Amicus Curiae Brief — Mutual Life Insurance v. Kanakis

; No. 90-327

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,

ws

TELLY KANAKIS and PATRICIA KANAKIS,

Respondents.

On Petition for a Writ of Certiorari to the

Supreme Court of California

MOTION FOR LEAVE TO FILE BRIEF AMICI CURIAE

AND BRIEF AMICI CURIAE OF AMERICAN COUNCIL

OF LIFE INSURANCE AND HEALTH INSURANCE

ASSOCIATION OF AMERICA IN SUPPORT

OF PETITIONERS

JEFFERY ANNE TATUM

(Counsel of Record )

C. MARK HUMBERT

SEYFARTH, SHAW, FAIRWEATHER

& GERALDSON

101 California Street

Suite 2900

San Francisco, California 94111

(415) 397-2823

‘ fagp &. BARNSBACK

y Liv E. STANO

AMERICAN COUNCIL OF LIFE

1001 Penneyivania Avenue, N.W.

Washington, D.C. 20004

2) 624-2183

Wooprow E. ENO _— ae

HERESA L.. SOROTA Counsel for Amici Curiae

HeALTH INSURANCE ASSOCIATION American Council of

AMERICA Life Insurance and Health

1025 Connecticut Avenue, N.W. Insurance Association

\A re ston. D.C. 20036 of America

wy »93..F R22

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

wWiitsow

IN THE

Supreme Court of the United States

OCTOBER TERM, 1990

No. 90-327

THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK,

NANCY A. HIORTDAHL and DON LUHRSEN,

Petitioners,

v.

TELLY KANAKIS and PATRICIA KANAKIS,

Respondents.

On Petition for a Writ of Certiorari to the

Supreme Court of California

MOTION FOR LEAVE TO FILE BRIEF AMICI CURIAE

The America» Council of Life Insurance (““ACLI’’) and

the Health Insurance Association of America (“HIAA”)

hereby respectfully move for leave to file the attached

brief amici curiae. The questions presented are issues of

great importance under The Employee Retirement In-

come Security Act of 1974 (ERISA), in which amici,

as well as ERISA plan beneficiaries and sponsors, are

vitally interested. Amici have sought permission of the

parties to file this brief. Petitioner has consented; re-

spondent has refused consent.

Amici are the largest life and health insurance trade

associations in the country. HIAA represents thé inter-

ests of over 300 member companies, which underwrite or

administer more than 85 percent of the health and dis-

ability insurance written by insurance companies in the

United States. Over 90 million Americans are covered

by insurance provided by HIAA members, primarily

through employee benefit plans. ALCI represents the in-

terests of over 600 member life insurance companies,

which presently hold approximately 94 percent of the life

insurance in force in legal reserve life insurance com-—

panies in the United States, much of which is issued to

or through employee benefit plans.

The questions presented in the instant case are of sub-

stantial importance to ACLI and HIAA and their mem-

ber companies, and to ERISA plan sponsors, participants

and beneficiaries nationwide. The decision of the Cali-

fornia Court of Appeal is the latest in a series of simi-

lar decisions by the California appellate courts which

misconstrue this Court’s precedent and other federal

statutory and case law. These cases have significant con-

sequences for all parties to insured employee benefit

plans; they give employers total control, depending on

their subjective intent and their choice whether to dele-

gate administrative duties, over whether their plans will

be subject to federal regulation.

The brief submitted by ACLI and HIAA urges this

Court to grant certiorari to settle two important ques-

tions of federal law upon which the court below reached

the wrong conclusions: (1) whether an employer must

be directly and actively involved in the administration of

an employee welfare benefit plan for such a plan to be

subject to regulation under ERISA, or whether an em-

ployer may delegate administrative responsibility to an

insurer or other third party without evading federal

regulation, and (2) whether an employer must evidence

an intent to establish a plan governed by ERISA for a

a

welfare benefit plan to be subject to federal regulation.

To date, the California courts of appeal’s answers to

these questions conflict with federal law and threaten to

disrupt the uniform national scheme of federal regula-

tion of employee benefit plans that was intended by Con-

gress when it enacted ERISA.

