Amicus Curiae Brief — Aetna Health Inc. v. Davila

Nos. 02-1845 and 03-83 |

IN THE

Supreme Court of the United States

AETNAHEALTH, INC.,

Petitioner,

v.

JUAN DAVILA,

Respondent.

CIGNA HEALTHCARE OF TEXAS, INC.

and CIGNA CORPORATION.

Petitioners,

Vv.

RUBY R. CALAD,

Respondent.

On Waits oF CERTIORARI TO THE

Unitep States Court OF APPEALS FOR THE Firtu Circuit

BrieF OF AMICUS CURIAE

HEALTH ADMINISTRATION RESPONSIBILITY PROJECT

IN SUPPORT OF RESPONDENTS

Harvey S. Frey SHARON J. ARKIN

552 12th Street Counsel of Record

Santa Monica, CA 90402 ROBINSON, CALCAGNIE & ROBINSON

(310) 394-6342 620 Newport Center Drive

7th Floor

Newport Beach, CA 92660

(949) 720-1288

Counsel for Amicus Curiae

185357 g

COUNSEL PRESS

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

TABLE OF CONTENTS

Summary of Argument

Legal Argument

l.

Congress Did Not Intend To Limit The

Remedies Of ERISA Beneficiaries Against

Non-Plan Defendants

Suits Against HMOs Should Be Subject To The

Preemption Provisions Of The Health

Maintenance Organization Act Of 1973, Not

Those Of ERISA

Legislative History Demonstrates That

The Health Maintenance Organization Act Of

1973 Was Also The Model For ERISA

Preemption

Legislative History Demonstrates That The

Model For ERISA Preemption Was Not The

Labor Management Relation Act

State Laws Affecting Only Insurers And Not

Employee Benefit Plans Do Not Need To Be

Saved By § 514(b)(2)(a) Since They Do Not

‘Relate To’ An Employee Benefit Plan Within

The Meaning Of ERISA In The First Place ..

Contents

Page

6. Individual Medical Procedures Are

Not Benefits Of An Insured Benefit Plan, So

Denial Should Not Be Limited To § 502

Pr 16

7. Pleas From The Federal Bench For

Reinterpretation Of ERISA Jurisprudence . . 17

oR 24

TABLE OF CITEDAUTHORITIES

Cases:

Andrews-Clarke v. Travelers Insur. Co., et al., 984

EE Te

Cannon v. Group Health 77 F.3d 1270 (10th Cir.

ener eee hebecevecesereecccces:

Corcoran v. United Healthcare, 965 F.2d 1321 (Sth

cc eeseeees

De Buono v. NYSA-ILA Med. and Clinical Servs., 520

U.S. 806, 117 S. Ct. 1747, 138 L. Ed. 2d 21

re

DeFelice v. Aetna, Third Circuit No. 02-3381 (2003)

LE SESS LE IIS OTT ETET ETE ETE

Fisher v. Aetna Life Insurance Co., No. 3AN97-291,

Alaska Super., Anchorage (1998) .............

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

Jordan v. Reliable Life Ins. Co., 694 F. Supp. 822

PEPE eee beseeeceseeccceces<

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

ee cess ecceeseseccee:

Page

19

5, 15

7, 20

Cited Authorities

Page

New York State Conf. Of Blue Cross & Blue Shield

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

cabs eueeneesuudaeuensdesudentueneaee mS

Olson v. General Dynamics 960 F.2d 1418 (9th Cir.

SESE savbupecucededceciceensandeneeses 7,18

Pegram v. Herdrich, 530 U.S. 211 (2000) ........ 17

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

re ee ne ee PAL. RAR a 6, 13, 14, 15

Shaw v. Delta Air Lines, Inc., 463 U.S. 85 (1983) ... 10

United States v. Heirs of Boisdore, 8 How. 113 (1849)

98 6666600000606600640008S ebb ROsEEROO RES 14

Statutes:

California law, Civil Code section 3428 ......... l

Tex. Civ. Prac. & Rem. Code §§ 88.001-88.003 ... l

Pee ED oeeeennedncusuedséceacdas 3

as OED on ataseceuesosncesascenes 16

es WP GEE cb buuucaneenscesnceceenes 4,5, 16,17

ae OF ORD Sok dvGeeveeecsosceduununs 3, 13, 24

ee EE nh noncennéscnsecaccavdnceuts 2

Cited Authorities

Page

is 0 OD bt eetedoddakadcekenednnes 14

es OF CEE cckecdeendctcducceds 4,14

Pe es EE no ck ccuneddavdeeeebeunecs 8, 11

Pee SD cadktivesddonstandeetnewnwwens 13

Rule:

Dee SEED acécdedessacdancususseensaus 17

Other Authorities:

“Aetna video fuels renewed HMO fight” by Laura

Meckler, Associated Press, October 13, 1998 ... 2

120 Comer. Bas. SOIST CIDTSD wc cccccccccccccs: 10

H.R. Conf. Rep. No. 93-1280 (1974) ............ 10, 13

“Law Keeps Many Patients From Suing Health

Insurers” by Jane Bryant Quinn, Seattle Post-

Intelligencer, November 24, 1998, Business ... 2

S. Conf. Rep. No. 93-1090 (1974) .........0.05. 10

Senate Committee on Labor and Public Welfare,

Legislative History of ERISA, 94th Cong., 2d Sess.

