Amicus Curiae Brief — Rush Prudential HMO, Inc. v. Moran

NOV 7 2001

No. 00-1021

In The

Supreme Court of the United States

°

RUSH PRUDENTIAL HMO, INC.,

Petitioner,

V.

DEBRA MORAN and STATE OF ILLINOIS,

Respondents.

7

On Writ Of Certiorari

To The United States Court Of Appeals

For The Seventh Circuit

e@— —--—--- =

BRIEF OF THE NATIONAL ASSOCIATION OF

INSURANCE COMMISSIONERS AS AMICUS CURIAE

IN SUPPORT OF RESPONDENTS

>

JENNIFER R. Cook

Counsel of Record

Mary ELizABetH SENKEWICZ

NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS

444 North Capitol Street, Suite 701

Washington, D.C. 20001

(202) 624-7790

Marc |. Macuiz

CouHEN, Mitstein, Hausrecp & Toit, P.L.L.C.

1100 New York Ave., N.W.

West Tower, Suite 500

Washington, D.C. 20005

(202) 408-3757

Counsel for National Association of

Insurance Commissioners

BEST AVAILABLE COPY

TABLE OF CONTENTS

Page

sun cuueetent i

TABLE OF AUTHORITIES............-..seeeeeeee: iii

INTEREST OF AMICUS CURIAE ...............+5- 1

SUMMARY OF ARGUMENT....... ad 2

EE ERTS Se Fe 4

A. Illinois’s Independent Review Law Regulates

Insurance Within the Meaning of ERISA’s Saving

GEE 6 ba see S ene dhecicedvcisovsvodddceessese 4

1. The circuit courts agree that independent

review laws are saved as laws regulating

SROUBGTIGD. «cc cnsccsescccccoccvscsescasvsces 4

2. Illinois’s independent review law regulates

insurance from a common sense perspective.. 5

3. Illinois’s independent review law regulates

insurance within the meaning of the three

McCarran-Ferguson factors..............++. 10

B. Illinois’s Independent Review Law does not Pro-

vide a Remedy that Conflicts with § 502, and

Even if it is a Remedy, it is Subject to the Saving

DED kcbbed kc ede bdedeebbdsenbickeesvecesen: 13

1. Illinois’s independent review law does not .

provide an alternative enforcement mecha-

nism in conflict with ERISA § 502.......... 13

2. Even if Illinois’s independent review law is a-

remedy, it is saved from preemption ....... 19

a. Pilot Life did not take into account the

ong seo against preemption, which

as informed this Court’s recent preemp-

OU GUID so cc ecccecccccccvccvceeces 20

ii

TABLE OF CONTENTS - Continued

Page

b. Under the plain language of ERISA, the

saving clause, § 514(b)(2)(A), limits the

preemptive effect of § 502.............. 22

c. The legislative history of ERISA is mis-

leading because the analogy to § 301 of

EAGRA ts GUWOR. 6 viscscgeccebabeuece 25

CONLIN o o0sv0ne0ccscenenesuuenaena eee 26

iii

TABLE OF AUTHORITIES

Page

Feperat Cases:

Amaro v. Bernard, 618 F.2d 559 (9th Cir. 1980)....... 18

Anderson v. Humana, Inc., 24 F.3d 889 (7th Cir.

EES LE PESOS IES PP PEPE OT OTTTTET TTT TT ETT 4, 6

Arnulfo P. Sulit, Inc. v. Dean Witter Reynolds, Inc.,

847 F.2d 475 (8th Cir. 1988).......... cece cece cece 18

Bird v. Shearson Lehman/American Express, Inc., 926

F.2d 116 (2d Cir. 1991)......... cece eee eee ence eens 17

California Div. of Labor Standards Enforcement v.

Dillingham Const, N.A., 519 U.S. 316 (1997)........ 22

Circuit City Stores, Inc. v. Saint Clair Adams, 121

edi ecacdugtseccedesceccccccccce 16

Corporate Health Ins. v. The Texas Dep't of Ins., 215

EE EEE, ccccccccccecececcocces 3, 4, 6

De Buono v. NYSA-ILA Med. & Clinical Servs. Fund,

es coco dceceseedeecvceescecoece 21

Firestone Rubber v. Bruch, 498 U.S. 101 (1989)........ 15

FMC Corp. v. Holliday, 498 U.S. 52 (1990).......... 9, 18

Franchise Tax Bd. v. Construction Laborers Vacation

eS ccc cesecesecoevceccecs 26

Franklin H. Williams Ins. Trust v. Travelers Ins. Co.,

eC MD scccccccceccecccccocccce 22

Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20

CEC ee eae bEb Ses esbcbcceccccccccceeceess 17

Graphic Communications Union, District Council No.

2 AFL-CIO v. GCIU-Employer Retirement Benefit

Plan, 917 F.2d 1184 (9th Cir. 1990) ................ 17

iv

TABLE OF AUTHORITIES - Continued

Page

Group Life & Health Ins. Co. v. Royal Drug Co., 440

ee GP CNN 66 orb 00d ondcus canbensbuttinneensendas 7

Harris Trust & Saving Bank v. Salomon Smith Barney

Bib, THD GS. CR. ZEBD GARDE... ccccccccccccccscccccce 24

In the Matter of Estate of Medcare HMO, 998 F.2d

Caw Hae We Men a veccconscodecccsveesedsuseses 4,8

In re Life Ins. Co. of N. Am., 857 F.2d 1190 (8th Cir.

BES e ccecvccccvcscondedduneceddocdescasésoeeuens 22

John Hancock Mut. Life Ins. Co. v. Harris Trust &

Sav. Bank, 510 U.S. 86 (1993)................... 14, 16

Kanne v. Connecticut Gen. Life Ins. Co., 867 F.2d 489

eee Gs Pen cecnesrisdasonscncddectdnceaberdacs 22

Kentucky Ass'n of Health Plans, Inc. v. Nichols, 227

FE SOD Ge Gh Soe ccc decbccceccévcsecseceess 6

Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. —

Ge GUNN 0 8 dh edhedpédcccdcdecoctdévediocndancisbes 24

Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58

PENG Cho esddandéeceddeccdedevesuaiess suecanone 20, 21

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

Fee GU obo kcnvinsdsnndcoedeuasesdbeccaeuns passim

Moran v. Rush Prudential HMO, Inc., 230 F.3d 959

Ue GOR GU, FE Boe c ccvccccccccccscccces 2, 4, 11

Moses H. Cone Mem’! Hosp. v. Mercury Constr.