The insurers represented by HIAA and ACLI have a

vital interest in the outcome of this case. HIAA and

ACLI can provide the Court with a broad perspective on

the issues by virtue of their extensive involvement in

ERISA employee welfare benefit plans nationwide. They

have provided this Court with amicus briefs in recent

cases concerning other important issues under ERISA,

for example Firestone Tire & Rubber Co. v. Bruch, 489

U.S. 101 (1989) and Pilot Life Ins. Co. v. Dedeaux, 481

U.S. 41 (1987). They respectfully request permission to

file their brief as amici curiae.

Respectfully submitted,

Of Counsel: JEFFERY ANNE TATUM

RICHARD E. BARNSBACK (Counsel of Record)

PHILLIP E. STANO C. MARK HUMBERT

AMERICAN COUNCIL OF LIFE SEYFARTH, SHAW, FAIRWEATHER

INSURANCE & GERALDSON

1001 Pennsylvania Avenue, N.W. 101 California Street

Washington, D.C. 20004 Suite 2900

(202) 624-2183 San Francisco, California 94111

(415) 397-2823

Counsel for Amici Curiae

American Council of

Life Insurance and Health

Wooprow E. ENO

THERESA L. SOROTA

HEALTH INSURANCE ASSOCIATION

OF AMERICA ; : oad

1025 Connecticut Avenue, N.W. gr Rene ssociation

Washington, D.C. 20036 of America

(202) 223-7822

TABLE OF CONTENTS

REFER bicsnes hci iitpaiieiicapiins >

I. THIS COURT SHOULD GRANT CERTIORAR

Il.

TO SETTLE AN IMPORTANT QUESTION OF

FEDERAL LAW BY _UNEQUIVOCALLY

STATING THAT DIRECT EMPLOYER AD-

MINISTRATION OF AN INSURED EM-

PLOYEE WELFARE BENEFIT PLAN IS

NOT NECESSARY FOR SUCH A PLAN TO

BE REGULATED BY ERISA .....W.002 ee.

BY REQUIRING EMPLOYER “INTENT” TO

ESTABLISH AN ERISA PLAN, THE CALI-

FORNIA COURT HAS CREATED A LOOP-

HOLE IN FEDERAL LAW WHICH CON-

FLICTS WITH DECISIONS OF FEDERAL

COURTS OF APPEALS AND WHICH WILL

PERMIT EMPLOYERS TO “OPT OUT” OF

ERISA COVERAGE, UNDERMINING THE

UNIFORM FEDERAL SCHEME OF REGU-

LATION ESTABLISHED BY CONGRESG......

CPC ls cathiensndis an leccnetnncaantidkeisiaadalasdtadidaviceteiptilese

(i)

11

ii

: TABLE OF AUTHORITIES

Cases Page

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

CRED seicciitriciscsinietessiieeltiitia bial tas Se EE eee 7

Batterton v. Francis, 482 U.S. 416 (1977) ............... 9

Buczynski v. General Motors Corporation, 616

A eB eee aeeen 9

Credit Managers Ass’n v. Kennesaw Life & Acci-

dent Ins. Co., 809 F.2d 617 (9th Cir. 1987) ........ 8,9

Debtor Reorganizers Inc. v. State Board of Equali-

zation, 58 Cal.App.3d 691 (1976) -..........222022.... 4

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

ST EEE GE SOR ee ae 2, 4, 8, 9, 10

Ed Miniat, Inc. v. Globe Insurance Group, 805 F.2d

732 (7th Cir. 1986), cert. den., 482 U.S. 915

CSTE D seristicssnccitpicsinatiitiiemedyiiiitbibiithssiningpaniieieiatiidaiemne. » 4,10

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

()_. f OPN ee Ee Pe ene eee ee ee 2, 3, 4, 5, 6

Hermann Hospital v. MEBA Medical & Benefits

Plan, 845 F.2d 1286 (5th Cir. 1988) —............... 4,8

Kanne v. Connecticut General Life Insurance Co.,

GEO FBG OB (OU Cir. 1066) .nnuccccccccs-cnoceccesorss---- 4,8,9

Massachusetts v. Morash, —— U.S. ——, 109 8.Ct.