PR Es DP endeéececedvcesescaues 3, 6, 10, 12, 13

Tale of Aetna tape: fear of suit a factor in health claim

reviews” by Daniel M. Weintraub, The Orange

County Register, October 25, 1998, News ..... 2

a

eterna eee aeae ai

l

INTEREST OF THE AMICUS CURIAE

This brief is respectfully submitted on behalf of amicus

curiae Health Administration Responsibility Project.' The

interests of the amicus curiae is as follows:

Health Administration Responsibility Project (HARP)

is a non-profit organization that serves as an educational and

informational resource for patients, doctors, and attorneys

regarding managed care organizations, and seeks to enhance

the quality of medical care benefits provided in the managed

care setting. Because these cases implicate a statutory remedy

scheme for an HMO’s failure to exercise due care in the rendition

of medical services similar to that established under California

law (Civil Code section 3428), HARP has an immediate interest

in assuring that such protections remain viable and enforceable.

SUMMARY OF ARGUMENT

The major, and perhaps the only, real question affecting

the implementation of the Texas Health Care Liability Act

(“THCLA”) (Tex. Civ. Prac. & Rem. Code §§ 88.001-88.003)

against the insurer defendants in these cases, is whether Congress

intended to deprive employee plan beneficiaries of non-ERISA

remedies as against defendants who are not employee plans and

who are thus not regulated by ERISA.

The Federal judicial preemption of state remedies for

insurance company malfeasance has allowed ERISA to evolve

into a shield that insulates insurers doing business with employee

plans from liability for even the most egregious derelictions

committed against the very plan beneficiaries that ERISA was

intended and designed to protect. (cf: DeFelice v. Aetna, Third

Circuit No. 02-3381 (2003), Baxter Concurrence)

1. Petitioners and Respondents have filed blanket consents to the

submission of amicus briefs with this Court. Pursuant to Rule 37.6,

Amicus discloses that no counsel for a party authored any part of this

brief, nor did any person or entity other than Amicus Curiae, its members,

or its counsel make a monetary contribution to the preparation or

; submission of this brief.

2

Aetna blatantly exploits this immunity, to the detriment of

ERISA enrollees, as shown in their training videotape for claims

managers, entered in evidence in a prior case, Fisher v. Aetna

Life Insurance Co., No. 3AN97-291, Alaska Super., Anchorage

(1998). In that video, the Aetna instructors tell the claims

managers that they should just deny ERISA claims without

investigation, since there is no liability for bad-faith damages.

But with respect to non-ERISA cases, they must be carefully

investigated because of the risk of potential bad faith and

punitive damages liability. (See: “Aetna video fuels renewed

HMO fight” by Laura Meckler, Associated Press, October 13,

1998; Tale of Aetna tape: fear of suit a factor in health claim

reviews” by Daniel M. Weintraub, The Orange County Register,

October 25, 1998, News, pg. A 04; “Law Keeps Many Patients

From Suing Health Insurers” by Jane Bryant Quinn, Seattle Post-

Intelligencer, November 24, 1998, Business, pg. C1.) This

dichotomy in claims handling exemplifies the need to restrict

the application of ERISA preemption to the entities ERISA was

designed to regulate — the plans, not contractors to the plans.

The statute at issue in these cases, the THCLA, was

specifically designed to impose some measure of control over

such injurious practices of insurers — not plans.

As the Fifth Circuit has effectively demonstrated in the

opinions being appealed, the THCLA exclusively regulates

insurance, and thus falls under the protection of ERISA’s saving

clause, 29 U.S.C. § 1144. As such, it is not subject to field

preemption. Nor does the statute interfere with any of the

remedies of ERISA. As such it is not subject to conflict

preemption.

Thus the only remaining issue regarding the applicability

of THCLA to the insurers in these cases is whether ERISA’s

equitable remedies were intended to be “exclusive” as against

non-plan defendants. The letter of ERISA, and its legislative

history, demonstrate that they were not.

‘

The best way to satisfy explicit Congressional intent while

adhering to the strict language of the law is to define the scope

of ERISA as applying to the insurance coverage paid for by

the plan, not the medical service paid for by the insurer.

Only the failure to provide that insurance coverage should be a

violation subjecting the plan to the remedies of § 502(a).

The insurer’s failure to pay for or provide specific medical

service should subject the insurer to state contract and tort

remedies, since ERISA provides no federal jurisdiction over

such non-plan entities.

LEGAL ARGUMENT

1. CONGRESS DID NOT INTEND TO LIMIT THE

REMEDIES OF ERISA BENEFICIARIES AGAINST

NON-PLAN DEFENDANTS

Where “federal law is said to bar state action in fields of

traditional state regulation ... we have worked on 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.’” (New York State

Conf. Of Blue Cross & Blue Shield Plans v. Travelers Ins. Co.,

514 U.S. 645, 658 (1995); emphasis added.)

In ERISA, Congress manifested its purpose to: “protect

...+ participants in employee benefit plans and their

beneficiaries” (29 U.S.C. § 1001(b); emphasis added.)

This Congressional intent was further clarified by Rep.

Perkins during the House debate of August 20, 1974 on the

final conference report:

... the purpose of this conference report is relatively

simple. It is designed to reduce sharply the number of

people who pay money into private pension plans year

after year expecting eventually to receive retirement

income, only to have their hopes dashed and end up

getting nothing.

