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

Supreme Court, U.S. |

FILED |

| JAN 8 1999

OFFICE OF THE CLERK

No. 97-1868 ro

SS Se A RN AO OTE TALON TTR SOON A NATE OEE Bi IE

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1997

UNUM LIFE INSURANCE COMPANY OF AMERICA,

Petitioner,

Vv.

JOHN E. WARD,

Respondent.

On Writ of Certiorari To The

United States Court of Appeals

For the Ninth Circuit

BRIEF AMICUS CURIAE OF THE

AMERICAN ASSOCIATION OF RETIRED PERSONS

IN SUPPORT OF RESPONDENT

MARY ELLEN SIGNORILLE*

AARP FOUNDATION LITIGATION

MELVIN RADOWITZ

AMERICAN ASSOCIATION

OF RETIRED PERSONS

601 E Street, N.W.

Washington, DC 20049

(202) 434-2060

Counsel for Amicus Curiae

American Association of

Retired Persons

*Counsel of Record

i

TABLE OF CONTENTS

INTEREST OF AMICUS CURIAE

SUMMARY OF ARGUMENT

ARGUMENT

I. RECENT PREEMPTION DECISIONS AND

TRADITIONAL SUPREMACY CLAUSE

ANALYSIS URGE A REEXAMINATION OF

PILOT LIFE

A. The Impact of Pilot Life’s Holding Cannot

be Underestimated

. Under ERISA, State Laws Regulating the

Business of Insurance Are Unique and

Require a More Critical Analysis than Other

Types of State Laws

1. Compliance with both California’s

notice-prejudice rule and ERISA is

not a physical impossibility

California’s notice-prejudice rule

does not stand as an obstacle to the

accomplishment and execution of

the full purposes and objectives of

Congress

CONCLUSION

ii

TABLE OF AUTHORITIES

CASES

American Drug Stores, Inc. v. Harvard Pilgrim

Health Care, Inc., 973 F. Supp. 60 (D. Mass. 1997) .... )

Andrews-Clarke v. Travelers Ins. Co.,

984 F. Supp. 49 (D. Mass. OF). oc cen vcrveeewe en 8

Arizona Governing Comm. for Tax Deferred

Annuity and Deferred Compensation Plans

v. Norris, 463 U.S. 1073 (1983)... ee ee ee ee es 12

Boggs v. Boggs, 117 S. Ct. 1754 (1997)... .+-+++: passim

California Division of Labor Standards Enforcement

v. Dillingham Construction, N.A., Inc.,

519 U.S. 316 (1997) 2... eee ee ee eee eee eee 2,3

Community Health Partners, Inc. v. Commonwealth,

14 F. Supp.2d 991 (W.D. Ky. 1998)... -- eee eees 9

Corcoran v. United Healthcare, Inc..,

965 F.2d 1321 (Sth Cir. 1992) ... 2... eee eee eeres 8

Corporate Health Ins., Inc. v. Texas Dep't of Ins.,

12 F. Supp.2d 597 (S.D. Tex. 1998) ...--- ++ eee ees 9

DeBuono v. NYSA-ILA Medical & Clinical Servs.

Fund, 520 U.S. 806 (1997) «00... eeeeeeee reese 2

Degan v. Ford Motor Co.,

869 F.2d 889 (Sth Cir. 1989)... ee ee eee eens 8

Dukes v. U.S. Healthcare, Inc.,

57 F.3d 350 (3d Cir. 1995) ... 6. cece creer eens 8

v. New York Life Ins. Co.,

432 P.2d 731 (1967)... eee ee eee eee eee eeee

iii

English v. General Electric Co., 496 U.S. 72 14

FMC Corp. v. Holliday, 498 U.S. 52(1990) ....... 16, 17

Florida Lime & Avocado Growers, Inc. v. P,

373 U.S. 132 (1963) ....... totem = <TR ee 16

Gade v. National Solid Wastes M. ement Ass’

505 U.S. 88 (1992) ...... eras cts: @ eas

Hisquierdo v. Hisquierdo, 439 U.S. 572 (1979) ........ 12

John Hancock Mutual Life Ins. Co. v. Harris

Trust & Savings Bank, 510 U.S. 86 (1993) ....... passim

Los Angeles Dep't of Water & Power v. Manhart

435 U.S. 702 ye Aa eens ae 1 ey 12

McCarty v. McCarty, 453 U.S.210(1981) ........... 12

Metropolitan Life Ins. Co. v. Massachusetts,

Se 16

Pacific Gas & Elec. Co. v. State Resourc

Conservation & Dev. — i

EEE 4, 10

Pilot Life Ins. Co. v. Dedeaux,

EE passim

Prudential Ins. Co. v. National Park Medical

Center, Inc., 154 F.3d 812 (8th Cir. 1998) ......... 2,9

Shaw v. Delta Air Lines, Inc.,

15, 17

Silkwood v. Kerr-McGee Corp

i 11

995 F.2d $00 tats Co 1993) —

iv

Washington Physicians Service Ass'n v. Gregoire,

147 F.3d 1039 (9th Cir. 1998), petition for cert.

filed, 67 U.S.L.W. 3376 (U.S. Nov. 23, 1998)