1668, 104 L.Ed.2d 98 (1989) ..................-............- 9

People v. Bradley, 1 Cal.8d 80 (1969) ........0000000.... 4

Rizzi v. Blue Cross of California, 206 Cal.App.3d

DU ° CHIE: ciddibertdtctansince ca coleiteadatet hie SS 3,5

Roe v. General American Life Insurance Co., 712

se F Fe Fs | eee 4

Sayble v. Blue Cross of Southern California, 88

Cal.App.3d 1108 (March 20, 1988) (Rev. den.

by Cal. Supreme Ct. June 8, 1989; directed not

to be published in Official Reports) ....................

Shaw v. Delta Air Lines Inc., 463 U.S. 85 (19838)..

Taggart v. Life & Health Benefit Administration,

617 F.2d 1208 (5th Cir. 1980) ..................000........ 8

Wayne Chemical, Inc. v. Columbus Agency Service

Corp., 567 F.2d 692 (7th Cir. 1977) -...000200.. 8

iii

TABLE OF AUTHORITIES—Continued

Statutes Page

Employee Retirement Income Security Act of

1974, 29 U.S.C. Sections 1001, et seq. .................. passim

Be iad niniccctncnmiantictinsienndiintinaniin 9

Regulations

FE | ea 9

29 C.F.R. Section 2560.503-(1) (c) -....0.2.22.222....... 6

29 C.F.R. Section 2560.503-(1) (g) (2) .....-.--0-.2220... 6

Miscellaneous

1988 Foster Higgins Health Care Benefits Survey

RR ER eee ee TE ae aa 6

Senate Report No. 93-127, reprinted in 2 U.S. Code

Cong. & Admin. News, p. 4854 (1974) -............... 10

IN THE

Supreme Court of the United States

OCTOBER TERM, 1990

No. 90-327

THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK,

NANCY A. HIORTDAHL and DON LUHRSEN,

- Petitioners,

TELLY KANAKIS and PATRICIA KANAKIS,

Respondents.

On Petition for a Writ of Certiorari to the

Supreme Court of California

BRIEF AMICI CURIAE OF

AMERICAN COUNCIL OF LIFE INSURANCE AND

HEALTH INSURANCE ASSOCIATION OF AMERICA

INTEREST OF AMICI

The interest of amici American Council of Life Insur-

ance and Health Insurance Associaticn of America is set

forth in their accompanying Motion for Leave to File

Brief as Amici Curiae.

SUMMARY OF ARGUMENT

This Court should grant certiorari in this case to set-

tle two important questions of federal law under The

Employee Retirement Income Security Act of 1974

(“ERISA”), 29 U.S.C. Sections 1001, et seg. The first

question, whether an employer must be actively involved

in the administration of ‘an insured employee welfare

benefit plan in order for the plan to be subject to federal

regulation under ERISA, arises from the consistent mis-

2

interpretation by California courts of appeal of this

Court’s decision in Fort Halifax Packing Co. v. Coyne,

482 U.S. 1 (1987). California courts, including the court

below, have erroneously extracted from Fort Halifax a

rule that an insured employee welfare benefit plan is not

governed by ERISA unless the employer is directly and

actively involved in the administration of the plan. This

requirement was not articulated by this Court in Fort

Halifax, and is inconsistent both with the tests for

ERISA coverage articulated by the federal courts of ap-

peals, see, e.g., Donovan v. Dillingham, 688 F.2d 1367

(11th Cir. 1982), and with the regulations promulgated

under ERISA by the Department of Labor, 29 C.F.R.

2510.3-1(j), which permit employers to delegate admin-

istration of such plans to insurers or other third parties.

This Court should grant certiorari in order to resolve this

important question raised by the lower courts’ misunder-

standing of Fort Halifax.

This Court should address the second question, whether

an employer must evidence an intent to establish an

ERISA plan in order for ERISA to govern the plan,

to resolve a conflict between the California Court of Ap-

peal and the majority of federal courts of appeals, and

to close a potentially major loophole in the application of

ERISA to employee benefit plans. If the employer’s sub-

jective intent is a test of whether ERISA governs the

plan, employers will be free to “opt out” of ERISA cov-

erage simply by ignoring its dictates or deciding that

they do not elect to have ERISA coverage. This would

contravene one of the principal purposes of ERISA, which

is to protect employees and their dependents under a

national scheme of federal regulation from improper or

imprudent benefit plan administration. See, Fort Hali-

fax Packing Co. v. Coyne, supra, 482 U.S. at 7-16.

