Amicus Curiae Brief — UNUM Life Ins. Co. of America v. Ward

MOTION FILED in)

JUL 1 0 1998 No. 97-1868

In THE

Supreme Court of the United States

OCTOBER TERM, 1997

UNUM LIFE INSURANCE COMPANY OF AMERICA,

Petitioner,

Vv.

JOHN E. WARD,

Respondent.

On Petition for Writ of Certiorari to the

United States Court of Appeals

for the Ninth Circuit

MOTION FOR LEAVE TO FILE BRIEF AMICUS CURIAE

AND BRIEF AMICUS CURIAE OF

STANDARD INSURANCE COMPANY

IN SUPPORT OF THE PETITION

MICHAEL A. CONLEY

Counsel of Record

PILLSBURY MADISON & SUTRO

LLP

1100 New York Avenue, N.W.

Washington, D.C. 20005

(202) 861-3000

Attorney for Amicus Curiae

July 10, 1998 Standard Insurance Company

WILSON - Eres PRINTING Co.. Inc. - 789-0096 - WASHINGTON. D.C. 20001

IN THE

Supreme Court of the United States

OcToBER TERM, 1997

No. 97-1868

UNUM Lire INSURANCE COMPANY OF AMERICA,

Petitioner,

Vv.

JoHN E. WARD,

Respondent.

On Petition for Writ of Certiorari to the

United States Court of Appeals

for the Ninth Circuit

MOTION OF STANDARD INSURANCE COMPANY

FOR LEAVE TO FILE BRIEF AMICUS CURIAE

Pursuant to Rule 37.2 of the Rules of this Court,

Standard Insurance Company (“Standard”) hereby moves

for leave to file the attached brief amicus curiae in sup-

port of the petition filed by Unum Life Insurance Com-

pany of America (“Unum”). Petitioner has consented to

the filing of this brief. Respondent has not consented to

the filing of this brief.

Standard has a direct and substantial interest in the

issues presented in the petition. Standard is one of the

nation’s largest providers of group long-term disability

and retirement insurance, with over 60,000 group clients

representing more than 4 million individual participants

in many different States. The Ninth Circuit’s decision

means—at a bare minimum—that claim filing deadlines in

long-term disability plans insured by Standard are valid

in some States but not in others, seriously undermining

the uniformity and predictability in claims handling that

ERISA was enacted to ensure.

Moreover, as described in greater detail in the attached

brief, the impact of the Ninth Circuit’s decision in this case

is far broader than the specific “notice-prejudice” and

“Elfstrom” rules at issue here. Ward holds, first, that a

state law that indisputably affects the administration of an

ERISA plan is saved from preemption as a law that “reg-

ulates insurance” even though it has nothing to do with

“spreading the policyholder’s risk”—which this Court has

identified as an “indispensable” characteristic of insurance.

Ward also holds that the state-law Elfstrom rule is not

preempted because it does not “relate to” the ERISA plan

at issue in this case—even though that rule abrogates ex-

press provisions of the plan and creates an agency rela-

tionship between the ERISA insurer and the plan admin-

istrator. These holdings substantially narrow the breadth

of ERISA’s preemption clause, subject ERISA administra-

tors like Standard to widely varying sets of regulations

from State to State, and necessarily increase the cost of

supplying benefits.

For the foregoing reasons, Standard respectfully requests

that this Court grant it leave to file the attached brief

amicus curiae.

