# Amicus Curiae Brief — Pilot Life Ins. Co. v. Dedeaux

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 1987
- **Citation:** 481 U.S. 41

## Text

09 No. 85-1043

IN THE
Supreme Court of the United States

OCTOBER TERM, 1986

PrLoT LIFE INSURANCE Co.,

. Petitioner,

EVFRATE W. DEDEAUX,
Respondent.

On a Writ of Certiorari to the United States
Court of Appeals for the Fifth Circuit

MOTION FOR LEAVE TO FILE BRIEF AMICI CURIAE
AND BRIEF AMICI CURIAE FOR
AMERICAN COUNCIL OF LIFE INSURANCE AND
HEALTH INSURANCE ASSOCIATION OF AMERICA

IN SUPPORT OF PETITIONER
Of Counsel: ERWIN N. GRISWOLD
JACK H. BLAINE Counsel of Record
Vice President, PatTriciA A. DUNN
State Relations, and JONES, DAY, REAVIs & POGUE
General Counsel Metropolitan Square
PHILLIP E. STANO 655 Fifteenth Street, N.W.
Senior Counsel Washington, D.C. 20005-5701
AMERICAN COUNCIL OF (202) 879-3939
LIFE INSURANCE Counsel for the Amici
1850 K Street, N.W.
Washington, D.C. 20006-2284
(202) 862-4000

Joe W. PEEL
Vice President and
General! Counsel
JOHN P. DINEEN
Associate General Counsel
HEALTH INSURANCE
ASSOCIATION OF AMERICA
1025 Connecticut Ave., N.W.
Suite 1200
Washington, D.C. 20036
(202) 223-7780

_—————————

WILSON - Epes Printing Co., Inc. - 789-0096 - WASHINGTON, D.C. 20001

IN THE

Supreme Court of the United States

OCTOBER TERM, 1986

No. 85-1043

PILOT LIFE INSURANCE CoO.,
Petitioner,
Vv.

EVERATE W. DEDEAUX,
Respondent.

On a Writ of Certiorari to the United States
Court of Appeals for the Fifth Circuit

MOTION FOR LEAVE TO FILE BRIEF AMICI CURIAE
FOR AMERICAN COUNCIL OF LIFE INSURANCE AND
HEALTH INSURANCE ASSOCIATION OF AMERICA
IN SUPPORT OF PETITIONER

The American Council of Life Insurance (the “Coun-
cil”) and the Health Insurance Association of America
(the “HIAA”) hereby move, pursuant to Rule 36.3 of
the Rules of this Court, for leave to file the attached brief
as amici curiae. Consent to the filing of this brief has
been obtained from counsel for the petitioner. Counsel
for the respondent has refused consent.

The Council is the largest life insurance trade associa-
tion in the United States, representing the interests of
627 member life insurance companies. The Council’s

members, which include most of the country’s major life
insurers, currently hold ninety-five percent of the life
insurance in force in legal reserve life insurance com-
panies in the United States. The HIAA represents the
interests of 327 member companies. These companies pro-
vide over eighty-five percent of the health insurance writ-
ten by insurance companies in the United States. The
combined memberships of the HIAA and the Council rep-
resent over ninety percent of the health insurance written
by insurance companies in this country.

The insurance industry plays a critical role in provid-
ing health and life insurance benefits to members of this
nation’s workforce through employee welfare benefit plans
governed by the Employee Retirement Income Security
Act of 1974 (“ERISA”), 29 U.S.C. 88 1001 et seq.
Through group policies, insurance companies—including
many members of the Council and the HIAA—fund ap-
proximately 99 percent of the benefit plans in the United
States which cover fewer than 100 participants. See
“Employee Welfare Benefit Plans and Plan Sponsors in
the Private Nonfarm Sector in the United States, 1978-
79,” Health and Population Study Center, Battelle Human
Affairs Research Centers, Vol. IV (1980), at 43-45. Ap-
proximately 92 percent of the plans in this country cov-
ering greater than 100 participants are funded through
insurance. Jd. In many instances, insurers assume ad-
ministrative responsibilities for such plans as well. Jd.
Thus, members of the Council and the HIAA make wel-
fare benefit plans possible for countless employers—large
and small—thereby ensuring that the great mass of work-
ers in this country receive some form of life and health
insurance protection. For example, through group policies
issued by insurers, more than 17 million individuals in
1982 were protected by long-term disability insurance
programs like the program involved here. See HIAA
Source Book of Health Insurance Data, 1984 Update, at 9.

Because of their nationwide constituencies, the Council
and the HIAA are peculiarly able to present to this Court

the views of the life and health insurance industries con-
cerning the issue presented in this case: whether an em-
ployee’s state common law claims against an insurer for
an alleged mishandling of a benefit claim under an in-
sured plan are laws “which regulate insurance” and are
thus saved from preemption by Section 514(b) of ERISA,
29 U.S.C. § 1144(b). Those views are particularly im-
portant where, as here, resolution of this case requires
interpretation of ERISA’s “insurance saving clause” and
turns in part on the meaning of “regulating the business
of insurance” under the McCarran-Ferguson Act, 15
U.S.C. §§ 1101-12. They are also important because, if
the decision below stands, insurers who undertake claims
review responsibilities, but not their non-insurer coun-
terparts, will be exposed to suit under widely-varying
state common laws—in addition to or in lieu of ERISA—
whenever a disgruntled participant challenges the han-
dling of a benefit claim. Because the decision below dras-
tically enlarges the risk of insurers to varying standards
of conduct imposed by state common law rules and to
substantial, yet unpredictable, compensatory and puni-
tive damages awards, the Council and the HIAA have a
direct and substantial interest in this case.

For these reasons, the motion for leave to file the at-
tached brief amici curiae in support of the petitioner
should be granted.

Respectfully submitted,

Of Counsel: ERWIN N. GRISWOLD
JACK H. BLAINE Counsel of Rece cd
Vice President, PATRICIA A. DUNN
State Relations, and JONES, Day, Reavy: & POGUE
General Counsel Metropolitan Square
PHILLIP E. STANO 655 Fifteenth Street, N.W.
Senior Counsel Washington, D.C. 20005-5701
AMERICAN COUNCIL OF (202) 879-3939
LIFE INSURANCE Counsel for the Amici

1850 K Street, N.W.
Washington, D.C. 20006-2284
(202) 862-4000

JoE W. PEEL
Vice President and
General Counsel
JOHN P. DINEEN
Associate General Counsel
HEALTH INSURANCE
ASSOCIATION OF AMERICA
1025 Connecticut Ave., N.W.
Suite 1200
Washington, D.C. 20026
(202) 223-7780

August, 1986

QUESTIONS PRESENTED

(1) Whether the Employee Retirement Income Secu-
rity Act of 1974 (“ERISA”) preempts an employee’s
state common law contract and tort claims, arising from
an alleged mishandling of a claim for benefits under an
insured employee benefit plan, against an insurance com-
pany acting as a claims review administrator?

(2) Whether state common law causes of action of gen-
eral application, sounding in contract and tort, are laws
which regulate insurance under the proper construction
of Section 514(b) of ERISA and are thus saved from
preemption?

(i)

TABLE OF CONTENTS

PR RL RERE NAE RE a AD ORT CE OR

I.

II.

Ill.