The imposition by the California Court of Appeal of

both requirements, employer administrative activity and

subjective intent to be governed by ERISA, threatens to

undermine the uniform, comprehensive federal regulatory

scheme that Congress sought to impose on employee ben-

efit plans nationwide when it enacted ERISA. See, Shaw

v. Delta Air Lines Inc., 463 U.S. 85 (1983). This Court

should grant certiorari in order to resolve the conflict

between the California courts of appeal and federal

courts, including this Court, and to settle these impor-

tant questions of federal law.

ARGUMENT

Il. THIS COURT SHOULD GRANT CERTIORARI TO

SETTLE AN IMPORTANT QUESTION OF FED-

ERAL LAW BY UNEQUIVOCALLY STATING THAT

DIRECT EMPLOYER ADMINISTRATION OF AN

INSURED EMPLOYEE WELFARE BENEFIT PLAN

IS NOT NECESSARY FOR SUCH: A PLAN TO BE

REGULATED BY ERISA.

In an attempt to avoid ERISA preemption of employee

benefit claims, the state court of appeal below, following

the lead of other California appellate court opinions,’

has misinterpreted and misapplied this Court’s opinion in

Fort Halifax Packing Co. v. Coyne, supra, erroneously

declaring that direct employer administration of an in-

sured employee welfare benefit plan is necessary to the

establishment and maintenance of an ERISA plan. This

Court should take this opportunity to place its imprima-

tur upon the reasoning of the majority of the federal

courts of appeals, which have held that an employer’s

adoption of a group insurance plan for its employees

creates an ERISA plan, so long as “from the surround-

ing circumstances a reasonable person can ascertain the

intended benefits, a class of beneficiaries, the source of

financing, and procedures for recovery of benefits.” ?

1Sayble v. Blue Cross of Southern California, 88 Cal.App.3d

1108 (March 20, 1989) (Rev. den. by Cal. Supreme Ct. June 8,

1989; directed not to be published in Official Reports) ; Rizzi v. Blue

Cross of California, 206 Cal.App.38d 380, 390 (1988).

2 This imprimatur is particularly important because the state

appellate courts in California are not obligated to adhere to deci-

4

Donovan v. Dillingham, 688 F.2d 1367, 1373 (11th Cir.

1982) (en banc). See also Kanne v. Connecticut General

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

Ed Miniat, Inc. v. Globe Life Insurance Group, 805 F.2d

732, 788 (7th Cir. 1986), cert. den., 482 U.S. 915 (1987) ;

Roe v. General American Life Insurance Co., 712 F.2d

450, 452 (10th Cir. 1983); and Hermann Hospital v.

MEBA Medical & Benefits Plan, 845 F.2d 1286 (5th Cir.

1988). Despite the lower court’s reliance on Fort Hali-

faz, neither this Court in Fort Halifax nor the ERISA

statute itself directly addresses any requirement of em-

ployer administration of an insured plan as a prerequisite

to ERISA coverage.

In deriving from Fort Halifax a requirement of em-

ployer administration of insured plans, the court below

has misstated and mis-analyzed the facts of that case, as

well as its holding. Fort Halifax imposes no such re-

quirement. Fort Halifax involved an employer that at-

tempted to avoid a Maine statute requiring it to pay a

one-time severance benefit to employees of plants which

closed or relocated. The employer argued that ERISA

preempts any state law pertaining to a type of employee

benefit listed in ERISA, including severance benefits.

This Court rejected the employer’s argument for three

reasons: (1) The interpretation urged by the employer

was contrary to the plain language of ERISA’s preemp-

tion provision, which refers not to employee benefits but

to employee benefit plans. 482 U.S. at 7-16. (2) The

Maine statute required only a one-time payment, and

therefore it had no administrative scheme that would

implicate the concerns of the preemption provision. /d.

(3) The Maine statute did not implicate the fiduciary

concerns of ERISA. This Court stated that “[o]nly

cisions of intermediate federal courts on federal question issues, but

obviously must follow a decision of this Court on such an issue.

