Amicus Curiae Brief — Great-West Life & Annuity Ins. Co. v. Knudson

MOTION. FILED a ee ee

PP reins

IN THE

Supreme Court of the United States

GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY,

EARTH SYSTEMS, INC. and THE HEALTH AND WELFARE

PLAN FOR EMPLOYEES & DEPENDENTS OF EARTH

SYSTEMS, INC.,

Petitioners,

v.

JANETTE KNUDSON and ERIC KNUDSON,

Respondents.

On Wait or CERTIORARI TO THE

Unitrep STATES CouRT OF APPEALS FOR THE NINTH CIRCUIT

MOTION OF THE AMERICAN ASSOCIATION OF

HEALTH PLANS, THE AMERICAN BENEFITS COUNCIL,

THE BLUE CROSS BLUE SHIELD ASSOCIATION, THE

CHAMBER OF COMMERCE OF THE UNITED STATES,

AND THE HEALTH INSURANCE ASSOCIATION OF

AMERICA FOR LEAVE TO FILE A BRIEF AS AMICI

CURIAE AND BRIEF OF AMICI CURIAE IN SUPPORT

OF PETITIONERS

STEPHANIE W. KANwIt

Counsel of Record

KATHLEEN A. PETERSON

EpsTEIN BECKER & GREEN, P.C.

1227 25" Street, N.W., Suite 700

Washington, D.C. 20037

(202) 861-0900

Attorneys for Amici Curiae

(additional counsel listed on inside cover)

166883 g

COUNSEL PRESS

(800) 274-3321 + (800) 359-6859

q

Avr

Louis SACCOCCIO

AMERICAN ASSOCIATION

OF HEALTH PLANS

1129 20" Street, N.W

Suite 600

Washington, D.C. 20036

(202) 778-3210

LYNN DUDLEY

AMERICAN BENEFITS COUNCIL

1212 New York Avenue, N.W.

Suite 1250

Washington, D.C. 20005

(202) 289-6700

Rocer G. WILSON

Biue Cross BLUE SHIELD ASSOCIATION

225 North Michigan Avenue

Chicago, IL 60601

(312) 297-6000

Rosin S. CONRAD

JosHua A. ULMAN

NATIONAL CHAMBER LITIGATION

CENTER, INC.

Counsel for the Chamber of

Commerce of the United States

1615 H Street, N.W.

Washington, D.C. 20062

(202) 463-5337

JerFREY GABARDI

HEALTH INSURANCE ASSOCIATION

OF AMERICA

555 13” Street, N.W.

East Tower

Washington, D.C. 20004

(202) 824-1621

MOTION FOR LEAVE TO

FILE A BRIEF AMICI CURIAE

Pursuant to Supreme Court Rule 37, the American

Association of Health Plans, the American Benefits Council,

the Blue Cross Blue Shield Association, the Chamber of

Commerce of the United States, and the Health Insurance

Association of America respectfully move this Court to grant

them leave to file a brief amici curiae in support of Petitioners

Great-West Life & Annuity Insurance Company, Earth

Systems, Inc., and the Health and Welfare Benefit Plan for

Employees and Dependents of Earth Systems, Inc. The Amici

submit their brief amici curiae together with this motion.

In support, Amici state:

1. Consent of all parties has been requested. Petitioners have

consented to the filing of this brief, but Respondents have

not. Petitioners’ letter of consent accompanies this motion

for filing with the Clerk of this Court.

2. Amicus the American Association of Health Plans

(AAHP) is a national association for the managed health care

community. Its membership includes health maintenance

organizations, preferred provider organizations, third party

health benefits administrators, health care utilization review

organizations, prepaid limited health service plans, and other

integrated health care delivery systems. AAHP represents

more than 1,000 health plans serving more than 140 million

Americans, the majority of whom are participants or

beneficiaries of employee health benefit plans under the

Employee Retirement Income Security Act of 1974

(ERISA).'

1. Pub. L. No. 93-406, 88 Stat. 829 (codified as amended at

29 U.S.C. §§ 1001 et seq.).

3. Amicus the American Benefits Council is an organization

that advocates for voluntary private employee benefits.

Its members sponsor, administer, or service health, retirement

and stock compensation plans covering more than 100

million Americans.

4. Amicus the Blue Cross Blue Shield Association comprises

forty-five independent, locally operated Blue Cross and Blue

Shield Plans. The Blue Cross and Blue Shield companies

provide health care coverage to private and public employees

and individuals, through relationships with employers,

employee benefits plans, and direct contracts with

subscribers. They offer health insurance, fee-for-service

programs, health maintenance organizations, preferred

provider organizations, and a variety of other offerings.

They also provide third-party administrative services to

private and public employee benefits plans. Collectively, the

Blue Cross Blue Shield companies furnish health care

coverage to 78 million — or one in four — Americans,

making them collectively the largest entity offering health

insurance and benefits in the United States.

5. Amicus the Chamber of Commerce of the United States

(the Chamber) is the world’s largest business federation,

representing an underlying membership of more than three

million businesses and organizations with 140,000 direct

members of every size, in every business sector, and from

every geographic region of the country. An important

function of the Chamber is to represent the interests of

its members by filing amicus briefs in cases involving

issues of concern to the American business community.

Many Chamber members provide health benefits to

employees and arrange for the provision of health care

services through employee welfare benefit plans regulated

under ERISA. The ability of its members to purchase

affordable health care coverage for the benefit of their

employees is of vital importance to them, their employees,

the employees’ dependents, and to the Chamber.

6. Amicus the Health Insurance Association of America

(HIAA) is a national association of private health insurance

companies and an advocate for the private, market-based

insurance system. HIAA’s more than 294 members provide

medical expense and supplemental insurance, as well as long-

term care insurance and disability income protection to

approximately 123 million Americans.

7. Amici are concerned by the Ninth Circuit’s holding in

the case below, which essentially vitiates reimbursement

provisions that are commonly included in employee health

benefit plans which are offered by their member

organizations, or which they insure or administer. The Ninth

Circuit’s holding runs contrary to ERISA’s mandate that a

fiduciary administer an ERISA plan “in accordance with the

documents and instruments governing the plan.” It also

interferes with nationally uniform plan administration by

making plans subject to different legal obligations in different

federal circuits and by subjecting plans to varying state laws,

undermining the carefully balanced congressional scheme

and increasing compliance costs. Most critically in a time of

tight healthcare budgets, it will have a drastically adverse

effect on the ability of the employee benefit plan community

and the health care industry to provide quality care at an

affordable cost.

8. In filing this brief, Amici seek to bring to the attention of

this Court relevant matters not already brought to its attention

by the parties, including but not limited to the disastrous

national impact of the lower court’s decision on the health

insurance and employee welfare benefit plan industry at

large.

For the above reasons, Amici respectfully request this Court

to grant leave to file their brief amici curiae.

Respectfully submitted,

STEPHANIE W. KANwIT

Counsel of Record

KATHLEEN A. PETERSON

Epstein Becker & GREEN, P.C.

1227 25" Street, N.W., Suite 700

Washington, D.C. 20037

(202) 861-0900

Louis Saccoccio

AMERICAN ASSOCIATION

OF HEALTH PLANS

1129 20® Street, N.W.

Suite 600

Washington, D.C. 20036

(202) 778-3210

Lynn DUDLEY

AMERICAN BENEFITS COUNCIL

1212 New York Avenue, N.W.

Suite 1250

Washington, D.C. 20005

(202) 289-6700

RocGer G. WILSON

Bue Cross BLue SHIELD

ASSOCIATION

225 North Michigan Avenue

Chicago, IL 60601

(312) 297-6000

Rosin S. Conrap

JosHua A. ULMAN

NATIONAL CHAMBER LITIGATION

CENTER, INC.