(Senate Committee on Labor and Public Welfare, Legislative

History of ERISA, 94th Cong., 2d Sess (“Leg. Hist.”) p.4657).

4

As with so much of ERISA, this comment is directed at the

pension aspect rather than the welfare aspect of the bill, but the

application to health plans is obvious. The bill was designed to

see that beneficiaries get what they’re entitled to, not to put

obstacles in their path.

Congress nowhere said in the bill, in the conference reports,

or in the floor debates, that it intended to protect employers or

employee benefit plans for their own sake. It most assuredly

did not assert an intention to protect from state tort or contract

remedies any third party that happened to do business with a

benefit plan. Nor did it assert any intention to lower health care

costs by encouraging insurers to deny needed medical care

through immunity from liability. That is a recently-appearing

political issue with which the courts should not become

embroiled.

In fact, the savings clause itself makes clear that ERISA’s

preemption clause was not intended to protect insurers who

sold coverage to employee benefit plans. ERISA’s preemption

provision, section 514(b)(2)(A), codified at 29 U.S.C.

§ 1144(b)(2)(A), explicitly provides that “nothing in this

subchapter shall be construed to exempt or relieve any person

from any law of any State which regulates insurance, banking

or securities.” (Emphasis added.) The subchapter referenced in

that subdivision, includes ERISA’ remedies provisions, 1.€.,

ERISA section 502, 29 U.S.C. § 1132. Congress said it very

plainly: Nothing in the subchapter — including the remedies

provision — can be construed to exempt insurers from state law

regulation. That must, therefore, necessarily include state laws

regulating the remedies imposed on insurers.

Nor does this do any harm to Congress’s intent to provide

administrative protection to ERISA plans. As this Court

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

there is a distinction — and properly so — between ERISA plans

themselves and the insurance protection they buy. Allowing state

laws to impose different remedies against insurance companies

when insurance companies violate state insurance law does

rn Pivtraids-

5

nothing to thwart Congress’s intent to protect the administrative

regulation of the plan itself.

In view of Congress’ single-minded purpose of protecting

plan beneficiaries, it is unreasonable to infer that it would enact

a blanket preemption simply because it wanted to prevent

beneficiaries from being fully compenszted for their injuries,

to the benefit only of unscrupulous third-party tortfeasors.

The only consistent rationale for ERISA’s preemption provisions

is to preserve the assets of the employee benefit plans so they

could be used for the benefit of all enrollees. However, a suit

against an HMO or insurance company contractor of an insured

benefit plan obviously does not threaten the plan’s assets.

The only interpretation compatible with the purposes of ERISA

is that if the remedies of § 502 were intended to be the “exclusive

remedy”, they were intended to be exclusive only as against the

plan, not the producer of the product sold to the plan. The plan

is the only entity regulated by ERISA, and the only one whose

assets Congress was anxious to preserve for the benefit of other

beneficiaries.

Thus, to be consistent with expressed congressional intent,

ERISA should not be interpreted so as to sacrifice the interests

of beneficiaries to the competing interests of third-party insurers.

Claims have been made that preemption is necessary to

encourage the formation of employee benefit plans. But there

has never been any indication of how allowing beneficiaries to

recover from unrelated third parties would “discourage” the

formation of benefit plans. This argument clearly has no force.

If the beneficiary sues an independent risk-bearing insurer,

and if there is any effect on the plan’s assets at all, it would be

indirect. If the insurer raises its rates because of litigation losses,

the plan has the choice of remaining with that insurer, or

switching to an insurer which acts reasonably and, as such,

doesn’t incur those litigation losses. This Court has already stated

that such indirect effects do not implicate ERISA preemption.

(Travelers, 514 U.S. 645, 659) And in De Buono v. NYSA-ILA

Med. and Clinical Servs., 520 U.S. 806, 815, 117 S. Ct. 1747,

138 L. Ed. 2d 21 (1997) this Court went even further, stating

6

that “myriad state laws” of general applicability that impose

even direct burdens on the administration of ERISA plans

nevertheless do not necessarily “relate to” them within the

meaning of ERISA. “Any state tax, or other law, that increases

the cost of providing benefits to covered employees will have

some effect on the administration of ERISA plans, but that

simply cannot mean that every state law with such an effect is

preempted by the federal statute.” (/bid, p.816)

This Court in Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41,

57 (1987) explicitly refused to support the proposition that an

insurer inherits the protection that an employee benefit plan

might be entitled to if it were acting on its own:

Footnote 4: “Because we conclude that Dedeaux’s.state

common law claims fall under the ERISA pre-emption

clause and are not rescued by the saving clause, we

need not reach Pilot’s argument that when an

insurance company is engaged in the processing

and review of claims for benefits under an employee

benefit plan, it is acting in place of the plan’s

trustees and should be protected from direct state

regulation by the deemer clause.”

(Emphasis added)

An insurer might make the “agency” argument if it were

solely a non-risk-bearing administrator of the benefit plan, and

the benefit plan itself was at risk for the damages. But if the

benefit plan merely paid insurance premiums, and the insurer

was the only party at financial risk, Congress would have had

no reason to frustrate ERISA’s basic purpose of protecting

beneficiaries, or to put them in a far worse legal position than

those who do not have the “benefit” of federal “protection”.

Rep. Perkins admitted on the House floor that: “On a bill

so vastly complicated some consequences are almost certainly

unforeseen and some problems will arise . . .” (Leg. Hist. p.4685)

This argues against the frequently-expressed view that ERISA

-

is so “finely crafted” that its words must be taken literally, even

when doing so subverts the expressed purpose of the bill.

