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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 1999
- **Citation:** 526 U.S. 358

## Text

In the Supreme Court of the E
OCTOBER TERM, 1998

UNUM LIFE INSURANCE COMPANY OF AMERICA,
Petitioner,

v.

JOHN E. WARD,
Respondent.

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

BRIEF OF THE BUSINESS ROUNDTABLE
AS AMICUS CURIAE IN SUPPORT OF PETITIONER

CHARLES ROTHFELD*

LAWRENCE S. ROBBINS
Mayer, Brown & Platt
2000 Pennsylvania Ave., N. W.
Washington, D.C. 20006
(202) 463-2000

* Counsel of Record

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TABLE OF CONTENTS

QUESTION PRESENTED ........-+-+eeeee:

TABLE OF AUTHORITIES .........----+++-

A. The Purposes Of ERISA Require An Expansive
Application Of The Statute’s Preemption
Puewietee ..6a 5 bc os 5 46 2 eee

B. The Elfstrom Rule “Relates To” ERISA Plans
And Therefore Is Preempted ............

C. The Notice-Prejudice Rule Is Preempted Because
It Conflicts With Substantive Provisions of
ERISA And Is Not Validated By The Insurance
Sawing Camas . wc eect ere esnsee

CONCEUIGION . cc cece otter beeen e ee eens

TABLE OF AUTHORITIES
Page(s)
Alessi v. Raybestos-Manhattan, Inc. ,
i ES 6 a os on an bb 0.9 4, 6, 20
Barnett Bank vy. Nelson, 517 U.S. 25 (1996) ...... 11
Boggs v. Boggs, 117 S. Ct. 1754 (1997) ...... passim

California Div. of Labor Standards
Enforcement v. Dillingham Constr.,
N.A., Inc., 117 §. Ct. 832 (1997) ........ passim

Cisneros v. UNUM Life Insurance Company
of America, 134 F.3d 939 (9th Cir. 1998),
petition for cert. filed, 66 U.S.L.W. 3773

(U.S. May 20, 1998 ), No. 98-1867 ...... passim
Curtiss-Wright Corp. v. Schoonejongen,

ee nw os oe a 10, 18
District of Columbia v. Greater Washington

Bd. of Trade, 506 U.S. 125 (1992) ..... 12, 13, 15
Elfstrom v. New York Life Ins. Co.,

ET i. os 5 os eg 6 6 0 6 8 « passim
FMC Corp. v. Holliday, 498 U.S. 52 (1990) ... passim
Fort Halifax Packing Co. v. Coyne,

en la eo 6 6 9 6a v's 9, 10, 11, 17
Group Life & Health Ins. Co. v. Royal

Drug Co., 440 U.S. 205 (1979) ....... 21, 22, 23
Ingersoll-Rand Co. v. McClendon,

EE passim

Mackey v. Lanier Collection Agency &
Serv., Inc., 486 U.S. 825 (1988) ......... 15, 16

iv

TABLE OF AUTHORITIES—Continued

Page(s)

Metropolitan Life Ins. Co. v. Massachusetts,

Gee Wee ME rhs wy ce cet obs eas passim
Moore v. Metropolitan Life Ins. Co. ,

856 F.2d 488 (2d Cir. 1988) ........... 10, 11
New York State Conference of Blue Cross &

Blue Shield Plans v. Travelers Insurance

Ga, S06 Ue Ge Gee 2 cece tae 5 ae. passim
Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41

| ere ee ory ee eee passim
Shaw v. Delta Air Lines, Inc., 463 U.S. 85

CE on 6 60'6 uO Cah eee AES oes hes passim
Union Labor Life Ins. Co. v. Pireno,

fe. ll RE rE PERLE 20
United States Dep't of the Treasury v. Fabe,

SD Wet SE 6 oo ae 6 dihrae 4s 0.6 650 21, 22
Statutes and Regulations
Re EE ee weer eS 4
ap Te, SD. 0 0 od as ose Ade Ae 15
MESS. CHO -ccccvscsessevesiieh van 16
USC. 8 SEGRIRE . 6. kd Vs CVC TC 19
a Ge 6 ee 5-0 o00 040% keeseanne 19
2 USS. SRS. 66 cess seems ons passim
3 USL. OR is odd tert paced aoe 16

29 U.S.C. § LI44(QOM 2A) .. 2 2 2 ee eee 2

Page(s)

get ke 8 Se ee a ee 19
Miscellaneous
120 Cong. Rec. 29197 (1974) ............... 8
120 Cong. Rec. 29933 (1974) ............... 8
120 Cong. Rec. 29942 (1974) ............... 8
Congressional Budget Office, Economic

Implications of Rising Health Care Costs

Se he OW BS I SS 0 ws we 11
H.R. 2, 93d Cong. 2d Sess., § 514(a) (1974) ...... 6
H.R. 2, 93d Cong., 2d Sess., § 699(a) (1974) ...... 7
H.R. Rep. No. 93-1280 (1974) ............... 19

INTEREST OF THE AMICUS CURIAE

The Business Roundtable is an association of chief
executive officers of leading U.S. corporations with a
combined workforce of more than 10 million employees in
the United States; these corporations sponsor plans that
provide health insurance for some 25 million people.' The
chief executives are committed to advocating public policies
that foster vigorous economic growth; a dynamic global
economy; and a well-trained and productive U.S. workforce
essential for future competitiveness. Established in 1972, the
Roundtable was founded in the belief that chief executives of
major corporations should take an increased role in the

‘quine det Pagers yee mel

Nata ain ition a Aine AAO
is a matter of profound importance both to the companies
represented in the Roundtable and to those companies’
employees. This Court has noted “the centrality of pension
and welfare plans in the national economy, and their
implications for the financial security of the Nation’s work
force.” Boggs v. Boggs, 117 S. Ct. at 1754, 1760 (1997).
Yet the rule adopted by the court of appeals in this case will
lead to the imposition of inconsistent obligations on ERISA
plans, interfere with sound plan administration, and ultimately
redound to the disadvantage of plan beneficiaries by forcing
Teductions in plan benefits — or by inducing employers to
refrain from offering plans altogether. Because these
consequences would injure companies and employees

' Pursuant to Rule 37.3 of the Rules of this Court, the parties
have consented to the filing of this brief amicus curiae. Their
letters of consent have been filed with the Clerk of the Court.

