Opposition Brief — Northern Group Services, Inc. v. State Farm Mutual Automobile Insurance

IN THE

SUPREME COURT

OF THE UNITED STATES

October Term, 1987

ass sEsSg::2.g6ga

NORTHERN GRouP SERVICES, INC., et. al.,

Petitioners,

Vv.

STATE FARM MUTUAL AUTOMOBILE

INSURANCE COMPANY, ¢t. al.,

Respondents.

eee aS AA A RENSSAIDERIAG sieontnmtntseneacnenwaenn

ON PETITION FOR WRIT OF CERTIORARI TO THE UNITED

STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

BRIEF IN OPPOSITION TO THE PETITION

FOR A WRIT OF CERTIORARI

rere rnerrrersermme tr

Barais, Sort, Denn & DRIKER

By: SrerHen E. Grazex (Counsel of Record)

Moar.ey Wrrus

Attorneys for Respondents

Auto Owners, Citizens and Michigan

Mutua! Insurance

211 West Fort Street, 15th Floor

Detroit, MI 48226-3281 GARAN, Lucow, MILLER,

(313) 965-9725 SEWARD, Cooper & BEcKER, P.C.

By: James L. Borin

Attorneys for Respondent

Allstate Insurance Company

DRAUGELIS, ASHTON, SCULLY, 1000 Woodbridge

Haynes, MACLEAN & POLLARD Detroit, MI 48207-3192

By: Joun A. AsiTON (313) 446-1530

Attorneys for Respondent

State Farm Mutual Automobile

Insurance Company

843 Penniman

Plymouth, MI 48170

(313) 453-4044

RRR RS PONENT MARANON. SURIDLNR ETS ons

BOWNE OF DETROIT

615 SECOND AVENUE - DETROIT, MICHIGAN 48226 - (313) 954-1330 oe a

cy

i

QUESTIONS PRESENTED

. Should this Court grant certiorari on an ERISA pre-emption

claim, where the state coordination of benefits law at issue is

unique to Michigan, and where there is no conflict among the

circuits as to whether a state’s coordination of benefits rules

are pre-empted by ERISA?

. Should this Court review the Sixth Circuit’s decision concern-

ing the meaning of ERISA’s deemer clause when the Michi-

gan no-fault coordination of benefits law does not even relate

to or regulate ERISA plans to such an extent as to come

within the ERISA’s initial pre-emption clause?

. Should this Court decide academic issues concerning pre-

emption where even if the state law for resolving coordination

of benefits conflicts were pre-empted, a federal common law

rule would have to be fashioned on the basis of state law, and

the federal common law rule would subject the ERISA plans

to the same alleged economic and administrative burdens as

the state rule?

. Should this Court grant certiorari where the pre-emption

issues raised in the petition are irrelevant since the petitioners’

plans expressly incorporated Michigan law?

ii

STATEMENT OF CORPORATE AFFILIATES,

PARENTS, AND NOT-WHOLLY-OWNED

SUBSIDIARIES

ALLSTATE INSURANCE COMPANY

Parent: Sears, Roebuck and Company

Affiliates and Subsidiaries: Allstate Insurance Company of

Canada; Allstate Life Insurance Company of Canada;

Armtek Corporation; Sears Canada, Inc.; Sears Acceptance

Company Inc.

AUTO OWNERS MUTUAL INSURANCE COMPANY

None

CITIZENS INSURANCE COMPANY OF AMERICA

Parent: The Hanover Insurance Company

Affiliates: Massachusetts Bay Insurance Company; Beacon

Insurance Company of America; California Compensation

and Fire Company

Subsidiary: AMGRO, Inc.