CONCLUSION

THE DECISION BELOW IS INCONSISTENT
WITH THE BROAD PREEMPTIVE LAN-
GUAGE OF ERISA, ITS LEGISLATIVE HIS-
TORY, AND THE POLICIES EMBODIED IN
Se NE TT

THE FIFTH CIRCUIT’S APPLICATION OF
ERISA’S SAVING CLAUSE IS INCONSIST-
ENT WITH THIS COURT’S CONSTRUCTION
OF AND CONGRESSIONAL INTENT UN-
DERLYING THE MCCARRAN-FERGUSON
GPT. suits eanccociacipessatiaiaiianeaniintiadanapienal TEL cissen

THE DECISION BELOW MISAPPLIES THIS
COURT’S DECISION IN METROPOLITAN
LIFE INSURANCE CO v. MASSACHUSETTS
AND DRAWS AN UNWORKABLE DISTINC-
TION BETWEEN INSURED AND UNIN-
Pe I ihcanscchenicsntelasiiaciansitesinnipoetiniteinevecs

A. Metropolitan Life Does Not Require Exemp-
tion of State Common Law Actions from
ERISA’s Preemptive Reach

B. Metropolitan Life Does Not Support the Dis-
tinction Between Insured and Uninsured
Plans Drawn by the Court Below

(iii)

12

18

18

19
25
27

nn

iv
TABLE OF AUTHORITIES
CASES: Page
Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504
CROUIID aiccaencnnnensnccernseinnsntensnmnsnnnnecnernnemenvenarsncncnnnnn 8, 12
American Progressive Life and Health Insurance
vy. Corcoran, 715 F.2d 784 (2d Cir. 1983) .........--- 1l
Benvenuto v. Connecticut General Life Insurance
Co., No. 84-3601 (D.N.J. Feb. 27, 1986) ......-.---- 16 ,21
Blakemen v. Mead Containers, 779 F.2d 1146 (6th
Che, 1OBB) -...2..----..-00000-20-ens-ns-nssnsennsensnneensasessnsannconens 21
Children’s Hospital v. Whitcomb, 778 F.2d 239
(Sth Cir. 1985) ........-.-..----------------ccersnenensoenseeneeennnnes 20
Cuttle v. Federal Employees Metal Trades Council,
623 F. Supp. 1154 (D. Me. 1985) ...........-.------------ 20
Dedeaux v. Pilot Life Insurance Co., 770 F.2d 1311
(Sth Cir. 1985) ........-------------s-s-cesessssoseressererenenseees 4,5

Dillard v. Teamsters Council 83 Health & Welfare
Fund, 6 Emp. Ben. Cas. (BNA) 2558 (W.D. Va.

DO accncscctcssnenccnsscnncensnenesncees oD i aalipeaandey 20
Ellenburg v. Brockway, Inc., 763 F.2d 1091 (9th

._ =_ =e nn cadesumnmeensamnats 21
Eversole v. Metropolitan Life Insurance Co., 500

F. Supp. 1162 (C.D. Cal. 1980) ........... Aion ae 22
FTC v. National Casualty Co., 357 U.S. 560

CRITI acne sesesnce an nn sncnennnnsnesenvsnnnanecasncssoncnonnnnonscns 14, 15
Franchise Tax Board v. Construction Laborers

Vacation Trust, 463 U.S. 1 (1983) ...........---.-----. 7-8

Group Life and Health Insurance Co. v. Royal
Drug Co., 440 U.S. 205, reh’g denied, 441 U.S.

GIT CIDTB) ...----20.--<-2------- ai latina 15
Hamilton Life Insurance Co. v. Republic Nationa

Life Insurance Co., 408 F.2d 606 (2d Cir. 1969) 15
Hart v. Orion Insurance Co., 453 U.S. 1358 (10th

Che, BBTL) .....--0-.--<ccceencecenessesesesseoncsnsosesscnveranseses = 15

Holland v. Burlington Industries, Inc., T72 F.2d
1140 (4th Cir. 1985), aff'd mem., 106 S.Ct. 3267

ID vccsccanctecscccnnsniesantaneneteniacccnnsoe a aad 7
Hutchinson v. Benton Casing Service, Inc., 619
F. Supp. 831 (S.D. Miss. 1985) -..............--------- 21

Kanne v. Connecticut General Life Insurance Co.,
607 F. Supp. 899 (C.D. Cal. 1985) ...........-.------ 21

Vv

TABLE OF AUTHORITIES—Continued

Page
Kilmer v. Central Counties Bank, 623 F. Supp.

EE 20
Lessard v. Metropolitan Life Insurance Co., 618

F. Supp. 1268 (D. Me. 1985) ................................ 21
Light v. Blue Cross and Blue Shield of Alabama,

790 F.2d 1247 (5th Cir. 1986), aff’g, 616 F.

Supp. 558 (S.D. Miss. 1985) ................................. 21
Lucash v. Strick Corp., 602 F. Supp. 430 (E.D.

Pa. 1984), aff'd mem., 760 F.2d 259 (3d Cir.

AREAS RIES SARE Ce coe ace Ny ae 21
McLaughlin v. Connecticut General Life Insurance

Co., 565 F. Supp. 484 (N.D. Cal. 1983) —............ 21
Massachusetts Mutual Life Insurance Co. v. Rus-

sell, 106 S.Ct. 3065 (19665) .................................... 4, 22
Metropolitan Life Insurance Co. v. Massachusetts,

105 S.Ct. 2380 (1985) —.......... 4, 5, 6, 8, 13, 14, 18, 19, 20
Michigan United Food and Commercial Workers

Union v. Baerwaldt, 767 F.2d 308 (6th Cir.

1985), cert. denied, 106 S.Ct. 801 (1986)... 11
Moore v. Provident Life & Accident Insurance Co.,

786 F.2d 922 (9th Cir. 1986) ................00000 0... 21
Nachman Corp. v. Pension Benefit Guaranty Corp.,

i es 7
Northwest Department ILGWU Health and Wel-

fare Fund v. Teamsters Local Union No. 229

Welfare Fund, 764 F.2d 147 (3d Cir. 1985)... 11
Powell v. Chesapeake & Potomac Telephone Co.,

780 F.2d 419 (4th Cir. 1985), cert. denied, 106

Rn as 11, 16, 21, 23
Presti v. Connecticut General Life Insurance Co.,

605 F. Supp. 163 (N.D. Cal. 1985)... 21-22
Robertson v. California, 328 U.S. 440 (1946) 14
SEC v. National Securities, Inc., 393 U.S. 453

TEE eee ta en ee lorena eee Lee 14
Shaw v. Delta Air Lines, Inc., 463 U.S. 85 (1983)... 8, 12
Sommers Drug Store Co. Employee Profit Sharing

Trust v. Corrigan Enterprises, Inc., No. 85-2377

(5th Cir. July 14, 1986)... 23

vi
TABLE OF AUTHORITIES—Continued

Page
Troqner v. New York Life Insurance Co., 633 F.
i I isi 21, 22
Union Labor Life Insurance Co. v. Pireno, 458
shi. A Ee 15
Wadswoth v. Wheland, 562 F.2d 70 (ist Cir.
1977), cert. denied, 4%) U.S. 980 (1978) ........ 11
Wayne Chemical, Inc. v. Columbus Agency Service
Corp., 567 F.2d 692 (7th Cir. 1977) 200000. 11
STATUTES, RULES AND REGULATIONS:
Employee Retirement Income Security Act of 1974
(“ERISA”), 29 U.S.C. § 1001 et seq. _.............. 2
ERISA § 409(a), 29 U.S.C. §1109(a) 200. 22
ERISA § 502(a) (3), 29 U.S.C. § 11382(a) (3) ........ 23
ERISA § 514, 29 U.S.C. § 1144 000... 2, 26
ERISA § 514(a), 29 U.S.C. § 1144(a) _......... 4, 5, 7, 8, 10,
11, 16

ERISA § 514(b), 29 U.S.C. § 1144(b) ....5, 6, 12, 13, 18, 19
ERISA § 514(b) (2), 29 U.S.C. § 1144(b) (2)... 10, 12
ERISA § 514(b) (2) (A), 29 U.S.C. § 1144(b) (2)

IRE «ee Nn CC Rt 4, 11, 13, 16
ERISA § 514(b) (2) (B), 29 U.S.C. § 1144(b) (2)

PEE eee ence Ee eras sae Pep Se 13, 19
ERISA § 514(b) (4), 29 U.S.C. § 1144(b) (4)... 12
ERISA § 514(c) (1), 29 U.S.C. § 1144(c) (1)... 7, 16
McCarran-Ferguson Act, 15 U.S.C. §§ 1011-1012... 2, 10,

13, 27
aE AO oe NOT 10

LEGISLATIVE MATERIAL:

H.R. Rep. No. 533, 98d Cong., 1st Sess. (1973),
reprinted in 2 Legislative History of the Em-
ployee Retirement Income Security Act of 1974
(“Legislative History”), 2348 9

H.R. Conf. Rep. No. 93-1280, 93d Cong., 2d Sess.
(1974), reprinted in 3 Legislative History,
a REE Ee ee See 10

ad ee Se pet ©

vii

TABLE OF AUTHORITIES—Continued

POPS PSSSSS SecesecoosseeeooeeCcecoeseseo

Manno, “ERISA Preemption and the McCarran
Ferg’. »» Act: The Need for Congressional Ac-
tion’. - ‘ amp. L. Q. "5 (1979)

Page

17

9,11

13, 24

IN THE

Supreme Court of the United States

OCTOBER TERM, 1986

No. 85-1043

PILoT LIFE INSURANCE Co.,
Petitioner,
Vv.

