA matter” that plan sponsors have a fiduciary obli-

gation to design and implement all measures that are

reasonable and necessary in the circumstances to con-

serve plan assets so that the plan can pay the benefits

promised to its participants and beneficiaries. Signifi-

cantly, the court of appeals upheld the state statute’s

antisubrogation provision merely because it was there.

Not the slightest attempt was made to show how the

antisubrogation provision of the Pennsylvania law was

even arguably related to a state interest worthy of pro-

tection under the McCarran-Ferguson Act, the federal

statute that underlies ERISA’s “savings” clause and re-

turns to the states the business of reculating insurance

companies and insurance contracts. Union Labor Life

Ins. Co. v. Pireno, 458 U.S. 119 (1982). Consequently,

in its first departure from Metropolitan Life, and its

first attempt to apply its own test to a self-funded plan

on a “ease by case” basis, the court made a ruline that.

in barring subrogation, will certainly affect the FMC

26

plan adversely and threatens the financial soundness of

every self-funded plan in the nation as well.

In Northern Group Services, the Sixth Cireuit achieved

an equally ominous result by striking down a plan’s co-

ordination of benefits rule on the grounds that the plan’s

provision conflicted with Michigan’s no-fault insurance

law. In contrast to the Third Circuit, the Sixth Circuit

devoted much of its opinion to justifying Michigan’s in-

terest in assuring that the coordination of benefits provi-

sions of no-fault policies are uniformly interpreted to

place primary liability on the insured’s health policy or

plan instead of on his or her automobile insurance car-

rier. Turning proper preemption analysis on its head,

the court indicated that the state insurance law should

not be preempted, even as applied to a self-funded plan,

because preemption would frustrate the state’s goals of

cost containment, predictability, and the financial stability

of no-fault insurers. 833 F.2d at 93. The court could

find no countervailing federal interest in uniformity to

outweigh the state’s interest in preserving its own insur-

ance scheme, althouch the goals set forth in support of

“saving” the state law are precisely those which, as ap-

plied to a self-funded plan, would require federal pre-

emption because they promote “core types of ERISA mat-

ters.”

Significantly. another panel of the Sixth Circuit de-

parted from Northern Services and declined to interpret

Michigan’s no-fault insurance statute to require a plan

to provide coverage for injuries arising out of automobile

accidents. The court ruled that even if the Michigan

statute required this result, it would be preempted in the

same way that mandated-benefits statutes are preempted

as applied to self-funded plans. Liberty Mutual Ins.

Group v. Tron Workers Health Fund of Eastern Mici-

iqan, 879 F.2d 1384 (6th Cir. 1989).

In contrast to these decisions, the majority of courts

of appeals have followed the bright-line test set forth

27

in Metropolitan Life, and have exempted from the reach

of the “savings” clause all self-funded employee benefit

plans. In so doing, these courts have recognized that this

Court has rejected as unworkable the conflict-oriented

analysis of the “deemer’’ clause espoused by the Third

and Sixth Circuits, and has already provided common-

sense guidelines to assure that self-funded employee bene-

fit plans will be uniformly protected against the incursion

of state insurance regulations. A bright-line test is nee-

essary for the efficient, cost-effective administration of

self-funded employee benefit plans, especially multiem-

ployer plans. The NCCMP therefore urges this Court to

reject the analyses of the Third and Sixth Cireuits and

to reaffirm its interpretation of the “deemer” clause as

set forth in Metropolitan Life.

B. This Court’s distinction between insured and self-

funded plans is consistent with the text and legisla-

tive history of ERISA and should be reaffirmed

in the case at bar.

Departing from Metropolitan Life, the Third Circuit

objected that this Court read into the statute a distine-

tion that was not there, thus permitting the “deemer”

clause to “swallow” the “savings” clause. This contention

is clearly error, particularly as applied to collectively-

bargained self-funded multiemployer benefit plans that

are maintained and established as trusts within the mean-

ing of Section 302(c) (5) of the Labor-Management Rela-

tions Act, 1947, as amended, 29 U.S.C. $ 186(e) (5), and

Sections 402 and 403 of ERISA, 29 U.S.C. $$ 1102 and

1103.

Section 3/1) of ERISA defines an “employee welfare

benefit plan” as any “plan, fund, or program” that pro-

vides health or medical benefits “either through the pur-

chase of insurance or otherwise.” 29 U.S.C. $ 1002/1).

Section 4(a) provides that Title I of the statute, except

as expressly excluded, covers any “employee benefit plan”

that is established or maintained by an employer, a union,

28

or both. 29 U.S.C. §1003(a). Finally, Section 514(b)

(2)(B) of ERISA provides that “neither any employee

benefit plan described in section 1003(a) .. . nor any

trust established under such a plan” shall be “deemed”

to be an insurance company, an insurer, or to be engaged

in the business of insurance for the purpose of state laws

regulating insurance and saved from federal preemption

by Section 514(b) (2) (A). 29 U.S.C. § 1144.