Cs: GED GO B Gets n cb cccdeccncccvecccaneccce 17

New York State Conference of Blue Cross Blue Shield

Plans v. Travelers Ins. Co., 514 U.S. 645 (1985) ..... 21

Vv

TABLE OF AUTHORITIES - Continued

Page

Ocean State Physicians Health Plan, Inc. v. Blue Cross

and Blue Shield, 883 F.2d 1101 (1st Cir. 1989)....... 6

O'Reilly v. Ceuleers, 912 F.2d 1383 (11th Cir. 1990)..... 6

Pegram v. Herdrich, 530 U.S. 211 (2000).............-- 3

Pilot Life v. Dedeaux, 481 U.S. 41 (1987).......... passim

Pinto v. Reliance Standard, 214 F.3d 377 (3rd Cir.

Be cccaccececceceésccewbscncesccesecsesececesse 15

Pritzker, et al. v. Merrill Lynch, Pierce, Fenner &

Smith Inc., 7 F.3d 1110 (3rd Cir. 1993)............. 18

SEC v. National Securities, Inc., 393 U.S. 453 (1969) .... 19

Shearson/American Express Inc. v. McMahon, 482

CR, FP GIP cc cccvccccccccccccccccsessecccccseee 17

United Steelworkers v. Warrior & Gulf Navigation

Co., 363 U.S. 574 (1960)..... 2.2 c cece cece cee eeees 17

Unum v. Ward, 526 U.S. 358 (1999)............-. passim

U.S. Dep't of Treasury v. Fabe, 508 U.S. 491 (1993) .... 12

Williams v. Imhoff, 203 F.3d 758 (10th Cir. 2000)...... 17

State Cases:

Smith v. Pacificare Behavioral Health of California,

Inc., 2001 Cal. App. LEXIS 842 at *23-*28 (Octo-

BP Te, BED vec nccccecccencccscccccocdssesccecese 19

FEDERAL STATUTES:

Employee Retirement Income Security Act of 1974

(ERISA), 29 U.S.C. § 1001, et seq. ........620005. 1, 10

ee Le fee 3, 17

vi

TABLE OF AUTHORITIES - Continued

Page

Section 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B)

aCesecceveccescessonesccessoceseteseoscueses 13, 14, 20

Gestion SOG, BD UG. © BOGS on ccccccccccccccccces 23

Section 514(a), 29 U.S.C. § 1144(a) ................ 22

Section 514(b)(2)(A), 29 U.S.C. § 1144(b)(2)(A) ... passim

Section 514(b)(2)(B), 29 U.S.C. § 1144(b)(2)(B). ..10, 23

Section 514(d), 29 U.S.C. § 1144(d)................ 19

The Federal Arbitration Act (FAA), 9 U.S.C.S. § 1,

Se Ge CEE Cdnbénenesdceusceniedeensacdébenencece 18

Labor Management Relations Act (LMRA), 61

95 4 2). Sf rere 17

State STATUTES:

215 Itt. Comp. Stat. § 125/1-1, et seq. (2001)........ 5

215 Itt. Comp. Stat. § 125/1-2 (2001)............... 8

215 Int. Comp. Stat. § 125/1-2(9) (2001)............. 9

215 Itt. Comp. Stat. § 125/4-10 (2001) ........ 2, 5, 13

OTHER AUTHORITIES

Brief for Secretary of Labor as Amicus Curiae,

Express Scripts v. Wenzel, 262 F.3d 829 (8th Cir.

ee Se I eanbsccveddcecdcdatcnbencecedest 6

Brief for Secretary of Labor as Amicus Curiae,

Moran v. Rush Prudential HMO, Inc., 230 F.3d 959

(7th Cir. 2000) (No. 99-2574)............ 5, 11, 14, 26

vii

—s

TABLE OF AUTHORITIES - Continued

Page

Brief for Secretary of Labor as Amicus Curiae,

Washington Physician Serv. Ass'n v. Gregoire, 147

F.3d 1039 (9th Cir. 1998) (No. 97-35536)......... 6, 11

Brief for NAIC as Amicus Curiae in Support of

Petition for Writ of Certiorari at 2-9, Moran v.

Rush Prudential HMO, Inc., 230 F.3d 959 (7th Cir.

2000) (No. 00-1021)....... 2. cee cece cece cere eee eens 2

Brief for the U.S. as Amicus Curiae, Pegram v.

Herdrich, 530 U.S. 211 (2000) (No. 98-1949)......... 5

Brief for U.S. as Amicus Curiae, Unum v. Ward,

526 U.S. 358 (1999) (No. 97-1868) .......... 21, 22, 25

~Health Carrier External Review Model Act (Model

Act), Model No. 75, I NAIC Model Laws, Regula-

tions and Guidelines (2000) ............00ceceeeeeees 2

NAC Rernsurance Corp., REINSURANCE CONTRACTS

CONTENT AND REGULATION at 37 (2d ed. 1993)........ 6

NAIC Constitution, Article II. Mission Statement,

I NAIC Proceedings, 1997........6000ceceeeeeeeeeees 1

Rosert W. Kern, Nar’t Ass’N oF INs. COMMISSIONERS

Epuc. & Res. Founp., A ReGcutator’s INTRODUC-

TION TO THE INSURANCE INDusTRY 3-13 (1999) ......... 6

INTEREST OF AMICUS CURIAE}

The National Association of Insurance Commission-

ers (NAIC) is a non-profit corporation comprised of the

chief insurance regulators in each state, four territories

and the District of Columbia. The NAIC assists these

officials in the pursuit of fundamental insurance regula-

tory objectives, including: (1) maintaining and improving

state regulation in a responsive and efficient manner; (2)

maintaining the reliability of insurance business with

respect to financial solidity and guarantees against loss;

and (3) ensuring fair, just and equitable treatment of

policyholders and clairnants.?

The issue before this Court implicates the NAIC’s

objectives because it addresses whether the Employee

Retirement Income Security Act (ERISA), 29 U.S.C.

§ 1001, et seq. (2001), preempts state independent review

laws that regulate insurance within the meaning of

ERISA’s saving clause, § 514(b)(2)(A).

-

1 Pursuant to Supreme Court Rule 37.3(a), letters of consent

from all parties to the filing of this brief have been filed with the

Clerk. Pursuant to Supreme Court Rule 37.6, counsel for any

party did not author this brief in whole or in part. No person or

entity, other than this Amicus Curiae, made a monetary

contribution to the preparation and submission of this brief.

2 National Association of Insurance Commissioners

(NAIC) Constitution, Article Il. Mission Statement, 1 1997 Proc.

or THE Nar’t Ass’N oF INs. COMMISSIONERS iv (1st qtr.)

The NAIC adopted the Health Carrier External

Review Model Act (Model Act), 1 Mopet Laws, Recuta-

TIONS AND GuIDELINEes No. 75 (2000), on October 4, 1999.3

Generally, the Model Act provides for independent

review of health carrier coverage decisions based on

medical judgment. By adopting this Model Act, the NAIC

declared that the independent review of certain claims

determinations furthers the NAIC mission - to ensure the

fair, equitable and just treatment of insurance consumers.

