# Amicus Curiae Brief — FMC Corp. v. Holliday

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 1990
- **Citation:** 498 U.S. 52

## Text

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QUESTION PRESENTED

Whether the so-called “deemer clause” of the Employee
Retirement Income Security Act of 1974, 29 U.S.C.
§ 1144(b) (27 (B), preempts a state anti-subrogation pro-
vision as it applies to a self-insured employee welfare

benefit plan.

(i)

TABLE OF CONTENTS

EE MET BR EEED oo ccvessavccssocecscecsresssescesovensssnsees

TE MPI cceesessccccscresoneseessorensesssseseecsees

INTEREST OF THE AMICI CURIAE .........0.0......2.2--+-

EEE ESSERE

I. SECTION 514 OF ERISA DOES NOT
PREEMPT PENNSYLVANIA’S ANTI-SUB-
EE

II.

A.

D.

Petitioner’s Reading Of The Deemer Clause
Cannot Be Reconciled With The Statutory
i ciesenwsnenneces

ERISA’s Legislative History Confirms That
The Deemer Clause Preempts Only State
Laws Directed At The Business Aspects Of
ns sceneucsnaverecees

Preemption Of All State Insurance Regula-
tion As Applied To Self-Insurers Would Run
Counter To The Policies Of ERISA...............

This Court’s Opinion In Metropolitan Life
Does Not Mandate Preemption ........ Pb

IF STATE LAW IS PREEMPTED, FEDERAL
COURTS SHOULD ADOPT THE STATE
RULE AS THE FEDERAL RULE OF DECI-

Tail osiccestaiabaapsensorsnicensoneseceseeesosaseoseseonee

(iii)

21

27

28

30

iv

TABLE OF AUTHORITIES

CASES: Page
Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504
| BI MIR At Sco RD Re RE oo Bi Bee Sole eye 9, 22
Allstate Insurance Co. v. Clarke, 527 A2d 1021
(Pa. Super. Ct. 1987) ............. SEIN peo oes inh 5S 30
Central States Pension Fund v. Central Transport,
Fem. GU TUT. GD CIGD annveca vv vvnsccnceccescccccesescee: 24
Connolly v. Pension Benefit Guaranty Corp., 475
cf Se - SIRRRENTT EE .ct te An Ee, 24
Danna v. Commissioner of Insurance, 228 So.2d
, Re NORE PAR ett he bats 15
Firestone Tire & Rubber Co. v. Bruch, 109 S.Ct.
948 (1989) ....... ER SP ION, Dee tebe eA AE A passim
Fort Halifax Packing Co. v. Coyne, 482 U.S. 1
(1987) . ideonianiuamipudaaaisibendedabemac AG Uh uaan 9,12
Franchise Tax Board v. Construction Laborers
Vacation Trust, 463 U.S. 1 (1983) .....0000000 26
International Union v. Hoosier Cardinal Corp.,
I ie MI I cc ccctsienennnbcerenntierdcneeieetncaccds 29
Mackey v. Lanier Collection Agency, 486 U. Ss. 825
(1988) .. PPAR PORE SE Se AFR ba fe OO ELA AR RDS e passim
Massachusetts + v. Morash, 109 S.Ct. 1668 (1989)... 9, 21,
22

Metropolitan Life Insurance Co. v. Massachusetts,

471 U.S. 724 (1985) ........ veoe-------Dassim
Missouri v. Monsanto Co., Cause No. 259774 ( St.

Louis County Cir. Ct. Jan. 4, 1973), rev’d, 517

sO cD TM I, I orca servceecocdeveevecicoononcsseatese 14, 16
Mutual Life Insurance Co. v. New York State Tax

Comm’n, 298 N.E.2d 6382 (N.Y. 1973) 15
Nachman Corp. v. Pension Benefit Guaranty Corp.,

Ee WE, CP ID ovscttcncevnevesccecstcciiencsescnosecseees 22

Northern Group Services, Inc. v. Auto Owners Ins-
surance Co., 833 F.2d 85 (6th Cir. 1987), cert.

denied, 108 S.Ct. 1754 (1988) .....20, 25, 26, 27, 29
Pierce v. Underwood, 108 S.Ct. 2541 (1988) 20
Pilot Life Insurance Co. v. Dedeaux, 481 U.S. 41

PNET <cssecaconcomsstnciniedsacicnctciadiee tot ek eee 5, 7, 26, 28

Rebaldo v. Cuomo, 749 F.2d 133 (2d Cir. 1984). 6, 21

v

TABLE OF AUTHORITIES—Continued
Page
Shaw v. Delta Air Lines, Inc., 463 U.S. 85 (1983)... 5, 4,
11, 22, 23, 24
State Tax Comm’n v. John Hancock Mutual Life

Insurance Co., 170 N.E. 2d 711 (lass. 1960) -... 15
United States v. Brosnan, 363 U.S. 237 (1960) -... 29
United States v. Kimbell Foods, Inc., 440 U.S. 715

RTI iniei\cosiclbeniapintactadaenbesiaachiin ibuskiscideicenterisaaniaianiiattdes 29
United States v. Yazell, 382 U.S. 341 (1966) ........... 29
Williams v. Massachusetts Mutual Life Insurance

Co., 427 S.W.2d 845 (Tenn. 1968) ......................... 15

STATUTES:

Act of Jan. 14, 1983, Pub. L. No. 97-473, 96 Stat.

RENE enon -pre A COR a an APS OED RDI ENE SEPT 21
Employee Retirement Income Security Act of

1974, 29 U.S.C. § 1001 et seq.:

§ 514(a), 29 U.S.C. § 1144(a)...............22... 5

§ 514(b) (2) (A), 29 U.S.C. § 1144 (b) (2) (A).. 5

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

§ 514(c) (2), 29 U.S.C. § 1144 (c) (2)... 8

Sy a Oe STI. ccncanccemonmierpestcmmsceupianontonss 24

Bs Oe I acces cestseiianccieeenatanenpenueenion x

oS A | | * ERIE Naeem commoners 22

Se i Oe IID on iccasocucscnenaeanaieecunbuanmnenie 22

ny Oe oc netcninnscotenioveen 22

es ie I arr sscsnits cece micttcntianncinietinecen 21

ee seaausbnecnaenmnens 8

29 U.S.C. $ 1144(b) (6) (A) (i) .............2....-000--20- 8

29 U.S.C. § 1144 (b) (6) (A) (ii) -..--.---- ee... 8

a Res Oe I Ce CO icsiciceciciccccceenetesne 8

eg Se SPIE eiiiececeectcienccancnnnineneeneteesodetns 22
Health Maintenance Organization Act, Pub. L. No.

93-222, § 1311(a), 87 Stat. 914 (1973) ~........... 18

Pub. L. No. 97-473, 96 Stat. 2605 ......................2......... 21

Pennsylvania Motor Vehicle Financial Responsibil-
ity Law, 75 Pa. Cons. Stat. Ann. (Purdon 1989)
$ 1720......: AGT SEL Marc hn SINE RE Re RATS IE Lia RES 5, 6

vi

TABLE OF AUTHORITIES—Continued

LEGISLATIVE MATERIALS: Page
120 Cong. Rec. (1974) :
BR AI es aU ea ee OTe, 10
SE ee ee aT RCL 24
5) Sa ssieaasleniabeitebeiabuininniistesssniaioee i. 24
p. 29,196....... pale nisiiadadiidenatbiahesistmeasiahssooudcie toe, 24
ii MPI Scion: heesounas ca scandsasntenaidaciaaaeaieasece ee 17, 18, 23
CE fostice tenes ae eee 24
is SUN cca dtasemulctamudciicien peer 17, 23, 24
OR occa en 24
I ioe neteneensent seein ee eee 17, 23, 26
p. 29,943 See eae are a
128 Cong. Rec. (1982) :
I tiateteeocatec teen ee 19, 25
p. 30,355 _.... sicthenspegiatibailianitendnteibatbabisamiaeen 25
pp. 30,356- 30,358 . -apbaibeaneeeeednaie cian e ae |
ERISA Opinion Letter No. 75-128 (June 20,
PIPE clidetcsnssensdacttamniniontietiaiasadici ee 16
ERISA Opinion L etter No. 78-3A (Feb. 15, 1978) .. 16

ERISA Opinion Letter No. 79-6A (Jan. 16, 1979)... 16
ERISA Opinion Letter No. 82-006A (Jan. 29,

| idea ee
H.R. 2, 93d Cong., Ist Sees. g 114 (1973) SEE mcm se 19
H.R. 2, 93d Cong., 1st Sess. § 514 (a) ( .: | 10
H.R. 12481, 93d Cong., 2d Sess. (1974)... 10

H.R. 12906, 93d Cong., 2d Sess. § 514 (b) (1974)... 10
H.R. Conf. Rep. No. 984, 97th Cong., 2d Sess.