Respectfully submitted,

MICHAEL A. CONLEY

Counsel of Record

PILLSBURY MADISON & SUTRO

LLP

1100 New York Avenue, N.W.

Washington, D.C. 20005

(202) 861-3000

Attorney for Amicus Curiae

July 10, 1998 Standard Insurance Company

TABLE OF CONTENTS

Page

INTEREST OF THE AMICUS .00000o....ccccc cece eee 1

REASONS FOR GRANTING THE PETITION ...... 2

I. THE CIRCUIT SPLIT REGARDING THE

SCOPE AND ERISA’S “INSURANCE SAV-

INGS CLAUSE” IS CLEAR AND WILL NOT

Il. THE CONFUSION REGARDING THE SCOPE

OF ERISA’S INSURANCE SAVINGS CLAUSE

STEMS FROM AMBIGUOUS LANGUAGE IN

PIRENO ... oe Se : 5

Ill. THE COURT ALSO SHOULD RESOLVE THE

LINGERING CONFUSION REGARDING THE

TYPES OF STATE LAWS THAT “RELATE

TO” AN ERISA PLAN AND ARE THERE-

FORE PREEMPTED .............2.2.020.-.-20--0000-0--- 7

IV. THE ISSUES PRESENTED ARE OF WIDE-

SPREAD SIGNIFICANCE . oes i 9

RS TES ia la os 10

ii

TABLE OF AUTHORITIES

Cases Page

Anschultz v. Connecticut Gen'l Life Ins. Co., 850

2 f BB y % FRA Pecmseresneec. 2, 3,5

California Div. of Labor Standards Enforcement

v. Dillingham Constr., ——— U.S. ——, 117 S.Ct.

832 (1997) 8

CIGNA Healthplan v. Louisiana, 82 F.3d 642 (5th

Ca Bee ccntacaticsstnencrirscnaneeenntinnanaiamaiaiitaiasiiinainiate 2, 4,5

Cisneros v. Unum Life Ins. Co., 184 F.3d 989 (9th

SE Pe ee ree ee 2, 4,6

Davies v. Centennial Life Ins. Co., 128 F.3d 934

Gas Ge GIGS incite atintn dd ee 2,5

Elfstrom v. New York Life Ins. Co., 67 Cal.2d 608

RRR hr a ee Ra 7

FMC Corp. v. Holliday, 498 U.S. 52 (1990) 9

Fort Halifax Packing Co. v. Coyne, 482 U.S. 1

| RE SS a EY ee OS 10

Group Life & Health Ins. Co. v. Royal Drug Co.,

64D GS, BIO GAR cenercttnittinchtintalecettitaltess 6,7

Jass v. Prudential Health Care Plan, Inc., 88 F.3d

Se Ce Ee cerirettiitetnmimneinbeicuiditin 3,9

Metropolitan Life Ins. Co. v. Massachusetts, 471

FR RRR ERE EEE 4

Pilot Life Ins. Co. v. Dedeauz, 481 U.S. 41 (1987). 4,7

Tingle v. Pacific Mut. Ins. Co., 996 F.2d 105 (5th

> EEL See ee Se ee a 4,5

ee Co. v. Pireno, 458 U.S. 119

In THE

Supreme Court of the United States

OcToBEerR TERM, 1997

No. 97-1868

UNUM Lire INSURANCE COMPANY OF AMERICA,

Petitioner,

v.

JoHN E. Warp,

Respendent.

On Petition for Writ of Certiorari to the

United States Court of Appeals

for the Ninth Circuit

BRIEF AMICUS CURIAE

OF STANDARD INSURANCE COMPANY

IN SUPPORT OF THE PETITION

INTEREST 0} THE AMICUS

Standard’s interest in the issues presented by the peti-

tion is substantial and direct for the reasons set forth in

the foregoing motion for leave to file this brief.* In sum,

* Pursuant to Rule 37.6, amicus Standard Insurance Company

states that no counsel for a party has written this brief in whole

or in part and that no person or entity, other than amicus, or its

counsel, has made a monetary contribution to the preparation or

submission of this brief. Petitioner has consented to the filing of

this brief and their letter of consent has been filed with the Clerk

of the Court. Respondent has not consented.