EVERATE W. DEDEAUX,

Respondent.

On a Writ of Certiorari to the United States
Court of Appeals for the Fifth Circuit

BRIEF AMICI CURIAE FOR
AMERICAN COUNCIL OF LIFE INSURANCE AND
HEALTH INSURANCE ASSOCIATION OF AMERICA

IN SUPPORT OF PETITIONER

INTERESTS OF THE AMICI:

As indicated in the Motion accompanying this Brief,
the American Council of Life Insurance (the “Council’’)
is the largest life insurance trade association in the
United States, representing the interests of 627 member
life insurance companies. The Health Insurance Associa-
tion of America (the “HIAA”) represents the interests
of 327 member companies. The combined memberships

2

of the HIAA and the Council represent over ninety per-
cent of the health insurance written by insurance com-
panies in the United States.

The legal and practical consequences of the Fifth Cir-
cuit’s opinion below are matters of grave concern to the
members of the Council and the HIAA. Many members
of the Council and the HIAA provide group insurance
policies for and administer employee benefit plans gov-
erned by the Employee Retirement Income Security Act
of 1974 (“ERISA” or the “Act’”), 29 U.S.C. §§ 1001
et seg. By subjecting insurers that undertake ERISA
administrative responsibilities to suit under state common
law rules—in addition to or in lieu of ERISA—the deci-
sion below drastically enlarges the risk of such insurers to
the varying, and often inconsistent, standards of conduct
imposed by state common law rules. That risk is height-
ened by the prospect that the adjudication of benefit
claims under diverse state common law rules, rather than
ERISA, will be accompanied by substanial, yet unpredict-
able, compensatory and punitive damages awards. Faced
with the uncertainties and inconsistencies fostered by the
decision below, members may be unable to provide afford-
able group insurance policies to employers who sponsor
benefit plans, or to undertake administrative responsibili-
ties for such plans. The Council and the HIAA thus have
a direct and immediate interest in the issues presented in
this case.

STATUTES INVOLVED

This case involves Section 514 of ERISA, 29 U.S.C.
§ 1144, and the McCarran-Ferguson Act, 15 U.S.C.
$§ 1011-1012. These provisions are set forth in the
Appendix, infra pp. 27-28.

ef

8

STATEMENT

Entex, Inc. (“Entex”) sponsors a Long-Term Disabil-
ity Plan (the “Plan”) which provides disability benefits
to its employees who become disabled due to work-related
injuries. The Plan, which is an employee welfare benefit
plan governed by ERISA, pays benefits during the first
two years of disability if the employee is unable to per-
form the duties of his occupation. Thereafter, benefits
are payable only if the employee is disabled from “any
and every occupation or employment for which [he] is
reasonably fitted by education, training or experience.”
Benefits under the Plan are provided through a group
insurance policy issued to Entex by Petitioner Pilot Life
Insurance Company (“Pilot Life”). Although Entex is
the Plan sponsor and administrator, Pilot Life has re-
sponsibility for processing benefits claims under the Plan.

The respondent, an employee of Entex, injured his back
in a work-related accident in March, 1975. Respondent
sought, and Pilot Life provided, disability benefits for
the first two years after respondent’s accident. Although
disputes arose after the two-year period concerning re-
spondent’s continued eligibility for benefits, Pilot Life
paid disability benefits to respondent until March, 1980.
At that time, Pilot Life discontinued respondent’s bene-
fits on the basis of independent medical reports which
concluded that respondent was able to perform light or
sedentary work.

No internal appeal of Pilot Life’s decision to terminate
disability benefits, as required by ERISA, was filed by
respondent. Rather, on May 30, 1980, respondent brought
a diversity action against Entex and Pilot Life in the
United States District Court for the Southern District
of Mississippi. In his complaint, respondent asserted
various state common law causes of action, including
breach of contract, breach of fiduciary duty, and fraud.
Respondent sought $750,000 in compensatory damages

4

and $500,000 in punitive damages. Respondent did not
assert any claim under ERISA.'*

The Proceedings Below

On May 21, 1982, Pilot Life moved for summary judg-
ment, asserting, inter alia, that ERISA preempted re-
spondent’s state law claims relating to Pilot Life’s termi-
nation of disability benefits. The district court granted
the motion, holding that Section 514(a) of ERISA pre-
empted respondent’s state law causes of action and that
ERISA provided the exclusive remedy for his claims.

On appeal, the Fifth Circuit reversed the decision of
the district court. Recognizing the breadth of ERISA’s
preemption of state law, the court conceded that respond-
ent’s claims would have been preempted if Entex had
self-insured, rather than purchased insurance for, its
Plan. Thus, the narrow issue on appeal was whether
Section 514(b)(2)(A) of ERISA—the so-called insur-
ance “saving clause”—released respondent’s state tort
and contract claims from preemption.

The Fifth Circuit held that it did. Relying principally
upon Metropolitan Life Insurance Co. v. Massachusetts,
105 S. Ct. 2380 (1985), the court below held that
ERISA’s insurance saving clause, construed in light of
analogous language in the McCarran-Ferguson Act, is
broad enough to encompass respondent’s state common
law claims against Pilot Life. Specifically, the court
found that these common law claims of general applica-

1As the Fifth Circuit noted on appeal of this action, “[t]he
reason why Dedeaux did not pursue this tack is obvious—Dedeaux
sought $500,000 in exemplary damages, but ERISA neither ex-
pressly nor implicitly authorizes such an award. Massachusetts
Mut. Life Insurance Co. v. Russell, —— U.S. ——, 105 S. Ct. 3085,
87 L.Ed.2d 96 (1985).” Dedeauz v. Pilot Life Ins. Co., 770 F.2d
1311, 1313 n.3 (5th Cir. 1985) (citations omitted). Mississippi
common law, on the other hand, does permit punitive damages
awards in certain circumstances. /d.

ee

5

tion, like the mandated-benefit statute at issue in Metro-
politan Life, are laws “which regulate[] insurance” and,
as such, are saved from preemption by Section 514(b)
of ERISA. The court thus concluded that “state laws pro-
scribing the same conduct as ERISA may provide a cause
of action in place of, in addition to, or coequal with any
cause of action available under ERISA.” 770 F.2d at
1317.
SUMMARY OF ARGUMENT

By its terms, ERISA preempts “any and all State
laws” which “relate to any employee benefit plan.” 29
U.S.C. §1144(a). This is subject to a “saving clause”
which exempts from preemption “any law of any State
which regulates insurance.” 29 U.S.C. § 1144(b). Given
the sweeping breadth of ERISA’s preemptive reach, the
court below concedes—and the parties to this case do not
dispute—that state common law rules of general appli-
cation, when applied to uninsured employee benefit plans,
are preempted by ERISA.

Nothing in the words or legislative history of ERISA
suggests that the same generally applicable common law
rules should survive preemption merely because an em-
ployer purchases insurance for, rather than self-insures,
an employee benefit plan. In holding that state common
law rules of general application are saved from preemp-
tion by ERISA’s insurance saving clause when applied
to insurers acting as claims review administrators, the
decision below unravels the preemptive fabric of ERISA
and disrupts the uniformity ERISA was designed to pro-
mote. It means that state common law rules of general
applicability, not specifically directed to insurance, may
provide a cause of action in place of or in addition to
ERISA whenever an employer purchases insurance for
and retains an insurance company to administer its em-
ployee benefit plan. Because the great majority of plans
are insured or insurer-administered, the decision below

6

means that state law—more often than ERISA—will de-
termine liability for claims handling under ERISA-
governed plans. The decision below thus strikes at the
very objectives underlying ERISA: to establish federal
primacy over employee benefit plan regulation and to
ensure that such plans are uniformly enforced and admin-
istered without reference to varying state laws.