Counsel for the Chamber of

Commerce of the United States

1615 H Street, N.W.

Washington, D.C. 20062

(202) 463-5337

JEFFREY GABARDI

HEALTH INSURANCE ASSOCIATION

OF AMERICA

555 13® Street, N.W.

East Tower

Washington, D.C. 20004

(202) 824-1621

Attorneys for Amici Curiae

TABLE OF CONTENTS

Page

Table of Cited Authorities ...............e005- ili

Debemnens GF EE : os. cc vince 0 ckeeeuseaee l

Summary of Argument in Support of Petitioners’

BUS CRORES co cccvevecsdséccdaawenced 4

A. Reimbursement Provisions Are Critical Cost

Saving Measures Designed to Benefit All

Plan Participants and Beneficiaries ....,.. 7

1. Reimbursement Provisions Ensure That

Health Coverage Remains Affordable .. 7

2. Plan Fiduciaries and Administrators Are

Obligated to Employ Reimbursement

Provisions to Conserve Limited Plan

wsiwnwas iat Edeeined deb oe 9

3. The Ninth Circuit’s Decision Will

Inevitably Increase Health Benefit Costs

and Increase the Ranks of the Uninsured

B. The Ninth Circuit’s Holding Contravenes

Every One of ERISA’s Purposes ......... 15

1. The Ninth Circuit’s Decision Harms

Plan Participants and Beneficiaries. .... 15

il

Contents

: Page

2. The Invalidation of Plan Reimbursement

Provisions Creates Disincentives to

Employer Funding of Benefit Plans ... 17

3. The Ninth Circuit’s Decision Prevents

Uniform Administration of Multistate

Employee Benefit Plans ............ 18

C. The Ninth Circuit’s Decision Forces a Plan

to Violate ERISA’s Mandate That a Plan be

Administered in Accordance With Its

Documents and Instruments ........----- 21

Cameesie 2... ccc cccccccccccccecescnccccees

ill

TABLE OF CITED AUTHORITIES

Page

Cases:

Administrative Comm. v. Gauf, 188 F.3d 767 (7th

| PP re rr err bot 4,5

Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504

GORD 6 occhnncescvciabnadaactnaeel eer 15

Blue Cross & Blue Shield v. Sanders, 138 F.3d 1347

See a SE 4.0 tSdncncdcducessccecs 5, 18, 22, 23

Boggs v. Boggs, 520 U.S. 833 (1997) ........... 6, 17

Carpenters Health v. McCracken, 100 Cal. Rptr. 2d

Gow Gat FD, TED cc ccccencsvccvccececess 5

Central States Pension Fund v. Central Transp., Inc.,

Se EE cud cvcccudecdcsecetecs: 10

Curtis v. Loether, 415 U.S. 189 (1974) .......... 4

Curtiss-Wright Corp. v. Schoonejongen, 514 U.S.

CP iL udiencbeCiaakaedunenedeubeesevks 17

Dairy Queen, Inc. v. Wood, 369 U.S. 469 (1962) .. 23

Egelhoff v. Egelhoff, No. 99-1529, slip op. (U.S. Mar.

PE sane denweneneuaacdviabasvines 19, 20, 21

FMC Corp. v. Holliday, 498 U.S. 52 (1990) ...... 19

iv

Cited Authorities

FMC Medical Plan v. Owens, 122 F.3d 1258 (9th

+ S. .) PPPPPPPTPTETTIT TET Tee

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

\, SPPerrrrrrrrre ere

Great-West Life & Annuity Ins. Co. v. Knudson,

No. 98-56472, 2000 WL 145374 (9th Cir. Feb. 7,

SED coc vccccacssabsidasewescessecanvses

Harris Trust & Sav. Bank v. Provident Life &

Accident Ins. Co., 57 F.3d 608 (7th Cir. 1995) ...

Harris Trust & Sav. Bank v. Salomon Smith Barney,

Inc., 530 U.S. 238 (2000) .......--- eee ee eee

Health Care Cost Controls of Illinois, Inc. v.

Washington, 187 F.3d 703 (7th Cir. 2000) .....

CIGBED nc ccccccccccccnesccvccevecesecoees

Jefferson-Pilot Life Ins. Co. v. Krafka, 57 Cal.

Rptr. 2d 723 (Ct. App. 1996) ........---0005:

Liss v. Smith, 991 F. Supp. 278 (S.D.N.Y. 1998) ..

Local No. 391 v. Terry, 494 U.S. 558 (1990) .....

Lockheed Corp. v. Spink, 517 U.S. 882 (1996) ....

5, 16, 18, 22, 23

17

Vv

Cited Authorities

Page

Mertens v. Hewitt Assocs., 508 U.S. 248 (1993) .. 4, 15

Metropolitan Life Ins. Co. v. Massachusetts, 471

WU. CRO QISEED 00 cccdnvedccnssounieaauee 11

New York State Conference of Blue Cross &

Blue Shield Plans v. Travelers Ins. Co., 514 U.S.

CUP QUEUES occcisccccdecdecsuanedeunaetie 6, 19

Pegram v. Herdrich, 530 U.S. 211 (2000) ....... 9, 22

Provident Life & Accident Ins. Co. v. Waller, 906

F.26 SES (40s Cis. 1996) ... wc cccccccccccvess 23

Randal v. Cockran, | Ves. Sen. 98, 27 Eng. Rep.

Ge PEE ova cennsucneeudsdekeduns ices 8

Shaw v. Delta Air Lines, Inc., 463 U.S. 85 (1983)

(ibe cehereutebessaveees STTSTITIC TT TTT TE ft .

Southern Council of Indus. Workers v. Ford, 83 F.3d

PN CED dcvéneseunakbwsedviesona 5, 18

Varity Corp. v. Howe, 516 U.S. 489 (1996) ....6, 11,17

Wal-Mart Stores, Inc. Assocs.’ Health & Welfare

Plan v. Wells, 213 F.3d 398 (7th Cir. 2000) ..4, 18, 22

Zinman v. Shalala, 67 F.3d 841 (9th Cir. 1995) ... 9

vi

Cited Authorities

Page

Statutes:

29 U.S.C. § 1001(D) .. 6. eee eee ee eee ees 6,17

29 U.S.C. § 1002(a)(1) «6... ee eee eee eee eee 21

29 U.S.C. § 1103(c)2MA) ..-. eee ee eee renee 25

29 U.S.C. § 1104(a)(1 MA) .. 666s 10

29 U.S.C. § 1104(a)(1M(B) ....-- eee eee eee eee 10

29 U.S.C. § 1104(ap(1M(D) .. 6.6 eee ee eee eee 3, 5, 21

29 U.S.C. § 1132(a)(3) «0... eee eee eee ee eens passim

29 U.S.C. § 1132(ap(3)M(B) ...- 6 eee ee ee eee eee 4,23

42 U.S.C. § 300(€) . 0... cece eee eee eee eens 9

42 U.S.C. § 1301 ef seg. «16... - eee ee ee eee 9

42 U.S.C. § 1395y(b)(2)(B) .... 6 ee cere eee eee 9

ER.C. § 404 2... ccc ccc ccc ccc cecscencsvvccces 6

Employee Retirement Income Security Act of 1974 |

Pub. L. No. 93-406, 88 Stat. 829 ............ passim

Health Insurance Portability and Accountability Act

of 1996, Pub. L. No. 104-191, 110 Stat. 2945 .. 9

vii

Cited Authorities

Conn. GEN. Stat. § 52-225c¢ (2000)

Ga. Cope. ANN. § 33-24-56.1(e) (2000)

Va. Cope. ANN. § 38.2-3405 (Mitchie 2000)

Regulations:

42 C.F.R. § 411.35

Treatises:

GEORGE GLEASON BoGERT & GEORGE TAYLOR BOGERT,

THe LAw oF Trusts AND TRUSTEES § 191 (rev. 2d

ed. 1979)

"ee FF FSSC sesee eee ee ec esee@eee eC eaecgcas+s 6 ae e42e 6.008826 648

Other Authorities:

DOCUMENTATION IN HEALTH BENEFIT PLAN

RATEMAKING, Actuarial Standards of Practice No.