Gee. GHG. cn ocuccbcscocccceetecveevececes 2,9

Wisconsin Public Intervenor v. Mortier,

FF f Bre rri rrr TTT Tre 16

CONSTITUTION, STATUTES & REGULATIONS

OS. Guat. GE. VE GRD cocctccvesseovedsssecas 4, 10

Employee Retirement Income Security Act (ERISA)

DORE, BE | 05s is devseeeereteess 2

> & 23 5) =) Serer errr 15

§ 404(a)(1)(D), 29 U.S.C. § 1104(aylKD) ......... 12

§ 502(a), 29 U.S.C. § 1132(a) .............. 4,7, 11

}. & 2 5). | PPT ETErere 12, 13

8 SUGGR., FD UB. GS EBGEED cccceseccccss 3, 4, 6, 10

§ 514(b)(2)(A), 29 U.S.C. § 1144(00)(2M(A) ... .. 3, 4, 6, 10

§ 514(b)(2)(B), 29 U.S.C. § 11440)(2)(B) ........«. 6

Mental Health Parity Act of 1996,

Pub. L. No. 104-204, 110 Stat. 2944

(codified at ERISA § 712,

29 U.S.C.A. § 1185a (West 1999)) ... 2... 6 ee eee 16

Newborns’ and Mothers’ Health Protection Act

of 1996, Pub. L. No. 104-204, 110 Stat.

2935 (codified at ERISA § 711,

29 U.S.C.A. § 1185 (West 1999)) ..........-245-- 16

DG BS Sh eccchecasecbences 12, 13, 15

Claims Procedure for Benefit Plans,

42 Fed. Reg. 27,426 (1977) .... 1... eee ce eees 13, 15

Catherine L. Fisk, The Last Article about the Language

of ERISA Preemption? A Case Study of the Failure

of Textualism, 33 HARV. J. ON LEGIS. 35 (1996) ....... 7

Stephen A. Gardbaum, The Nature of Preemption,

72 Comes L. BBV. TET (1GDE) . ww cee 10

Karen A. Jordan, The Shifting Preemption Paradigm:

and Issues,

51 VAND. L. REV. 1149 (1998) ............... 2, 15

Wendy E. Parmet, Regulation and Federalism: Legal

Impediments to State Health Care Reform,

SP FE, File GES ED cbc t icc cccccecs 9

Pension and Welfare Benefits Admin., U.S. Dep’t

of Labor, Retirement Benefits of American

Workers: New Findings from the

1994 Current Population Survey (Sept. 1995) ......... 3

Sarah Snider & Paul Fronstin, Benefit

March 1994 Current Population Survey, EBRI

ISSUE BRIEF NO. 158/SPECIAL REPORT SR-281 (Feb. 1995) 2

Kenneth Starr, et al., American Bar Ass’n, The Law

of Preemption: A Report of the Appellate

es ks bck 10

Nicole Weisenborn, ERISA Preemption and Its Effect

on State Health Reform, 5-FALL KAN. J.L. &

OT eS ee 9

Paul Wolfson, and Federalism:

The Missing Link, 16 HASTINGS CONST. L.Q. 69 (1988) . 14

No. 97-1868

IN THE

Supreme Court of the United States

OCTOBER TERM, 1997

UNUM LIFE INSURANCE COMPANY OF AMERICA,

JOHN E. WARD,

ON WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BRIEF AMICUS CURIAE OF THE

AMERICAN ASSOCIATION OF RETIRED PERSONS

IN SUPPORT OF RESPONDENT

INTEREST OF AMICUS CURIAE

The American Association of Retired Persons (AARP) is

a nonprofit membership organization of more than 30 million

persons, age 50 or older, working or retired, that is dedicated

to addressing the needs and interests of older Americans.’

AARP seeks through education, advocacy and service to

Se ee eee

dignity and purpose. As a of promoting

Y No counsel for any party authored any portion of this brief. No

persons other than AARP, its members, or its counsel have made a

monetary contribution to the preparation and submission of this brief.

2

independence, AARP attempts to foster the economic security

of individuals as they age by seeking to increase the

availability, security, equity, and adequacy of public and

private pension, health, disability, and other employee

benefits.