Pursuant to Rule 37.6 of the Rules of this Court, amicus states
that this brief was not authored in whole or in part by counsel for
a party, and no person or entity, other than amicus or its members,
made a monetary Contribution to the preparation or submission of

2

throughout the Nation, amicus submits this brief to assist the
Court in the resolution of this case.

STATEMENT

1. The Employee Retirement Income Security Act
of 1974 (“ERISA”), 29 U.S.C. § 1001 ef seg., is a
comprehensive statute that regulates both pension plans and
welfare plans that “provid[e] employees with fringe benefits.”
Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 90 (1983). This
case concerns the provisions of ERISA that address the
statute’s preemptive effect on state law. Section 514(a), the
“preemption clause,” preempts “any or all State laws insofar
as they may now or hereafter relate to any employee benefit
plan” covered by ERISA. 29 U.S.C. § 1144(a). State laws
that relate to ERISA plans may be saved from preemption by
the statute’s “saving clause,” however, if they “regulate[]}
insurance, banking, or securities.” Section 514(b)(2)(A), as
set forth in 29 U.S.C. § 1144(b)(2)(A).

2. Im this case, petitioner UNUM Life Insurance
Company of America (“UNUM”) issued a group long-term
disability policy to fund an employee welfare benefit plan
sponsored by Management Analysis Company (“MAC”).
MAC served as the administrator of the plan, but UNUM was
responsible for claims handling and payment functions, as
well as for the fiduciary review required by § 503 of ERISA.
Respondent John Ward, who served as MAC’s President and
Chief Executive Officer, was a participant in the plan. Ward
asserts that he became disabled in May 1992, but he did not
submit a claim under the disability policy until April 1994,
nearly two years after the onset of the claimed disability.
Pet. App. 2a-3a. UNUM denied Ward benefits because his
submission was untimely under the policy, which requires a
beneficiary to submit a written notice of claim within 30 days
of the onset of disability, and to submit a written proof of
claim no later than one year and 180 days after the onset of
disability. Jd. at 4a-Sa, 42a-43.

3

Ward then brought this suit against the plan and UNUM,
seeking payment of plan benefits. The district court rejected
the claim (Pet. App. 27a-33a), but the court of appeals
reversed. Jd. at la-25a. The court agreed that “Ward’s
submission of notice and proof of his claim plainly was
untimely under the express terms of the UNUM policy.” Jd.
at 5a. But the court nevertheless held that two California
common law rules allowed Ward’s claim to survive: the
“notice-prejudice rule,” which the court characterized as
“prevent(ing] an insurance company from avoiding liability
on the basis of untimely notice or submission of proof unless
the company proves it has been substantially prejudiced by
the delay” (Cisneros v. UNUM Life Insurance Company of
America, 134 F.3d 939, 943 (9th Cir. 1998), petition for cert.
filed, 66 U.S.L.W. 3773 (").S. May 20, 1998), No. 98-
1867); and the so-called “Elfstrom rule,” which holds that an
employer that performs administrative tasks under an insured
welfare pian is the agent of the insurer. Pet. App. 8a-12a.

The court of appeals rejected UNUM’s argument that
these state common law rules were preempted by ERISA.
Relying on its decision in Cisneros, the court first held that
the notice-prejudice rule is saved from preemption by
ERISA’s saving clause. Pet. App. Sa-6a. The court went on
to hold that the Elfstrom rule is not preempted by the
preemption clause because “Elfstrom does not dictate the
benefits to be paid or the manner in which the plan will be
administered. * * * Nor does Elfstrom create an ‘alternate
enforcement mechanism’ for ERISA plan obligations beyond
those set forth in the statute.” Jd. at 2la-22a. The court
remanded the case for factual findings related to the
application of these two state law rules. Jd. at 25a.

INTRODUCTION AND
SUMMARY OF ARGUMENT

A. The proper interpretation of ERISA’s preemption
provisions is a matter of enormous importance to companies

4

and employees across the Nation. As Congress explained
when it enacted ERISA almost 25 years ago,

the growth in the size, scope, and numbers of employee
benefit plans in recent years has been rapid and
substantial; * * * the continued well-being and security of
millions of employees and their dependents are directly
affected by these plans; * * * they are affected with a
national public interest[;] [and] they have become an
important factor affecting the stability of employment and
the successful development of industrial relations * * *.

29 U.S.C. § 1001(a). Benefit plans have only grown in
importance in the intervening years, as the number of
beneficiaries has continued to increase.

Congress recognized the centrality of benefit plans to the
national economy by providing, with the enactment of
ERISA, that the regulation of such plans is “exclusively a
federal concern.” Alessi v. Raybestos-Manhattan, Inc., 451
U.S. 504, 523 (1981). Congress therefore itself established
the rules governing plan administration, using ERISA to
“set{] various uniform standards, including rules concerning
reporting, disclosure, and fiduciary responsibility, for both
pension and welfare plans.” Shaw v. Delta Air Lines, Inc.,
463 U.S. 85, 91 (1983). The result was “an intricate,
comprehensive statute.” Boggs v. Boggs, 117 S. Ct. 1754,
1760 (1997).

