Opposition Brief — Williams v. Benicorp Insurance

No. 03-786

IN THE

Supreme Court of the United States

EDNAL. WILLIAMS,

Petitioner,

u

BENICORP INSURANCE COMPANY,

Respondent.

ON PETITION FOR A Writ OF CERTIORARI TO THE

Unrrep Stares Court OF APPEALS FOR THE ELEVENTH CIRCUIT

BRIEF IN OPPOSITION

ANDREW W. HULL

Counsel of Record

ALICE M. Moricar

Hoover Hutt Baker

& HeatH LLP

111 Monument Circle

Suite 4400

P.O. Box 44989

Indianapolis, IN 46244-0989

(317) 822-4400

Attorneys for Respondent

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Pee eeu ete tei

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QUESTION PRESENTED

Whether § 502(a) of the Employee Retirement Income

Security Act of 1974 (“ERISA”), 29 U.S.C. § 1132(a),

completely preempts a state law tort claim seeking damages

for an alleged delay in providing notice of a determination

of entitlement to a benefit under an ERISA-governed insured

health benefit plan.

Whether § 514 of ERISA, 29 U.S.C. § 1144, also

preempts a state law tort claim seeking damages for an alleged

delay in providing notice of a determination of entitlement

to a benefit under an ERISA-governed insured health benefit

plan.

ll

STATEMENT PURSUANT TO RULE 29.6

The parent of Benicorp Insurance Company is Benicorp

Financial, Inc. There is no publicly held company that owns

10% or more of Benicorp Insurance Company or Benicorp

Financial, Inc.

ill

TABLE OF CONTENTS

Ogg 8 8g OO Sto } ee

STATEMENT PURSUANT TO RULE 29.6 ......

A APIN BINED once cc cre nv esvens

TABLE OF CITED AUTHORITIES ............

STATEMENT OF JURISDICTION .............

STATUTES AND CONSTITUTIONAL PRO-

Ee Bt) Sea

COUNTER STATEMENT OF THE CASE ....

REASONS FOR DENYING THE PETITION

I. Mrs. Williams’ state law tort claim that seeks

to provide remedies in connection with an

ERISA benefit determination is completely

preempted under ERISA § 502. ..........

II. Mrs. Williams’ state law tort claim relates to

an ERISA welfare benefit plan and is also

preempted under ERISA Section 514. .....

a. Mrs. Williams’ tortclaim is not saved by

the ERISA savings clause. ..........

Page

1

ill

iv

Contents

b. Mrs. Williams’ state law claim is not

specifically directed to insurance

companies because it derives from

general common law tort and contract

UNNI cy uk a eae as a ees

c. Mrs. Williams’ negligence claim does

not substantially affect the risk pooling

arrangement between the insured and

WG a ae ene ce ae ea ees

a 8 hf Eee serra ey re

Appendix —- Affirmation Of Julia Summers In

Support Of Benicorp Insurance Company’s Brief

In Support Of Motion For Summary Judgment

BRORE SPCHOUOT 19, ZOE occ cee ccc tewev ens

Page

15

la

TABLE OF CITED AUTHORITIES

Page

Cases

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

CUSED soca dav Padsav ohne eae eee 13

American Oil Co. v. Roper, 14 S.E.2d 145 (Ga. Ct.

ei it nr rrareeres sare rire orton 16, 17

Bast v. Prudential Ins. Co. of America, 150F.3d 1003

(9" Cir. 1998), cert. denied, 528 U.S. 870 (1999)

PETS eee eee Tee eer ee te ee ee ee 19

Briarcliff v. Kelley, 31 S.E.2d 586 (Ga. 1994)..... 16

Caffey v. UNUM Life Ins. Co., 302 F.3d 576 (6" Cir.

Fo | Err eee reer rere os hornet 20

Cannon v. Group Health Services of Okla., Inc.,

77 F.3d 1270 (10" Cir.), cert denied, 519 U.S. 816

bi | PRS en ee mr ets Ae ee ee FY 19

Cicio v. John Does 1-8, 321 F.3d 83 (2° Cir. 2002),

petition for cert. filed on other grounds, 74 USLW

3093 (U.S. July 11, 2003) (No. 03-69) ........ 1]

Ercole v. Conectiv and Coventry Health Care of

Delaware, Inc., No. Civ, A. 03-186 GMS, 2003

WL 21104926 (D. De. May 15, 2003) ......... ot, Ze

FMC Corp. v. Holiday, 498 U.S. 52 (1990) ....... 12, 15

vi

Cited Authorities

Page

Francis v. Newton, 43 §.E.2d 282 (Ga. Ct. App. 1947)

do sole nels ako ache ue aes eR ee ee 17,18

Gilbert v. Alta Health & Life Ins. Co., 276 F.3d 1292

CE CK OE > crn 2 eee ek ee Ree esa ee 20

Hogan v. Kraft Foods, 969 F.2d 142 (5" Cir. 1992)

LeVdeh onan oe peas eu ceve ese eae KE ASAMee 19

Howard vy. Central Georgia Ry. Co., 71 S.E. 1017

(Gt. AGO. ISTE) «0c cenccavacccsadsnevitaes 17

Howard v. Coventry Health Care of Iowa, Inc.,

293 F.3d 442 (8" Cir. 2002) ................. 20, 21

Hub Motor Co. v. Burdakin, 386 S.E.2d 854

(50. CE. ADD. T9BP) 60 ccc cccasvcuvcnavereens 16

Ingersoll-Rand Co. v. McClendon, 498 U.S. 133

Oh ar a rr ee 6, 8, 9, 12

Kaiser Aluminum & Chemical Corp. v. Ingersoll-

Rand Co., 519 F. Supp. 60 (S.D. Ga. 1981) .... 17

Kelley yv. Sears, Roebuck & Co., 882 F.2d 453

(10 Cir. 1989) 2... ccc ccc eee cee eee 20

Kentucky Association of Health Plans, Inc. v. Miller,

123 S. Ct. 1471 (2003) ...... 2.0... eee eee passim

Vil

Cited Authorities

Page

Kidneigh v. UNUM Life Ins. Co of America, 345 F.3d

Pe Cs ee obs s «he ooo wos keen bee 21

McGuigan v. Reliance Standard Life Ins. Co., 256

F. SURO: 26 349 (ED. PR. 2008) ons vc ckccviss 21-22

Manley v. Exposition Cotton Mills, 170 S.E. 711

(te eer ree rere rr ee 17

Massachusetts Mutual Life Ins. Co. v. Russell,

DIF Sia SRLS a ok cece che teak eeks n 8

Mauldin v. Sheffer, 150 S.E.2d 150 (Ga. Ct. App.