31 (Actuarial Standards Bd. 1997) ...........

Healthcare Recoveries, Inc., Form 10-K, for the

fiscal year ended Dec. 31, 2000

HEALTH Econ. Practice Group, BARENTS Group,

LLC, Impacts or Four LEGISLATIVE PROVISIONS ON

MANAGED Care Consumers: 1999-2003 (prepared

for the Am. Ass’n of Health Plans, 1998)

oeneeereeeeeneee

10

10

1]

10

vili

Cited Authorities

Page

HEALTH INs. Ass’N OF AmM., ISSUE BrigEF: WHY DO

HEALTH INSURANCE PREMIUMS RISE? (2000) ..... 12

Hearing on the Relationship Between Health Care

Costs and America’s Uninsured Before the

Subcomm. on Employer-Employee Relations of the

House Comm. on Educ. & the Workforce,

106 Comm, SG oc vrccccvcesvesvencseuonn 12, 14, 16

Jack Zwanziger & Glenn A. Melnick, Can Managed

Care Plans Control Health Care Costs?, HEALTH

jp. . & £2... Peererreee 12,14

JouHN SuHeits & LisA ALecxiH, Lewin Group, INc.,

RECENT TRENDS IN EMPLOYER HEALTH INSURANCE

COVERAGE AND BENEFITS, FINAL REPORT (1996) .. 15

KAISER FAMILY Founb. (KFF) & HEALTH RESEARCH

& Epuc. Trust (HRET), EmMpLover HEALTH

Benerits, 2000 ANNUAL Survey (2000) ......... 13,14

M. L. Marasinghe, An Historical Introduction to the

Doctrine of Subrogation: The Early History of the

Doctrine I, 10 Vat. U.L. Rev. 45 (1975) ...... 8

ROBERT J. Mitts, Census BurEAu, U.S. Dep’T oF

COMMERCE, P60-211, CURRENT POPULATION

Reports: HEALTH INSURANCE COVERAGE 1999

+ PPPPPPPPrrrrrr rT 14, 15

ix

Cited Authorities

Page

SHERYL TATAR Dasco & Cuirrorp C. Dasco,

MANAGED Care ANSWER Book (3d ed. 1999) ... 11

Towers Perrin, 2001 HeattH Care Cost Survey,

Report OF Key Finpincs (2001) .............. 13

WASHINGTON Business Group ON HEALTH &

WaTSON Wyatt Wor.pwipe, HEALTH Care Costs

le 13

William M. Mercer, Inc., Employers Bracing for

Double-Digit Health Benefit Cost Rise in 2001,

Mercer Rep., Jan. 12,2001 ................. 13, 18

William S. Custer & Pat Ketsche, Center for Risk

Mgmt. & Ins. Research, Georgia State Univ.,

Employment-Based Health Insurance Coverage

(Health Ins. Ass’n of America, 2000) ......... 18

Yeu

]

BRIEF OF AMICI CURIAE

IN SUPPORT OF PETITIONERS

I. STATEMENT OF INTEREST’

The American Association of Health Plans (AAHP) is a

national association for the managed health care community. Its

AAHP represents more than 1,000 health plans serving more than

140 million Americans, the majority of whom are participants or

beneficiaries of employee health benefit plans under the Employee

Retirement Income Security Act of 1974 (ERISA).?

The American Benefits Council is an organization that

advocates for voluntary private employee benefits. Its members

sponsor, administer, or service health, retirement and stock

compensation plans covering more than 100 million Americans.

The Blue Cross Blue Shield Association comprises forty-five

independent, locally operated Blue Cross and Blue Shield Plans.

The Blue Cross and Blue Shield companies provide health care

coverage to private and public employees and individuals, through

relationships with employers, employee benefits plans, and direct

contracts with subscribers. They offer health insurance, fee-for-

service programs, health maintenance organizations, preferred

provider organizations, and a variety of other offerings. They also

provide third-party administrative services to private and public

employee benefits plans. Collectively, the Blue Cross Blue Shield

companies furnish health care coverage to 78 million — or one in

four — Americans, making them collectively the largest entity

offering health insurance and benefits in the United States.

1. Counsel for Amici were the sole authors of this brief. No person

or entity other than Amici made financial contribution to this brief.

2. Pub. L. No. 93-406, 88 Stat. 829 (codified as amended at

29 U.S.C. §§ 1001 ef seq.).

2

The Chamber of Commerce of the United States

(the Chamber) is the world’s largest business federation,

representing an underlying membership of more than three

million businesses and organizations with 140,000 direct

members of every size, in every business sector, and from every

geographic region of the country. An important function of the

Chamber is to represent the interests of its members by filing

amicus briefs in cases involving issues of concern to the

American business community. Many Chamber members

provide health benefits to employees and arrange for the

provision of health care services through employee welfare

benefit plans regulated under ERISA. The ability of its members

to purchase affordable health care coverage for the benefit of

their employees is of vital important to them, their employees,

the employees’ dependents, and to the Chamber.

The Health Insurance Association of America (HIAA) is a

national association of private health insurance companies and

an advocate for the private, market-based insurance system.

HIAA’s more than 294 members provide medical expense and

supplemental insurance, as well as long-term care insurance

and disability income protection to approximately 123 million

Americans.

Amici are concerned by the Ninth Circuit’s holding in the

case below, which essentially vitiates reimbursement provisions

that are commonly included in employee health benefit plans

which are offered, insured, or administered by their member

organizations. Petitioners have consented to Amici filing this

brief but Respondents have not. The Court of Appeals erred in

holding that the reimbursement of payments made to an ERISA

plan beneficiary did not constitute “appropriate equitable relief”

within the meaning of ERISA Section 502(a)(3). The Petitioners

here properly sought to rely on that Section, which allows actions

“(A) to enjoin any act or practice which violates . . . the terms

of the plan, or (B) to obtain other appropriate equitable relief:

3

(i) to redress such violations; or (ii) to enforce isi

... Or the terms of the pian.” rr ne

. In preventing an ERISA fiduciary from obtaining

reimbursement out of a tort recovery of medical expenses that

the plan has paid on behalf of a participant or beneficiary, the

lower court has in effect nullified a critical plan provision by

judicial fiat. Its holding has the following adverse effects:

* It allows noncompliant participants or beneficiaries to be

unjustly enriched at the expense of their fellow participants

and beneficiaries;

* It disincentivizes employers from sponsoring and funding

employee benefit plans;

e It interferes with nationally uniform plan administration by

making health benefit plans subject to different legal

obligations in different federal circuits; and

* It forces a fiduciary to contravene ERISA’s mandate that a

plan be administered in accordance with plan documents.‘

Because health plans recoup significant amounts of money

under reimbursement provisions, the Ninth Circuit’s decision

will drastically and adversely affect the ability of the employee

benefit plan community and the health care industry to provide,

administer, fund and arrange for appropriate and affordable care

in a time of rising health care costs. This country’s health care

financing system depends on effective cost-containment

practices, including reimbursement provisions, to ensure the

wise use of limited health care dollars and to ensure employers’

economic support of employee benefit plans.