Id. This Court should affirm insurance regulators’ ability

to protect insurance consumers by affirming the United

States Court of Appeals for the Seventh Circuit’s decision

in Moran v. Rush Prudential HMO, Inc., 230 F.3d 959 (7th

Cir. 2000), cert. granted, U.S.L.W. (U.S. June 29, 2001) (No.

00-1021).

SUMMARY OF ARGUMENT

This Court should affirm the Seventh Circuit's deci-

sion in Moran and hold that Illinois’s independent review

law, 215 Itt. Comp. Stat. 125/4-10 (2001) (Section 4-10), is

not preempted by ERISA. Section 4-10 is saved as a law

that “regulates insurance” within the meaning of ERISA’s

saving clause, § 514(b)(2)(A). The Seventh Circuit in

Moran and the United States Court of Appeals for the

> See Br. for NAIC as Amicus Curiae in Support of Petition

for Writ of Certiorari at 2-9, Moran v. Rush Prudential HMO, Inc.,

230 F.3d 959 (7th Cir. 2000) (No. 00-1021) (discussion of the

NAIC Health Carrier External Review Model Act and state

independent review laws that will be impacted by this Court's

decision in this case.)

Fifth Circuit in Corporate Health Ins. Inc. v. The Texas Dep't

of Ins., 215 F.3d 526 (5th Cir. 2000), the only two circuit

courts to address the issue of ERISA preemption of state

independent review laws, were correct in concluding that

state independent review laws were within the insurance

saving clause.

This Court should affirm the rationale of the Seventh

Circuit, and hold that state independent review laws

merely add terms to insurance contracts, which are

enforceable through suits under ERISA. Alternatively, if

this Court should find that state independent review laws

create a remedy or enforcement mechanism that supple-

ments § 502 of. ERISA, 29 U.S.C. § 1132 (2001), this Court

should hold that the laws are not, nevertheless, pre-

empted. This Court should revisit its opinion in Pilot Life

v. Dedeaux, 481 U.S. 41 (1987), and clarify that, by its plain

language, ERISA’s saving clause, § 514(b)(2)(A), limits the

preemptive effect of § 502.4

+

4 The NAIC understands that Respondent may argue that

Illinois’s independent review law is not preempted under

ERISA because it is a law regulating health care, a subject of

traditional state regulation, and therefore does not “relate to” an

ERISA Plan. In light of this Court’s decision in Pegram v.

Herdrich, 530 U.S. 211, 219 (2000), we think that this argument

has merit. The NAIC, however, has chosen to address those

issues involving the regulation of insurance - cur unique area of

expertise. —

ARGUMENTS

A. Illinois’s Independent Review Law Regulates

ng Within the Meaning of ERISA’s Saving

ause.

1. The circuit courts agree that independent

review laws are saved as laws regulating insur-

ance.

Only two federal courts of appeals have addressed

the issue of ERISA preemption of state independent

review laws, the Fifth Circuit in Corporate Health and the

Seventh Circuit in Moran. While they reached opposite —

conclusions about ERISA preemption, both concluded

that the state’s independent review law regulated insur-

ance within the meaning of ERISA’s saving clause,

§ 514(b)(2)(A). The Fifth Circuit held that the Texas inde-

pendent review law “meet([s] the common-sense test of

the saving clause” and “satisf[ies] the second and third

prongs of the McCarran-Ferguson test.” Corporate Health,

215 F.3d at 538. The Seventh Circuit likewise held that the

Illinois law “regulates insurance under a common sense

understanding” and clearly “meets at least two of the

McCarran-Ferguson factors.” Moran, 230 F.3d at 969.

In addition, this Court in Unum v. Ward, 526 U.S. 358

(1999), stated that the issue of whether California’s

notice-prejudice rule was a law that regulates insurance

within the meaning of ERISA’s saving clause, was an

issue “heavily dependent on state law.” Id. at 368. Illi-

nois’s independent review law, Section 4-10, applies to

health maintenance organizations (HMOs) and according

to the Seventh Circuit, HMOs are in the business of

insurance under Illinois law. See Anderson v. Humana, Inc.,

24 F.3d 889, 892 (7th Cir. 1994); In the Matter of Estate of

Medcare HMO, 998 F.2d 436, 444-46 (7th Cir. 1993). Conse-

quently, this Court should defer to the circuit courts and

5

find that Section 4-10 regulates insurance within the

meaning of ERISA § 514(b)(2)(A).

2. Illinois’s independent review law regulates

insurance from a common sense perspective.

Petitioner asserts that Illinois’s independent review

law fails to “regulate insurance” within the meaning of

ERISA’s saving clause, ERISA § 514(b)(2)(A). Petitioner

focuses on the “common sense test,” Br. for Pet’r at 36-40,

and whether Section 4-10, because it applies to HMOs,’ is

a law directed specifically at the insurance industry.°

Clearly, HMOs are insurers. HMOs are considered

insurers under Illinois law.” The location of the HMO Act

in the Insurance Chapter of the Illinois Code supports the

common sense view that HMOs are insurers. The Secre-

tary of the Department of Labor, who is charged with

interpreting and enforcing all provisions of Title I of

ERISA, has taken the position that HMOs are insurers.?

5 “Each Health Maintenance Organization shall provide a

mechanism for the timely review by a physician . . . in the event

of a dispute between the primary care physician and the Health

Maintenance Organization regarding the medical necessity of a

covered service. ...” 215 Itt. Comp. Stat. 125/4-10 (2001).

6 The “common sense view of the word ‘regulates’ would

lead to the conclusion that in order to regulate insurance, a law

must not just have an impact on the insurance industry, it must

be specifically directed toward that industry.” Br. for Pet’r at 37,

citing Pilot Life v. Dedeaux, 481 U.S. 41, 50 (1987).

7 See discussion supra at 4.

8 215 Itt. Comp. Stat. 125/1-1, et seq. (2001).

9 See Br. for Secretary of Labor as Amicus Curiae at 14,

Moran, 230 F.3d 959 (No. 99-2574); Br. for the U.S. as Amicus

Several circuit courts have also concluded that HMOs are

insurers.!° Indeed, this Court has stated that HMOs are

risk-bearing entities that function much like traditional

insurers. See Pegram v. Herdrich, 530 U.S. 211, 219 (2000).

Petitioner asserts, however, that the Illinois definition

of “HMO” applies to entities that have administrative

service only contracts with self-funded employers

because Illinois law allows HMOs to “devolve all risk

onto their providers.” Br. for Pet’r at 38. The fact that an

HMO transfers (“devolves”) risk to its providers does not

mean that the HMO is not an entity engaged in the

business of insurance subject to state regulation. An

insurer need not retain the risk it assumes in order to be

engaged in the business of insurance. In fact, indemnity

insurers often reinsure their risk.1! This spreading of risk

Curiae at 23-24, Pegram v. Herdrich, 530 U.S. 211 (2000) (No.

