Petition for Writ of Certiorari — Mutual Life Insurance v. Kanakis

Supreme Court brief1990

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IN THE

Supreme Court of the United States

OCTOBER TERM, 1990

THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK,

NANCY A. HIORTDAHL and DON LUHRSEN,

Petitioners,

Vv.

TELLY KANAKIS and PATRICIA KANAKIS,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

SUPREME COURT OF CALIFORNIA

Of Counsel: JESSE D. MILLER, Esq.

WEAVER H. GAINES, JR., Esq. | (Counsel of Record)

WILLARD G. ELDRED, Esq. FULBRIGHT & JAWORSKI

ANTHONY F. RECINE, Esq. 700 S. Flower Street

GERALD J. CARROLL, JR., Esq. Sixth Floor

4 Manhattanville Road Los Angeles, CA 90017

Purchase, New York 10577 (213) 626-5241

(914) 697-3604

WILSON - Epes PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001

QUESTIONS PRESENTED

1. Whether in their effort to avoid ERISA preemption,

the California state courts have erred in failing to apply

this Court’s reasoning in Shaw v. Delta Airlines, 463

U.S. 85 (1983), which compels the rejection of a require-

ment that an employer must have a motive or an intent

to establish an ERISA plan for a plan to be governed by

ERISA.

2. Whether the existence of a “welfare benefit plan”

as defined under ERISA is contingent upon an employer’s

participation in the administration of the welfare benefit

plan.

(i)

PARTIES TO THE PROCEEDING

The Mutual Life Insurance Company of New York,“

Nancy A. Hiortdahl and Don Luhrsen.

Telly Kanakis and Patricia Kanakis.

* Pursuant to Rule 29.1 of the Rules of this Court, the following

constitutes a jist of all parent companies, non-wholly owned subsidi-

aries, and affiliates of Petitioner: The Muiual Life Insurance Com-

pany of New York has a controlling interest in, but does not wholly

own, Institutional Assets, Limited.

TABLE OF CONTENTS

GUEBSTIONS PRESENTED ...............2......2..c:.0.-cs0csssessse

PARTIES TO THE PROCEEDING ........002000 ou...

phy A yg |

le cendanniisnensiasonsoemtetbs

JURISDICTIONAL STATEMENT .....W0 22.

CONSTITUTIONAL PROVISIONS, STATUTES AND

REGULATIONS INVOLVED ....W22222o.oooeseceeeeeeeee

STATEMENT OF THE CASE...

REASONS FOR GRANTING THE WRIT ...................

II.

THE STATE COURT’S HOLDING THAT A

PREREQUISITE TO THE CREATION OF AN

ERISA PLAN IS A FINDING OF THE EM-

PLOYER’S INTENTION THAT ERISA GOV-

ERN THE PLAN IS CONTRARY TO THIS

COURT’S DECISION IN SHAW .

THE STATE COURT ERRED IN HOLDING

THAT THE EXISTENCE OF AN ERISA

PLAN DEPENDS UPON THE EMPLOYER’S

INVOLVEMENT IN THE ADMINISTRATION

OF THE BENEFIT PROGRAM .......00 oo...

A. The State Court’s Holding Is Contrary to De-

cisions of Federal Courts of Appeals ............

B. The Imposition of Administrative. Require-

ments Will Result in Tax Implications and

Public Policy Concerns That Are Contrary

to the Scheme Established by ERISA ............

Neen a scssiveahecauhbcenmcsbewuins

TABLE OF CONTENTS—Continued

APPENDIX:

Order of the Supreme Court of California Denying

ED a sivessnencdsanensbaciaisinsiinasiannssioetamnntiomasphhiiint

Opinion of the Court of Appeal of the State of

California, Fourth Appellate District, Division

ae coacg manic eienistnnennsebenntneteninatemntantis

Order of the Court of Appeal of the State of Cali-

fornia, Fourth Appellate District, Division

Three, Denying the Petition fof Rehearing .......

Judgment on Special Verdict -.....................-.-----------

Sections 2, 3(1), (3), (5), (6), (7), (16) of the

Employee Retirement Income Security Act of

1974, as amended, 29 U.S.C. §§ 1001, 1002 -.......

Excerpts of Trial Transcript ................--------------------

Page

TABLE OF AUTHORITIES

CASES:

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

FC IEE -<ccceciuncdassenesicobsedichasice eee muatunabesotaicaiiedae aiaimnameesane neds

Bausch & Lomb, Inc. v. Smith, 630 F. Supp. 262

Pe ceuetndi s IIE ciusincecsitalcndnnasssentaiedandtieniaaetadea ini

Blue Cross and Blue Shield of Alabama v. Pea-

cock’s Apothecary, Inc., 567 F. Supp. 1258 (N.D.

IAA: TID cicelenntoccciecteacaudnoe ae

Brundage-Peterson v. Compcare Health Services

Ins. Corp., 877 F.2d 509 (7th Cir. 1989) ............

Commercial Life Ins. Co. v. Superior Court, 47 Cal.

EE RE NER er etd Ms er

Credit Managers Ass’n of Southern California v.

Kennesaw Life & Acc. Ins. Co., 809 F.2d 617

CUED Satis WUE DF chtcsinsctecenaute tennant Dae en

Donovan v. Dillingham, 688 F.2d 1867 (11th Cir.

NITED. sninsisntcbunipansnqeaseaeciladactalnimasbasedsad name ena

Ed Miniat, Inc. v. Globe Life Ins. Group, Inc., 805

peg By, Ce A _ ; enema cecneew

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

EINE -cccschibacccsncnanaxteshensniisetammianineatct ee

Harris v. Arkansas Book Co., 794 F.2d 358 (8th

> | Sana: Pea EE ene

Light v. Blue Cross and Blue Shield of Alabama,

Inc., 616 F. Supp. 558 (S.D. Miss. 1985) ............

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

Roe v. General American Life Insurance Co., 712

FB GD CIEGEIs CG, BID veeisenecctcncensencnseninccernnncanas

Shaw v. Delta Airlines, 463 U.S. 85 (1983) _..........

Taggart v. Life & Health Benefit Administration,

Inc., 617 F.2d 1208 (5th Cir. 1980) .......000000000....

Wayne Chemical v. Columbus Agency Service

Corp., 567 F.2d 692 (7th Cir. 1977) .....0.200.....2...-

STATUTES:

26 Ua. 8 TERE) (IG access

Cal. Admin. Code tit. 10 §§ 2232.50-60 —....00020000000...

Employee Retirement Income Security Act of 1974

(“ERISA”) :

ERISA § 2, 29 U.S.C. § 1001 (1982) 0000.

Page

9,10

TABLE OF AUTHORITIES—Continued

_ Page

a ERISA § 3(1), (3), 29 U.S.C. § 1002(2), (3),

COD CRD Ga, Ce Ce erteainintetenisnaceseannenst passim

ERISA § 4(b) (3), 29 U.S.C. § 1003 (1982) ..... 11

ERISA § 405, 29 U.S.C. § 1105(c) (1) (1982) . 11

ERISA § 503, 29 U.S.C. § 1183 (1982) ........... 12

ILR.C. §§ 402(a), 404(a) (1986) 2000 .. 13

MISCELLANEOUS:

Buttelle, Human Affairs Research Centers Em-

ployee Benefit Welfare Benefit Plans and Plan

Sponsors in the Private Non-Farm Sector in the

United States, 1978-1979, Vol. IV, 43 ............... 12

Foster Higgins Health Care Benefit Survey 23

CID cccccchernenvitensinnretaseetieaneseatiniieetuaeelaiineediamidas aces. 11,12

Mitchell, O., Andrews, E., Scale Economies in Pri-

vate Multiemployer Pension Systems, Industrial

and Labor Relations Review Vol. 34, No. 4 (July

REDUIELD. cicansiecseneneceseneintsinnsseeasinidaaianiiaanaeaeeancnienss 12

Scallet, The Regulation of Multiple Employer

Trusts: Past, Present & Future, 61 Wash.

CAN CD CIID ceccsteccaueededdsaieiial oo emeanedeia 11,12

Statistical Abstract of the United States (108 ed.

BED TUE ccnseciéceteninnicseuckemsalasiadeiee eee ll

Woodbury, S., “Current Economic Issues in Em-

ployee Benefits”, Investing in People: A Strat-

egy to Address Americas Workforce Crisis, Com-

mission on workforce Quality and Labor Market

Efficiency, U.S. Dept. of Labor, Sept. 1989 _....... 13

IN THE

Supreme Court of the United States

OCTOBER TERM, 1990

No.

THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK,

NaANcY A. HIORTDAHL and DON LUHRSEN,

Petitioners,

Vv.

TELLY KANAKIS and PATRICIA KANAKIS,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

SUPREME COURT OF CALIFORNIA

The Petitioners, The Mutual Life Insurance Company

of New York, Nancy A. Hiortdahl and Don Luhrsen (col-

lectively, “Mutual Of New York’) respectfully request

that a writ of certiorari issue to examine the denial of

a petition for review by the Supreme Court of California,

on May 23, 1990, which affirmed the decision and judg-

ment of the Court of Appeal, Fourth Appellate District,

filed on February 28, 1990.

OPINION BELOW

The May 23, 1990 Order of the Supreme Court of

California denying review is in the Appendix at la. The

February 28, 1990 decision and judgment of the Court

of Appeal, Fourth Appellate District is in the Appendix

at 2a. The September 18. 1987 judgment on special! ver-

dict of the Trial Court is in the Appendix at 26a.

JURISDICTIONAL STATEMENT

The jurisdiction of this Court is invoked pursuant to

28 U.S.C. 1257(a) (1988).

CONSTITUTIONAL PROVISIONS, STATUTES

AND REGULATIONS INVOLVED

This case involves $$ 2 and 3 of the Employee Retire-

ment Income Security Act of 1974, as amended, 29 U.S.C.

§§ 1001 and 1002 (1982), set forth in the Appendix at

35a.

STATEMENT OF THE CASE

On November 29, 1983, Respondent Telly Kanakis was

injured in a motorcycle accident. Mr. Kanakis was cov-

ered under a medical insurance plan issued by the South-

ern California Retail Clerks Union and Food Employers

Benefit Fund (the “Benefit Fund Plan”). Mr. Kanakis

was also covered as a dependent under a group major

medical plan issued by Mutual Of New York to Insurance

Systems Incorporated (“ISI”), which covered his wife,

Respondent Patricia Kanakis, who was an employee of

ISI (the “ISI Plan”). Mr. Kanakis was, therefore, cov-

ered under two independent medical insurance plans—the

Benefit Fund Plan as an employee and the ISI Plan as a

dependent. Appendix (“App.’’) at 4a.

After the accident, Mr. Kanakis filed claims for med-

ical benefits under both plans. Mutual Of New York

reviewed the ISI Plan’s Coordination of Benefits

(“COB”) provision, which is in all material respects a

verbatim reproduction of an approved California Admin-

istrative Code form, Cal. Admin. Code tit. 10, §§ 2232.50-

60, and determined that the claim was primarily covered

by the Benefit Fund Plan. App. gi 5a. Mr. Kanakis,

however, elected to withdraw his claim under the Bene-

fit Fund Plan, as he was interested not in coverage, but

a windfall, which the COB provision is designed to

avoid.’ Mutual Of New York did not pay the claim in

reliance upon the ISI Plan’s COB provision. This caused

the Kanakises to sue Mutual Of New York for claim

benefits, emotional distress, and punitive damages.

Mutual Of New York believed that the ISI Plan is an

“employee welfare benefit plan” pursuant to Section (3)

(1) of the federal Employee Retirement Income Security

Act of 1974, as amended, 29 U.S.C. § 1002(1) (1982)

(“ERISA”). Mutual Of New York asserted that the

Kanakises’ common law claims were therefore preempted.

The Kanakises conceded and the California Court of Ap-

peal specifically held that if the ISI Plan is an ERISA

plan, under the holdings of the California Supreme Court

in Commercial Life Ins. Co. v. Superior Court, 47 Cal. 3d

473 (1988), and this Court in Pilot Life Ins. Co. v.

Dedeaux, 481 U.S. 41 (1987), their common law claims

are preempted by ERISA. App. at 7a-8a.

In accordance with the requirements of ERISA, the ISI

Plan was described in a booklet entitled “Group Insur-

ance Benefits” that was distributed to employees. App.

at 13a, 50a. The benefit booklet contained the eligibility

requirements, the claims procedure for obtaining bene-

fits, and the procedure to follow if a claim were denied.

App. at 54a, 7la. The financing of the ISI Plan was ar-

ranged through premiums paid by ISI to Mutual Of New

York. For employees, such as Mrs. Kanakis, ISI paid the

entire premium. For eligible dependents, such as Mr.

Kanakis, the ISI employee paid $50 per month and ISI

paid the balance. App. at 13a. ISI negotiated for the

In November 1984 Mr. Kanakis recovered a $50,000 settlement

from the third party motorist who was involved in the accident.

App. at 4a. This settlement amount exceeded the total medical

expenses incurred as a result of the accident. Had Mr. Kanakis

not withdrawn his claim to the Benefit Fund Plan and had he been

paid, he would have been required to reimburse the Benefit Fund

Plan. App. at 7a.

acquisition of the medical insurance plan for its em-

ployees and their dependents; instituted the insurance

application and enrollment process for its employees; in-

formed Mutual Of New York of new employees of ISI;

and acted as the conduit for its employees’ questions on

issues relating to coverage, payment of benefits, or other

matters. App. at 39a-42a.

Less than four months prior to the accident, ISI dis-

tributed an announcement to its employees, including

Mrs. Kanakis, that it had arranged for a “plan, denomi-

nated the [ISI] Employee Benefit Plan” to provide ISI’s

employees and dependents with medical coverage. App.

at 42a-43a. The announcement stated that the ISI Plan

was “designed to meet the requirements of the Employee

Retirement Income Security Act of 1974 (commonly

known as ERISA).” Accompanying this announcement

was a “Statement of ERISA Rights.” App. at 46a-49a.

The jury was instructed on the five elements of an

ERISA plan pursuant to Donovan v. Dillingham, 688

F.2d 1367, 13871 (11th Cir. 1982). Court’s Special In-

struction No. 2, app. at 44a. The Trial Court then in-

structed the jury that:

The second of the elements listed [in Special Instruc-

tion No. 2] to prove an ERISA employee benefit

plan exists—(the plan, fund or program is) estab-

lished or maintained—is proved if from the sur-

rounding circumstances a reasonable person can as-

certain the intended benefits, a class of beneficiaries,

the source of financing, and procedures for receiving

benefits, and if ISI intended to establish an ERISA

plan, being aware that the plan existed [emphasis

added]. (Wayne Chemical, Inc. v. Columbus Agency

Serv., 567 F.2d 692, 699; Donovan v. Dillingham,

688 F.2d 1367, 1373.)

Court’s Special Instruction No. 4, app. at 45a.