One of the greatest problems with the bill is that its drafters

were focused almost entirely on abuses of pension plans, and

welfare benefit plans were tacked on almost as an afterthought.

This is apparent throughout the floor debates as well as in the

bill itself. All of the “horror stories” offered by proponents to

support passage of the bill were related to losses of pension

benefits. There is no reference to loss of medical benefits in the

5319 pages of legislative history. Thus equitable remedies, which

might be entirely satisfactory to a person denied only monetary

pension payments, should not be assumed to be intended as the

sole remedy for someone who has suffered injury or death due

to negligent or intentional denial of needed medical benefits —

a remedy that has proven to be entirely inadequate. (See, e.g.,

Jordan v. Reliable Life Ins. Co., 694 F. Supp. 822, 827 (1988);

Olson v. General Dynamics 960 F.2d 1418, 927 (9th Cir. 1991),

concurring opinion; Dishman v. Unum, DC# CV-96-00015-JSL

(C.D. CA 1997); Andrews-Clarke v. Travelers Insur. Co., et al.,

984 F. Supp. 49, 52 et seq. (1997).)

To the extent compatible with the literal meaning of the

law, ERISA should be interpreted to protect beneficiaries denied

medical care by HMOs, and not to restrict them to remedies

appropriate only for denial of pension benefits, or denial of

insurance coverage by a plan.

2. SUITS AGAINST HMOS SHOULD BE SUBJECT TO

THE PREEMPTION PROVISIONS OF THE

HEALTH MAINTENANCE ORGANIZATION ACT

OF 1973, NOT THOSE OF ERISA

Davila and Calad are suing HMOs, not employee benefit

plans. In addition to the fact that ERISA’s preemption clause

specifically saves from preemption actions against insurers, even

as to state remedy schemes, Congress also explicitly delineated

the scope of federal preemption for HMOs. The very same

Congress that passed ERISA passed the HMO Act of 1973 only

a few months before. That Act’s very moderate preemption

8 9

health benefits plans), such requirements shall not

apply to that entity so as to prevent it from

operating as a health maintenance organization in

accordance with section 300¢ of this title.

section (42 U.S.C. § 300e-10) is quoted in full below, explicitly

stating the degree of preemption to be applied to state laws

affecting HMOs. This is the appropriate preemption provision

to be applied to suits against HMOs, not that in ERISA.

Sec. 300e-10. — Restrictive State laws and practices

(a) Entities operating as health maintenance

organizations

In the case of any entity —

(1) which cannot do business as a health

maintenance organization in a State in which it

proposes to furnish basic and supplemental health

services because that State by law, regulation, or

otherwise —

(A) requires as a condition to doing business

in that State that a medical society approve

the furnishing of services by the entity,

(B) requires that physicians constitute all or

a percentage of its governing body,

(C) requires that all physicians or a

percentage of physicians in the locale

participate or be permitted to participate in

the provision of services for the entity,

(D) requires that the entity meet requirements

for insurers of health care services doing

business in that State respecting initial

capitalization and establishment of financial

reserves against insolvency, or

(E) imposes requirements which would

prohibit the entity from complying with the

requirements of this subchapter, and

(2) for which a grant, contract, loan, or loan guarantee

was made under this subchapter or which is a qualified

health maintenance organization for purposes of

section 300e-9 of this title (relating to employees’

(b) Advertising

No State may establish or enforce any law which

prevents a health maintenance organization for which

a grant, contract, loan, or loan guarantee was made

under this subchapter or which is a qualified health

maintenance organization for purposes of section

300e-9 of this title (relating to employees’ health

benefits plans), from soliciting members through

advertising its services, charges, or other

nonprofessional aspects of its operation. This

subsection does not authorize any advertising which

identifies, refers to, or makes any qualitative

judgement concerning, any health professional who

provides services for a health maintenance

organization.

(c) Digest of State laws, regulations, and practices; legal

consultative assistance

The Secretary shall, within 6 months after October 8,

1976, develop a digest of State laws, regulations, and

practices pertaining to development, establishment,

and operation of health maintenance organizations

which shall be updated at least annually and relevant

sections of which shall be provided to the Governor

of each State annually. Such digest shall indicate which

State laws, regulations, and practices appear to be

inconsistent with the operation of this section. The

Secretary shall also insure that appropriate legal

consultative assistance is available to the States for

the purpose of complying with the provisions of this

section.

10

With the passage of this very moderate preemption clause

fresh in their minds, it is inconceivable that those who passed it

would intend to override it the very next year of the same

congressional session, without expressly saying so.

3. LEGISLATIVE HISTORY DEMONSTRATES THAT

THE HEALTH MAINTENANCE ORGANIZATION

ACT OF 1973 WAS ALSO THE MODEL FOR ERISA

PREEMPTION

Even if the preemption provisions of ERISA are determined

to apply to HMOs when they do business with employee benefit

plans, those ERISA provisions should be interpreted in the light

of the relatively moderate HMO Act of 1973.

This Court stated in Shaw v. Delta Air Lines, Inc., 463 U.S.

85, 98 (1983):

The bill that became ERISA originally contained a

limited pre-emption clause, applicable only to state

laws relating to the specific subjects covered by

ERISA. The Conference Committee rejected those

provisions in favor of the present language, and

indicated that section’s pre-emptive scope was as broad

as its language.