98-1949); Br. for Secretary of Labor as Amicus Curiae at 7-10,

Washington Physician Serv. Ass'n v. Gregoire, 147 F.3d 1039 (9th

Cir. 1998) (No. 97-35536); Br. for Secretary of Labor as Amicus

Curiae at 19-20, Express Scripts v. Wenzel, 262 F.3d 829 (8th Cir.

2001) (No. 00-2788).

10 See Ocean State Physicians Health Plan, Inc. v. Blue Cross

and Blue Shield, 883 F.2d 1101, 1108 (1st Cir. 1989); Anderson v.

Humana, Inc., 24 F.3d 889, 892 (7th Cir. 1994); Gregoire, 147 F.3d at

1045-46; Corporate Health Ins. Inc. v. The Texas Dep't of Ins., 215

F.3d 526, 538 (5th Cir. 2000); Kentucky Ass’n of Health Plans, Inc. v.

Nichols, 227 F.3d 352, 364-65 (6th Cir. 2000); but see, O'Reilly v.

Ceuleers, 912 F.2d 1383, 1389 (11th Cir. 1990).

11 See Ropert W. Kuen, Nat’t Ass’N oF INs. COMMISSIONERS

Epuc. & Res. Founp., A REGULATOR’s INTRODUCTION TO THE

INSURANCE INDUsTRY at 3-13 (1999) (“Insurers purchase

reinsurance to reduce their risk.”); see also NAC RemnsuRANCE

Corp., ReInsuRANCE CONTRACTS CONTENT AND REGULATION at 37 (2d

ed. 1993) (practice of fronting, where one insurer cedes all its

does not alter the nature of the original insurance trans-

action — both the HMO and the indemnity insurer have

assumed the risk of a subscriber’s health care costs in

exchange for a fixed fee.

In fact, it is this original transfer and spreading of

risk, common to both indemnity insurers and HMOs, that

this Court has referenced as being a “distinguishing fea-

ture of insurance,” Group Life & Health Ins. Co. v. Royal

Drug Co., 440 U.S. 205, 211-212 (1979). Both HMOs and

indemnity insurers, in exchange for a payment from the

policyholder, accept the risk of the policyholder’s medi-

cal costs. This transfer of risk of loss from the insured to

the insurer is the same whether the insurer is an HMO or

indemnity company. As the Secretary points out in its

amicus brief in Washington Physicians Serv. Ass'n v. Gre-

goire, “like an insurance concern, an HMO bears the’ risk

of the need for medical assistance. And like an insurance

concern, an HMO spreads this risk among its sub-

scribers.” Brief for Secretary of Labor as Amicus Curiae at

7-8, Gregoire, 147 F.3d 1039 (9th Cir. 1998) (No. 97-35536).

An HMO that accepts and transfers risk is engaging in

the business of insurance.!? It makes scant sense to place

such significance on the method by which an HMO

chooses to fulfill its obligation to subscribers. Whether by

risk to an assuming insurer, does not alter either parties’

obligations under their respective contracts.)

12 “Insurance is an arrangement for transferring and

distributing risks.” Group Life & Health Ins. Co. v. Royal Drug Co.,

440 U.S. 205, 211 (1979), citing G. Richards, the Law of Insurance

§ 2 (W. Freedman 5th ed. 1952).

employing providers or entering into contractual

arrangements, such arrangements fail to alter the funda-

mental insurance contract with the subscribers.

Illinois’s law, by regulating entities that provide or

arrange for health care plans, ensures that entities are not

able to evade state insurance law through creative corpo-

rate and contract structures. Even if, through some such

creative structure, an HMO entered into a three party

contract with an employer where it provided a network

that assumed all the risk of providing health care and the

HMO only assumed administrative responsibility, the Illi-

nois law would still regulate the HMO and probably,

additionally, the provider network.!* Under this scenario,

both the HMO and the provider network are providing or

arranging for a health care plan, covered under the defi-

nition of HMO under Illinois law. Such regulation is

entirely proper and good public policy because otherwise

entities could avoid state insurance regulation by divid-

ing the traditional functions of an insurer among distinct

corporate entities.

Regardless of the risk sharing arrangements an HMO

may have with its providers, the plain language of the

Illinois statute makes clear that an HMO does not include

13 See In the Matter of Estate of Medcare HMO, 998 F.2d 436,

444 n.7 (7th Cir. 1993) (“The distinction between cash

indemnification and provision of service in kind is not, from the

perspective of enrollees, very marked. The enrollees’ health care

costs are met by the organization in question under either

scenario.”)

14 See infra at 9 (definition of “Health maintenance

organization” 215 Itt. Comp. Stat. ANN. 125/1-2 (2001)).

an entity involved in an administrative services only

contract with a self-funded employer. Illinois law defines

HMO as “any organization formed under the laws of this

or another state to provide or arrange for one or more

health care plans under a system which causes any part

of the risk of health care delivery to be borne by the

organization or its providers.” 215 Itt. Comp. Stat.

§ 125/1-2(9) (2001). According to this definition, “arrang-

ing” involves risk being borne by the HMO or “its”

providers. If the employer retains the risk, then the HMO

is clearly not providing or arranging for a health care

plan where risk is being borne by an entity other than the

employer as is required by the Illinois definition of HMO.

If the risk is not being borne by the employer, then the

employer is not self-funding. Therefore, this definition

applies exclusively to HMOs that are insurers.

The attempt of the Petitioner to misconstrue the defi-

nition of HMO in the Illinois Act to include administra-

tive services only contracts with self-funded employers

cannot succeed in any event. In addition to the plain

language of the definitions in the law, this Court held in

FMC Corp. v. Holliday, 498 U.S. 52, 65 (1990) that a state

insurance law will only be invalidated to the extent that it

applies to self-funded plans. Id.

10

3. Illinois’s independent review law regulates

insurance within the meaning of the three

McCarran-Ferguson factors.

Petitioner also asserts that the Illinois law fails to

satisfy any of the three factors'5 employed to determine

whether a practice regulates the “business of insurance”

within the meaning of the McCarran-Ferguson Act, 15

U.S.C. § 1012 (2001). See Br. for Pet’r at 40. It is important

to remember that the McCarran-Ferguson Act does not

contain identical language to ERISA. The McCarran-Fer-

guson Act makes reference to the “business of insur-

ance.” This Court in Metropolitan Life Ins. Co. v.