Based on the Trial Court’s erroneous instruction, the

jury determined that the ISI Plan was not an ERISA

plan. App. at 27a. The jury awarded damages of

$36,897.69 for the medical expenses, $125,000 for emo-

tional distress, and punitive damages of $500,060. App.

at 7a.

In its unpublished opinion, the California Court of

Appeal af rmed. Contrary to established case law, the

Court of Appeal agreed with the Trial Court’s “intent”

requirement when it stated that:

We hold that as a prerequisite to the creation and

the existence of an ERISA plan, the employer must

intend to create and to participate in such a plan.

Such intent may be found in acts as well as words.

App. at 15a.

In addition, the Court of Appeal created a new re-

quirement:

The existence of an ERISA plan depends upon the

extent to which the employer is involved in the ad-

ministration of the benefit program so as to impli-

cate the concerns which gave rise to ERISA.

App. at 18a.

The California Court of Appeal has thus upheld “em-

ployer intent” and “employer administration” as neces-

sary elements of an ERISA plan and the Supreme Court

of California has declined to review that decision. This

holding invites evasion by state courts of the preemption

doctrine established by Pilot Life. This erroneous appli-

cation of existing case law also invites the imposition of

this Court’s summary adjudication authority.

REASONS FOR GRANTING THE WRIT

I. THE STATE COURT’S HOLDING THAT A PRE-

REQUISITE TO THE CREATION OF AN ERISA

PLAN IS A FINDING OF THE EMPLOYER’S IN-

TENTION THAT ERISA GOVERN THE PLAN IS

CONTRARY TO THIS COURT’S DECISION IN

SHAW

Section 3(3) of ERISA, 29 U.S.C. § 1002(3), defines

“employee benefit plan” or “plan” as “an employee wel-

fare benefit plan or an employee pension benefit plan”

or both. The definition of an “employee welfare benefit

plan” is set forth in ERISA § 3(1), 29 U.S.C. § 1002(1):

(1) The terms ‘employee welfare benefit plan’ and

‘welfare plan’ mean any plan fund, or program

which was heretofore or is hereafter established by

an employer or by an employee organization, or by

both, to the extent that such plan, fund or program

was established or is maintained for the purpose of

providing for its participants or their beneficiaries,

through the purchase of insurance or otherwise (A)

medical, surgical or hospital care or benefits, or bene-

fits in the event of sickness, accident, disability,

death .... (Emphasis added. )

The California Court of Appeal specifically held that

“as a prerequisite to the creation and the existence of

an ERISA plan, the employer must intend to create and

to participate in such a plan.” App. at 15. An “intent”

requirement is contrary to the rule of Donovan v. Dilling-

ham, 688 F.2d 1367 (11th Cir. 1982) and the numerous

circuit courts that have adopted it, and contravenes this

Court’s reasoning in Shaw v. Delta Airlines, 463 U.S. 85

(1983).

In Donovan v. Dillingham, 688 F.2d 1367 (11th Cir.

1982), the Eleventh Circuit summarized the criteria for

determining whether a group insurance plan constitutes

an “employee welfare benefit plan” under 29 U.S.C.

$ 1002/1) as follows:

By definition, then, a welfare plan requires (1) a

‘plan, fund or program’ (2) established or main-

tained (3) by an employer or by an employee or-

ganization, or by both, (4) for the purpose of pro-

viding medical, surgical, hospital care, sickness, acci-

dent, disability, death, unemployment or vacation

benefits, apprenticeship or other training programs,

day care centers, scholarship funds, prepaid legal

services or severance benefits (5) to participants or

their beneficiaries.

Id. at 1371. The Dillingham standard has been adopted

by the Second, Fifth, Seventh, Eighth, Ninth and Elev-

enth Circuits in determining the existence of an ERISA

plan.”

The Trial Court instructed the jury on the Dillingham

elements of an ERISA plan. Court’s Special Instruction

No. 2, app. at 44a. Rather than end its instruction with

the Dillingham criteria, however, the Trial Court imposed

the additional requirement that Mutual Of New York

establish that ISI “intended to establish an ERISA plan”

when it made the decision to provide group medical bene-

fits to its employees.* Court’s Special Instruction No. 4,

2 Second Circuit (Bausch & Lomb, Inc. v. Smith, 630 F. Supp.

262, 263 (W.D.N.Y. 1986)); Fifth Circuit (Light v. Blue Cross and

Blue Shield of Alabama, Inc., 616 F. Supp. 558, 561 (S.D. Miss.

1985)); Seventh Circuit (Ed Miniat, Inc. v. Globe Life Ins. Group,

Inc., 805 F.2d 732, 738 (7th Cir. 1986) ); Eighth Circuit (Harris v.

Arkansas Book Co., 794 F.2d 358, 360 (8th Cir. 1986)); Ninth

Circuit (Credit Managers Ass’n of Southern California v. Kennesaw

Life & Acc. Ins. Co., 809 F.2d 617, 625 (9th Cir. 1987)); and

Eleventh Circuit (Blue Cross & Blue Shield of Alabama v. Peacock’s

Apothecary, Inc., 567 F. Supp. 1258, 1267 (N.D. Ala. 1983) ).

8 The Trial Court imposed this additional element in reliance upon

Wayne Chemical v. Columbus Agency Service Corp., 567 F.2d 692

(7th Cir. 1977). App. at 45a. Wayne Chemical, however, states

merely that establishing a plan “requires an intent which presup-

poses an awareness of the existence of the plan.” Jd. at 699. That

language does not support an instruction that specific intent is re-

quired to establish an ERISA plan. Indeed, even the court that de-

cided Wayne Chemical has embraced the Dillingham criteria. (Ed

app. at 45a [emphasis added]. Mutual Of New York

proved by uncontroverted and substantial evidence at

trial that the ISI Plan satisfied every element of “an

employee welfare benefit plan” subject to ERISA as

enunciated by Dillingham and 29 U.S.C. § 1002(1). See

infra pp. 3-4. The jury, as a result of the erroneous

instruction requiring intent, nevertheless held that the

ISI Plan was not an ERISA plan.

In Shaw, this Court addressed the question of whether

a disability plan was subject to Section 4(b) (3) of

ERISA. Section 4(b)(3) exempts from ERISA cover-

age “any employee benefit plan . .. maintained solely

for the purpose of complying with applicable .. . dis-

ability insurance laws.” Shaw, supra, 463 U.S. at 106.

Since the disability plan was broader than required by

New York’s Disability Benefits Law, this Court held that

the plan was not maintained “solely” for the purpose of

compliance with that law and was, therefore, preempted

by ERISA. This Court stated that the employer’s intent

in establishing a plan providing greater benefits than re-

quired under state law had no bearing on whether that

plan was governed by ERISA:

As the Court noted in Alessi [v. Raybestos-Manhat-

tan, Inc,, 451 U.S. 504, (1981) ], plans that not only

provide benefits required by such law, but also ‘more

broadly serve employee needs as a result of collec-

tive bargaining’, are not exempt [from ERISA pre-

emption]. The test is not one of motive—any em-

ployer could claim that it provided disability benefits

altruistically, to attract good employees, or to in-

crease employee productivity, as well as to obey state

law—but whether the plan as an administrative unit,

provides only those benefits required by the applica-

ble state law.

(Shaw, supra, 463 U.S. at 107 [emphasis supplied]. )

Miniat, Inc. v. Globe Life Ins. Group, Inc., 805 F.2d 732, 738 (7th

Cir. 1986) [holding that the employer need only intend “to provide

benefits for its employees” }.)

The California courts’ imposition of employer intent to

establish an “employee welfare benefit plan” under ERISA

is inconsistent with this Court’s holding in Shaw. In ac

cordance with Shaw, an objective analysis of the p'an

not the motive or intent of an employer, is required to

determine whether the plan is governed by ERISA. As a

matter of sound public policy, as well as correct legisla-

tive interpretation, it is clear that employer intent is ir-

relevant, and could never be an essential element in es-

tablishing the existence of an ERISA plan. To hold other-

wise would create an untenable subjective standard. in

consistent with the mandates of this Court.

Il. THE STATE COURT ERRED IN HOLDING THAT

THE EXISTENCE OF AN ERISA PLAN DEPENDS

UPON THE EMPLOYER’S INVOLVEMENT IN THE

ADMINISTRATION OF THE BENEFIT PROGRAM

A. The State Court’s Holding Is Contrary to Decisions

of Federal Courts of Appeals

In erroneously rejecting the application of ERISA to

plans that are funded by insurance and admins‘er:d by

an insurer, the California Court of Appeal mistakenly

relied upon this Court’s holding in Fort Halifax Packing

Co. v. Coyne, 482 U.S. 1 (1987), to support its holding

that the existence of an ERISA plan depends upon the

employer’s involvement in the administration of the bene-

fit program. App. at 18a-14a.

In Fort Halifax, this Court determined thet a one-time

severance payment to employces impacted by a plant c'os-

ing did not fall within the scope of ERISA. The Court

reasoned that ERISA was not invoked by a “one-time,

lump-sum payment triggered by a single event” which

did not require any administration of a plan and where

the employer assumed “no responsibility to pay bencfits

on a regular basis.” Fort Halifax, supra, 482 U.S. at 12.

The California Court of Appeal has reasoned that this

Court’s search for administrative activity in Fort Halifax

can only be satisfied by a finding that an employer

engages in such activity. Thus, the California Court of

Appeal held that “ERISA preemption presumes some

specie of administrative activities by the employer. .:. ”

App. at 11.

The California Court of Appeal’s holding is in direct

conflict with decisions of the Seventh, Ninth, Tenth, and

Eleventh federal courts of appeals. Those circuit courts

have rejected the requirement that the employer must be

directly involved in administration of the benefit plan to

qualify the plan under ERISA. See Brundage-Peterson

v. Compcare Health Services Ins. Corp., 877 F.2d 509,

511 (7th Cir. 1989) (“the contingent feature of a true

welfare benefits plan ... is unaffected by the delegation

of administration of the plan to an insurance company—

a delegation contemplated by the statute’) ; Credit Man-

agers Ass’n of Southern California v. Kennesaw Life &

Accident Ins. Co., 809 F.2d 617, 625 (9th Cir. 1987) (an

employer “can establish an ERISA plan rather easily.

Even if the employer does no more than arrange for a

‘group-type insurance program’ it can establish an ERISA

plan, unless it is a mere advertiser that makes no contri-

butions on behalf of its employees”); Roe v. General

American Life Insurance Co., 712 F.2d 450, 452 (10th

Cir. 1983); Dillingham, supra, 688 F.2d at 1373 (11th

Cir. 1982) (“the purchase of a group policy or policies

covering a class of employees offers substantial evidence

that a plan, fund, or program has been established”’).

ERISA specifically contemplates the extensive role in-

surance (and insurers) will play in the administration of

an employee benefit plan. ERISA §3(1), 29 U.S.C.

$ 1002(1), expressly provides for employee benefit plans

that, “through the purchase of insurance,” provide bene-

fits in the event of sickness. In rejecting the holding of

Taggart v. Life & Health Benefit Administration, Inc.,

617 F.2d 1208 (5th Cir. 1980), a case that the California

Court of Appeal cited in establishing its employer ad-

ministration requirement, the Dillingham court stated:

If Taggart implies that an employer or employee or-

ganization that only purchases a group health insur-

ance policy or subscribes to a [multiple employer

trust] to provide health insurance to its employees or

members cannot be said to have established or main-

tained an employee welfare benefit plan, we dis-

agree. To that extent Taggart shall no longer be

binding in the Eleventh Circuit.

Dillingham, supra, 688 F.2d at 1375. -

ERISA also expressly authorizes the allocation of ad-

ministrative duties to third parties. 29 U.S.C. § 1105(c)

(1). Indeed, ERISA defines the plan ‘administrator’ as

including “‘(i) the person specifically so designated by

the terms of the instrument under which the plan is

operated [or] ... (ii) if an administrator is not so

designated, the plan sponsor... .” 29 U.S.C. § 1002(16)

(A) (i), (ii). Accordingly, ERISA does not even con-

template, much less require, that the employer must be

involved in the administration of the benefit plan in or-

der for it to be covered by ERISA.

B. The Imposition of Administrative Requirements

Will Result in Tax Implications and Public Policy

Concerns That Are Contrary to the Scheme Estab-

lished by ERISA

A requirement that employers be involved in the ad-

ministration of benefit plans under ERISA is grossly in-

consistent with how employee benefit plans are imple-

mented and administered. The overwhelming majority

of employer-sponsored health care plans, which cover over

145 million employees and their dependents in the United

States, are established simply through the purchase of in-

surance * with employer involvement generaily limited (as

4 Statistical Abstract of the United States (108 ed. 1988) 92.

in this case) to the selection of benefits, enrollment of

participants, and payment of premiums.® The claims ad-

ministration for the vast majority of those plans is con-

ducted not by the employer, but by an insurer serving as

a claims reviewer under ERISA § 503, 29 U.S.C. § 1133.°

The overwhelming majority of employers are simply

not equipped to implement and administer the intricate,

specialized and expensive mechanisms necessary to op-

erate ERISA plans for their employees. Moreover, em- -

ployers benefit greatly from the economies of scale avail-

able when plans are handled by third parties that ad-

minister large numbers of plans and participants.’ If

employers are required to engage more actively in the

administration of plans the increased costs would be pro-

hibitive for smaller employers, thereby creating a dis-

incentive to the establishment of the plans. Ultimately,

smaller employers will be unable to offer benefit plans to

their employees.

More significantly, the tax consequences of the Cali-

fornia Court of Appeal’s decision completely negate the

5 Scallet, The Regulation of Multiple Employer Trusts: Past,

Present & Future, 61 Wash. U.L.Q. 359, 381 (1983) (‘“Scallet’’).

See also 1988 Foster Higgins Health Care Benefits Survey 23.

(84% of employers insure their health care plans or self fund with

stop-loss insurance coverage; for employers with less than 1,000

employees, 94% insure such plans or self fund with stop-loss

insurance. }

8 Scallet at 381, citing Buttelle, Human Affairs Research Centers

Employee Benefit Welfare Benefit Plans and Plan Sponsors in the

Private Non-Farm Sector in the United States, 1978-1979, Vol. IV,

43. Ninety-three percent of all employers, self-funded and insured

alike, use an insurer or third party administrator for claims admin-

istration. 1988 Foster Higgins Health Care Benefit Survey 23.

7 Mitchell, O., Andrews, E., Scale Economies in Private Multi-

employer Pension Systems, Industrial and Labor Relations Review

Vol. 34, No. 4 (July 1981.) Administrative expenses per partici-

pant are over ten times as high for plans with 100 participants

as for those with 20,000 participants.

advantages previously enjoyed by employers offering

plans similar to the ISI Plan. If plans such as the ISI

Plan are not governed by ERISA, the preferential tax

treatment that has been extended to providers and par-

ticipants must be retroactively amended from the date of

the plan’s inception. I.R.C. §§ 402(a), 404(a) (1986).