Congress also recognized that the preemption of state laws
that relate to ERISA plans is a crucial element of this regime
and is essential to protect the interests of plans, of
beneficiaries, and of employers. Members of Congress
explained during the debate on ERISA — and this Court
repeatedly has agreed — that subjecting plans to the vagaries
of state law would have a variety of destructive effects.
Requiring plans to comply with inconsistent state rules would
cause significant inefficiencies, forcing plan sponsors to vary
their administrative mechanisms from State to State. Vague

5

or changing gi state laws would lead to unanticipated liability
and invite continuing litigation. And conflicting state laws
would create considerable uncertainty about the respective
obligations of plans and their beneficiaries.

These consequences of state regulation would impose
obvious and immediate costs on plans. At the same time,
increased state involvement in the regulation of plans
inevitably would redound to the disadvantage of plan
beneficiaries. Faced with rising costs and liabilities, plan
sponsors would have no choice but to reduce benefits or
increase the beneficiaries’ required contributions. At the
extreme, imcreased burdens and expenses likely would

discourage some employers from offering benefit plans at all.

B. These imperatives led Congress to give ERISA a
notably expansive preemption provision, and they should
shape the resolution of the preemption claims in this case.
The Elfstrom rule applied by the court of appeals must be
preempted because it refers directly to ERISA plans and
therefore intrudes on an area of exclusive federal concern. In
addition, allowing States to affect plan administration in the
manner approved by the court-of appeals would invite the
very sort of conflicting state regulation that Congress
condemned as destructive to sound plan administration. The
state notice-prejudice rule approved by the Ninth Circuit also
should not stand: it directly conflicts with the substantive
provisions of ERISA that give plan documents controlling
eT Remap RATA ES SGee SENNA, seeing
c ;

ARGUMENT
In its decisions interpreting ERISA’s preemption
provisions, this Court has been guided both by the statute’s
“clearly expansive” language and by the manifest
congressional purpose “to establish the regulation of

employee welfare benefit plans ‘as exclusively a federal
concern.’” New York State Conference of Blue Cross & Blue

6

Shield Plans v. Travelers Insurance Co., 514 U.S. 645, 655,
656-657 (1995) (quoting Alessi v. Raybestos-Manhattan, Inc. ,
451 U.S. 504, 523 (1981)). The decision below, however,
disregarded both of these considerations. The Ninth Circuit's
restrictive construction of the preemption clause is grounded
on a patent misreading of this Court’s decisions. And its
expansive application of the insurance saving clause finds no
basis either in the statutory purpose or in this Court’s
holdings. If not set aside, the ruling below accordingly will
frustrate congressional policy, disrupting sound plan
administration while injuring employees and other
beneficiaries of ERISA welfare plans.

A. The Purposes Of ERISA Require An Expansive
Application Of The Statute’s Preemption Provision

The Court has noted on several occasions (with more than
a little understatement) that the ERISA preemption provisions
“‘are not a model of legislative drafting’” (FMC Corp. v.
Holliday, 498 U.S. 52, 58 (1990) (quoting Metropolitan Life
Ins. Co. v. Massachusetts, 471 U.S. 724, 739 (1985)). When
interpreting Section 514’s language, it therefore is useful to
begin at the beginning, with an examination of the statutory
history, structure, and purpose. That background makes clear
that Congress acted advisedly in developing an expansive
preemption clause: any attempt to be faithful “to the
objectives of the ERISA statute” (Travelers, 514 U.S. at 656)
will leave a distinctly limited and subordinate role for state
laws that bear directly on the operation of welfare plans.

1. The ERISA bills that originally passed the House and
Senate contained relatively limited preemption clauses that
were “applicable only to state laws relating to the specific
subjects covered by ERISA.” Shaw v. Delta Air Lines, Inc.,
463 U.S. 85, 98 (1983). See H.R. 2, 93d Cong. 2d
Sess.,§ 514(a) (1974), reprinted in 3 Legislative History of
the Employee Retirement Income Security Act of 1974
(Comm. Print), pp. 4057-4058 (1976) (“Legislative History”)

7

(bill that passed House preempted laws “relat{ing] to the
reporting and disclosure responsibilities, and fiduciary
responsibilities, of persons acting on behalf of any employee
benefit plan to which part 1 applies”); H.R. 2, 93d Cong., 2d
Sess., § 699(a) (1974), reprinted in 3 Legislative History
3820 (bill that passed Senate preempted laws “relat[ing] to the
subject matters regulated by this Act or the Welfare and
Pension Plans Disclosure Act”). But the Conference
Committee rejected those constricted provisions — as well as
a narrow alternative proposed directly to the Committee by
the administration (see Shaw, 463 U.S. at 98-99 n.19) —
opting instead for a much more inclusive approach. As the
Court has noted repeatedly, this history establishes that
Congress acted with deliberation to make “the section’s pre-
emptive scope * * * as broad as its language.” Jd. at 98.
See Travelers, 514 U.S. at 661; FMC Corp., 498 U.S. at 58-
59; Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 138
“er Pilot Life Ims. Co. v. Dedeaux, 481 U.S. 41, 45-46
(1 :

ERISA’s principal sponsors left no doubt that this
“deliberately expansive” (Pilot Life, 481 U.S. at 45) approach
to preemption was essential to protect plans from the
litigation and administrative expense that would follow from
the necessity of complying with varying state requirements.
Senator Javits, for example, explained that

[bJoth [the original] House and Senate bills provided for
preemption of state law, but — with one major exception
appearing in the House bill — defined the perimeters of
preemption in relation to the areas regulated by the bill.
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.