AARP’s members and other participants and beneficiaries

in private, employer-sponsored employee benefit plans rely on

the Employee Retirement Income Security Act (ERISA) to

protect their rights under those plans. 29 U.S.C. § 1001 ef

seq. Contrary to its purpose, a statute that was designed to

safeguard employee benefits has, all too frequently, been used

to deprive employees of rights and protections they previously

enjoyed under state law. Even after the Court’s recent

preemption trilogy,” the lower courts still are struggling with

the breadth of ERISA’s preemption clause.” These lower

court decisions bear directly on the ability of participants and

beneficiaries to bring their claims for benefits’ as well as

” Boggs v. Boggs, 117 S. Ct. 1754 (1997); DeBuono v. NYSA-ILA

Medical & Clinical Servs. Fund, 520 U.S. 806 (1997); California

Division of Labor Standards Enforcement v. Dillingham Construction,

N.A., Inc., 519 U.S. 316 (1997).

» Compare, e.g., Washington Physicians Service Ass'n v. Gregoire,

147 F.3d 1039 (9th Cir. 1998), petition for cert. filed, 67 U.S.L.W.

3376 (U.S. Nov. 23, 1998) (No. 98-889) with Prudential Ins. Co. v.

National Park Medical Center, Inc., 154 F.3d 812 (8th Cir. 1998). Se-

generally Karen A. Jordan, The Shifting Preemption Paradigm:

Conceptual and Interpretive Issues, 51 VAND. L. REV. 1149 (1998).

* Approximately 61% of employed Americans are eligible for health

benefits through employment-based health plans. See Sarah Snider &

Paul Fronstin, Employee Benefit Research Inst., Sources of Health

Insurance and Characteristics of the Uninsured: Analysis of the March

1994 Current Population Survey, EBRI IsSUE BRIEF NO. 158/SPECIAL

REPORT SR-281, at 4 (Feb. 1995). In 1994, almost one-third of retirees

(continued...)

3

States’ attempt to provide better consumer protections for their

citizens.

Given the reliance of petitioner UNUM Life Insurance

Company of America and its amici on this Court’s decision in

Pilot Life Insurance Co. v. Dedeaux, 481 U.S. 41 (1987), this

case presents the Court with the opportunity to review its

holding in Pilot Life in light of its recent preemption

decisions.” The decision in this case will have a direct and

vital bearing on the economic security of AARP’s members

and other older Americans.” In light of the significance of

*(.. continued)

reported current coverage under the health plan of their former

employer. Pension and Welfare Benefits Admin., U.S. Dep’t of Labor,

Retirement Benefits of American Workers: New Findings from the

September 1994 Current Population Survey 3 (Sept. 1995).

Approximately 47% of Americans are covered by a pension plan or

have prior plan vested benefits. Jd. at 55, tbl. B7. Among private

sector retirees aged fifty-five and older, 43% are receiving, have

received, or expect to receive pension benefits from former

employment. /d. at 47, tbl. B2.

” AARP’s brief assumes that the Court will find that California’s

notice-prejudice rule “relates to” an employee benefit plan, ERISA

§ 514(a), 29 U.S.C. § 1144(a), and that it is exempt from preemption

under the saving clause. ERISA § 514(b)(2)(A), 29 U.S.C.

§ 1144(0)(2)(A). AARP’s brief does not address the rule of law

developed in Elfstrom v. New York Life Ins. Co., 432 P.2d 731 (1967).

© As part of its advocacy efforts to ensure, to the greatest extent

possible, that participants and beneficiaries receive the benefit of

ERISA’s protections, AARP has participated as amicus curiae in

numerous cases involving ERISA, including Boggs v. Boggs, 117 S. Ct.

1754 (1997); California Division of Labor Standards Enforcement v.

Dillingham Construction, 519 U.S. 316 (1997); and John Hancock

Mutual Life Ins. Co. v. Harris Trust & Savings Bank, 510 U.S. 86

(1993).

4

the issues presented by this case, AARP respectfully submits

this brief amicus curiae”

SUMMARY OF ARGUMENT

In Pilot Life Insurance Co. v. Dedeaux, 481 U.S. 41

(1987), this Court held that the civil enforcement provisions

under ERISA § 502(a), 29 U.S.C. § 1132(a), were to be the

exclusive vehicle for actions by ERISA plan participants and

beneficiaries asserting improper processing of a claim for

benefits. The Court’s analysis did not discuss traditional

Supremacy Clause principles although this was the implicit

basis for its holding.

In passing ERISA’s preemption clause, Congress reserved

power to legislate over the field of employee benefits, ERISA

§ 514(a), 29 U.S.C. § 1144(a), and then expressly restored

power to the states to regulate insurance as applied to

employee benefit plans. ERISA § 514(b)(2)(A), 29 U.S.C.

§ 1144(b)(2)(A). This express restoration of state power

requires critical analysis and unmistakable Congressional

intent before it can be found that a state insurance law is

preempted by ERISA under the Supremacy Clause. U.S.