People v. Bradley, 1 Cal. 8d 80, 86 (1969); Debtor Reorganizers

Inc. v. State Board of Equalization, 68 Cal.App.3d 691, 696 (1976).

ey

5

‘plans’ [as opposed to one-time benefit payments] involve

administrative activity potentially subject to employer

abuse.” Jd., at 16. Since the obligation to pay a one-

time severance benefit involved no such activity, there

was no occasion for such abuse. /d.

Thus, the focus of Fort Halifax was on the difference

between a one-time employee benefit that required no on-

going administration by anyone, and ongoing benefit

plans that have an administrative scheme that may be

regulated. Fort Halifax did not focus on, and did not

purport to express, what specific administrative activities

must be undertaken in order for a plan to be covered by

ERISA. More importantly, nothing in Fort Halifax

requires that the administrative duties be performed by

the employer, as opposed to a third party to whom the

employer may delegate them. Fort Halifax makes clear

that the concerns of ERISA’s preemption and fiduciary

provisions are implicated by the existence of an adminis-

trative scheme, not by who administers that scheme.

The state court below, consistent with an apparent

trend among the California appellate courts,* ignored that

the benefit involved in Fort Halifax required no admin-

istration whatsoever, by anyone, and focused only on the

fact that the employer in Fort Halifax actually per-

* See, eg. Sayble v. Blue Cross of Southern California, 88 Cal.

App.3d 1108 (March 20, 1989) (Rev. den. by Cal. Supreme Ct.

June 8, 1989; directed not to be published in Official Reports).

(“(T)he existence of an ERISA plan depends on the extent to which

the employer is involved in the administration of the benefit pro-

gram so as to implicate the concerns which give rise to ERISA.

{. . .] Due to the lack of participation by [the employer] in the

administration of the subject insurance benefit, the regulatory

concerns of ERISA are not implicated.”); Rizzi v. Blue Cross of

California, 206 Cal.App.3d 380, 390 (1988) (“An employer may have

(but has not necessarily) established an ERISA plan if his main

involvement is to contribute to the payment of premiums. [.. .]

The ultimate determination depends on an evaluation of all the

circumstances, keeping in mind ERISA’s purpose of regulating an

employer's administration of benefit plans.”’)

| caieseeacieeeiaeteaitiiaet leit

formed no administrative duties subject to ERISA. The

appellate court’s reliance on Fort Halifax is clearly mis-

placed. Fort Halifax simply did not decide nor declare

that where an employer provides benefits to its employees

through insurance, what would otherwise be an ERISA

plan loses ERISA status if the employer delegates ad-

ministrative duties to the insurer or other third party.

As Petitioners have ably pointed out in their Petition,

ERISA expressly contemplates the extensive role insurers

necessarily play in the administration of insured employee

benefit plans and assumes that, generally, administrative

duties can and will be delegated to third parties.‘ Peti-

tion, at 10 and 11. In addition, the regulations under

ERISA expressly contemplate administration of claims

by the insurer under an insured plan. For example, 29

C.F.R. Sections 2560.503-(1) (c) and (g) (2) discuss the

mechanics of integrating an insurer’s claim procedures

with those required by ERISA, and impose fiduciary re-

sponsibility under ERISA on an insurer processing such

claims.

The California courts of appeal, including the court

below, are misusing this Court’s opinion in Fort Halifax

in an effort to restrict the scope of ERISA preemption of

state laws relating to employee benefit plans. Moreover,

the California courts are apparently unwilling to follow

clear intermediate federal authority. There exists a

pressing need, therefore, for this Court to grant the in-

stant Petition for Writ of Certorari, to resolve an impor-

tant question of federal law in an area where relevant

federal precedent is being ignored and misapplied by the

California appellate courts. That important question of

federal law is whether an employer that provides welfare

‘benefits through insurance may delegate administrative

*A recent study indicates that 98% of employer-sponsored health

benefit plans have claims administered by entities other than the

employer, such as insurers and professional third-party adminis-

trators. 1988 Foster Higgins Health Care Benefits Survey 24.

7

responsibility for the plan to an insurer or third party,

or whether the employer must be directly involved in

administration of the plan for the plan to be subject to

ERISA regulation.

