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

oO

MOTION FILED

JUL 2.0 1998

No. 97-1868

— —__

—_—-— —

In The

Supreme Court of the United States

October Term, 1997

+

UNUM LIFE INSURANCE COMPANY OF AMERICA,

Petitioner,

JOHN E. WARD,

Respondent.

+

On Petition For A Writ Of Certiorari

To The United States Court Of Appeals

For The Ninth Circuit

>

MOTION FOR LEAVE TO FILE BRIEF FOR THE

ASSOCIATION OF CALIFORNIA LIFE AND

HEALTH INSURANCE COMPANIES AS AMICUS

CURIAE AND BRIEF AS AMICUS CURIAE IN

SUPPORT OF PETITIONER

°

Brap WENGER James H. FLemMinc

Counsel and Secretary Counsel of Record

Association of California FLremMinG & Puiturs LLP

Life and Health 1340 Treat Blvd., Ste. 630

Insurance Companies Walnut Creek, CA 94596

1201 K Street Telephone: (925) 296-2600

Sacramento, CA 95814 Facsimile: (925) 296-2625

Telephone: (916) 442-3648

Facsimile: (916) 442-1730

Counsel for the Association of California Life

and Health Insurance Companies

COCKLE LAW BRIEF PRINTING CO., (800) 225-6964

OR CALL COLLECT (402) 342-2831

MOTION FOR LEAVE TO FILE BRIEF

FOR THE ASSOCIATION OF CALIFORNIA

LIFE AND HEALTH INSURANCE COMPANIES

AS AMICUS CURIAE

Pursuant to Rule 37.2 of the Rules of this Court, the

Association of California Life and Health Insurance Com-

panies (“ACLHIC”) respectfully requests leave to file the

accompanying brief as amicus curiae in support of peti-

tioner. Counsel for petitioner has consented to the filing

of this amicus curiae brief. Counsel for respondent has not

consented to the filing of this brief.

ACLHIC is a non-profit association whose members

are domestic California life and health insurance com-

panies and foreign life and health insurance companies

which do business in California. One of the primary

purposes of ACLHIC is to represent the interests of its

members and their policyholders in substantial public

policy matters which affect them. ACLHIC has partici-

pated as amicus curiae in other federal cases for this

purpose. ACLHIC has a duty to promote the solvency

and efficiency of its members and of the soundness of the

products they issue.

In the instant case, ACLHIC has a substantial interest

in insuring the efficient administration of life and health

insurance policies issued to employee benefit plans sub-

ject to the Employee Retirement Income Security Act

(“ERISA”), 29 U.S.C. Sections 1001, et seq. The interposi-

tion of disparate state common law rules of general appli-

cation, such as the California notice-prejudice rule, in the

administration of such plans is contrary to the express

terms of ERISA and of prior decisions of this Court. The

application of such rules to ERISA plans generally will

result in inefficient state-by-state benefit determinations,

to the detriment of participants, beneficiaries, plan spon-

sors and service providers such as the members of

ACLHIC. Moreover, the particular common law doctrine

in question here — the California notice-prejudice rule -

would unpredictably extend liability for tardy claims,

prevent the reliable closing of annual records and provide

disparate benefits to plan beneficiaries who reside in

different states.

ACLHIC is familiar with the questions involved in

the case and the scope of their presentation. ACLHIC

believes that additional argument should be presented on

one aspect of the legal analysis of the decision below.

While petitioner has fully analyzed and briefed the legal

issues presented, additional briefing by ACLHIC will

assist the Court by demonstrating the errors of law of the

decision below.

It is therefore respectfully requested that the motion

of ACLHIC for leave to file the attached brief as amicus

curiae be granted.

Respectfully submitted,

James H. FLEMING

Counsel of Record

FieminGc & Puiturs LLP

1340 Treat Boulevard, Suite 630

Walnut Creek, CA 94596

Attorney for Amicus Curiae

Association of California Life

and Health Insurance

Companies

July 20, 1998

TABLE OF CONTENTS

Page

INTEREST OF THE AMICUS ...................0. 1

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

I. “Notice-Prejudice” is a Rule of General Appli-

cation...