2

Standard is one of the largest providers of insurance to

plans covered by ERISA and thus is necessarily affected

by the lack of uniformity in ERISA preemption law and

the conflicting obligations that this creates. Because the

Ninth Circuit's decision in this case conflicts with the

Fifth and Eleventh Circuits’ decisions in CIGNA Health-

plan v. Louisiana, 82 F.3d 642 (Sth Cir. 1996), and

Anschultz v. Connecticut General Life Ins. Co., 850 F.2d

1467 (llth Cir. 1988), the ability of benefit plans to

establish time limits for submitting claims is different in

California than it is in Texas and Florida. Further, the

rationale underlying the Ninth Circuit’s ruling on the

bounds of ERISA preemption makes it at best uncertain

whether other benefit plan provisions are enforceable. Be-

cause this decision substantially undermines the predicta-

bility that ERISA was enacted to provide, Standard has

a compelling interest in this Court granting the petition.

REASONS FOR GRANTING THE PETITION

The petition offers a textbook case for this Court's inter-

vention. The Courts of Appeals are clearly divided on the

important ERISA issues presented and there is no reason

to suppose that the split will resolve itself. In this case,

the Ninth Circuit held that a state law that relates to an

employee benefit plan can be “saved” from ERISA pre-

emption on the ground that it “regulates insurance” even

though it does not satisfy all three of the McCarran-

Ferguson Act factors for assessing whether a law regulates

“the business of insurance.” Cisneros v. Unum Life Ins.

Co., 134 F.3d 939, 944-47 (9th Cir. 1998). The Sixth

Circuit agrees. See Davies v. Centennial Life Ins. Co.,

128 F.3d 934, 940-41 (6th Cir. 1997). The Fifth Circuit,

however, has held that a state law that relates to an

employee benefit plan cannot be “saved” from ERISA

preemption on the ground that it “regulates insurance”

unless that law satisfies all three of the McCarran-Ferguson

Act factors. See CIGNA Healthplan, 82 F.3d at 650. The

3

Eleventh Circuit agrees. See Anschultz, 850 F.2d at

1469.

The Ninth Circuit also held that a state-law rule im-

puting an agency relationship between the plan adminis-

trator of the ERISA plan at issue in Ward and the plan’s

insurer (the so-called “Elfstrom” rule) was not preemptea

by ERISA because that state-law rule did not “relate to”

the ERISA plan. This holding conflicts with Jass v. Pru-

dential Health Care Plan, Inc., 88 F.3d 1482, 1492-95

(7th Cir. 1996), in which the Seventh Circuit held that

a comparable state-law “ostensible agency” rule “related

to” the ERISA plan at issue in that case and was

preempted.

There is no benefit to allowing these issues to “perco-

late” any longer in the lower courts: the split in authority

is established and unlikely to resolve itself absent interven-

tion by this Court. This is particularly true because the

current split in authority on the insurance savings clause

issue has been fostered by this Court’s unelaborated state-

ment in Union Labor Life Ins. Co. v. Pireno that “[n]jone

of (the McCarran-Ferguson] criteria is necessarily deter-

minative in itself... .” 458 U.S. 119, 129 (1982).

In addition to satisfying this traditional criterion for

certworthiness, this case offers the Court a good vehicie

for resolving the ERISA issues presented in the petition:

the issues were clearly raised and adjudicated at the trial

and appellate levels, both sides of the issues will be ably

briefed, and there are no procedural impediments to reach-

ing and deciding the issues presented.

In short, this split in authority is one which the Court

needs to resolve, and it should do so in this case.

4

I. THE CIRCUIT SPLIT REGARDING THE SCOPE

OF ERISA’S “INSURANCE SAVINGS CLAUSE” IS

CLEAR AND WILL NOT RESOLVE ITSELF.

In ruling that the California notice-prejudice rule is not

preempted by ERISA, the Ward court relied directly on

the Ninth Circuit's recent decision in Cisneros v. Unum

Life Insurance Co.,* in which the panel candidly acknowl-

edged the split in authority that the petition is asking this

Court to resolve:

We recognize that the Fifth Circuit has held that

all three of the McCarran-Ferguson factors must be

satisfied for a law to “regulate insurance.” CIGNA

Healthplan of La., Inc. v. State of La., 82 F.3d 642,

650 (Sth Cir. 1996), cert. denied, ——- U.S. ——,

117 S. Ct. 387, 136 L.Ed.2d 304; Tingle [v. Pacific

Mut. Ins. Co.,| 996 F.2d [105] at 108 [(Sth Cir.

