Opposition Brief — Smith v. Jefferson Pilot Life Insurance

Bupreme

2) F I

No. 93-1735 : JUN 3.0 1994

OFFICE OF THE CLERK

In The

Supreme Court of the United States

October Term, 1993

4

CRAWFORD B. SMITH, JR. and JEANNIE SMITH,

Petitioners,

JEFFERSON PILOT LIFE INSURANCE COMPANY,

Respondent.

4

On Petition For Writ Of Certiorari

To The United States Court Of Appeals

For The Eleventh Circuit

*

BRIEF IN OPPOSITION

¢

Marren C. Kerry

Counsel of Record

FisHER & PHILuIPs

1500 Resurgens Plaza

945 East Paces Ferry Road

Atlanta, Georgia 30326

(404) 231-1400

Counsel for Respondent

COCKLE LAW -BRIEF PRINTING CO., (800) 225-6964

OR CALL COLLECT (402) 342-2831

QUESTIONS PRESENTED

The “Questions Presented” as stated by Petitioners

are not properly presented. The only questions that could

be presented, and Petitioners have chosen not to directly

present them, are the following:

1. Did the Court of Appeals err in the reversal of

the District Court, holding that a health plan sponsored

by an insurance company for its agents, funded by the

employer through an insurance policy that it issued to

the Plan; and, including a dependent benefit feature con-

ditioned upon payment of a monthly contribution to the

plan, satisfied the prerequisites of ERISA Section 1002(1),

qualified as an ERISA-governed welfare plan, and was

not removed from ERISA’s regulatory design by Plain-

tiff’s interpretation of DOL Regulation 29 C.F.R.

§ 2510.3-1(e);

2. Did the Court of Appeals err in reversal of the

District Court, holding that Petitioners’ claim under

O.C.G.A. § 33-24-44, as applied to administration of

ERISA governed health benefits funded through a policy

of insurance, was preempted as a law “relating to” an

ERISA health plan; and was not saved from preemption

because such law did not qualify as a law which regulates

the business of insurance within the “savings clause” of

ERISA Section 514(b), 29 U.S.C. § 1144(b).

ii

TABLE OF CONTENTS

Page

QUESTIONS PRESENTED ..................00eeee- i

TABLE OF ATITHIORITING |... 60 dude cic ccves ees iv

STATEMENT OF THE CASE..................0000- 1

STATENS GF UACT kc. ke 2

REASONS FOR DENYING THE WRIT............. 5

I. The Court Of Appeals Did Not Depart From

Settled Law Or Conflict With Other Courts Of

Appeal In Reversing Partial Summary Judgment

And Remanding This Cause For Further Pro-

COUGMNGS. «« cncdoccccsveatieecinnnseicneeee 8

A. The Court Of Appeals Decision Concerning

ERISA Preemption Of Petitioners’ State Law

Claims Is Grounded On Established And

Unanimous Authorities; Petitioners’ Views

Concerning the McCarran-Ferguson Test, As

Applied To This ERISA Preemption Ques-

tion, Are No Basis For Supreme Court

DOVIOWS « crncccvevvexkaddneshcivevmens 9

B. The Court Of Appeals Correctly Held That

Petitioners’ Tort Claims Are Clearly Pre-

empted; There Is Nothing To Warrant Fur-

te OCW so iis ci citcs ieee 15

II. Respondent’s Plan Is Governed By ERISA; Exclu-

sionary Regulation 29 C.F.R. § 2510.3-1(e) Does

Not Apply. This Circuit Court Correctly So Held;

There Is No Basis For Further Review ......... 19

iil

TABLE OF CONTENTS - Continued

Page

A. Petitioners’ Refusal To Acknowledge The

Distinction Between Acts Of The Employer

And Acts Of The Plan Is No Basis For

Supreme Court Review...........-...+-+-- 20

B. Under Petitioners’ Novel Theory, Insurance

Company Sponsored Plans Would Be

Removed From ERISA; The Court Of

Appeals Properly Rejected Petitioners’

Notion. There Is No Basis For Further

ac cSeckbde bec etentetcencccedecvcccce 23

IT ant bn tbo edhe scewe vncdcves cg etuses 25

iv

TABLE OF AUTHORITIES

Page

CASES:

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

101 S.Ct. 1895, 68 L.Ed.2d 402 (1981) ............. 16

Amato v. Western Union Intern., Inc., 773 F.2d

DU GE GE ROD 6 « 60 Fi elas kno 5st ReneK eek od 21

Belasco v. W.K.P. Wilson & Sons, Inc., 833 F.2d 277

CE ay SPs DE io he oh ise sab hs pa ances 17

Dime Coal Co., Inc. v. Combs, 796 F.2d 394 (11th

BA EE oi bse piieesusenhscdccdes eheae eee 21

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

SE a neh escuvisceductscivevies cekesbine 19, 20, 23

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

F.2d 732 (7th Cir. 1986), cert. denied, 482 U.S.

Bs PET TCT PET eT eee Fe eee Pe eee 20

FMC Corp. v. Holliday, 498 U.S. 52, 111 S.Ct. 403,

SIS CPs See Ce a ck v rsinsvdwicindndics 14, 15, 16

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

107 S.Ct. 2211, 961 L.Ed.2d 1 (1987)............ 14, 16

Gahn v. Allstate Life Ins. Co., 926 F.2d 1449 (5th

OE Re ais Pres 11, 12, 13, 14

Gelardi v. Pertec Computer Corp., 761 F.2d 1323

SP Sante I Fo pcs cs ia 50 dics ew eh bah ena eK ods « 21

Graves v. Blue Cross of California, 688 F. Supp.