MICHIGAN MUTUAL INSURANCE COMPANY

None

STATE FARM MUTUAL AUTOMOBILE INSURANCE

COMPANY

Subsidiary: State Farm County Mutual Insurance Company

of Texas

ill

TABLE OF CONTENTS

SPUP ENED WUMMEMNEEEWBEEED 5 occ ccc ses cesiveience

STATEMENT OF CORPORATE AFFILIATES,

PARENTS, AND NOT-WHOLLY-OWNED

En a ee ree or

ee

I PUMP UUUMPIME ESE 5 ois c ccc caesessceess

Baseemere Gr ARGUMENT . 2-2... 2... ccc cc seaee

ES ere eer ee ere eer eee

A. THERE IS NO CONFLICT~ AMONG THE

RE ee ae eee

B. PETITIONERS MISCHARACTERIZE THE

SIXTH CIRCUIT DECISION; THE DECISION

WAS NARROW AND CLOSELY TIED TO THE

PARTICULAR SITUATION PRESENTED IN

Pr Ter rer Tee eer ee ere eee

C. MICHIGAN’S RULE FOR RESOLVING COOR-

DINATION OF BENEFITS CONTESTS WHEN

NO-FAULT IS INVOLVED IS UNIQUE; RE-

VERSING THE SIXTH CIRCUIT'S DECISION

WOULD HAVE LITTLE IMPACT SINCE EVEN

IF STATE LAW WERE PRE-EMPTED THE

CONSEQUENCES FOR ERISA PLANS WOULD

I nap ha bn eh a bake asad ond ded eo

D. THE PETITIONERS’ PLANS SPECIFICALLY

PROVIDE THAT MICHIGAN LAW IS

OE EES ee rere ta rere eee

E. THE MICHIGAN LAW DOES NOT COME

WITHIN THE THRESHOLD SCOPE OF ERISA

ants Vain oe se «eno edo a8 ae

F. THE HIGHLAND PLAN IS— CLEARLY

I ah el agsa ao koe fs eae be eS 8

CONCLUSION AND RELIEF...............-------

a

4)

a SSCs

iV

TABLE OF AUTHORITIES

Cases Page

Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504; 101 if

S.Ct. 1095; 66 LEG 26 462 (1961)... 2. coc ccc snes 2

Blue Cross & Blue Shield of Kansas, Inc. vy. Riverside $

Hosp., 237 Kan. 829; 703 P.2d 1384 (1985) ......... 8

Children’s Hosp. v. Whitcomb, 778 F.2d 239 (Sth Cir.

PU as Waka dae te nea s Bee Ee Ra eee 10

Employers Ass'n of New Jersey v. New Jersey, 601 F.Supp.

232 (D. N.J. 1985); aff'd mem., 774 F.2d 1151 (3rd Cir.

oe ee ee ee er Ree mT ae ee ree 3, 13

Federal Kemper Ins. Co., Inc. v. Health Insurance Admin.,

Inc., 424 Mich. 537; 383 N.W.2d 590 (1986) ........ 1,8

Firestone Tire & Rubber Co. v. Neusser, 810 F.2d 550 (6th

Ce WE ais Kou cic KWasa ee RGR ER Nese eR iatesws 13

Fort Halifax Packing Co. v. Coyne, 482 U.S. __; 107

AA 2208; SB Eee 2) CUGGE) 6 skh ct ceaseetacs. &

Holliday vy. Xerox Corp., 555 F.Supp. 51 (E.D. Mich.

1982); aff'd, 732 F.2d 548 (1984); cert. denied, 469 U.S.

EE: Re en erate ety eh A Mai area rare cere ae 9

Lane v. Goren, 743 F.2d 1337 (1984); cert. denied, 474

a2 Fi. eer rrr rs roe re rare 12

Martori Bros. Distributors v. James-Massengale, 78\ F.2d

1349 (9th Cir. 1986); cert. denied, 107 S.Ct. 435 (1986) .. 12

Metropolitan Life Ins. Co. v. Massachusetts, 47\ U.S. 724;

105 S.Ct. 2380; 85 L.Ed.2d 728 (1985) .......2, 4,5, 7, 14

Michigan United Food & Commercial Workers Union v.

Baerwaldt, 767 F.2d 308 (6th Cir. 1985); cert. denied,

ae Gs ee OD oo hve Here sda cakes da 40s 14

Northeast Dept. ILGWU Health & Welfare Fund v. Team-

sters Local Union No. 229 Welfare Fund, 764 F.2d 147

Se NE, as hn eeu Raa e eh ee es ees Nae 7,8

¥

TABLE OF AUTHORITIES — (Continued)

Cases Page

Northern Group Services, Inc. v. Auto Owners Ins. Co., 833

Fie REED 256 50 ecu eee ees ee wba 4, 6, 8, 14

Physicians Health Plan, Inc. v. Citizens Ins. Co., 673

rege. SEs CWE. BER. IGBT) . on 6 ens can cnanns 13

Pilot Life Ins. Co. v. Dedeaux, US. ; 107 S.Ct.

LS, We Mi Oe MAPPER Gi vc k ae aus eek aieasans 2

Rebaldo v. Cuomo, 749 F.2d 133 (2d Cir. 1984); cert.