In general, treating employer contributions to benefit

plans as taxable income under the current tax system

“would dramatically reduce the provision of both pensions

and health insurance.”’ *

The decision below renders the provision of employee

benefit plans a speculative proposition for both the em-

ployer and the employee. It is the declared policy of

ERISA to protect the “continued well-being and security

of millions of employees and their dependents .. . directly

affected by [employee benefit plans].”’ ERISA § 2(a),

29 U.S.C. §1001(a). From a public policy standpoint,

this decision rns contrary to the ultimate interests of

participants, employers and third-parties administering

plans—interests fully protected under ERISA and com-

pletely jeopardized by the California courts.

8 Woodbury, S., Current Econom ’c Issues in Employce Denefits,

W.E. Upjohn Institute for Employment Research and ?ichigan

State University, February, 1990. Pension provision is estimated

to drop 50-64%, health insurance nearly 20%.

CONCLUSION

For the foregoing reasons, a writ of certiorari should

issue to examine the denial of a petition for review of the

Supreme Court of California.

Respectfully submitted,

Of Counsel: JESSE D. MILLER, Esq.

WEAVER H. GAINES, JR., Esg~ (Counsel of Record)

WILLARD G. ELDRED, Esq. FULBRIGHT & JAWORSKI

ANTHONY F. RECINE, Esq. 700 S. Flower Street

GERALD J. CARROLL, JR., Esq. Sixth Floor

4 Manhattanville Road Los Angeles, CA 90017

Purchase, New York 10577 (213) 626-5241

(914) 697-3604

August 20, 1990

APPENDIX

IN THE SUPREME COURT

OF THE STATE OF CALIFORNIA

IN BANK

S014928

TELLY KANAKIS ef al.,

Appellants

MUTUAL LIFE INSURANCE COMPANY OF NEW YORK et al.,

Appellants

Fourth Appellate District, Division Three, No. G006355

ORDER DENYING REVIEW

AFTER JUDGMENT BY THE COURT OF APPEAL

[Filed May 23, 1990}

Appellants’ petition for review DENIED.

/s/ Lueas

Chief Justice

IN THE COURT OF APPEAL OF THE STATE

OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

G006355

(Super. Ct. No. 441754)

TELLY KANAKIS et al.,

Plaintiffs and Appellants,

THE MUTUAL LIFE INSURANCE COMPANY OF

NEW YORK et al.,

Defendants and Appellants.

OPINION

[Filed Feb. 28, 1990]

APPEAL from a judgment of the Superior Court of

Orange County, Claude M. Owens, Judge. Affirmed.

Pepper, Hamilton & Scheetz, Jesse D. Miller, Peter H.

Mason and Wayne M. Smith for Defendants and Ap-

pellants.

Callahan, McCune & Willis and Robert W. Castleberry

for Plaintiffs and Appellants.

Defendants Mutual of New York (MONY), Nancy A.

Hiortdahl and Don Luhrson appeal a judgment upon a

jury verdict against them for the sum of $171,344.61

compensatory damages and $500,000 in punitive dam-

ages. Plaintiffs Patricia and Telly Kanakis sued MONY

and the individuals, alleging the wrongful conduct of the

defendants in refusing to pay benefits due on MONY’s

policy for major medical coverage on the insureds, Kana-

kis. The trial court denied defendant’s motion for judg-

ment notwithstanding a verdict and a motion for new

trial and the plaintiffs’ motion for attorney’s fees. De-

fendants appeal this judgment; plaintiffs cross-appeal

from the denial of their motion for attorney’s fees.

MONY contends on appeal the insurance coverage pro-

vided to Telly and Patricia Kanakis by her employer

was an employee benefit plan governed by the Employees’

Retirement Income Security Act (ERISA). If this be

true the Kanakises’ common law and statutory causes

of action are preempted—not cognizable in the state

court system. Subsidiary issues involve MONY’s claims

the trial-court improperly instructed the jury that the

employer’s intent to establish an ERISA plan was a

necessary element to create such an ERISA plan, and

that MONY’s coordination of benefits provision (COB)

was ambiguous as a matter of law. Finally, MONY

contends the jury’s award of punitive damages and for

damages for intentional infliction of emotional distress

is not supported by substantial evidence.

FACTS

Plaintiff Telly Kanakis (Telly) was involved in a

serious motorcycle accident on November 29, 1983. The

result was a lengthy stay in the UCI Medical Center

with numerous broken bones. At the time of trial, he

still had a rod in his left femur put there during the

first hospitalization. He had sustained fractures to his

left leg including his tibia, fibula and femur, nerve dam-

age to his left arm, dislocation of jaw, left wrist and

right finger. He had severe paralysis of the left arm for

five months after the accident. Amputation was con-

templated. He was in bed for approximately five months

after the accident, in a wheelchair for three months, and

could not sleep without medication due to pain. He had

no income from the time of the accident from November

1983 until September 1984.

As a result of the injuries sustained, he saw approxi-

mately 20 doctors. Hospital and medical expenses in-

curred by him amounted to some $36,897.69. At time of

trial, he had problems in his arm and leg. He could

not run nor go up too many stairs. Marital separation

resulted from the chaos following the accident. Lawsuits

were threatened. He was in need of future medical work

to be done on his jaw, and removal of the rod from his

left knee.

At the time of the accident, Telly was covered by two

medical insurance policies, one, through his own em-

ployment (Benefit Fund) and a second as dependent on

his wife’s employer’s medical insurance plan (MONY).

Benefit Fund’s policy, by its express terms, required an

assignment of any monies received from third parties

liable before Benefit Fund would pay any medical claim.

Telly elected not to execute a third party assignment to

Benefit Fund; thereupon Benefit refused to pay any

medical benefits.

Telly withdrew the claim against Benefit Fund and

sought reimbursement only from MONY and the re-

sponsible third party tortfeasor. He received a settle-

ment in the amount of $50,000 from the tortfeasor.

Neither Benefit Fund nor MONY has paid Telly or

Patricia any money for the injuries and the medical ex-

penses incurred in the accident.

Telly claimed MONY was liable because he was in-

sured by two different insurance companies, premiums

had been paid to both insurance companies, and he had

been insured by MONY before he became insured by

Benefit Fund. MONY’s position throughout the trial was

that it did not pay any claims because Telly’s claims had

to be first submitted to Benefit Fund and payments made

by Benefit Fund before any obligation on the part of

MONY arose. There were no payments by MONY be-

tween the date of the accident and the time of the trial

in 1987, a period of approximately four years.

Telly’s wife, Patricia, worked for Insurance Systems,

Inc. (Caresystems) as a sales representative selling

computer hardware. MONY was her health insurer. At

her request, Telly was covered as a dependent under the

policy. Premiums ($50) were deducted from her pay-

check for her husband’s coverage every two weeks. These

premiums were paid from July 1983 to date of the acci-

dent in November 1983. She continued to carry him on

the MONY policy after the accident. She was not told

the insurance policy from MONY was under ERISA

rules. The book she received from her employer did not

mention the word ERISA. The subject had never been

discussed with her.

Patricia made her first claim in November 1983 at the

UCI Medical Center. She then learned about MONY

coverage as well as the Benefit Fund coverage. She

talked to defendant Hiortdahl (MONY’s service special-

ist) on different occasions and received a number of

letters from her. Hiortdahl adamantly told Patricia

MONY was not going to pay on the claim until Benefit

first paid its portion. Patricia submitted all claims te

both insurance companies with the hope and expectation

that the medical bills would be paid.

Hiortdahl knew the general purpose of a COB was to

provide, as between the two carriers, 100 percent cov-

erage; the primary carrier would pay its benefits and

MONY would pay whatever the primary carrier did not

pay. She did not know in November 1983 whether

MONY was an ERISA policy; the particular document

referring to ERISA was not in the MONY file. Hiort-

dah! sent out additional inquiries to the Kanakises but

did not make any inquiry of Benefit Fund until Septem-

ber 21, 1984. She never talked to anyone at Benefit

Fund. She never investigated Benefit Fund’s coordina-

tion of benefits (COB) provisions.

The COB provision in the Benefit Fund policy was

unique in this respect. It applied only to the dependent’s

coverage in that plan. It did not apply to the primary

insured’s (employee’s) coverage. By its express language

the COB provision did not apply to Telly, the employee.

While Exhibits 4 and 5 of Benefit Fund’s policy required

Telly to assign certain rights before Benefit Fund would

take any further action, there was no similar assignment

provision in the MONY policy.

Defendant Luhrson, an employee of MONY, also knew

Benefit Fund had not made payments to Kanakis due to

its assignment requirement. In the face of these facts,

MONY contended there was never any denial of benefits.

They charged Telly was the cause for non-payment, by

reason of his failure to first make the assignment to

Benefit Fund.

The trial court found the COB provision in the Benefit

Fund policy was ambiguous as applied to the facts of

this case and so instructed the jury. The reason: The

Coordination Of Benefits provision in the Benefit Fund

policy did not apply to Telly because he was not a “de-

pendent” and was thus excluded by the express terms of

the provision. In contrast, the COB provisions in the

MONY policy stated the insurance company which cov-

ered an insured other than as a dependent would be re-

quired to pay accrued expenses before an insurance com-

pany also covering the insured as a dependent would be

obligated to pay any claims. MONY’s COB provision

further declared MONY’s obligation to pay in this situa-

tion would be reduced not only by the amount actually

paid by the other insurance company but also by any

benefits the insured would have obtained had the claim

been duly made therefor. MONY’s counsel urged Telly

was covered by Benefit Fund COB despite his exclusion

as the policy “employee.” If MONY’s argument is sound,

the trial judge’s ruling was in error.

MONY contended that Telly’s motive in refusing to

execute the assignment was to obtain a double recovery

from both MONY and the third party tortfeasor, since

MONY did not require any such assignment of recovery

from a third party tortfeasor. MONY claimed the

$50,000 settlement with the third party tortfeasor ex-

ceeded the total medical expenses incurred by Telly as

a result of the accident, despite the fact there was no

allocation in the settlement award as between medical

expenses and the general and other special damages.

After the four-day trial, the jury answered questions

in specially prepared verdict forms. The jury found that

(1) that MONY’s insurance policy was not governed by

Employee’s Retirement Income Security Act of 1974, 29

United States Code section 1001 et seq. (ERISA); (2)

the breach of contract by MONY was the proximate

cause of the damage to the Kanakises; (3) MONY had

breached the implied covenant of good faith and fair

dealing; (4) MONY had violated Insurance Code section

790.03(e); (5) MONY had engaged in outrageous con-

duct with an intent to cause, and with disregard for the

probability of causing, emotional distress to the Kana-

kises; and (6) the defendants were negligent. The jury

awarded Telly $50,000 and Patricia $75,000 in tort dam-

ages, assessed $36,897.69 for breach of contract, and

awarded punitive damages in the sum of $500,000.

DISCUSSION

MONY contends the jury erred as a matter of law in

finding their insurance plan was not preempted by

ERISA. If the MONY insurance policy is an “ERISA”

plan, then federal statute and case law preempts plain-

tiffs’ claims made herein and precludes their filing of

California recognized statutory or common law claims

against MONY. (Commercial Life Ins. v. Superior

Court (1988) 47 Cal.38d 473, 488; Rizzi v. Blue Cross

of Southern California (1989) 206 Cal.App.3d 380, 392.)

“The existence [or lack] of an ERISA plan is a ques-

tion of fact to be answered in light of all the surround-

ing facts and circumstances from the point of view of

a reasonable person.” (Kanne v. Connecticut General

Life Ins. Co. (9th Cir. 1988) 859 F.2d 96, 98; see also

Credit Managers Assoc. v. Kennesaw Life & Acc. Ins.

Co. (9th Cir. 1987) 809 F.2d 617, 625; Donovan v. Dil-

lingham (11th Cir. 1982) 688 F.2d 1367, 1373.) This

is a preliminary and fundamental question to be deter-

mined before the preemption doctrine applies to preclude

state court jurisdiction. Kanakis concedes if the plan

is an ERISA plan, under the holding of the California

Supreme Court in Commercial Life Ins. Co. v. Superior

Court, supra, 47 Cal.38d 473, 484-485 and the United

States Supreme Court in Pilot Life Ins. Co. v. Dedeaux

(1987) 481 U.S. 41, 57 their claim is preempted and

cannot be brought in the state court.' Thus, the ques-

tion of whether the policy here is governed by ERISA

takes on a vital importance to the Kanakises.

The question of whether the MONY insurance pro-

vided was an ERISA plan was submitted to the jury for

a factual determination. The jury found it was not an

ERISA plan. If substantial evidence supports that find-

ing, it must be upheld.

The ERISA law is in 29 United States Code sections

1001 et seq. Congressional findings and declarations of

policy are set forth in 29 United States Code section

1001. Congress recognized in the nationwide prolifera-

1 An exception exists for claims under 29 United States Code sec-

tion 1132, subdivision (e)(1) granting concurrent jurisdiction to

state courts for actions under (a)(1)(B) of this section. (Commer-

cial Life Ins. Co. v. Superior Court, supra, 47 Cal.3d at p. 485.)

tion of employee benefit plans, certain abuses resulted

in employee losses of retirement benefits. Thus, the need

arose for Congress to establish certain minimal stand-

ards to assure the “equitable character” of such plans

and their financial ‘“‘soundness.” (29 U.S.C. § 1001,

subd. (c); Commercial Life Ins. Co. v. Superior Court,

supra, 47 Cal.3d at p. 476.)

The act protects participants of the employees bene-

fit plans by requiring disclosure to participants and by

establishing standards of conduct and fiduciary duties.

ERISA provides for remedies, sanctions and ready -ac-

cess to the federal courts. (29 U.S.C., § 101, subd. (b).)

ERISA also imposes upon benefit plans various sub-

stantive requirements relating to participation, funding

and vesting. However, it contains almost no federal reg-

ulation of the substantive terms of the benefit plans.

(Metropolitan Life Ins. Co. v. Massachusetts (1985) 471

U.S. 724, 732.)

ERISA contains a broad preemption clause which pro-

vides: “Except as provided in subsection (b) of this

section, the provisions of this subchapter and subchapter

III of this chapter shall supercede any and all State laws

insofar as they may now or hereafter relate to any em-

ployee benefit plan described in section 1003(a) of this

title and not exempt under section 1003(b) of this title.

This section shall take effect on January 1, 1975.” (29

U.S.C., § 1144, subd. (a).) The clause has as its pur-

pose to protect employers from conflicting and inconsis-

tent state and local regulations of employee benefit plans.

(Shaw v. Delta Airlines (1983) 463 U.S. 85, 99.) The

breadth of the clause is qualified by the savings clause

which provides: “|N]othing in this subchapter shall be

construed to exempt or relieve any person from any law

of any State which regulates insurance, banking, or se-

curities.” (29 U.S.C., § 1144, subd. (b) (2) (A).)