8

Although the desirability of further regulation — at
either the State or the Federal level — undoubtedly
warrants further attention, on balance, the emergence of
a comprehensive and pervasive Federal interest and the
interests of uniformity 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. 29942 (1974).
Senator Williams agreed:

It should be stressed that with the narrow exceptions
specified in the bill, the substantive and enforcement
provisions of the conference substitute 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. This principle is
intended to apply in its broadest sense to all actions of
State or local governments, or any instrumentality thereof,
which have the force or effect of law.

120 Cong. Rec. 29933 (1974).

Indeed, Representative Dent, in an oft-quoted phrase,
characterized as “the crowning achievement of this
legislation, the reservation to Federal authority [of] the sole
power to regulate the field of employee benefit plans.” 120
Cong. Rec. 29197 (1974). He explained that this step was
crucial in furthering the interests of plan beneficiaries:

{w]ith the preemption of the field, we round out the

protection afforded participants by eliminating the threat

of conflicting and inconsistent State and local regulation.

* * * The conferees, with the narrow exceptions

specifically enumerated, applied this principle in the

broadest sense to foreclose any non-Federal regulation of
employee benefit plans. Thus, the provisions of section

514 would reach any rule, regulation, practice, or decision

9

of any State, subdivision thereof or agency or

instrumentality thereof * * * which would affect any

employee benefit plan * * *.
Ibid.

2. The Court already has had occasion to examine the
manner in which preemption advances the interests of welfare
plans and plan beneficiaries. As the Court has recognized,
the “most efficient way” for a plan sponsor to meet its
responsibilities

is to establish a uniform administrative scheme, which

provides a set of standard procedures to guide processing

of claims and disbursement of benefits. Such a system is
difficult to achieve, however, if a benefit plan is subject

to differing regulatory requirements in differing States. A

plan would be required to keep certain records in some

States but not in others; to make certain benefits available

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

certain way in some States but not in others; and to

comply with certain fiduciary standards in some States but
not in others.
Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 9 (1987).

Looking to the consequences of subjecting plans to these
sorts of unpredictable and varying standards, the Court
recognized that “[sjuch a situation would produce
considerable inefficiencies, which the employer might choose
to offset by lowering benefit levels.” Fort Halifax, 482 U.S.
at 10. The Court therefore found it

clear that ERISA’s pre-emption provision was prompted
by isin Ghat ena Sain und musketelal

employee benefit plans are faced with the task of
coordinating complex administrative activities. A
patchwork scheme of regulation would introduce
considerable inefficiencies in benefit program operation,
which might lead those employers with existing plans to

10

reduce benefits, and those without such plans to refrain
from adopting them. Pre-emption ensures that the
administrative practices of a benefit plan will be governed
only by a single set of regulations.

Id. at 11. For this reason, the Court consistently has sought
to “minimize the administrative and financial burden of
complying with conflicting directives among States or
between States and the Federal Government.” IJngersoll-
Rand, 498 U.S. at 142.

The concern that increasing administrative and litigation
costs for plans “could work to the detriment of plan
beneficiaries” (Ingersoll-Rand, 498 U.S. at 142) by
“producing inefficiencies that employers might offset with
decreased benefits” (FMC Corp., 498 U.S. at 60) is not
fanciful. After all, “[e]mployers or other plan sponsors are
generally free under ERISA, for any reason at any time, to
adopt, modify, or terminate welfare plans. * * * Nor does
ERISA establish any minimum participation, vesting, or
funding requirements for welfare plans as it does for pension
plans.” Curtiss-Wright Corp. v. Schoonejongen, 514 U.S.
73, 78 (1995). See Metropolitan Life, 471 U.S. at 731
(“ERISA * * * contains almost no federal regulation of the
terms of benefit plans”). As a result, it is inevitable that
increased burdens imposed upon plans by state law will force
plan sponsors to impose corresponding increases in premiums
and other employee contributions, or to reduce plan benefits
to make up the difference. While the application of particular
state laws in particular cases might benefit particular
plaintiffs, it therefore is plain that any rule diminishing the
scope of preemption would, in the long run, “decrease
protection for future employees.” Moore v. Metropolitan Life
Ins. Co., 856 F.2d 488, 492 (2d Cir. 1988) (Winter, J.).

Indeed, subjecting plans to varying and changing state
laws would have a complex and cascading series of effects —
all of them unfortunate. Many employees would be deprived

11

of insurance protection altogether; in the health setting, for
example, even relatively small cost increases drive large
numbers of people off of the insurance rolls. See
Congressional Budget Office, Economic Implications of Rising
Health Care Costs (Oct. 1992), at 42-45. Moreover, as
healthier employees decided to forgo participation in
increasingly expensive health plans, the pool of employees
that shares the risk would both decrease and include ever
greater percentages of high-risk participants who make
demands on the plan, a spiral that would lead to further cost
increases and declining participation. Cf. Metropolitan Life,
471 U.S. at 731. At the same time, the unpredictability and
expense inherent in a regime that is controlled by inconsistent
and changing state laws would create “substantial
disincentives for even offering [welfare] plans.” Moore, 856
F.2d at 492. Given “the centrality of pension and welfare
plans in the national economy, and their implications for the
financial security of the Nation’s work force” (Boggs v.
Boggs, 117 S. Ct. 1754, 1760 (1997)), it comes as no
surprise that a Congress faced with these dangers opted for a
notably broad approach to preemption.