Not only does the decision below contravene the inten-
tion of Congress to preempt all state laws that fall within
ERISA’s sphere, but it reaches this result by miscon-
struing the insurance saving clause contained in Section
514(b) of ERISA. Intended to preserve the McCarran-
Ferguson Act’s reservation of insurance regulation to
the states, the saving clause releases from preemption
only those state regulatory schemes which regulate the
“business of insurance.” It does not shelter state com-
mon law rules which apply, in general terms, to the
parties to any sort of contract—insurance or otherwise.
For this reason, this Court’s decision in Metropolitan Life
Insurance Co. v. Massachusetts, 105 S. Ct. 2380 (1985),
does not require, as the court below concluded, application
of ERISA’s saving clause here. Unlike the mandated-
benefits statute at issue in Metropolitan Life, which was
focused directly on insurance, the common law rules at
issue in this case are not peculiarly applicable to insurers
and do not regulate the “business of insurance” within
the meaning of either the McCarran-Ferguson Act or
ERISA.

Moreover, Metropolitax Life does not support the dis-
tinction between insured and uninsured plans drawn by
the court below. This Court in Metropolitan Life recog-
nized that ERISA, by operation of the “deemer clause,”
distinguishes between insured and uninsured plans when
state regulation of the insurance business is inyulved.
But it did not hold—and ERISA does not require—that a
similar distinction exists when state common law rules
of general application are applied. In holding that in-

“a

sured plans, but not their self-insured counterparts, may
be subjected to state common law rules, the court below
gave life to a distinction which is unsupported by the
words of ERISA, is wholly inconsistent with ERISA’s
comprehensive remedial scheme, and is entirely unwork-
able in practice.

ARGUMENT

I. THE DECISION BELOW IS INCONSISTENT WITH
THE BROAD PREEMPTIVE LANGUAGE OF
ERISA, ITS LEGISLATIVE HISTORY, AND THE
POLICIES EMBODIED IN THE ACT

In its simplest terms, this case involves the continued
primacy of ERISA in the field of employee benefit plan
regulation. The question here is whether ERISA pre-
empts state common law actions against an insurer aris-
ing from the alleged mishandling of a benefit claim under
an insured employee welfare benefit plan. Relying upon
ERISA’s narrow insurance saving clause, the court be-
low held that it does not. But the court clearly misapplied
the broad command of Section 514(a) of ERISA, as
shown by its legislative history, and ignored important
policies underlying the Act.

ERISA is a “comprehensive and reticulated statute,”
Nachman Corp. v. Pension Benefit Guaranty Corp., 446
U.S. 359, 361-62 (1980), which by its clear terms “super-
sede[s] any an all State laws insofar as they may now
or hereafter relate to any employee benefit plan. .. .”
29 U.S.C. §1144(a) (emphasis added). Evidencing its
“unparalleled breadth,” Holland v. Burlington Industries,
Inc., 772 F.2d 1140, 1147 (4th Cir. 1985), aff'd mem.,
106 S. (+. 3267 (1986), ERISA preempts not only state
statutory enactments relating to benefit plans, but also
“all laws, decisions, rules, regulations, or other State
action having the effect of law, of any State.” 29 U.S.C.
§ 1144(c) (1).

That this “virtually unique pre-emption provision,”
Franchise Tax Board v. Construction Laborers Vacation

8

Trust, 463 U.S. 1, 24 n.26 (1983), was intended to have
a sweeping reach has been recognized by this Court. In-
deed, most recently, the Court declined to interpret Sec-
tion 514(a) so as to limit its preemption to state laws
dealing specifically with the subject matters covered by
ERISA (e.g., reporting, disclosure, fiduciary responsibil-
ity). It concluded instead that “RISA “was intended to
displace all state laws that fall within its sphere, even
including state laws that are consistent with ERISA’s
substantive requirements.” Metropolitan Life Insurance
Co. v. Massachusetts, 105 S. Ct. at 2389. In short, the
principles which have emerged from this Court’s deci-
sions are clear: that, with several narrowly articulated
exceptions, ERISA was intended to make employee bene-
fit plan regulation a matter of virtually exclusive federal
concern. See Metropolitan Life Insurance Co. v. Massa-
chusetts, 105 S. Ct. at 2389; Shaw v. Delta Air Lines,
Inc., 463 U.S. 85 (1983) ; Alessi v. Raybestos-Manhattan,
Inc., 451 U.S. 504 (1981).

This broad view of ERISA’s preemption provision
is likewise compelled by the <Act’s legislative history.
Throughout its deliberations of ERISA, Congress was
acutely aware that establishing a comprehensive federal
regulatory scheme was critical to ensuring the uniform
administration and enforcement of employee benefit plans.
That Section 514 was intended to play a paramount role
in achieving uniformity in the application of ERISA—
and particularly its fiduciary standards—was emphati-
cally articulated:

[A] fiduciary standard embodied in Federal legisla-
tion is considered desirable because it will bring a
measure of uniformity in an area where decisions
under the same set of facts may differ from state to
state.... [I]t is evident that the operations of em-
ployee benefit plans are increasingly interstate. The
uniformity of decision which the Act is designed to
foster will help administrators, fiduciaries and par-
ticipants to predict the legality of proposed actions

9

without the necessity of reference to varying state
laws.

H.R. Rep. No. 533, 93d Cong., Ist Sess. 12 (1973), re-
printed in 2 Legislative History of the Employee Retire-
ment Income Security Act of 1974 (hereinafter “Legisla-
tive History”), at 2359. See also 120 Cong. Rec. 29,197
(1974) (remarks of Representative Dent) (broad federal
preemption was designed to eliminate “the threat of con-
flicting and inconsistent State and local regulations”) ;
120 Cong. Rec. 29,933 (remarks of Senator Williams)
(“the substantive and enforcement provisions . . . are
intended to preempt the field for Federal regulations, thus
eliminating the threat of conflicting or inconsistent State
and local regulation of employee benefit plans’’) .?

In the development of ERISA, Congress did consider a
narrower preemption clause, covering only those aspects
of state law relating to the substantive areas covered by
ERISA.* But as Senator Javits, one of the chief archi-
tects of ERISA, explained:

2 The Senate Committee similarly stated its intent with clarity:

Except ... in certain . . . enumerated circumstances, state law
is preempted. Because of the interstate character of employee
benefit plans, the Committee believes it essential to provide for
a uniform source of law in the areas of vesting, funding, in-
surance and portability standards, for evaluating fiduciary
conduct and for creating a single reporting and disclosure
system in lieu of burdensome multiple reports.

S. Rep. No. 127, 93d Cong., Ist Sess. 35 (1973), reprinted in 1
Legislative History, at 621.

3 See generally Hutchinson and Ifshin, “Federal Preemption of
State Law Under the Employee Retirement Income Security Act
of 1974,” 46 U. of Chi. L. Rev. 23, 38-43 (1978). Specifically, as
passed by the Senate, H.R. 2 provided for preemption of “any and
all laws of the States and of political subdivisions thereof insofar
as they may now or hereafter relate to the subject matters regu-
lated by this Act or the Welfare and Pension Plans Disclosure Act.”
H.R. 2, 93d Cong., 2d Sess. § 699(a) (1974), reprinted in 3 Leg-

10

Such a formulation raised the possibility of endless
litigation over the validity of State action that might
impinge on Federal regulation, as well as opening
the door to multiple and potentially conflicting State
laws hastily contrived to deal with some particular
aspect of private welfare or pension benefit plans not
clearly connected to the Federal regulatory scheme.
_.. [T]he emergence of a comprehensive and per-
vasive Federal interest and the interests of uniform-
ity with respect to interstate plans required—but for
certain exceptions—the displacement of State action
in the field of private employee benefit programs.