ERISA defines a “employee welfare benefit plan” as

including ‘any plan, fund, or program which was here-

10a

tofore or is hereafter established or maintained by an

employer or by an employee organization, or by both, to

the extent that such plan, fund, or program was estab-

lished or is maintained for the purpose of providing for

its participants or their beneficiaries, through the pur-

chase of insurance or otherwise, (A) medical, surgical

or hospital care or benefits... .” (29 U.S.C., § 1002,

subd. (1), emphasis added.) ERISA applies to “any em-

ployee benefit plan if it is established or maintained—

[7] (1) by any employer engaged in commerce or in any

industry or activity affecting commerce;...” (29 U.S.C.,

§ 1003, subd. (a).)

ERISA preempts only plans, not benefits. Nowhere in

the statute are the terms treated as equivalent. (Fort

Halifax Packing Co. v. Coyne (1987) 482 U.S. 1, 7-8,

12-15.) From Fort Halifax we gain this insight as to the

requirements for and the nature of an ERISA plan. In

Fort Halifax the Supreme Court considered a Maine stat-

ute requiring employers to provide a one-time severence

payment to employees in the event of plant closing. The

Supreme Court concluded it was not an employee benefit

plan.

The Supreme Court observed that under the adminis-

trative realities of an employee benefit plan: “An em-

ployer that makes a commitment systematically to pay

certain benefits undertakes a host of obligations, such as

determining the eligibility of claimants, calculating ben-

efit levels, making disbursements, monitoring the avail-

ability of funds for benefit payments, and keeping ap-

propriate records in order to comply with applicable re-

porting requirements.” (Jd. at p. 9.)

The Supreme Court further pointed out that in any

preemption analysis, “‘“*{T]|he purpose of Congress is

the ultimate touchstone.”’” (Jd. at p. 8.) Concerning

congressional intent, the Supreme Court stated, “The

lla

third answer to appellant’s argument is that the Maine

statute not only fails to implicate the concerns of ERISA’s

pre-emption provision, it fails to implicate the regula-

tory concerns of ERISA itself. The Congressional decla-

ration of policy, codified at 29 U.S.C., § 1001, states that

ERISA was enacted because Congress found it desirable

that ‘disclosure be made and safeguards be provided with

respect to the establishment, operation, and administra-

tion of [employee benefit] plans.’ ... The focus of the

statute thus is on the administrative integrity of benefit

plans—which presumes that some type of administrative

activity is taking place.” (Id. at p. 15, emphasis added. )

The Supreme Court further declared, “The foregoing

makes clear both why ERISA is concerned with regulat-

ing benefit ‘plans,’ and why the Maine statute does not

establish one. Only ‘plans’ involve administrative activity

potentially subject to employer abuse. The obligation im-

posed by Maine generates no such activity. There is no

occasion to determine whether a ‘plan’ is ‘operated’ in the

interest of its beneficiaries, because nothing is ‘operated.’

No financial transactions take place that would be listed

in an annual report, and no further information regard-

ing the terms of the severance pay obligation is needed

because the statute itself makes these terms clear. It

would make no sense for pre-emption to clear the way for

exclusive federal regulation, for there would be nothing

to regulate. Under such circumstances, pre-emption would

in no way serve the overall purpose of ERISA.” (ld. at

p. 16, emphasis added. )

From the foregoing we conclude: The focus of ERISA

is on the administrative integrity of employers’ benefit

plans. Thus ERISA preemption presumes some specie of

administrative activities by the employer is taking place.

(Fort Halifax Packing Co. v. Coyne, supra, 482 U.S. at

pp. 15-16.) The existence or lack of existence of an

ERISA plan depends upon the extent to which the em-

ployer is involved in the administration of the benefit

12a

program so as to implicate the concerns which gave rise

to ERISA.

III

What is an employer plan under ERISA is illustrated

in Kanne v. Connecticut General Life Ins., Co., supra,

859 Fed.2d 96, and cited by the California Supreme Court

as an authoritative statement of the federal ERISA law

in Commercial Life Ins. Co. v. Superior Court, supra, 47

Cal. 3d 473, 482, 483. The plan brochure, introduced by

the insurance company, described the plan as an ERISA

plan. Associated Builders and Contractors (ABC) was

an employer group to which the employer (Harlo Car-

pets) belonged, and was described as the administrator

of the plan. The employer subscribed to a group health

insurance plan administered by ABC. Pursuant to the

requirements of ERISA, the plan was established as a

trust entity, called the ABC Trust. It purchased a policy

of group health insurance from Connecticut General.

Kanne was an employee of Harlo Carpets and covered

by the insurance policy. The Kanne court observed the

Connecticut General brochure describes the plan as an

ERISA plan, “evidencing the intent of ABC to create an

ERISA plan.” (Kanne v. Connecticut General Life Ins.

Co., supra, 859 F.2d 96, 99, emphasis added. )

It concluded ABC, the employers’ group, was an ad-

ministrator of the plan subject to ERISA regulations.

The court also pointed out “|a] bare purchase of insur-

ance, without any of the above elements present, does not

by itself constitute an ERISA plan (although it may be

evidence of the existence of an ERISA plan).” (Kanne

v. Connecticut General Life Ins. Co., supra, 859 F.2d 96,

99, emphasis added; see also Donovan & Donovan v. Dil-

lingham, supra, 688 F.2d 1367, 1375; Martori Bros. Dis-

tributors v. James-Massengale (9th Cir. 1986) 781 F.2d

1349, 1358.)

Contrast the undisputed facts here. The only responsi-

bilities and duties of the employer of Patricia Kanakis

13a

was to have the MONY applications filled out for each

employee, to name the beneficiaries on the life insurance,

to inform the insurance company who the employees were,

to pay the premiums directly to the company, to reconcile

the statements regularly, and to act as a conduit for em-

ployee questions or problems regarding the policies.

There is a total lack of evidence here as to the nature

of the employer’s administrative participation in any

plan. Patricia’s employer simply obtained the medical

benefits for its employees through the purchase of the

MONY policy. It distributed the booklets to its em-

ployees describing the benefits and claims procedures.

There is no evidence in this record suggesting MONY,

the insurance company, was an employer or employer

group or employee group. Its function was to supply an

insurance policy. The sole function of Patricia’s em-

ployer was to finance the plan, excepting of course where

the dependent, Telly, was involved. Fifty dollars a month

was deducted from Patricia’s salary to cover Telly’s in-

surance. There is no evidence of a trust, an employer

or employer group, or an employee group administering

the plan as in Kanne.

ERISA defines an employer as “any person acting di-

rectly as an employer, or indirectly in the interest of an

employer, in relation to an employee benefit plan; and

includes a group or association of employers acting for

an employer in such capacity.” (29 U.S.C., § 1002, subd.

(5).) MONY is not an employer as defined that sec-

tion of ERISA.

The existence of an ERISA plan depends upon the ex-

tent te which the employer is involved in the administra-

tion ef the benefit program so as to implicate the con-

cerns which gave rise to ERISA. Here, there is no evi-

dence that Patricia’s employer made any commitment

to pay or regulate or administer benefits. (Fort Hali-

l4a >

fax Packing Co. v. Coyne, supra, 482 U.S. at p. 15.)

Its role was limited to paying the policy premiums. As

the United States Supreme Court stated in Fort Halifax,

“To do little more than write a check hardly constitutes

the operation of a benefit plan.” (Jd. at p. 12, emphasis

added. )

Patricia’s employer did not undertake the adminis-

trative responsibilities such as the determination of eligi-

bility of claimants, calculating benefit levels, making dis-

bursements, monitoring the availability of funds for ben-

efit payments or keeping appropriate records in order

to comply with applicable reporting procedures. (Fort

Halifax Packing Co. v. Coyne, supra, 482 U.S. at p. 15.)

Substantive evidence supports the jury’s determination

this was not an ERISA plar. The regulatory concerns of

ERISA were not implicated by the act of purchasing

insurance. There was no employer administered plan;

therefore, there was no potential for employer abuses in

such areas as self-dealing, imprudent investments and

misappropriations. The congressional purpose expressed

in ERISA was not implicated.

Based upon the uncontested facts the Kanakises’ health

insurance benefit procured through MONY was not a

plan within the meaning of ERISA. Plaintiffs’ causes of

action were therefore not preempted by ERISA.

MONY next contends the trial court erred in instruct-

ing the jury an “intent” was required in order to form

an ERISA plan. Case authority supports such an in-

struction. (Wayne Chemical, Inc. v. Columbus Agcy.

Serv. Corp. (7th Cir. 1977) 567 F.2d 692.) The Wayne

court held, “An employer does not become a participant

in, or establish or maintain, a plan by applying for in-

surance and paying premiums for what it understands

to be insurance without any knowledge that the plan

exists. Establishing, maintaining, or participating in a

l5a

plan requires an intent, ...” (Id. at p. 699, emphasis

added; see also Taggart v. Life & Health Benefit Admin-

istration (5th Cir. 1980) 617 F.2d 1208, 1211-1212 [hold-

ing that a securities employer’s trust was not an em-

ployee welfare benefit plan within the meaning of ERISA

because neither the Taggart Corporation nor any other

employer participated in the operation or administration

of it].) In Kanne v. Connecticut General, supra, 859

F.2d 96, the federal court pointed out that, “The plan

brochure submitted by Connecticut General as an ex-

hibit at trial describes the plan as an ERISA plan, evi-

dencing the intent of ABC to create an ERISA plan.”

(Id. at p. 99, emphasis added. )

We hold that as a prerequisite to the creation and the

existence of an ERISA plan, the employer must intend

to create and to participate in such a plan. Such intent

may be found in acts as well as words. (Kanne v. Con-

necticut General, supra, 859 F.2d at p. 99.)

Contrary authorities are cited by MONY. We do not

choose between these competing rules for we have de-

termined on the basis of undisputed facts that the act of

the employer in paying an insurance premium does not

implicate the congressional concerns which gave rise to

the ERISA regulations and preemption doctrine.

If the instruction was error, it produced no prejudice

and no cause for reversal. In light of our holding con-

cerning the total lack of evidence to establish the exist-

ence of an ERISA employer’s “plan” preemptive of state

law, we find it unnecessary to address MONY’s sound

but irrelevant contention concerning the preemption of

section 790.03 claims by ERISA. (See Commercial Life

Ins. V. Superior Court, supra, 47 Cal.3d at pp. 481-485.)

The trial court ruled, “The MONY Policy is ambiguous

as to whether or not the benefits of the Benefit Fund

policy are to be determined before the benefits of the

MONY policy ... because MONY’s coordination of bene-

l6a

fit ... provision... that defines priority between the

policies . . . applies only when the other policy has a pro-

vision which coordinates its benefits with the MONY

plan ... and that the Benefit Fund policy does not ap-

pear to have such a provision.”

The trial court further found Benefit Fund’s COB pro-

vision “expressly applies only to ‘dependents’ and ‘Telly

Kanakis was not a dependent under the Benefit Fund

policy.’”” He was the insured employee and therefore

“MONY was obligated to pay plaintiff the benefit to

which he was entitled.”

The trial judge’s reasoning was based upon his exami-

nation of two certificates of insurance. He concluded the

Benefit Fund’s COB provision applied only to a dependent

of Telly Kanakis; therefore there could be no coordination

of benefits provision of the plan to coordinate with

MONY’s insurance policy. The trial judge’s interpreta-

tion of the contracts was factually and legally correct.

Benefit Fund’s COB policy does not apply to Telly; there-

fore MONY’s COB provision had no basis for a coordi-

nation of benefits with another policy.”

Vil

In support of its assertion that the COB provision

should have been applied to Telly, thus requiring him to

resort to his employer’s policy first, MONY argues Telly

is in effect getting a double recovery in that he settled his

personal injury case for $50,000 with the third party

tortfeasor. This assertion rests upon speculation, not

fact. Telly’s Hospital and medical insurance expenses

here amounted to some $36,897.69. Telly sustained frac-

2 At the hearing on appeal, counsel for MONY made a most skill-

ful argument to the effect that Kanakis was covered by the Benefit

Fund COB. If there be merit to counsel’s argument, the net result

is an ambiguity, as the trial court found and resolved against the

insurer,

17a

tures of his left leg—tibia, fibula, and femur—and had

nerve damage to his left arm as well as dislocation of

his jaw, left wrist and right finger. Five months after

the accident he still had a severe paralysis of his left

arm, he was in bed for five months after the accident and

in a wheelchair for three months after that, unable to

move without help of his wife. He had a rod in his leg

from the accident at the time of trial. It was not removed

within a year of the accident because of Telly’s financial

inability. He could not raise his left arm at time of trial.

He has no income whatsoever from the time of the acci-

dent until September. To argue that there will be a

double recovery is again without factual support._ This

settlement was made without allocation as to future

medical expenses, pain and suffering, loss of wages, ete.

After applying $36,000 of the $50,000 recovery to med-

ical costs incurred, there remained less than $14,000 ror

loss of earnings, pain, suffering and the permanent dis-

ability sustained by Telly Kanakis. This argument for

reversal is without merit in fact or law.

Vill

MONY contends substantial evidence does not support

the jury award of punitive damages. Witness Luhrson

claimed on behalf of MONY there was never any denial

of benefits, yet he admitted the claim had not been paid.

It was still unpaid after four years. An expert on bad

faith testified the unreasonable delays in processing con-

stitute bad faith. He also testified if the insurance com-

pany needs information which is reasonably available to

it in order to process a claim, the company has an af-

firmative obligation to obtain that information. It can-

not sit back and wait for the insured to provide it.

Luhrson had been informed (by the Kanakises’ attor-

ney) that no claim would be filed against Benefit Fund.

In Egan v. Mutual of Omaha Insurance (1979), 24

Cal. 3d 809, the Supreme Court held that where an in-

18a

surer unreasonably withholds payments due under an

insurance policy, recovery of punitive damages may be

based upon the insurer’s failure to investigate the in-

sured’s claim properly before denying it. (Jd. at pp.

817, 819.) An insurance company cannot reasonably and

in good faith deny payments without first thoroughly

investigating the foundation for its denial. MONY em-

ployees showed no interest in ascertaining whether their

COB contention vis-a-vis Benefit Fund’s clause had any

validity in fact.

It is reasonable to deduce that MONY refused to pay

the benefits due under its policy because of its inter-

pretation of its COB provision. The trial judge effec-

tively disposed of this COB defense by pointing out its

nonapplicability to Telly, who was an employee and not

a dependent. By a simple reading of Telly’s insurance

contract, MONY could have been equally enlightened.

This the MONY’s employees did not do. The award of

punitive damages was justified.