3. Against this background, the one constant in the
Court’s ERISA holdings is the recognition “that ERISA’s pre-
emption provision is ‘clearly expansive.’” California Div. of
Labor Standards Enforcement v. Dillingham Constr., N.A.,
Inc., 117 S. Ct. 832, 837 (1997) (quoting Travelers, 514
U.S. at 655). See, e.g., Barnett Bank v. Nelson, 517 U.S.
25, 38 (1996); FMC Corp., 498 U.S. at 58; Ingersoll-Rand,
498 U.S. at 138; Fort Halifax Packing, 482 U.S. at 9;
Metropolitan Life, 471 U.S. at 732; Shaw, 463 U.S. at 96,
98. It necessarily follows that “ERISA certainly contemplated
the pre-emption of substantial areas of traditional state

regulation.” Dillingham, 117 S. Ct. at 840. With that point
in mind, the Court developed what has become a familiar

two-part test for ERISA preemption:

12

We have repeatedly stated that a law “relate[s}] to” a
covered employee benefit plan for purposes of § 514(a)
“if it has a connection with or reference to such a plan.”
Shaw, [463 U.S.] at 97. * * * This reading is true to the
ordinary meaning of “relate to,” * * * and thus gives
effect to the “deliberately expansive” language chosen by
Congress. Pilot Life, [481 U.S.] at 46. * * * Under
§ 514(a), ERISA pre-empts any state law that refers to or
has a connection with covered benefit plans (and that does
not fall within a § 514(b) exception) “even if the law is
not specifically designed to affect such plans, or the effect
is only indirect,” Ingersoll-Rand, (498 U.S.] at 139, and
even if the law is “consistent with ERISA’s substantive
requirements,” Metropolitan Life, [471 U.S.] at 739.

District of Columbia v. Greater Washington Bd. of Trade,
506 U.S. 125, 129-130 (1992) (footnote omitted).

The court of appeals nevertheless declined to apply this
test, evidently because it believed that Travelers marked a
sharp departure from the Court’s prior ERISA jurisprudence.
See Pet. App. 20a-21a (“the Travelers Court concluded that
two types of state laws ‘relate to’ employee benefit plans
within § 514(a): laws that ‘mandatfe] employee benefit
structures or their administration,’ and laws that ‘provid{e]
alternative enforcement mechanisms’”); Cisneros, 134 F.3d
at 943 n.3 (citing Travelers for the proposition that “[t}he
Supreme Court recently has narrowed the scope of ERISA’s
‘related to’ language”). But that conclusion is insupportable.
Travelers simply confirmed a proposition that long had been
implicit in this Court’s decisions: the term “relate to” cannot
be taken “to the furthest reach of its indeterminacy” because
“‘frjeally, universally, relations stop nowhere.’” 514 U.S. at
655 (citation omitted). Pointing to that insight, the Court in
Travelers held that, except in extreme circumstances, a state
law will not be preempted if its only connection to an ERISA
plan is “an indirect economic effect on the relative costs of

13

various health insurance packages.” Jd. at 662. See id. at
659-660, 664, 668.

In reaching that conclusion, however, the Court in
Travelers reaffirmed the view that “[tJhe governing text of
ERISA is Clearly expansive” (514 U.S. at 655); it agreed that
the preemption clause “indicates Congress’s intent to establish
the regulation of employee welfare benefit plans ‘as
exclusively a federal concern’” (id. at 656-657 (citation
omitted)); it confirmed that “Congress’s extension of pre-
emption to all ‘state laws relating to benefit plans’ was meant
to sweep more broadly than ‘state laws dealing with the
subject matters covered by ERISA’” (id. at 661 (quoting
Shaw, 463 U.S. at 98 & n.19)); and it disavowed none of the
Court’s prior decisions in this area. Indeed, more recently,
in Dillingham, the Court expressly restated the controlling
“two-part inquiry: A ‘law “relate[s] to” a covered employee
benefit plan for purposes of § 514(a) “if it (1) has a
connection with or [2] reference to such a plan.”’” 117 S. Ct.
at 837 (quoting Greater Washington Bd. of Trade, 506 U.S.
at 129, and Shaw, 463 U.S. at 96-97) (bracketed material
added by the Court). The Ninth Circuit's failure to apply that
test here led it fundamentally astray.

B. The Elfstrom Rule “Relates To” ERISA Plans And
Therefore Is Preempted

In upholding the Elfstrom rule’s application to ERISA
plans, the court of appeals paid no heed at all to the policies
served by the preemption clause. As we have explained, a
restrictive approach to preemption harms interests that
Congress regarded as crucial to the sound operation of plans.
Yet the court of appeals endorsed an approach that would
subject plans to inconsistent state rules, that would impose
substantial added expenses on plan sponsors, and that —
while perhaps benefitting Mr. Ward — would injure plan
beneficiaries in the aggregate. A proper application of this
Court’s precedents, and a faithful adherence to ERISA’s

14

governing principles, require setting the Ninth Circuit's
decision aside.

1. At the outset, the Elfstrom rule must be preempted
because it has a “reference” to ERISA plans. “Where a
State’s law acts immediately and exclusively on ERISA plans,
* * * or where the existence of ERISA plans is essential to
the law’s operation, * * * that ‘reference’ will result in pre-
emption.” Dillingham, 117 S. Ct. at 838. That plainly is the
case here.