See H.R. Conf. Rep. No. 93-1280, p.383 (1974);

S. Conf. Rep. No. 93-1090, p.383 (1974).

However, that Conference Committee Report actually zave

no explanation whatever for the change from the language of

the bills passed by both houses, nor any suggestion that the

omission was even intentional. It made no reference at all to the

prior versions. All it did was restate the final statutory language

in a more conversational format. It is not at all clear that a

substantive change was intended. (Leg. Hist. p.4650)

Representative Dent, the House sponsor of the bill, in an

oft-quoted oratorical flourish, described the “reservation to

Federal authority [of] the sole power to regulate the field of

employee benefit plans” as “what to many is the crowning

achievement.” of ERISA. 120 Congr. Rec. 29197 (1974).

1]

However, he then went on to say:

... we round out the protection afforded

participants by eliminating the threat of conflicting

and inconsistent State and local regulation. [n.b.:

conflict preemption, not complete preemption]. We

followed to a large extent the same approach as in

Public Law 93-222, 87 statute (414) where the

regulation of health maintenance organizations was

foreclosed to State authority-section 113(a).

(Emphasis added) (Leg. Hist. p.4670)

So we can discern how the ERISA Congress intended

preemption to protect participants, by looking at the preemption

section of the HMO Act of 1973 (P.L. 93-222) that Rep.

Dent referred to, which is codified, unamended, at 42 U.S.C.

§ 300e-10, and reproduced in full above. This section, the

declared model for ERISA preemption, is seen to mandate

only a very limited form of conflict preemption.

The contrast between the extremely cautious and narrowly-

targeted preemption provisions of the HMO Act, affecting only

state laws which might prevent an HMO from doing business,

and the oppressively ruthless preemption of ERISA as currently

applied, for which the former served as a model, is dramatic.

It is clear that the current scorched-earth interpretation of

preemption is far from the intentions of the drafters.

Senator Williams, the Senate sponsor of the bill, said:

It should be stressed that with the narrow exceptions

specified in the bill, the substantive and enforcement

provisions of the conference substitute are intended

to preempt the field for Federal regulations, thus

eliminating the threat of conflicting or inconsistent

State and local regulation of employee benefit

plans. This principle is intended to apply in its broadest

sense to all actions of State or local governments, or

12

any instrumentality thereof, which have the force or

effect of law.

(Leg. Hist. 4745-46)

He too, though using the term “field”, demonstrates that he

really intended “conflict preemption”.

The last sentence in the above quote is clearly not dc signed

to preempt all State tort and contract law, but to eliminate only

conflicting regulation by any instrumentality of State or local

government, e.g. Medical Boards and Bar Associations, as the

subsequent comments of Sen. Javits with respect to legal service

plans make clear:

Section 514 of the act does not preempt State bar

associations from adopting and enforcing ethical rules

or guidelines generally and/or from disciplining its

members ... But the State, directly or indirectly

through the bar, is preempted from regulating the form

and content of a legal service plan . . . in the guise of

disciplinary or ethical rules or proceedings.

(Leg. Hist. p.4789)

The ERISA drafters speak only about State regulation of

employee benefit pians, never about non-plan entities, and in

particular, never about tort or contract law as applied to non-

plan entities by beneficiaries. The expansiveness of the language

above refers to all possible regulators of plans, not all possible

laws, and not all possible defendants.

Sen. Javits also appeared to intend that the bill mandated

only conflict preemption: “In view of Federal preemption, State

laws compelling disclosure ..., imposing fiduciary

requirements... , imposing criminal penalties on failure to

contribute ..., establishing State termination insurance

programs, etc., will be superseded.” (Leg. Hist p.4771)

(Emphasis added.)

We thus see the kinds of laws that Congress intended to

preempt. There is nothing about protecting individual or

13

corporate tortfeasors employed by or contracting with an

employee benefit plan. By the principle of ejusdem generis, it

should be concluded that preemption was intended to apply only

to state regulations of the sort specified by Sen. Javits,

Sen. Williams, and Rep. Dent .

4. LEGISLATIVE HISTORY DEMONSTRATES THAT

THE MODEL FOR ERISA PREEMPTION WAS NOT

THE LABOR MANAGEMENT RELATION ACT

What then is to be made of the claim, asserted throughout

Pilot Life, 481 U.S. 41, 52 et seq., that ERISA preemption was

based on the severe preemption provisions of § 301 of the Labor-

Management Relations Act of 1947? Respectfully, that is not

an accurate assertion, based on ERISA’s legislative history.

The Conference Report on ERISA describing the civil

enforcement provisions of § 502(a) says:

... With respect to suits to enforce benefit mghts under

the plan or to recover benefits under the plan which

do not involve application of the Title I provisions,

they may be brought not only in U.S. district courts

but also in State courts of competent jurisdiction. All

such actions in Federal or State courts are to be

regarded as arising under the laws of the United

States in similar fashion to those brought under

section 301 of the Labor-Management Relations

Act of 1947.

H.R. Conf. Rep. No. 93-1280, p.327 (1974) (emphasis added).

(Leg. Hist. p.4593, last paragraph)

This section says nothing about preemption. It refers to

the LMRA only to exemplify the combined Federal-State

jurisdiction over federal civil claims. Indeed, the conference

report never mentioned the preemptive force of § 301, and

referred to it only for this jurisdictional analogy.