Il. The Issue Presented is of Substantial Signifi-

cance ...

**

TABLE OF AUTHORITIES

Page

Cases

Clemmer v. Hartford Insurance Co., 22 Cal.3d 865,

151 Cal.Rptr. 285, 587 P.2d 1098 (1978)............. 5

Cisneros v. UNUM Life Ins. Co., 134 F.3d 939 (9th

GER Dee cedacdcdcuds.... isepeosashakuapeonnse’ 2, 4

Conservatorship of Rand, 49 Cal.App.4th 835, 57

CRN HP GOD 0 dene cnessesnsndinasedbscann< 3

Fort Halifax Packing Co. v. Coyne, 482 U.S. 1 (1987) ..... 6

Industrial Asphalt v. Garrett Corp., 180 Cal.App.3d

BGDE, SIO CAE, FF Cee cc ccccecescsccccscsses 3

In Re David C., 152 Cal.App.3d 1189, 20 Cal.Rptr.

BED Gens dc ca cencnscescpedndsusapseveyeteséeic cee 3

Jersey Shore State Bank v. U.S., 479 U.S. 442, 107

SCL. 762, SS L.BG.28 GOD (1906)... 2... nce cecceess 4

Johnson-Stovall v. Superior Court, 17 Cal.App.4th

GE, SB Chee GEG GEGUOR oc cc cccccccvsccccces 3

Lum v. Mission Inn Foundation, Inc., 180

Cal.App.3d 967, 226 Cal.Rptr. 22 (1986) ............ 4

Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S.

Pe GOR e vckncencdccsvsbentnctuasuackdad based 1, 2

People v. Carrera, 49 Cal.3d 291, 261 Cal.Rptr. 348

GORE vccscnuncnecicsnsboceusbesksaubebebeundbes cee 3

People v. Howard, 44 Cal.3d 375, 243 Cal.Rptr. 842

GUND S nivives coscncsuctesmapsapénebasbeieascsbia tees 3

People v. Mayfield, 14 Cal.4th 668, 60 Cal.Rptr.2d 1

aE RIS EF CURE Bau’) ech 4

Pilot Life Ins. Co. v. Dedeaux, 471 U.S. 41 (1987)..1, 2, 4, 5

iii

TABLE OF AUTHORITIES - Continued

Pioneer Investment Services v. Brunswick Associates

Ltd. Partnership, 507 U.S. 380, 123 L.Ed.2d 74,

Se i. ME I hn i aa ed pei ew eh oe

Putman v. Clague, 3 Cal.App.4th 542, 5 Cal.Rptr.2d

Bk CR add bncnneedasdnrdhesnanktadabashees

Shell Oil Co. v. Winterthur Swiss Ins. Co., 12

Cal.App.4th 715, 15 Cal.Rptr.2d 815 (1993) ....

STATUTES

I I i ee oo ail elena cls

es i ns 2 eed ees boouebube

Page

INTEREST OF THE AMICUS

The Association of California Life and Health Insur-

ance Companies (“ACLHIC”) is a non-profit association

whose members are domestic California life and health

insurance companies and foreign life and health insur-

ance companies which do business in California. Its inter-

est in the issues presented by the petition is substantial

and directly affect its members for the reasons set forth in

the foregoing motion for leave to file this brief.’

The Ninth Circuit’s decision in this case conflicts

with Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S.

724, 744 (1985), and Pilot Life Ins. Co. v. Dedeaux, 471 U.S.

41, 48-50 (1987), because, without analysis or explanation,

it applies a common law doctrine of general application

as if it were a law specifically directed at the insurance

industry. The result is to invalidate ERISA benefit plan

rules requiring the timely submission of claims and to

complicate the administration and expense of such plans,

to the ultimate detriment of the plans and their partici-

pants.

' Pursuant to Rule 37.6, amicus ACLHIC 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.

Respondent has not consented.