Const. art. VI, cl. 2; Pacific Gas & Elec. Co. v. State Energy

Resources Conservation & Dev. Comm’n, 461 U.S. 190, 206

(1983).

laws and ERISA when it found that “ERISA leaves room for

complementary or dual federal and state regulation” and state

law would only be superseded when the “dual regimes [could]

not be harmonized or accommodated.” John Hancock Mutual

Life Ins. Co. v. Harris Trust & Sav. Bank, 510 U.S. 86, 98

(1993). In order to determine whether a state regulation is

Y The written consents of the parties have been filed with the Clerk of

the Court pursuant to Supreme Court Rule 37.3.

5

complementary or can be harmonized, it is necessary to

determine whether “‘compliance with both federal and state

regulations is a physical impossibility,’” or whether that “law

‘stands as an obstacle to the accomplishment of the full

purposes and objectives of Congress[.]’” Gade v. National

Solid Wastes Management Ass'n, 505 U.S. 88, 98 (1992)

(citations omitted).

California’s notice-prejudice rule provides that an insurer

may not deny a claim as untimely unless the insurer can show

actual prejudice (other than payment of the claim itself or

general untimeliness) resulting from the delay. This rule

neither implicates nor impinges upon ERISA’s enforcement

scheme because it provides no additional remedies or an

alternative enforcement mechanism. This rule also does not

implicate ERISA’s claims procedure because the notice-

prejudice rule is a complementary interpretive rule which

deems a claim to be timely filed. Thus, conipliance with both

state and federal laws is not a physical impossibility.

Moreover, the fact that federal and state laws are different

does not mean that there is an impermissible conflict. ERISA

is not absolute, but explicitly recognizes a role for state

insurance regulation, thus permitting state insurance laws to

supplement or complement ERISA’s standards. John

Hancock, 510 U.S. at 98. California’s notice-prejudice rule

provides additional time for a participant to have his or her

claim deemed timely filed, thus protecting their rights, while

still safeguarding the insurer from stale claims. There is no

conflict or inconsistency with ERISA. Thus, California’s

notice-prejudice rule cannot be found to stand as an obstacle

to the accomplishment and execution of Congressional

purposes and objectives. See id. at 99.

6

ARGUMENT

I. RECENT PREEMPTION DECISIONS AND

TRADITIONAL SUPREMACY CLAUSE ANALYSIS

URGE A REEXAMINATION OF PILOT LIFE.

A. The Impact of Pilot Life’s Holding Cannot Be

Underestimated.

In Pilot Life Insurance Co. v. Dedeaux, 481 U.S. 41, 43

(1987), this Court stated that the issue before it was whether

ERISA “pre-empts state common law tort and contract actions

asserting improper processing of a claim for benefits under an

insured employee benefit plan.” Mr. Dedeaux brought claims

for tortious breach of contract, fraud in the inducement and

breach of fiduciary duties against Pilot Life because it had

reinstated and terminated his disability benefits several times

during a three year period. Not only did he seek the benefits

to which he was entitled, but he also sought damages for

mental and emotional distress and punitive damages. Jd. at

43-44.

After describing ERISA’s statutory framework including

ERISA’s purpose of protecting participants and beneficiaries,

the Court set forth the mechanics to analyze ERISA’s

preemption provisions. /d. at 45. First, it must be

determined whether a state law relates to an employee benefit

plan. ERISA § 514(a), 29 U.S.C. § 1144(a). Second, if the

state law relates to a plan, it must be determined whether the

state law is saved from preemption because it is a law that

regulates insurance. ERISA § 514(b)(2)(A), 29 U.S.C.

§ 1144(b)(2)(A). Third, if the first two determinations are

answered in the affirmative, then it must be determined

whether a state law that “purport[s] to regulate insurance”

deems an employee benefit plan to be an insurance company.

ERISA § 514(b)(2)(B), 29 U.S.C. § 1144(6)(2)(B). Although

it was unnecessary to the holding of Pilot Life in that the

Court had found that the state law at issue was not saved as a

7

law regulating insurance, the Court added a fourth component

to its preemption analysis -- even if the state law is saved

because it is a law that regulates insurance, it will still be

if it directly conflicts with a provision of ERISA.