PE Gy I 5s « ENE ae eR eb eb sh cede as 18

Hansen v. Continental Ins. Co., 940 F.2d 971 (5th

Ge FONE ncenwy Kb 60s one hhc kiainnbertedats 8, 17

eR

ROTTEN st

Vv

TABLE OF AUTHORITIES - Continued

Page

Ingersoll-Rand v. McClendon, 498 U.S. 133, 111

S.Ct. 478, 112 L.Ed.2d 474 (1990).......... 6, 8, 15, 17

Kanne v. Connecticut Gen. Life Ins. Co., 867 F.2d

ee ee Ge es eat bas BR, eee i Sek 2 9, 18

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

724, 105 S.Ct. 2380, 85 L.Ed.2d. 728 (1985) ....... 10, 15

Payonk v. HMW Indus., Inc., 883 F.2d 221 (3d Cir.

ss cob aid Diag dS hana Welk Raid ela ius bac hoi s 20

Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 107

S.Ct. 1549, 95 L.Ed.2d 39 (1987)....... 6, 8, 10, 14, 16

Ticor Title Ins. Co. v. Federal Trade Commission,

Pe ee Re Ce I BE nk oc ns no be one abe ons 11, 13

Tingle v. Pacific Mut. Ins. Co., 996 F.2d 105 (5th

a 11

Tomczyk v. Blue Cross and Blue Shield United of

Wisconsin, 951 F.2d 771 (7th Cir. 1991)............ 18

Union 2134, UMWA v. Powhatan Fuel, 828 F.2d

Fe ee a is Sa ao es i Se ee BESS Coven 20

Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119,

102 SAE Soe, 72 b.ba.2e 667 (I962) ..... 22.2... 10

Willett v. Blue Cross and Blue Shield of Alabama,

953 F.2d 1335 (lith Cir. 1992)........... 8, 12, 13, 15

STATUTES:

en Sa ia > wes oh kane neeeewa es anae Te

NG hb hose 6 enki s ocebe cheeses de vkhieee 24

Be ee nb dcdcy ig bckie snus sede vexves 7, 8, 16

vi

TABLE OF AUTHORITIES — Continued

Page

29 U.S.C. GLIGE. ooo cces cde debe edt sive ceeees ., Fy

McCarran-Ferguson Act 15 U.S.C. §1011......... passim

O.C.G.A. §33-24-44. 0... cece cece renee ee eee eens passim

OTHER AUTHORITIES:

29 C.F.R. §2510.3-1(e) .. 0... eee cece eee eee eens passim

STATEMENT OF THE CASE

This Petition, fifty-six (56) pages in length, contains a

section titled “summary of facts”; the allegations con-

tained therein are certainly not the “facts” of this record.

Petitioners’ prolix “fact statement” is composed almost

entirely of unproven allegations and argument. Peti-

tioners’ self-serving version of events has never been the

subject of evidence; there have been no findings of fact in

these proceedings. Petitioners’ “summary of facts” is

nothing but their compendium of allegations which are

vigorously disputed.

And, Petitioners’ allegations concerning the merits of

their wrongful denial of benefits claim are not at all

relevant to the instant Petition because, prior to any

hearing on the merits of Petitioners’ claim, the district

court entertained cross-motions for summary judgment

on two narrow, strictly legal issues: 1) whether the Com-

pany’s group medical plan for agents and their eligible

dependents (the “Medical Plan” or the “Plan”) constitu-

ted an “employee welfare benefit plan” within Section

3(1) of the Employee Retirement Income Security Act

(“ERISA”), 29 U.S.C. §1002(1); and, if the Plan did in fact

fall within ERISA’s regulatory scope, whether O.C.G.A.

§33-24-44, invoked by Petitioners as the basis of their

statutory and common law tort claim, is preempted by

ERISA Section 514, 29 U.S.C. §1144. The sole relevant

facts of this case, which are of record and undisputed, are

as follows.!

STATEMENT OF FACTS

At all times relevant, Petitioner Crawford Smith was

employed by Jefferson Pilot Life Insurance Company? as

a sales agent. The Company, in its capacity as employer,

provided major medical benefits to agents through a

“Group Life and Medical Insurance Plan for Agents and

General Agents” (the “Plan”). The Company bore 100% of

the costs of Plan medical benefits provided to agents.

Petitioners have never contested the fact that the Plan

fully satisfied the ERISA Section 3(1) definition of a “wel-

fare benefit plan.” 29 U.S.C. §1002(1).

Plan terms were contained in a summary plan

description booklet (“SPD”) published by the Company.

! Petitioners’ protracted “statement of facts” provides little,

if any, information probative of the issues before the Court. The

Company will not engage in a point-by-point refutation of

Plaintiffs’ discursive presentation; rather, it returns to govern-

ing legal precepts of ERISA application and preemption, which

are not affected by Petitioners’ self-serving version of “facts”.

2 Prior to 1987, Crawford Smith was employed by Pilot Life

Insurance Company. Pilot Life merged with Jefferson Pilot in

1987. Reference to “the Company” or the Company’s benefit

Plan encompasses Defendant as well as its predecessor, Pilot

Life. Petitioners Mr. and Mrs. Smith are referred to by name or

collectively as “Petitioners”. Respondent Jefferson Pilot Life

Insurance Company is referred to as “Respondent” and “the

Company”. The Company is based in North Carolina and does

business in forty-five (45) states. Its agents who participate in

the Plan reside in states across the U.S.

7 |

The SPD detailed medical benefits and described claim

procedures; it included a statement of ERISA rights and

remedies. The SPD designated a Welfare Benefits Admin-

istration Committee as administrator of the Plan. It

informed participants that medical benefits for agents

were funded by the Company through group insurance

Policy No. 3469 written by the Company to the Plan.

Further, the SPD described the Plan’s dependent cov-

erage feature. The Plan provided that eligible dependents

could participate in the Plan, and be eligible for medical

benefits provided through Policy No. 3469, by enrolling

in the Plan and by the agent’s payment of monthly contri-

butions on the dependent’s behalf. The SPD informed

participants that where dependent coverage was elected,

the required monthly contributions would be collected

via deduction from the agents’ commission account. It

informed participants that if monthly contributions were

not made, then dependent participation in the Plan

would terminate. In 1981, Crawford Smith enrolled Mrs.

Smith in the Plan under the dependent coverage feature.

In 1986, Plan administrators determined that Mrs.

Smith’s eligibility for Plan medical benefits was termi-

nated due to Mr. Smith’s failure to make the monthly

contributions required as a condition precedent to depen-

dent coverage. Mr. and Mrs. Smith disputed the Plan’s

determination that participation was terminated; they

claimed that any failed payment was based on mutual

mistake and/or the fault of the Plan and/or the Com-

pany. This benefit entitlement dispute became the subject

of the instant lawsuit.