The only federal law ever referred to anywhere in the

legislative history as a model for the preemption portion of

14 -

ERISA, is the HMO Act of 1973, passed by this same Congress,

and which imposes a very weak conflict preemption.

On numerous occasions we have noted that “in

expounding a statute, we must not be guided by a single

sentence or member of a sentence, but look to the

provisions of the whole law, and to its object and

policy.”

(Pilot Life v Dedeaux, 481 U.S. 41, 51 (1987), quoting ultimately

United States v. Heirs of Boisdore, 8 How. 113, 122 (1849).)

And the “object and policy” of ERISA is to increase the

protection of workers against the schemes of predatory

employers and insurers. How does stripping them of rights,

which don’t deplete the plan’s fund, achieve that end? Shall

that essential purpose of ERISA be frustrated and even turned

on its head by a misunderstanding of a single comment made in

a conference report?

5. STATE LAWS AFFECTING ONLY INSURERS AND

NOT EMPLOYEE BENEFIT PLANS DO NOT NEED

TO BE SAVED BY § 514(b)(2)(A) SINCE THEY DO

NOT ‘RELATE TO’ AN EMPLOYEE BENEFIT PLAN

WITHIN THE MEANING OF ERISA IN THE FIRST

PLACE

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

724 (1985), a Massachusetts statute required certain mental

health care benefits in general health insurance policies. The

Court concluded, first, (p.739) that the Massachusetts statute

did “relate to . .. employee benefit plan{s],” thus placing the

state statute within the broad sweep of the pre-emption clause,

§ 514(a). However, the Court then held that, because the state

statute was one that “regulate[d] insurance,” the saving clause

prevented the state law from being pre-empted. (guided by the

McCarran-Ferguson Act).

Though the result is surely correct, the reasoning cannot

be. If an employee benefit plan or its insurer hired a doctor, and

the State required that the doctor be licensed by a medical board,

O* endgilt BLP n- se i )

eS oh

15

the logic of Metropolitan Life would say that this “relates to”

the employee benefit plan for the same reason that regulation

of an insurer which contracts with an employee benefit plan

“relates to” such plans. But a doctor licensure law will not be

saved under the insurance saving clause, since it does not

regulate insurance, so, by the logic of Metropolitan Life it would

have to be concluded that medical licensure laws are preempted

and employee benefit plans and their contracting HMOs are

free to hire non-licensed persons to give medical care. But this

is absurd, and surely not what Congress or this Court would

intend. So the major premise, that State regulation of non-plan

entities which contract with plans automatically “relates to”

employee benefit plans, must be rejected.

Similarly, Pilot Life stated in dictum: “There is no

dispute that the common law causes of action asserted in

Dedeaux’s complaint [against an insurer of an employee benefit

plan] “relate to” an employee benefit plan and therefore fall

under ERISA’s express pre-emption clause, § 514(a).” (481 U.S.

at 47).

But there is a dispute on that issue. That defendant was not

an employee benefit plan, and any payment by the independent

insurer would have no effect on the assets of the plan, so that

could not have been the sort of claim Congress intended to

preempt.

This Court recognized and corrected these errors in

De Buono, as noted above, so that state tort and contract laws

affecting all insurance plans, must be some of the “myriad state

laws” of general applicability that may impose some burdens

on the administration of ERISA plans, but nevertheless do not

“relate to” them within the meaning of ERISA

And even the Metropolitan Life Court, 471 U.S. at 746,

rejected an interpretation of the saving clause that saved from

pre-emption “only state regulations unrelated to the substantive

provisions of ERISA.” Or, rephrased: “There may be some State

insurance regulations which will be valid even if they relate to

substantive provisions of ERISA.”

16

So which are those provisions that are not preempted?

They can only be those which apply to all insurers, and do not

conflict with the substantive provisions of ERISA — for instance,

additional remedies against non-plan, non-trustee defendants.

There can be no conflict there, since ERISA has nothing to say

about remedies against non-plan, non-trustee defendants.

Thus State laws affecting only insurers — and not plans —

do not need to be saved by the ‘savings’ clause, since they do

not ‘relate to’ a plan within the meaning of ERISA in the first

instance.

6. INDIV{DUAL MEDICAL PROCEDURES ARE NOT

BENEFITS OF AN INSURED BENEFIT PLAN, SO

DENIAL SHOULD NOT BE LIMITED TO § 502

REMEDIES

ERISA comprehensively regulates, among other things,

employee welfare benefit plans that, “through the purchase of

insurance or otherwise,” provide medical, surgical, or hospital

care, or benefits in the event of sickness, accident, disability, or

death. § 3(1), 29 U.S.C. § 1002(1).

Thus, ERISA regulates plans, not insurers.

An insured plan has no clauses guaranteeing access to

Vioxx, or specifying lengths of hospital stay, benefits at issue

in the cases of Davila and Calad. Those are not benefits of the

plan. Access to individual medical procedures are benefits of

the insurance contract, subject to a plethora of conditions

precedent specified within that contract, and traditionally

interpreted according to State laws, none of which is within the

control or expertise of the plan managers.

This source of frequent confusion and litigation would be

greatly clarified if this Court simply declared definitively that

when an employee benefit plan provides benefits by purchasing

insurance, it is only the insurance coverage itself which is

the benefit of the plan, the denial of which will subject the

plan to the civil enforcement provisions of § 502. If the risk-

bearing insurer subsequently denies particular benefits promised

17

under the insurance policy, the insurer is subject to State law

in the same manner as it would be if it sold the same policy to a

non-plan customer.