Applying the plain meaning rule for construing stat-

utes as well as common sense, this Court recognized that

ERISA, on its face, clearly covers two distinct types of

benefit plans, those which provide benefits through the

purchase of insurance from commercial insurance com-

panies that are themselves subject to state regulatory

schemes, and those which provide benefits from corporate

assets or employer contributions and which Congress in-

tended to exempt from state regulation. The text of

ERISA fully supports the Court’s distinction in Metro-

politan Life, particularly as applied to collectively-

bargained multiemployer trust funds whose corpus con-

sists of employer contributions. Contrary to the Third

Cireuit’s view, the distinction between insured and self-

funded plans does not “swallow” the “savings” clause but

nermits states now as before to regulate commercial in-

surance companies and their contracts (though not the

plans themselves! while leaving the plan sponsors of self-

funded plans free to make benefit decisions that are

sensitively tailored to the needs of their specific plans in

accordance with ERISA’s fiduciary duty rules.

When asked to review whether a particular state law

is preempted by ERISA, this Court has repeatedly stated

that “as in any pre-emption analysis, ‘the purpose of Con-

eyess is the ultimate touchstone.” Fort Halifax Pacling

Co. v. Coyne, 482 U.S. 1, 8 (1989). ERISA’s sponsors

have stated this purpose with great clarity. Thus, Repre-

sentative Dent asserted that “with the preemption of the

field [of employee benefits], we round out the protection

29

afforded participants by eliminating the threat of con-

flicting and inconsistent local regulations.’ 120 Cong.

Ree. 29197 (1974). Senator Williams made similar state-

ments. /d., at 29933. In this Court’s view, “these state-

ments reflect recognition of the administrative realities

of employee benefit plans.” Jd. at 9.

Speaking of self-funded single-employer plans, the

Court observed that “[a]n employer that makes a com-

mitment systematically to pay certain benefits undertakes

a host of obligations, such as determining the eligibility

of claimants, calculating benefit levels, making disburse-

ments, monitoring the availability of funds for benefit

payments, and keeping appropriate records in order to

comply with applicable reporting requirements. The most

efficient way to meet these responsibilities is to establish

a uniform administrative scheme, which provides a set

of standard procedures to guide processing of claims and

disbursement of benefits. Such a system is difficult to

achieve, however, if a benefit plan is subject to differing

regulatory requirements in differing States. A plan

would be required to keep certain records in some States

but not in others; to make certain benefits available in

some States but not in others; to process claims in a cer-

tain way in some States but not in others... .” Fort

Halifax Packing Co. v. Coyne, 482 U.S. at 9.

Given these difficulties, this Court indicated that it

was prepared to enforce ERISA’s preemption provision

whenever necessary to prevent the subordination of a

plan’s administrative scheme to conflicting state insur-

ance regulation. The difficulties besetting self-funded

single-employer plans are magnified in the case of self-

funded multiemployer plans. As the Court recognized in

Fort Halifax, however, federal preemption assures that

the administrative practices of employee benefit plans

will be governed by a single set of regulations, as Con-

gress intended, rather than by a patchwork scheme of

conflicting state law. Jd., at 11. The Third Circuit’s rul-

50

ing is inconsistent with these principles and should be

reversed,

CONCLUSION

ERISA provides and Congress intended that self-

funded welfare benefit plans be exempt from the reach

of state insurance regulation, in recognition of the ad-

ministrative realities of such plans and the need for

uniformity. The Third Circuit, misperceiving the text

and the legislative history of the statute, has created

a new and disruptive test to determine whether a state

insurance law should survive federal preemption. In so

doing, the court has placed serious limits on the ability

of multiemployer welfare plan trustees to rely on a plan’s

governing documents to implement a uniform system of

trust administration and to respond effectively to the

escalating costs of health care. The court of appeals’

failure to identify ‘core’ ERISA concerns illustrates

that its conflict-oriented ‘‘case by case” interpretation of

the “‘deemer” clause is unworkable and inconsistent with

the central purposes and policies of ERISA. For all of

the reasons stated above, the NCCMP respectfully urges

this Court to reverse the decision of the Third Circuit

and to reaffirm the bright-line test for preemption set

forth in Metropolitan Life.

Respectfully submitted.

- GERALD M. FEDER

DAVID R. LEVIN

DIANA L.S. PETERS *

FEDER & ASSOCIATES

1350 Connecticut Ave., N.W.

Washington, D.C. 20036

(202) 955-8305

Attorneys for National

Coordinating Committee

for Multiemployer Plans

Dated: April 20, 1990 * Counsel of Record

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