I SFE Ai BI ND a ht kh hae ca esa eens 12

Shaw v. Delta Airlines, Inc., 463 U.S. 85; 103 S.Ct. 2890;

Tt Ge ED 556i heaes hbase eee

Sommers Drug Stores Projtt Sharing Trust v. Corrigan

Enterprises, Inc., 793 F.2d 1456 (Sth Cir. 1986); cert.

denied, 107 S.Ct. 884 and 1298 (1987) ............. 13

Statutes

RP RAD OED 0s 55 sk bene se ee 10

Be Ree RE ik a cere ee A eee ae 2, 12

Michigan No-Fault Insurance Act, Mich. Comp. Law

§500.3109a; Mich. Stat. Ann. §24.13109(1)........ 1, 8, 13

Secondary Authorities

8A Appleman, /nsurance Law & Practice §4906-09 ..... 8

Sherrick, ERISA Preemption: An Introduction, 64 Mich.

Bar Journal 1074 (Oct. 1985) ....................- 8. 9

Restatement (Second) of Conflicts §187 .............. 10

SUMMARY OF ARGUMENT

For several reasons, the Court should not accept this case for

review.

First, the Sixth Circuit was correct in ruling that Michigan's

law for resolving conflicts between coordination of benefits clauses

should apply to ERISA plans. Nothing in ERISA conflicts with

the Michigan law or its goals of reducing the cost of compulsory

auto insurance and containing health care costs.

Second, there is no conflict among the circuits — no court

has held that state rules for resolving coordination of benefits

conflicts are pre-empted by ERISA. Nor does the case have any

impact beyond Michigan. The Michigan no-fault coordination of

benefits law is unique, and the Sixth Circuit carefully circum-

scribed its decision based on the particular circumstances of this

case. It would make very little difference if this Court decided the

case. Even if the state rule is pre-empted, the courts will have to

fashion a federal common law rule of accommodation when there

are intractable conflicts between coordination of benefits clauses.

Any federal rule will borrow heavily from established state law

which, at the very least (without even considering §3109a of the

Michigan No-Fault Act and Federal Kemper), would require

benefit plans to share primary liability. ERISA plans will still

have to pay more than their coordination provisions say they will

pay. So the pre-emption issue is much ado about nothing.

Third, while the petition contends that the deemer clause

issue is deserving of this Court’s review, there are at least two

alternative grounds for affirmance. First, the same result could be

reached because the Michigan law at issue does not come within

the scope of ERISA pre-emption as a threshold matter — it does

not purport to regulate ERISA plans and it only affects them

tangentially. Second, the plans contain express contract provisions

agreeing to be governed by Michigan law, an issue which the

Sixth Circuit did not consider because it was not necessary to its

disposition of the case. Petitioners now claim that applying

Michigan law would cause all sorts of problems for them, but the

2

petitioners’ plans expressly provide that they are to be interpreted

by Michigan law.

In the last few years this Court has repeatedly had to revisit

29 U.S.C. §1144 to decide questions of ERISA pre-emption.!

This Court should not be asked to review every state law which in

some way touches an ERISA plan and iron out every conceivable

wrinkle involving pre-emption. The case at bar is particularly

inappropriate for Supreme Court review.

'Fort Halifax Packing Co. v. Coyne, 482 US. ; 107 S.Ct. 2211; 96

L.Ed.2d 1 (1987); Pilot Life Ins. Co. v. Dedeaux, US. ; 107

S.Ct. 1549; 95 L.Ed.2d 39 (1987); Metropolitan Life Ins. Co. v. Massachusetts,

471 U.S. 724; 105 S.Ct. 2380; 85 L.Ed.2d 728 (1985); Shaw v. Delta Airlines,

Inc., 466 U.S. 85; 103 S.Ct. 2890; 77 L.Ed.2d 490 (1983); Alessi v. Raybestos-

Manhattan, Inc., 451 U.S. 504; 101 S.Ct. 1895; 68 L.Ed.2d 402 (1981).

ARGUMENT

A. THERE IS NO CONFLICT AMONG THE CIRCUITS

Petitioners suggest that review is warranted because the

Sixth Circuit decision is inconsistent with pre-emption decisions

of other circuits. Petition pp. 7, 13. However, none of the cases

cited involved coordination of benefits provisions or state rules to

resolve contests when there is duplicate coverage. There simply is

no conflict among the circuits about how to treat coordination of

benefits under ERISA. Indeed, the only other circuit to consider

the issue rulcd that a state rule for resolving coordination of

benefits conilicts was not pre-empted. Employers Ass'n of New

Jersey v. New Jersey, 601 F.Supp. 232 (D. N.J. 1985), aff'd

mem.,774 F.2d 1151 (3rd Cir. 1985).

In the absence of any direct conflict among the circuits in

cases involving a similar issue, petitioners rely on an apparent

inconsistency in the theory enunciated by some other courts.