Elfstrom addressed an employer’s obligation when it acts
as the administrator of a group imsurance policy that it
obtained for the benefit of its employees. See Elfstrom v.
New York Life Ins. Co., 67 Cal.2d 503, 509-510 (1967). The
California Supreme Court explained that “[t}he administration
of a group policy may be handled either by the insurer itself
on the basis of information furnished to it by the employer or,
as in the present case, by the employer.” Jd. at 509. With
that understanding, the court addressed the question “whether
an employer acts as the agent of the insurer or of the
employees in administering a policy of group insurance.” /d.
at 511. The answer to that question — the Elfstrom “rule”
announced by the California court and applied by the Ninth
Circuit in this case — is that “the employer is the agent of the
insurer in performing the duties of administering group
insurance policies.” Jd. at 512.

The Elfstrom rule therefore is expressly and specifically
designed to govern in only one circumstance: when an
employer has obtained and is administering a group insurance
policy for the benefit of its employees. See also Metropolitan
Life, 471 U.S. at 727 (describing group imsurance). And that
means, of course, that the rule is directed expressly and
exclusively at ERISA welfare plans, which are defined to
include, among other things, any “‘plan, fund, or program’
maintained for the purpose of providing medical or other
health benefits for employees or their beneficiaries ‘through

15

the purchase of insurance or otherwise.’” Greater Washington
Bd. of Trade, 506 U.S. at 127 (quoting ERISA § 3(1), 29
U.S.C. § 1002(1)). See Travelers, 514 U.S. at 650-651.
The Elfstrom rule’s “reference” to ERISA plans thus would
appear inarguable.

Petitioner’s preemption challenge to the Elfstrom rule
therefore is governed by the repeated decisions of the Court
that “‘have virtually taken it for granted that state laws which
are “specifically designed to affect employee benefit plans”
are pre-empted under § 514(a).’” Ingersoll-Rand, 498 U.S.
at 140 (quoting Mackey v. Lanier Collection Agency & Serv.,
Inc., 486 U.S. 825, 829 (1988)). In Ingersoll-Rand, for
example, the Court held preempted a state common law
action that was brought by an employee who claimed that he
had been discharged to prevent the attainment of pension
benefits; the Court explained that the state “cause of action
makes specific reference to, and indeed is premised on, the
existence of a pension plan.” Jbid. Similarly, in Greater
Washington Board of Trade the Court struck down a local law
that required employers to provide health insurance to injured
employees who were eligible for workers’ compensation.
Explaining that the required coverage was measured by the
insurance benefits provided to active employees, the Court
held that “any state law imposing requirements by reference
to such covered programs must yield to ERISA.” 506 U.S.
at 130-131. And in Mackey, the Court invalidated a state law
that specifically exempted ERISA plans from an otherwise
generally applicable state garnishment provision. 486 U.S.
at 828 n.2, 829-830. See also FMC, 498 U.S. at 59 (state
statute makes a “reference” to ERISA plans and is preempted
because it described benefits payable by various health plans).

Rather remarkably, the court of appeals made no mention
of any of these decisions. Perhaps the court believed that all
had been swept away by Travelers. If so, it most assuredly
was misguided; each of these decisions recently was cited
with approval in Dillingham. See 117 S. Ct. at 837-838. In

16

any event, the Ninth Circuit's only effort to explain its
holding was the assertion that “Elfstrom does not dictate the
benefits to be provided or the manner in which the plan will
be administered.” Pet. App. 2la. Even if the court’s
characterization of Elfstrom were correct, however, its
observation would be beside the point, for precisely the same
thing could be said of the state laws that were invalidated in
Ingersoll-Rand and Mackey: they also did not dictate benefits
or mandate particular methods of plan administration.’ As in
those cases, there is no doubt that the Elfstrom rule “act[s]}
exclusively on, or rel[ies] on the existence of, ERISA plans”
(Boggs, 117 S. Ct. at 1769 (Breyer, J., dissenting)), and that
is enough to require preemption. Under any reading of
Section 514(a), Elfstrom thus intrudes into “the field of laws
regulating ‘employee benefit plan{s) described in [29 U.S.C.
§] 1003(a).’” Dillingham, 117 S. Ct. at 843 (Scalia, J.,
concurring) (quoting 29 U.S.C. § 1144(a)).

2. The Elfstrom rule — and all similar state agency rules
— also must be preempted because it has a “connection with”
ERISA plans. “[{T]o determine whether a state law has the
forbidden connection, [the Court] look[s] both to ‘the
Objectives of the ERISA statute as a guide to the scope of the
state law that Congress understood would survive,’ * * * as
well as to the nature of the effect of the state law on ERISA
plans.” Dillingham, 117 S. Ct. at 838 (quoting Travelers,
514 U.S. at 656-656). That inquiry requires preemption here
because it is settled that one of ERISA’s principal objectives
is the elimination of state rules “that risk subjecting plan

? In fact, the court of appeals’ description of Elfstrom plainly was
incorrect; application of the rule has a direct impact on plan
administration by dictating the manner in which notice of claims
may be provided. Moreover, as we also explain below in
Elfstrom rule requires a departure from the claims procedure that
is spelled out in the written plan documents.

17

administrators to conflicting state regulations.” FMC Corp.,
498 U.S. at 59.

That risk is apparent here. If agency rules such as the one
stated in Elfstrom survive, particular actions that are related
to plan administration will have radically differing
consequences in different jurisdictions. In States that make
use of an Elfstrom or related rule, the employer’s knowledge
would be imputed to the insurer, resulting in liability for
benefits; in other States, the terms of the plan would govern
and liability would not attach. As a result, prudent employers
that wish to avoid unanticipated liability would have to make
use of differing administrative mechanisms in different
jurisdictions, or would have to base a nationwide system of
administration on the rules of the State that provides for the
most expansive system of liability. In either case, the
employer would be “required to accommodate conflicting
regulatory schemes in devising and operating a system for
processing claims and paying benefits — precisely the burden
that ERISA pre-emption was intended to avoid.” Fort
Halifax, 482 U.S. at 10. See generally Pilot Life, 481 U.S.
at 47-48; Metropolitan Life, 471 U.S. at 739. This
accordingly is a case where “state law intrudes into an area
Congress (given ERISA’s basic objectives) would have
wanted to reserve exclusively for federal legislation.” Boggs,
117 S. Ct. at 1769 (Breyer, J., dissenting). See Jngersoll-
Rand, 498 U.S. at 142.