NINO credence csalepeate ge ee ee es i 21
H.R. Conf. Rep. No. 1280, 93d Cong., 2d Sess.

TU acgrekc ee et as eee eee A a 11
H.R. Rep. No. 533, 93d Cong., 1st Sess. (1973)...... 10, 24
H.R. Rep. No. 1785, 94th Cong., 2d Sess. (1977)... 19
S. 4, 93d Cong., Ist Sess. § 609 (a) pee
S. 1557, 93d Cong., Ist Sess. § 18(a) (1978)... 9
S. Rep. No. 127, 93d Cong., 1st Sess. i papain 10, 24
S. Rep. No. 646, 97th Cong., 2d Sess. (1982). 21

vii

TABLE OF AUTHORITIES—Continued
Page

Staff of Subcomm. on Labor of the Senate Comm.

on Labor and Public Welfare, 94th Cong., 2d

Sess., Legislative History of the Employee Re-

tirement Income Security Act of 1974 (Comm.

SP TI oo vxscis\ dninssse dncemnenstdasanbelonsanionnt cateuaaaani passim
Summary of Differences Between the Senate and

the House Version of H.R. 2 to Provide for Pen-

sion Reform, Part iii (1974) ....................-...-.-..--. 11

MISCELLANEOUS:

Brummond, Federal Preemption of State Insur-

ance Regulation Under ERISA, 62 lowa L. Rev.

Ty III -.:cc-ccetericchanacemeiaanebaaiamanabeneie 12, 13, 22, 23
Chadwick & Foster, Federal Regulation of Retire-

ment Plans: The Quest for Parity, 28 Vand. L.

My I a eget ca ran’ 11
Comment, State Regulation of Noninsured Em-

ployee Welfare Benefit Plans, 62 Geo. L.J. 339

(| SREeen, <eucininnicsiemuenineninn svoeeeeseseteaeeeneenecnsee 13, 14
Duesenberg, The Leyality of Noninsured Employee

Benefit Programs, 5 B.C. Indus. & Com. L. Rev.

231 (1964). sees ARORA Be eh Nine Heap PPT ER IEEE REDE, Sr eOO THE 13
Goetz, Regulation of U ninsured Employee Welfare

Plans Under State Insurance Laws, 1967 Wis.

i Ie I esene-ceennsensanen Siceiiiasa tite diaci crete are iiaian asset Oe

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
NATIONAL CONFERENCE OF STATE LEGISLATURES,
NATIONAL LEAGUE OF CITIES,
NATIONAL GOVERNORS’ ASSOCIATION,
NATIONAL ASSOCIATION OF COUNTIES,
COUNCIL OF STATE GOVERNMENTS,
INTERNATIONAL CITY MANAGEMENT ASSOCIATION,
AND U.S. CONFERENCE OF MAYORS
AS AMICI CURIAE IN SUPPORT OF RESPONDENT

INTEREST OF THE AMICI CURIAE

Amici are organizations whose membcrs include state,
county, and municipal governments and officials through-
out the United States; they have a compelling interest
in legal issues that affect state and local governments.

This case concerns petitioner’s contention that the so-
called “deemer clause” of the Employee Retirement In-
come Security Act of 1974, 299 U.S.C. § 1144(b) (2) (B),
preempts all state insurance laws as they relate to self-
insured employee welfare benefit plans. This contention
has enormous importance for the States. If accepted, it
would oust the States of a large portion of their au-

2

thority to regulate insurance, a subject that long has
been recognized by Congress and this Court as an area
within the States’ traditional purview. It also would
create wholly irrational distinctions between employees,
some of whom (those whose employers offer fully in-
sured plans! would continue to receive the protections of
state insurance law, and some of whom (those whose
employers self-insure) would lose those protections.
Amici therefore submit this brief to assist the Court in
the resolution of this ease.’

INTRODUCTION AND SUMMARY OF ARGUMENT

1. This case turns on the preemptive reach of ERISA’s
so-called “deemer clause,” an opaque provision, added to
the statute without explanation, that precludes a State
from “deem|[ing]” an employee benefit plan to be an
insurance company (or from “deem|ing|” the plan to
be engaged in the business of insurance) for purposes of
state laws regulating insurance companies or contracts.
29 U.S.C. § 1144(b) (2) (B). Petitioner and the Solicitor
General read the clause as though it provided that all
state laws regulating insurance are preempted insofar
as they relate to self-insured—but not to fully insured—
plans. This reading, however, has no relationship to the
actual language of the statute. The deemer clause does
not, after all, make any distinction between self-insured
and fully insured plans, and it does not, in terms, pro-
vide that all state insurance laws are superseded as to a//
plans.

In fact, Congress meant exactly what it said in the
deemer clause: it wrote the provision to preclude States
from “deem|ing|” plans to be insurance companies for
purposes of state laws, such as those involving licensing
or capitalization, that apply to insurance as a business.
It is apparent that the clause was drafted in response
to the concern, widely discussed at the time of ERISA’s
enactment, that the States inevitably would drive <elf-

? Both parties’ letters of consent pursuant to Rule 37 of the Rules
of this Court have been filed with the Clerk of the Court.

3

insured plans out of existence if they subjected those
plans to the licensing, reserve, premium, and filing re-
quirements that state laws impose on insurance com-
panies. Indeed, this concern was given special urgency
by a siate court judgment, pending on appeal at the
time the deemer clause was written, that required a
self-insured plan to obtain an operating license from
state insurance authorities. In our view, the clause was
Congress’s response to the problem.

At the same time, Congress did not mean to set aside
those aspects of state health and insurance policy that
relate to the substance of insurance coverage. This ex-
plains the difference in language between the saving and
deemer clauses: the former saves any siate law regu-
lating “insurance,” while the latter is directed at in-
surance companies and “the business of insurance.

2. Our reading of the deemer clause is consistent with
other elements of ERISA, which nowhere distinguishes
between self-insured and fully insured plans. And our
analysis is wholly faithful to the legislative history. The
deemer clause was inserted in ERISA at a time when
the preemption clause, which sets the outer limits of
preemption, was written in a way that would have
superseded only state laws dealing with matters spe-
cifically covered by ERISA (such as reporting require-
ments and fiduciary obligations); at its broadest, the
language of the deemer clause accordingly could have
been intended to preempt only state laws addressing
those areas. In fact, the only specific evidence of the
intended application of the ERISA preemption provi-
sions indicates that they were modeled on a statute pre-
empting state laws relating to the creation, management,
and structure of health maintenance organizations. The
deemer clause was designed to reach the same sorts of
laws as they apply to welfare benefit plans.

3. Our reading of the deemer clause also is compelled
by the policies that underlie ERISA. Because federal law
does not regulate the substance of welfare benefit plans,

4

petitioner’s reading of the clause would (unless the federal
courts stepped in to create a federal common law of in-
surance) leave an enormous regulatory vacuum. That
outcome would afford employees less protection than they
enjoyed before the enactment of ERISA. Moreover, from
the standpoint of plan participants—the people who are
the intended beneficiaries of the statute—it is irrelevant
whether 2 plan is self-insured or fully insured; petitioner
would distinguish on this wholly irrational basis in de-
termining which employees benefit from the protections of
State health insurance law. Against this, petitioner and
the Solicitor General argue only that self-insured plans
would find it inconvenient to comply with varying state
laws. ERISA, however, was enacted not to protect plans,
but to “ ‘promote the interests of employees and their bene-
ficiaries.’” Firestone Tire & Rubber Co. v. Bruch, 109
S.Ct. 948, 955 (1989) (citation omitted).

Similar problems inhere in petitioner’s contention that
the decision below wil! encourage litigation. In fact, given
the regulatory vacuum that would follow from preemption
here, the federal courts would have no choice but to create
a federal common law of insurance. Yet such a develop-
ment would engender enormous confusion. Plans would
be forced to engage in continuous litigation if their ob-
ligations were set by an inchoate body of federal common
law that was discovered by the courts on a case-by-case
basis. The federal courts, meanwhile, would have to in-
vent rules in an area that has been the traditional prov-
ince of the States. This Court, moreover, would have no
choice but to step in repeatedly to set the contours of the
new common law. Such a system, it seems to us, is
earnestly to be avoided.