1993)]. We respectfully disagree. From our inter-

pretation of Metropolitan Life [Ins. Co. v. Massachu-

setts, 471 U.S. 722 (1985)] and Pilot Life [Ins. Co.

v. Dedeaux, 481 U.S. 41 (1987)], we conclude that

the McCarran-Ferguson factors are simply relevant

considerations or guideposts, not separate essential

elements of a three-part test that must each be satis-

fied for a law to escape preemption.

Cisneros, 134 F.3d at 946.

The Ninth Circuit accurately reads CIGNA Healthplan

and Tingle. In both cases, the Fifth Circuit stated clearly

that to fall within the “insurance savings clause” and

thereby avoid ERISA preemption, a statute must sat-

isfy all three McCarran-Ferguson criteria for regulating

insurance:

1 Petitioner Unum Life Insurance Company of America has also

filed a petition for certiorari in Cisneros. Cisneros presents the

same “insurance savings clause” issue as Ward, but does not present

the additional critical issue in Ward regarding the types of state

laws that “relate to” an ERISA plan and are therefore preempted.

Standard therefore urges the Court to grant the petition for cer-

tiorari in Ward.

of insurance regulation, it fails to satisfy at least one

prong of the three part Metropolitan Life test. Thus,

the statute does not fall within the ERISA insurance

savings clause and is, therefore, preempted by

Tingle, 996 F.2d at 109; see also CIGNA Healthplan, 82

F.3d at 650 (“[I}f a statute fails to satisfy any one ele-

ment of the thr 2-factor Metropolitan Life test, then the

Statute is not exempt from preemption by the ERISA in-

surance savings clause”).

The Sixth Circuit has recently sided with the Ninth

Circuit, citing Pireno and the decision underlying this

petition and holding that “[{t}hese [McCarran-Ferguson]

criteria must be considered in combination, and, standing

alone, no single one is dispositive.” Davies, 128 F.3d at

940. The Eleventh Circuit agrees with the Fifth Circuit,

holding that a statute that “fails to satisfy all of the cri-

teria of the McCarran-Ferguson Act . . . falls outside of

the ERISA saving clause . . . [and] is preempted.” An-

schultz, 850 F.2d at 1469.

In light of this established split in authority, there is no

good reason for the Court to await further consideration

of this issue by the lower courts.

Il. THE CONFUSION REGARDING THE SCOPE OF

ERISA’S INSURANCE SAVINGS CLAUSE STEMS

FROM AMBIGUOUS LANGUAGE IN PIRENO.

In Cisneros, the Ninth Circuit properly recognized that

the California notice-prejudice rule at issue in this case

does not have “the effect of transferring or spreading a

6

policyholder’s risk,” the first of the McCarran-Ferguson

criteria for assessing whether a statute “regulates insur-

ance”:

In this regard, the notice-prejudice rule is different

from the Massachusetts mandatory benefits law at

issue in Metropolitan Life. That law altered the sub-

stantive scope of coverage that Massachusetts insur-

ance companies contractually were obligated to pro-

vide. Thus, unlike the statute in Metropolitan Life,

the notice-prejudice rule does not spread the policy-

holder’s risk within the meaning of the first McCarran-

Ferguson factor.

Cisneros, 134 F.2d at 946.

Nevertheless, the Cisneros court ruled that the notice-

prejudice rule fell within ERISA’s “insurance savings

clause” by reading this Court’s ERISA decisions to hold

that “the McCarran-Ferguson factors are simply relevant

considerations or guideposts, not separate essential ele-

ments of a three-part test that must each be satisfied for

a law to escape preemption.” 134 F.2d at 946. In sup-

port of this determination—the heart of the Circuit split

the petition is asking this Court to resolve—the Cisneros

court stated:

Indeed, in cases interpreting the McCarran-Ferguson

Act—from which the factors were born—the Su-

preme Court has explicitly noted that “none of [the

factors McCarran-Ferguson factors] is necessarily

determinative.”