In their lawsuit, Petitioners have assiduously

avoided making any claim under ERISA and ERISA’s

Section 502 remedial scheme. Rather, they have made

various state law claims including alleged violation of

Georgia statute O.C.G.A. §33-24-44, which imposes cer-

tain duties concerning notice in the cancellation of insur-

ance policies. Petitioners have argued that this

cancellation law governs the Plan, and that O.C.G.A.

§33-24-44 notice requirements were not satisfied by Plan

administrators when Mrs. Smith’s Plan benefit eligibility

terminated. Petitioners seek to hold the Company liable

for violation of O.C.G.A. §33-24-44 and for tort liability

allegedly related to the administrative failure to give

notice.

Petitioners have never addressed the fact that the

only insurance policy which had any relationship to the

subject health benefits, Policy No. 3469, was never can-

celled or suspended. There was never a “cancellation” of

any policy of insurance within the meaning of O.C.G.A.

§33-24-44. The events at issue in this litigation do not

involve “cancellation” of any insurance policy; they

involve administration of the Plan, and the Plan’s termi-

nation of Mrs. Smith’s eligibility for Plan benefits for

failure to satisfy Plan conditions governing dependent

coverage.

As noted, prior to any evidentiary hearing, the trial

court entertained cross-motions for partial summary

judgment on the questions of whether ERISA governed

this cause and whether ERISA preempted application of

O.C.G.A. §33-24-44 as relating to the administration and

termination of the Plan. The district court first rejected

ERISA application; and, alternatively held that O.C.G.A.

§33-24-44 as applied to Plan benefit termination, was

saved from ERISA preemption as a law which regulates

insurance. The Eleventh Circuit granted the Company’s

petition for interlocutory review of both rulings. After

briefing and oral argument, the Eleventh Circuit reversed

both holdings of the district court, confirming ERISA

plan status and preemption.

The sole issues before the district court, and ulti-

mately before the Eleventh Circuit, were (1) whether the

health coverages afforded to Mrs. Smith as Mr. Smith’s

dependent through the Company Plan, constituted a wel-

fare plan governed by ERISA; and, (2) whether O.C.G.A.

§33-24-44, is preempted when applied to the administra-

tion of an ERISA governed welfare plan.

+

REASONS FOR DENYING THE WRIT

Contrary to the Petitioners’ claims, this case does not

present any conflict with prior decisions of this Court,

nor have Petitioners shown that there is a conflict with

any decision of another Court of Appeals on the same

matter. Petitioners have not substantively identified any

conflict, in principle or spirit, with the body of law gov-

erning the scope of ERISA preemption and/or the limits

of the ERISA savings clause as set forth in Section 514 of

the Act. The instant decision, which properly applies

McCarran-Ferguson Act, 15 U.S.C. §1011 et seq., indicia to

determine whether the cancellation law constitutes a law

which regulates the business of insurance, is entirely

consistent with this Court’s holdings and the decisions of

sister Courts of Appeal. Section 514 of ERISA expressly

|

preempts state laws which “relate to” an employee bene-

fit plan. Ingersoll-Rand v. McClendon, 498 U.S. 133, 111

S.Ct. 478, 112 L.Ed.2d 474 (1990); Pilot Life Ins. Co. v.

Dedeaux, 481 U.S. 41, 107 S.Ct. 1549, 95 L.Ed.2d 39 (1987).

Georgia statute O.C.G.A. §33-24-44, which purports to

regulate benefit eligibility and Plan administration,

plainly relates to an ERISA plan. The Court of Appeals

properly held that such regulation is plainly preempted

by ERISA. There is no basis for further review.

The Court of Appeals properly reversed the district

court’s finding that DOL regulations at 29 C.F.R.

§2510.3-1(e) exempt this Plan from ERISA because the

dependent coverage provision required a contribution to

qualify for health benefits funded by an insurance policy

issued by the Company to the Plan. Petitioners concede

that there are no conflicting decisions, in principle or

otherwise, with the Court of Appeal’s interpretation of 29

C.F.R. §2510.3-1(e). There has never been any case which

supports Petitioners’ novel construction of this Regula-

tion; their strained interpretation would effectively

destroy ERISA coverage to all insurance industry

employees who are participants in plans funded through

policies of insurance issued by the insurer-employer to

the plan. Petitioners have grasped at straws to avoid

ERISA. There is no basis for this Court’s further review.

Contrary to the apocalyptic language and prolix

claims asserted in the Petition for Certiorari, the two

issues presented to the Eleventh Circuit in this case were

narrow and precise. The Court of Appeals reversed the

decision of the district court granting partial summary

judgment because the district court misconstrued ERISA’s

preemption and savings clause, 29 U.S.C. §1144, and mis-

applied Department of Labor regulations at 29 C.F.R.

§2510.3-1(e). The district court failed to consider that the

Company health program for agents, funded via a group

insurance policy written by the Company to the Plan, was

clearly within the definition of an ERISA governed plan;

and the dependent coverage feature, which provided cov-

erage conditioned upon a payment to the Plan, would not

abrogate ERISA regulation.

The district court further failed to appreciate that

Petitioners’ claims, although couched in terms of Georgia

state law, are in fact grounded on their dispute with Plan

administrators concerning benefit eligibility and entitle-

ment. The remedy for alleged wrongful denial of ERISA

benefits, which is plainly the crux of this lawsuit, is

governed by ERISA’s exclusive remedial scheme. 29

U.S.C. §1132. The Court of Appeals correctly so held.

The Pilot Life court made clear that §1132 is a

comprehensive scheme for enforcement of

ERISA plan disputes, adding that “[t]he policy

choices reflected in the inclusion of certain

remedies and the exclusion of others under the

federal scheme would be completely under-

mined if ERISA-plan participants and benefici-

aries were free to obtain remedies under state

law that Congress rejected in ERISA.” 481 U.S.

at 54. The claim at issue in Pilot Life sought to

recover benefits due under the plan pursuant to

§1132(a)(1)(B). The instant case concerns a claim

that the defendant wrongfully lapsed coverage; thus,

it involves a suit to enforce the plaintiff's rights

under the plan, which is covered under

§1132(a)(1)(B).