Ee eee

5
ARGUMENT

I. SECTION 514 OF ERISA DOES NOT PREEMPT
PENNSYLVANIA’S ANTI-SUBROGATION LAW.

A. Petitioner’s Reading Of The Deemer Clause Cannot
Be Reconciled With The Statutory Language.

1. The structure of ERISA’s complex preemption pro-
vision has become familiar. “If a state law ‘relate{s] to
... employee benefit plan|s],’ it is pre-empted. § 514(a).
The saving clause excepts from the pre-emption clause
laws that ‘regulat{e] insurance.’ § 514(b)(2)(A). The
deemer clause makes clear that a state law that ‘pur-
port|s] to regulate insurance’ cannot deem an employee
benefit plan to be an insurance company. § 514(b) (2)
(B).” Pilot Life Insurance Co. v. Dedeaux, 481 U.S. 41,
45 (1987). Although a convincing argument may be made
to the contrary, we assume for purposes of our discussion
below that Section 1720 of Pennsylvania’s Motor Vehicle
Financial Responsibility Law, 75 Pa. Cons. Stat. Ann.
$ 1720 (Purdon 1989), as applied to petitioner, “relate[s]
to an employee benefit plan” and therefore is within the
scope of the preemption clause. The parties and the So-

2 The arguments to the court of appeals were largely directed at
the meaning of the deemer clause; we accordingly devote most of our
attention to that issue. But those arguments skipped too easily past
the preemption clause, for in our view Section 1720 does not “relate
to” an ERISA plan within the meaning of that provision. Because
the court below considered and addressed this issue at some length
(see Pet. App. Al3-A15) in response to an amicus argument that
was expressly endorsed by respondent (see Appellee C.A. Br. 17 n.2),
it would be appropriate for this Court to consider the issue as well.

The Court has several times indicated, of course, that “‘fa] law
“relates to” an employee benefit plan, in the normal sense of the
phrase, if it has a connection with or reference to such a plan.”
Mackey v. Lanier Collection Agency, 486 U.S. 825, 829 (1988),
quoting Shaw v. Delta Air Lines, Ine., 463 U.S. 85, 96-97 (1983)

emphasis omitted). See Pilot Life, 481 U.S. at 47-48; Metro-
politan Life Insurance Co. v. Massachusetts, 471 U.S. 724, 739

1985). At the same time, however, the Court has made clear that
many state laws—even some that have a direct impact and impose
affirmative obligations on plans—do not fall within the scope of the

6

licitor General agree that the Pennslyvania law also falls
within the insurance saving clause, Pet. Br. 11; U.S. Br.
11. The dispositive question heve, then, is whether Penn-
sylvania’s statute is preempted by the deemer clause.

In arguing for preemption, petitioner and the Solicitor
General read the deemer clause as though it provides that,
notwithstanding the saving clause, all state laws involving
insurance are preempted insofar as they relate to self-
insured—but not to fully insured °—welfare benefit plans.

preemption clause. See Mackey, 486 U.S. at 833. Cf. Shaw, 463
U.S. at 100 n.21. Indeed, the Solicitor General has conceded in the
past that general state tort and contract law may be applied against
plans (see Mackey, 486 U.S. at 833), and the Court has observed
that suits grounded on such laws “are relatively commonplace.”
Ibid. (footnote omitted). See Rebaldo v. Cuomo, 749 F.2d 133, 138-
159 (2d Cir. 1984),

Relying both on this observation and on ERISA’s sue-and-be-sued
provision—a type of clause generally understood to authorize “ ‘all
civil process[es] incident to... legal proceedings’ ” (Mackey, 486
U.S. at 834 n.9 (citation omitted) )—the Court has held that gen-
eral state garnishment rules are not preempted as applied to plans.
See id. at 841. By the same token, it is plain that normal procedural
and claim allocation rules, such as those governing impleader and
interpleader, must be applicable to plans in ordinary tort and
contract suits. In this light, tere can be little doubt that a State’s
usual subrogation rules, as an element of state tort law that allo-
cates entitlements to t. -t judgments, should be fully applicable to
ERISA plans. If Section 1720 “relates to” a plan, then, it must be
because the state law creates a special subrogation rule for the
allocation of tort judgments in the setting of liability for automobile
accidents. But it is difficult to see why that factor should be dis-
positive. If subrogation rules do not “relate to” plans when applied
to one type of tort judgment, there is, as the Court noted in a very
similar setting, “‘simply no logical way to construe the English
language’” that would make such laws “relate to” plans when ap-
plied to another type of tort judgment. Mackey, 486 U.S. at 830
(citation omitted),

3 We use the term “self-insured” to refer to plans that pay bene-
fits out of their own assets; we use the term “fully insured” to
refer to plans that purchase coverage for employees from commer-
cial insurance carriers. As we explain below, however, many self-
insured plans actually are hybrids, purchasing coverage to protect
themselves against excess liability. See page 23, infra.

7

This readinz, however, has no relationship to the actual
language of the statute. The deemer clause does not, after
all, make any distinction between self-insured and fully
insured plans, and it does not, in terms, provide that
all state insurance laws are superseded as to al/ plans. In-
stead, the clause uses a different and rather curious
formulation, providing, as paraphrased by the Court, that
a State “cannot deem an employee benefit plan to be an
insurance company.” Pilot Life, 481 U.S. at 45.

Any proper reading of the deemer clause must account
for its unusual phrasing. In fact, in our view Congress
meant exactly what it said in the deemer clause: as we
explain.more fully below, it wrote the clause to preclude
States from “deem|ing]” plans to be insurance companies
for purposes of state laws, such as those involving licens-
ing or capitalization, that apply to insurance as a business.
At the same time. Congress did not mean to set aside
those aspects of state insurance and health policy that
relate to the substance of insurance coverage. This read-
ing of the clause, in contrast to petitioner’s, has the para-
mount virtue of “‘begin|ning] with the language em-
ployed by Congress and the assumption that the ordinary
meaning of that language accurately expresses the legis-
lative purpose.” Metropolitan Life Insurance Co. v. Mas-
sachuselis, 471 U.S. 724, 740 (1985) (citation omitted).
Unless there is a compelling reason to depart from it, that
language should be the end of the analysis as well.

2. There is no such reason here. To the contrary, our
approach, unlike petitioner’s, is consistent not only with
the terms of the deemer clause, but also with the structure
of other elements of ERISA. Petitioner and the Solicitor
General acknowledge that their reading distinguishes be-
tween self-insured and fully insured plans by allowing for
indirect state regulation of the latter; they recognize that,
under this Court’s holding in Metropolitan Life, States
may mandate the benefits offered by fully insured plans
through regulation of the insurance companies from which
the plans purchase their coverage.

8

ERISA, however, expressly rejects any distinction
either between the two types of plans or between direct
and indirect state regulation. To the contrary, the pre-
emption provisions define “State” to include any entity
“which purports to regulate, directly or indirectly, the
terms and conditions of employee benefit plans.” Section
514(¢e) (2), 29 U.S.C. § 1144(e) (2) (emphasis added).
Thus, the “directness” of the regulation should not deter-
mine preemption (as it does under petitioner’s approach) ;
the inquiry should turn on identifying the range of sub-
stantive areas preempted by ERISA. And far from dis-
tinguishing between self-insured and fully insured plans,
the statute simply detines an “employee welfare benefit
plan” as any program that provides medical or similar
benefits ‘through the purchase of insurance or otherwise.”
29 U.S.C. $1002(1). The term “plan” is then used
throughout ERISA, as it is in the deemer clause, without
distinction between plans that purchase insurance and
those that self-insure.*

* The statute distinguishes between self-insured and fully insured
pians at only one point, in an amendment to Section 514 enacted in
1985. 29 U.S.C. §$ 1144(b)(6). It is instructive to note that the
amendment provides (with some exceptions) that multiple employer
welfare benefit plans that are not fully insured are subject to all
state laws regulating insurance (29 U.S.C. § 1144(b)(6)(A)(ii)):
such plans that are fully insured (or which receive an exemption
from the Secretary of Labor) are subject only to state insurance
laws regulating reserve and contribution levels. 29 U.S.C. $1144
(b)(6)(A)(i). (The amendment was written to stop abuse of so-
called multiple employer health trusts, which sold insurance cov-
erage to many employers but attempted to avoid state regulation
as insurance companies by claiming to be ERISA plans. See 128
Cong. Ree. 30,356-30,358 (remarks of Rep. Erlenborn) (1982) ).
This distinction sensibly allows for greater state regulation of self-
insured plans that rely on their own resources to meet their obliga-
tions to participants, and lesser regulation of fully insured plans
that have provided for participants by contracting with established
insurance carriers. See 29 U.S.C. §1144(b)(6)(D). Petitioner
would turn this distinction on its head by postulating that partici-
pants in self-insured plans need no state protections.

9

B. ERISA’s Legislative History Confirms That The
Deemer Clause Preempts Only State Laws Directed
At The Business Aspects of Insurance.