This is completely analogous to this Court’s view of medical

malpractice by a doctor referred to by a self-insured plan.

The referral to the doctor is the benefit of the plan, subject to

§ 502. If the doctor fails to properly perform the procedure, he

is subject to State negligence law in the same manner as he or

any other doctor would be if the patient were not covered by

ERISA. “[I}n the field of health care, a subject of traditional

state regulation, there is no ERISA preemption without clear

manifestation of congressional purpose.” (Pegram v. Herdrich,

530 U.S. 211, 237 (2000)) And there has been no such

manifestation.

This interpretation is most consistent with ERISA’s dual

intent of maximizing the ability of plan enrollees to enforce

their nights, and not putting plan assets at excessive risk.

Since ERISA does not regulate insurance contracts, the

Insurer’s breach of the insurance contract should not be subject

to the limitations of ERISA. Insurers are traditionally, and under

ERISA, subject only to state laws and regulations and to the

federal HMO Act, which has its own, quite mild, preemption

provisions. Large bodies of State law have arisen expressly to

deal with such insurance disputes, whereas the primary federal

“remedy” appears to be F.R.C.P. 12(b)(6).

7. PLEAS FROM THE FEDERAL BENCH FOR

REINTERPRETATION OF ERISA JURIS-

PRUDENCE

Many Federal judges have railed against the injustices

perpetrated on plan beneficiaries by the current interpretation

of ERISA, and have urged that the rules be revised, even as

they reluctantly enforced them. We agree with their views, except

where they believe that this situation was the intent of Congress

and only Congress can solve it. For the reasons raised above,

the current situation is the antithesis of the Congressional intent,

18

and that it is well within the power of this Court to remedy the

deplorable state into which em»loyee welfare benefit plans have

fallen.

Jordan v. Reliable Life Ins. Co., 694 F. Supp. 822, 827

(1988):

If the congressional intention were to immunize

insurance companies from liability whenever they can

show some arguable reason for their refusal to pay a

claim, federal district courts should have already

ordered the appropriate rubber stamps. If this court is

looking in the mouth of the gift horse that would allow

the court to abdicate is routine responsibility, it is

because there are countervailing forces called “justice”

and the Seventh Amendment’s guarantee of a jury trial,

both of where here give this court pause. There is [a]

growing phalanx of courts expressing the fear that

ERISA will continue to expand and to preempt

everything in its meandering path.

Olson v. General Dynamics, 960 F.2d 1418, 927 (9th Cir.

1991), concurrence:

I agree that ERISA preempts appellant’s state law fraud

claim, and that no federal or other remedy now exists

for the wrongful conduct he alleges. Even if the

defendants defrauded Olson. . . Olson may not assert

the state cause of action he would have been entitled

to plead prior to the enactment of ERISA. Because of

the passage of ERISA, Olson is left without a remedy.

Unfortunately, his fate is not unique. Congress enacted

ERISA in 1974 in order to protect the rights of

participants in private pension plans to a stable, secure

source of retirement income. . . . [H]owever, a statute

designed to safeguard employee retirement benefits

has, all to frequently, been used to deprive

employees of rights they previously enjoyed under

state law while failing to provide any comparable

19

federal remedy. The federal courts have routinely

found state tort and implied contract remedies

preempted by section 514(a) even when ERISA

provides no substitute for the state cause of action.

The proliferation of ERISA preemption cases, in my

view, raises a question as to whether ERISA is having

an effect that is substantially contrary to that

intended by those who favored its adoption.

Corcoran v. United Healthcare, 965 F.2d 1321, 4965-67

(Sth Cir. 1992):

The result ERISA compels us to reach means that the

Corcorans have no remedy, state or federal, for what

may have been a serious mistake. This is troubling for

several reasons.

First, it eliminates an important check on the thousands

of medical decisions routinely made in the burgeoning

utilization review system. With liability rules generally

inapplicable, there is theoretically less deterrence of

substandard medical decisionmaking. Moreover, if

the cost of compliance with a standard of care

(reflected either in the cost of prevention or the cost

of paying judgments) need not be factored into

utilization review companies’ cost of doing business,

bad medical judgments will end up being cost-free

to the plans that rely on these companies to contain

medical costs. ERISA plans, in turn, will have one

less incentive to seek out the companies that can

deliver both high quality services and reasonable

prices. ,

Second, in any plan benefit determination, there is

always some tension between the interest of the

beneficiary in obtaining quality medical care and the

interest of the plan in preserving the pool of funds

available to compensate all beneficiaries. In a

20

prospective review context, with its greatly increased

ability to deter the beneficiary (correctly or not) from

embarking on a course of treatment recommended by

the beneficiary’s physician, the tension between

interest of the beneficiary and that of the plan is

exacerbated. A system which would, at least in some

circumstances, compensate the beneficiary who

changes course based upon a wrong call for the costs

of that call might ease the tension between the

conflicting interests of the beneficiary and the plan.

Finally, cost containment features such as the one

at issue in this case did not exist when Congress

passed ERISA. . . . Fundamental changes such as the

widespread institution of utilization review would

seem to warrant a reevaluation of ERISA so that it

can continue to serve its noble purpose of safeguarding

the interests of employees.