REASONS FOR GRANTING THE PETITION

I. “Notice-Prejudice” is a Rule of General Application.

In this action, the Ninth Circuit held that California’s

common law notice-prejudice rule is within the scope of

ERISA preemption as a state law which “related to” an

employee benefit plan. ERISA Section 514(a), 29 U.S.C.

Section 1144(a). The Ninth Circuit erred, however, in its

conclusion that the notice-prejudice rule is a state law

regulating insurance which could be “saved” from ERISA

preemption under ERISA Section 514(b)(2)(a), 29 U.S.C.

Section 1144(b)(2)(a). In this decision, the Ninth Circuit

followed its earlier and similarly erroneous decision in

Cisneros v. UNUM Life Ins. Co., 134 F.3d 939 (9th Cir.

1998).

In Cisneros, the Ninth Circuit analyzed Metropolitan

Life Ins. Co. v. Massachusetts, 471 U.S. 724, 744 (1985), and

Pilot Life Ins. Co. v. Dedeaux, 471 U.S. 41, 48-50 (1987), to

the effect that state laws are saved from ERISA preemp-

tidn if the law is “specifically directed” at the insurance

industry and if it “regulates insurance”, Cisneros, 134 F.3d

at 944-945.

The Ninth Circuit failed, however, correctly to apply

the common sense test of Dedeaux that such a law must be

“specifically directed” at the insurance industry. On the

contrary, the notice-prejudice rule is one of common

application to a wide variety of situations and entities.

The broadest expression of this commonplace doctrine

may be found in the Restatement of the Law Second,

Contracts 2d, Section 229, as follows:

'

To the extent that the non-occurrence of a condi-

tion would cause disproportionate forfeiture, a

court may excuse the non-occurrence of that

condition unless its occurrence was a material

part of the agreed exchange.

Indeed, the requirement that prejudice must result

before a failure to perform a contractual condition or to

give a required notice will work a forfeiture is common-

place in the law of California. See People v. Carrera, 49

Cal.3d 291, 261 Cal.Rptr. 348 (1989) (failure to give notice

of testimony in aggravation of a capital murder sentence

harmless where defendant was not prejudiced by lack of

notice); Conservatorship of Rand, 49 Cal.App.4th 835, 57

Cal.Rptr.2d 119 (1996) (failure to give notice of citation to

proposed conservatee harmless where no prejudice

resulted); People v. Howard, 44 Cal.3d 375, 243 Cal.Rptr.

842 (1988) (untimely notice of evidence to be used in

penalty phase of capital murder prosecution harmless

where no prejudice shown); In Re David C., 152

Cal.App.3d 1189, 20 Cal.Rptr. 115 (1984) (failure to give

adequate notice of termination of custody of minor child

harmless where no prejudice shown); Industrial Asphalt v.

Garrett Corp., 180 Cal.App.3d 1001, 226 Cal.Rptr. 17 (1986)

(failure to serve statutory notice of mechanic's lien claim

effective to defeat lien where no prejudice resulted).

Indeed, if anything, notice-prejudice is merely a sub-

species of the broader doctrine of harmless error: in every

manner of case and circumstance, excepting only jurisdic-

tional delays, courts disregard irregularities and infor-

malities which do not result in substantial prejudice.

Thus, the failure timely to post jury fees is regularly

excused where no prejudice is proven. Johnson-Stovall v.

Superior Court, 17 Cal.App.4th 808, 21 Cal.Rptr.2d 494

(1993). Failure to give proper and advisable jury instruc-

tions concerning criminal negligence is ignored where the

failure to do so would not have prejudiced the defendant

given a jury finding of guilt of first degree pre-meditated

and deliberate murder. People v. Mayfield, 14 Cal.4th 668,

60 Cal.Rptr.2d 1 (1997). The failure to make timely service

of a civil action has likewise been excused absent a find-

ing of prejudice. Putman v. Clague, 3 Cal.App.4th 542, 5

Cal.Rptr.2d 25 (1992). Likewise, informalities in the proof

of service of documents is ineffective where actual service

occurred and no prejudice resulted. Lum v. Mission Inn

Foundation, Inc., 180 Cal.App.3d 967, 226 Cal.Rptr. 22

(1986).