120 Cong. Rec. 29,942 (1974) (emphasis added). Thus,
in choosing the broader preemption clause—called the
“erowning achievement of the legislation” ‘Congress
made clear its intent to supersede all state laws that fall
within ERISA’s substantive reach, and to preempt state
laws that more generally apply to employee benefit plans
as well.

Nothing in the carefully written exceptions provided
in Section 514(a) reflects a contrary intent. Section
514(b) (2) of ERISA—the insurance saving clause—pre-
serves “any law of any State which regulates insurance
...,” 29 U.S.C. § 1144(b) (2), and was clearly designed
to preserve the provisions of the McCarran-Ferguson Act,
15 U.S.C. §§ 1011-1012. See Metropolitan Life Insurance
Co. v. Massachusetts, 105 S. Ct. at 2392 n.21.° Giving
those words their common sense meaning, as this Court
has done in construing ERISA, id. at 2389-90, it is obvious
from the words themselves that Congress meant to save

islative History, 3820. This limited language was rejected by the
Conference Committee, which chose the more expansive preemption
clause. See H.R. Conf. Rep. No. 93-1280, 93d Cong., 2d Sess. 383
(1974), reprinted in 3 Legislative History, 4650.

4120 Cong. Rec. 29,197 (remarks of Representative Dent).

5 That Act provides in part that “[t]he business of insurance...
shall be subject to the laws of the several States which relate to the
regulation or taxation of such business.” 29 U.S.C. § 1012(a).

11

from preemption only state legislative and regulatory
schemes specifically applicable to insurance—not judicially
created laws, or indeed statutory laws, of general appli-
cation. See Poweil v. Chesapeake & Potomac Telephone
Co., 780 F.2d 419, 423 (4th Cir. 1985), cert. denied, 106
S. Ct. 2892 (1986) (the saving clause “exempts from
ERISA’s preemptive effect only those state insurance laws
that regulate the ‘business of insurance’” and not state
common law claims); Northeast Dept. ILGWU Health
and Welfare Fund v. Teamsters Local Union No. 229
Welfare Fund, 764 F.2d 147, 158 n.8 (8d Cir. 1985)
(court stated in dictum that “judge-made rules regarding
interpretation of insurance contracts are not the kind of
state insurance regulations that the Congress intended to
preserve” in ERISA).®

Moreover, the legislative history of ERISA shows that
a more sweeping exception to the broad preemption clause
contained in the Act was not intended. Rather, the care-
fully tailored exceptions to Section 514(a) were meant
to be construed narrowly. See, e.g., 120 Cong. Rec. 29,197
(1974) (remarks of Representative Dent) (“narrow ex-
ceptions specifically enumerated”) ; 120 Cong. Rec. 29,933
(remarks of Senator Williams) (“narrow exceptions
specified in the bill”). Had Congress intended to create
an all-encompassing exception for common law rules
which, in general terms, relate to the obligations of par-

On the other hand, many courts have concluded—giving the
saving clause its intended meaning—that state statutes specifically
applicable to the business of insurance are “saved” from preemption
by Section 514(b)(2)(A) of ERISA. See, e.g., Michigan United
Food & Commercial Workers Union v. Baerwaldt, 767 F.2d 308
(6th Cir. 1985), cert. denied, 106 S.Ct. 801 (1986) (state mandated-
benefit law); American Progressive Life and Health Ins. v.
Corcoran, 715 F.2d 784 (2d Cir. 1983) (state insurance law
establishing minimum sales commissions) ; Wadsworth v. Whaland,
562 F.2d 70 (1st Cir. 1977), cert. denied, 485 U.S. 980 (1978) (state
mandated-benefit law); Wayne Chemical, Inc. v. Columbus Agency
Service Corp., 567 F.2d 692 (7th Cir. 1977) (state insurance law
forbidding sale of unauthorized group policies) .

12

ties to any contract—insurance or otherwise—it surely
could have done so. Congress obviously knew how to ex-
empt laws of general application in ERISA, as it did
when it saved from preemption “any generally applicable
criminal law of a State.” 29 U.S.C. §1144(b) (4) (em-
phasis added).

Against this background, the collision of the decision
below with the legislative intent underlying the Act is
quite clear. In holding that state common law actions
arising from alleged mishandling of benefit claims are not
preempted by ERISA when asserted against insurers act-
ing as claims review administrators, the decision below
ignores the clear intent of Congress to “establish[] benefit
plan regulation ‘as exclusively a federal concern,’ Alessi
v. Raybestos-Manhattan, Inc., 451 U.S., at 523, . . . [and
to] minimize[] the need for interstate employers to ad-
minister their plans differently in each State in which they
have employees.” Shaw v. Delta Air Lines, Inc., 463 U.S.
at 105. Because it permits the practices of the states, as
reflected in their common law rules, to assume a prom-
inence equal, if not superior, to ERISA with respect to
the handling of benefit claims, the decision below achieves
precisely the result Congress carefully sought to avoid
when it enacted ERISA.

Il. THE FIFTH CIRCUIT’S APPLICATION OF ERISA’S
SAVING CLAUSE IS INCONSISTENT WITH THIS
COURT’S CONSTRUCTION OF AND CONGRES-
SIONAL INTENT UNDERLYING THE MCCARRAN-
FERGUSON ACT

Not only does the decision below contravene Congress’
explicit intent to give ERISA a sweeping preemptive
reach, but the decision rests upon a fundamental mis-
interpretation of the language of ERISA’s saving clause.
In holding that a state common law rule of general appli-
cation is a law “which regulates insurance” within the
meaning of Section 514(b), the court below gave the sav-
ing clause an unduly broad reading. Properly construed,

13

the saving clause can only apply to state regulatory
schemes specifically applicable to insurance, like those
protected by the McCarran-Ferguson Act, 15 U.S.C.
$§ 1011-1012, and not to judicially-created laws of gen-
eral application in all fields.

The McCarran-Ferguson Act provides in relevant part
that “[t]he business of insurance .. . shall be subject to
the laws of the several States which relate to the regu-
lation or taxation of such business.” 15 U.S.C. § 1012(a)
(emphasis added). “The blanket grant of authority to
the states in the insurance area is, however, no mor all-
encompassing than the blanket interdiction against them
in the employee benefit field.” Manno, “ERISA Preemp-
tion and the McCarran-Ferguson Act: The Need for Con-
gressional Action,” 52 Temp. L. Q. 51, 54 (1979). That
interdiction, found in Section 514 of ERISA, mandates
preemption of all state laws which directly or indirectly
“relate to” employee benefit plans. But “to preserve the
McCarran-Ferguson Act’s reservation of the business of
insurance to the States,” Metropolitan Life Insurance Co.
v. Massachusetts, 105 S. Ct. at 2392 n.21, ERISA saves
from preemption “any law of any State which regulates
insurance.” 29 U.S.C. §1144(b)(2)(A) (emphasis
added) .”

The conclusion that ERISA’s saving clause is properly
limited to state statutory schemes regulating insurance is
supported, if not compelled, by the construction given to
the strikingly similar words used in the McCarran-Fer-

™ Congress’ extraction of words from the McCarran-Ferguson
Act for use in ERISA was clearly not accidental. In addition to
the language quoted above, the “deemer clause” set forth in Section
514(b) of ERISA 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 . . . for purposes
of any law of any State purporting to regulate insurance com-
panies [or] insurance contracts... .” 29 U.S.C. § 1144(b) (2) (B)
(emphasis added).