481 U.S. at 51-53.

The Court found that the civil enforcement provisions

under ERISA § 502(a), 29 U.S.C. § 1132(a), were to be the

exclusive vehicle for actions by ERISA plan participants and

beneficiaries asserting improper processing of a claim for

benefits. Jd. at 52.” Any and all other state causes of actions

for claims which fall within the scope of § 502(a) would pose

an obstacle to the purposes and objectives of Congress. The

Court relied upon the language and structure of the civil

enforcement provisions and the legislative history. The Court

characterized the civil enforcement scheme of § 502(a) as

“one of the essential tools for accomplishing the stated

purposes of ERISA.” Pilot Life, 481 U.S. at 52. The Court

stated that the civil enforcement scheme represented a balance

between the need for prompt resolution of benefit claims

against the encouragement of the formation of employee

benefit plans. Jd. at 54. The Court further explained that the

legislative history showed Congress’ expectation that a body

of federal common law would develop. The Court opined that

this expectation would be undermined if remedies available

under ERISA could be supplemented or supplanted by state

laws. Id. at 56. Thus, Pilot Life implicitly held, without

significant analysis concerning the conflict resulting from

concurrent state and federal powers, that a state law that is

exempted from preemption under ERISA’s saving clause

At least one commentator has suggested that this holding was not

compelled by ERISA’s language or its legislative history. Catherine L.

Fisk, The Last Article about the Language of ERISA Preemption? A

Case Study of the Failure of Textualism, 33 HARV. J. ON LEGIS. 35, 51-

52 (1996).

could still be preempted under the Supremacy Clause because

it conflicts with a substantive provision of ERISA.

The significance of Pilot Life’s holding cannot be

underestimated. Not only have participants been unable to

bring claims for intentional infliction of emotional distress,

bad faith dealings, and other torts and to collect punitive and

other extra contractual damages, but many participants have

been left with no remedy at all. E.g., Degan v. Ford Motor

Co., 869 F.2d 889, 895 (Sth Cir. 1989) (characterization of

this situation as “[bJetrayal [w]ithout [a] [rjemedy”). There

has been more than one case where a plan has refused to

provide a health benefit which is due and owing under the

plan, until efor ec gy grt leaving the

participant’s estate with no remedy. E.g., Andrews-Clarke v.

owe ney Ins. Co., 984 F. Supp. 49 (D. Mass. 1997)

(insurance company refused to authorize alcohol

detoxification for more than 5 days in a row although policy

permitted 30 days; participant committed suicide, and estate

had no remedy).

Moreover, recent cases dealing with managed care issues

such as utilization review have required federal courts to enter

the traditional state area of medical malpractice. These cases

have revolved around the characterization of the breach to

decide whether a state law claim may proceed. If the breach

is characterized as improper processing of benefits, the state

claim is preempted under Pilot Life. E.g., Corcoran v.

United Healthcare, Inc., 965 F.2d 1321 (Sth Cir. 1992) (suit

for wrongful death of fetus and malpractice against utilization

review company’s refusal to authorize sy to cme to

monitor pregnancy was preempted because its decisions were

benefit determinations). If it is characterized as negligent

provision of medical care or a quality of care claim, then the

claim is not preempted. E.g., Dukes v. U.S. Healthcare,

Inc., 57 F.3d 350 (3d Cir. 1995) (suit for refusal to perform

blood tests and malpractice for allowing patient’s condition to

deteriorate resulting in stillbirth was not preempted since

9

quality of care is an area of traditional state regulation and

ERISA is silent).

The significant changes in the health care industry since

ERISA’s passage has led to increased state legislative activity

to attempt to provide increased consumer protections. See,

e.g., Washington Physicians Service Ass'n v. Gregoire, 147

F.3d 1039 (9th Cir. 1998), petition for cert. filed, 67

U.S.L.W. 3376 (U.S. Nov. 23, 1998) (No. 98-889) (State of

Washington’s alternative provider statute not preempted in its

application to HMOs which sell insurance); Prudential Ins.

Co. v. National Park Medical Center, Inc. , 154 F.3d 812 (8th

Cir. 1998) (Arkansas statute ensuring that participants may

see the physician of their choice specifically excludes ERISA

plans and therefore is preempted); Stuart Circle Hosp. Corp.

v. Aetna Health Management, 995 F.2d 500 (4th Cir. 1993)

(Virginia any willing provider statute is saved from

preemption because it “regulates the business of insurance”);

Corporate Health Ins., Inc. v. Texas Dep't of Ins., 12 F.

Supp.2d 597 (S.D. Tex. 1998) (independent review provision

mandates the administration of employee benefits and

therefore relates to an ERISA plan; statute is not saved

because it is not limited to the insurance industry); American

Drug Stores, Inc. v. Harvard Pilgrim Health Care, Inc. , 973

F. Supp. 60 (D. Mass. 1997) (Massachusetts any willing

provider statute was not preempted by ERISA); Community

Health Partners, Inc. v. Commonwealth, 14 F. Supp.2d 991

(W.D. Ky. 1998) (Kentucky any willing provider statute

specifically references ERISA plans but is not preempted

because all plans are affected and statute is no different than

mandated benefit statute). Pilot Life has acted as a significant

barrier to these attempts and has resulted in creative judicial

decisions to deal with its effects. See generally Nicole

Weisenborn, ERISA Preemption and Its Effect on State Health

Reform, 5-FALL KAN. J.L. & Pus. PoL’y 147 (1995); Wendy

E. Parmet, Regulation and Federalism: Legal Impediments to

State Health Care Reform, 19 AM. J.L. & MED. 121 (1993).