Appendix, page 31 n.12 (emphasis supplied).

The Court of Appeals held that the health coverages

allegedly due to Mrs. Smith were provided pursuant to

an ERISA governed health plan. The Court of Appeals

confirmed that Petitioners clearly had a remedy for such

alleged wrongful denial — the parameters of such remedy

was governed by the remedial scheme set forth at ERISA

Section 502, 29 U.S.C. §1132.

The arguments set forth in this Petition, like the

arguments to the Court of Appeals, reflect Petitioners’

efforts to avoid the ERISA remedies which were and

continue to be entirely available. The Court of Appeals

correctly held that, Petitioners’ claims grounded on

O.C.G.A. §33-24-44 and state tort law are preempted. The

Court properly remanded this cause for further proceed-

ings under the parameters of ERISA.

I. The Court Of Appeals Did Not Depart From Settled

Law Or Conflict With Other Courts Of Appeal In

Reversing Partial Summary Judgment And Remand-

ing This Cause For Further Proceedings.

The Court of Appeals determination, that O.C.G.A.

§33-24-44, and any tort claim thereunder is preempted by

ERISA and not saved from preemption as a “law which

regulates insurance”, is firmly grounded in the language

of the statute, and the decisions of this Court, and

numerous, unanimous Courts of Appeal decisions. See,

e.g., Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 111

S.Ct. 478, 482, 112 L.Ed.2d 474, 483 (1990); Pilot Life Ins.

Co. v. Dedeaux, 481 U.S. 41, 107 S.Ct. 1549, 95 L.Ed.2d 39

(1987); Willett v. Blue Cross and Blue Shield of Alabama, 953

F.2d 1335 (11th Cir. 1992); Hansen v. Continental Ins. Co.,

940 F.2d 971, 979 (5th Cir. 1991); Kanne v. Connecticut Gen.

Life Ins. Co., 867 F.2d 489, 493-94 (9th Cir. 1988). The

instant Petition contains nothing more than a restatement

of Petitioners’ argument to the Court of Appeals and

their insistent disagreement with the Court of Appeals’

determination. As shown below, their efforts to identify

some “conflict” between the Court of Appeals decision

and Supreme Court and/or sister circuit precedents is a

distinct failure.

A. The Court Of Appeals Decision Concerning

ERISA Preemption Of Petitioners’ State Law

Claims Is Grounded On Established And Unan-

imous Authorities; Petitioners’ Views Concern-

ing the McCarran-Ferguson Test, As Applied To

This ERISA Preemption Question, Are No

Basis For Supreme Court Review.

Petitioners’ first argument concerns ERISA preemp-

tion of O.C.G.A. §33-24-44 as applied to the administra-

tion of ERISA governed health benefits funded by

insurance. Petitioners argue that the Court of Appeals

decision “conflicts with the decisions of at least two other

United States Courts of Appeal”, and “has misinterpreted

the risk-spreading principle as it is generally under-

stood”. Petition, pp. 21, 24. Petitioners’ arguments mis-

state the law and provide no basis for Supreme Court

review.

The Court of Appeals properly relied on this Court's

clear directive that, in construing ERISA’s Section 514(b)

savings clause, McCarran-Ferguson criteria are utilized to

determine whether a state law is directed at the “business

of insurance” so as to “escape preemption by operation of

10

the ERISA savings clause.” Metropolitan Life Ins. Co. v.

Massachusetts, 471 U.S. 724, 105 S.Ct. 2380, 85 L.Ed.2d 728

(1985); see Pilot Life Ins. Co. v. Dedeaux, 481 U.S. at 41. The

crux of Petitioners’ disagreement with the Court of

Appeals focuses on two McCarran-Ferguson criteria, i.e.,

the question of whether the subject state law regulates

“transfer of risk”; and whether the statute affects an

“integral part of the relationship between the insurer and

the insured”. In fact, the Court of Appeals carefully and

correctly considered both of these McCarran-Ferguson

criteria in its preemption analysis.

The Court of Appeals’ consideration of risk spread-

ing, as applied to O.C.G.A. §33-24-44, was in full accord

with this Court’s analysis in Union Labor Life Ins. Co. v.

Pireno, 458 U.S. 119, 130, 102 S.Ct. 3002, 73 L.Ed.2d 647

(1982). Citing Pireno, the Court of Appeals held that the

transfer of risk is completed at the time the contract is

entered. Appendix, pp. 24-25. Thus, in full accord with

Pireno, the apportionment of risk in the instant case (i.e.,

what medical coverages were to be provided to the group

of Plan participants eligible for Plan benefits), was deter-

mined at the time that Policy No. 3469 was issued. Nei-

ther Mrs. Smith’s eligibility for Plan benefits, nor her

termination of eligibility, had any effect on the apportion-

ment of risk under this Court’s Pireno analysis. Peti-

tioners have identified no conflict whatsoever between

this Court of Appeals decision and Pireno.

On the “transfer of risk” question, the record fact is

that Petitioners never purchased and were never issued

any policy of insurance by the Company; there was never

any risk spread between Petitioners and the Company;

11

the only policy in question was issued to the Plan. Peti-

tioners’ argument, that the “transfer of risk” is governed

by O.C.G.A. §33-24-44 (which merely sets notice stan-

dards for policy cancellation), was fully argued to and

rejected by the Court of Appeals. There is no basis for any

further review.

[A]lthough a statute that prevents cancellation

of a policy without notice arguably affects the

transfer of risk, since it regulates the conditions

under which the insurer must continue to bear

risks for the insured, it does not alter the initial

apportionment of risk among the parties at the

inception of the contract. The first prong of the

business of insurance test concerns only laws

that impact the original apportionment of risks

covered by the policy. The statute before us

merely attempts to minimize the risk of noncov-

erage to persons whose policies lapse. See, Tingle

v. Pacific Mut. Ins. Co., 996 F.2d 105, 109 (Sth Cir.

1993). ...

Appendix, p. 25 n.9.