Massachusetts, 471 U.S. 714 (1985) explained that “[c]Jases

interpreting the scope of the McCarran-Ferguson Act

have identified three criteria relevant to determining

whether a particular practice falls within that Act's refer-

ence to the ‘business of insurance.’ ” Id. at 743 (emphasis

added). This is a different inquiry than whether a state

law “regulates insurance” within the meaning of ERISA’s

saving clause. ERISA makes reference to laws that “regu-

late insurance” and, through the inclusion of the

“deemer” clause, § 514(b)(2)(B), 29 U.S.C. § 1144(b)(2)(B),

makes “explicit Congress’ intention to include laws that

regulate insurance contracts within the scope of the

insurance laws preserved by the saving clause.” Metro-

politan Life, 471 U.S. at 741. ERISA’s reservation of state

15 The three factors are: (1) whether the law has the effect of

transferring or spreading a policyholder’s risk; (2) whether the

law is an integral part of the policy relationship between the

insurer and the insured; and (3) whether the law is limited to

entities within the insurance industry. Unum v. Ward, 526 U.S.

358, 373-375 (1999).

11

insurance regulation is explicitly broader in its scope than

the McCarran-Ferguson Act, otherwise it would not have

been necessary for Congress to make reference to laws

regulating insurance contracts in the deemer clause.’

Therefore, as this Court makes clear in Ward, the three

McCarran-Ferguson factors are “checking points or

guideposts” to consider, “not separate essential ele-

ments . . . that must each be satisfied” to save a state law

within the meaning of ERISA § 514(b)(2)(A). Ward, 526

U.S. at 373-374.

In any event, Illinois’s independent review law satis-

fies the three McCarran-Ferguson factors. First, Section

4-10 has the effect of transferring or spreading a poli-

cyholder’s risk. This Court in Metropolitan Life held that

Massachusetts’s mental health law regulated insurance

within the meaning of ERISA’s saving clause because “it

was intended to effectuate the legislative judgment that

the risk of mental health should be shared.” 471 U.S. at

743. According to the Secretary of Labor in its amicus

brief before the Seventh Circuit in Moran, the Illinois

independent review law similarly spreads risk by requir-

ing an HMO to use a certain procedure for determining

which claims to pay. See Br. for Secretary of Labor as

Amicus Curiae at 12, Moran (No. 99-2574). This procedure

is an integral part of risk spreading because it determines

which risks will be spread and in what manner. Id.

Indeed, HMOs factor these risks into setting the pre-

miums for their contracts, which is a central element of

risk spreading. Id. at 13. Section 4-10 also effectuates the

16 See also Br. for Secretary of Labor as Amicus Curiae at

7-10, Gregoire, 147 F.3d 1039 (9th Cir. 1998) (No. 97-35536).

12

transfer of risk, as it regulates the performance of the

terms of the insurance contract by mandating indepen-

dent physician review when there is a coverage dispute

based on medical necessity. As this Court in U.S. Dep’t of

Treasury v. Fabe, 508 U.S. 491 (1993) explained, “without

performance of the terms of the insurance policy, there is

no risk transfer at all.” Id. at 504.

Second, the Illinois independent review law is an

integral part of the policy relationship between the

insurer and the insured. Similar to the notice-prejudice

rule at issue in Ward, the Illinois independent review law

goes to the heart of the insurer-insured relationship by

dictating the process whereby the HMO decides whether

benefits are owed to the insured. See 526 U.S. at 374-375.

It provides an insured with a contractual right to an

independent review process. This Court has “repeatedly

held that state laws mandating insurance contract terms

are saved from preemption.” Ward, 526 U.S. at 375-376

(citing Metropolitan Life, 471 U.S. at 758) (“Massachusetts’

mandated-benefit law is a ‘law which regulates insur-

ance’ and so is not preempted by ERISA as it applies to

insurance contracts purchased for plans subject to

ERISA.”)

This Court has also stated, in Metropolitan Life, that

“[s]tatutes aimed at protecting or regulating [the relation-

ship between an insurer and insured], directly or indi-

rectly, are laws regulating the ‘business of insurance.’ ”

471 U.S. at 744 (citation omitted). Section 4-10 regulates

the relationship between an insurer and an insured by

requiring independent physician review of coverage

determinations made by managed care organizations,

13

based on whether a covered service is medically neces-

sary, 215 Itt. Comp. Star. 125/4-10 (2001).

Third, for all the reasons that Section 4-10 regulates

insurance from a common sense perspective, the Illinois

law is limited to entities within the insurance industry.

B. Illinois’s Independent Review Law does not Pro-

vide a Remedy that Conflicts with § 502, and Even if

it is a Remedy, it is Subject to the Saving Clause.

1. Illinois’s independent review law does not pro-

vide an alternative enforcement mechanism in

conflict with ERISA § 502.

Petitioner asserts that Section 4-10 creates an alterna-

tive enforcement mechanism to ERISA § 502, which was

intended to be exclusive. Br. for Pet’r at 19-36. Under

ERISA § 502(a)(1)(B), a beneficiary is able to “recover

benefits due under the terms of the plan” or “enforce his

rights under the terms of the plan.” 29 U.S.C.

§ 1132(a)(1)(B) (2001). Section 4-10 does not provide an

alternative to this ERISA remedy, because under the Illi-

nois statute an independent reviewer cannot enforce his

coverage determination. Illinois’s independent review

law is no different from other state laws that are not

preempted. Section 4-10 is like the mandated benefits law

at issue in Metropolitan Life, which adds covered benefits

to the terms of an insured ERISA plan. Section 4-10 is also

indistinguishable from the notice-prejudice rule at issue

in Ward. Tilinois’s independent review law changes the

terms of an insured plan by adding procedural protec-

tions to assure that covered benefits promised by

14

the insurer are not misconstrued by decision makers

whose fortunes are closely tied to the insurer.

Just as there would be no basis for challenging other

state laws aimed at insurance carriers that adjust the

method by which carriers decide claims, there is no basis

for challenging Illinois’s independent review law. The

state is merely prescribing the qualifications of the person

who has the authority to decide a type of claim. As the

Secretary stated in its Brief before the Seventh Circuit,

Section 4-10 “neither provides participants with an addi-

tional remedy where the HMO refuses to provide the

covered service nor an alternative forum in which a par-

ticipant can obtain the service,” Br. for Secretary of Labor

as Amicus Curiae at 18, Moran (No. 99-2574). Petitioner

contends that the preemptive reach of § 502 requires that

federal substantive law be applied in § 502 cases. Br. for

Pet’r at 25-26 n.6. This Court has already rejected that

view — implicitly in Metropolitan Life, 724 U.S. at 741, and

explicitly in Ward, 526 U.S. at 377. If state mandates of the

sort endorsed in Metropolitan Life are permitted, neces-

sarily state substantive law must be applied to determine

whether those mandates are being complied with in a

particular case. As in Ward, where a participant could

only enforce the notice-prejudice rule through a suit pur-

suant to § 502(a)(1)(B) of ERISA, the determination of the

state-approved decision maker here, can only be enforced

through ERISA. See Br. for Secretary of Labor as Amicus

Curiae at 18, Moran (No. 99-2574). Section 4-10 does not

replace ERISA’s remedies, rather it provides the “relevant

rule of decision,” for a § 502 suit. See Ward, 526 US. at

377; see also John Hancock Mut. Life Ins. Co. v. Harris Trust

& Sav. Bank, 510 U.S. 86, 98-99 (1993) (“ERISA leaves

15

room for complementary or dual federal and state regula-

tion.... ”)