10

B. Under ERISA, State Laws Regulating the

Business of Insurance Are Unique and Require a

More Critical Analysis than Other Types of State

Laws.

When enacting ERISA’s preemption section, Congress

expressly provided that ERISA preempts state laws relating to

employee benefit plans. ERISA § 514(a), 29 U.S.C.

§ 1144(a). But Congress did something more; it created an

exception explicitly ceding back power to the states to enact

legislation concerning employee benefit plans if the legislation

regulated the business of insurance. ERISA § 514(b)(2)(A),

29 U.S.C. § 1144(b)(2)(A). AARP contends that such

express restoration of state power requires a more critical

analysis and irrefutable Congressional intent before it can be

found that a state insurance law is preempted by ERISA under

the Supremacy Clause.” U.S. Const. art. VI, cl. 2; Pacific

Gas & Elec. Co. v. State Energy Resources Conservation &

Dev. Comm’n, 461 U.S. 190, 206 (1983).

Indeed, this Court has recognized this critical analysis. In

its most recent case dealing with ERISA preemption and the

insurance industry, this Court recognized that “ERISA leaves

room for complementary or dual federal and state

regulation{.]” John Hancock, 510 U.S. at 98. Significantly,

this Court held that generally state law governing insurance is

not displaced. Federal preemption would only occur ““where

compliance with both federal and state regulations is a

physical impossibility,’” Boggs v. Boggs, 117 S. Ct. 1754,

1762 (1997) (quoting Gade v. National Solid Wastes

” See Stephen A. Gardbaum, The Nature of Preemption, 79 CORNELL

L. REV. 767 (1994), arguing that there should be no preemption

doctrine and providing an in-depth historical review of preemption

cases. See generally Kenneth Starr, et al., American Bar Ass’n, The

Law of Preemption: A Report of the Appellate Judges Conference (1991)

for issues surrounding preemption.

11

Management Ass'n, 505 U.S. 88, 98 (1992)), or “‘where

(that) law stands as an obstacle to the accomplishment of the

full purposes and objectives of Congress[.]’” John Hancock,

510 U.S. at 99 (first alteration in original) (quoting Silkwood

v. Kerr-McGee Corp., 464 U.S. 238, 248 (1984)). In

Hancock, the Court “call{ed] for federal supremacy [only]

when the two regimes cannot be harmonized or

accommodated.” Jd. at 98. In essence, the Court construed

ERISA to set minimum standards which insurance laws can

complement or supplement.

And so, the issue in this case is whether compliance with

California’s notice-prejudice rule and ERISA can be

harmonized or accommodated. AARP submits that these state

and federal laws can be harmonized. In this endeavor, we

must determine whether compliance with both laws is a

physical impossibility and whether the notice-prejudice rule

Stands as an obstacle to the accomplishment of the full

purposes and objectives of Congress. We address each of

these in turn.

1. Compliance with both California’s notice-

prejudice rule and ERISA is not a physical

impossibility.

California’s notice-prejudice rule provides that an insurer

may not deny a claim as untimely unless it can show actual

prejudice (other than payment of the claim itself or general

untimeliness) resulting from the delay. This rule neither

implicates nor impinges upon ERISA’s enforcement scheme.

It does not provide any additional remedies beyond those

which ERISA provides. All this rule does is to deem a claim

timely filed so that participants may receive benefits under the

plan. Moreover, if their claim is denied, participants must

still file suit under ERISA § 502(a), 29 U.S.C. § 1132(a), in

order to receive their benefit. The notice-prejudice rule is not

an alternative enforcement mechanism. Finally, although

fiduciaries may be obligated to administer their plans in

12

accordance with their written terms, see ERISA

§ 404(a)(1)(D), 29 U.S.C. § 1104(a)(1)(D), the plans must be

administered in accordance with other ERISA provisions and

other federal and state laws. Cf. Arizona Governing Comm.

for Tax Deferred Annuity and Deferred Compensation Plans

v. Norris, 463 U.S. 1073 (1983) (s<ying women less pension

benefit than men under state plan edrinistered by companies

using only sex-based mortality tables which accounted for

greater life expectancy violated Title VII); Los Angeles Dep't

of Water & Power v. Manhart, 435 U.S. 702 (1978) (holding

that an employer had violated Title VII by requiring its female

employees to make larger contributions to a pension fund than

male employees in order to obtain the same monthly benefits

upon retirement). Consequently, the only provision of ERISA

which California’s notice-prejudice rule potentially implicates

is ERISA’s claims procedure. ERISA § 503, 29 U.3.C.