Cannon v. Group Health 77 F.3d 1270, 41 (10th Cir. 1996):

Although moved by the tragic circumstances of this

case and the seemingly needless loss of life that

resulted, we conclude the law gives us no choice but

to affirm.

Dishman v. Unum, DC# CV-96-00015-JSL(C.D. CA 1997):

This case reveals that for benefit plans funded and

administered by insurance companies, there is no

practical or legal deterrent to unscrupulous claims

practices. Without these practical incentives, there is

no counter-balance to insurance companies’ interest

in minimizing ERISA claims . .. The fact that most

people in Dishmans’ situation would have had to

capitulate is the most troubling aspect of this case.

The need to deter insurance companies from behaving

in this manner is why ‘bad faith’ liability exists under

almost all state laws. ERISA preempts such laws.

Under ERISA, no matter how unfounded the denial

21

of a claim may be, the only recover permitted to the

claimant is the amount of the benefit. . . .

UNUM ’s unscrupulous conduct in this action may

be closer to the norm of insurance company

practice than the Court has previously suspected.

_..Absent. . . deterrents [to these unscrupulous claims

practices], the bad faith denial of large claims, as a

strategy for settling them for substantially less than

the amount owed, may well become a common

practice of insurance companies.

Andrews-Clarke v. Travelers Insur. Co., et al., 984 F. Supp.

49, 52 et seq. (1997):

[Defendants] promptly removed her case to this Court

and then, just as promptly, asked this Court to throw

her out without hearing the merits of her claim. This,

of course, is ridiculous. The tragic events set forth in

Diane Andrews-Clarke’s Complaint cry out for

relief. ...

=

Under the traditional notions of justice, the harms

alleged — if true — should [mandate] some legal remedy

_ .. Consider just one of her claims — breach of contract.

This cause of action — that contractual promises can

be enforced in the courts — pre-dates Magna Carta. It

is the very bedrock of our notion of individual

autonomy and property rights. It was among the first

precepts of the common law to be recognized in the

courts of the Commonwealth and has been zealously

guarded by the state judiciary from that day to this.

Our entire capitalist structure depends on it....

[N]evertheless this court had no choice but to pluck

[the] case out of state court in which she [his wife]

sought redress and then, at the behest of Travelers, to

slam the courthouse doors in her face and leave her

without any remedy.

22

Although the alleged conduct of [defendants] in this

case in extraordinarily troubling, even more disturbing

to this Court is the failure of Congress to amend a

statute that, due to the changing realities of the

modern health care system, has gone conspicuously

awry from its original intent. Does anyone care? Do

you?

DeFelice v. Aetna, Third Circuit No. 02-3381 (10/15/2003),

concurring opinion by Becker:

I write separately to add my voice to the nsing judicial

chorus urging that Congress and the Supreme Court

revisit what is an unjust and increasingly tangled

ERISA regime. Congress enacted ERISA in 1974 “to

promote the interest of employees and their

beneficiaries in employee benefit plans.”. . . .

However, with the rise of managed care and the

Supreme Court’s series of decisions holding preempted

any action for damages against HMOs, ERISA has

evolved into a shield that insulates HMOs from

liability for even the most egregious acts of

dereliction committed against plan beneficiaries, a

state of affairs that I view as directly contrary to the

intent of Congress.

Indeed, existing ERISA jurisprudence creates a

monetary incentive for HMOs to mistreat those

beneficiaries, who are often in the throes of medical

crises and entirely unable to assert what meager rights

they possess. Lower courts have struggled to maintain

some semblance of equity notwithstanding the

enormous breadth of the preemption test, one that turns

on whether the claim is “related to” a benefit plan,

inter alia, by identifying exceptions to § 514

preemption, such as that for medical malpractice

liability. And in terms of the remedial scope of § 502,

23

they have struggled to make sense out of the distinction

between eligibility decisions (which are preempted)

and medical decisions (which are not), a hopeless

endeavor, as I shall explain.

Unfortunately, the price of all this has been descent into a

Serbonian bog wherein judges are forced to don logical blinders

and split the linguistic atom to decide even the most routine

cases.

The underlying goal, purpose and intent of Congress in

enacting ERISA has been undermind and misdirected with

regard to insurer regulation. It is time to take a step back and

reassess ERISA’s language and structure in light of the statute’s

purpose. That reassessment must irrevocably result in the

concjusion that state tort remedies against insurers who sell

coverage to an ERISA plan are not preempted.

24

CONCLUSION

For the above reasons, amicus urges the Court to find that:

1. The ERISA benefit of an insured welfare benefit plan is

the insurance coverage paid for by the plan, not the medical

service paid for by the insurer under the insurance contract.

2. Only the plan’s failure to provide the insurance coverage

itself should be the violation which subjects the plan to the

remedies of § 502(a).

3. The insurer’s failure to pay for or provide specific

medical service under the insurance contract subjects the insurer,

but not the ERISA plan, to state contract and tort remedies.

4. Since the THCLA affects only insurers and not ERISA

plans, it is not preempted by ERISA.

Respectfully submitted,

SHARON J. ARKIN

Counsel of Record

ROBINSON, CALCAGNIE & ROBINSON

620 Newport Center Drive

7th Floor .

Newport Beach, CA 92660

(949) 720-1288

Harvey S. Frey

552 12th Street

Santa Monica, CA 90402

(310) 394-6342

Counsel for Amicus Curiae

-_——_—— ——— <a