While some decisions from other circuits have employed an

interpretation of the deemer clause focussing simply on whether

the plan is insured or not, none of the cited cases considered the

question the Sixth Circuit addressed: whether there might be

exceptions or qualifications to the deemer clause, and whether

uninsured plans are immune from ai// state insurance laws. The

other courts were not faced with a compelling situation like the

one in this case involving powerful state interests testing the limits

of the deemer clause. In other words, although the analysis used

by the Sixth Circuit may have differed from the theory expressed

in the cited cases, the results in these cases can be harmonized.

Applying the Sixth Circuit balancing test to the fact situations in

the cited cases, the Sixth Circuit might very well arrive at the

same result — the laws would be pre-empted. And if the other

circuits were faced with the case at bar, they might very well

reach the same result and conclude that the deemer clause in

some circumstances allows application of insurance rules to

uninsured plans.

4

Petitioners casually suggest that the Sixth Circuit “directly

repudiated this Courts’ [sic] numerous decisions that any state

law mandating benefits should be pre-empted.” Petition p. 9. The

Sixth Circuit of course did not “directly repudiate” any decision

of this Court. Moreover, this case does not involve a mandated-

benefit law. Finally, this Court unanimously held in Metropolitan

Life that mandated benefit laws were not pre-empted where they

were insurance regulations within ERISA’s savings clause.

Petitioners do not seriously contend that the Sixth Circuit

decision conflicts with any decision of this Court. Quite correctly,

the Petition does not argue that the Sixth Circuit decision

conflicts with Metropolitan Life. There the Court held that when

a state insurance law is at issue, “[t]he presumption is against

pre-emption.” 471 U.S. at 741. As the Sixth Circuit noted, this

Court did not render a definitive interpretation of the deemer

clause in Metropolitan Life. Northern Group Services, Inc. v. Auto

Owners Ins. Co., 833 F.2d 85, 90-91 (1987). Because Metropoli-

tan Life did not reach or involve any issue concerning the deemer

clause, the Court’s comment about what the deemer clause might

mean was obiter dicta. Moreover, as the Sixth Circuit noted:

Nor is this approach necessarily inconsistent with the dicta in

Metropolitan Life concerning insured versus self-insuring

plans. 471 U.S. at 740-41, 747, 105 S.Ct. at 2389-90, 2393.

We preserve a distinction between insured and self-insuring

plans. Insured plans would be per se “open to indirect

regulation.” Jd. at 747, 105 S.Ct. at 2393. Self-insuring plans

would be subject to state regulation only when no indepen-

dent federal interest in national uniformity exists to inform

and guide the creation of federal common law.

Id. at 94-95 (citations omitted).

B. PETITIONERS MISCHARACTERIZE THE SIXTH CIR-

CUIT DECISION; THE DECISION WAS NARROW AND

CLOSELY TIED TO THE PARTICULAR SITUATION

PRESENTED IN THIS CASE

To grab this Court’s attention, the petition misrepresents the

Sixth Circuit’s holding and exaggerates its implications. The

Sixth Circuit’s exceptionally thorough, well-reasoned opinion is

the best refutation of the petitioners’ claims.?

Apparently concluding that only by enormous overstatement

could they make it appear that this case is significant enough for

this Court to hear, petitioners assert that “the Sixth Circuit

virtually destroyed the effect of ERISA pre-emption and permits

[sic] virtually complete state regulation of all ERISA plans.”

Petition p. 11. The Sixth Circuit opinion does not in any way

touch upon the general pre-emption of most state laws or allow

“virtually complete” state regulation of ERISA plans — it only

applies to state insurance laws, and even then narrowly holds that

only some insurance laws can be applied to uninsured plans.

Petitioners allege that the Sixth Circuit opinion runs counter

to the central purpose of pre-emption: national uniformity of plan

regulation. But Congress enacted the savings clause which ex-

pressly sanctifies and preserves state insurance laws, despite the

prospect of differing insurance regulations from state to state

affecting ERISA plans. As this Court recognized in Metropolitan

Life:

Such disuniformities, however, are the inevitable result of

the congressional decision to “save” local insurance regula-

tion. Arguments as to the wisdom of these policy choices

must be directed at Congress.

471 U.S. at 747.

In response to the decision, petitioners moved for rehearing and rehearing

en banc, raising the same arguments they now assert in their certiorari petition

The panel which issued the opinion rejected these arguments and denied the

petition for rehearing. Notably, not a single Sixth Circuit judge requested a vote

on the petition for en banc rehearing. Order Dec. 30, 1987

6

Congress expressly determined that preserving state insurance

laws (even insofar as they affect ERISA plans) is more important

than the interest in national uniformity.