14

guson Act to establish state primacy over insurance regu-
lation. See Metropolitan Life Insurance Co. v. Massachu-
setts, 105 S. Ct. at 2391. While a unanimous approach
to the meaning or scope of the saving clause has not
emerged in the decade of ERISA’s existence, a rather
uniform interpretation has been provided by courts to
analogous language in the McCarran-Ferguson Act. Deal-
ing with the meaning of “regulating the business of in-
surance,” this Court in SEC v. National Securities, Inc.,
393 U.S. 453 (1969), provided support for the argument
that “regulation” of insurance encompasses legislative and
administrative actions directed to the insurance business,
and not actions brought under generally applicable state
common law. In that case, the Court stated:

Insurance companies may do many things which are
subject to paramount federal regulation; only when
they are engaged in the ‘business of insurance’ does
the [McCarran-Ferguson Act] apply. Certainly the
fixing of rates is part of this business. . . . The sell-
ing and advertising of policies, FTC v. National Cas-
ualty Co., 357 U.S. 560 (1958), and the licensing of
companies and their agents, cf. Robertson v. Cali-
fornia, 328 U.S. 440 (1956), are also within the
scope of the statute. Congress was concerned with
the type of state regulation that centers around the
contract of insurance. ... The relationship between
insurer and insured, the type of policy which could be
issued, its reliability, interpretation, and enforcement
—these were the core of the ‘business of insurance.’
... But whatever the exact scope of the statutory
term, it is clear where the focus was—it was on the
relationship between the insurance company and the
policyholder. Statutes aimed at protecting or regu-
lating this relationship, directly or indirectly, are
laws regulating the ‘business of insurance.’
Id. at 459-60 (emphasis added). See also FTC v. Na-
tional Casualty Co., 357 U.S. 560, 564-65 (1958) (per
curiam) (in concluding that states had “regulated” in-
surance by enacting prohibitory legislation authorizing

15

administrative enforcement, the Court declined to decide
whether there was any distinction in the McCarran-Fer-
guson Act between “legislation” and “regulation’”’).

That the “business of insurance” was not meant to in-
clude generally applicable state common law rules which
only incidentally relate to insurance is further supported
by this Court’s more recent decisions. See Union Labor
Life Ins. Co. v. Pireno, 458 U.S. 119 (1982) ; Group Life
& Health Ins. Co. v. Royal Drug Co., 440 U.S. 205, reh’g
denied, 441 U.S. 917 (1979).* In Pireno and Royal Drug,
this Court articulated three criteria for determining
whether a particular activity constitutes the “business of
insurance” within the meaning of the McCarran-Fergu-
son Act: “first, whether the practice has the effect of |
transferring or spreading a policyholder’s risk; second,
whether the practice is an integral part of the policy
relationship between the insurer and the insured; and
third, whether the practice is limited to entities within
the insurance industry.” Union Labor Life Ins. Co. v.
Pireno, 458 U.S. at 129. An even cursory examination
of these criteria reveals that state common law rules re-
lating generally to damages for failure to meet contract
obligations cannot be deemed the regulation of insurance.
They certainly do not purport to affect spreading or trans-
fering the policyholder’s risk, which is the “one ‘indis-
pensable characteristic of insurance’.” Union Labor Life
Ins. Co. v. Pireno, 458 U.S. at 127 (quoting Group Life
& Health Ins. Co. v. Royal Drug Co., 440 U.S. at 211-12).
Nor are they specifically limited to entities in the insur-

8 The distinction between laws of general application and laws
regulating insurance has also been drawn by some lower federal
courts in interpreting the McCarran-Ferguson Act. See, e.g., Hart
v. Orion Ins. Co., 458 F.2d 1358, 1360 (10th Cir. 1971) (arbitra-
tion statutes are “laws of general application pertaining to the
method of handling contract disputes,” and thus do not regulate
the business of insurance within the McCarran-Ferguson Act) ;
Hamilton Life Ins. Co. v. Republic National Life Ins. Co., 408 F.2d
606, 611 (2d Cir. 1969) (same).

16

ance industry or an “integral” part of the insurer-insured
relationship. Rather, they are generally applicable to
parties to any type of contractual relationship—insur-
ance or otherwise—and, accordingly, are not laws “which
regulate[] insurance,” as the court below found. See
Powell v. Chesapeake & Potomac Telephone Co., 780 F.2d
419 (4th Cir. 1985), cert. denied, 106 S. Ct. 2892
(1986); Benvenuto v. Connecticut General Life Insur-
ance Co., No. 84-3601 (D.N.J. Feb. 27, 1986) .°

Nothing in the legislative history of the McCarran-
Ferguson Act supports a contrary result. Indeed, in dis-
cussing the proviso to Section 2(b) dealing with federal
antitrust laws, Senator Ferguson shed light on the mean-
ing of “regulation” in that Act:

Mr. O’Mahoney. I believe the Senator from Michi-
gan went a little further than was his intention when
he said that if the States have legislated certain
things will take place. The bill says if the States

have regulated.
Mr. Ferguson. I had reference to legislation deal-
ing with regulation and taxes.

91 Cong. Rec. 1443 (1945) (emphasis added). The great
care exercised by Congress in discussing the meaning of
this critical term is evident from other passages of the

® Congress surely understood the distinction between insurance
regulation and common law rules of general application when it
enacted ERISA. Indeed, in the definitional section found in Section
514, Congress expressly defined “State law”—a phrase it did not
use in the insurance saving clause—as “all laws, decisions, rules,
regulations, or other State action having the effect of law, of any
State.” 29 U.S.C. § 1144(c) (1). Congress’ use of the phrase “State
law” in Section 514(a), but not in Section 514(b)(2)(A), was
almost surely intentional. It is entirely consistent with the terms
and policies of the Act for Congress to preempt all “State law”
relating to benefit plans, including decisional and administrative
laws, while saving from preemption only state regulatory laws
applicable to the business of insurance within the meaning of the
McCarran-Ferguson Act.

17

legislative history, as for example, where Senator McCar-
ran, the other chief sponsor of the bill, stated:

. . . the States may, if they see fit to do so, enact
legislation for the purpose of regulation. If they do
enact such legislation, to the extent that they regu-
late they will have taken the business of insurance
in the respective States out from under the Sherman
Anti-trust Act, the Clayton Act and the other acts.

91 Cong. Rec. 1443 (1945) (emphasis added).”* Thus, in
its deliberations on the McCarran-Ferguson Act, Congress
made clear its intent that regulation meant the exercise
of control by regulatory agencies over insurance, pursu-
ant to state legislation.

Reading the language of the McCarran-Ferguson Act
in pari materia with ERISA’s saving clause thus reveals
the infirmities inherent in the analysis of the court be-
low. The decision below—that a state common law rule
of general applicability is a law “which regulates insur-
ance” within the meaning of ERISA when applied to an
insurer’s handling of benefit claims—purports to draw its
strength from an analogous statute which, in no uncertain
terms, supports a contrary result. To permit that decision
to stand would be to upset a delicate balance struck by
Congress when it enacted ERISA—a balance which estab-
lished federal primacy in the field of employee benefits
while it narrowly saved traditional state authority, as
preserved in the McCarran-Ferguson Act, to regulate the
business of insurance.

1© Other similar examples of Congress’ intent concerning the
meaning of “regulation” abound. See, e.g., 91 Cong. Rec. 1444
(1945) (remarks of Senators McCarran and White) ; 91 Cong. Rec.
481-82 (remarks of Senator Radcliffe); 91 Cong. Rec. 1087 (re-
marks of Representative Hancock); 90 Cong. Rec. 6525 (1944)
(remarks of Representative Hancock). See also Weller, “To Pre-
empt or to Accommodate: The Question of State and Federal Anti-
trust Laws under the McCarran-Ferguson Act,” 9 U. Tol. L. Rev.
421 (1978).

18

Ill. THE DECISION BELOW MISAPPLIES THIS
COURT’S DECISION IN METROPOLITAN LIFE
INSURANCE CO. v. MASSACHUSETTS AND
DRAWS AN UNWORKABLE DISTINCTION BE-
TWEEN INSURED AND UNINSURED PLANS

In holding that state common law claims for breach of
contract, breach of fiduciary duty, and fraud are not pre-
empted by ERISA, the court below relied upon this
Court’s decision in Metropolitan Life Insurance Co. v.
Massachusetts, 105 S. Ct. 2380 (1985). Nothing in Met-
ropolitan Life, however, compels a finding that state com-
mon law rules of general application, as opposed to laws
which specifically “regulate” insurance, are saved from
preemption by ERISA’s insurance saving clause.