Petitioner asserts that Section 4-10 impermissibly

conflicts with the deferential standard of review of HMO

benefits determinations to which HMOs are entitled

under Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101,

111 (1989). Br. for Pet’r at 17. Firestone did not hold that

ERISA requires deference to insurers or any plan admin-

istrators making benefit determinations. This Court in

Firestone held that courts would presumptively review

ERISA benefit determinations de novo, but that “a defer-

ential standard of review [is] appropriate” when the deci-

sion maker is given “discretionary powers.” 489 U.S. at

115.17 This holding, however, does not prevent states

-from enacting laws that prevent insurers from writing

policies that grant to themselves the amount of discretion

that entitles them to deferential review. Without such

discretion, Firestone requires judicial de novo review. By

17 This holding was qualified when this Court noted that “if

a benefit plan gives discretion to an administrator or fiduciary

who is operating under a conflict of interest, that conflict must

be weighed as a ‘factor in determining whether there is an abuse

of discretion.’ ” Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101,

115 (1989) (quoting Restarement (Seconp) OF TRusTs § 187, cmt. d

(1959)). Since Firestone, the circuits have struggled to apply this

command to benefit decisions by insurance carriers who, by

definition, labor under a structural conflict of interest. The

United States Court of Appeals for the Third Circuit in Pinto v.

Reliance Standard, 214 F.3d 377 (3rd Cir. 2000), reviewed the

circuits’ efforts and the resulting multiple circuit splits. The

Third Circuit decided “to apply the arbitrary and capricious

standard, and integrate conflicts as factors in applying that

standard, approximately calibrating the intensity of our review

to the intensity of the conflict.” Id. at 393.

16

shifting discretion to independent decision makers, the

Illinois law will result in deference to the independent

reviewer rather than the insurance company, which has a

financial incentive to deny claims.

Under ERISA’s saving clause, § 514(b)(2)(A), states

are entrusted with the regulation of insurance and are

free to determine the contents of insurance contracts. See

Metropolitan Life, 471 U.S. at 741 (Congress intended to

include laws that regulate insurance contracts within the

scope of ERISA’s saving clause.) Illinois’s independent

review law is just such a regulation of insurance con-

tracts. By passing its independent review law, the Illinois

legislature decided that insurers do not deserve deference

when they are engaged in medical decision making to

determine insurance coverage.

Petitioner repeatedly asserts in its brief that Section

4-10 is just a form of binding arbitration. Br. of Pet’r at 21,

22, 25, 27, 31 n.10. If so, Section 4-10 is surely not a

remedy that conflicts with ERISA’s remedial scheme.?®

This Court has repeatedly espoused the federal policy

favoring arbitration. See Circuit City Stores, Inc. v. Saint

18 Petitioner also argues that Illinois’s independent review

law conflicts with ERISA’s fiduciary requirements. Br. for Pet’r

at 22 n.5. This argument is illogical. Independent review no

more conflicts with ERISA’s fiduciary requirements than does

arbitration. A benefit determination can be subject to a “full and

fair review by an appropriate named fiduciary” as well as be

subject to independent review. The one does not preclude the

other. See John Hancock Mut. Life Ins. Co. v. Harris Trust & Sav.

Bank, 510 U.S. 86, 98 (1993). (“ERISA leaves room for

complementary or dual federal and state regulation. .. . ”)

17

Clair Adams, 121 S. Ct. 1302, 1307 (2001); Gilmer v. Inter-

state/Johnson Lane Corp., 500 U.S. 20, 24 (1991); Shearson/

American Express Inc. v. McMahon, 482 U.S. 220, 226 (1987);

Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460

U.S. 1, 24-25 (1983). This Court, in Pilot Life, mentions that

ERISA § 502 “was modeled on the exclusive remedy

provided by § 301 of the Labor Management Relations

Act (LMRA), 61 Stat. 156, 29 U.S.C. § 185,” 481 U.S. 41,

52.19 This Court has never considered arbitration clauses

to conflict with the exclusive remedies in LMRA § 301.

See United Steelworkers v. Warrior & Gulf Navigation Co.,

363 U.S. 574, 581 (1960). Additionally, this Court held that

a provision for exclusive federal jurisdiction in another

federal statute did not prohibit arbitration. See Shearson/

American Express Inc. v. McMahon, 482 U.S. 220, 227-229

(1987) (exclusive federal jurisdiction provision in Securi-

ties Exchange Act of 1934 does not prohibit arbitration).

Consistent with these holdings, ERISA benefit claims

have been held to be arbitrable, see Graphic Communica-

tions Union, District Council No. 2 AFL-CIO v. GCIU-

Employer Retirement Benefit Plan, 917 F.2d 1184 (9th Cir.

1990), and most circuits that have considered it have held

that even statutory claims under ERISA are arbitrable. See

Williams v. Imhoff, 203 F.3d 758 (10th Cir. 2000); Bird v.

Shearson Lehman/American Express, Inc., 926 F.2d 116 (2d

19 There are notable differences between the Labor

Management Relations Act (LMRA) § 301, 29 U.S.C. § 185

(2001), and the Employee Retirement Income Security Act

(ERISA) § 502, 29 U.S.C. § 1132 (2001). These differences,

however, go to show that because of ERISA’s saving clause,

§ 502 was never intended to limit remedies to the same extent as

§ 301. See discussion infra at 25-26.

18

Cir. 1991); Pritzker, et al. v. Merrill Lynch, Pierce, Fenner &

Smith Inc., 7 F.3d 1110 (3rd Cir. 1993); Arnulfo P. Sulit, Inc.

v. Dean Witter Reynolds, Inc., 847 F.2d 475 (8th Cir. 1988);

but see Amaro v. Bernard, 618 F.2d 559 (9th Cir. 1980).