Our reading of the deemer clause does more than track
the statutory language; it also accords with the statute’s
legislative history, with the underlying purposes of the
preemption provisions, and with the overall objectives of
ERISA. See generally Fort Halifax Packing Co. v. Coyne,
482 U.S. 1, 8-9 (1987). And it indulges the presumption
—fully applicable in ERISA litigation but ignored by peti-
tioner and the Solicitor General—‘‘that Congress did not
intend to pre-empt areas of traditional state concern.”
Metropolitan Life, 471 U.S. at 740. See id. at 741; Massa-
chusetts v. Morash, 109 S.Ct. 1668, 1675 (1989); Fort
Halifax, 482 U.S. at 19; Alessi v. Raybestos-Manhattan,
Inc., 451 U.S. 504, 522 (1981).

1. The three relevant preemption provisions have a
complex history. The insurance saving clause was present
in its current form in every one of the pension reform
bills that led to the enactment of ERISA, dating back to
1970. See Metropolitan Life, 471 U.S. at 745 n.23. But
neither the existing preemption clause nor any version of
the deemer clause was present in the ERISA bills that in-
itially were introduced in either Chamber of Congress.

As introduced in the Senate and reported out of the
Committee on Labor and Public Welfare, the bill that
ultimately became ERISA contained a limited preemption
clause that would have superseded state laws only “insofar
as they * * * relate to the subject matters regulated by
this Act.” $8.4, 938d Cong., Ist Sess. § 609(a) (1973), re-
printed at 1 Staff of Subcomm. on Labor of the Senate
Comm. on Labor and Public Welfare, 94th Cong., 2d Sess.,
Legislative History of the Employee Retirement Income
Security Act of 1974, 93, 186 (Comm. Print 1976)
|hereinafter Leg. Hist.|. See also S. 1557, 93d Cong., 1st
Sess. § 18(a) (Finance Committee bill) (1973), reprinted
at 1 Leg. Hist. 280, 319. As noted above, the bill con-
tained the insurance saving clause in its present form;

10

it did not contain the deemer clause. See S. 4, supra, re-
printed at 1 Leg. Hist. at 186. See generally S. Rep. No.
127, 93d Cong., Ist Sess. 35 (1973), reprinted at 1 Leg.
His’, 587, 621. The Senate approved the bill in this form.
See 3 Leg. Hist. 3820.

As introduced in the House, the bill that beeame ERISA
contained a more precise but equally limited preemption
case: it would have superseded state laws relating “to
the fiduciary, reporting, and disclosure responsibilities of
persons acting on behalf of employee benefit plans.” H.R.
2, 95d Cong., Ist Sess. § 114 (1973), reprinted at 1 Leg.
Hist. 5, 50-51. The bill was approved by the Committee
on Education and Labor in a slightly modified form. H.R.
2, 93d Cong., Ist Sess. § 514(a) (1973), reprinted at 3
Leg. Hist. 2345. Like the Senate version, this bill con-
tained the saving, but no deemer, clause. See ihid. See
generally H.R. Rep. No. 533, 93d Cong., 1st Sess. 17
(1973), reprinted at 2 Leg. Hist. 2348, 2364.

ERISA took a more complex course in the House, how-
ever, because the Ways and Means Committee also pro-
duced a bill dealing with pension regulation (which con-
tained no preemption provisions at all). See H.R. 12481,
93d Cong., 2d Sess. (1974), reprinted at 2 Leg. Hist. 2394.
In an attempt to reconcile their efforts, both House Com-
mittees produced new and slightly modified substitute
pills. See generally 120 Cong. Rec. 4279 (1974) (re-
marks of Rep. Perkins), reprinted at 2 Leg. Hist. 3368-
369,

‘he deemer clause first appeared, already in its cur-
‘orm, in the substitute for H.R. 2 that emerged from
“ucation and Labor Committee, where the clause

was added to the initial preemption and Saving

H.R. 12906, 93d Cong., 2d Sess. $ 514(b) (1974).

/ at 2 Leg. Hist. 2761, 2961. The Committee did

‘biish a formal report to accompany this substitute

id neither the preemption provisions in general nor
eemer clause in particular were subjects of conten-

The only explanation of the entire package of pre-

emp tion provisions, offered on the House floor, was the con-

11

clusory statement that “[a]ll States [sic] laws would be
pre-empted except for those covering plans not subject
to titles II and II |of ERSA].” Remarks of Rep. Perkins
(reprinting material in the nature of a Committee re-
port) (Fe: 25, 1974), 3 Leg. Hist. 3305. The House
passed the bill in this form. See 3 Leg. Hist. 4057-4058.

The Conference Committee engaged in extensive re-
drafting. See Chadwick & Foster, Federal Regulation of
Retirement Plans: The Quest for Parity, 28 Vand. L.
Rey. 641, 669 (1975). In particular, the conferees
“broadened the general pre-emption provision from one
that pre-empted state laws only insofar as they regulated
the same areas explicitly regulated by ERISA, to one that
pre-empts all state laws unless otherwise saved.” Metro-
politan Life, 471 U.S. at 745 n.23. See Shaw v. Delta Air
Lines, Inc., 463 U.S. 85, 98 n.19 (1983). As the Court
has noted, “[t]he change gave the insurance saving clause
a much more significant role, as a provision that saved
an entire body of law from the sweeping general pre-
emption clause.” Metropolitan Life, 471 U.S. at 745 n.23.
But “[t]here were no comments on the floor of either
Chamber specifically concerning the insurance saving
clause, and hardly any concerning the exceptions to the
pre-emption clause in general.” Jbid. See id. at 745. The
deemer clause was not mentioned at all in the floor
debates.

Although the conferees included the deemer clause in
the final bill, there was no substaritial discussion of the
provision’s meaning. The only explanation of the Con-
ference Committee’s deliberations on the point indicates,
rather unhelpfully, that ‘some of the staff believe|d] [the
deemer clause] should be adopted and other staff believe[d]
it should not be adopted.” Summary of the Differences
Between the Senate Version and the House Version of
H.R. 2 to Provide for Pension Reform, Part III 33
(1974), reprinted at 3 Ley. Hist. 5249, 5283. The con-
ference report simply ech#ed the statutory language. H.R.
Conf. Rep. No. 1280, 93d Cong., 2d Sess. 383 (1974),

12

reprinted at 3 Leg. Hist. 4277, 4650. See generally Metro-
politan Life, 471 U.S. at 745 n.23.

2. This legislative history is worth considering, of
course, because “‘as in any pre-emption analysis, “the
purpose of Congress is the ultimate touchstone.”’” Fort
Halifax, 482 U.S. at 8 (citations omitted). And ERISA’s
history is illuminating in several respects. At the outset,
it demonstrates that a central concern of Congress was
preservation of state authority to regulate insurance; the
only constant in the statutory evolution, from introduction
of the earliest ERISA bills to enactment of the final ver-
sion of the statute, was the presence of the insurance
saving clause. At the same time, there is absolutely no
evidence that Congress had an intention to bar States
altogether from the regulation of self-insured plans—
evidence that one would expect to find were ERISA de-
signed generally to exclude the States from an area within
their traditional purview. To the contrary, “[d]espite the
volumes of testimony collected during years of congres-
sional hearings, not a word can be found on the subject of
preemption of state regulation of self-insured plans.”
Brummond, Federal Preemption of State Insurance Requ-
lation Under ERISA, 62 Towa L. Rev. 57, 99 (1976)
‘footnote omitted). See id. at 115-116.

Moreover, it is plain from the evolution of ERISA that
Congress could not have drafted the language of the deemer
clause with the purpose of preempting all state insurance
laws as they apply to self-insured plans. As the court
below recognized (Pet. App. A20-A21), the deemer clause
was put in its current form at a time when the pre-
emption clause applied only to those state laws that dealt
with matters specifically covered by ERISA—that is, re-
porting and disclosure requirements and fiduciary obliga-
tions. The language of the deemer clause thus could have
been intended, at most, to preempt only state laws addres-
sing those areas. Cf. Metropolitan Life, 471 U.S. at 742
n.17.

3. In fact, it seems evident that the deemer clause was
directed at a specific and limited problem. At the time

13

ERISA was enacted, there was some uncertainty about
whether self-insured plans generally were subject to state
laws regulating the insurance business. Although such
plans were becoming common in the 1960s and early 1970s,’
state insurance commissioners and attorneys general
had yet to reach a consensus on whether self-insurers
were insurance companies for purposes of laws regulat-
ing licensing, reserves, premium taxes, and similar ele-
ments of the insurance business;° virtually no judicial
authority existed on the point.’ There was concern at
the time, however, that treating self-insured plans as
insurance companies under state law would effectively
drive them out of existence:

Application of state insurance laws to uninsured
plans would make direct payment of benefits point-
less and in most cases not feasible. This is because
a welfare plan would have to be operated as an in-
surance company in order to comply with the de-
tailed regulatory requirements of state insurance
codes designed with the typical operations of insur-
ance companies in mind. It presumably would be
necessary to form a captive insurance company with
prescribed capital and surplus, capable of obtaining
a certificate of authority from the insurance depart-
ment of all states in which the plan was ‘doing busi-
ness,’ establish premium yates subject to approval by
the insurance department, issue policies in the form
approved by the insurance department, pay commis-
sions and premium taxes required by the insurance

5 See, e.g., Comment, State Regulation of Noninsured Employee
Welfare Benefit Plans, 62 Geo. L.J. 339, 340 (1973).

® See Brummond, supra, 62 Iowa L. Rev. at 90-91 & nn. 309-313;
Duesenberg, The Legality of Noninsured Employee Benefit Pro-
grams, 5 B.C. Indus. & Com. L. Rev. 231 (1964); Goetz, Regulation
of Uninsured Employee Welfare Plans Under State Insurance Laws,
1967 Wis. L. Rev. 319, 323-325.