A. Metropolitan Life Does Not Require Exemption of
State Common Law Actions from ERISA’s Preemp-
tive Reach

The narrow issue presented to this Court in Metropoli-
tan Life was whether Massachusetts’ mandated-benefit
law, which required insurers to provide for certain men-
tal health care benefits in insurance policies issued to
Massachusetts residents, was a law which “regulates in-
surance” within the meaning of ERISA’s saving clause.
Reaffirming its conclusion that ERISA’s preemptive scope
is broad, the Court stated that all state laws which “re-
late to” employee benefit plans, like the mandated-benefit
law at issue, are preempted unless saved by Section 514(b).
In addressing the application of ERISA’s saving clause,
the Court relied upon the “common-sense view” of the
Act’s language and upon analogous language in the
McCarran-Ferguson Act. Finding that the McCarran-
Ferguson Act “strongly supports the conclusion that
regulation regarding the substantive terms of insurance
contracts falls squarely within the saving clause as laws
‘which regulate insurance,’” id. at 2391, the Court con-
cluded that the mandated-benefit law at issue was saved
from preemption.

19

The court below misconstrued this Court’s decision in
Metropolitan Life when it held that state common law
claims for breach of contract, breach of fiduciary duty
and fraud were saved from preemption by Section 514 (b)
of ERISA. This Court’s decision in Metropolitan Life
involved the application of ERISA’s saving clause to a
state mandated-benefit statute applying only to insurance
and insurers, which clearly constituted a regulation of
insurance. Unlike state statutes regulating the content
of insurance contracts, however, the present case involves
state common law rules generally applicable to the rela-
tions of parties to any sort of contract. Such common law
rules do not regulate the substantive content of insurance
contracts; nor are they peculiarly applicable to the in-
surer-insured relationship. Thus, contrary to the conclu-
sion of the court below, Metropolitan Life does not sweep
so broadly as to prevent the application of ERISA’s
expansive preemption clause to the state common law
actions at issue here.

B. Metropolitan Life Does Not Support the Distinction
Between Insured and Uninsured Plans Drawn by
the Court Below

Nor does Metropolitan Life require, as the court below
suggests, an unnatural enlargement of the distinction be-
tween insured and self-insured plans created by Section
514(b) (2) (B) of ERISA. The so-called “deemer clause”,
which qualifies the insurance saving clause, provides that
no employee benefit plan shall be “deemed” to be an insur-
ance company or engaged in the business of insurance for
purposes of any law of any state which regulates insur-
ance. 29 U.S.C. § 1144(b) (2) (B). But the distinction
created by the deemer clause is relevant only when states
regulate the business of insurance. It provides no basis
for preventing the preemption of state common law ryles

of general applicability as applied to either insured or
uninsured plans.

This Court in Metropolitan Life “gave life to a distinc-
tion created by Congress in the ‘deemer clause’ ’’, 105 S.

20

Ct. at 2393, when it held that insured plans, but not un-
insured plans, are governed by state statutes regulating
the content of insurance contracts. That decision did not,
however, state or suggest that a similar distinction ap-
plies when state common law claims, like those at issue
here, are involved." Nor would so facile a distinction—a
distinction rendering insured plans, but not their unin-
sured counterparts, subject to the varying standards and
remedies available under state common laws—be sup-
portable under ERISA. Indeed, ERISA’s fiduciary stand-
ards apply to all “employee welfare benefit plans’—
regardless of whether they are funded “through the pur-
chase of insurance or otherwise.” 29 U.S.C. § 1002(1).
Surely, Congress did not intend to apply uniform federal
standards to fiduciaries of self-insured plans, and, at the
same time, require insurer-administrators to assess the
legality of their conduct under entirely different—and
widely varying—state laws.

Moreover, the expanded distinction drawn by the court
below is entirely unworkable in practice, as the divergent
results achieved by the lower federal courts addressing
ERISA’s preemptive reach clearly show. Not surpris-
ingly, many courts have held that ERISA preempts state
common law actions arising from mishandling of benefit

11 By declining to read a broader distinction into ERISA, this
Court would not render the “deemer clause” meaningless. Indeed,
adhering to this Court’s decision in Metropolitan Life, several
courts have held that state insurance statutes, by operation of the
deemer clause, do not apply to self-funded employee benefit plans.
See, e.g., Children’s Hospital v. Whitcomb, 778 F.2d 239 (5th Cir.
1985) (Louisiana’s mandated-benefits statute held inapplicable to
self-insured plans); Dillard v. Teamsters Council 83 Health &
Welfare Fund, 6 Emp. Ben. Cas. (BNA) 2558 (W.D.Va. 1985)
(state anti-subrogation statute preempted when applied to self-
funded plan); Cuttle v. Federal Employees Metal Trades Council,
623 F. Supp. 1154 (D. Me. 1185) (state insurance conversion stat-
utes preempted by ERISA to the extent that they apply to self-
insured plans) ; Kilmer v. Central Counties Bank, 623 F. Supp. 994
(W.D. Pa. 1985) (state no-fault insurance statute held inapplicable
to self-funded plan).

21

claims, including claims for breach of fiduciary duty,
breach of contract and fraud. See, e.g., Light v. Blue
Cross and Blue Shield of Alabama, 790 F.2d 1247 (5th
Cir. 1986), aff'g, 616 F. Supp. 558 (S.D. Miss. 1985) ;
Blakeman v. Mead Containers, 779 F.2d 1146 (6th Cir.
1985) ; Ellenburg v. Brockway, Inc., 763 F.2d 1091 (9th
Cir. 1985); Hutchinson v. Benton Casing Service, Inc.,
619 F. Supp. 831 (S.D. Miss. 1985); Lucash v. Strick
Corp., 602 F. Supp. 480 (E.D. Pa. 1984), affd mem.,
760 F.2d 259 (3d Cir. 1985). Like the court below, how-
ever, a number of courts—with some notable exceptions ™
—have concluded that the same common law actions, when
applied to insurer-administrators are not preempted. See,
e.g., Trogner v. New York Life Insurance Co., 633
F.Supp. 503 (D. Md. 1986) ; Kanne v. Connecticut General
Life Insurance Co., 607 F. Supp. 899 (C.D. Cal. 1985) ;
Lessard v. Metropolitan Life Insurance Co., 618 F. Supp.
1268 (D. Me. 1985); McLaughlin v. Connecticut General
Life Insurance Co., 565 F. Supp. 484 (N.D. Cal. 1983) ;

12In Powell v. Chesapeake & Potomac Telephone Co., 780 F.2d
419 (4th Cir. 1985), cert. denied, 106 S. Ct. 2892 (1986), an
employee sued her employer and the insurer-administrator of a self-
funded employee welfare benefit plan for mishandling her claim
for disability benefits. The plaintiff alleged, inter alia, breach of
contract, breach of the implied covenant of good faith and fair
dealing, and intentional infliction of emotional! distress, and sought
$5 million in extracontractual and punitive damages. The Court
of Appeais for the Fourth Circuit held that ERISA preempted
plaintiff’s state common law claims relating to the plan, and re-
jected her argument that such claims, when asserted against an
insurer, are preserved by ERISA’s insurance saving clause. Find-
ing that such claims do not regulate the business of insurance
within the McCarran-Ferguson Act or ERISA, the court held that
plaintiff’s common law claims were not saved from preemption.
See also Moore v. Provident Life & Accident Insurance Co., 786
F.2d 922 (9th Cir. 1986) (saving clause does not preserve common
law actions against insurer that provides excess insurance for
self-funded plan and reviews administrator’s claims decisions) ;
Benvenuto v. Connecticut General Life Insurance Co., No. 84-3601
(D.N.J. Feb. 27, 1986) (saving clause does not preserve state
common law claims against insurer-administrator of insured plan).