pee PE RCI UT Re ere ee eee 17

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

Aa sj EARP ee Powe or ee re are 7, 8,12

Metropolitan Property & Causualty Ins. Co. v.

Crump, 513 S.E.2d 33 (Ga. Ct. App. 1999) .... 17

Mimbs v. Commercial Life Ins. Co., 832 F. Supp. 354

OB sR SG 2 eine ern a rar eere re 16

Moffett v. Halliburton Energy Services, Inc., 291 F.3d

be? (0 EE sneer ee ea een 18, 19

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

Vill

Cited Authorities

Page

Powell v. Chesapeake & Potomac Tel. Co. of Va.,

780 F.2d 419 (4" Cir. 1985), cert denied, 476 U.S.

be Ch | ane eee ere eee eee 19

Pryzbowski v. U.S. Healthcare, Inc., 245 F.3d 266

CP ee ED nce e ak cae has eee ee ia ees 11, 20

Roark v. Humana, Inc., 307 F.3d 298 (5" Cir. 2002),

cert. granted, 72 USLW 3007, 72 USLW 3299,

72 USLW 3307 (U.S. November 3, 2003) (No. 02-

I ne tats 2 ora crater ace at eee ek 11

Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355

SEE uso acess hehe er rere Oe ae ea 9,15

Scherer Constr., LLC v. Hedquist Constr., Inc.,

Se Foe Ga Os COPED osc sc acecen bees eae 19

Shaw vy. Delta Air Lines, Inc., 463 U.S. 85 (1983) ... 12

Smith v. Jefferson Pilot Life Ins. Co., 14 F.3d 562

(11" Cir.), cert. denied, 513 U.S. 808 (1994) ... 21

Thomas v. Phoenix Mutual Life Ins. Co., 236 S.E.2d

Sa es te ss See ke teres 16

UNUM Life Ins. Co. v. Ward, 526 U.S. 358 (1999) .. 18

Walker v. Southern Co. Serv.,Inc., 279 F.3d 1289

(11" Cir.), cert. denied, 123 S. Ct. 111 (2002) .. 20

ix

Cited Authorities

Page

Constitutional Provisions

AROS ee oe y ee errr ee ]

Statutes

28 U.S.C. § 1254(1) (West Supp. 2003) ......... l

28 U.S.C. § 1891 (West Supp. 2003) ............ l

26 U.S.C. § 1331 (West Supp. 2003) .......665.- ]

29 U.S.C. § 1001 (West Supp. 2003) ............ l

29 U.S.C. § 1024(b)(4) (West Supp. 2003) ....... 4

29 U.S.C. § 1132 (West Supp. 2003) ............ l

29 U.S.C. § 1132(a) (West Supp. 2003) ......... passim

29 U.S.C. § 1132(a)(1)(B) (West Supp. 2003) ... 4, 7, 8, 10

29 U.S.C. § 1132(a)(3) (West Supp. 2003) ....... 4

29 U.S.C. § 1144 (West Supp. 2003) ........... 1, 6, i2

29 U.S.C. § 1144(a) (West Supp. 2003) .......... 12

29 U.S.C. § 1144(b)(2)(A) (West Supp. 2003) .... 13

Cited Authorities

Page

(sa, Code Ann. § 33-20A-4 (2003) ...........5.. 2

Ga. Code Amn. § 51-§-48 (2003) . 2.5.00... cus. 4

Regulations

EO Ee © CIOS 1 CTOOSS oo en ee cc en 10

Georgia Comp. R. & Regs. 120-2-8-.05 (2003) ... 2

l

STATEMENT OF JURISDICTION

The district court had federal question jurisdiction over

the plaintiff’s claims pursuant to 28 U.S.C. § 1331 and the

complete preemption effected by 29 U.S.C. § 1132. The court

of appeals asserted jurisdiction over the district court’s final

judgment pursuant to 28 U.S.C. § 1291. The judgment

of the court of appeals was entered on August 26, 2003.

This Court has jurisdiction under 28 U.S.C. § 1254(1).

STATUTES AND CONSTITUTIONAL

PROVISIONS INVOLVED

The Supremacy Clause of the United States Constitution

provides: “This Constitution, and the laws which shall be

made in pursuance thereof... shall be the supreme Law of

the Land; and the Judges in every State shall be bound

thereby, any thing in the Constitution or laws of any State to

the contrary notwithstanding.” U.S. Const., art. IV, cl.2.

The pertinent provisions of ERISA, 29 U.S.C. § 1001,

et seq., are set forth in the appendix to the Petition for Writ

of Certiorari. (Petitioner’s Appendix ‘Pet. App.” C at 14a-

16a)

COUNTER STATEMENT OF THE CASE

Respondent, Benicorp Insurance Company (“Benicorp”),

is an insurance company licensed to transact business in

twenty-eight (28) states, including the state of Georgia.

Benicorp sells group major medical indemnity insurance

coverage to employer-sponsored groups in nine (9) states.

In connection with the indemnity insurance coverage,

Benicorp has no arrangements in Georgia with any selected

providers to furnish or deliver healthcare services. Benicorp

2

has no contracts with healthcare providers in the state of

Georgia. Benicorp does not select healthcare providers for

its insureds’ 1n the state of Georgia. Benicorp is not and has

never operated as a health maintenance organization.