II. BY REQUIRING EMPLOYER “INTENT” TO ESTAB-

LISH AN ERISA PLAN, THE CALIFORNIA COURT

HAS CREATED A LOOPHOLE IN FEDERAL LAW

WHICH CONFLICTS WITH DECISIONS OF FED-

ERAL COURTS OF APPEALS AND WHICH WILL

PERMIT EMPLOYERS TO “OPT OUT” OF ERISA

COVERAGE, UNDERMINING THE UNIFORM FED-

ERAL SCHEME OF REGULATION ESTABLISHED

BY CONGRESS.

The California court has created a remarkable, and

potentially huge, loophole in federal law by requiring that

an employer demonstrate an “intent” to establish an

ERISA plan in order for ERISA to govern the plan.

This requirement permits an employer to “opt out” of

federal regulation simply by determining unilaterally that

it does not “intend” to have an employee benefit plan

governed by ERISA. Such a choice could effectively re-

move most California benefit plans from the uniform na-

tional regulatory scheme that Congress expressly articu-

lated s its principal goal when it enacted ERISA. See,

Shaw v. Delta Air Lines Inc., 463 U.S. 85, 105, (1983) ;

Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 523,

(1981).

This Court should grant certiorari in order to address

this issue because the vast majority of employee welfare

benefit plans could be affected if courts continue to mis-

understand the fundamental eoncept of how an employee

welfare benefit plan subject to ERISA can be established.

Unfortunately, the California court’s erroneous intent re-

quirement was derived from misleading language in sev-

eral federal circuit court opinions, which may continue to

foster similar misperceptions and avoidance of federal

regulation.

iii eisai ieee

8

The California court misread Wayne Chemical, Inc. v.

Columbus Agency Service Corp., 567 F.2d 692 (7th Cir.

1977) and Taggart v. Life & Health Benefit Administra-

tion, 617 F.2d 1208 (5th Cir. 1980), to require that an

employer intend to establish an ERISA governed plan as

a prerequisite to ERISA coverage. Both of these early

cases struggled with the application of ERISA to cir-

cumstances where an employer selects as the funding

mechanism for health benefits a multiple-employer insur-

ance trust that is not itself an ERISA plan.® Subsequent

cases have clarified this question. See, eg., Hermann

Hospital v. MEBA Medical & Benefits Plan, 845 F.2d

1286 (5th Cir. 1988); Donovan v. Dillingham, 688 F.2d

F.2d 1367, 1875 (11th Cir. 1982) (en banc). However,

the California court, taking language out of the context

of the facts and legal issues of the cases, has extracted

a rule which, if followed, will make ERISA regulation

of employee benefit plans optional at the whim of the

employer.

The correct approach, which should be articulated di-

rectly by this Court, was stated in Credit Managers

Ass’n v. Kennesaw Life & Accident Ins. Co., 809 F.2d

617 (9th Cir. 1987). The Court stated,

An employer . . . can establish an ERISA plan rather

easily. Even if an employer does no more than

arrange for a “group-type insurance program,” it

can establish an ERISA plan, unless it is a mere

advertiser who makes no contributions on behalf of

its employees.

5 No multiple employer insurance trust is involved in this case,

although the choice between insurance purchased directly from

an insurer and insurance purchased through subscription to a mul-

tiple employer trust is of no consequence in the determination of

whether the employer has established an employee welfare benefit

plan governed by ERISA. See, e.g., Kanne v. Connecticut General

Life Insurance Co., 867 F.2d 489 (9th Cir. 1988) ; Credit Managers

Ass’n v. Kennesaw Life & Accident Ins. Co., 809 F.2d 617 (9th

Cir. 1987).

9

809 F.2d at 625. See, Donovan v. Dillingham, supra, 688

F.2d at 1373. (An ERISA plan “is established if from

the surrounding circumstances a reasonable person can

ascertain the intended benefits, a class of beneficiaries,

the source of financing, and procedures for receiving

benefits”. )

Substantial guidance in determining whether an em-

ployer that has arranged for group insurance benefits has

established an ERISA-governed employee welfare benefit

| plan is found in regulations promulgated by the Depart-

ment of Labor. 29 C.F.R. Section 2510.3-1(j). This

Court has acknowledged the deference to be accorded to

the reasonable regulations of the Secretary of Labor in

the interpretation of ERISA. Massachusetts v. Morash,

U.S. ——, 109 S.Ct. 1668, 104 L.Ed.2d 98 (1989).°

The Department of Labor regulations set forth four

criteria, all of which must be present, in order for a

group insurance arrangement not to be governed by

ERISA: (1) the employer makes no contribution toward

premiums; (2) participation by employees in the pro-

gram is completely voluntary; (3) the employer does not

endorse the program, and simply permits an insurer to

| publicize the program to its employees and collects pre-

miums for the insurer through payroll deductions or the

like; and (4) the employer receives no consideration in

connection with the program other than reasonable com-

pensation for its administrative costs in collecting pre-

miums for the insurer. 29 C.F.R. Section 2510.3-1(j).