Petitioners cite Ticor Title Ins. Co. v. Federal Trade

Commission, 998 F.2d 1129, 1134 (3rd Cir. 1993) and Gahn

v. Allstate Life Ins. Co., 926 F.2d 1449, 1454 (Sth Cir. 1991)

and claim that these two decisions conflict with the Elev-

enth Circuit’s “transfer of risk” analysis.

Petitioners simply refuse to appreciate the fact that

Gahn v. Allstate Life Ins. Co., 926 F.2d 1449 (Sth Cir. 1991)

has absolutely no application to the instant facts. The

Louisiana statute in Gahn which was deemed an insur-

ance regulation for purposes of the ERISA savings clause,

is not comparable to O.C.G.A. §33-24-44. The Louisiana

ee | E

12

statute does not provide “notice” requirements for can-

cellation. The Louisiana statute does not deal at all with

administrative notice requirements. Rather, the Louisiana

statute mandates that medical coverage for certain pre-

existing health conditions must continue irrespective of

policy cancellation. Here, the Court of Appeals speci-

fically considered and rejected Petitioners’ reliance on

Gahn, correctly noting the substantive difference between

the Louisiana mandated insurance benefit law, and

O.C.G.A. §33-24-44 administrative notice requirements:

The Plaintiff relies or Gahn v. Allstate Life Ins.

Co. to support his argument that the statute

affects an integral part of the policy relation-

ship. 926 F.2d 1449 (5th Cir. 1991). . . . [The

Louisiana statute] mandated the continued pay-

ment of benefits after cancellation to certain pol-

icy holders. O.C.G.A. §33-24-44(d) does not

affect the terms of coverage. It regulates the

procedure for ending the policy relationship,

and adds to the administrative requirements

that group policies face.

Appendix, p. 28 n.10.

In Willett v. Blue Cross and Blue Shield of Alabama, 953

F.2d 1335, 1341 n.6 (11th Cir. 1992) and in the instant

decision, the Court of Appeals found that a state statute

imposing cancellation notice requirements is administra-

tive; such statute does not qualify as a law which regu-

lates the business of insurance. No “risk is spread” by

virtue of a statute which provides a purely administrative

notice requirement. The Willett decision is conspicuously

absent from Petitioners’ Brief to this Court.

13

Petitioners’ citation to Ticor Title Insurance Company v.

Federal Trade Commission, 998 F.2d 1129, 1134 (3d Cir.

1993) adds nothing to their misapplication of Gahn, and

their contention that the Court of Appeals’ analysis of

O.C.G.A. §33-24-44 is wrong. Ticor does no more than

make cursory reference to and reject Gahn as inapplicable

to the Ticor facts.* Whatever cursory language the Ticor

court utilized to summarize Gahn, the fact is that Gahn

dealt with a Louisiana statute mandating continuing

insurance coverage as to all existing claims; such is

entirely different from O.C.G.A. §33-24-44 which deals

only with administrative notice of cancellation; and

which is not a law which regulates insurance for purpose

of the ERISA savings clause. Willett, 935 F.2d at 1341. The

Court of Appeals analysis is not in conflict with Ticor or

Gahn or any other Circuit Court decision. There is no

basis for this Court’s further review.

Petitioners next contend that the Court of Appeals

wrongly held that O.C.G.A. §33-24-44 does not impact an

integral part of the policy relationship between the

3 In fact, the Ticor description of the Gahn holding is incor-

rect. In Ticor, the Third Circuit described Louisiana state statute

at issue in Gahn, as “establish[ing] certain conditions precedent

to an insurers power to cancel a pre-existing insurance con-

tract”. In fact, the Louisiana statute at issue in Gahn has nothing

to do with “conditions precedent to cancellation”; rather, it

effectively prohibits cancellation and mandates continuous cov-

erage as to certain “benefits accrued”. 926 F.2d at 1449. Peti-

tioners cannot successfully exploit the Ticor misstatement for

the proposition that notice/cancellations laws such as O.C.G.A.

§33-24-44 must be saved from preemption under the authority

of Gahn. The Louisiana statute in Gahn had nothing to do with

“notice of cancellation” that is the subject of O.C.G.A. §33-24-44.

14

insurer and the insured. The Court of Appeals speci-

fically considered and rejected the Petitioners’ continued

reliance on Gahn v. Allstate Life Ins., supra. The Court of

Appeals correctly concluded that a statute which imposes

administrative notice requirements incident to cancella-

tion is not comparable to a law mandating benefits.

Appendix, p. 28 n.10. Petitioners’ citation to the Louisi-

ana statute considered in Gahn provides no legitimate

support for their claim that O.C.G.A. §33-24-44 must be

deemed a law which regulates the “business of insur-

ance”. As applied to an insurance funded welfare Plan,

such purports to regulate Plan administration, and partic-

ularly the administration of ERISA benefit termination.

Such state regulation of Plan administration is clearly

preempted by ERISA Section 514, and the Court of

Appeals correctly so held.

The Court of Appeals correctly analyzed and applied

the body of law developed under ERISA which confirms

that plan administration is a central ERISA concern;

ERISA is designed to provide uniformity in the adminis-

tration of benefit plans for the protection of all partici-

pants. FMC Corp. v. Holliday, 498 U.S. 52, 59-60, 111 S.Ct.

403, 112 L.Ed.2d 356 (1990); Fort Halifax Packing Co., Inc. v.

Coyne, 482 U.S. 1, 9, 107 S.Ct. 2211, 961 L.Ed.2d 1 (1987);

Pilot Life, 481 U.S. at 46. Uniformity and administrative

consistency would be discarded if ERISA plans were sub-

ject to administrative cancellation laws of every state in

which plan participants reside; rights and obligations

would vary according to the state in which the partici-

pant happens to live. Such is in stark contrast to this

Court’s ERISA analysis and the uniform and consistent

15

administration of welfare plans that ERISA is designed to

achieve. Id.