Petitioners also assert that the Sixth Circuit decision has the

effect of “voiding” the deemer clause. Petition p. 12. Of course,

the Sixth Circuit emphasized the narrowness of its holding; only

to a “limited degree” would self-insured plans be affected by

certain state insurance laws. 833 F.2d at 95. Using the Sixth

Circuit’s balancing approach, the deemer clause would still im-

munize self-insured plans from most insurance laws, i.e. where

the state’s purpose is to regulate the content of ERISA plan

benefits, or where there is some federal policy or interest to

inform and guide the creation of federal common law, or where

application of a federal rule would not substantially disrupt a

complex regulatory scheme of benefits coverage. /d. at 93, 95.

The Sixth Circuit did not purport to announce any categorical

rule applicable to other settings. The impact of its holding is quite

limited.

The Sixth Circuit decision was closely wedded to the partic-

ular features of the Michigan law at issue and the special policies

behind it. The court emphasized the particular circumstances of

the matrix of overlapping insurance programs and the need for a

uniform rule to apportion liability, plus the unique aspect of

compulsory no-fault insurance. /d. at 93-94. What distinguishes

this from other pre-emption cases is that exempting uninsured

plans would substantially disrupt the state’s uniform scheme of

no-fault coordination of benefits law, while there is no discernible

federal interest with regard to coordination of benefits. Id. at 94.

7

C. MICHIGAN’S RULE FOR RESOLVING COORDINA-

TION OF BENEFITS CONTESTS WHEN NO-FAULT IS

INVOLVED IS UNIQUE; REVERSING THE SIXTH

CIRCUIT’S DECISION WOULD HAVE LITTLE IM-

PACT SINCE EVEN IF STATE LAW WERE PRE-

EMPTED THE CONSEQUENCES FOR ERISA PLANS

WOULD BE THE SAME

Under the singular Michigan law at issue here, when there is

a conflict between competing coordination of benefits provisions

in a Michigan no-fault policy and other applicable benefit cover-

age, for reasons of public policy the no-fault provision must be

given effect and no-fault only has to provide benefits if and when

the other coverage is exhausted. Because the Michigan no-fault

Statute is virtually unique, the implications of the Sixth Circuit’s

ruling do not extend beyond Michigan. It leaves things exactly the

same for plans in other states which do not have such a law. Even

for the petitioners the consequences are essentially the same

regardless of whether the Michigan rule on coordination of no-

fault benefits is pre-empted.

If the Michigan rule for resolving coordination contests

between no-fault and other coverage is pre-empted, some other

rule must be found to take its place, since the no-fault policies

and the ERISA plans have incompatible provisions each denying

primary liability because of the other coverage. (Based solely on

the documents defining the coverage obligations, absent some

external principle for allocating liability, a claimant would end up

with two secondary coverages and no primary coverage.) So, if

State law is pre-empted, the courts must devise a federal rule to

reconcile the conflict.

The federal statute does not supply a rule. ERISA “does not

regulate the substantive content of welfare benefit plans,” Metro-

politan Life, 471 U.S. at 732, and there is nothing in the

legislative history about coordination provisions or rules to resolve

conflicts when there is duplicate coverage. So the courts would

have to develop a federal common law rule. Northeast Dept.

ILGWU Health & Welfare Fund v. Teamsters Local Union No.

8

229 Welfare Fund, 764 F.2d 147, 158 (3rd Cir. 1985) (fashioning

federal common law rules with regard to conflicting coordination

of benefits clauses in ERISA plans). Given the absence of any

federal policy in this area, the courts would inevitably adopt a

federal rule based on general state law. Northeast Dept. ILGWU,

764 F.2d at 159-162; Northern Group, 833 F.2d at 94. Under

general insurance law (without considering §3109a and Federal

Kemper), when there are mutually repugnant coordination

clauses, the courts invariably apportion primary liability on a pro-

rata basis. See 8A Appleman, /nsurance Law & Practice §4906-

09; Federal Kemper Ins. Co., Inc. v. Health Insurance Admin.,

Inc., 424 Mich. 537, 542-543; 383 N.W.2d 590 (1986); Northeast

Dept. ILGWU, 764 F.2d at 161 n. 13; Blue Cross & Blue Shield of

Kansas, Inc. v. Riverside Hosp., 237 Kan. 829; 703 P.2d 1384

(1985).

In short, resolution of the pre-emption issue would not make

any substantial difference. Taking this case would be a fruitless

academic exercise, since even if the Court ultimately found the

Michigan no-fault coordination rule pre-empted,the federal com-

mon law rule would inevitably be patterned after the general state

rule. Since the majority common law rule (without considering

§5109a and Federal Kemper) would at the very least require

ERISA plans to pay a pro-rata portion of the benefits, even if

there is pre-emption, ERISA plans will have to share primary

liability.