7 See Goetz, supra, 1967 Wis. L. Rev. at 322-325; Comment, supra,
62 Geo. L.J. at 344-346. The only decisions even arguably on point
were a few scattered holdings that insurance companies were not
liable for premium or similar taxes on self-funded plans that they
maintained for their own employees. See note 10, infra.

14

law, hold and deposit reserves established by the in-
surance department, make investments permitted
under the law, and comply with all filing and exam-
ination requirements of the insurance department.
The result would be to reintroduce an insurance
company, which the direct payment plan was sup”
posed to dispense with. Thus it can be seen that the
real issue is not whether uninsured plans are to be
regulated under state insurance laws, but whether
they are to be permitted.
Goetz, Regulation of Uninsured Employce Welfare Plans
Under State Insurance Laws, 1967 Wis. L. Rev. 319,
320-321 (emphasis in original). :
These concerns were given added urgency at the time
that ERISA was under consideration by the first judicial
decision squarely to address the issue, 1n which a Mis-
souri court held that an employer's self-insured —
was subject to state licensing requirements, Missourt v.
Monsanto Co., Cause No. 259774 (St. Louis Cty. Cir. Ct.
Jan. 4, 1973), rev’d, 517 S.W.2d 129 (Mo, 1974). The
circuit court holding effectively forced the employer to ter-
minate its plan and purchase insurance from a commercial
company. See Comment, State Regulation of aire
Employee Welfare Benefit Plans, 62 Geo. L.J. 339, 345-
346 (1973). The decision was pending on appeal during
the period that ERISA was under consideration and the
deemer clause was drafted.

Against this background, it appears virtually certain
that the deemer clause was added in response to the spe-
cifie concern that self-insured plans would be driven out
of existence if they were treated as commercial insurers—
if, in the language of the statute, such a plan was “deemed
to be an insurance company or other insurer * or to
be engaged in the business of insurance.” The clause thus
was concerned with state laws directed at the business of
insurance. such as those concerning the creation, manage-
ment, and structure of insurers. Not coincidentally, these
were the veneral areas dealt with by the original version
of the ERISA preemption clause (in place when the

15

deemer clause was drafted), which would have super-
seded state laws bearing on fiduciary standards for plan
management, as well as plan reporting and disclosure
requirements.” In contrast, the deemer clause was not
directed at other forms of state insurance regulation, such
as those involving the relationship between the insured
and his insurer. This explains the difference in termi-
nology between the saving and deemer clauses: the for-
mer makes no mention of insurance companies or of
“business,” saving “any law of any State which regulates
insurance”; the latter provides that an employee benefit
plan “shall [not] be deemed to be an insurance company

or other insurer * * * or to be engaged in the business
of insurance.” '

“The decision below substantially accords with this analysis.
While we would not put the inquiry in terms of “pretext” (see Pet.
App. A19-A20) or legislative motive—since States may have sub-
stantial, legitimate reasons for treating self-insured plans as insur-
ance companies—the crucial element of the court of appeals’ holding
Was its conclusion that States could not regulate the fiduciary and
disclosure obligations of such plans by the simple expedient of
labeling them “insurance companies.”

' Differentiating between these two types of regulation is not
difficult; the distinction often is drawn in general descriptions of
insurance law. See, ¢.g., Metropolitan Life, 471 U.S. at 727-728.

‘’ A similar line had been drawn prior to the enactment of ERISA
by state court decisions addressing attempts to impose premium and
related taxes on insurance companies for self-funded plans that they
maintained for their own employees. As the New York Court ot
Appeals put it in the leading (and, at the time of ERISA’s enact-
ment, most recent) such case, although the agreements between the
employer and plan participants were understood to be “ ‘insurance
contracts,’ ”’ the program “pursuant to which [the company! grants
insurance benefits to its employees, is not the doing of an insuranc:
business” because the plan did not “include an amount attributable
to profit or contribution to a surplus.” Mutual Life Insurance Co
v. New York State Tax Comm’n, 298 N.E. 2d 632, 634, 635 (N_Y.
1973). See Danna v. Commissioner of Insurance, 228 So.2d TOR, 712-
713 (La. Ct. App. 1969); Williams v. Massachusetts Mutual Lif,
Insurance Co., 427 S.W.2d 845, 848 (Tenn. 1968): State Tax Comm'n
v. John Hancock Mutual Life Insurance Co., 170 N.E.2d 711. 715-717
( Mass. 1960).

16

Indeed, the Missouri Supreme Court eventually drew
exactly this line between “insurance” (the subject of the
saving clause) and the “business of insurance” (the sub-
ject of the deemer clause) when, after ERISA was signed
into law, it reversed the trial court decision in Monsanto
on state law grounds. In holding that a self-insured plan
Was not subject to a Missouri law requiring companies to
be licensed before “ ‘transact|ing] in this state any insur-
ance business’” (517 S.W.2d at 131 (citation omitted) ),
the court explained: ‘The term ‘insurance business’ is not
statutorily defined, but it is not the same as ‘insurance’
or the word ‘business’ would be meaningless. We must
assume that the legislature intentionally added the word
‘business,’ and that the phrase is to be used in its usual
and ordinary meaning.” /d. at 1382. The court accord-
ingly held that the self-insured plan was not subject to
state laws specifically directed at insurance companies
because “it is not in the business of attempting to make
either a profit or accumulate a surplus from the operation
of its [plan]. /bid. Notwithstanding the Solicitor Gen-
eral’s argument to the contrary (Br. 18-19), in our view
the Department of Labor has accepted this distinction, spe-
cifically endorsing the Monsanto approach in an opinion
issued shortly after the enactment of ERISA. United
States Department of Labor, ERISA Opinion Letter No.
75-128, at 1 (June 20, 1975)."'

4. This reading of the deemer clause is entirely con-
sistent with other elements of the legislative history.
As we note above, the deemer clause, which was written

1! The other Department of Laber opinions cited by the Solicitor

General (Br. 19 n.13) also are consistent with our reading. Two
involved state laws directed at the insurance business. ERISA
Opinion Letter No. 78-3A (Feb. 15, 1978 law requiring that plan
receive a certificate of authority and comply with disclosure requir
ERISA Opinion Letter No. 79-6A (Jan. 16, 1979 law
requiring that self-insurers join reinsuratice association as a cond
business, and imposing taxes on premiums and bn
’ ] hird lved a state la } ’ fe
ERISA Oy Letter No. &2-001

17

while the preemption clause was narrowly directed at
state laws regulating fiduciary and disclosure obligations,
could not initially have been placed in the statute to pre-
clude state regulation of self-insured plans in other areas.
As for the preemption clause itself, it apparently was
broadened not generally to protect self-insured plans from
state regulation, but “out of a fear that ‘state profes-
sional associations’ would otherwise hinder the develop-
ment of such employee-benefit programs as ‘pre-paid legal
service programs.’” Metropolitan Life, 471 U.S. at 745
n.23 (citation omitted) .'*

At the same time, the general statements in the legis-
lative history about the breadth of ERISA preemption,
relied upon by petitioner (Pet. Br. 23) and the Solicitor
General (U.S. Br. 14), are simply beside the point. Read
in context, it is plain that in every case those statements
were directed at the preemption clause; while they refer
to the breadth of ERISA preemption, the statements note
the “narrow exceptions [to preemption] specifically enu-
merated” in the statute. 120 Cong. Rec. 29,197 (1974)
(remarks of Rep. Dent), reprinted at 3 Leg. Hist. 4670."
Because this case concededly falls within one of the “spe-
cifically enumerated” exceptions, the insurance saving
clause, the remarks cited by petitioner on the scope of
the preemption clause are irrelevant.’ Petitioner’s argu-

1 As the Court noted, “[t]here is no suggestion that the pre-
emption provision was broadened out of any concern about state
regulation of insurance contracts, beyond a general concern about
‘potentially conflicting State laws.’” Metropolitan Life. 471 U.S. at
745 n.23, quoting 120 Cong. Rec. 29,942 (1974) (remarks of Sen.
Javits).