The Court of Appeals’ holding on preemption fully

comports with this Court’s directive in Ingersoll-Rand Co.

v. McClendon, 498 U.S. 133, 111 S.Ct. 478, 482, 112 L.Ed.2d

474, 483 (1990), that any doubt regarding ERISA’s pre-

emptive force must be resolved in favor of the “breadth”

and “deliberately expansive” nature of ERISA’s objec-

tives. See Willett, 953 F.2d at 1341 n.6. The Court of

Appeals, specifically considering the Supreme Court's

reasoning in FMC Corp. v. Holliday, 498 U.S. at 61 (state

anti-subrogation statute “directly controls the terms of

insurance contracts by invalidating any subrogation pro-

visions that they contain”); and Metropolitan Life Ins. Co.

v. Massachusetts, 471 U.S. at 74 (mandated benefits laws

regulate an integral part of the policy relationship “by

limiting the type of insurance that an insurer may sell to

the policyholder”), correctly concluded that the notice

requirements of O.C.G.A. §33-24-44 did not satisfy the

McCarran-Ferguson criteria and did not regulate “the

business of insurance” for purposes of the ERISA savings

clause. There is no basis for further review of the Court of

Appeals decision.

B. The Court Of Appeals Correctly Held That

Petitioners’ Tort Claims Are Clearly Preempted;

There Is Nothing To Warrant Further Review.

The Court of Appeals held that Petitioners’ effort to

boot-strap a tort claim to an alleged violation of O.C.G.A.

§33-24-44 is clearly preempted by ERISA. Petitioners

claim entitlement to Supreme Court review because, in

16

their opinion, the Court of Appeals’ holding is “illogical

and fundamentally erroneous.” Petition, p.38. Petitioners

continue to ignore the overwhelming body of Supreme

Court and Circuit Court decisions establishing the exclu-

sive ERISA remedial scheme and confirming preemption

of alternative state tort remedies.

The Court of Appeals aptly observed that this

Court’s decision in Pilot Life Ins. Co. v. Dedeaux, 481 U.S.

41 (1987) establishes that, even where the ERISA savings

clause would apply, such savings was necessarily limited

to the insurance regulation in question. The Court of

Appeals confirmed what this Court has made clear; oper-

ation of the savings clause must be limited in accord with

congressional intent that ERISA provide the exclusive

remedy for benefit disputes. Appendix, p. 31 n.12.

Here, Petitioners repeatedly cite FMC Corp. v. Holli-

day, 498 U.S. at 52, for the proposition that “saved” insur-

ance regulations should trigger state law remedies above

and beyond the strictly limited ERISA remedial scheme,

29 U.S.C. §1132. The FMC Corp. v. Holliday decision con-

tains no such suggestion. Rather, FMC Corp. v. Holliday

confirms that, in enacting ERISA, Congress’ intent was

uniformity in the administration of employee benefit

plans; elimination of varying standards and remedies

created by differing state laws. Id.; see, Fort Halifax Pack-

ing Co. v. Coyne, 482 U.S. 1, 10, 107 S.Ct. 2211, 96 L.Ed.2d

1, 10 (1987), citing Alessi v. Raybestos-Manhattan, Inc., 451

U.S. 504, 101 S.Ct. 1895, 68 L.Ed.2d 402 (1981) (“We have

not hesitated to enforce ERISA’s preemptive power where

17

state law created the prospect that an employer’s admin-

istrative scheme would be subject to conflicting require-

ments”). It is settled law that there is no state tort remedy

available under the exclusive ERISA remedial scheme.

Petitioners’ contention that a state-law tort claim

should be available to them, defies the purpose of ERISA,

long recognized by the Supreme Court, to preserve a

“uniform body of benefit law ... [and] minimize the

administrative and financial burden of complying with

conflicting directives among the States . . . [which is]

fundamentally at odds with the goal of uniformity that

Congress sought to implement.” Ingersoll-Rand Corp. v.

McClendon, 498 U.S. 133, 111 S.Ct. 478, 112 L.Ed.2d 474

(1990). Comporting with such precedent, the Court of

Appeals correctly observed:

The instant statute relates directly to the admin-

istration of insured benefit plans; to permit the

saving clause to foreclose preemption would

undermine a core purpose of ERISA - providing

uniform standards for administration of benefit

plans. Accordingly, we hold that the savings

clause does not apply to O.C.G.A. §33-24-44(d),

and this case must proceed under ERISA.

Appendix, pp. 31-32 (footnote omitted).

4 See, e.g. Belasco v. W.K.P. Wilson & Sons, Inc., 833 F.2d 277

(11th Cir. 1987) (common law and statutory claims against plan

insurer preempted; ERISA preemption extends to insurance

coverage disputes); Hansen v. Continental Ins. Co., 940 F.2d 971,

979 (5th Cir. 1991) (“[W]hen beneficiaries seek to recover bene-

fits from a plan covered by ERISA, their exclusive remedy is

provided by ERISA”).

18

Petitioners’ citation to Tomczyk v. Blue Cross and Blue

Shield United of Wisconsin, 951 F.2d 771, 776 (7th Cir. 1991)

does nothing to support their efforts to avoid this Court's

confirmation of ERISA’s exclusive remedial scheme.

Nothing in Tomczyk remotely supports Petitioners’ dissat-

isfaction with the exclusive ERISA remedial scheme. And,

the California district court’s analysis in Graves v. Blue

Cross of California, 688 F. Supp. 1405 (N.D. Cal. 1988),

concerning an insurance deceptive practice statute, is

entirely inapplicable to the instant ERISA benefit eligi-

bility dispute.>

The Court of Appeals correctly held that ERISA pre-

emption and the congressional objective of uniformity in

ERISA administration, rights and remedies plainly con-

trol this O.C.G.A. §33-24-44 claim. The Georgia cancella-

tion statute, as applied to the administration of ERISA

health benefits funded by insurance, is preempted by

Section 514(a). 29 U.S.C. §1144(a). Petitioners’ arguments

and the district court’s opposite conclusion are contrary

to the requirements of the McCarran-Ferguson test, and

the weight of authorities here cited. As the Court of

Appeals pointedly noted, Petitioners’ dispute concerning

Mrs. Smith’s eligibility for health benefits is governed by

the exclusive ERISA remedial scheme; and, Petitioners’

ERISA remedy is fully available.

> Moreover, the California district court’s rationale is fun-

damentally at odds with the Ninth Circuit. Kanne v. Connecticut

Gen. Life Ins. Co., 867 F.2d 489, 493-94 (9th Cir. 1988) (ERISA

preempts state insurance law claims despite fact that insurance

law included private right of action; ERISA’s civil enforcement

provision is an exclusive remedy).