The Petition assumes that if the state rule is pre-empted,

then the conflict of coordination clauses must necessarily be

resolved in favor of the ERISA plans: the coordination clauses in

the no-fault policies must be disregarded and no-fault will be

primarily liable. However:

It must be kept in mind that preemption is not fatal in these

cases. Preemption simply means that federal, rather than

state law governs the conduct at issue.

9

Sherrick, ERISA Preemption: An Introduction, 64 Michigan

Bar Journal 1074, 1081 (October 1985) (emphasis in

original).

See also, Holliday v. Xerox Corp., 555 F.Supp. 51, 55 (E.D.

Mich. 1982); aff'd, 732 F.2d 548 (1984); cert. denied, 469 U.S.

917 (1984) (“ifthe state law is preempted, then the contract

must be construed in accordance with federal law, in this case the

federal common law of contract... Preemption would not make

the contract a nullity”). There is nothing in ERISA to suggest

that Congress intended to invalidate any insurance policy provi-

sions or to require that no-fault insurers provide primary benefits

contrary to the terms of their policies. Especially in view of the

insurance savings clause, ERISA clearly does not permit provi-

sions of insurance policies to be cavalierly disregarded or

nullified.

D. THE PETITIONERS’ PLANS SPECIFICALLY PRO-

VIDE THAT MICHIGAN LAW IS CONTROLLING

Even if the state rule were pre-empted, and even if the

deemer clause absolutely insulated uninsured plans from every

state insurance law (no matter how powerful the policies favoring

application of that law), the plans are still bound by their contract

provisions which expressly incorporate Michigan law.

Because the result in this case is fully justified on this

alternative ground, it is unnecessary to reach the issues trumpeted

in the petition as warranting review. Even if the Court were

inclined to consider the deemer clause issue in a proper case, here

that issue is purely academic.

All of the plans involved in this case have provisions ex-

pressly agreeing to be bound by Michigan law:

The Plans shall be interpreted under the laws of Michigan.

R. 56 Ex. 5 (Jt. App. 311) (Highland Plan).

Any provision of the Plan which is in conflict with any

applicable law or regulation of the State in which the Plan ts

10

delivered shall be considered amended so as to conform to

the requirements of such law or regulation.

Alcott Dep. Ex. 8 (Jt. App. 717) (Masco Pian).

To the extent not inconsistent with Federal law the Plan shall

be interpreted under the laws of Michigan.

R. 52 Ex. C (Jt. App. 250) (Masco Plan).

By their own choice, the petitioners’ coordination of benefits

clauses must be construed and enforced according to Michigan

law. It is axiomatic that ERISA plans, and their administrators

and fiduciaries, are bound by the terms of the plan documents, 29

U.S.C. §1104(1)(D). Very simply, the plan is a binding contract

with the participants, so the petitioners are not at liberty to

abandon or ignore the choice-of-law clause at their whim.

Petitioners argue that ERISA’s pre-emption clause entitles

them to disregard their own choice-of-law provisions. But

ERISA’s pre-emption clause does not change the rule that a

choice-of-law provision is binding. Restatement (Second) of

Conflicts §187. If state law is pre-empted, it is replaced by federal

common law. Federal common law would apply the universal rule

that a choice-of-law provision must be enforced.

Previously, petitioners cited a footnote in Children’s Hosp. v.

Whitcomb, 778 F.2d 239, 242 n. 1 (Sth Cir. 1985), to try to

escape their voluntary choice-of-law provisions. There, the court

cursorily dismissed the contention that a choice-of-law provision

meant that state law was not pre-empted. However, the argument

here is not that pre-emption is waived or that pre-emption does

not apply, but rather than even if ERISA pre-empts the Michigan

3There has never been any factual development in this case which might

shed light on the exact meaning of these provisions — each of which is worded

slightly differently, but each of which clearly incorporates Michigan law to some

degree. There is no testimony about the intent of the drafters, or the reasonable

understanding of the plan participants. Nor did either the district court or court

of appeals make any findings or interpretation of the provisions. (The Sixth

Circuit never addressed the choice-of-law issue at all.) This is yet another

reason why this case is not appropriate for Supreme Court review.

1]

coordination rule, the plan documents must be enforced under

federal law. Federal common law, applying general rules of

contract interpretation, will enforce the provisions in the petition-

ers’ plans stipulating that they are to be interpreted according to

Michigan law.