The fact that Illinois’s independent review is imposed

by state law rather than voluntarily undertaken by an

insurer does not alter the conclusion that arbitration does

not conflict with ERISA § 502. The Federal Arbitration

Act (FAA), 9 U.S.C.S. § 1, et seg. (2001) itself makes

enforceable agreements to arbitrate, and the Illinois law

does nothing more than impose a requirement on insurers

that they agree with their insureds to engage in a particu-

lar kind of state sanctioned arbitration. The insurer’s

agreement with the insureds is not any less an enforce-

able agreement because the state dictates its terms; state

insurance regulations saved from preemption by ERISA

always alter or control the terms of the agreement

between an insurer and its insureds. See Metropolitan Life,

471 U.S. at 741; Ward, 526 U.S. at 375-376. According to

ERISA’s saving clause, states are free to impose require-

ments directly on insurers, and consequently, indirectly

on plans. See FMC Corp., 498 U.S. at 64. Illinois’s indepen-

dent review law is a law that regulates insurance within

the meaning of ERISA’s saving clause. Because arbitration

does not conflict with the remedial scheme of either the

LMRA or ERISA, a state law like Illinois’s independent

review law, which imposes an arbitration-like procedure,

should also not be preempted.

Even if state insurance laws requiring “involuntary”

independent review are viewed as outside the specific

protection of the FAA, but “merely” within the ambit of

the insurance saving clause, the analogy to arbitration

——— il ye

19

clauses still demonstrates the absence of any conflict with

ERISA. State regulation of insurance is as much a favored

federal policy under the McCarran-Ferguson Act as is

arbitration under the FAA. See Smith v. Pacificare Behav-

ioral Health of California, Inc., 2001 Cal. App. LEXIS 842 at

*23-"28 (October 25, 2001) (citing SEC v. National Securi-

ties, Inc., 393 U.S. 453, 458-459 (1969)). Furthermore, arbi-

tration under the FAA is saved from preemption under

ERISA § 514(d), 29 U.C.S. § 1144(d), which is similar in

structure to the saving clause under ERISA § 514(b)(2)(A).

ERISA § 514(d) states that “[nJothing in this title shall be

construed to alter, amend, modify, invalidate, impair or

supersede any law of the United States...” and sim-

ilarly, § 514(b)(2)(A) states that “ . . . nothing in this title

shall be construed to exempt or relieve any person from

any law of any state which regulates insurance. ...” The

arbitration cases cited above demonstrate that a dispute

resolution mechanism saved from preemption by the fed-

eral law saving clause, which perfectly parallels the

insurance saving clause, can be harmonized with ERISA’s

assertedly exclusive remedial provisions. If the enforce-

ment of arbitration agreements does not conflict with

ERISA, then neither does the enforcement of state manda-

ted independent review.

2. Even if Illinois’s independent review law is a

remedy, it is saved from preemption.

This Court should reaffirm the intended role of the

“saving clause” in ERISA by clarifying the relationship

between the civil remedies provided in ERISA § 502 and

20

the “saving clause” in ERISA § 514(b)(2)(A), which pro-

hibits any construction of title I of ERISA which would

“relieve any person from any law of any State which

regulates insurance. ...” 29 U.S.C. § 1144(b)(2)(A) (2001).

Petitioner argues that Illinois’s independent review law,

because it adds to ERISA’s “exclusive remedies” under

§ 502, undermines the statutory purpose of federal uni-

formity in the administration of ERISA plans. Br. for Pet’r

at 19. This argument fails with respect to state laws that

regulate insurance. This Court acknowledged in Metro-

politan Life, that “disuniformities are the inevitable result

of the congressional decision to ‘save’ local insurance

regulation.” 471 U.S. at 747.

a. Pilot Life did not take into account the pre-

sumption against preemption, which has

informed this Court’s recent preemption

opinions. |

This Court’s observation in Pilot Life that laws regu-

lating insurance cannot supplement the remedies pro-

vided by § 502 of ERISA was dicta. See 481 U.S. at 54. Pilot

Life did not involve a law that regulated insurance within

the meaning of ERISA’s saving clause. Id. at 51. Thus, it

was not necessary for this Court in Pilot Life to say that

Congress intended that all remedies that relate to ERISA

plans, regardless of whether or not they regulate insur-

ance, are to be the exclusive vehicle for beneficiary recov-

ery. Id. at 52.20

20 This Court in Metropolitan Life Ins. Co. v. Taylor, 481 U.S.

58 (1987), also discussed the exclusive nature of ERISA’s

remedies under § 502(a)(1)(B). Taylor, like Pilot Life, did not

21

Furthermore, Pilot Life did not take into account the

presumption against preemption, which has informed

this Court’s recent preemption opinions. In light of the

post-Pilot Life recognition of the importance of preserving

state law, the intended role of ERISA’s saving clause

should be clarified so that state laws that regulate insur-

ance are not preempted merely because they provide a

remedy. This Court’s recent ERISA preemption cases

emphasize Congress's intent to reserve to the states those

laws that are part of their historic police powers.

This Court has recognized that insurance is one of

the areas that is part of the historic police powers of the

states. See New York State Conference of Blue Cross Blue

Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 655 (1985).

The United States observed, in its Brief as Amicus Curiae

in Ward, that this Court’s recent recognition of this pre-

sumption against preemption reinforces the force of the

plain meaning of ERISA’s saving clause.?! In light of the

involve a state law that regulates insurance. Id. at 62.

Consequently, this Court in Taylor had no occasion to consider

whether the otherwise exclusive nature of ERISA § 502 is

limited by ERISA’s saving clause, § 514(b)(2)(A).

21 “[The] force of the savings provision’s express term is

reinforced by the Court’s frequent recognition - particularly in

recent cases — that ERISA’s preemption provisions must be read

against the background of the ‘assumption that the historic

police powers of the States were not to be superseded by the

Federal Act unless.that was the clear and manifest purpose of

Congress.’ ” Br. for U.S. as Amicus Curiae at 30-31, Ward, 526

U.S. 358 (No. 97-1868), (citing New York Conference of Blue Cross

Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 655 (1995)); see

also De Buono v. NYSA-ILA Med. & Clinical Servs. Fund, 520 U.S.

22

presumption against preemption, this Court should clar-

ify that ERISA § 514(b)(2)(A), ERISA’s saving clause,

saves state laws that regulate insurance, even if they are

alternative remedies to ERISA § 502.22 Accordingly, the

language in Pilot Life regarding Congress’s intent for

ERISA’s remedies to be exclusive should be limited to

state laws that relate to an ERISA plan, but are outside

the scope of the saving clause. See Br. for U.S. as Amicus

Curiae at 28, Ward (No. 97-1868); see also Franklin H.

Williams Ins. Trust v. Travelers Ins. Co., 50 F.3d 144 (2d Cir.

1995); but see Kanne v. Connecticut Gen. Life Ins. Co., 867

F.2d 489 (9th Cir. 1988); In re Life Ins. Co. of N. Am., 857

F.2d 1190, 1194-1195 (8th Cir. 1988).

b. Under the plain language of ERISA, the

Saving clause, § 514(b)(2)(A), limits the pre-

emptive effect of § 502.

ERISA’s express preemption provision, § 514,

explains the relationship between ERISA and other laws.