3. Employee Retirement Income Security Act of 1974

§ 502(a)(3), 29 U.S.C. § 1132183) (1994),

4. ERISA § 404(a)(1)(D), 29 U.S.C. § 1104(a1)(D).

4

Il. SUMMARY OF ARGUMENT IN SUPPORT OF

PETITIONERS’ BRIEF ON THE MERITS

In the case below, the Ninth Circuit essentially held that

a beneficiary did not have to reimburse her employee health

benefit plan for expenses provided her from a third party

recovery, despite an explicit reimbursement clause in the plan

documents mandating such reimbursement. Adopting an

aberrational construction of equitable relief, the court held

that the enforcement of such reimbursement provisions

necessarily constituted “legal” damages rather than

“equitable” relief within the meaning of ERISA Section

502(a)(3)(B).° Not only is there no precedent to support the

Ninth Circuit’s novel interpretation of what constitutes

“equitable” relief, but the precedent of this Court is directly

contrary.° Moreover, no other federal circuit court espoused

such a rigid definition of equitable relief, and in fact all other

circuits which have considered the issue have explicitly

rejected the underlying reasoning.’

5. Great-West Life & Annuity Ins. Co. v. Knudson, No. 98-56472,

2000 WL 145374 at *1 (9th Cir. Feb. 7, 2000) (citing ERISA

§ 502(a)(3)(B), 29 U.S.C. § 1132(aX(3)(B)).

6. See Mertens v. Hewitt Assocs., 508 U.S. 248, 256 (1993)

(finding appropriate “equitable relief’ as used in Section 502(a)(3)

means “those categories of relief that were typically available in equity

(such as injunction, mandamus, and restitution, but not compensatory

damages)”); Harris Trust & Sav. Bank v. Salomon Smith Barney, Inc.,

530 U.S. 238, 252-53 (2000) (equitable remedy of constructive trust

could be applied to recover money for a plan from a party); Local No.

391 v. Terry, 494 U.S. 558, 570 (1990) (refusing to hold that “any

award of monetary relief must necessarily be ‘legal relief”, and noting

that damages can be equitable “where they are restitutionary” (citing

Curtis v. Loether, 415 U.S. 189, 196 (1974)) (further citations omitted)).

7. See Wal-Mart Stores, Inc. Assocs.’ Health & Welfare Plan v.

Wells, 213 F.3d 398, 401 (7th Cir. 2000); Administrative Comm. v.

(Cont'd)

RS SP SE

~

5

By writing out of the statute the ability of fiduciaries to

use Section 502(a)(3) to enforce plan reimbursement clauses,

the Ninth Circuit’s holding leaves fiduciaries in a bind, with

no alternative remedies either under ERISA or under state

law. No other provision of ERISA can be construed to

provide the necessary relief to a plan whose reimbursement

clause is rendered a nullity. Moreover, because ERISA

provides that federal courts shall have exclusive jurisdiction

over enforcement of plan terms, plans have no alternative

forum, as they cannot enforce their reimbursement rights in

the state courts.*

In essence, the Ninth Circuit’s holding does violence to

the text of ERISA in that it: (1) bars fiduciaries from seeking

relief under ERISA Section 502(a)(3), contrary to the

statute's specific language; and (2) contravenes ERISA’s

Section 404(a)(1)(D) requirement that an employee benefit

plan be administered in accordance with its governing

documents.

Not only is the lower court’s interpretation contrary to

the language of the statute, but it contravenes every one of

(Cont’d)

Gauf, 188 F.3d 767, 770-71 (7th Cir. 1999); Health Care Cost Controls

of Illinois, Inc. v. Washington, 187 F.3d 703, 711 (7th Cir. 2000);

Southern Council of Indus. Workers v. Ford, 83 F.3d 966, 969

(8th Cir. 1996) (per curiam); Blue Cross & Blue Shield v. Sanders, 138

F.3d 1347, 1352-53 n.5 (11th Cir, 1998).

8. See, e.g., Jefferson-Pilot Life Ins. Co. v. Krafka, 57 Cal.

2d 723 (Ct. App. 1996) (finding plan’s state court pte om

preempted by ERISA); see also Carpenters Health v. McCracken, 100

Cal. Rptr. 2d 473, 476 (Ct. App. 2000) (“Taken together, Krafka and

[FMC Medical Plan v.| Owens (122 F.3d 1258 (9th Cir. 1997)] place a

plaintiff seeking reimbursement under the terms of an employee benefit

plan in a Catch 22. Under Krafka, the plaintiff must pursue its

reimbursement claim in federal court. Under Owens, by contrast, the

plaintiff must pursue its reimbursement claim in state court.”).

6

what this Court has called the sometimes “competing

congressional purposes” for enacting ERISA in the first

place.’ Those purposes include the desire to: (1) protect plan

participants and beneficiaries,'® (2) assure uniformity and

efficiency in plan administration,'' and (3) create incentives

for the creation and maintenance of employee benefit plans."”

As outlined below, every one of those congressional goals

would be frustrated here by allowing the lower court decision

to stand.

In sum, the Ninth Circuit’s decision: (1) hinders plan

sponsors, plan fiduciaries, and managed care organizations

from including reimbursement provisions in their contracts,

thereby implementing legitimate and necessary strategies to

prevent the unnecessary dissipation of a limited pool of health

care funds; (2) allows plan participants and beneficiaries to

9. Varity Corp. v. Howe, 516 U.S. 489, 507 (1996).

10. See Boggs v. Boggs, 520 U.S. 833, 845 (1997) (“The principal

object of the statute is to protect plan participants and beneficiaries.”)

(citing Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 90 (1983)).

The statute itself notes that the express purpose is “to protect interstate

commerce and the interests of participants in employee benefit plans

and their beneficiaries.” 29 U.S.C. § 1001(b).

11. See New York State Conference of Blue Cross & Blue Shield

Plans v. Travelers Ins. Co., 514 U.S. 645, 656 (1995).

12. See Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 11 (1987)

(“A patchwork scheme of regulation would introduce considerable

inefficiencies in the benefit program operation, which might lead those

employers with existing plans to reduce benefits, and those without

such plans to refrain from adopting them.”). Additionally, the

U.S. Internal Revenue Code provides incentives both for employers to

establish qualified benefit plans as well as for employees to participate

in them, because a contribution to a qualified plan is immediately

deductible by the employer and only becomes taxable to the employee

on subsequent distribution. I.R.C. § 404.

\

|

7

collect windfall payments at the expense of the majority of

their co-participants in the same benefit plan; (3) creates an

administrative burden for plan administrators and increases

costs and delays by requiring them to follow different

reimbursement provisions depending on the circuit; and

(4) ultimately will lead to increases in health benefit plan

costs, discouraging employers and others from maintaining

benefit plans, and inevitably increasing the ranks of the

uninsured.

Ill. ARGUMENT

A. Reimbursement Provisions Are Critical Cost Saving

Measures Designed to Benefit All Plan Participants

and Beneficiaries

1. Reimbursement Provisions Ensure That Health

Coverage Remains Affordable

Reimbursement provisions such as those at issue in this

case are used extensively throughout the insurance and

managed care industries, and have been in continuous use

since the passage of ERISA. Such provisions generally

require a plan participant or beneficiary to reimburse the plan

for funds expended on the beneficiary’s behalf, if the

beneficiary recoups money from a third re

nsibl

for the beneficiary’s injuries. ighiic nee,

| Reimbursement provisions serve several important goals

including: (1) preventing participants and beneficiaries from

retaining double recoveries and thus conserving limited plan

funds; (2) preventing responsible parties such as tortfeasors

from profiting from the existence of participants’ and

beneficiaries’ health care coverage; and (3) limiting the age-

old moral hazard problem, whereby participants and

8

beneficiaries alter their behavior because of the presence of

insurance or other coverage."