Giving effect to a choice-of-law provision in an ERISA plan

does not violate pre-emption. Pre-emption only means that state

rules cannot be imposed on plans from the outside, that a state

cannot force a plan to follow state law. The plans in this case

chose to incorporate state law. The state is not imposing any

requirements on ERISA plans, so pre-emption is given full force

and effect. There is no state interference with an ERISA plan,

because the plans dictated their own terms and voluntarily incor-

porated state law.

This is not a general waiver of ERISA pre-emption. The

plans have not stipulated that state laws will apply instead of

federal law; they have stipulated that the Michigan law applies.

The plans did not consent to be governed by inconsistent laws of

the several states; they deliberately chose to be interpreted ac-

cording to the law of a single state to make plan administration

simple and certain. The petitioners’ choice-of-law provisions pro-

vide a single clear standard of reference for interpreting their

plans’ terms.

There is simply no federal policy or interest in disregarding

the voluntarily-chosen provisions of an ERISA plan. Federal law

is silent as to what provisions a plan should have, and leaves the

parties free to work out their own terms. Far from prohibiting

plans from choosing state law, the policies behind ERISA pre-

emption support such choice-of-law provisions, according to peti-

tioners’ own explanation of the purposes of pre-emption. The

plans are not subject to a multiplicity of inconsistent state

regulations, because the petitioner plans chose to be bound by the

law of a single state; so there is complete uniformity of regulation.

Indeed, Michigan law affords a more definite and predictable

legal context for the operation of the plans than the as yet

undefined rules which may be devised under the federal common

12

law of ERISA. Petitioners further suggest that one of the fore-

most federal policies underlying ERISA is that the parties to a

plan must be allowed to determine and define the terms of the

plan. Petition pp. 9, 18. That is precisely why their decision to

abide by Michigan law must be respected.

In short, petitioners cannot disavow their choice-of-law pro-

visions on the pretext that these provisions negate federal pre-

emption. Even if state law is pre-empted, federal common law

would come into play, and federal common law will give effect to

the plans’ deliberate choice to be interpreted under Michigan law.

E. THE MICHIGAN LAW DOES NOT COME WITHIN

THE THRESHOLD SCOPE OF ERISA PRE-EMPTION

Although the Sixth Circuit decided the case on the basis of

the savings clause exception, the result is fully supportible on the

alternative ground that the Michigan coordination of benefits law

does not come within the scope of ERISA pre-emption in the first

place.

It is firmly established that not all state laws with an impact

on ERISA plans are pre-empted. ERISA does not pre-empt all

state laws that “relate to” employee benefit plans, 29 U.S.C.

§1144(a). It only pre-empts state laws that relate to employee

benefit plans in a way that is more than “tenuous, remote, or

peripheral,” Shaw, 463 U.S. at 100 n. 21. Moreover, state laws are

only pre-empted if they “purport to regulate, directly or indirectly,

the terms and conditions of employee benefit plans,” 29 U.S.C.

§1144(c) (2). See, Rebaldo v. Cuomo, 749 F.2d 133, 137-139 (2d

Cir. 1984); cert. denied, 472 U.S. 1008 (1985); Lane v. Goren,

743 F.2d 1337, 1339 (1984): cert. denied, 474 U.S. 888 (1985);

Martori Bros. Distributors v. James-Massengale, 781 F.2d 1349,

1356-1359 (9th Cir. 1986); cert. denied, 107 S.Ct. 435 (1986).

Michigan’s no-fault coordination of benefits rule does not

purport to regulate ERISA plans and it only tangentially affects

them. As the court concluded when faced with this precise issue

13

in Physicians Health Plan, Inc. v. Citizens Ins. Co., 673 F.Supp.

903, 906-907 (W.D. Mich. 1987), “the Court finds 3109a is not

sufficiently related to plaintiff's employee benefit plan to trigger

ERISA pre-emption.” Also, in Employers Ass'n of New Jersey v.

New Jersey, 601 F.Supp. 232, 239-240 (D. N.J. 1985), aff'd

mem., 774 F.2d 1151 (3rd Cir. 1985), the court held that a

strikingly similar New Jersey law was not pre-empted by ERISA.

The court noted that, “[n]Jothing in the New Jersey statute

challenged herein mandates that employers provide health bene-

fits for their employees... The challenged portions of the New

Jersey law are not directed at employee benefit plans or trust

funds.”

The Michigan no-fault coordination of benefits law is not

aimed at ERISA plans, nor does it deal with any subject regu-

lated by ERISA.4 The Michigan law at issue is concerned with

no-fault automobile insurance, not employee benefit plans. It does

not require employee benefit plans to provide coverage for auto-

mobile accidents or even to provide health benefit coverage at all.

Its effect on coordination clauses in health plans is purely inciden-

tal. In addition, the law affects the plans’ relations with third

parties (no-fault insurers); it does not affect the plans’ relation-

ships with their participants, fiduciaries or sponsoring employers.