The Kanakises’ claim for attorney’s fees is without

merit. Brandt v. Superior Court (1985), 37 Cal. 3d 813

held, “When an insurer’s tortious conduct reasonably

compels the insured to retain an attorney to obtain the

benefits due under a policy, it follows that the insurer

should be liable in a tort action for that expense. The

attorney’s fees are an economic loss—damages—proxi-

mately caused by the tort.” (Jd. at p. 817.) However

the Brandt court established the procedural framework

within such an award should be assessed. Said the

Brandt court: “Since the attorney’s fees are recoverable

as damages, the determination of the recoverable fees

must be made by the trier of fact unless the parties

stipulate otherwise.” (Jd. p. 819.) Here there was no

presentation of evidence, no request to the jury, nor any

jury instructions offered on the issue of attorney’s fees.

19a

The trial court properly denied the request for attorney’s

fees under Brandt’s procedural requirements.

The judgment is affirmed.

/s/ Staniforth

STANIFORTH, J.*

WE CONCUR:

‘s/ Crosby

CROSBY

Acting P.J.

s/ Sonenshine

SONENSHINE

* Retired Associate Justice of the Court of Appeal sitting under

assignment by the Chairperson of the Judicial Council.

20a

VERIFICATION

STATE OF CALIFORNIA, COUNTY OF

I have read the following

and know its contents.

CHECK APPLICABLE PARAGRAPH

(1) I ama party to this action. The matters in the fore-

going document are true of my own knowledge except

as to those matters which are stated on information

and belief, and as to those matters I believe to be true.

1 IamQ an Officer 2 a partner Oa

of ’

a party to this action, and am authorized to make this

verification for and on its behalf, and I make this veri-

fication for that reason. O I am informed and believe

and on that ground allege that the matters stated in

the foregoing document are true. [] The matters stated

in the foregoing document are true of my own knowl-

edge except as to those matters whoch are stated on

information and belief, and as to those matters I be-

lieve them to be true.

[] I am one of the attorneys for

a party to this action. Such party is absent from the

county of aforesaid where such attorneys have their

offices, and I make this verification for and on behalf

of that party for that reason. I am informed and be-

lieve and on that ground allege that the matters stated

in the foregoing document are true.

Executed on , 19—, at ‘

California. I declare under penalty of perjury under

the laws of the State of California that the foregoing

is true and correct.

Type or Print Name Signature

2la

PROOF OF SERVICE

1013A (3) CCP Revised 5/1/88

STATE OF CALIFORNIA, COUNTY OF

LOS ANGELES

I am employed in the county of Los Angeles, State

of California. I am over the age of 18 and not a party

to the within action; my business address is: 700 South

Flower Street, Los Angeles, California 90017.

On 4/6/1990, I served the foregoing document de-

scribed as PETITION FOR REVIEW on all interested

parties in this action

xIby placing the true copies thereof enclosed in sealed

envelopes addressed as stated on the attached mailing

list:

(iby placing — the original (1 a true copy thereof en-

closed in sealed envelopes addressed as follows:

KIBY MAIL

(1*I deposited such envelope in the mail at —————,

California.

The envelope was mailed with postage thereon fully

prepaid.

kJAs follows: I am “readily familiar’ with the

firm’s practice of collection correspondence for mail-

ing. Under that practice it would be deposited with

U.S. postal service on that same day with postage

thereon fully prepaid at Los Angeles, California in the

ordinary course of business. I am aware that on mo-

tion of the party served, service is presumed invalid

if postal cancellation date or postage under meter date

is more than one day after date of deposit for mailing

in affidavit.

Executed on 4/6/1990, at Los Angeles, California.

22a

o ar BY PERSONAL SERVICE I delivered such en-

velope by hand to the offices of the addressee.

Executed on —————,, 19—, at —————,, California.

kj (State) I declare under penalty of perjury under

the laws of the State of California that the

above is true and correct.

(Federal) I declare that I am employed in the office

of a member of the bar of this court at

whose direction the service was made.

Loraine Brule (Illegible ]

Type or Print Name Signature

23a

SERVICE LIST

Robert W. Castleberry, Esq.

Callahan, McCune & Willis

111 Fashion Lane

Tustin, California 92680

The Honorable Claude Owens

Superior Court Judge

Orange County Superior Court

700 Civic Center Drive West

Santa Ana, California 92701

Clerk, Court of Appeal

Fourth Appellate District

925 North Spurgeon Street

Santa Ana, California 92701

(Served by Mail and by Messenger)

24a

COURT OF APPEAL—STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

G006355

Orange County No. 441754

KANAKIS, TELLY

MUTUAL LIFE INSURANCE Co. OF NEW YORK

[Filed Mar. 22, 1990]

THE COURT:

The petition for rehearing is DENIED.

/s/ Staniforth

STANIFORTH

Justice*

We Concur:

/s/ Crosby

Acting Presiding Justice

/s/ Sonenshine

Justice

ec: Orange County Clerk

All Counsel

* Retired Associate Justice of the Court of Appeal sitting under

assignment by the Chairperson of the Judicial Council.

25a

THE ENCLOSED INFORMATION REGARDING

CASE NUMBER G006355 HAS BEEN SENT

TO THE FOLLOWING:

Mecallahan, Mecune & Willis

111 Fashion Lane

Tustin, CA 92680

Fulbright & Jaworski

700 South Flower Street

Suite 600

Los Angeles, CA 90017

Office of the County Clerk

Orange County

700 Civie Cntr Dr. West

Santa Ana, CA. 92701

If applicable:

Appellate Defender, Inc., San Diego

26a

SUPERIOR COURT OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF ORANGE

Case No. 44 17 54

TELLY KANAKIS and PATRICIA KANAKIS

Plaintiffs

v. ;

THE MUTUAL LIFE INSURANCE COMPANY OF

NEW YORK et al

Defendants.

JUDGMENT ON SPECIAL VERDICT

[Filed Sep. 18, 1987]

This action came on regularly for Trial on September

2, 1987 in Department 26 of the above entitled court,

the Honorable Claude Owens, Judge presiding; the plain-

tiffs appearing by attorney Robert W. Castleberry and

the defendants appearing by attorneys Brian A. Pierk

and George A. Tackabury.

A jury of twelve persons was impaneled and sworn.

Witnesses were sworn and testified. After hearing the

evidence and arguments of counsel, the jury was duly

instructed by the court and the cause was submitted to

the jury with directions to return a verdict on special

issues. The jury deliberated and thereafter returned into

court with its verdict consisting of the special issues sub-

mitted to the jury and the answers given thereto by the

jury, which said verdict was in words and figures as

follows, to-wit:

We the jury in the above-entitled case, find the follow-

ing special verdict on the questions submitted to us:

27a

Question No. 1: Was there an ERISA plan of Insur-

ance Systems Incorporated which provided medical bene-

fits for the plaintiffs?

Answer “yes” or “no”.

Answer: No

If you answer Question No. 1 “yes” sign and return

the verdict but do not answer any other questions.

If you answer Question No. 1 “no”, then answer Ques-

sions 3 through 7.

Question No.3: Breach of Contract

Was the breach of the insurance contract by MONY

a proximate cause of damage to plaintiffs? -

Answer “yes” or “no”.

Answer: yes

Question No. 4: Breach of Covenant of Good Faith

and Fair Dealing.

4.A. Did Defendant MONY breach its implied obliga-

tion to Plaintiffs of good faith and fair dealing on the

insurance policy?

Answer “yes” or “no”

Answer: yes

If you answer Question 4.A “no”, then do not answer

Question 4.B and go to Question 5.

If you answer Question 4.A “yes”, then answer Ques-

tion 4.B before you answer Question 5.

4.B. Was said breach a proximate cause of damage

to Plaintiffs?

Answer “yes” or “no”.

Answer: yes

28a

Question No. 5: Breach of Insurance Code Section

790.03.

5.A. Did Defendants breach one or more of the provi-

sions of California Insurance Code Section 790.03?

Answer “yes” or “no’’.

Answer: yes

If you answer Question 5.A “no”, then do not answer

Question 5.B and go to Question 6.

If you answer Question 5.A “yes”, then answer Ques-

tion 5.B before you answer Question 6.

5.B. Was said breach a proximate cause of damage

to Plaintiffs?

Answer “yes” or “no”.

Answer: yes

Question No. 6: Intentional Infliction of Emotional

Distress.

6.A. Did Defendants engage in outrageous conduct

with intent to cause, or with reckless disregard of the

probability of causing, emotional distress to Plaintiffs?

Answer “yes” or “no”.

Answer: yes

If you answer Question 6.A “no”, then do not answer

Question 6.B and go to Question 7.

If you answer Question 6.A “yes”, then answer Ques-

tion 6.B before you answer Question 7.

6.B. Was such conduct of the Defendants a proximate

cause of damage to Plaintiffs?

Answer “yes” or “no”’.

Answer: yes

29a

Question No.7: Negligence.

7.A. Were any of the Defendants negligent?

Answer “yes” or “no”.

Answer: yes

If you answer Question 7.A “yes”, then answer Ques-

tion 7.B.

If you answer Question 7.A. “ro”, then do not answer

Question 7.B and instead go directly to the “instructions”

immediately following Question 7.B.

7.B. Was such negligence a proximate cause of dam-

age to Plaintiffs?

Answer “yes” or “no”.

Answer: yes

Instructions: If your answers to Questions 3, 4.B,

5.B, 6.B and 7.B are all “no”, or if you gave no answers

to those questions, then sign and return the verdict and

do not answer any further questions.

If you answer any of Questions 4.B, 5.B, 6.B, or 7.B

“ves”, then proceed to the remaining questions and an-

swer them, if applicable, according to the instructions

provided at the beginning of each question.

Question No. 9: If your answer to Questions 4.B, 5.B,

6.B, and 7.B is “no”, then do not answer Question 9, 10

or 11 and sign and return this verdict. If your answer

to Questions 4.B, 5.B, 6.B and 7.B, or any of them, is

“ves”, then answer the following questions:

9.A. What is the total amount of emotional distress

damages suffered by Plaintiff Telly Kanakis as a proxi-

mate result of said conduct by Defendants?

Answer: $50,000.00

30a

If you answer Question 9.A “no damage”, then do not

answer Questions 9.B through 9.D and instead go directly

to Question No. 10. If you answer Question 9.A with an

amount of money, then answer Question 9.B.

9.B. Was Plaintiff Telly Kanakis negligent?

Answer “yes” or “no”

Answer: No

If you answer Question 9B. “no”, then go directly to

10.

If you answer Question 9.B “yes”, then answer Ques-

tion 9.C.

9.C. Was the negligence of Plaintiff Telly Kanakis

a proximate cause of the emotional distress damage to

Telly Kanakis?

Answer “yes” or “no”.

Answer: ——

If you answer Question 9.C “no”, then do not answer

Question 9.D and instead go to Question 10.

If you answer Question 9.C “yes”, then answer Ques-

tion 9.D.

9.D. Assuming that 100% represents the total negli-

gence which was the proximate cause of emotional dis-

tress damages of Plaintiff Telly Kanakis, what percentage

of this 100% is due to the contributory negligence of

Plaintiff Telly Kanakis and what percentage of this

100% is due to the negligence of the Defendants?

Answer: (a) To Plaintiff Telly Kanakis N/A%

Answer :(b) to Defendants N/A%

TOTAL 100%

8la

Question 10: If your answer to Question 4.B, 5.B,

6.B and 7.B is “no”, then do not answer Questions 10 or

11 and sign and return this verdict. If your answer to

Question 4.B, 5.B, 6.B, and 7.B, or any of them, is

“yes”, then answer the following questions:

10.A. What is the total amount of emotional distress

damages suffered by Plaintiff Patricia Kanakis as a

proximate result of said conduct by Defendants?

Answer: $75,000.00

If you answer Questions 9.A and 10.A “no damage”,

then do not answer Questions 10.B through 10.D and sign

and return the verdict.

If you answer Question 9.A with an amount of money

and Question 10.A “no damage”, then answer Question

11.

Regardless of how you answer Question 9.A, if you

answered Question 10.A with an amount of money, then

answer question 10.B.

10.B. Was Plaintiff Patricia Kanakis negligent?

Answer “yes” or “no”

Answer: No

If you answer Question 10.B “no”, then answer Question

11.

If you answer Question 10.B “yes, then answer Ques-

tion 10.C.

10.C. Was the negligence of Plaintiff Patricia Kanakis

a proximate cause of the emotional distress damages to

Patricia Kanakis?

Answer “yes” or “no:

Answer: N/A

82a

If you answer Question 10.C “no”, then do not answer

Question 10.D, but proceed to answer Question 11.

If you answer Question 10.C “yes”, then answer Ques-

tion 10.D.

10.D. Assuming that 100% represents the total negli-

gence which was the proximate cause of emotional dis-

tress damages of Plaintiff Patricia Kanakis, what per-

centage of this 100% is due to the contributory negli-

gence of Plaintiff Patricia Kanakis and what percentage

of this 100% is due to the negligence of Defendant?

Answer: (a) To Patricia Kanakis N/A%

Answer: (b) To Defendants N/A%

TOTAL 100 %

10.E. You should answer Question 11 at this time

only if both of the following two conditions have been

met:

1. You answer Questions 4.B, 5.B, or 6.B., or any of

them, “‘yes” and

2. You answer Questions 9.A or 10.A with an amount

of money.

If both of the above two conditions have been met, you

should sign and return the verdict and do not answer

Question No. 11.

Question No. 11: If your answer to Questions 4.B,

5.B and 6.B is “no”, then do not answer Question 11 and

sign the verdict. If your answer to Question 4.B, 5.B or

6.B, or any of them, is “yes”, then answer the following

Question:

11.A. Were the Defendants guilty of malice in the

conduct on which you base your finding of liability?

Answer “yes” or “no:

Answer: yes (10-2.)

33a

‘é ”

If you answer Question 11.A. “no”, then sign and

return Question 11.B.

11.B. What amount of punitive damages do you award

against the Defendants?

Answer: $500,000.00

DATED: September 16, 1987

Edward Zepfel

Foreman/Forewoman

It appearing that by reason of said special verdict:

Plaintiff Telly Kanakis is entitled to $50,000 in emo-

tional distress damages against Defendant Mutual Life

Insurance Company of New York, Nancy A. Hiortdahl

and Donald Luhrsen.

Plaintiff Patricia Kanakis is entitled to $75,000 in emo-

tional distress damages against Defendants Mutual Life

Insurance Company of New York, Nancy A. Hiortdahl

and Donald Luhrsen.

Pursuant to stipulation of counsel, Plaintiffs Telly and

Patricia Kanakis are entitled to breach of contract dam-

ages in the amount of $36,897.69, against Defendant

Mutual Life Insurance Company of New York.

Plaintiffs Telly and Patricia Kanakis are entitled to

$500,000.00 in punitive damages against Mutual Life In-

surance Company of New York, Nancy A. Hiortdahl and

Donald Luhrsen. All of the above with interest thereon

as allowed by law.

NOW, THEREFORE, IT IS ORDERED, ADJUDGED

AND DECREED:

That Plaintiff Telly and Patricia Kanakis have judg-

ment against Defendants Mutual Life Insurance Company

of New York, Nancy A Hiortdahl and Donald Luhrsen

for the sum of $500,000.00, with interest thereon at the

0 SS

34a

legal rate, ten per cent per annum (10%) commencing

June 28, 1987 and continuing until entry of this judg-

ment.