Functionally, reimbursement provisions operate to allow

insurance companies and health benefit plans to recoup funds

directly from participants or beneficiaries who ultimately

recover payments for the same injuries from responsible third

parties. Reimbursement differs from the more expensive

alternative of subrogation, in that under a reimbursement

provision, a health benefit plan does not actually commence

an action in the beneficiary’s name, as it would under a

subrogation provision, but instead acts as a first lienholder

upon any third-party funds collected by the beneficiary.

Private insurers have been relying on reimbursement

mechanisms since at least the mid-eighteenth century to

ensure that coverage remains accessible and affordable for

all.'* Such provisions are also utilized by public payors. For

example, the federal Medicare Secondary Payor provisions

require Medicare beneficiaries to reimburse Medicare for

expenses later paid by liability insurance or automobile

13. The moral hazard concern is particularly at issue in this case,

where the Respondent Ms. Knudson settled the prior medical expense

portion of her original claims for only $13,828.70, knowing that

Petitioners had covered her medical expenses which amounted to in

excess of $400,000.

14. See M. L. Marasinghe, An Historical Introduction to the

Doctrine of Subrogation: The Early History of the Doctrine I, 10 VAL.

U.L. Rev. 45 (1975); see also Randal v. Cockran, | Ves. Sen. 98, 27

Eng. Rep. 916 (Ch. 1748) (Lord Hardwicke finding “the plainest equity

that could be” where “[t]he person originally sustaining that loss was

the owner, but after satisfaction made to him, the insurer. No doubt,

but from that time, as to the goods themselves, if restored in specie, or

compensation made for them, the assured stands as a trustee for the

insurer, in proportion for what he paid.” (emphasis added)).

9

insurance. '° Any Medicare payment made with

item or service for which payment has been pay rs pend

reasonably be expected to be made promptly by a third party

payor, 1s conditioned on reimbursement to the appropriate Trust

Fund. With very limited exceptions, this provision allows

Medicare to recover fully and directly from beneficiaries for

liabilities paid by third party payors, without regard to whether

the beneficiaries accepted discounted settlements. '*

2. Plan Fiduciaries and Administrators Are Obligated

to Employ Reimbursement Provisions to Conserve

Limited Plan Assets

Reimbursement provisions are critical cost-savings

devices for employers and other plan sponsors facing

strong health care cost inflation pressures. As this Court

explicitly recognized in Pegram v. Herdrich,'’ systems for the

achievement of cost savings in health care coverage and delivery

have constituted a key part of federal and state health care

programs since the passage of the Federal Health Maintenance

Organization Act of 1973,'* and indeed Congress has legislated

since that time in the area of cost-containment mechanisms."

15. See 42 U.S.C. § 1395y(b)(2)(B) (1994 & Supp. V 2000).

16. See 42 C.F.R. § 411.35 (2000); Zinman v. Shalala, 67 F.3d

841, 845 (9th Cir. 1995) (holding that the Medicare Secondary Payor

provisions allow the U.S. Department of Health and Human Services

to recover full reimbursement of conditional Medicare payments from

beneficiaries, even though the beneficiaries received discounted

settlements from third parties).

17. 530 U.S. 211, 233 (2000).

18. 42 U.S.C. § 300(e).

19. See, e.g., the Health Insurance Portability and Ac ils

. countabili

Act of 1996, Pub. L. No. 104-191, 110 Stat. 2945, (codified as ane

at 42 U.S.C. § 1301 et seg.), which limited the isti

condition exclusions. _—

10

Millions and potentially billions of dollars are recouped

annually by health plans and insurers by virtue of subrogation

and other recovery mechanisms.”° Reimbursement provisions

are designed to protect all beneficiaries’ interests by ensuring

that plan funds are used prudently, and, in the words of the

statute, for the “exclusive purpose of . . . providing benefits

to participants and their beneficiaries; and ... defraying

reasonable expenses of administering the plan.””'

ERISA and the law of trusts”? require plan fiduciaries

to manage the assets of their health plans prudently and in

the best interests of all beneficiaries,”’ and “to act to ensure

that a plan receives all funds to which it is entitled, so that

those funds can be used on behalf of participants and

beneficiaries.”** The statute uses the plural deliberately —

the interests of those plan members in the aggregate are

paramount, and one member should not be allowed to benefit

disproportionately at the expense of the group. In fact, each

of those trust beneficiaries owe each other a fiduciary duty

not to take advantage of the others.”

20. During fiscal year 2000, Healthcare Recoveries, Inc., one of

the largest private health care claims recovery services in the United

States, recovered $237.3 million in health claims, and had a backlog of

over $1.1 billion of potentially recoverable claims. See Healthcare

Recoveries, Inc., Form 10-K, for the fiscal year ended Dec. 31, 2000,

at 20.

21. ERISA § 404(a)(1)(A), 29 U.S.C. § 1104(a)(1)(A).

22. This Court has held that the common law of trusts is

incorporated in ERISA Section 502(a)(3), 29 U.S.C. § 1132(a)(3).

See Harris Trust & Sav. Bank, 530 U.S. at 250.

23. ERISA § 404(a)(1)(B), 29 U.S.C. § 1104(a)(1)(B).

24. See Central States Pension Fund v. Central Transp., Inc.,472

U.S. 559, 571 (1985).

25. See GeorGe GLEASON Bocert & GeorGe TAYLOR Bocert, THE

LAw oF TRUSTS AND TrusTEES § 191 (rev. 2d ed. 1979); RESTATEMENT

(SEcoNnD) oF Trusts §§ 251-255 (1959).

11

The lower court’s holding, however, erects an insurmount-

able roadblock, preventing ERISA plan fiduciaries from

complying with their duty to be financially prudent and seek

recovery of plan funds where available.” It also allows a few

ERISA beneficiaries to be unjustly enriched at expense

their fellow plan beneficiaries. wy: -

3. The Ninth Circuit’s Decision Will Inevitably

Increase Health Benefit Costs and Increase the

Ranks of the Uninsured

. — Ninth Circuit’s holding rendering health plan

reimbursement provisions a nullity and precluding loyee

health benefit plans from recovering from third-party vt

necessarily drains plan funds. Health benefit plans can be insured

either through a risk-bearing mechanism or self-insured, and

hence reliant on employer assets to pay charges for health care

as was Ms. Knudson’s plan.’ In either case, they must charge

ores commensurate with that risk, or adequate to ensure

at will be available for services needed b

and their dependents.”* —

Insurance companies and employee health benefit

plans base rates and benefit levels on actuarial determinations

that factor in the effect of subrogation and reimbursement

provision recoveries.”” Should plans be barred from seeking

26. See Varity Corp., 516 U.S. at 514; Liss v. Smi

278, 290 (S.D.N.Y. 1998). epnieanatimeens

27. As this Court summarized in Metropoli

politan Life Ins. Co. v.

Massachusetts, 471 U.S. 724, 732 (1985), employee mh plans the

self-insure or they may purchase insurance for their participants.”