'$ See 120 Cong. Rec. 29,933 (1974) (remarks of Sen. Williams)
referring to breadth of preemption “with the narrow exceptions
specified in the bill”), reprinted at 3 Leg. Hist. 4745-4746: 120
Cong. Rec. 29,942 (1974) (remarks of Sen. Javits) (referring to
breadth of preemption “but for certain exceptions”), reprinted at 3
Leg. Hist. 4771.

ise, the Court has rejected reliance on the “few passing

18

ments principally serve to emphasize that there were no
congressional comments directed to the deemer clause—
comments one would expect to find if the clause had a
broadly preemptive effect.

Indeed, in contrast to the boilerplate references to the
breadth of the preemption clause cited by petitioner, the
one specific indication of how Congress intended the pre-
emption provisions to apply supports our reading. Repre-
sentative Dent, floor manager for the bill in the House
and a member of the Committee that produced the deemer
clause, explained that ERISA’s preemption provisions “fol-
lowed to a large extent the same approach as in Public
Law 93-222 * * * where the regulation of health main-
tenance organizations |HMOs] was foreclosed to State
authority—section 113(a) [sic].” ' 120 Cong. Rec. 29,197
(1974) (remarks of Rep. Dent), reprinted at 3 Leg.
Hist. 4670. The statute to which Representative Dent
referred as the mocel for ERISA preemption—which had
been enacted in December 1973, around the time the
deemer clause was written—preempted state laws relating
to the creation and organization of HMOs; in particular,
it superseded state requirements that HMOs satisfy the
capitalization and reserve obligations imposed on insur-
ance businesses. Health Maintenance Organization Act of
1973, Pub. L. No. 93-222, § 1311(a), 87 Stat. 914, 931
‘Dee. 29, 1973). But the statute did not preempt state

laws addressing the relationship between HMOs and their

references” to the narrowness of the exceptions. Metropolitan Life,
171 U.S. at 746.
' (Congressman Dent in fact had in mind Section 1311(a)

'’ The statute thus preempted laws requiring medical society ap-
proval for the creation of HMOs, requiring that physicians con-
stitute a defined percentage of an H\O's governing body, requiring
that all or a percentage of physicians in the locale be permitted to

participate in providing services for the HMO. or requiring that
pa | l
7

he 'TMO meet the “requirements for insurers of health care ser
: doing business in that State mr specting i itinl anitalization
tablishment of Inancial reserves against nsolvencey *: R7

19

participants. In our view, that is precisely the line drawn
by the deemer clause as well.

5. Perhaps because there is so little that is helpful
to their case in the contemporaneous legislative history,
petitioner and the Solicitor General rely on post-enactment
legislative developments. We also could point to post-
enactment history.’’ But extensive consideration of this
history simply is not fruitful, since the Court repeatedly
has inade clear in the ERISA setting that “‘[t]he
views of a subsequent Congress form a hazardous basis
for inferring the intent of an earlier one.’” Firestone
Tire & Rubber Co. v. Bruch, 109 S.Ct. 948, 956 (1989)
(citation omitted). See, e.g., Mackey, 486 U.S. at 840.

Petitioner and the Solicitor General place principal
reliance (Pet. Br. 12 n.7; U.S. Br. 17 n.11) on a post-
enactment Committee report, also mentioned by this Court

in Metropolitan Life, 471 U.S. at 747 n.25, that was writ-
ten in 1977 and did not accompany legislation. H.R. tep,
No. 1785, 94th Cong., 2d Sess. (1977). On examination.
it is not at all clear that the Committee’s statements are
inconsistent with our reading of the deemer clause.'* But
'* At hearings in 1978, for example, “Senator Lloyd Bentser

chief drafter of ERISA in the Senate Finance Committee

stated that the Finance Committee did not deal with the question
of preempting health insurance.” 128 Cong. Rec. 30.354 (1982
(remarks of Rep. Burton, reprinting statement of Sen. Matsunaga).

'S The Solicitor General notes (Br. 17 n.11) the Committee’s state-
ment that “the ‘deemed’ language was utilized to create an ir-
rebuttable presumption that these [benefit] plans are not insurance.
trust companies, etc., for purposes of state regulation.” TLR. Rep.
No. 1785, 94th Cong., 2d Sess. 47 (1977). This. of course, is pre-
cisely our understanding of the deemer clause. The Solicitor Gen-
eral (Br. 17 n.11) and petitioner (Br. 12 n.7) also point (with
several misleading ellipses) to the Committee’s observation that,
“[tlo the extent that such programs fail to mect the definition
of an ‘employee benefit plan,’ state regulation of them is not pre-
empted by section 514, even though such state action is barred with
respect to the plans which purchase these ‘products.’ ” H.R. Rep. No,
1785, supra, at 48. The “programs” referred to by the Committe:
were those offered by entrepreneurs who sold insurance coveraye

20

in any event, “it is the function of the courts and not the
Legislature, much less a Committee of one House of the
Legislature, to say what an enacted statute means.”
Pierce v. Underwood, 108 S.Ct. 2541, 2551 (1988). See
Mackey, 486 U.S. at 840.

Indeed, the wisdom of this rule is especially manifest
here, for the report’s authors plainly had an imperfect
understanding of the operation of ERISA’s preemption
provisions. The report thus explains that the exceptions
to the preemption clause “are designed to delineate
affirmatively the limits of the ‘field’ preempted by sec-
tion 514(a), and articulate a second, but distinctly sub-
ordinate, policy within the section of preserving state
authority insofar as it does not relate to any plan * * *.”
H.R. Rep. No. 1785, supra, at 47 ‘emphasis added) ; see
id. at 46. As Judge Merritt explained for the Sixth Cir-
cuit, however, “|t|}hese subsequent legislators (or their
staff) did not seem to recognize or consider the fact that
the ‘savings’ clause would not be necessary at all if it
only saves state laws that do not ‘relate to’ ERISA plans.
The savings clause would not be necessary to save some-
thing that the preemption clause had not reached in the
first instance.”” Northern Group Services, Inc. v. Auto
Owners Insurance Co., 833 F.2d 85, 89 (6th Cir. 1987),
cert. denied, 108 S.Ct. 1754 (1988). Since the authors of
the Committee report failed to grasp the application of

or “products”) to employers and employees at large, while seeking

to escape state regulation by claiming to be ERISA plans. The
(‘Oommittee’s statement expressed the view that such programs were
not plans within the meaning of the statute and therefore were
subject to state regulation as insurance companies. The bona fide
plans that purchased coverage from these programs, of course,
could not be treated as—or “deemed” to be—insurance companies,
and therefore could not be subjected to state regulation of the busi-
ness of insurance. Whether the plans might be subjected to other
forms of insurance regulation simply was not addressed by the
Committee. (Congress ultimately amended Section 514 to make
clear that entrepreneurial programs providing insurance to many
employers, often referred to as multiple employer health trusts,
were subject to full state regulation. See note 4, supra. )

21

the saving clause, there is no reason to suppose that they
had a firm appreciation for the substance of the deemer
clause. Cf. Rebaldo v. Cuomo, 749 F.2d 133, 137 n.1 (2d
Cir. 1984) (another portion of report’s preemption dis-
cussion “lack[s] even persuasive authority”).

C. Preemption Of All State Insurance Regulation As
Applied To Self-Insurers Would Run Counter To
The Policies Of ERISA.

Our reading of the deemer clause also is faithful to the
fundamental policies that underlie ERISA—policies that
petitioner and the Solicitor General entirely disregard.
ERISA was enacted to correct abuses in the administra-
tion of pension plans, and generally “to safeguard em-
ployees from the abuse and mismanagement of funds
that had been accumulated to finance various types of
employee benefits.” Morash, 109 S.Ct. at 1671. The stat-
ute accordingly imposes substantive requirements on pen-
sion plans in the areas of funding, vesting, participation,

"The Solicitor General also points (Br. 17 n.11) to a 1982
amendment, enacted in response to a decision of the Ninth Circuit,
that exempts portions of a Hawaii mandatory health benefits law
from preemption under ERISA. Act of Jan. 14, 1983, Pub. L. No.
97-473, § 301(a), 96 Stat. 2605, 2611, codified at 29 U.S.C. § 1144
(b)(5). The Solicitor General finds this amendment significant
because it exempts only a single state law. In explaining the amend-
ment, however, the Senate Committee indicated that “the preemp-
tion of ‘he Hawaii [statute] by ERISA was inadvertent” (S. Rep.
No. 646, 97th Cong., 2d Sess. 18 (1982) )—hardly a ringing asser-
tion that ERISA as originally enacted had been designed broadly
to preempt state health insurance laws. Not surprisingly, the Court
rejected the Solicitor General’s essentially identical argument from
post-enactment history in Mackey, 486 U.S. at 839-840. For its part,
the Conference Committee in 1983 seemed to believe that the preemp-
tion clause reaches only state laws that address matters within the
substantive scope of ERISA, stating that the amendment “continues
Federal preemption of State law with respect to matters governed
by the reporting and disclosure and the fiduciary responsibility
provisions of ERISA, as well as certain of the provisions of the
administration and enforcement rules of ERISA.” H.R. Conf. Rep.
No. 984, 97th Cong., 2d Sess. 18 (1982). If this post-enactment his-
tory is relevant at all, it plainly is not inconsistent with the holding
below. See generally Mackey, 486 U.S. at 839-840.