In addition, that Plaintiffs Telly and Patricia Kanakis

have judgment against Defendant Mutual Life Insurance

Company of New York in the amount of $36,897.69 per

reg with interest thereon at the legal rate, seven

percent (7%) commencing November 19, 1984 and con-

tinuing until entry of this judgment.

In addition, that Plaintiff Telly Kanakis have Silas

against Defendants Mutual Life Insurance Company of

New York, Nancy A. Hiortdahl and Donaid Luhrsen for

the sum of $50,000.00 with interest thereon at the legal

rate, ten percent per annum (10%) commencing June

23, 1987 and continuing until entry of this judgment.

In addition, that Plaintiff Patricia Kanakis have judg-

ment against Defendants Mutual Life Insurance Com-

pany of New York, Nancy Hiortdahl and Donald Luhrsen

in the amount of $75,000.00 with interest thereon at the

legal rate, ten percent per annum (10%) commencing

June 23, 1987 and continuing until entry of this judg-

ment.

That Plaintiffs Telly and Patricia Kanakis recover

costs, disbursements in the amount of $

DATED: 9-18-87

/s/ Claude Owens

CLAUDE OWENS

Judge of the Superior Court

( Assigned )

35a

TITLE I

PROTECTION OF EMPLOYEE BENEFIT RIGHTS

SUBTITLE A—GENERAL PROVISIONS

FINDINGS AND DECLARATION OF POLICY

Sec. 2. (a) The Congress finds that the growth in size,

scope, and numbers of employee benefit plans in recent

years has been rapid and substantial; that the operational

scope and economic impact of such plans is increasingly

interstate; that the continued well-being and security of

millions of employees and their dependents are directly

affected by these plans; that they are affected with a na-

tional public interest; that they have become an impor-

tant factor affecting the stability of employment and the

successful development of industrial relations; that they

have become an important factor in commerce because

of the interstate character of their activities, and of the

activities of their participants, and the employers, em-

ployee organizations, and other entities by which they

are established or maintained; that a large volume of the

activities of such plans is carried on by means of the

mails and instrumentalities of interstate commerce; that

owing to the lack of employee information and adequate

safeguards concerning their operation, it is desirable in

the interests of employees and their beneficiaries, and to

provide for the general welfare and the free flow of com-

merce, that disclosure be made and safeguards be pro-

vided with respect to the establishment, operation, and

administration of such plans; that they substantially af-

fect the revenues of the United States because they are

afforded preferential Federal tax treatment; that despite

the enormous growth in such plans many employees with

long years of employment are losing anticipated retire-

ment benefits owing to the lack of vesting provisions in

such plans; that owing to the inadequacy of current min-

imum standards, the soundness and stability of plans

36a

with respect to adequate funds to pay promised bene-

fits may be endangered; that owing to the termination

of plans before requisite funds have been accumulated,

employees and their beneficiaries have been deprived of

anticipated benefits; and that it is therefore desirable

in the interest of employees and their beneficiaries, for

the protection of the revenue of the United States, and

to provide for the free flow of commerce, that minimum

standards be provided assuring the equitable character

of such plans and their financial soundness.

(b) It is hereby declared to be the policy of this Act

to protect interstate commerce and the interests of par-

ticipants in employee benefit plans and their beneficiaries,

by requiring the disclosure and reporting to participants

and beneficiaries of financial and other information with

respect thereto, by establishing standards of conduct, re-

sponsibility, and obligation for fiduciaries of employee

benefit plans, and by providing for appropriate remedies,

sanctions, and ready access to the Federal courts.

this Act to protect interstate commerce, the Federal tax-

ing power, and the interests of participants in private

pension plans and their beneficiaries by improving the

equitable character and the soundness of such plans by

requiring them to vest the accrued benefits of employees

with significant periods of service, to meet minimum

standards of funding, and by requiring plan termination

insurance.

DEFINITIONS

Sec. 8. For purposes of this title:

(1) The terms “employee welfare benefit plan” and

“welfare plan” mean any plan, fund, or program which

was heretofore or is hereafter established or maintained

by an employer or by an employee organization, or by

both, to the extent that such plan, fund, or program was

established or is maintained for the purpose of providing

37a

for its participants or their beneficiaries, through the

purchase of insurance or otherwise, (A) medical, surgi-

cal, or hospital care or benefits, or benefits in the event of

sickness, accident, disability, death or unemployment, or

vacation benefits, apprenticeship or other training pro-

grams, or day care centers, scholarship funds, or prepaid

legal services, or (B) any benefit described in section

302(c) of the Labor Management Relations Act, 1947

(other than pensions on retirement or death, and insur-

ance to provide such pensions).

* * * x

(3) The term “employee benefit plan” or “plan” means

an employee welfare benefit plan or a plan which is both

an employee welfare benefit plan and an employee pension

benefit plan.

* * * *

(5) The term “employer” means any person acting di-

rectly as an employer, or indirectly in the interest of an

employer, in relation to an employee benefit plan; and in-

cludes a group or association of employers acting for an

employer in such capacity.

(6) The term ‘employee’ means any individual em-

ployed by an employer.

(7) The term “participant” means any employee or

former employee of an employer, or any member or

former member of an employee organization, who is or

may become eligible to receive a benefit of any type from

an employee benefit plan which covers employees of such

employer or members of such organization, or whose bene-

ficiaries may be eligible to receive any such benefit.

* * * *

(16) (A) The term “administrator” means—

(i) the person specifically so designated by the terms

of the instrument under which the plan is operated;

38a

(ii) if an administrator is not so designated the plan

sponsor; or

(iii) in the case of a plan for which an administrator

is not designated and a plan sponsor cannot be identified,

such other person as the Secretary may by regulation

prescribe.

(B) The term “plan sponsor” means (i) the employer

in the case of an employee benefit plan established or

maintained by a single employer, (ii) the employee or-

ganization in the case of a plan established or maintained

by an employee organization, or (iii) in the case of a

plan established or maintained by two or more employers

or jointly by one or more employers and one or more

employee organizations, the association, commitment, joint

board of trustees, or other similar group of representa-

tives of the parties who establish or maintain the plan.

* * * *

39a

EXCERPTS OF TRIAL TRANSCRIPT

* * * *

[320] Q Doesn’t self-insurance have anything of that °

nature?

A No.

Q Do you have anything to do with obtaining insur-

ance benefits for your employees or employees of care?

A Yes, I do.

Q What do you have to do as far as that is concerned?

A My responsibility is in the acquisition of insurance

policies for employees and for the company as a whole,

I deal with an insurance broker who actually handles

the one-on-one negotiating with the companies.

I rarely if ever have communications with the com-

pany, with the insurance company.

Q Do you try and get good benefits for your employ-

ees and you rely on your broker to go out and check the

marketplace and—

A Yes, my broker is an independent broker and [321]

represents companies and brings to me a proposal each

year or in the case of markets where there is volatile

changes, brings me information several times a year in

order to see what the best program for our employees is,

both from the covered standpoint and cost standpoint.

Q The underlying accident, which is the subject mat-

ter of this lawsuit, occurred in November, 1983.

Your company was called ISI at that time.

A The company was called Insurance Systems Incor-

porated, yes.

Q And Patricia Kanakis was an employee of the com-

pany at the time?

A To the best of my knowledge, yes.

Q By whom did your employees have health bene-

fits with that company or with—for your company?

A At that time we were covered by Mutual of New

York for our life—some of our life and our hea'th in-

surance, in addition to which we were covered by Stend-

40a

ard Insurance Company of Oregon for disability, life,

accidental death and dismemberment.

I don’t recall dental or eye carrier.

Q As far as the employees were concerned, would

they be covered completely by your company?

A Yes, it is our policy, had been our policy at that

time and continues to be our policy that the company

picks up 100 percent of the cost of the employees’ [324]

policy started July 1st of 1983, to the best of my knowl-

edge, is the effective date.

Q In November, 1983, about how many employees

did Care have or Insurance systems incorporated have?

A Can you repeat that date?

Q November, 1983, July to November, 1983.

A When I—the only approximate answer I can give

to that is really, when I came from Insureco to ISI, I

was approximately the sixtieth employee to come.

Q When was that?

A July 1 of 1983.

I don’t recall how many we had in November.

Q The policy that your company had with MONY,

what was your company’s responsibility, if any, in han-

dling that policy?

Did you do anything at all or was it all—did the com-

pany’s broker or somebody else?

A I believe our responsibility was to have applica-

tions filled out for each employee and where they had

beneficiaries for life or other type policies, they named.

We had responsibility for informing the insurance

company of the fact that we had an employee and the

fact we had responsibility to be certain we paid the pre-

mium directly to the company and reconciled their state-

ment, regularly.

[325] We had a responsibility to act as a conduit for

employee questions or problems regarding the policies,

where questions may come up regarding why something

is or isn’t covered or predeterminations on various sur-

geries, other cases.

There’s probably others but those are the ones that

come right to mind.

4la

Q You had no fiduciary named that handled any

possible conflicts in coverage or anything of that nature?

MR. PIERIK: Objection, lack of foundation.

THE COURT: If you know, you may answer.

THE WITNESS: To the best of my knowledge, as

I was not the person that put these policies in force,

they were actually negotiated between the broker, bene-

fit plan coordinators and chief executive officer of the

company, Lauren Parsons.

I don’t know whether there was ever a fiduciary

appointed.

Q Were there any of the time, July to November,

1983, of your company?

MR. PIERIK: Objection, lack of foundation.

THE COURT: If you know, you may answer.

THE WITNESS: I don’t know.

* 7 * >

{330} Q Adding or subtracting a dependent, some-

thing of that nature; is that right?

A Yes.

Q If he had a claim, they would forward onto the

broker or company.

A We would not see it. It would go off to the

company.

Q If somebody wasn’t getting paid by Mutual of

New York, your company wouldn’t handle it?

A To the extent it was not being paid by Mutual of

New York, they would come to our personnel and voice

a concern or complaint and the personnel department

would then interface with our broker and then, from that

point, the broker would handle all of the leg work in de-

termining the resolution to that problem.

Your company would pass it on to someone else, either

directly or directly to the company, would not go di-

rectly to Mutual Life; is that it?

A Please rephrase that.

Q Your company, for the most part, interfaced di-

rectly with Mutual Life, would they?

A No.

42a

Q Is that correct?

A That is correct.

* aa * -

(335] Q Were they formerly known as Insurance

Systems Incorporated?

A On June 30 of this year, Insurance Systems

merged into Care Systems Corporation.

Q When did you first start working for Insurance

Systems Incorpcrated [sic]?

A To the best of my knowledge, July Ist, 1983.

Q When you say “to the best of your knowledge” you

are reasonably certain that was the day you started?

A Yes.

Q And what was the title that you held when you

started with ISI in July, 1983?

A_ I was Vice-President and Chief Financial Officer.

Q By the time you started working with ISI, the

Mutual policy, G21047, that has been referred to here,

had already been negotiated; is that right?

A Yes.

Q That was by the Chief Executive Officer, Mr. Par-

sons, and the benefit plan coordinators with Mutual?

A Yes.

* * + -

(339] A Yes, they do.

Q Now, with reference to Exhibit E, to your dep-

osition, I want you to compare that with what has been

marked in this trial as Exhibit C and Exhibit 25 and see

if Exhibit E, to your deposition, is, in fact, the same

document as Exhibit 25 and—

THE COURT: “E” as in Edward.

MR. PIERIK: “E” as in Edward, to the deposition,

is the same as Exhibit 25 that has been marked and the

same as Exhibit C, which has been marked. These three

are—do they appear to be the same?

A They appear to be the same, yes.

Q BY MR. PIERIK: My question to you, Mr. Ohrn-

stein, is whether Exhibit 25 which is the same as Exhibit -

43a

C, which is the same as Exhibit E to your deposition was

distributed to the employees of ISI when ISI began cov-

erage with Mutual of New York for group medical

insurance.

A As I believe that, and prior to this document, Num-

ber 26, I believe they were distributed to employees but

what I don’t have is a system where employees signed

off on something, sent me a bounce-back saying they, in

fact, did receive it; therefore, my answer on the depo-

sition and this testimony are inconsistent.

What can I tell you that would substantiate whether

an employee received it.

[340] Q Whether, to the best of your knowledge, they

did receive it, according to the custom and practice you

were following at the time.

A If your question is regarding custom and practice,

both documents, would be our custom and practice to dis-

tribute to employees.

They were specifically done for that purpose.

Not, again not by us, either by benefit plan coordi-

nators or MONY. I don’t know, whether it was, save

it would be our custom and practice.

Q To distribute those?

A Yes.

Q To the best of your knowledge, Exhibit 25—I think

we are referring to there—was distributed to your

employees?

A Following the same response to 25.

Q Now, with respect to Exhibit, I believe this one has

been marked—what was marked as Exhibit F to your

deposition, which is a letter from Mutual of New York

to Mr. Ohrnstein, dated July 22, 1983.

Do you have—did you have,that letter in your files,

Mr. Ohrnstein, at ISI?

A_ Yes, I did.

MR. PIERIK: I will be marking this—I don’t be-

lieve it has been marked, has it, Miss Clerk?

THE COURT: We don’t have an “F,”.

44a

COURT'S SPECIAL INSTRUCTION NO. 2

For there to be an ERISA employer benefit plan, these

five elements must exist:

A plan, fund or program;

established or maintained;

by Insurance System Inc. (ISI), the employer of

plaintiff Patricia Kanakis, wife of plaintiff Telly

Kanakis;

for the purpose of providing medical, surgical, hos-

pital care, sickness, accident, disability benefits;

for ISA’s participants or their beneficiaries.

(Donovan v. Dillingham 688 F.2d 1367, 1371.)

45a

COURT’S SPECIAL INSTRUCTION NO. 4

The second of the elements listed above to prove that

an ERISA employee benefit plan exists—(the plan, fund

or program is) established or maintained—is proved if

from the surrounding circumstances a reasonable person

can ascertain the intended benefits, a class of beneficiar-

ies, the source of financing, and procedures for receiving

benefits, and if ISI intended to establish an ERISA plan,

being aware that the plan existed. (Wayne Chemical

Inc. v. Columbus Agency Serv. 567 F.2 692, 699);

Donovan v. Dillingham 688 F.2d 1367, 1373.)

46a

July 31, 1983

TO OUR EMPLOYEES

It gives us considerable pleasure to announce to you that

we have completed arrangements for a plan of Group

Insurance offering benefits for you and your dependents.

Our Plan is known as the Insurance Systems, Incorpor-

ated Employee Benefit Plan and is being underwritten

under a group insurance contract issued by Mutual Of

New York, one of the oldest and strongest insurance

companies in America.