28. See SHeryi Tatar Dasco & Cuirrorp C. D

. Dasco,

Care ANSWER Book 3-40 (3d ed. 1999). eas

29. See e.g. DOCUMENTATION IN HEALTH BENEFIT PLAN

: RATEMAKING,

—— of Practice No. 31, § 3.5.4 (Actuarial Standards

12

reimbursement from members that have been doubly

indemnified for their damages, those actuarial assumptions

are rendered invalid. That loss of predictability makes

rate-setting difficult or impossible, and, when combined with

the inability to recoup plan funds, the inevitable result will

be that rates will ultimately increase and/or benefits will

decrease for all members of employee health benefit plans.

After a period of relatively stable health care costs,

employers are once again facing health care inflation. Such

inflation is attributable to a variety of factors, including

changes in medical practice, the development of expensive

new technologies, and greater use of prescription drugs and

other services.*® To cope with those rising costs, employers

are working with insurers and health p!lans*' to control

health care costs through the management of health care,

including the use of cost containment mechanisms such as

reimbursement.

30. See Hearing on the Relationship Between Health Care Costs

and America's Uninsured Before the Subcomm. on Employer-Employee

Relations of the House Comm. on Educ. & the Workforce, 106th Cong.

55, 60 (statement of Dan Crippen, Director, Congressional Budget

Office) [hereinafter Hearings). See generally HEALTH Ins. Ass’N OF AM.,

issue Brier: WHY Do HEALTH INSURANCE Premiums Rise? (2000).

31. See Hearings, supra note 30, at 58-59; HEALTH INs. Ass’N OF

Am., supra note 30, at 18-19.

32. See generally Jack Zwanziger & Glenn A. Melnick, Can

Managed Care Plans Control Health Care Costs?, HEALTH AFFAIRS,

Summer 1996, at 185, 196 (concluding that “the failure of governmental

health care reform leaves the primary responsibility of increasing the

efficiency of the health care system to the private sector. The studies

summarized [in this article] strongly suggest that managed care plans

have been successful in inducing price competition and forcing costs

down.”).

13

According to the Mercer/Foster Higgins annual National

Survey of Employer-Sponsored Health Plans, costs of

employee health benefit plans increased 8.1% during

calendar year 2000, more than twice the rate of general

inflation.*? Similarly, the Kaiser Family Foundation and the

Health Research and Educational Trust determined that

employee health benefit plan and insurance premiums

increased 8.3% from the Spring of 1999 to the Spring of

2000, outpacing the inflation rate by more than 5%,™ and a

survey by the Towers Perrin consulting firm found that cost

increases for employee health benefit plans in 2000 averaged

10%, compared to inflation of only 3.4%."

The costs of employee health benefit plans are projected

to again increase significantly during 2001. Mercer/Foster

Higgins projects that average cost increases in employee

health benefit plans will be 11%,** and the Washington

Business Group on Health and Watson Wyatt Worldwide

projects average increases of 12.2%.°’

33. William M. Mercer, Inc., Employers Bracing for Double-Digi

, inc., -Digit

Health Benefit Cost Rise in 2001, Mercer Rep., a4 2001, at ne

mney eeevay ean Gam Gio Willian Od. Mercer, Inc. & Foster

ey National Survey of Employer-Sponsored Health Plans 2000.

per 3,300 employers responded to the Mercer/Foster Higgins survey,

the results are statistically projectable to all U.S. employers that

employ ten or more employees and offer health benefits).

34. Kaiser Famity Founp. (KFF) & Heattu Res

: EARCH & Epuc.

Trust (HRET), Empcover Heactu Benerrrs, 2000 ANNuAL Survey 12

a The survey found that the inflation rate during this time was

35. Towers Perrin, 2001 HeactH Care Cost Sur

’ VEY, REPORT

Key Frvpinas 5 (2001) (221 employers responded to the Towers an

survey).

36. William M. Mercer, Inc., supra note 33, at 1.

37. Wasuincton Busmess Group on HEALTH & W

Ww ATSON WYATT

ORLDWIDE, HeattH Care Costs 2001 2 (2001). -

14

As costs rise, employers must necessarily limit benefits,

limit or even end their support of health and welfare plans,

or pass cost increases on to employees. None of those results

are optimal at a time when an estimated 43 million Americans

are uninsured.** Cost containment mechanisms such as

reimbursement provisions are critical to ensure that the

number of privately insured individuals does not decrease.”

Studies have shown that employers and health care

beneficiaries are highly price sensitive,“ and increasing

the cost of health care coverage will ultimately lead to

a corresponding decrease in the number of covered

individuals.*' Even a one percent increase in managed care

plans’ costs nationally “results in a potential loss of insurance

coverage for about 315,000 individuals” over a five-year

period.*? The Ninth Circuit's decision to disallow

enforcement of reimbursement provisions in ERISA plans

will force the price of coverage up, and ultimately cause more

Americans to be uninsured.

Employer-based health insurance is the keystone of the

American health care system. In 1999, over 70% of people

in the United States had some kind of private health

coverage” and over 60% of that coverage was employer-

38. See Rosert J. Mitts, Census Bureau, U.S. Dep’t of COMMERCE,

P60-211, CurRENT PoruLaTion Reports: HEALTH INSURANCE COVERAGE

1999 1 (2000).

39. See Hearings, supra note 30, at 63.

40. See Zwanziger & Melnick, supra note 32, at 190-91.

41. See id.; KFF & HRET, supra note 34, at 164; HeatH Econ.

Practice Group, Barents Group, LLC, Impacts oF Four LeGIsLative

PROVISIONS ON MANAGED Care Consumers: 1999-2003 iii (prepared for

the Am. Ass’n of Health Plans, 1998); Hearings, supra note 30, at 62-

63.

42. See Heattu Econ. Practice Group supra note 41, at 11.

43. See Mus, supra note 38, at 3.

15

based.** As the number of privately insured individuals

decreases, the financial burden of health care may shift to

the already-strained federal and state systems.“ National

public policy is clearly against altering the health insurance

and ERISA plan industry in any way that would significantly

increase premium and deductible rates. The Ninth Circuit’s

decision below, in shifting to plan participants the burden

of the medical expenses caused by a tortfeasor who had

insured himself against just such a contingency, serves no

clear public policy purpose.

B. The Ninth Circuit’s Holding Contravenes E

of ERISA’s Purposes ao

1. The Ninth Circuit’s Decision Harms Plan

Participants and Beneficiaries.

. ‘Should the Ninth Circuit believe that it is helping

individual plan participants or beneficiaries retain additional

monies by invalidating reimbursement clauses, it could not

be more wrong. In fact, a plan’s enforcement of its

reimbursement clause simultaneously serves the interest of

both the plan and the beneficiary, unlike the more common

situation where there is “tension between the primary

[ERISA] goal of benefitting employees and the subsidiary

goal of containing . . . costs.”“*

44. See id. at 1.

45. See Jown Suems & Lisa Atecxim, Lewy Group, Inc., RECENT

TRENDS IN EmpLover HEALTH INSURANCE COVERAGE AND BENEFITS, FINAL

Report 7 (1996) (projecting that as the percentage of people with

employer-sponsored health care*as their primary health care coverage

decreases, the percentage of people with Medicare or Medicaid as their

primary source of health care coverage will increase).

46. Mertens, 508 U.S. at 262-263 (citing Alessi v. -

Manhattan, Inc., 451 U.S. 504, 515 — oe

16

When operational, reimbursement provisions prevent

double payment for the same claim, and ensure that the

liability for tort claims fall on those who cause injury rather

than innocent plan beneficiaries.*’ The Ninth Circuit’s

decision potentially penalizes Ms. Knudson’s fellow

beneficiaries in at least three ways: (1) other group

beneficiaries might choose to ignore plan language and their

reimbursement obligation on a selective basis, as Ms.