This Court, too, has applied the notice-prejudice rule,

and in contexts far removed from the insurance industry.

Pioneer Investment Services v. Brunswick Associates Ltd.

Partnership, 507 U.S. 380, 123 L.Ed.2d 74, 113 S.Ct. 1489

(1993) (tardy filing of bankruptcy proofs of claim excused

where debtor was not prejudiced by delay). See also

Jersey Shore State Bank v. U.S., 479 U.S. 442, 107 S.Ct. 782,

93 L.Ed.2d 800 (1986) (third party lender not unfairly

prejudiced by government failure to give notice of tax

claim).

In Cisneros, the only authority cited by the Ninth

Circuit for the conclusion that the notice-prejudice rule is

directed specifically at the insurance industry and is

applicable only to insurance contracts is Pilot Life Ins. Co.

v. Dedeaux, 481 U.S. 41, 50 (1987). Dedeaux, of course, only

sets forth the standard that to be regarded as a law which

regulates insurance, a law must not only have an impact

on the insurance industry but must be specifically

directed toward that industry. The Ninth Circuit failed,

however, to pursue the analysis of Dedeaux into the his-

tory of the doctrine in question, which was in Dedeaux the

availability of punitive damages under Mississippi law.

In that analysis, the Court concluded that:

Even though the Mississippi Supreme Court has

identified its law of bad faith with the insurance

industry, the roots of this law are firmly planted

in the general principles of Mississippi tort and

contract law. Any breach of contract, and not

merely breach of an insurance contract, may

lead to liability for punitive damages under

Mississippi law. 481 U.S. 41 at 50.

The same is true here. The doctrine of excuse of

minor breach, termed the notice-prejudice rule, has in

some cases been identified with the insurance industry

and applied to it in some cases. But the Ninth Circuit did

not attempt, nor could it, to show that the common law

doctrine to excuse minor, non-prejudicial contract

breaches is one specifically directed toward that industry.

It is true that cases applying the notice-prejudice

doctrine to the insurance industry may be found and are

cited in the Ninth Circuit opinion in Cisneros (Shell Oil Co.

v. Winterthur Swiss Ins. Co., 12 Cal.App.4th 715, 15

Cal.Rptr.2d 815, 845 (1993); and Clemmer v. Hartford Ins.

Co., 22 Cal.3d 865, 151 Cal.Rptr. 285, 587 P.2d 1098,

1106-1107 (1978)). But citing instances where a rule of

general applicability has been applied to a given industry

does not make that rule specifically directed at that

industry any more than the application of punitive dam-

age concepts to an insurer in Mississippi made the puni-

tive damage law of Mississippi one directed specifically

at the insurance industry.

Il. The Issue Presented is of Substantial Significance

The Ninth Circuit decision will result in disparate

state by state rulings on topics far beyond notice-preju-

dice. Any common law doctrine applied to the insurance

industry may become the subject of the same Ninth Cir-

cuit analysis or lack thereof. The inevitable result will be

the “patchwork scheme of regulation” which ERISA’s

broad preemption provision was enacted to eliminate. See

Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 10 (1987).

Instead of attaining the manifest goal of increased effi-

ciency and reduced costs, plans and plan administrators

will be required to pay late claims and, more importantly,

to administer plans separately according to the law of

each state. This will in turn reduce the affordability of

benefit plans and increase the likelihood that benefits will

be withdrawn or not offered at all.

SJ

eee ee

CONCLUSION

In enacting ERISA, Congress intended to encourage

the provision of benefits in a cost-effective and efficient

manner. Granting the petition and reversing the Ninth

Circuit's decision will advance the goals of Congress by

maintaining the efficiency of nation-wide standards for

plan adminiStration and the preservation of the availabil-

ity of plan benefits for plan beneficiaries.

Respectfully submitted,

James H. FLemMinc

Counsel of Record

FiemMinc & PHiups LLP

1340 Treat Boulevard, Suite 630

Walnut Creek, CA 94596

Attorney for Amicus Curiae

Association of California Life

and Health Insurance

Companies

July 20, 1998