C. The Notice-Prejudice Rule Is Preempted Because It
Conflicts With Substantive Provisions of ERISA
And Is Not Validated By The Insurance Saving
Clause

The court of appeals also erred in its conclusion that the
State-law “notice-prejudice” rule survives preemption. In
Cisneros, the decision whose reasoning was adopted by the
court below, the Ninth Circuit appears to have assumed
(correctly) that the rule falls within the scope of ERISA’s

18

preemption clause. See 134 F.3d at 943.’ But the court’s
reasoning hopped the track when it went on to hold that
preemption is vitiated by ERISA’s insurance saving clause.
The court erred for two independent reasons. Entirely apart
from the meaning of the saving clause, the notice-prejudice
rule must fall because it directly conflicts with ERISA’s
substantive provisions. And the court’s analysis of the saving
clause was, in any event, inconsistent both with this Court’s
decisions and with fundamental ERISA policy. Again, then,
the court of appeals’ approach runs directly counter to the
interest of plans, of plan sponsors, and of plan beneficiaries.

1. The court of appeals correctly held that the terms of
the UNUM disability policy — which is the controlling
ERISA plan document in this case — “unambiguously
establish that * * * timely submission of proof is a condition
precedent to payment of benefits.” The court aiso recognized
that “Ward’s submission of notice and proof plainly was
untimely under the express terms of the UNUM policy.”
Pet. App. Sa. Having reached that conclusion, however, the
court skipped immediately to the question whether the notice-
prejudice rule is saved by the insurance saving clause; the
court did not pause to consider the possibility that a state-law
rule cannot be given force if it requires a court to disregard
the terms of a written ERISA plan. That was a fatal
oversight.

In fact, this Court has emphasized that ERISA is in
substantial part “built around reliance on the face of written
plan documents.” Curtiss-Wright, 514 U.S. at 83. As the
Court has explained, one of “ERISA’s core functional
requirements” is

> As the United States recognizes in its brief in this case, there
can be no doubt that the notice-prejudice rule relates to ERISA
plans; it requires use of a particular method of administration,
setting aside the choice made by the plan sponsor.

19

that “[e]very employee benefit plan shall be established
and maintained pursuant to a written instrument.” 29
U.S.C. § 1102(a)(1) (emphasis added). In the words of
a key congressional report, “[a] written plan is to be
required in order that every employee may, on examining
the plan documents, determine exactly what his rights and
obligations are under tre plan.” H.R. Rep. No. 93-1280,
p. 297 (1974) (emphasis added). ERISA gives effect to
this “written plan documents” scheme through a
comprehensive set of “reporting and disclosure”
requirements * * * .

Ibid. Indeed, “plan administrators appear to have a statutory
responsibility actually to run the plan in accordance with the
currently operative, governing plan documents.” Jd. at 84.
See 29 U.S.C. § 1104(a)(1)(D) (plan administrators have duty
to run the plan “in accordance with the documents and
instruments governing the plan insofar as such documents and
instruments are consistent with the provisions of [ERISA]”).
See also 29 C.F.R. § 2560.503-1(d) (“[a] claim [for plan
benefits] is filed when the requirements of a reasonable claim
filing procedure of a plan have been met”) (emphasis added).

The California rule at issue here is flatly inconsistent with
this central element of ERISA. The federal statute requires
administrators to implement the provisions of the plan
documents, and gives those documents the crucial role in
informing employees about both their rights and their
obligations. The notice-prejudice rule, on the other hand,
authorizes the employee to disregard obligations stated in
those documents — and would require administrators to act
in a manner that the documents do not authorize. In these
circumstances, “there is a conflict [between ERISA and the
state law], which suffices to resolve the case.” Boggs, 117
S. Ct. at 1760. Whatever the meaning of the preemption and
saving clauses, preemption is mandated by “the state law’s
frustration of congressional intent.” Shaw, 463 U.S. at 97

20

n.15. See Pilot Life, 481 U.S. at 57; Alessi, 451 U.S. at
524.

2. While the existence of a direct conflict with ERISA’s
substantive provisions means that the saving clause (whatever
its proper construction) cannot save California’s notice-
prejudice rule, it should be added that the court of appeals
erred imrits understanding of the clause. It is settled that, to
determine whether a state law is one regulating insurance for
purposes of the saving clause, the Court first takes a
“common-sense view” of the language.” Pilot Life, 481 U.S.
at 48. The Court then looks to the three criteria used to
determine whether a practice falls within the “business of
insurance” for purposes of the McCarran-Ferguson 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.”

Id. at 48-49 (quoting Union Labor Life Ins. Co. v. Pireno,

458 U.S. 119, 129 (1982)). See Metropolitan Life, 471 U.S.

at 740-743.

While the Court has held that the presence of a single one
of these criteria is mot sufficient to warrant treatment of a
given practice as part of the business of insurance (see Pilot
Life, 481 U.S. at 51), it never has held a state law to involve
the regulation of insurance unless all of the criteria are
present. The Court should not depart from that approach
here. That is especially so because all of the relevant
considerations actually point away from the conclusion that
the notice-prejudice rule regulates the business of insurance
— meaning that the saving clause cannot apply. Indeed, while
the saving clause necessarily countenances a degree of
inconsistency in the rules governing insured plans (see, ¢.g.,
Metropolitan Life, 471 U.S. at 747), the expansive approach

ee ee

21

taken to the clause by the court of appeals would subject
plans to a virtually limitless and undefined body of state
common law, which would cause the very inefficiency,
uncertainty, and expense that Congress understood to harm
the sound operation of ERISA plans.