Benicorp does not act in any capacity as a “gatekeeper”

whereby Benicorp could make determinations regarding an

insured’s access to a particular healthcare provider or a

particular medical procedure or treatment. Benicorp does not

maintain an exclusive provider arrangement in connection

with its indemnity coverage issued in the state of Georgia.

Benicorp is not, and has never been, certified as a managed

care entity as that term is defined at Ga. Code Ann. § 33-

20A-4. Benicorp is not, and never has been, subject to the

reporting requirements for managed care entities contained

at Georgia Comp. R. & Regs. 120-2-8-.05. (Respondent’s

Appendix “Resp. App.” at 2a-5a)

Petitioner, Edna L. Williams (“Mrs. Williams’), and her

late husband, James Williams, were employed with Judd

Publishing Company (“Judd Publishing”). Judd Publishing

sponsored an ERISA employee welfare benefit plan

(the “Judd Publishing Plan’) which offered a group health

plan to its employees. (Court of Appeals Record “C.A.

Record” Vol. 2, Doc. 40, Tab 2, p. 6) Beginning in 1997,

Benicorp provided group indemnity coverage for the medical

and life insurance components for the Judd Publishing Plan.

(Resp. App. at 3a)

Mrs. Williams alleges that on October 12, 1999,

Mr. Williams was diagnosed with pulmonary fibrosis disease

and his physicians recommended he undergo a lung

transplant. (Pet. App. D at 18a) Mrs. Williams alleges that

Mr. Williams called the Care Manager who handles claims

for Benicorp, Robin Clark, and informed her that he was

3

going to be tested for a potential transplant. (Pet. App. B at

4a) Mrs. Williams also alleges that Ms. Clark then called

Barb Rouse, the Vice President of Group Operations for

Benicorp, to notify her of the potential transplant. (Pet. App.

B at 4a) Mrs. Williams further claims that Ms. Rouse called

Ms. Clark back the following day and informed Ms. Clark

that there was no coverage for a lung transplant alone.

(Pet. App. E at 26a) Mrs. Williams then states that Mrs. Clark

called Trina Smith, the transplant coordinator at Kirklin

Clinic where Mr. Williams was scheduled for testing for the

potential transplant and informed her that Mr. Williams did

not have coverage through Benicorp for the potential

transplant. (Pet. App. B at 5a)

In her Petition, Mrs. Williams concedes that within days

of Mr. Williams making inquiry regarding coverage for a lung

only transplant, the transplant coordinator at his healthcare

facility was informed that Benicorp did not provide coverage

for the procedure. (Pet. at 2) Mrs. Williams also

acknowledges that by October 18, 1999 (six (6) days after

Mr. Williams’ diagnosis), “the Alabama hospital’s social

worker stated to Ms. Clark that she [the social worker] would

begin efforts to refer Mr. Williams to Emory University

in Georgia since there was no transplant coverage.”

(Pet. at 3) (emphasis added).

Mrs. Williams claims that despite Benicorp’s denial of

the lung transplant benefit, Benicorp did not timely inform

Mr. Williams in writing or by telephone of its denial.

(Pet. App. D at 19a) There is no evidence from Mrs. Williams

that she or Mr. Williams ever submitted a notice of claim or

proof of loss or that they sought to invoke the claim review

procedure as set forth in the Certificate Book or policy.

4

Mrs. Williams commenced this action in the State Court

of Bibb County, Georgia under Civil Action No. 50976

naming Benicorp and others as defendants (the “Bibb County

Action’). In Mrs. Williams’ Complaint, she aileged state law

claims of wrongful death, negligence, violation of Ga. Code

Ann. § 51-1-48 (the “Georgia Statute”’), tortious interference,

and vicarious liability. (C.A. Record Vol. 1, Doc. 1, p. 10)

On December 19, 2001, Benicorp filed a Notice of Removal

to remove the Bibb County Action to the United States

District Court for the Middle District of Georgia, Macon

Division because all the claims related to a welfare benefit

plan under ERISA. (C.A. Record Vol. 1, Doc. 1, pp. 1-7)

On April 22, 2002, Mrs. Williams amended her

Complaint to add claims under ERISA. In addition to the

same state law claims, Mrs. Williams alleged a claim for

unjust enrichment under ERISA 29 U.S.C. § 1132(a)(1)(B)

and § 1132(a)(3), and that Benicorp failed to provide Mrs.

Williams copies of the plan documents upon request pursuant

to 29 U.S.C. § 1024(b)(4) of ERISA. (Pet. App. D at 24a)

On October 15, 2002, Benicorp moved for summary

judgment on all of Mrs. Williams’ claims. (C.A. Record Vol.

2, Doc. 38, p. 1) The district court granted summary judgment

in Benicorp’s favor on January 15, 2003. (Pet. App. B at 3a)

The district court determined that ERISA preempted

Mrs. Williams’ state law claims. (Pet. App. B at 9a-10a)

The district court also held that no remedy was available to

Mrs. Williams under ERISA because she was seeking

monetary damages which did not constitute “appropriate

equitable relief’ provided for under ERISA. (Pet. App. B at

lla) The district court further concluded that even if Mrs.