——EEE——ee——E

|

19

The Court of Appeals properly remanded this cause

to the district court for further proceedings under

ERISA’s exclusive remedial scheme. This Petition pre-

sents no valid basis warranting further review. This Peti-

tion should be denied in its entirety.

II. Respondent’s Plan Is Governed By ERISA; Exclu-

sionary Regulation 29 C.ER. §2510.3-1(e) Does Not

Apply. This Circuit Court Correctly So Held; There

Is No Basis For Further Review.

Applying the ERISA plan criteria of Donovan v. Dil-

lingham, 688 F.2d 1367, 1371 (11th Cir. 1982) to undisputed

record facts, the Medical Plan is an ERISA-governed wel-

fare arrangement.®

Petitioners contend that, despite the fact that the Plan

meets the ERISA criteria, the Department of Labor’s reg-

ulation published at 29 C.F.R. §2510.3-1(e) (“Regulation

3-1(e)”) excludes the Medical Plan from ERISA’s broad

© In Donovan »v. Dillingham, 688 F.2d 1367, 1371 (11th Cir.

1982), the Eleventh Circuit identified the criteria to establish an

ERISA-governed welfare plan:

By definition . . . a welfare plan requires (1) a “plan,

fund, or program” (2) established or maintained (3)

by an employer or by an employee organization or by

both, (4) for the purpose of providing medical, surgi-

cal, hospital care, sickness, accident, disability, death,

unemployment or vacation benefits apprenticeship or

other training programs, day care centers, scholar-

ship funds, prepaid legal services or severance bene-

fits (5) to participants or their beneficiaries.

Petitioners have never even attempted to argue that the Com-

pany Medical Plan fails the Donovan definition of an ERISA-

governed welfare plan.

20

regulatory scope. The Regulation has never been inter-

preted or applied in the extraordinary manner requested

by Petitioners; the Court of Appeals rejected Petitioners’

novel approach. There is no conflict with any Supreme

Court or Circuit Court decision; there is nothing to war-

rant Supreme Court review of Petitioners’ novel theory to

avoid ERISA regulation.

A. Petitioners’ Refusal To Acknowledge The Dis-

tinction Between Acts Of The Employer And

Acts Of The Plan Is No Basis For Supreme

Court Review.

Petitioners insist on mischaracterizing the Com-

pany’s provisions of health benefits through an ERISA

welfare plan as a “sale” between employer and employee.

Petitioners’ theory is in direct contravention of ERISA’s

recognition of the Plan as a separate legal entity; and, the

legal distinction between acts of the employer and acts of

the Plan.” See, e.g., Payonk v. HMW Indus., Inc., 883 F.2d

221 (3d Cir. 1989); Union 2134, UMWA v. Powhatan Fuel,

828 F.2d 710, 714 (11th Cir. 1987); Ed Miniat, Inc. v. Globe

7 In claiming ERISA exclusion status under Regulation

3-1(e), Petitioners return to their fiction that the Plan dependent

coverage option is a separate and independent plan; and

required contributions constitute a sale between employer and

employee. The fact is that where the employer creates and main-

tains a medical plan under the Donovan v. Dillingham, 688 F.2d

1367, 1371 (11th Cir. 1982) criteria, the ERISA plan status, plan

administration ERISA regulation, and preemption, are benefici-

aries under plan dependent coverage options. 29 U.S.C. §1002(7,

8). There is no separate “dependent coverage” plan; there is no

“sale” of dependent benefits.

hein tape chee aan

21

Life Ins. Group, Inc., 805 F.2d 732 (7th Cir. 1986), cert.

denied, 482 U.S. 915 (1987); Dime Coal Co., Inc. v. Combs,

796 F.2d 394 (11th Cir. 1986); Amato v. Western Union

Intern., Inc., 773 F.2d 1402, 1416-17 (2d Cir. 1985); Gelardi

v. Pertec Computer Corp., 761 F.2d 1323, 1325 (9th Cir.

1985).

The uncontrovertible fact, established by the legal

identity of the entities involved, is that dependent cover-

age is not offered for “sale” by the Company. Dependent

coverage is offered only by and only through the Plan.

The contribution prerequisite to maintain such Plan cov-

erage is not a transaction with the Company; it is a

transaction with the Plan. The Court of Appeals correctly

held that the contribution that was a requirement of the

Plan’s dependent coverage feature, did not constitute a

“sale” under Regulation 3-1(e) and would not remove the

Plan from ERISA’s regulatory sweep. There is no justifica-

tion for further review.

Petitioners offer no case law to support their conten-

tion, rejected by the Court of Appeals, that a dependent

coverage feature may be severed from the rest of an

ERISA plan so as to create a Regulation 3-1(e) ERISA

exclusion. The Court of Appeals correctly concluded that

ERISA’s comprehensive scheme is not escaped by includ-

ing such a “commonplace feature” of group medical

plans. Appendix, p.16. Petitioners’ disagreement there-

with provides no basis for further review.

The Court of Appeals observed that Regulation 3-1(e)

could not remove ERISA regulation merely because an

insurer-employer funds a health plan through its own

22

policy of insurance. Dependent coverage requiring partic-

ipant contribution is no basis to remove a plan from

ERISA’s regulatory sweep.

. . . [Petitioners] argue that Jefferson-Pilot sold

the dependent coverage to the plaintiff.

Although interpretation of this regulation is an

issue of first impression, it is clear that

§2510.3-1(e) does not apply to the dependent

coverage feature contained in the Plan. The

plaintiff seeks to sever the dependent coverage

feature from the benefits package provided to

agents through the Plan. This cannot be done

because the dependent coverage was a feature

of the Plan, notwithstanding fact that the costs

of such coverage had to be contributed by the

employee. The plaintiff offers no case law to

support the argument that dependent coverage

features may be severed from the rest of an

ERISA plan, and common sense compels the

conclusion that ERISA regulation is not escaped

merely by including such a commonplace fea-

ture of group plans. The plain language of the

regulation indicates that the regulation contem-

plates a situation where an individual, who inci-

dentally is an employee of an insurance

company, purchases on an individual basis -

and not as part of an employee welfare benefit

plan — a product from that company. Section

2510.3-1(e) does not apply to situations where

an employer-insurer has established an

employee benefit plan where both the employee

and the employer contribute part of the pre-

mium of the plan.