134 F.3d at 946 (citing Pireno, 458 U.S. at 129).

The Ninth Circuit broadly read this somewhat ambigu-

ous statement in Pireno to make each of the McCarran-

Ferguson criteria—including the risk spreading feature

that the Cisneros court acknowledged was absent in the

notice-prejudice rule at issue—dispensable in the insurance

savings clause analysis. This reasoning runs contrary to

this Court’s unambiguous statements in Group Life &

Health Ins. Co. v. Royal Drug Co., 440 U.S. 205 (1979),

7

that: (1) “The primary elements of an insurance contract

are the spreading and underwriting of a policyholder’s

risk” (Jd. at 211) (emphasis supplied); (2) “The signifi-

cance of underwriting or spreading of risk as an indis-

pensable characteristic of insurance was recognized by this

Court in SEC v. Variable Annuity Life Ins. Co., 359 U.S.

65” (Jd. at 212) (emphasis supplied); and (3) “The

petitioners do not really dispute that the underwriting or

spreading of risk is a critical determinant in identifying

insurance.” /d. at 213.

Although the Ninth Circuit's rulings in Ward and

Cisneros are inconsistent with this Court’s holding in

Royal Drug Co., the critical point is that the root of the

confusion that produced the decisions in Ward and

Cisneros (and the Circuit conflict on the important ERISA

preemption issue presented in the petition) is ambiguous

language in Pireno which only this Court can clarify.

Ill. THE COURT ALSO SHOULD RESOLVE THE LIN-

GERING CONFUSION REGARDING THE TYPES

OF STATE LAWS THAT “RELATE TO” AN ERISA

PLAN AND ARE THEREFORE PREEMPTED.

The Ninth Circuit's decision in Ward also provides this

Court with an opportunity to address another critical

ERISA preemption issue that has divided the Circuits—

the types of state laws that “relate to” an ERISA plan and

therefore are preempted by ERISA. In Ward, the Ninth

Circuit held that a state-law rule (the Elfstrom rule)? cre-

ating an agency relationship between the ERISA plan in-

surer (Unum) and the plan administrator (respondent’s

employer Management Analysis Company (“MAC”) did

not “relate to” the plan because the rule had only a “tenu-

ous” connection to the plan:

_ While § 514(a)’s language is “deliberately expan-

sive,” Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41,

46 (1987), ERISA does not preempt “if the state

2 The rule derives from Elfstrom v. New York Life Ins. Co., 67

Cal.2d 503 (1967).

8 =

law has only a ‘tenuous, remote, or peripheral’ coz-

nection with covered plans, . . . as is the case with

many laws of general applicability .. . .” District of

Columbia v. Greater Washington Bd. of Trade. 506

U.S. 125, 130 n.1 (1992) (quoting Shaw v. Delta

Air Lines, Inc., 463 U.S. 85, 100 n.21 (1983))....

The Supreme Court recently acknowledged the ex-

istence of “myriad state laws in areas traditionally

subject to local regulation, which Congress could not

possibly have intended to eliminate.” California Div.

of Labor Satndards Enforcement v. Dillingham

Constr., 117 S.Ct. 832, 842 (1997).

* * * *

ERISA and Elfstrom are not anathema. Elfstrom

does not dictate the benefits to be provided or the

manner in whiia the plan will be administered.

Elfstrom does not require an employer to participate

in the administration of a group insurance policy or

an insurer to delegate its functions to an employer.

... . Elfstrom simply describes in legal terms a rela-

tionship that already exists in fact.

Ward, 135 F.2d at 1287 (parallel cites omitted).