Williams could state a cause of action under ERISA, she had

failed to exhaust her administrative remedies prior to bringing

her lawsuit. (Pet. App. B at 21a)

5

On January 27, 2003, Mrs. Williams filed a Motion to

Alter or Amend the Judgment (C.A. Record Vol. 2, Doc. 59,

p. 1), which was denied by the district court on March 27,

2003. (C.A. Record Vol. 2, Doc. 73, p. 2) On April 25, 2003,

Mrs. Williams filed a Notice of Appeal on the district court’s

January 15, 2003 Judgment. (C.A. Record Vol. 2, Doc. 74,

p. 1)

On August 26, 2003, the court of appeals affirmed the

district court’s judgment. (Pet. App. A at la-2a)

REASONS FOR DENYING THE PETITION

This Court has answered the only question presented by

Mrs. Williams’ Certiorari Petition —- whether ERISA preempts

a state law tort claim seeking alleged damages relating to

the determination of entitlement to benefits under an ERISA-

governed plan. Mrs. Williams asks this Court to reverse this

long-standing precedent and rule that ERISA does not

preempt a state law negligence claim for an alleged breach

of an implied duty of good faith and fair dealing by a

purported delay in communicating an ERISA plan benefit

determination.' By her Petition, Mrs. Williams does not

challenge the correctness of Benicorp’s benefit determination,

rather she challenges only the timeliness in communicating

that determination to Mr. Williams. (Pet. at 12-13)

1. In her Petition, Mrs. Williams characterizes her claim as

“negligence” and breach of the “duty of good faith and ordinary care.”

(Pet. at 5-6) Before the court of appeals, Mrs. Williams characterized

her claim as based upon “Georgia’s common law rules of insurance

bad faith.” (Brief of Appellant at 11)

6

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

this Court held that ERISA completely preempts state

common law tort and contract actions asserting improper

processing of claims for benefits under an insured employee

benefit plan. Further, in /ngersoll-Rand Co. v. McClendon,

498 U.S. 133 (1990), this Court held that a state law claim

for breach of duty of good faith and fair dealing (among other

claims) arising from the termination of employment in order

to avoid paying ERISA pension benefits was completely

preempted by § 502(a)’s exclusivity. Jd. at 144-45. Based

upon this Court’s precedent, Mrs. Williams’ state common

law tort claim under Georgia law is barred under the complete

preemption found in § 502(a) of ERISA.

In addition, Mrs. Williams’ state law claim is also

preempted by operation of ERISA’s express preemption

provision found at § 514. Mrs. Williams’ state common law

tort claim is preempted under the straight-forward application

of § 514 and this Court’s recent ruling in Kentucky

Association of Health Plans, Inc. v. Miller, 123 S. Ct. 147]

(2003).

There are no decisions entered by the United States

Courts of Appeals that are in conflict with these legal

principles as applied to the claim sought to be asserted by

Mrs. Williams. The district court and the court of appeals

appropriately applied this Court’s well-settled legal principles

in this matter.

a

/

I. Mrs. Williams’ state law tort claim that seeks to

provide remedies in connection with an ERISA

benefit determination is completely preempted under

ERISA § 502.

ERISA § 502(a)(1)(B) provides a civil enforcement

mechanism for a participant or beneficiary “to recover

benefits due... , to enforce his rights under . . . , or to clarify

his rights to future benefits” under the terms of an ERISA

plan. 29 U.S.C. § 1132(a)(1)(B). In Pilot Life, this Court held

that § 502(a)(1)(B) “provides an exclusive federal cause of

action” for a resolution of “a suit by a beneficiary to recover

benefits from a covered plan.” Metropolitan Life Ins. Co. v.

Taylor, 481 U.S. 58, 62-63 (1987) (citing Pilot Life, 481 U.S.

at 56). The federal cause of action completely preempts any

state law claim that seeks to provide different or additional

remedies in connection with a benefit determination. This is

so, the Court explained in Pilot Life, because § 502(a)(1)(B)

is part of a:

comprehensive civil enforcement scheme that

represents a careful balancing of the need for

prompt ard fair claims settlement procedures

against the public interest in encouraging the

formation of employee benefit plans. The policy

choices reflected in the inclusion of certain

remedies and the exclusion of others under the

federal scheme would be completely undermined

if ERISA-plan participants and beneficiaries were

free to obtain remedies under state law that

Congress rejected in ERISA. ‘The six carefully

integrated civil enforcement provisions found in

§ 502 (a) of the statute as finally enacted ...

provide strong evidence that Congress did not

8

intend to authorize other remedies that it simply

forgot to incorporate expressly.’

Pilot Life, 481 U.S. at 54 (quoting Mass Mut. Life Ins. Co. v.

Russell, 473 U.S. 134, 146 (1985)) (emphasis in original).

The Court in Pilot Life applied this rule to hold that

§ 502(a)(1)(B) completely preempted state common law tort

and contract actions asserting improper processing of a claim

for benefits. The Court recognized that permitting such claims

—~ which would have allowed the plaintiff to recover

consequential damages not authorized under ERISA — would

upset the careful remedial balance struck in ERISA § 502(a).

Id. at 50, 54. The Court’s critical point was that ERISA

§ 502(a)(1)(B) must completely preempt state law claims and

remedies that are different from the specific claims and

remedies that Congress decided to make available in actions

relating to benefit determination because state law claims

and remedies would disrupt ERISA’s comprehensive and

uniform system of benefit regulation.’

The Court has repeatedly affirmed the analysis adopted

in Pilot Life and Metropolitan Life. In Ingersoll-Rand Co. v.

McClendon, 498 U.S. 133 (1990), the Court unanimously

concluded that state law tort claims for breach of duty of

2. In Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58 (1987),

in a unanimous decision decided the same day as Pilot Life, this

Court held that § 502(a)’s preemptive power is sufficient to confer

federal jurisdiction over all claims within its scope, including claims

plead exclusively under state law. The Court held that Pilot Life

preemption was sufficient to confer removal jurisdiction. Section

502(a) preempts so completely that it has displaced any parallel state

law cause of action, rendering such claims “necessarily federal in

character” and sufficient to invoke federal jurisdiction. Metropolitan

Life, 481 U.S. at 67.

a

9

good faith and fair dealing, wrongful discharge and breach of

contract were completely preempted by § 502(a)’s exclusivity.