§ 1133; 29 C.F.R. § 2560.503-1.

AARP submits that there is no direct conflict between

California’s notice-prejudice rule and ERISA’s claims

procedure. Compliance with both is not a physical

impossibility. Compare McCarty v. McCarty, 453 U.S. 210

(1981) (federal law prohibiting attachment of military

retirement pay preempted state community property laws

permitting such attachment); Hisquierdo v. Hisquierdo, 439

U.S. 572 (1979) (federal law prohibiting attachment of

railroad retirement income preempted state community

property laws expressly permitting division of same). Indeed,

an insurer and/or plan may comply both with this rule and

with ERISA’s claim procedure.

Recent cases illustrate the high burden which must be met

in order for the Court to find that compliance with both

federal and state laws is a physical impossibility. In John

Hancock, this Court rejected the argument that ERISA and

state insurance laws were at odds and “would pose

schemes” concerning the regulation of insurance general

13

account contracts. 510 U.S. at 97. The Court did not believe

that ERISA’s fiduciary requirement to act solely in the interest

of participants and state insurance requirements to consider

the interests of all its contract holders, creditors and

shareholders were in conflict, but rather these requirements

could exist as dual federal and state regulation. Jd. at 97-98.

In contrast is Boggs v. Boggs, 117 S. Ct. 1754 (1997), in

which this Court found that there was a direct clash between

a state law permitting testamentary transfer by a predeceased

nonparticipant spouse and ERISA’s requirement of a

survivor's annuity. The Court held that it would undermine

ERISA’s mandated survivor annuity to allow a predeceased

nee ae cade ee

surviving spouse’s entitlement to the annuity ERISA

pra Id. at 1761.

In this case, it is clear that an insurer may comply with

both California’s notice-prejudice rule and ERISA’s claims

. requires

plan provide a claims procedure which a participant may use

to appeal the denial of a claim for benefits. The claims

procedure must provide full and fair review of the appeal.

ERISA § 503, 29 U.S.C. § 1133. Second, > rege

Labor proscribed regulations ee Sees one

benefit plan must process claims. 29 C.F.R. § 2560.503-1

(regulation sets forth minimum requirements which the benefit

claims procedures of ERISA plans must meet to be deemed

reasonable); Claims Procedure for Employee Benefit Plans,

42 Fed. Reg. 27,426 (1977) (preamble explaining operation

and purpose of regulation). However, the statute and claims

procedure regulations are silent on the time by which

participants must file their claim. The only requirement is

that the amount of time be reasonable. Consequently, in this

case, the claims procedure in UNUM’s policy

provided a time frame in which to file his claim. All

14

California’s notice-prejudice rule does is to permit a claim to

be deemed timely filed unless the insurer can show it was

actually prejudiced. California’s notice-prejudice rule acts as

an interpretive or “deeming” rule in determining whether an

insurance claim has been timely filed.

Because an imsurer can physicaily comply with both

California’s notice-prejudice rule and ERISA’s claims

procedure, there is no direct conflict between these two laws.

2. California’s notice-prejudice rule does not stand

as an obstacle to the accomplishment and

execution of the full purposes and objectives of

Congress.

The second prong for determining whether there is a

conflict between state and federal law is much more nebulous

“stands as an obstacle” prong forces the Court to determine

the intent of Congress, which is not dissimilar to field

preemption and the determination whether Congress intended

to occupy the field. Paul Wolfson, Preemption and

Federalism: The Missing Link, 16 HASTINGS CONST. L.Q. 69

(1988). However, because Congress expressly ceded power

back to the states to regulate the business of insurance, AARP

contends that it is crucial not to conflate field and conflict

preemption principles. Thus, the Court’s test of whether

the state insurance law can be harmonized and accommodated

with ERISA recognizes this distinction and strikes the right

2 In contrast to conflict preemption, field preemption leaves no room

for states to supplement federal regulation because Congressional intent

is inferred from the comprehensiveness of the federal regulations.

English v. General Electric Co., 496 U.S. 72, 78-79 (1990).

15

balance in determining whether Congress intended to oust

state insurance law.” John Hancock, 510 U.S. at 97-98.

Analysis of whether a state law frustrates the

attainment of Congress’ objectives involves

several steps: an identification of congressional

purposes, an assessment of the effect of the state

law and a determination whether that effect

‘stands as an obstacle’ to one of the purposes

underlying the federal law.

Jordan, supra, at 1200.