See, Kanne v. Connecticut General Life Insurance Co.,

867 F.2d 489, 492 (9th Cir. 1988). (All four criteria

6 Congress specifically empowered the Department of Labor to

issue regulations under ERISA, and therefore the Secretary’s con-

struction of the statute is controlling unless the promulgation of the

regulation at issue was an abuse of discretion, arbitrary or capri-

cious, or contrary to the statute. 29 U.S.C. Section 1135; See,

Batterton v. Francis, 482 U.S. 416, 428 (1977); Buczynski v. Gen-

+ eral Motors Corporation, 616 F.2d 1288, 1242-48 (8rd Cir. 1980).

| —

ment to be exempt from ERISA coverage.)

As the Donovan court pointed out, in determining

whether an employer’s plan is governed by ERISA, the

focus of the inquiry is whether the decision to establish

a plan or program “has become a reality.” 688 F.2d at

1373; Ed Miniat, Inc. v. Globe Life Insurance Group,

Inc., 805 F.2d 782, 739 (7th Cir. 1986). Where an em-

ployer has elected to provide a medical insurance plan

for the benefit of its employees, has paid some or all of

the premiums for that insurance, and has done more than

simply permit an insurer to advertise an insurance pro-~

gram to its employees, the decision to establish a plan

has clearly “become a reality.” It is simply incorrect

to conclude that a plan is not governed by ERISA be-

cause the employer was unaware that ERISA existed or

determined that it did not wish to have ERISA govern-

ance. Giving the employer effective control over whether

to be governed by federal regulation would permit em-

ployers, by ignorance or by design, to thwart the pro-

tections ERISA affords millions of working Americans

against improper or imprudent plan administration.

It is important that this Court grant certiorari in this

case to uphold the intent of Congress that employee bene-

fit plans throughout the United States, including insured

plans, be subject to a single, uniform, comprehensive

scheme of federal regulation. In enacting ERISA, Con-

gress was emphatic that it be broadly applied. As the

Senate reported:

It is intended that coverage under the Act be con-

strued liberally to provide the maximum degree of

protection to working men and women covered by

private retirement programs. Conversely, exemp-*

tions should be confined to their narrow purpose.

Senate Report No. 93-127, reprinted in 2 U.S. Code Cong.

& Admin. News, p. 4854 (1974).

10

must be met in order for a group insurance arrange-

:

This Court should not permit employers to circumvent

ERISA’s broad preemptive effect, and to “opt out” of the

comprehensive scheme of federal regulation enacted by

Congress, simply by not “intending” to establish an

ERISA-governed plan. A definitive statement on this is-

sue is needed to stop the California courts from miscon-

struing federal case authority and creating a require-

ment that could completely eviscerate the broad applica-

tion of ERISA intended by Congress._

CONCLUSION

For the foregoing reasons, amici urge this Court to

grant the Petition for Writ of Certiorari.

Of Counsel:

RICHARD E. BARNSBACK

PHILLIP E. STANO

AMERICAN COUNCIL OF LIFE

INSURANCE

1001 Pennsylvania Avenue, N.W.

Washington, D.C. 20004

(202) 624-2183

Wooprow E. ENo

THERESA L. SOROTA

HEALTH INSURANCE ASSOCIATION

OF AMERICA

1025 Connecticut Avenue, N.W.

Washington, D.C. 20036

(202) 223-7822

Respectfully submitted,

JEFFERY ANNE TATUM

(Counsel of Record)

C. MARK HUMBERT

SEYFARTH, SHAW, FAIRWEATHER

& GERALDSON

101 California Street

Suite 2900

San Francisco, California 94111

(415) 397-2823

Counsel for Amici Curiae

American Council of

Life Insurance and Health

Insurance Association

of America