Id. at 144-45. The Court held that the Texas state law claims for

tortious breach of the duty of good faith and fair dealing,

wrongful discharge and breach of contract had “patently

violate{d]” the uniformity mandated by § 502(a). The Court

recognized the conflict in permitting a plaintiff to pursue state

law claims for compensatory and punitive damages rather than

the recovery of pension benefits and held that ERISA § 502(a)

was the exclusive avenue of redress. Jd.

In Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355

(2002), the Court recently affirmed Pilot Lifes holding that

ERISA preempts state law causes of action, such as the common

law claim asserted by Mrs. Williams, that “add[] to the judicial

remedies provided by ERISA.” /d. at 379. The Court emphasized

such causes of action “patently violate ERISA’s policy of

inducing employers to offer benefits by assuring a predictable

set of liabilities, under uniform standards of primary conduct

~ and a uniform regime of ultimate remedial orders and awards

when a violation has occurred.” Jd. indeed, all members of the

Court agreed that if the independent review statute at issue in

Rush Prudential had created an additional claim or an additional

remedy, it would have been preempted under Pilot Life and its

progeny. /d. at 379-80 (“[T]he state statute does not enlarge the

claim for benefits beyond the benefits available in any action

brought under [§ 502(a)]. This case therefore does not involve

the sort of additional remedy exemplified in Pilot Life, . . . and

Ingersoll-Rand. . . .”); Id. at 388 (Thomas J., dissenting) (citing

Pilot Life for the proposition that “as the Court concedes, ...

even a state law that ‘regulates insurance’ may be preempted if

it supplements the remedies provided by ERISA, despite

ERISA’s savings clause. . . .”).

10

Mrs. Williams seeks to impose state common law tort

liability upon Benicorp for allegedly failing to notify Mr.

Williams in a timely manner of Benicorp’s benefit

determination. By her state law claim, Mrs. Williams seeks

to challenge under state law the alleged actions of an ERISA

fiduciary (Benicorp) in making and communicating an ERISA

benefit determination. Mrs. Williams unmistakably seeks to

assert a claim for an additional remedy contrary to both

§ 502(a) and this Court’s pronouncements. Her purported

state law claim plainly falls within the scope of

§ 502(a)(1)(B). Specifically, under § 502(a)(1)(B)

Mr. Williams could have brought a claim “to clarify his rights

to future benefits under the terms of the plan.” If Mr. Williams

had any question or concern regarding his entitlement

to benefits under the Judd Publishing Plan, ERISA

§ 502(a)(1)(B) provided him an express remedy.’

In her Petition, Mrs. Williams argues that recent

decisions involving health maintenance organizations and

managed care raise a question regarding the application of

ERISA complete preemption principles to this case.

Mrs. Williams’ argument is misguided for at least two

reasons. First, Benicorp is a medical indemnity insurer not a

managed care entity. Benicorp performed no “gatekeeper”

function in connection with Mr. Williams’ medical care.

In fact, Mrs. Williams acknowledges that Mr. Williams’

health care providers understood that he lacked insurance

3. The Department of Labor’s new claims procedure regulations

underscores that the benefit determination process is an integral

part of the claims administration for health and disability plans.

See 29 C.F.R. § 2560.503-1 (2003). Imposing a patchwork of state

law regulation and claims related to the manner and method of

cammunicating benefit determinations would run afoul of ERISA’s

administrative and civil enforcement mechanisms.

1]

coverage under the Judd Publishing Plan for a lung only

transplant and, consequently, sought other financing for the

procedure. (Pet. at 3) Second, this case does not raise the

issue of “treatment” versus “eligibility” sometimes found in

claims concerning managed care entities. There is no issue

present in this case that Benicorp in any way influenced

Mr. Williams’ medical care. In this matter, there is no tension

between state negligence law in the health care area and

ERISA preemption of matters relating to the administration

of ERISA plan benefits. For these and other reasons, there

is no reason for the Court to defer ruling on this Petition

during the pendency of the Court’s consideration of cases

involving questions of managed care and medical treatment.

See, e.g., Roark v. Humana, Inc., 307 F.3d 298 (5" Cir. 2002),

cert. granted, 72 USLW 3007, 72 USLW 3299, 72 USLW

3307 (U.S. November 3, 2003) (No. 02-1845).

Numerous circuits have had no difficulty applying the

Court’s principles to recognize that state law claims related

to alleged delay in the administration or determination of

ERISA plan benefits are completely preempted under the

scope of Section 502(a) of ERISA. See, e.g., Pryzbowski v.

U.S. Healthcare, Inc., 245 F.3d 266, 273-75 (3° Cir. 2001)

(State law claims for alleged delay in approving benefits falls

squarely within ERISA’s administrative function and are

completely preempted. The plaintiff could have sought an

injunction under Section 502(a), thereby using the provisions

of the civil enforcement scheme provided by Congress.).

Cicio v. John Does 1-8, 321 F.3d 83, 94-96 (2% Cir. 2002)

(state law claims alleging failure to timely conduct an appeal

of a denial of benefits are completely preempted under ERISA

as having an effect on the primary administrative functions

of benefit plans and within the scope of § 502(a).), petition

for cert. filed on other grounds, 74 USLW 3093 (U.S. July

11, 2003) (No. 03-69).

a]

Sa

4

cw

12

II. Mrs. Williams’ state law tort claim relates toan ERISA

welfare benefit plan and is also preempted under ERISA

Section 514.

ERISA supersedes any and all state laws relating to

employee benefit plans pursuant to 29 U.S.C. § 1144. ERISA

was enacted to provide a comprehensive federal regulatory

scheme for employee benefits. Pilot Life, 481 U.S. at 44.

Thus, ERISA was intended to prevent patchwork enforcement

by the various states by providing an express preemption

provision that ERISA “shall supercede any and all State laws

insofar as they may now or hereafter relate to any employee

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

noted that this preemption provision is “conspicuous for its

breadth.” FMC Corp. v. Holliday, 498 U.S. 52, 58 (1990).