22

Presti v. Connecticut General Life Insurance Co., 605 F.
Supp. 163 (N.D. Cal. 1985); Eversole v. Metropolitan
Life Insurance Co., 500 F. Supp. 1162 (C.D. Cal. 1980) .*

The resultant fragmentation of ERISA’s enforcement
and remedial scheme is thus quite real. Under the deci-
sion below, state common law rules which relate to em-
ployee benefit plans in general terms will survive pre-
emption whenever an insurance company insures and as-
sumes claims handling responsibilities for such plans.
Plans insured and administered by insurers, but not self-
funded or self-administered plans; will face the haphazard
application of substantive standards embodied in varying
state laws, in addition to or in lieu of those established in
ERISA. Moreover, the former, and not the latter, will be
exposed to the vagaries of state damages laws as well—
including common law or statutory rules permitting extra-
contractual or punitive damages. By allowing plan bene-
ficiaries to sue under state common law or statutory rules
for redress of conduct expressly regulated by ERISA,
therefore, the decision below endorses pleading tactics,
like those employed by the respondent in this case, clearly
designed to escape ERISA’s comprehensive remedial
scheme and secure awards of extra-contractual and puni-
tive damages—awards effectively foreclosed by this Court
in Massachusetts Mutual Life Ins. Co. v. Russell, 105
S. Ct. 3085 (1985) .™

18 The decision in Trogner v. New York Life Insurance Co., supra,
exemplifies the anomalous results spawned by this unworkable dis-
tinction. In that case, an employee sued her former employer and
the insurer of its disability plan, alleging wrongful denial of bene-
fits. Both the employer and the insurer asserted that the employee’s
common law claims were preempted by ERISA. Although the court
held that the common law claims asserted against the employer
“are precisely in the field which ERISA was intended to occupy”,
663 F. Supp. at 507, and thus were preempted, the common
law claims for breach of contract against the insurer were held
not to be preempted because they regulated the business of in-
surance within the meaning of the saving clause.

14In Russell, this Court held that a plan fiduciary cannot be held
personally liable under Section 409(a) of ERISA to a plan bene-

me ete eet

23

This disruption of ERISA’s carefully designed remedial
scheme is far-reaching. If the decision below stands, the
great majority of actions brought by plan beneficiaries
for mishandling of benefit claims will be governed by
state rather than federal law."* The uncertainty that such
a fragmented system generates falls most heavily on the
insurance industry, where the assessment of risks is
fundamental to the decision to insure or to administer
ERISA plans, and on employers who sponsor such plans.
Faced with open-ended exposure to varying state law
standards and remedies, these employers may be reluctant
to adopt insured plans. Thus, the decision below puts
pressure on employers to adopt self-funded and admin-
istered plans. This incentive to self-fund portends sig-
nificant—and unintended—consequences in the employee
benefit field. Although employees may be better protected
by insured plans, the decision below encourages employ-
ers to self-fund, thereby subjecting the stability of these
plans to the continued solvency of the employer. And em-
ployers who lack the resources to self-insure may choose

to provide no plans at all. As aptly stated by one com-
mentator :

ficiary for extra-contractual and punitive damages arising from an
improper handling of a benefit claim. Although this Court did not
address in Russell the availability of punitive damages under Sec-
tion 502(a) (3) of the Act, some lower federal courts have recently
held that punitive damages cannot be assessed under that provision.
See, e.g., Sommers Drug Stores Co. Employee Profit Sharing Trust
v. Corrigan Enterprises, Inc., No. 85-2377 (5th Cir. July 14, 1986) ;
Powell v. Chesapeake & Potomac Telephone Co., 780 F.2d at 424.

1% According to a survey prepared for the Department of Labor
in 1980, approximately 91 percent of plans covering fewer than
100 participants, and 83 percent of plans covering more than 100
employees, are insured and administered by insurance companies.
See “Employee Welfare Benefit Plans and Plan Sponsors in the
Private Nonfarm Sector in the United States, 1978-79,” Health
and Population Study Center, Battelle Human Affairs Research
Centers, Vol. IV (1980), at 43-45.

24

[I]ntroduction into the preemption controversy of a
distinction [between insured and self-funded plans]

. would clearly discriminate against insurance
companies in favor of self-insured plans, and thus
strike at the very institutions which are stable and
solvent providers of those very benefits that ERISA
sought to protect. ... [I]f followed, [this distinc-
tion] would be an incentive for employers to self-
insure in order to avoid the myriad mandates of
state insurance laws, even though by so doing they
may be subjecting themselves to whatever standards
the federal courts may dictate. This new aspect of
the preemption controversy, the making of distinc-
tions based not on the nature of the benefits, but on
the provider thereof, exemplifies the far-reaching and
disruptive results that are possible... .

Manno, “ERISA Preemption and the McCarran-Ferguson
Act: The Need for Congressiona! Action,” 52 Temp. L.Q.
at 75 (1975).

As Congress surely recognized, the victims of this un-
warranted distinction would be not only employers and
insurers who undertake ERISA fiduciary responsibilities,
but the very individuals ERISA was enacted to protect
as well. There is no sound basis for construing ERISA to
reach such a result.

wtb cenconen ss =

25

CONCLUSION
The decision below should be reversed.
Respectfully submitted,

Of Counsel: ERWIN N. GRISWOLD
JACK H. BLAINE Counsel of Record
Vice President, PATRICIA A. DUNN
State Relations, and JONES, Day, REAVIs & POGUE
General Counsel Metropolitan Square
PHILLIP E. STANO 655 Fifteenth Street, N.W.
Senior Counsel Washington, D.C. 20005-5701
AMERICAN COUNCIL OF (202) 879-3939
LIFE INSURANCE Counsel for the Amici
1850 K Street, N.W.
Washington, D.C. 20006-2284
(202) 862-4000

JOE W. PEEL
Vice President and
General Counsel
JOHN P. DINEEN
Associate General Counsel
HEALTH INSURANCE
ASSOCIATION OF AMERICA
19025 Connecticut Ave., N.W.
Suite 1200
Washington, D.C. 20036
(202) 223-7780

August, 1986

27

APPENDIX
Statutory Provisions

Section 514 of the Employee Retirement Income Secu-
rity Act of 1974 (“ERISA”) provides, in pertinent part,
that:

(a) Except as provided in subsection (b) of this sec-
tion, the provisions of this subchapter and subchapter
III of this chapter shall supersede any and all State
laws insofar as they may now or hereafter relate
to any employee benefit plan described in section
1003 (a) of this title and not exempt un section
1003 (b) of this title. ~

[(b)](2)(A) Except as provided in subparagraph
(B), nothing in this subchapter shall be construed
to exempt or relieve any person from any law of
any State which regulates insurance, banking, or
securities.

[(b) (2)](B) Neither an employee benefit plan de-
scribed in section 1003(a) of this title, which is not
exempt under section 1003(b) of this title . . . nor
any trust established under such a plan, shall be
deemed to be an insurance company or other in-
surer ... or to be engaged in the business of in-
surance ... for purposes of any law of any State
purporting to regulate insurance companies, [or]
insurance contracts. .. .

[(c)](1) The term “State law” includes all laws,
decisions, rules, regulations, or other State action
having the effect of law, of any State. ...

[(c)](2) The term “State” includes a State, any
political subdivisions thereof, or any agency or in-
strumentality of either, which purports to regulate,
directly or indirectly, the terms and conditions of
employee benefit plans covered by this subchapter.

29 U.S.C. § 1144.

28

The McCarran-Ferguson Act provides, in relevant part,
that:

[1011.] Congress declares that the continued regu-
lation and taxation by the several States of the busi-
ness of insurance is in the public interest, and that
silence on the part of the Congress shall not be con-
strued to impose any barrier to the regulation or
taxation of such business by the several States.

[1012.] (a) The business of insurance, and every
person engaged therein, shall be subject to the laws
of the severai States which relate to the regulation
or taxation of such business.

(b) No Act of Congress shall be construed to invali-
date, impair, or supersede any law enacted by any
State for the purpose of regulating the business of
insurance, or which imposes a fee or tax upon such
business, unless such Act specifically relates to the
business of insurance... .

15 U.S.C. §§ 1011-1012.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385012_1173%3A14. Public record. Not legal advice.