Section 514(a) states that, “[e]xcept as provided in subsec-

tion (b) of this section, the provisions of this title [title I]

and title IV shall supersede any and all state laws insofar

as they may now or hereafter relate to any employee

benefit plan... .” 29 U.S.C. § 1144(a) (2001). This Court

806, 813 n.8 (1997), California Div. of Labor Standards Enforcement

v. Dillingham Const. N.A., 519 U.S. 316, 325 (1997).

22 See Franklin H. Williams Ins. Trust v. Travelers Ins. Co., 50

F.3d 144, 151 (2d Cir. 1995) (the Second Circuit explained that

“[i]t would be quixotic to rule that a claim under a state statute

that is saved from ERISA preemption . . . may nonetheless be

enforced only via ERISA provisions and remedies.”)

nt

23

has often described the “expansive sweep” of this provi-

sion. See Pilot Life, 481 U.S. at 47 (citations omitted).

Congress, however, “substantially qualified” the oth-

erwise sweeping federal preemption of ERISA § 514(a) by

including the saving clause, ERISA § 514(b)(2)(A). See

Metropolitan Life, 471 U.S. at 724. ERISA’s saving clause

states that “[e]xcept as provided in subparagraph (B),”

nothing in this title shall be construed to exempt or relieve

any person from any law of any State which regulates

insurance...” 29 U.S.C. § 1144(b)(2)(A) (2001) (footnote

added, emphasis added).?* On its face, ERISA preempts

state laws that relate to ERISA plans, unless they regulate

insurance. This Court supported this interpretation in

Metropolitan Life and in Pilot Life before the issue of § 502

is discussed. See 471 U.S. at 733, 735; 481 U.S. at 47.

By the plain language of the statute, ERISA § 502 is

subject to the saving clause. The saving clause provides

that nothing in title I, which includes § 502, shall be

construed to exempt or relieve any person from any law of

any state which regulates insurance. Section-514 is the

only place in ERISA that contains preemption language.

Clearly, if Congress intended to save all laws that regu-

late insurance from preemption, except those that pro-

vide remedies, it would have said so in § 514. Section

514(b)(2)(A) already includes one exception, subsection

23 Referencing ERISA’s deemer clause, § 514(b)(2)(B), 29

U.S.C. § 1144(b)(2)(B), which provides that a state cannot deem

an ERISA plan an insurer for the purpose of regulating it. The

deemer clause is not at issue in this case.

24 Laws that regulate banking and securities are also

exempted from the preemptive scope of § 514(b)(2)(A).

24

(B), for laws that deem ERISA plans to be insurers. Surely,

Congress would have included another exception, if it

meant to provide one.

This Court in Pilot Life stated that the comprehensive

nature of the language and structure of § 502 “\».ovide[s]

strong evidence that Congress did not intend to authorize

other remedies that it simply forgot to incorporate

expressly.” 481 U.S. at 54 (citing Massachusetts Mut. Life

Ins. Co. v. Russell, 473 U.S. 134, 146 (1985)). To apply this

statement to all state laws, including those that regulate

insurance within the meaning of § 514(b)(2)(A),

unjustifiably discounts the language and structure of the

entire ERISA statute, and the saving clause in particular.

This Court should reaffirm the plain language of ERISA

and clarify that § 502 provides the exclusive remedy only

where a state law that relates to an ERISA plan is not

within § 514’s saving clause. See Ward, 526 U.S. at 376 n.7

(acknowledging without deciding Government's argu-

ment to same effect). This Court should not resort to

legislative history where the words of the statute are

plain. See Harris Trust & Saving Bank v. Salomon Smith

Barney Inc., 120 S. Ct. 2180, 2190 (2000) (citations omit-

ted). As explained below, the legislative history of § 502 is

an unreliable guide to the proper interpretation of the

saving clause.

-——_—

25

c. The legislative history of ERISA is mislead-

ing because the analogy to § 301 of LMRA is

flawed.

In Pilot Life, this Court reasoned that, based on the

legislative history of ERISA, Congress intended to feder-

alize ERISA remedies under § 502 the same way that

§ 301 of LMRA had federalized remedies for violation of

collective bargaining agreements. 481 U.S. at 55. This

Court therefore concluded that the federal remedies

available under § 502 displace state causes of action. Id. at

56. The obvious and fundamental differences between

LMRA and ERISA warrant reconsideration of this conclu-

sion. The LMRA governs the relationship between labor

unions and employers, which is a wholly federal body of

law. ERISA, with the inclusion of the “saving clause,”

clearly contemplates that both state and federal laws

apply to insured ERISA plans. See Metropolitan Life, 471

U.S. at 727-747.

The United States’ position with respect to the role of

§ 502 has changed since Pilot Life. See, Br. for U.S. as

Amicus Curiae at 25-32, Ward (No. 97-1868). The United

States’ amicus brief in Ward pointed out that LMRA does

not contain a provision comparable to the “saving clause”

in ERISA. Id. at 31. Therefore, “Congress’ intent to pattern

suits under Section 502 on suits under Section 301 of the

LMRA .. . does not bear directly on the preemption of a

state law cause of action or remedy that ‘regulates insur-

ance.’” Id. The Secretary of the Department of Labor

acknowledged in its amicus brief in Moran, that the “anal-

ogy of the LMRA to ERISA [in Pilot Life] was not com-

pletely well-founded.” Br. for the Secretary of Labor as

26

Amicus Curiae at 19-20, Moran (No. 99-2574). The Secre-

tary pointed out that the LMRA has been “broadly inter-

preted to occupy the whole field of contractual relations.

between employers and labor organization, whereas

§ 514(b)(2)(A) . . . makes clear that Congress did not

intend to preempt entirely every state cause of action

relating to such plans.” Id. (citing Franchise Tax Bd. v.

Construction Laborers Vacation Trust, 463 U.S. 1, 25 (1983)).

This Court should not read ERISA’s legislative his-

tory as limiting the saving clause, recognizing that the

rationale in the second half of Pilot Life was based, in

part, on legislative history that supported an incomplete

comparison between ERISA and LMRA.

¢

CONCLUSION

For the foregoing reasons, this Court should affirm

the decision of the Seventh Circuit and hold that the

Illinois independent review law is not preempted by

27

ERISA because it is a law that regulates insurance within

the meaning of the saving clause, whether or not it is a

remedy.

Respectfully submitted,

JENNIFER R. Coox

Counsel of Record

Mary ELIzasETH SENKEWICZ

NATIONAL ASSOCIATION OF INSURANCE

COMMISSIONERS

444 North Capitol Street, Suite 701

Washington, D.C. 20001

(202) 624-7790

Marc I. Macniz

Cowen, Mristein, Hausrecp & TOLL,

P.L.L.C.

1100 New York Ave., N.W.

West Tower, Suite 500

Washington, D.C. 20005

(202) 408-3757