In fact, ERISA’s comprehensive civil enforcement scheme

“would be completely undermined if ERISA-plan participants

and beneficiaries were free to obtain remedies under state law

that Congress rejected in ERISA.” /d. at 54. Congress therefore

consciously included in ERISA a conspicuously broad and

deliberately expansive preemption provision. Pilot Life, 481 U.S.

at 46, 51-57; see also Metropolitan Life Ins. Co. vy. Taylor, 481

U.S. 58, 64-67 (1987); FMC Corp., 498 U.S. at 58; Ingersoll-

Rand, 498 U.S. at 138-39.

ERISA’s preemption provision states in relevant part that

ERISA “‘supercede[s] any and all State laws insofar as they may

now or hereafter relate to any employee benefit plan.” 29 U.S.C.

§ 1144(a). The Court has emphasized that Congress used the

words “relate to” “‘in their broad sense, rejecting more limited

pre-emption language that would have made the clause

‘applicable only to state laws relating to specific subjects covered

by ERISA.’” Jngersoll-Randa, 498 U.S. at 138 (quoting Shaw v,

Delta Air Lines, Inc., 463 U.S. 85, 98 (1983)). Congress

13

intended, through the enactment of ERISA, that the field of

employee benefit plans be “exclusively a federal concern.” Alessi

v. Raybestos - Manhattan, Inc., 451 U.S. 504, 523 (1981).

The preemptive scope of ERISA is then limited by the

savings clause found at 29 U.S.C. § 1144(b)(2)(A) which

provides “. . . nothing in this subchapter shall be construed to

exempt or relieve any person from any law of any State which

regulates insurance, banking or securities.” The scope and

application of the savings clause was most recently addressed

by this Court in Kentucky Association of Health Plans, Inc. Vv.

Miller, 123 S. Ct. 1471 (2003). In Kentucky Association, the

Court ruled that in order to survive ERISA preemption under

the savings clause, the state law must:

“be specifically directed toward entities engaged in

insurance’; and

4. In Kentucky Association, the Court discarded the three-factor

McCarran-Ferguson test and developed a two-prong test. The new two-

prong Kentucky Association test si gnificantly borrows from the factors

under the prior McCarran-Ferguson test. This Court transformed the

McCarran-Ferguson factors into a new test in order to clarify what

requirements must be met in order for the savings clause to apply. This

Court made clear that the savings clause analysis was being changed to

provide clear guidance to lower courts. 123 S. Ct. at 1478-79.

The first prong under the Kentucky Association test is substantially

identical to the third factor under the McCarran-Ferguson test, which

was “whether the practice is limited to entities within the insurance

industry.” The first prong under Kentucky Association is whether the

law is “specifically directed toward entities engaged in insurance. .. .”

Id. at 1479. Both inquiries focus on whether the law is directed toward

entities in the insurance industry. Thus, cases interpreting the third factor

in McCarran—Ferguson are instructive and provide guidance as to the

first prong of the Kentucky Association test.

4

‘

a

14

“substantially affect the risk pooling arrangement

between the insured and insurer.” >

123 S. Ct. at 1479.

a. Mrs. Williams’ tort® claim is not saved by the

ERISA savings clause.

Mrs. Williams’ negligence claim is not saved from

ERISA preemption under the savings clause because it does

not satisfy either of the two requirements of Kentucky

Association. First, it is derived from common law and,

thus, not specifically directed to insurance entities. Second,

it does not substantially affect the risk pooling arrangement

between an insured and insurer. For either of these reasons,

Mrs. Williams’ negligence claim cannot be saved by the

ERISA savings clause.

5. The second prong under the Kentucky Association test is

substantially similar to the first factor of the McCarran-Ferguson test.

The first factor under McCarran-Ferguson is “whether the practice

has the effect of transferring or spreading a policyholder’s risk.”

Id. at 1478. The second prong under Kentucky Association is whether

the law “substantially affect[s] the risk pooling arrangement between

the insurer and insured.” /d. at 1479. Due to this similarity, prior

cases under the McCarran-Ferguson test provide guidance as to

application of the second prong under the Kentucky Association test.

6. Prior to her Petition, Mrs. Williams also characterized her

common law claim as a “bad faith” cause of action. Though the cited

authority remains the same, Mrs. Williams now categorizes the

Georgia common law as a negligence claim. Regardless, the analysis

under Kentucky Association is unaltered.

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15

b. Mrs. Williams’ state law claim is not specifically

directed to insurance companies because it

derives from general common law tort and

contract principles.

It is well established that a state law must be “specifically

directed toward” the insurance industry in order to fall under

ERISA’s savings clause; laws of general application that have

some bearing on insurers do not qualify. Pilot Life, 481 US.

at 50: see also Rush Prudential, 536 U.S. at 366; FMC Corp.,

498 U.S. at 61.

This Court in Pilot Life held that when a state bad faith

law has developed from general principles of contract and

tort law, it is not specifically directed to the insurance

industry. The Court stated:

A common-sense view of the word “regulates”

would lead to the conclusion that in order to

regulate insurance, a law must not just have an

impact on the insurance industry, but must be

specifically directed toward that industry.

Even though the Mississippi Supreme Court has

identified its law of bad faith with the insurance

industry, the roots of this law are firmly planted

in the general principles of Mississippi tort and

contract law. Any breach of contract, and not

merely breach of an insurance contract, may lead

to liability for punitive damages under Mississippi

law.

481 U.S. at 51. Because all contracts were subject to bad

faith claims, the law was not specifically directed to the

insurance industry.

aaa pareeiammenaien: ai

16

An analysis of Mrs. Williams’ claim and Georgia law

reveal that her purported claim is not “specifically directed”

to the insurance industry but rather is the type of common

law found to be preempted in Pilot Life. Areview of Georgia |

law establishes that Mrs. Williams’ claim is based upon

general principles of contract and tort law, including breach

of the implied duty of good faith and fair dealing which is

applied to classes of contracts.