This announcement and the accompanying booklet are

designed to meet the Summary Plan Description require-

ments of the Employee Retirement Income Security Act

of 1974 (commonly known as ERISA). For such pur-

poses, the type of administration is Insurer Administra-

tion. We suggest that you read this material carefully

so you will have a full understanding of the life insur-

ance, and medical care coverages provided.

Special replacement provisions may apply if you were

insured under our prior plan. If you should have any

questions about this or about the Plan and its operation,

you may consult with the Plan Administrator: Judi

Wittick, Executive Administrator, 18900 Teller Avenue,

Irvine, CA 92715.

The Agent for Service of Legal Process under the Plan

is Insurance Systems, Inc. and such process may be

served at 18900 Teller Avenue, Irvine, CA 92715.

You will be pleased to know that we will pay the entire

cost of your insurance and a portion of the cost of your

dependents’ insurance. Your only cost will be the balance

required for your dependents’ insurance, if you elect such

coverage.

<< lLlLlll

47a

We sincerely believe that the benefit offered are liberal

and should be of great value to you and your dependents.

Insurance Systems, Inc.

18900 Teller Avenue

Irvine, CA 92715

Employer Identification

Number: 95-3048407

48a

Statement of ERISA Rights

(Required by Federal Law and Regulation)

As a Plan participant you are entitled to certain rights

and protections under the Employee Retirement Income

Security Act of 1974 (ERISA). ERISA provides that

all plan participants shall be enitled to:

Examine, without charge, at the plan administrator’s

office and at other specified locations, such as. work-

sites and union halls, all plan documents, including

insurance contracts, collective bargaining agreements

and copies of all documents filed by the plan with the

U.S. Department of Labor, such as detailed annual

reports and plan descriptions.

Obtain copies of all plan documents and other plan

information upon written request to the plan ad-

ministrator. The administrator may make a reason-

able charge for the copies.

Receive a summary of the plan’s annual financial

report. The plan administrator is required by law

to furnish each participant with a copy of this sum-

mary annual report.

In addition to creating rights for plan participants,

ERISA imposes duties upon the people who are respon-

sible for the operation of the employee benefit plan. The

people who operate your plan, called “fiduciaries” of the

plan, have a duty to do so prudently and in the interest

of you and other plan participants and beneficiaries. No

one, including your employer, your union, or any other

person, may fire you or otherwise discriminate against

you in any way to prevent you from obtaining a welfare

benefit or exercising your rights under ERISA. If your

claim for a welfare benefit is denied in whole or in part

you must receive a written explanation of the reason for

the denial. You have the right to have the plan review

49a

and reconsider your claim. Under ERISA, there are

steps you can take to enforce the above rights. For in-

stance, if you request materials from the plan and do

not receive them within 30 days, you may file suit in a

federal court. In such a case, the court may require the

plan administrator to provide the materials and pay you

up to $100 a day until you receive the materials, unless

the materials were not sent because of reasons beyond

the control of the administrator. If you have a claim

for benefits which is denied or ignored, in whole or in

part, you may file suit in a state or federal court. If it

should happen that plan fiduciaries misuse the plan’s

money, or if you are discriminated against for asserting

your rights, you may seek assistance from the U.S. De-

partment of Labor, or you may file suit in a federal

court. The court will decide who should pay court costs

and legal fees. If you are successful the court may order

the person you have sued to pay these costs and fees. If

you lose, the court may order you to pay these costs and

fees, for example, if it finds your claim is frivolous. If

you have any questions about your plan, you should con-

tact the plan administrator. If you have any questions

about this statement or about your rights under ERISA,

you should contact the nearest Area Office of the U.S.

Labor-Management Services Administration, Department

of Labor.

50a

GROUP

INSURANCE

BENEFITS

Effective December 31, 1984

Insurance Systems, Incorporated

5la

TABLE OF CONTENTS

SCHEDULE OF INSURANCE AMOUNTS—Page 2

ELIGIBILITY REQUIREMENTS—Page 4

HANDICAPPED CHILDREN—

CONTINUANCE OF COVERAGE--Page 6

BENEFIT DESCRIPTION

LIFE INSURANCE—Page 7

ACCIDENTAL DEATH AND DISMEMBERMENT—

Page 8

MEDICAL EXPENSE BENEFITS

CONVALESCENT

NURSING HOME CONFINEMENT—Page 9

SUPPLEMENTAL ACCIDENT—Page 10

PRESCRIPTION DRUGS—Page 11

COMPREHENSIVE MAJOR MEDICAL—Page 13

HOME HEALTH CARE SUPPLEMENT—Page 18

DEPENDENT CHILD LEARNING IMPAIRMENT—

Page 20

- MEDICARE ELIGIBLES—Page 22

COORDINATION OF BENEFITS

WITH OTHER COVERAGE—Page 23

CONVERSION PRIVILEGE—Page 24

GENERAL PROVISIONS—Page 25

CLAIMS PROCEDURE—Page 26

SPECIAL PLAN PROVISIONS—

| STATUTORY REQUIREMENTS—Page 27

52a

SCHEDULE OF INSURANCE AMOUNTS

(For description of coverage see following pages)

INSURANCE FOR YOU

LIFE AND ACCIDENTAL DEATH AND

DISMEMBERMENT BENEFITS

Accidental

Life Death and

Classification Insurance * Dismemberment *

All Employees Your effective Annual

Earnings,** rounded to the

next higher $1,000, but not

more than $140,000.

* The amounts shown apply before the plan anniversary coincident

with or next following your 70th birthday; after that 50% of the

schedule amount applies.

** However, for those employees who are employed as sales-

persons, effective Annual Earnings shall include commissions for

the preceding year.

FOR YOU AND YOUR DEPENDENTS

MAJOR MEDICAL BENEFITS

Lifetime Maximum - $1,000,000

*Cash Deductible—Each Calendar Year $ 100

Accumulation Period—12 months

Family Maximum—Maximum deductible for all

insured family members $ 300

For Each Calendar Year—Plan Pays—80% of the first

$5,000 of covered expenses above the Cash Deductible

and 100% of any balance—subject to the Lifetime

Maximum.

53a

Hospital Room and Board Maximum—the hospital’s

standard daily semi-private rate.

Mental and Nervous—Out Patient Maximum—50% ben-

efit percentage; physician’s charges limited to $20

and 50 days.

Home Health Care Supplement—Maximum 100 visits

*Not applicable to Home Health Care Visits.

OTHER MEDICAL CARE BENEFITS

Supplemental Accident—Per Accident Maximum $ 500

Convalescent Nursing Home—

Room and Board Maximum

For first 20 days —100% of the home’s standard

daily semi-private rate

For next 100 days—80% of the home’s standard

daily semi-private rate

Dependent Child Learning Impairment—

Lifetime Maximum $6,000

Benefit Percentage—80% of the first $200 of expenses

for diagnostic testing; 50% of other covered expenses.

Prescription Drugs—Cash Deductible for

each prescription $ 1

Benefits shall also be payable for charges incurred in con-

nection with pregnancy on the same basis as any other

illness.

Not more than $10,000 will be payable for all medical

care expenses incurred in connection with all mental and

nervous conditions during any 12-consecutive month pe-

riod.

54a

ELIGIBILITY REQUIREMENTS

Plan Date

The effective date of the Plan is July 31, 1983. (Plan

years end on the next following December 30th and on

the same day of each calendar year thereafter.) The

Plan was revised on December 31, 1984.

Employee Eligibility

You may become eligible under the Plan only if you are

a full-time employee.

You become eligible on the first of the month coincident

with or next following your date of employment.

Your coverage will become effective on the day you be-

come eligible provided you are actively at work on that

day if you do not complete one day of active full-time

work on the day you would otherwise become covered,

your coverage will be deferred until the day after you

have completed one day of such work.

Dependents Eligibility

The following individuals are considered eligible depend-

ents for the purposes of the Plan unless they are eligible

for coverage as employees:

Your wife or husband.

Your unmarried children who have not reached their

23rd birthday. To continue to be eligible after his or

her 19th birthday a child must be a full-time student

at an accredited school or college and dependent upon

you for more than 60% of his or her support.

A dependent’s coverage will become effective on the latest

of the day your coverage becomes effective, the day the

dependent becomes eligible and the day you elect depend-

ents coverage.

55a

However, if you delay electing dependents coverage for

more than 31 days after you first have an eligible de-

pendent, each dependent then eligible will not become in-

sured until the Insurance Company is furnished satisfac-

tory proof of his good health.

CONTINUANCE OF

DEPENDENT INSURANCE

FOR HANDICAPPED CHILDREN

Our Plan contains a provision which provides that if an

insured unmarried dependent child is mentally or physi-

cally incapable of earning his own living on the date he

attains the limiting age specified under the Plan and he

continues so incapacitated, his medical care coverage will

continue beyond the limiting age provided the required

proofs of such incapacity and its continuance are fur-

nished the Insurance Company at regular intervals.

LIFE

INSURANCE

FOR EMPLOYEES

The life insurance is payable in event of your death from

any cause anywhere while you are insured.

You designate the person to receive payment, and you

may change this beneficiary at any time by. written notice

to the Insurance Company through us.

When you terminate employment, your life insurance re-

mains in force for 31 days. During this 31 day period

you may obtain an individual policy of the same amount

by applying to the Insurance Company for one of its

permanent plans—without taking a medical examination.

Should you become totally disabled while insured and be-

fore your 60th birthday, and continue so disabled until

death, your life insurance will be payable—even if you

die after the 31 day period—provided you have submitted

56a

to the Insurance Company the required proofs of dis-

ability and its continuance each year. Similarly, should

you become totally disabled after your 60th birthday but

before your 65th birthday, your life insurance will be

payable in event of your death within one year after you

terminate employment.

ACCIDENTAL DEATH

AND DISMEMBERMENT

BENEFIT

FOR EMPLOYEES

A benefit is payable in event of the loss of your life, limb

or sight as a direct result of an accidental bodily injury

sustained while you are insured, provided the loss occurs

within 90 days of the accident—including losses resulting

from occupational accidents.

The full amount for which you are insured will be paid

for the loss of:

Life

Both Hands or Both Feet or Sight of Both Eyes

One Hand and One Foot

One Hand or Foot and Sight of One Eye

One-half the amount will be paid for the loss of one eye,

one hand, or one foot.

Loss of a hand or foot means actual severance at or above

the wrist or ankle joint, and loss of sight means its total

and irrecoverable loss.

A benefit is payable to each covered loss, but the total

payments for any one accident may not exceed the full

amount for which you are insured.

Losses resulting from suicide, self-inflicted injury, war,

certain aviation activities, and those attributable wholly

or partly to disease are not covered under this benefit.

57a

CONVALESCENT NURSING

HOME BENEFIT

FOR EMPLOYEES AND DEPENDENTS

You will be paid for actual convalescent nursing home

charges for room and board—to the daily amount for

which you are insured—for each day of confinement as a

bed patient in a nursing home, as the result of a non-

occupational accident or a sickness for which benefits are

not payable under any workmen’s compensation law. The

confinement must begin within 14 days after a covered

hospital stay of at least 3 days and it must be recodm-

mended by a physician as necessary and related to the

cause of the hospital confinement. This daily benefit is

payable for a maximum period of 120 days for each

confinement.

Successive nursing home confinements are considered as

one unless separated by at least 60 days.

“Convalescent Nursing Home” means an institution for

skilled nursing care (other than federal or state) with

24 hour medical supervision, available physician services,

and individual daily medical records: it does not include

any institution, or part thereof, used principally as a

facility for rest, custodial care, drug addicts, alcoholics,

the aged, or remedial education, or training.

SUPPLEMENTAL

ACCIDENT

BENEFIT

FOR EMPLOYEES AND DEPENDENTS

If, as a direct result of/and during the 90 days following

a non-occupational accidental bodily injury, medical care

expenses are incurred which exceed any benefits payable

under the Prescription Drug Benefit, you will be paid for

the excess expenses—up to the Supplemental Accident

amount for which you are insured.

title

58a

Hospital confinement is not required, but the injury must

be sustained while insured and the medical care must be

recommended by a legally qualified physician.

Medical care expenses are reasonable charges for physi-

cians and nurses services, hospital treatment, and x-ray

and laboratory examinations. Dental work or treatment

is covered only if resulting from injury to sound, natural

teeth.

PRESCRIPTION DRUG

EXPENSE BENEFIT

FOR EMPLOYEES AND DEPENDENTS

You will be paid a benefit for actual charges incurred

while insured, for covered prescription drugs which are

prescribed by a legally qualified physician as necessary

for treatment of a sickness or injury and dispensed by

a licensed pharmacy.

Covered Prescription Drugs

Covered Prescription Drugs are:

(a) Federal Legend Drugs—those bearing a label which

states “Caution: Federal Law prohibits dispensing

without prescription.”

(b) State Restricted Drugs—those which may not re-

quire a prescription under Federal law but do re-

quire a prescription under State Law.

(ec) Compounded Medications which contain a Federal

Legend or State Restricted Drug.

(d) Insulin, by written prescription only.

The plan will pay the cost of these drugs in excess of

the Deductible.

Drugs are covered in the quantity your physician pre

scribes, up to a 34 day supply, or 100 unit doses, which-

ever is greater.

59a

Deductible

The Deductible is $1. You must pay this amount for each

prescription and each refill; the plan pays the rest.

Charges Not Covered

Of course, charges which the individual is not legally

obligated to pay or those in excess of what is customary

and reasonable are not covered. Nor are benefits payable

for expenses in connection with charges for:

Occupational injury or sickness or for which the in-

dividual is entitled to benefits under any workmen’s

compensation law.

Contraceptives and therapeutic devices or appliances,

regardless of intended use, and immunizing agents,

biological sera, blood or blood plasma and injectible

substances other than injectible insulin.

Non-legend drugs or the administration of any drug.

Any prescription refill in excess of the number pre-

scribed by the physician, or any refill dispensed after

one year from the date of the physician’s original

prescription.

Medication taken by or administered to the individual

while a patient in a licensed hospital, extended care

facility, nursing home or similar institution.

Drugs consumed or administered at the place where

dispensed.

Drugs labelled “Caution—limited by federal law to

investigational use’ or experimental drugs.

MAJOR

MEDICAL

BENEFITS

FOR EMPLOYEES AND DEPENDENTS

You will be paid a benefit for medical expenses incurred

as a result of a non-occupational accident or a sickness

for which benefits are not payable under any workmen’s

compensation law, as outlined below.

The Benefit

When an insured individual has incurred enough eligible

medical expenses within a calendar year to satisfy his

Deductible, the plan pays 80% of the first $5,000, plus

100% of any balance, of the eligible medical expenses

he subsequently incurs during that year, up to the maxi-

mum benefit.

The deductible, eligible medical expenses and

other provisions affecting payment of this bene-

fit are explained on the following pages.

The Deductible

The Deductible amount each calendar year is $100.

It is not necessary to satisfy the Deductible for each

illness or accident—it is applied only once each calendar

year against an individual’s eligible expenses for all ill-

nesses and accidents during the year.