The Ninth Circuit recognized that the plan documents

at issue in Ward provided specifically that “[u]nder no cir-

cumstances will the policyholder [MAC] be deemed the

agent of the Company [UNUM] without a written authori-

zation.” Id. at 1284. But, the Ward court concluded that

even though it was holding that Elfstrom overruled this

plan provision, Elfstrom did not relate to the plan because

“[p]lan documents defining or disavowing a relationship

do not have the status of the ERISA statute... .” Jd. at

1288.

In direct contrast, the Seventh Circuit applied the same

precedent and ruled in Jass that a state-law rule creating

an agency relationship between an ERISA plan and a

treating physician under the plan “related to” the plan

and was preempted:

In this case, both of Jass’ vicarious liability claims

against PruCare for Dr. Anderson’s alleged negligence

9

(Counts I and II) directly “relate to” the Plan. ...

If an agency relationship existed between PruCare

and Dr. 9 Fsen as Jass alleged, it was solely as a

result of the PruCare’s health plan of which Jass was

a participant. ... Additionally, to determine whether

an actual or apparent relationship existed between Dr.

Anderson and PruCare would require an examination

of the health care benefit plan to determine the rela-

tionship between Dr. Anderson, PruCare and Jass.

In fact, the health benefit plan contains a section en-

titled “relation among the parties affected by the

group contract,” which states that no participating

physician is an employee or agent of PruCare. We

note this not to resolve the question of agency, but

to highlight that Jass’ claims “relate to” the health

benefit plan.

Jass, 88 F.3d at 143.

The decisions in Ward and Jass are irreconcilable: the

very factors that the Seventh Circuit found determinative

of the preemption inquiry were deemed inconsequential by

the Ninth Circuit. Although Standard believes that the

Ward court misapprehended this Court’s ERISA precedent

and, in particular, read Dillingham much too broadly, the

critical point is that in spite of this Court’s efforts to

clarify the meaning of “relates to” in Section 514(a) of

ERISA, the Circuits remain confused. Dillingham did not

purport to change the law. Yet, the Ninth Circuit has

read that case as somehow narrowing the Court’s long-

standing view that Section 514(a)’s preemption clause is

“deliberately expansive” (Pilot Life, 481 U.S. at 46) and

“conspicuous for its breadth.” FMC Corp. v. Holliday,

498 U.S. 52, 58 (1990). As with the “insurance savings

clause” issue, this confusion is something that only this

Court can resolve.

IV. THE ISSUES PRESENTED ARE OF WIDESPREAD

SIGNIFICANCE.

The bottom line is that the Circuits have adopted

irreconcilable positions on the types of state laws affecting

employee benefit plans that survive ERISA preemption.

10

The unavoidable result of these inconsistent rulings is the

precise “patchwork scheme of regulation” which ERISA’s

broad preemption provision was enacted to eliminate and

thereby increase efficiency and reduce the cost of pro-

viding benefits. See Fort Halifax Packing Co. v. Coyne,

482 U.S. 1, 10 (1987). The Court has recognized that

subjecting benefit providers to disparate legal regimes

increases the risk that employers will opt not to offer cer-

tain benefits to their employees. See id. Varying court

rulings on the status of statutes like the California notice-

prejudice rule at issue here will compel benefit providers

to

design their programs in an environment of differing

State regulations[, which] would complicate the ad-

ministration of nationwide plans, producing inefficien-

cies that employers might offset with decreased

benefits.

FMC Corp., 498 U.S. at 60.

This is the risk Congress intended to avoid in enacting

ERISA. By granting the petition and reversing the Ninth

Circuit’s decision, this Court will ensure the uniformity

of law essential to effective cost containment and the

correlative increase in the availability of benefits to plan

beneficiaries.

CONCLUSION

For the foregoing reasons, this Court should grant the

petition.

Respectfully submitted,

MICHAEL A. CONLEY

Counsel of Record

PILLSBURY MADISON & SUTRO

LLP

1100 New York Avenue, N.W.

Washington, D.C. 20005

(202) 861-3000

Attorney for Amicus Curiae

July 10, 1998 Standard Insurance Company