Generally, there is no tort from a breach of contract.

Briarcliff v. Kelley, 31 S.E.2d 586, 590 (Ga. 1994). Thomas

v. Phoenix Mutual Life Ins. Co., 236 S.E.2d 510, 552

(Ga. Ct. App. 1977); American Oil Co. v. Roper, 14 S.E.2d

145, 148 (Ga. Ct. App. 1941). However, it is well settled in

Georgia that “certain classes” of contracts create a special

relationship for which the law then imposes a duty in tort.

Thomas, 236 S.E.2d at 552. The Georgia Supreme Court held

that “[o]nly where such contracts create a legal duty or a

relation from which the law implies duties will the breach

constitute a tort.” Briarcliff, 315 S.E.2d at 590; see also

Mimbs v. Commercial Life Ins. Co., 832 F. Supp. 354, 359-

60 (S.D. Ga. 1993). Even the case of Hub Motor Co. vy.

Burdakin, 386 S.E.2d 854, 855-56 (Ga. Ct. App. 1989), cited

by Mrs. Williams, recognizes that in special circumstances a

tort will rise from a breach of contract. The Georgia Court

of Appeals enunciated this common law rule quite clearly in

American Oil:

aeieuitemeieaineniaomntel mememenenaaiante le ~

There are certain classes of contracts which create

a relation from which the law implies duties, a

breach of which the law implies duties, a breach

of which will constitute a tort, and ‘in such cases

an injured party may sue either for breach of the

contract or in tort’ for breach of the implied duty.

17

This rule applies in certain contractual relations

between principal and agent, bailor and bailee,

attorney and client, physician and patient, carrier

and passenger or shipper, master and servant, and

similar well-recognized relations; but it is not

every contractual relation which involves a public

duty, the breach of which will support an action

in tort.

14 S.E.2d at 148; see also Manley v. Exposition Cotton Mills,

170 S.E. 711, 711 (Ga. Ct. App. 1933). In Mauldin v. Sheffer,

150 S.E.2d 150, 155 (Ga. App. 1966), the Georgia Court of

Appeals similarly noted that the law imposes upon “persons

of professional standing” an obligation to exercise a

reasonable degree of care “such as is ordinarily exercised

under similar conditions and like circumstances by persons

employed in the same or similar professions.” See also Kaiser

Aluminum & Chemical Corp. v. Ingersoll-Rand Co., 519

F.Supp. 60, 69 (S.D. Ga. 1981) (Under Georgia law,

“professional” relationships can give rise to a duty which

exceeds the bounds of the contract itself.); Howard v. Central

of Georgia Ry. Co., 71 S.E. 1017 (Ga. App. 1911).

The “professional” implied duty upon which Mrs.

Williams’ bases her negligence claim arises from common

law tort principles. “[T]he duty of the insurance company to

use ordinary care and good faith in the handling of a claim

against its insured arises out of the relationship between the

insurer and the insured created by the contract or policy of

insurance....” Francis v. Newton, 43 S.E.2d 282, 284

(Ga. Ct. App. 1947). The duty of good faith arises out of the

relationship of the insured and insurer. Metropolitan Property

& Casualty Ins. Co. v. Crump, 513 S.E.2d 33, 34 (Ga. Ct.

App. 1999). Where there is no privity of contract or special

18

relationship, then no action for negligence or bad faith against

the insurer may be brought. Francis, 43 S.E.2d at 284. It is

clear, then, that under Georgia law the negligence claim

alleged by Mrs. Williams derives from common law.

Numerous professionals share the same “special” contractual

relationship in which duties are implied. To be sure, the tort

of negligence is of general application and not specifically

directed to insurance companies.

In Moffett v. Halliburton Energy Services, Inc., 291 F.3d

1227 (10" Cir. 2002), the Tenth Circuit recently addressed

such “special relationships” within the context of ERISA’s

savings clause. Akin to Mrs. Williams, the plaintiff contended

that Wyoming’s state law “tort of insurance bad faith” was

specifically directed towards the insurance industry and, as

such, saved from preemption. Citing this Court’s holding in

UNUM Life Ins. Co. v. Ward, 526 U.S. 358 (1999), the

plaintiff argued that Wyoming’s “tort of insurance bad faith”

law was tantamount to California’s notice-prejudice rule.’

The Tenth Circuit disagreed, noting that while the Wyoming

tort-based claim may be more narrowly applied than

Mississippi’s law of bad faith in Pilot, it did not “home in”

on the insurance industry alone as does California’s notice-

prejudice law. Like Georgia, Wyoming recognizes “special

relationship” torts outside of the insurance context:

Those limited circumstances include employment

cases where a ‘special relationship’ exists between

the employer and the employee, and insurance

cases. The Wyoming Supreme Court has noted

that [a] special relationship is also an element of

7. California’s notice-prejudice rule provided that an insurer

must prove prejudice from an insured’s failure to give timely notice

of ‘a claim in order to enforce its proof-of-claim requirements.

19

a tort-based claim in the insurance context, which

automatically exists by virtue of the unequal

bargaining power the insurer has over an insured.

Moffett, 291 F.3d at 1236 (quoting Scherer Constr., LLC v.

Hedquist Constr., Inc., 18 P.3d 645, 652 (Wyo. 2001) (internal

citations omitted). Recognizing that its roots were in the

general principles of tort and contract law, the Tenth Circuit

concluded the “tort insurance of bad faith” is not unique to

the insurance industry; rather, it is unique to those settings

in which a “special relationship” exists, including the

insurance and employment contexts. Jd.