See, Sommers Drug Stores Profit Sharing Trust v. Corrigan

Enterprises, Inc., 793 F.2d 1456 (Sth Cir. 1986); cert. denied, 107

S.Ct. 884 and 1298 (1987); Firestone Tire & Rubber Co. v.

Neusser, 810 F.2d 550 (6th Cir. 1987).

In short, §3109a does not materially “relate to” or “purport

to regulate” ERISA plans, and so it is not pre-empted.

‘As this Court recently observed of ERISA pre-emption,

If a State creates no prospect of conflict with a federal statute, there is

no warrant for disabling it from attempting to address uniquely local

social and economic problems.

Fort Halifax Packing Co., Inc. v. Coyne, 482 US. ; 107 S.Ct. 2211;

96 L.Ed.2d 1, 16 (1987).

14

F. THE HIGHLAND PLAN IS CLEARLY INSURED

As shown in this brief, regardless of whether the petitioners’

plans are insured, there are several reasons why they must be

interpreted according to Michigan coordination of benefits law.

The Sixth Circuit additionally decided that the Highland Plan is

insured, so it remains subject to Michigan insurance law under

the savings clause. Petitioners suggest that this marginal, subsidi-

ary issue warrants review because the Sixth Circuit's conclusion is

at odds with the Ninth Circuit.

The Sixth Circuit previously held that an ERISA plan with

stop-loss insurance is an insured plan and subject to state insur-

ance laws under Metropolitan Life. Michigan United Food &

Commercial Workers Union v. Baerwaldt, 767 F.2d 308 (6th Cir.

1985): cert. denied, 474 U.S. 1059 (1986). This Court declined to

review the decision in Baerwaldt. The Sixth Circuit here followed

Baerwaldt because the Highland Plan has stop-loss insurance

similar to that in Baerwaldt. The two Ninth Circuit cases cited by

petitioners did not even cite or mention Baerwaldt. Moreover, the

Ninth Circuit cases involved only aggregate insurance, not the

individual insurance at issue in Baerwaldt and in the present case.

Here, the insurance pays specific benefits for specific beneficiaries

when the stated individual deductible is reached.

Petitioners argue that the Highland Plan is not insured

because the Plan’s sponsor, Highland Appliance Company, rather

than the Highland Plan itself, technically purchased the insur-

ance. This Court has already flatly rejected petitioners’ approach.

In Metropolitan Life, the Court expressly noted that most of the

insurance contracts relating to the plans at issue “technically were

issued to employers.” 471 U.S. at 738 n. 15. Nevertheless, those

insurance plans were held subject to state insurance law. Moreo-

ver, the District Court in the case at bar found as a matter of fact

that Highland’s insurance was “acquired by the Highland plan.”

R. 69 (Jt. App. 22). As the Sixth Circuit correctly noted in the

case at bar, the petitioners’ shell games to separate Highland

Appliance Company from the Highland Plan are without merit

because “[w]hether the actual insured is the employer or the

ERISA plan, the stop-loss insurance is purchased to ‘provide

benefits for plans subject to ERISA.” 833 F.2d at 91, quoting

Metropolitan Life, 471 U.S. at 738 n. 15.

15

CONCLUSION AND RELIEF

The petition should be denied because this case is not

appropriate for Supreme Court review. There is plainly no conflict

among the circuits as to whether ERISA pre-empts state coordi-

nation of benefits rules from being applied to uninsured plans.

Further, a decision on this issue would have no practical signifi-

cance, since ERISA plans would be subject to similar rules even

under federal law. Finally, the deemer clause issue (the issue

which is the basis of the petition for certiorari) would never even

be reached in this case, since there are several alternative grounds

which fully justify the result below.

Barris, Sott, DENN & Driker

By: (s) Stern E. Giazex (Counsel of Record)

Morey Witus

Attorneys for Respondents

Auto Owners, Citizens and Michigan Mutual Insurance Companies

211 West Fort Street, 15th Floor

Detroit, MI 48226-3281

(313) 965-9725 Garan, Lucow, MILLER.

SEWARD, Cooper &

Becker, P.C.

By: James L. Borin

Attorneys for Respondent

Allstate Insurance

Company

DRAUGELIS, ASHTON, SCULLY, om cae ante 3199

ae it, 207-3192

Haynes, MacLean & PoLttarp G13) 1530

By: Joun A. ASHTON

Attorneys for Respondent

State Farm Mutual Automobile Insurance Company

843 Penniman

Plymouth, MI 48170

(313) 453-4044

DATE: April 27, 1988