Appendix, pp. 15-17 (footnotes omitted).

Oa 0 Pe at Nit HOES he

23

The Court of Appeals correctly noted that, if Peti-

tioners had purchased medical insurance through insur-

ance policies issued to them, individually, by the

Company, such transaction could constitute a “sale”

described in Regulation 3-1(e). Such a “sale” is not at

issue in this litigation. Election of a dependent coverage

option provided in the context of a welfare plan satisfy-

ing the Donovan v. Dillingham criteria is not a “sale”

between employer and employee.* The Court of Appeals

correctly concluded that DOL Regulation 3-1(e) has no

application; that holding, in conflict with no authority,

provides no basis for Supreme Court review. This Petition

should be summarily denied.

B. Under Petitioners’ Novel Theory, Insurance

Company Sponsored Plans Would Be Removed

From ERISA; The Court Of Appeals Properly

Rejected Petitioners’ Notion. There Is No Basis

For Further Review.

Petitioners seek to avoid ERISA on the basis that Mr.

Smith happened to work for an insurance company. The

® Petitioners for the first time advance the novel argument

that Jefferson-Pilot made contributions to the Plan “in consid-

eration of [Crawford Smith’s] services” and that, by providing

his “services” to the Company, Mr. Smith “paid” for the medical

plan coverage. Petition, pp. 52-53. The contention is patently

absurd. Employers do not “sell” employee benefits; employees

do not “buy” them by working. Petitioners’ latest attempt to

avoid ERISA must fail.

In any event, the argument is raised for the first time in the

Petition; neither the district court nor the Eleventh Circuit had

this proposition before them. This Court can reject the eleventh-

hour argument as waived.

24

crux of Petitioner’s ERISA-exclusionary argument is that

employee-paid dependent coverage under an insured

plan is exempt from ERISA if the employer-insurer writes

the policy funding its employee benefits, and any type of

employee contribution is required. Petitioners’ argument,

taken to its logical conclusion, would void ERISA protec-

tions for all participants of the Medical Plan; and for

untold numbers of insurance industry employees and

their families participating in similar plans. The U.S.

insurance industry employees are estimated by the

Department of Labor to exceed two million people.

If Petitioners’ ERISA exclusionary theory was

accepted, two million households could be deprived of

ERISA protection merely because benefits are funded by

insurer-employers through their own policies and, for

some portion of coverage, an employee contribution is

required. As the Court of Appeals observed, the use of an

insurance policy to fund benefits and the requirement of

an employee contribution are both fully authorized by

ERISA. The Petitioners’ effort to avoid ERISA based on

Regulation 3-1(e) was properly rejected.

Congress expressly contemplated the use of

insurance to fund ERISA benefits since it

defined covered programs as those funded

“through the purchase of insurance or other-

wise.” 29 U.S.C. §1002(1). Furthermore, ERISA

expressly permits insurer-employers to use their

own insurance policies to fund ERISA governed

benefits by exempting such transactions from

the statute’s prohibited transaction provisions.

29 U.S.C. §1108(b)(5). Thus, Jefferson-Pilot’s

issuance of its own policy to fund the Plan does

not defeat ERISA coverage. The Secretary of

25

Labor has also expressly acknowledged ERISA

jurisdiction over plans that deduct employee

contributions. 29 C.F.R. §2510.3-102.

Appendix, p. 17 n.4.

Under the Petitioners’ theory, ERISA protections

would be denied to insurance industry employees and

their families. There is no rationale or justification for

such an arbitrary and far reaching result. The Court of

Appeals held, properly, that Regulation 3-1(e) has no

application to these facts; ERISA coverage is not abro-

gated based on the industry of the employer. This Peti-

tion contains no facts or law to warrant further review of

this issue.

CONCLUSION

This lawsuit is grounded on alleged wrongful denial

of health benefits provided, sponsored and partially

funded by Crawford Smith’s employer, through a group

Plan. The Court of Appeals correctly held that the Plan

and the benefit entitlement dispute which are the crux of

this claim, are governed by ERISA.

The Court of Appeals correctly refused Petitioners’

contention that the Georgia insurance cancellation stat-

ute, which governs the administrative steps necessary for

cancellation of an insurance policy, is saved from ERISA

preemption through Section 514(a), as applied to the

administration of ERISA governed health benefits funded

through insurance. The Court of Appeals correctly and

carefully applied the McCarran-Ferguson criteria to con-

clude that the cancellation statute did not qualify as a

‘\

26

state law regulating the business of insurance; and there-

fore was not saved from preemption as a state law regu-

lating insurance. The Court of Appeals further correctly

held that a litigant may not boot-strap a tort claim to an

O.C.G.A. §33-24-44 claim to avoid ERISA’s exclusive

remedial scheme.

And, the Court of Appeals correctly rejected Peti-

tioners’ misapplication of 29 C.F.R. §2510.3-1(e), and cor-

rectly refused to eliminate ERISA regulation as applied to

insurer sponsored and funded plans.

This case simply does not present any issue which is

appropriate for consideration by this Court on certiorari.

The rulings below involve narrow legal questions which

were fully addressed by the Court of Appeals, involve no

significant conflict of circuit court decisions, and were

resolved by the Eleventh Circuit in full accord with the

body of Supreme Court and circuit court precedent. The

Court of Appeals fully identified and confirmed Peti-

tioners’ ERISA remedy. The Court of Appeals properly

remanded this cause for trial on the merits under ERISA’s

exclusive remedial scheme. Petitioners’ continued dissat-

isfaction with that federal remedy provides absolutely no

basis for Supreme Court review. This Petition for Cer-

tiorari should be denied.

Respectfully submitted,

Mairen C. Ketty

JoserpH M. ENGLISH

FisHER & PHILLIPs

1500 Resurgens Plaza

945 East Paces Ferry Road

Atlanta, Georgia 30326

(404) 231-1400

Dated: June 30, 1994