Knudson did; (2) premiums or contributions to the health

benefit plan may rise, as the need arises to make up the

shortfalls paid out to Ms. Knudson and others like her; and

(3) the employer sponsor may decide to either cut back its

contribution (again, requiring an increase in premiums) or

eliminate the health benefit plan altogether.“

Barring enforcement of a plan reimbursement provision

constitutes unjust enrichment of one participant or

beneficiary at the expense of the group. Individuals, their

family members, and their fellow co-workers may be

subjected to a scenario where too few resources exist for

health care expenses at a later date, or, in the extreme case,

where an employer may decide to limit benefits or cancel its

sponsorship of a benefit plan altogether.

In health care, as in all other aspects of the economy,

the pool of dollars is necessarily limited, and a windfall to

one plan member must inexorably come out of the pockets

of the rest, either directly through higher premiums,

47. See Health Care Cost Controls of Ill., Inc., 187 F.3d at 712.

48. See Hearings, supra note 30, at 62-63 (stating that employers

would respond to increased costs by being less generous with coverage,

raising cost-sharing requirements, or even eliminating benefits or

dropping coverage completely. Employees would respond to rising

health insurance costs by dropping coverage as premiums increase, Or

selecting less generous coverage. ).

17

deductibles, and copays, or indirect

, . y through reduced

—— pe upholding the Ninth Circuit’s Knudson

n will serve to pit plan beneficiaries against

other, and defeat, rather than advance the congreseional peal

of protecting “the interests of participants in employee

benefit plans and their beneficiaries.”

2. The Invalidation of Plan Reimbursement

Provisions Creates Disincentives to Employer

Funding of Benefit Plans

Sustaining the holding of the Ninth Circuit with respect

to health benefit plan reimbursement provisions will

considerably reduce the incentives of plan sponsors such as

employers to sponsor and/or fund health care for their

employees, and increase costs for them and ultimately the

plan participants as well. This Court has been adamant that

ERISA not be interpreted in a manner which “create[s] a

system that is so complex that administrative costs. or

litigation expenses, unduly discourage employers from

offering welfare benefit benefits in the first place.”*°

There is no legal mandate to sponsor such plans, nor is

there any mandate regarding “what kind of benefits

employers must provide if they choose to have such a plan.””*

Instead, employers voluntarily support this nation’s

employer-based private health care coverage system.”

Such employer-sponsored plans are critical: of all individuals

49. 29 U.S.C. § 1001(b); see Bo

2s | : ggs, 520 U.S. at 845

(“The principal object of the statute is to ici

Par mm protect plan participants and

50. Varity Corp., 516 U.S. at 497.

51. Lockheed Corp. v. Spink, 517 U.S. 882, 887 (1996).

ma See Curtiss-Wright Corp. v. Schoonejongen, 514 U.S. 73, 78

18

living in families headed by a worker, 68% live in houssholds

where the family head receives coverage through an employer.

Among such households, 88% of individuals receive

employment-based coverage.”

In the case of Ms. Knudson, her medical bills were advanced

to her by the Petitioners pursuant to the agreement that the —

funded plan would have the first lien and be reimbursed out 0

any tort recovery. The holding below will inevitably and

materially increase premium costs for those employers willing

to sponsor ERISA plans, and those costs will likely be passed

on to their employees and those who purchase their products

and services.*°

3. The Ninth Circuit’s Decision Prevents Uniform

Administration of Multistate Employee Benefit

Plans

The Ninth Circuit’s position on the nonenforceability of

reimbursement clauses is unique: it is contrary to the —

very other federal circuit that reimbursement provisio

por equitable relief under ERISA.”* Only ERISA plan

participants litigating in that particular circuit are entitled to

disregard plan contractual language and recover more than they

are entitled to, while participants in every other circuit are bound

by the reimbursement terms of their plans.

53. See William S. Custer & Pat Ketsche, Center for Risk Mgmt.

& Ins. Research, Georgia State Univ., Employment-Based Health

Insurance Coverage 7 (Health Ins. Ass’n of America, 2000).

54. See id.

55. See William M. Mercer, Inc., supra note 33, at 1.

56. See, e.g., Wal-Mart Stores, Inc., 213 F.3d at 401; Health Care

Cost Controls of Ill., Inc., 187 F.3d at 710; Blue Cross & Blue Shield,

138 F.3d at 1352-53 n.5; Southern Council of Indus. Workers, 83 F.3d

at 969; Harris Trust & Sav. Bank v. Provident Life & Accident Ins.

Co., 57 F.3d 608, 615-16 (7th Cir. 1995).

19

Vitiating such reimbursement provisions in one circuit

and one circuit only disrupts any federal attempt at uniform

plan regulation.*’ ERISA was intended “to ensure that plans

and plan sponsors would be subject to a uniform body of

benefits law,” and thus “to minimize the administrative and

financial burden of complying with conflicting directives

among States or between States and the Federal

Government.”** Clearly, denying ERISA plans in the Ninth

Circuit the right to enforce reimbursement provisions under

Section 502(a), 29 U.S.C. § 1132(a), results in the complete

abrogation of their rights in one particular area of the country

and hence non-uniform enforcement.

Like the state statute revoking the designation of a spouse

as life insurance beneficiary automatically upon divorce

which was struck down by this Court recently in Egelhoff v.

Egelhoff, the Ninth Circuit’s holding impacts “a central

matter of plan administration.”*® That “central matter”

pertains to the essence of health coverage: both the ability

to access it subsequent to an accident that results in medical

bills, and the ability to afford it both now and in the long

run. Thus, a beneficiary may find that the plan has not

advanced medical expenses because of the impossibility of

recovery of those expenses out of an ensuing tort settlement.

Or a plan may find that it is unfortunately enmeshed in

expensive litigation instead of the simple automatic lien on

recovery called for in the plan documents — costs that

57. See FMC Corp. v. Holliday, 498 U.S. 52, 58-60 (1990).

58. New York State Conference of Blue Cross & Blue Shield

Plans, 514 U.S. at 656 (quoting Jngersoll-Rand Co. v. McClendon,

498 U.S. 133, 142 (1990)); see Egelhoff v. Egelhoff, No. 99-1529, slip

op. at 6-7 (U.S. Mar. 21, 2001) (“Uniformity is impossible, however, if

plans are subject to different legal obligations in different States.”);

Fort Halifax Packing Co., 482 U.S. at 9; see also Shaw, 463 U.S. at 99.

59. Egelhoff, No. 99-1529, slip op. at 6.

20

inevitably will be passed on to employees and their families

in the form of higher premiums. Such litigation ultimately

transfers to plan beneficiaries and their families the “costs

of delay and uncertainty”® that arise from forcing plan

administrators to weigh alternate options for recovery, if any,

such as pursuing the far more expensive remedy of traditional

subrogation.*'

As in Egelhoff, “the burden is exacerbated by the choice-

of-law problems that may confront an administrator” when

the relevant parties are located in different states.” Here, an

employer may sponsor a plan from its headquarters in

Connecticut, retaining fiduciary responsibilities, while its

claims administrator is located in Pennsylvania, and the

beneficiary may be from Kansas. Yet if the tort judgment

has been rendered in California solely because it was the

situs of the automobile accident involving that beneficiary,

who was in California on vacation, the Ninth Circuit's

peculiar rule applies. The substantial administrative

uncertainties created by such a scenario are evident for

ERISA plan sponsors, plan fiduciaries, and beneficiaries.