22

and plan termination. See 29 U.S.C. §§ 1052-1086, 1301-
1461. See generally Alessi, 451 U.S. at 510-511 & nn.
5-7: Nachman Corp. v. Pension Benefit Guaranty Corp.,
1146 U.S. 359, 374-375 (1980). But welfare benefit plans
are not subject to these requirements (see 29 US.C.
gs 1051 l - 1081 11}, or to any other comprehensive
wala ‘ation: while ERISA imposes fiduciary and
Mocleann “eeusrements on the managers of all plans, it
“does not regulate the substantive content of welfare-
benefit plans.’ Metropolitan Life, 471 U.S. at 782. See
generally Shaw, 463 U.S. at 91.

Federal law thus provides no regulation of the sub-
stance of welfare plans; the universal preemption that
petitioner finds in the deemer clause would sweep away
the protections of state insurance and health policy as
well. Unless the federal courts stepped in to create a
federal common law of insurance—a possibility we =
cuss below—the result of petitioner’s approach acco! r4
ingly would be “a vast regulatory vacuum. gyms
supra, 62 Iowa L. Rev. at 118. See td. at 100. That er
come, as the Court has noted in a similar setting, wen
afford less protection to employees and their beneficiaries
than they enjoyed before ERISA was enacted. Pire-
stone, 109 S.Ct. at 956. See Morash, 109 S.Ct. at 1675.
It is impossible to imagine that Congress ahenees ee
consequences from a statute “enacted to promote -
interests of employees and their beneficiaries in employ ee
benefit plans.’” Firestone, 109 S.Ct. at 955, quoting
Shaw, 463 U.S. at 90.

Petitioner’s interpretation of the deemer clause would
have other anomalous consequences as well. From the
standpoint of plan participants—the people who are -
intended beneficiaries of ERISA— it is irrelevant whether
a plan is self-insured or fully insured; that is a matter
of their employer’s accounting convenience. Yet peti-
tioner would distinguish on this wholly irrational basis
in determining which participants benefit from the protec-
tions of state insurance law.

23

Indeed, petitioner’s approach would create irrational
distinctions even within plans. Many self-insured plans
enter into so-called “stop loss” agreements with insurance
carriers, in which the carriers agree to pay individual
claims that exceed a certain amount, or to assume all
liability for claims once the plan’s aggregate insurance
obligations exceed a specified limit. See Brummond,
supra, 62 Iowa L. Rev. at 92. These insurance carriers
are of course subject to state insurance laws. See ibid.
Thus, under petitioner’s reading of the deemer clause, all
of the State’s substantive insurance regulations (such as
the anti-subrogation provision at issue here) would be-
come fully applicable to a plan that had entered into a
stop loss agreement once the plan’s coverage limits had
been reached and the insurance carrier assumed liability.
Whether state law applied to a particular participant’s
claim therefore would turn on whether the claim was
filed before or after total claims reached the coverage
limit. Aguin, it is impossible to imagine that Congress
meant the deemer clause to create such a system.*” See
Shaw, 466 U.S. at 107-108.

2. Against all of this, petitioner (Pet. Br. 27-29) and
the Solicitor General (U.S. Br. 25-27 ) offer a single argu-
ment from the policy and history of the statute: that self-
insured plans would find it inconvenient to comply with

varying state laws. But this concern is substantially
overstated.

The argument for preemption on grounds of admin-
istrative convenience relies in large part on fragments
of the floor debate indicating that the preemption clause
was aimed at “eliminating the threat of conflicting and
inconsistent state and local regulation.” 120 Cong. Ree.
29,197 (1974) (remarks of Rep. Dent), reprinted at 3
Leg. Hist. 4670. See id. at 29,942 (remarks of Sen.
Javits), reprinted at 3 Leg. Hist. 4770-4771; id. at 29,933

*° Similar interpretive anomalies arise in plans—like petitioner’s
—that hire insurance companies to administer and process claims.
See Brummond, supra, 62 Iowa L. Rev. at 92.

24

(vemarks of Sen. Williams), reprinted at 3 Leg. Hist.
4745-4746. As we explain above, however, the floor debate
was largely directed at the preemption clause. This case,
in contrast, falls within the insurance saving exception
to that clause; and, as the Court has explained, “dis-
uniformities * * * are the inevitable result of the con-
gressional decision to ‘save’ local insurance regulation.
Arguments as to the wisdom of these policy choices must
be directed at Congress.” Metropolitan Life, 471 U.S.
at 747."

In any event, petitioner fundamentally misses the point
of ERISA. The statute was not enacted to protect plans
or employers; it was designed to safeguard employees
and their beneficiaries. Firestone, 109 S.Ct. at 955; Shaw,
463 U.S. at 90. See 29 U.S.C. § 1001(b); Connolly v.
Pension Benefit Guaranty Corp., 475 U.S. 211, 214
(1986): Central States Pension Fund v. Central Trans-
port, Inc., 472 U.S. 559, 569 (1985).*

With this in mind, in an area where Congress did not
set out applicable minimum standards, concerns for ad-
ministrative convenience cannot overcome the far more
fundamentzl interest in the protection of plan partici-
pants. After all, “one ‘uniform rule’ ”the rule con-
tended for by petitioner—“would be simply to defer willy
nilly to the provisions of the ERISA plan, an obviously
arbitrary result that would allow the plan trustees to
decide every issue in their own favor without judicial

21 Moreover, in the context of a debate over preemption, it seems
plain that Congress’s principal concern was with state rules that
conflicted or were inconsistent with the federal law establishing
uniform fiduciary and disclosure requirements.

22 See, ¢.g., S. Rep. No. 127, 93d Cong., Ist Sess. 1, 13-14 (1973),
reprinted at 1 Leg. Hist. 587, 599-600: H.R. Rep. No. 533, 93d
Cong., Ist Sess. 1 (1973), reprinted at 2 Leg. Hist. 2348; 120 Cong.
Rec. 29.192 (1974) (remarks of Rep. Perkins), reprinted at 3 Leg.
Hist. 4657: id. at 29,195, 29,196 (remarks of Rep. Dent), reprinted
at 3 Leg. Hist. 4665, 4668; id. at 29,928 (remarks of Sen, Williams),
reprinted at 3 Leg. Hist. 4733; id. at 29,933, 29,935, 29,943 (remarks
of Sen. Javits), reprinted at 3 Leg. Hist. 4747, 4751, 4775.

EE eooOOoOoOoOoOoOoO

25

review.” Northern Group, 883 F.2d at 94. But it is
hardly likely that Congress meant to establish that sort
of uniform rule by abrogating all protections for welfare
plan participants. Indeed, in a number of contexts this
Court has rejected the contention that the prospect of
increased administrative or litigation costs justifies the
preemption of state law under ERISA. See Firestone, 109
S.Ct. at 956; Mackey, 486 U.S. at 831-832; compare id.
at 843-844 (Kennedy, J., dissenting).

It is worth adding that petitioner substantially over-
states the inconvenience and expense of preserving state
laws such as the anti-subrogation provision at issue in
this case. As Congress was informed in 1982, when it
enacted the exemption for Hawaii’s mandatory health in-
surance law upon which the Solicitor General relies (see
note 19, supra) :

[A]ny employer using an automated payroll would
not encounter any difficulty or extraordinary cost in
meeting different state health care requirements for
the following reasons: First, medical benefits are
fairly uniform nationwide. Second, payroll offices
using automated systems can easily cope with any
variations as they do with existing differences for
pay packages for workers in different states * * * .
If all 50 states developed varying health insurance
programs, * * * experts were fairly confident that
a computer program could deal with varying benefit
packages.

128 Cong. Rec. 30,354 (1982) (remarks of Rep. Burton,
reprinting testimony of Sen. Matsunaga). See id. at
30,355 (remarks of Rep. Burton, reprinting testimony
of Sen. Matsunaga) (noting the “minimal cost” of cop-
ing with variations in state law).

3. Petitioner and the Solicitor General similarly argue
that their reading of the deemer clause will forestall
litigation about the applicability of particular state laws.
But it is their analysis, in our view, that would create
both considerable uncertainty in the law and a con-
comitant increase in litigation.