First, under a “common sense” approach the notice-
prejudice rule does not qualify as an insurance regulation. In
holding to the contrary, the court of appeals opined that the
rule “is directed specifically at the insurance industry and is
applicable only to insurance contracts.” Cisneros, 134 F.3d
at 945. But as petitioner demonstrates (at Br. 27-30), the
court was wrong about this as a matter of state law because
the rule is only one manifestation of a broader and generally
applicable rule of contract law; “it is plain that the [rule] is
not limited to entities within the insurance industry.” United
States Dep’t of the Treasury v. Fabe, 508 U.S. 491, 517
(1993) (Kennedy, J., dissenting). Even if the rule is

“identified * * * with the insurance industry,” “the roots of
the law are firmly planted in the general principles of
[California] * * * contract law.” Pilot Life, 481 U.S. at 50.
As a consequence, “a common-sense understanding of the
phrase ‘regulates insurance’ does not support the argument
that the [notice-prejudice rule] falls under the saving clause.”
Ibid.

Moreover, courts should be especially cautious when
asked to hold that common law tort or contract rules qualify
as regulations of insurance within the meaning of ERISA or
the McCarran-Ferguson Act. Such rules have nothing in
common with considered state statutory or regulatory
oversight regarding benefits, rates, insurance reserves, and
the like, which were the central congressional concern at the
time of the enactment of the McCarran-Ferguson Act. See,
e.g., Group Life & Health Ins. Co. v. Royal Drug Co., 440
U.S. 205, 217-219 (1979). As the claims in Pilot Life and
this case illustrate, according the same protection to particular
applications of common law rules would invite manipulation

22

and impossibly fine line-drawing, while giving the McCarran-
Ferguson Act and the ERISA insurance saving clause an
essentially limitless sweep.

Second, the court of appeals itself acknowledged that the
rule “does not spread the policyholder’s risk within the
meaning of the first McCarran-Ferguson factor.” Cisneros,
134 F.3d at 946. That conclusion should. have been
dispositive. “There is general agreement that the primary
concerns of an insurance contract are the spreading and the
underwriting of risk, * * * and [the Court] hafs] often
recognized this central principle.” Fabe, 508 U.S. at 511
(Kennedy, J., dissenting). See Royal Drug, 440 U.S. at 212,
221 (identifying the “underwriting or spreading of risk as an
indispensable characteristic of insurance” and noting that
“Congress understood the business of insurance to be the
underwriting and spreading of risk”). It is difficult to see
how the notice-prejudice rule could be a regulation of the
business of insurance when the practice that it regulates “does
not involve the transfer of risk from insured to insurer, the
type of risk spreading that is the essence of the contract of
insurance.” Fabe, 508 U.S. at 512-513 (Kennedy, J

dissenting).

Third, the court of appeals found that the notice-prejudice
rule affected an integral part of the policy relationship
between insured and insurer because the rule “effectively
creates a mandatory contract term.” Cisneros, 134 F.3d at
946. On examination, however, the rule’s “connection to the
insurer-insured relationship is attenuated at best.” Pilot Life,
481 U.S. at 50-51. Here, the contractual relationship runs
directly between the employer and the insurance company,
and it is MAC and UNUM that negotiated over contract terms
and administrative requirements; the notice-prejudice rule, in
contrast, affects a different relationship, that between MAC’s
covered employees and the insurer. Cf. Royal Drug, 440
U.S. at 213-213. Moreover, the rule does not affect “the
substantive terms of insurance contracts” (FMC, 498 U.S. at

Ee ene

23

61 (emphasis added)) or “the type of insurance that an insurer
may sell to the policyholder” ( Metropolitan Life, 471 U.S.
at 743 (emphasis added)), and it therefore is doubtful that it
can be characterized as “regulat[ing] an integral part of the
relationship between the insurer and the policyholder” (ibid.
(emphasis added)); “[iJt does not follow that because an
agreement is necessary to provide insurance, it is also the
‘business of insurance.’” Royal Drug, 440 U.S. at 214 n.9.

Fourth, for reasons already explained, the notice-prejudice
rule, “even if associated with the insurance industry, has
developed from general principles of * * * contract law
available in any [California] * * * contract case.” Pilot Life,
481 U.S. at 51. For these reasons, the notice-prejudice rule
should not be deemed saved by the saving clause.

** * *

In enacting ERISA, Congress recognized that healthy
benefit plans, regulated by predictable and uniform rules, are
essential to the economic well-being of tens of millions of
employees and other beneficiaries. It acknowledged that such
plans are a central component of a sound relationship between
companies and their employees. And by providing for the
comprehensive federal regulation of welfare and pension
benefit plans, it established such plans as important elements
in the proper functioning of the national economy.

The approach taken by the court below, however,
threatens considerable harm to those interests. It would make
inevitable the application to plans of conflicting state
standards, creating significant inefficiencies and expense. It
would invite continuing litigation about the meaning of
varying state standards. And it ultimately would injure
beneficiaries by inducing plan sponsors to reduce or eliminate
benefits, while creating disincentives for the creation of new
plans. This Court should reject that approach, reaffirming its
understanding that Congress made an expansive preemption
provision a central element of ERISA.

24

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

Respectfully submitted.

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0180%3A18. Public record. Not legal advice.