The Ninth Circuit rule may inspire a less than scrupulous

beneficiary, moreover, to deliberately choose a venue for

filing a tort suit within that Circuit’s jurisdiction to take

advantage of the “no reimbursement” rule. The federal courts

should not encourage plaintiffs to forum shop by allowing

plaintiffs to determine the venue of potential tort actions at

the expense of their employers and fellow beneficiaries.

60. Id. at 7.

61. Subrogation may not be available as a alternative remedy in

all situations. For example, many states prohibit health plan subrogation,

see, e.g., CONN. GEN. STAT. § 52-225c (2000); Ga. Cope. Ann. § 33-24-

56.1(e) (2000); Va. Cope. ANN. § 38.2-3405 (Mitchie 2000), and some

plans may not provide for subrogation.

62. Egelhoff, No. 99-1529, slip op. at 7.

21

In sum, the lower court’s decision “would undermine

the congressional goal of ‘minimiz[ing] the administrative

and financial burden{s]’ on plan administrators — burdens

ultimately borne by the beneficiaries.”

C. The Ninth Circuit’s Decision Forces a Plan to Violate

ERISA’s Mandate That a Plan be Administered in

Accordance With Its Documents and Instruments

. The plan documents at issue in the case below expressly

entitled the plan to reimbursement for medical expenses that

were paid on behalf of Ms. Knudson.“ ERISA provides that

every employee benefit plan be established pursuant to a

written instrument and that named fiduciaries control and

manage the operation and administration of the plan.”

The statute’s participant protections attempt to ensure that

the appointed plan administrators and fiduciaries implement

the plan “in accordance with the documents and instruments

governing the plan.” Despite the explicit language of the

statute that plan fiduciaries must have access to the federal

courts to enforce plan terms and redress violations of those

plans, the Ninth Circuit has effectively left them without a

remedy by denying them access to the federal courts to

enforce reimbursement provisions.

In enacting ERISA, Congress did not intend that the

federal judiciary substitute its views as to what constitutes

appropriate plan design for the judgments of employers and

plan sponsors. Yet the Ninth Circuit’s decision in this case

in fact arrogates to the federal judiciary the power to rewrite

: —_ Egelhoff, slip op. at 7-8 (quoting Ingersoll-Rand Co., 498 U.S.

a

64. See Pet. for Writ of Certiorari at 5.

65. ERISA § 402(a)(1), 29 U.S.C. § 1002(a)(1).

66. Egelhoff, No. 99-1529, slip op. at 5; ERISA

29 U.S.C. § 1104(a)(1)(D). _ a

22

the terms of health benefit plans — to eliminate one particular

cost-saving mechanism, namely the reimbursement provision.

It is not for the federal courts to second-guess legislatively-

determined health care policy issues, as this Court pointed out

in Pegram v. Herdrich.®’ Here, the lower court has substituted

its views as to appropriate plan design for the collective

judgments of Congress as expressed in ERISA, employers,

fiduciaries, and plan sponsors. The foundation of the United

States’ voluntary, employer-based healthcare system is the

ability to design benefit plans with cost-containment

mechanisms including reimbursement, free of such interference

by the courts, yet the Ninth Circuit seeks to undermine this

foundation.

Most disturbing is the Ninth Circuit’s willingness to disrupt

this foundation based on its anything-but-traditional rewriting

of the law of equity to find that a claim for monetary relief is

automatically a claim for legal damages that cannot be brought

under ERISA Section 502(a)(3). That Court, uniquely, has

refused to accept the uniform consensus that monetary relief is

not necessarily “legal” relief. Other federal circuit courts that

have grappled with the question of how to enforce plans’

reimbursement provisions have applied equitable remedies to

allow employee health benefit plans to be effectively reimbursed

under ERISA. Some have chosen to apply a constructive trust

remedy in resolving this issue,* while others have chosen

alternative rubrics such as specific performance.” In addition

67. 530 U.S. 211, 235-37 (2000).

68. See Wal-Mart Stores, Inc., 213 F.3d at 401-02; Health Care

Cost Controls of Ill., Inc., 187 F.3d at 710-11.

69. The Eleventh Circuit in Blue Cross & Blue Shield v. Sanders

relied on precedent that “[s]pecific performance is an equitable remedy

available when legal remedies are inadequate” and that “equitable

(Cont'd)

OL FFE Es oe) e225

23

to remedies applied by such courts

' . , @ Varie

equitable remedies might be available, such as rata mbox

equitable lien on the beneficiary’s tort recovery, or a

mandatory injunction directi : ;

the claim” irecting the beneficiary to sign over

(Cont'd)

relief under § 1132(a)(3)(B) includes monetary awards typically

available in equity but not onsequential dama

tory or c ential y

Blue Cross & Blue Shield, 138 F.3d at 1352-53 n.5 (citing Dairy Queer

Inc. v. Wood, 369 U.S. 469, 478 (1962)). owe

70. See Health Care Cost Controls of

: Ill, Inc., 187 F.3d at 711.

— oe Court choose to find no relief for Petitioners available

_ Section 502(a)(3), 29 U.S.C. § 1132(a)(3), Amici

t it find relief available under an alternative cause of action mo

— = federal common law. See Provident Life & Accident Ins. Co

. Waller, 906 F.2d 985, 993 (4th Cir. 1990) (recognizing a federal

on an a enrichment under ERISA, holding that ERISA

on 403(c2(A), 29 U.S.C. § 1103(¢\(2\(A), “indi 7

, cates a des

to ensure that plan funds are administered equitably and ices =

party, not even plan beneficiaries, should unjustly profit”).

24

IV. CONCLUSION

Eliminating the capacity of employee benefit plans to

be reimbursed for monies expended on behalf of individual

plan participants and beneficiaries out of those individuals’

third-party recoveries inevitably increases costs for the plans

as well as fellow plan members. This creates unfortunate

disincentives to the creation of ERISA plans at a time when

the United States’ voluntary, employer-sponsored health care

system is struggling with rising health care costs.

For the above reasons, Amici the American Association

of Health Plans, the American Benefits Council, the Blue

Cross Blue Shield Association, the Chamber of Commerce

of the United States, and the Health Insurance Association

of America respectfully request that this Court reverse the

decision of the Court of Appeals for the Ninth Circuit.

Respectfully submitted,

STEPHANIE W. KANWIT

Counsel of Record

KATHLEEN A. PETERSON

EpsTeIn BECKER & GREEN, P.C.

1227 25" Street, N.W., Suite 700

Washington, D.C. 20037

(202) 861-0900

Louis SAccoccio

AMERICAN ASSOCIATION

OF HEALTH PLANS

1129 20" Street, N.W.

Suite 600

Washington, D.C. 20036

(202) 778-3210

25

LYNN DUDLEY

AMERICAN BENEFITS COUNCIL

1212 New York Avenue, N.W.

Suite 1250

Washington, D.C. 20005

(202) 289-6700

RoGer G. WILSON

Bue Cross BLue SHIELD

ASSOCIATION

225 North Michigan Avenue

Chicago, IL 60601

(312) 297-6000

Rosin S. Conrad

JosHua A. ULMAN

NATIONAL CHAMBER LITIGATION

CENTER, INC.

Counsel for the Chamber of

Commerce of the United States

1615 H Street, N.W.

Washington, D.C. 20062

(202) 463-5337

JEFFREY GABARDI

HEALTH INSURANCE ASSOCIATION

OF AMERICA

555 13 Street, N.W.

East Tower

Washington, D.C. 20004

(202) 824-1621

Attorneys for Amici Curiae