The Deductible requirement is liberalized in the following

instances, although the Deductible amount must never-

theless be satisfied by expenses incurred within 12 con-

secutive months:

1. Eligible medical expenses incurred and applied toward

the Deductible in the last 3 months of a year may be

used in satisfying the Deductible for the next year.

6la

2. When two or more insured members of a family are

injured in the same accident, only one Deductible ap-

plies to all eligible expenses resulting from the acci-

dent in that and the next year.

3. If all insured members of a family incur, during the

same year, eligible medical expenses to which the

Deductible applies in an amount equal to $300, all

insured members of that family are considered as

having satisfied their Deductible so that benefits are

payable with respect to eligible expenses subsequently

incurred that year.

Maximum Benefit

The total benefit payable for any person during his life-

time will not exceed his Maximum amount as shown in

the Schedule of Insurance Amounts. However, a person

may reinstate his full Maximum—after he has received

benefits totalling more than $1,000—by furnishing the

Insurance Company with satisfactory evidence of his

good health. In addition, up to $1,000 of the used portion

of his Maximum will be automatically restored each

January 1 regardless of his health.

Covered Medical Expenses

Medical expenses eligible for benefits include charges for

the following medical care and services, except as stated

below, incurred while insured on the authorization of a

legally qualified physician and provided, in the geograph-

ical area where received, such care and service is cus-

tomary and reasonable for the condition being treated:

1. Regular hospital room and board charges (including

general or floor nursing care) up to the hospital’s

standard daily rate for a semi-private room.

All hospital charges while confined to an intensive

care unit.

§2a

8. Other charges made by a hospital for medical care

and treatment.

4. Charges made by a legally qualified physician for

diagnosis, treatment and surgery.

5. Charges made by a graduate registered nurse or li-

censed physical therapist (other than a member of

the immediate family) for nursing care or physical

therapy.

6. Charges made for professional ambulance transporta-

tion to or from a local hospital, or for transportation

within the United States and Canada by professional

ambulance, railroad or regular commercial passenger

aircraft flight to the nearest hospital equipped to fur-

nish special treatment not available in a local hospital.

7. Charges for the following services and supplies:

(a) X-ray examinations, and microscopic or labora-

tory tests;

(b) Anesthesia, oxygen, and their administration;

(d) Blood, blood derivatives, and their administra-

tion;

(e) Casts, splints, trusses, braces, crutches, surgical

dressings, and artificial limbs or eyes;

(f) Rental of iron lung or other mechanical equip-

ment for treatment of respiratory paralysis,

wheelchair, hospital-type bed, and equipment for

the administration of oxygen.

Charges, as described above, in connection with any

nervous or mental condition are eligible. However, in

determining the benefit fér any such charges incurred

while the individual is not hospital confined as a bed

patient, the benefit percentage will be 50% and eligible

physician’s charges for psychiatric services will be lim- °*

63a

ited to no more than $20 (i.e, a maximum benefit of

$10) for each day of visits, up to 50 days in any calen-

dar year.

Medical Expenses Not Eligible

Of course, charges which the individual is not legally

obligated to pay or those in excess of what is customary

and reasonable for the geographical area for an other-

wise eligible expense, or those reimbursed under the Sup-

plemental Accident or Prescription Drug benefits are not

eligible. Nor are benefits payable for expenses in connec-

tion with the following:

1. Occupatienal injury or sickness, or an injury or dis-

ease resulting from war.

2. Health or check-up examinations—unless necessary

for treatment of a sickness or injury.

3. Care of a newborn child not yet discharged from the

hospital—except for charges to treat premature birth,

congenital injury or sickness, or sickness or injury

sustained during or after birth.

4, Dental work or treatment, eye examinations, eye-

glasses or contact lenses, hearing aids and comestic

surgery—except for charges to treat an accidental

injury sustained while insured, which are incurred

within 24 months after the accident, if the treatment

giving rise to them begins within 90 days after the

accident. Dental work and treatment only covers in-

jury to sound, natural teeth.

5. Treatment, therapy, remedial education or training

program which is principally intended to overcome or

compensate for any learning impairment. (See fol-

lowing pages for other benefits provided. )

6. Treatment of myopia and other errors of refraction:

orthoptics or visual training; and the fitting or plac-

ing of eyeglasses or contact lenses.

64a

7. Alcoholism or drug addiction (including narcotism)—

except for charges incurred while a bed patient in a

hospital.

“Hospital” means an institution (other than federal or

state) with 24-hour nursing, diagnostic and major sur-

gical facilities. It does not include any institution or

part thereof, used principally as a facility for rest, nurs-

ing, convalescence, the aged, or remedial education or

training.

Expenses in connection with a condition requiring medi-

cal care or treatment within 3 months before an in-

dividual becomes insured are subject to the following

limitation: such expenses are not eligible unless they are

incurred after the earliest of (a) a 3 month period end-

ing while he is insured and during which he incurs no

expenses in connection with that condition, (b) a 12

month period during which he is continuously insured, or

which he is continuously insured and at active full-time

work.

HOME HEALTH

SERVICES SUPPLEMENT

FOR EMPLOYEES AND DEPENDENTS

Covered home health service charges are included as

eligible expenses under our Major Medical Plan.

The Benefit

Covered charges during the year are reimbursed the same

as other eligible medical expenses up to a maximum of

100 Home Health Care Visits in that year. Each visit

by a member of a home health care team, or four hours

of service by a home health aide, is considered one visit.

Covered Charges

Covered Home Health Service charges are customary and

reasonable charges made by a Home Health Agency for

65a

the following treatments, services and supplies furnished

in accordance with a Home Health Care Plan:

1. Part-time or intermittent services of a home health

aide.

2. Part-time or intermittent nursing care by, or under

the supervision of, a registered nurse.

Physical, occupational or speech therapy.

Laboratory services by, or on behalf of, a Home

Health Agency and medical supplies and medicines

dispensed by a drug store and prescribed in writing

by a physician to treat the individual for a specific

illness or injury but only to the extent benefits would

still have been available under the other medical care

benefits of the Plan had the individual been hospital-

confined as a bed-patient or confined in a skilled nurs-

ing facility due to this benefit not being available.

Covered Charges do not include charges for services, sup-

plies or treatment received from the insured individual,

a member of his immediate family or a person who ordi-

narily resides with you.

Definitions

“Home Health Agency” means a hospital, public agency,

or non-profit organization, primarily engaged in provid-

ing skilled nursing services, which has been licensed pur-

suant to the laws of the state in which it is located or

federally certified as a home health agency for participa-

tion in Medicare.

“Home Health Care Plan” means a program which is spe<'

cially intended to provide medical care and treatment of a

condition that would otherwise require hospital confine-

ment or confinement in a skilled nursing facility and

which is established and approved in writing by a physi-

cian.

66a

DEPENDENT CHILD LEARNING

IMPAIRMENT BENEFIT

You will be paid a benefit for expenses incurred in a

Remedial Clinic by your insured dependent child as a re-

sult of a learning impairment.

The Benefit

The plan pays 80% of the first $200 of charges made by

a Remedial Clinic for administering an initial series of

evaluation tests to diagnose the nature of the learning

impairment and 50% of (i) room and board charges by a

Remedial Clinic, (ii) charges for Educational Therapy

and (iii) charges for the administration of standard

achievement tests. However, not more than $1,500 of

benefits shall be paid for all such charges incurred within

a period of 6 consecutive months.

Maximum Amount

The maximum benefit payable during each insured de-

pendent child’s lifetime is $6,000.

Charges Not Covered

Of course, charges which the individual is not legally re-

quired to pay or are not incurred on the recommendation

of a physician or are in excess of what is customary and

reasonable are not covered. Also, benefits are not pay-

able for charges in connection with the following:

(a) Tutoring in specific subjects.

(b) The purchase or rental of books, tools, equip-

ment, implements, eyeglasses, contact lenses,

hearing aids or supplies of any kind.

campments and other activities which are prin-

cipally recreational.

67a

Definition of Remedial Clinic

“Remedial Clinic” means an institution (other than fed-

eral or state) used principally for remedial education or

training through Educational Therapy and having 24

hour medical supervision, supervised therapeutic care and

the services of a physician available at all times.

Treatment Plan

When treatment of a learning impairment is contemplated

for an insured dependent child on the recommendation of

a physician, a written treatment plan formulated by a

Remedial Clinic should be submitted to MONY before

treatment begins.

MEDICAL CARE COVERAGE FOR

THOSE ELIGIBLE FOR MEDICARE

In order to comply with the requirements of the Tax

Equity and Fiscal Responsibility Act of 1982 (TEFRA),

the Plan has been modified so that any provision exclud-

ing or reducing medical care coverage because of eligi-

bility for Medicare shall not apply to:

(a) active employees who are eligible for Medicare and

are age 65 through 70; and

(b) spouses of employees described in (a) who also are

eligible for Medicare and are age 65 through 70.

“Age 65 through 70” means the period from the first day

of the month in which the person attains his or her 65th

birthday until the last day of the month in which the per-

son attains his or her 70th birthday.

However, if you are subject to this modification, you may

elect to reject the Plan’s medical care coverage for your-

self, or for yourself and your dependent spouse. If you

opt out of the Plan, the medical care coverage described

in this booklet will not apply to you (and your spouse,

68a

if applicable). Please see the Plan Administrator for de-

tails regarding this election.

If you wish to change your election, the Insurance Com-

pany may require proof of good health before you (and

your spouse, if applicable) can become insured.

This modification does not apply to individuals who have

permanent kidney failure.

COORDINATION

WITH OTHER

COVERAGE

Our plan contains a provision which coordinates its bene-

fits with similar benefits provided by other plans. Other

plan means any (1) group or franchise insurance, em-

ployee benefit, Blue Cross, Blue Shield or other group

plan arranged through an employer, trustee, union or

association (2) program created by a national govern-

ment agency thereof, or (3) where permitted by law, no

fault insurance plan; which provides benefits for medical

or dental care or treatment.

If a covered individual is also covered under another

plan, such individual’s total benefits under both plans for

care, services or supplies should not exceed 100% of any

necessary reasonable and customary expenses.

Payment of benefits will be resolved as follows:

1. If the other plan does not contain a Coordination of

Benefits provision, the benefits of that plan will be de

termined before determining the benefits of this plan.

2. If the other plan does contain a Coordination of Bene-

fits provision, the benefits of that plan will be coordi-

nated with the benefits of this Plan. Payment will be

made in the order listed, by the Plan under which the

covered individual is entitled to receive benefits:

69a

(a) other than as a dependent

(b) as a dependent of a male

If priority cannot be established by the above, priority

will be given to the Plan which has covered the claim-

ant for the longer period of time.

3. In the case of a covered child of legally separated or

divorced parents:

(a) the Plan of the parent having custody will be

primary over the Plan of the parent without

custody.

(b) if the parent with custody remarries, the Plan of

the natural parent with custody will be primary

over the Plan of the step-parent. The Plan of the

step-parent will be primary over the Plan of the

natural parent without custody.

MEDICAL EXPENSE

CONVERSION PRIVILEGE

When you terminate employment after being insured for

at least 3 months, you may obtain an individual premium-

paying policy providing medical care coverage for your-

self only or, if you had dependents coverage under the

Plan, for yourself and your dependents. To obtain this

policy you must apply to the Insurance Company and pay

the first premium within 31 days after your insurance

under the Plan terminates.

The type, amount, duration and terms of the benefits

available will depend on the policy form being offered by

the Insurance Company for conversion purposes at the

time you apply.

No evidence of insurability is required for the individual

policy, but the Insurance Company reserves the right not

70a

to cover any person whose other medical care coverage

together with that under the individual policy would re-

sult in overinsurance or duplication of benefits under its

standards.

If your dependents are insured under the Plan, this privi-

lege is also available to (a) your surviving spouse, with

respect to such of your dependents as are insured, at your

death, (b) a dependent child, with respect to himself,

upon attaining the limiting age for dependents eligibility

and (c) an insured spouse, with respect to such spouse,

upon divorce or annulment.

GENERAL PROVISIONS

Application for Insurance

All eligible employees will be asked to fill out a simple

enrollment card. Please complete all questions carefully

as this card will be used in preparing your certificate.

If you wish coverage for your dependents, you must also

sign a payroll deduction authorization for your contribu-

tions.

No Medical Examination

No medical examination is required for your insurance

unless you were previously insured under the Plan and

had exercised any conversion privilege.

Policy and Certificate

This booklet is a brief summary of the principal features

of the Plan and is not a contract. Operation of the Plan

is governed by the terms of the contract issued by

MONY.

When you become insured, you will receive an individual

certificate outlining the details of your coverages.

Tla

Termination

Your insurance will terminate at the end of the month if

you leave our employ, are no longer employed in an

eligible class, or when this plan is discontinued.

Coverage for your dependents also will terminate if you

withdraw your payroll deduction authorization.

Important

Please notify us at once when you acquire an additional

eligible dependent—or when one of your dependents is no

longer eligible.

CLAIMS PROCEDURE

Claim forms may be obtained by contacting the Plan

administrator or his designee.

Procedures To Follow Upon Receipt Of The Form

Read the instructions carefully.

Also, be sure the nrovider of the service (the physician

or the hospital, ete.) has completed the form. Return the

completed claim form and accompanying material to

MONY’S Regional Group Claim Office.

When Claim For Benefit Is Denied

If the Claim is denied either in whole or in part, the

Claimant will receive written notification of such denial

within a reasonable period of time after it has been sub-

mitted. Generally, you will be informed within a week

or so if there is any such denial. However, Department

of Labor Regulations require that you be informed that

a period of time in excess of 90 days after the claim is

received by the plan is generally excessive, unless special

circumstances require an extension of up to an additional

90 days. Notification of claim action will include the

reason for denying the claim, including specific reference

72a

to pertinent plan provisions. If additional requirements

are necessary for a reconsideration of the denial, such

requirements will be included in the written notice.

Appeal Upon Denial Of Claim

The Claimant may, within 60 days after the claim is

denied, submit a written request to the Plan Administra-

tor for reconsideration, including a request for review of

pertinent documents, and including issues and comments.

Such request should be accompanied by whatever docu-

ments or records may be available to support the appeal.

The request will receive prompt attention and the Claim-

ant will be advised of the decision, in writing, not later

than 60 days or, if special circumstances exist, 120 days

after the request for review is received.

SPECIAL PLAN PROVISIONS

To meet applicable statutory requirements, the plan de-

scription on the previous pages is modified as follows:

Any reference in the medical care benefits to dental work,

dental diagnosis or dental treatment shall mean work,

diagnosis or treatment which concerns the teeth or gums.

The benefits provided for services which are within the

scope of a licensed certified social worker; speech patholo-

gist; marriage, family and child counselor; occupational

therapist or audiologist are payable whether performed

by a Doctor of Medicine or one of the above to whom the

insured individual was referred by a physician.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.