Since Pilot Life, lower courts have repeatedly recognized

that state common law and statutory bad faith and negligence

claims against insurers are not saved from preemption under

ERISA as such laws are not specifically directed to the

insurance industry. See, e.g., Cannon v. Group Health Service

of Okla., Inc., 77 F.3d 1270, 1275 (10" Cir.), cert. denied,

519 U.S. 816 (1996) (state law negligence claim does not

specifically regulate insurance company within the meaning

of ERISA’s savings clause); Hogan v. Kraft Foods, 969 F.2d

142, 144-45 (5" Cir. 1992) (state law claims for negligence

and breach of duty of good faith and fair dealing do not

specifically regulate insurance, banking, or securities and are

thus not protected under ERISA’s savings clause); Bast v.

Prudential Ins. Co. of America, 150 F.3d 1003, 1008

(9" Cir. 1998), cert. denied, 528 U.S. 870 (1999) (breach of

good faith claim brought under the Washington Insurance

Code is not exempt under ERISA’s savings clause); Powell

v. Chesapeake & Potomac Tel. Co. of Va., 780 F.2d 419, 423-

24 (4" Cir. 1985), cert. denied, 476 U.S. 1170 (1986)

(Virginia’s implied covenant of good faith and fair dealing

does not bear upon the “business of insurance” within

20

contemplation of ERISA’s savings clause and thus is not

saved from preemption).; Gilbert v. Alta Health & Life Ins.

Co., 276 F.3d 1292, 1296-98 (11" Cir. 2001) (Alabama statute

governing insurer bad faith refusal to pay preempted under

ERISA as statute had its roots in general principles of tort

and contract law.); Walker v. Southern Co. Serv., Inc., 279

F.3d 1289, 1292-94 (11" Cir.), cert. denied, 123 S. Ct. 111

(2002); see also Kelley v. Sears Roebuck & Co., 882 F.2d

453, 456 (10" Cir. 1989); Caffey v. UNUM Life Ins. Co., 302

F.3d 576, 582 (6" Cir. 2002); Howard v. Coventry Health

Care of Iowa, Inc., 293 F.3d 442, 446-47 (8 Cir. 2002);

Pryzbowski v. U.S. Healthcare, Inc., 245 F.3d 266, 270

(3° Cir. 2001). Mrs. Williams has not presented any authority

supporting a different result under Georgia common law.

Wheiner characterized as bad faith, breach of implied duty

of good faith or negligence, Mrs. Williams’ claim derives

from Georgia’s common law and, thus, cannot be saved from

ERISA preemption.

c. Mrs. Williams’ negligence claim does not

substantially affect the risk pooling arrangement

between the insured and insurer.

Mrs. Williams’ negligence claim is not saved from

preemption because it does not substantially affect the risk

pooling arrangement between the insured and insurer. Indeed,

the state law claim does nothing to allocate or affect the risk

between the insured and insurer.

_ Several circuits have recognized that bad faith and

negligence claims do not have the effect of transferring or

spreading policyholder risk. See Gilbert, 276 F.3d at 1298-

99; Walker, 279 F.3d at 1293; compare Kelley v. Sears,

Roebuck Co., 882 F.2d 453, 456 (10" Cir. 1989) (Colorado’s

21

common law of bad faith neither spreads policyholder risk

nor controls the substantive terms of the insurance contract);

Howard, 293 F.3d at 447, (“[t]he law of bad faith does not

effect a spreading of policyholder risk or define the terms of

the relationship between the insurer and the insured.”).

This conclusion is directly supported by this Court’s analysis

in Pilot Life, where the Court ruled that Mississippi's

bad faith law did not operate to spread policyholder risks.

Pilot Life, 481 U.S. at 50, 107 S. Ct. at 1554. Because possible

state law bad faith liability does not transfer or spread

policyholder risk, such state law can not be found to

substantially affect the risk pooling arrangement between the

insured and the insurer.

Moreover, in Smith v. Jefferson Pilot Life Ins. Co., 14

F.3d 562 (11" Cir.), cert. denied, 513 U.S. 808 (1994), the

Eleventh Circuit held that a Georgia statute governing notice

of termination of coverage to an insured was preempted under

ERISA. In that ruling, the court recognized that such an

obligation (not dissimilar to the purported notice obligation

Mrs. Williams seeks to impose on Benicorp) did not have

the effect of transferring or spreading policyholder risk.

Id. at 569. As such, a purported common law notice obligation

could not be found to substantially affect the risk pooling

arrangement. :

Since the ruling in Kentucky Association, other courts

have found that bad faith and negligence claims do

not substantially affect the risk pooling arrangement.

See Kidneigh v. UNUM Life Ins. Co of America, 345 F.3d

1182, 1187-88 (10" Cir. 2003); Ercole v. Conectiv and

Coventry Health Care of Delaware, Inc., No. Civ. A. 03-186

GMS, 2003 WL 21104926 (D. De. May 15, 2003); and

McGuigan y. Reliance Standard Life Ins. Co., 256 F. Supp.

22

2d 345, 348 (E.D. Pa. 2003) (E.D. Pa. April 9, 2003).

In Ercole, the court stated that:

There can be little dispute that the Delaware state

bad faith cause of action does not substantially

affect risk pooling between insurer and insured.

Rather, it simply provides extra-contractual

damages not permitted by ERISA.

2003 WL *6. Such common law claims, whether cast as bad

faith, breach of implied duty or negligence merely seek to

provide extra-contractual damages for an insurer’s conduct

in a benefit determination and do not substantially affect the

risk pooling arrangement between the insurer and insured.

Mrs. Williams’ state law claim, like those addressed in

other circuits, does not substantially affect the risk pooling

arrangement. The claim simply provides an insured a claim

for extra-contractual damages. Therefore, Mrs. Williams’

state law claim cannot satisfy the second prong of the

Kentucky Association test and, as such, is not saved from

ERISA preemption.

23

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted,

ANDREW W. HULL

Counsel of Record

A Ice M. MoricaL

Hoover Hutt BAKER

& HEATH LLP

111 Monument Circle

Suite 4400

P.O. Box 44989

Indianapolis, IN 46244-0989

(317) 822-4400

Attorneys for Respondent

‘ ae i y s as

5) 4 le. bic“ Ato se e