In analyzing Congress’ purposes, the Court must look not

only at the stated purposes but at the structure of the statute as

a whole.” ERISA’s declared principal purpose is “to protect

plan participants and beneficiaries . ” Boggs, 117 S. Ct.

at 1762 (citing Shaw v. Delta Air Lines, Inc., 463 U.S. 85,

90 (1983)); ERISA § 2(b), 29 U.S.C. § '1001(b). The

purpose of ERISA’s claims procedure and its interpreting

regulations is to provide minimum standards to protect

participants and beneficiaries. See 29 C.F.R. § 2560.503-1;

Claims Procedure for Employee Benefit Plans, 42 Fed. Reg.

27,426 (1977). Consequently, AARP contends that the fact

that federal and state laws are different does not mean that

there is an impermissible conflict. In this instance, we would

further contend that state insurance laws may set additional

4 In determining whether there is preemption under the Supremacy

Clause, uniformity is not an appropriate purpose to be considered.

However, uniformity is an appropriate purpose to be considered in the

context of field preemption. Karen A. Jordan, The Shifting Preemption

Paradigm: Conceptual and Interpretive Issues, 51 VAND. L. REV. 1149,

1174-76 (October 1998).

Characterization of the federal and state purposes is determinative of

the outcome of the analysis. Erwin Chemerinsky, Constitutional Law:

Principles and Policies, § 5.2 (1997).

16

standards to ERISA’s minimum standards. In other words,

ERISA is not absolute, but explicitly recognizes a role for

state insurance regulation, thus permitting state insurance laws

to supplement or complement ERISA’s standards. John

Hancock, 510 U.S. at 97-98; of. Wisconsin Public Intervenor

v. Mortier, 501 U.S. 597 (1991) (federal law set the minimum

standard for pesticide use, and thus did not preempt local

rules); Florida Lime & Avocado Growers, Inc. v. Paul, 373

U.S. 132 (1963) (federal law did not preempt state law setting

other standards for measuring the maturity of avocados).

This analysis is consistent with this Court’s decisions in

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

Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724

(1985). In Metropolitan Life, this Court held that ERISA did

not preempt a state law mandating minimum mental health

benefits because it was exempted under the saving clause. /d.

at 744. The court did not find that state laws regulating the

substantive terms of group health insurance contracts conflict

with ERISA. Similarly, in FMC Corp., this Court held that

a State anti-subrogation clause was preempted as applied to a

self-funded ERISA plan. The Court emphatically stated:

{I}f the plan is insured, a State may regulate it

indirectly through regulation of its insurer and

its insurer’s insurance contracts; if the plan is

uninsured, the State may not regulate it. As a

4’ We note that Congress has recently passed certain mandated benefit

laws. Newborns’ and Mothers’ Health Protection Act of 1996, Pub. L.

No. 104-204, 110 Stat. 2935, 2935-39 (codified at ERISA § 711, 29

U.S.C.A. § 1185 (West 1999)) (minimum hospital length of stay for

postpartum care); Mental Health Parity Act of 1996, Pub. L. No. 104-

204, 110 Stat. 2944, 2944-47 (codified at ERISA § 712, 29 U.S.C.A.

§ 1185a (West 1999)) (prohibiting annual or lifetime limits on mental

health benefits that are lower than any comparable limits for medical

and surgical benefits). Unlike the law at issue in Metropolitan Life,

these laws apply to both insured and self-funded ERISA plans.

17

result, employers will not face “‘conflicting or

inconsistent State and local regulation of

employee benefit plans.’”

FMC Corp., 498 U.S. at 64 (quoting Shaw, 463 U.S. at 99).

Clearly, the Court implicitly found that state insurance

regulation did not lead to conflict or inconsistency with

Here, the state insurance law protects participants and

beneficiaries by providing a complementary interpretive rule

which will deem their claims to be timely filed. The insurer

obviously meets the ERISA’s claims procedure standards by

providing a reasonable period of time to file a claim. The

effect of this state law is to provide additional time for a

participant to have his or her claim deemed timely filed, while

still protecting the insurer from stale claims. There is no

conflict or inconsistency with ERISA. Thus, California’s

notice-prejudice rule cannot be found to stand as an obstacle

to the accomplishment and execution of Congressional

purposes and objectives. Instead, this law can easily be

harmonized or accommodated with ERISA.

18

CONCLUSION

For the above reasons, AARP urges the Court to hold that

California’s notice-prejudice rule should not be preempted

under the Supremacy Clause because it can be harmonized

and accommodated with ERISA’s claims procedure.

January 8, 1999 “s Respectfully submitted,

Jha, Led jy Lt

Maty Ellen Signorille

(Cgunsel of Record)

AARP Foundation

Litigation

Melvin Radowitz

American Association

of Retired Persons

601 E Street, N.W.

Washington, DC 20049

(202) 434-2060

Counsel for Amicus

Curiae