26

Petitioner seems to assume that preemption would
leave it free of all regulation, federal and state. As the
Solicitor General candidly acknowledges, however (U.S.
sr. 4 n.2), both Congress and this Court have made it
clear that, in areas where state law is preempted, “courts
are to develop a ‘federal common law of rights and obli-
gations under ERISA-regulated plans.’” Firestone, 109
S.Ct. at 954, quoting Pilot Life, 481 U.S. at 56. See also
Franchise Tax Board v. Construction Laborers Vacation
Trust, 463 U.S. 1, 24 n.26 (1983); 120 Cong. Ree. 29,942
(1974) (remarks of Sen. Javits), reprinted at 3 Leg Hist.
4771. Given the enormous regulatory vacuum that would
follow from preemption here, the federal courts would
have no choice but to create a federal common law of
insurance to resolve questions about, for example, what
rule of subrogation to apply. See U.S. Br. 4 n.2.

Such a system would invite confusion and uncertainty.
“Over the years states * * * have developed a substantial
and complex body of [insurance] law and _ statutory
principles to resolve questions of priority. * * * This
corpus of law embodies principles of restitution and risk
allocation that have evolved from acquired state experi-
ence and expertise.”” Northern Group, 833 F.2d at 94. If
state law is not preempted, affected plans may readily
determine their obligations by reference to these rules.
3ut that will be impossible if the controlling principles
must be found in an inchoate body of federal common law
that is discovered by the courts on a case-by-case basis.
Giving the federal courts such extensive law-making
powers in an area that is not touched substantively by
ERISA would make extensive litigation inevitable.

It also would require federal courts to assume a role
for which they are profoundly ill-suited. Insurance law
has, of course, traditionally been the province of the
States. Federal courts accordingly have no experience
in applying or developing its principles. And in an area
—such as the one involved here—that is not addressed
by ERISA, the federal courts would be forced to develop
rules “uninformed by any well-defined independent fed-

OOOO ———eoOO

27

eral interest.” Northern Group, 833 F.2d at 94. This
Court, moreover, would be obligated to step in repeatedly
to set the contours of the new federal common law of
insurance. Such a system, it seems to us, is earnestly to
be avoided.

D. This Court’s Opinion In Metropolitan Life Does Not
Mandate Preemption.

In fact, petitioner and the Solicitor General principally
rely not on the statutory language, which they barely
mention, or on the legislative history, which they set out
only in passing. Instead, their argument in large part is
grounded on brief snippets taken from this Court’s opin-
ion in Metropolitan Life. See Pet. Br. 14-16: U.S. Br.
15-18. In particular, they point to two of the Court’s
statements: the observation that the saving clause must
reach laws regulating insurance contracts because other-
wise “it would have been unnecessary for the deemer
clause explicitly to exempt such laws from the saving
clause when they are applied directly to benefit plans”
(471 U.S. at 741); and the statement that the Court’s
analysis “results in a distinction between insured and
uninsured plans, leaving the former open to indirect reg-
ulation while the latter are not.” Jd. at 747 (footnote
omitted).

These comments cannot bear the weight that petitioner
and the Solicitor General place upon them. Both state-
ments are, in fact, literally consistent with our reading
of the deemer clause. Under our approach the deemer
clause remains necessary to preempt state laws regulat-
ing insurance contracts as those laws apply to the busi-
ness of insurance (such as premium levels, commissions.
and so on). See pages 15-16 & n.10, supra. And it re-
mains true under our understanding of the deemer clause
that laws directed at insurance companies—those relating
to reserves, premiums, and so on—will have an indirect
impact on insured plans but will be inapplicable to self-
insured plans.

28

Having said that, we recognize that there is some
tension between a broad reading of these comments from
Metropolitan Life and the holding below. But that tension
should not be dispositive here, for the statements cited
by petitioner and the Solicitor General were not essential
to the Court’s holding in Metropolitan Life. As the
Solicitor General elliptically acknowledges (U.S. Br. 16),
the issue before the Court in Metropolitan Life did not
involve the application of the deemer clause to a self-
insured plan; instead, it concerned the application of
the saving clause ts an insurance company. Thus, as
the Court put it, “[t]he narrow statutory ERISA ques-
tion presented [in Metropolitan Life| is whether [the
state law at issue] is a law ‘which regulates insur-
ance’ within the meaning of” the saving clause. 471 U.S.
at 738. Indeed, the State had made no attempt to enforce
che state law at issue in Metropolitan Life against self-
insured plans. Jd. at 735 n.14.

In these circumstances, the Court should not find the
most expansive reading of its statements in Metropolitan
Life to be controlling now. Indeed, the Court already
has declined to give force to the broadest interpretation
of language taken from Metropolitan Life in a case, like
this one, that presented issues “the Court had no occasion
to consider in Metropolitan Life.” Pilot Life, 481 U.S. at
57. It would be appropriate for the Court to follow the
same course here and consider the question in this case
with a fresh eye.

il. IF STATE LAW IS PREEMPTED, FEDERAL
COURTS SHOULD ADOPT THE STATE RULE AS
THE FEDERAL RULE OF DECISION.

Finally, it should be emphasized that even if the Court
disagrees with our reading of the deemer clause and
finds that federal law is controlling here, that is not the
end of this case. As we explain above, the courts still
would have to formulate the applicable rule of federal
common law. While that task properly is left to the lower
courts on remand, in our view it would be appropriate

29

for those courts to adopt state law as the federal rule of
decision. We accordingly urge the Court (if it finds pre-
emption in the first instance) not to foreclose that as a
possibility on remand.

It is, of course, “possible to ‘adopt,’ as the operative
‘federal’ law, differing laws in the different States, de-
pending upon the State where the relevant transaction
takes place.” United States v. Yazell, 382 U.S. 341, 356-
357 (1966) ‘citation omitted). In particular, ‘when
there is little need for a nationally uniform body of law,
state law may be incorporated as the federal rule of de-
cision.” United States v. Kimbell Foods, Inc., 440 U.S.
715, 728 (1979). That may be so even when federal
law is made applicable by a statute that preempts the
field. See, ¢.g., International Union v. Hoosier Cardinal
Corp., 383 U.S. 696, 701-703 (1966).

Certainly, uniformity is essential in areas where
ERISA sets a discernible federal policy. But there is no
federal interest in any particular rule governing the
subrogation rights of welfare benefit plans, and thus no
interest derived from ERISA’s policies that mandates
application of a uniform national rule. Cf. Northern
Group, 835 F.2d at 94. The only argument for uniformity
offered by petitioner is its contention that it would be
burdensome for plan managers to learn the insurance
laws of the various States in which they operate. We note
that this interest, even if substantial, gives the court no
guidance in choosing which uniform rule to apply. But
in any event, administrative convenience is not an ade-
quate reason to set aside an entire body of state law:
“!+}hough a uniform |rule| might well constitute a de-
sirable statutory addition, there is no justification for
the drastic sort of judicial legislation” sought by peti-
tioner. Hoosier Cardinal Corp., 383 U.S. at 702-703. See
Yazel/, 382 U.S. at 353; United States v. Brosnan, 363
U.S. 237, 241-242 11960) .*°

“3 [t should be added that the rule of complete subrogation con-
tended for by petitioner is not desirable as a matter of policy. Ata

30

CONCLUSION
The judgment of the court of appeals should be affirmed.

Respectfully submitted,

BENNA RUTH SOLOMON *
Chief Counsel
CHARLES ROTHFELD
STATE AND LOCAL LEGAL CENTER
444 North Capitol Street, N.W.
Suite 349
Washington, D.C. 20001
(202) 638-1445

* Counsel of Record for the
June 15, 1990 Amici Curiae

minimum, as the Solicitor General notes (Br. 4 n.2), petitioner
should not be permitted to obtain full reimbursement out of re-
spondent’s tort settlement if respondent has not been made whole
for her medical expenses, a point on which the record is silent.
See U.S. Br. 3 n.1. But beyond that, respondent’s tort suit included
claims both for medical expenses and for pain and suffering; given the
extent of her injuries, the latter clairn surely was substantial, Some
(if not all) of the tort settlement, which amounted to only a fraction
of respondent’s claim, therefore plainly reflected recovery for pain
and suffering. Allowing the insurer to obtain this recovery to cover
its outlays for medical expenses “would require diversion of the
insured’s recovery for * * * pain and suffering and [would] com-
pletely deplete the insured’s recovery for damages. It would also
allow the insurer to recover 100% of its expenditure while the in-
sured only recovered [a fraction] of [her] damages.” Allstate In-
surance Co. v. Clarke, 527 A.2d 1021, 1025 n.5 (Pa. Super. Ct.
1987). In such circumstances, “[t]here would be nothing equitable
in awarding the entire [settlement] to the medical insurer.” Jbid.
If sound policy and equity are to underlie a controlling common law
rule, on remand the courts below should be free to reject petitioner’s
approach.

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385012_0698%3A24. Public record. Not legal advice.