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

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0368%3A17

## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2002
- **Citation:** 534 U.S. 204

## Text

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0368%3A17. Public record. Not legal advice.