Opposition Brief — Patrick v. UNUM Life Insurance Co. of America

No. 01-764

In The

Supreme Court of the United States

- oa —

PATRICIA E. PATRICK,

Petitioner,

UNUM LIFE INSURANCE COMPANY OF AMERICA,

Respondent.

& a

On Petition For A Writ Of Certiorari

To The Court Of Appeal Of

California First Appellate District

4

RESPONDENT'S BRIEF IN OPPOSITION

a

Mark E. SCHMIDTKE WituiaM J. Kayatta, Jr.

Counsel of Record Pierce ATWoop

Hoepepner, WAGNER & One Monument Square

Evans LLP Portland, Maine 04122

103 E. Lincolnway (207) 791-1100

P.O. Box 2357 — Josue M. Rumac, Eso.

Valparaiso, Indiana BEE Bice, ©

NNA IVI. ARTIN, ESQ.

eet aoa en Rimac & Martin, P.C.

(219) 465-7: 1700 California Street,

Mary EvizasetH Foucere, Esa. Suite 470

UNum Lire INSURANCE San Francisco, California

COMPANY OF AMERICA 94109

2211 Congress Street (415) 561-8440

Portland, Maine 04122

(207) 575-3045

Attorneys for Respondent

COCKLE LAW BRIEF PRINTING, CO, (800) 225-9964

OR CALL COLLECT (402) 342-283)

PARTIES TO THE PROCEEDING AND

STATEMENT PURSUANT TO RULE 29.6

The petitioner is Patricia E. Patrick. The respondent

is Unum Life Insurance Company of America. Unum Life

Insurance Company of America is an indirect wholly

owned subsidiary of UnumProvident Corporation. Speci-

fically, 17.28% of the Unum Life Insurance Company of

America stock is owned by UnumProvident Corporation;

82.72% of Unum Life Insurance Company of America

stock is owned by Unum Holding Company. UnumProvi-

dent Corporation is a publicly traded corporation on the

New York Stock Exchange. Unum Holding Company is

not a publicly traded company.

li

TABLE OF CONTENTS

Page

PARTIES TO THE PROCEEDING AND STATEMENT

PURSUANT TO RULE 20s ss cvcccateasereieess i

TABLE OF COTE es 6s kbnivy ise ace cede censsiaes ii

FABLE OF AUTHORITIOS «so s0scvisevevesves rr iv

RESPONDENT’S BRIEF IN OPPOSITION........... 1

FURR TION ....d +o x.cxdean nae cage aeeesecs vives 4

STATUTES TOVOING? 5 ocavsdvcascecsacesessssress 4

COUNTERSTATEMENT OF THE CASE ............ 4

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

I. THERE IS NO SPLIT OF AUTHORITY

AMONG THE FEDERAL CIRCUIT COURTS,

AMONG THE STATE COURTS OF LAST

RESORT, OR BETWEEN THE STATE COURTS

OF LAST RESORT AND THE FEDERAL CIR-

CUIT COURTS REGARDING ANY INTER-

PRETATION OF WARE oc ccccccesctenccccess 5

A. The Law is Settled in this Court that State

Laws that Purport to Supplement ERISA’s

Remedies are Preempted Even if they

Regulate Bnsurance ...F.cscccsscccicvens 5

B. There is No Dispute Among the Federal

Circuit Courts or the State Courts of Last

Resort Regarding Ward.............++4:. 11

C. The Decision Below is Consistent with

Settled Authority in this Court and in the

Federal Courts of Appeals that State Laws

that Purport to Supplement ERISA’s

Remedies are in Conflict with the Exclu-

sivity of ERISA’s Remedies ............. 16

I].

Il.

ill

TABLE OF CONTENTS - Continued

Page

NEITHER AN AFFIRMANCE NOR A REVER-

SAL OF THE SEVENTH CIRCUIT’S

DECISION IN MORAN WILL ADVANCE

PETITIONER’S POSITION IN THIS CASE OR

REQUIRE REVERSAL OF THE COURT

EEE SectesorVoevcececcereoscevercesoceces

CALIFORNIA’S LAW OF “BAD FAITH” IS

ALSO PREEMPTED BECAUSE IT IS NOT A

STATE LAW THAT “REGULATES INSUR-

ANCE” UNDER ERISA §514 ................

IV. PETITIONER’S ARGUMENT FOR THE

RETRACTION OF PREEMPTION UNDER

ERISA IS AN ISSUE FOR CONGRESS

RATHER THAN FOR THE COURTS ........

EE vi crcksiyodevenedsecsnevessoesevbeses

23

25

iv

TABLE OF AUTHORITIES

Page

Cases

Anschultz v. Connecticut Gen. Life Ins. Co., 850 F.2d

oe Ee er rrr rr rT re 21

Beggs 0. Beggs, S20 US. SSS (1997)... cccccvvcccsees: 6

Buxbom v. Smith, 145 P.2d 305 (Cal. 1944) ........... 26

Chelini v. Nieri, 196 P.2d 915 (1948) ...........cceee- 26

Chilton v. Prudential Ins. Co. of America, 124

F.Supp.2d 673 (M.D. Fla. 2000)...........0sseeeee 14

Clancy v. Employers Health Ins. Co., 101 F.Supp.2d

463 (E.D. La. 2000), aff’d., 248 F.3d 1142 (5th

Cir.), cert. denied, 151 L.Ed.2d 22 (2001)........... 14

Commercial Life Ins. Co. v. Superior Court of San Diego

County, 47 Cal.3d 473, 764 P.2d 1059 (1988), cert.

denied, 490 U.S. 1075 (1989) .............. 16, 17, 18, 19

Comunale v. Traders & General Ins. Co., 328 P.2d 198

Ce. SU Ga ceecchunkswes sashes ceuansasusuneshees 26

Connors v. Maine Medical Center, 70 F.Supp.2d 40

Ce Ss GUD sav conneveocdctucscweubecdendandexass 14

Corporate Health Ins., Inc. v. Texas, 215 F.3d 526 (5th

GEE -coboccnesescuavnunsessnueenees 2 15, 23, 24

Crisci v. Security Ins. Co., 426 P.2d 173 (Cal. 1967) .... 26

Egan v. Mutual of Omaha Life Ins., 620 P.2d 141

See SPU oc doe scncavawascehancsecubesencsuestexs 26

Egelhoff v. Egelhoff, 532 U.S. 141 (2001) ............ 6, 13

Estate of Cencula v. John Alden Life Ins. Co., 2001

U.S. Dist. Lexis 5519 (N.D. Ill. 2001).............. 14

Vv

TABLE OF AUTHORITIES - Continued

Page

Franklin H. Williams Trust v. Travelers Ins. Co., 50

oe Ee Ue ee ree re 22

Freeman & Mills, Inc. v. Belcher Oil Co., 900 P.2d 669

Ge BINS chtaccevdnwrshseunseseeucbasegeeewurs 26

Gaylor v. John Hancock Mut. Life Ins. Co., 112 F.3d

SEP CG Gi Ba he os ence rvnesewsnccysudssene saws 21

Gruenberg v. Aetna Ins. Co., 510 P.2d 1032 (Cal.

OU Pea oncns cogs ceesecsrcnncceecas ebaenaeneek cues 26

Hawkins v. Oakland Title Ins. & Guaranty Co., 331

oe Fe eT Peer 26

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

CEOUE 0 aes 045 ne none chadsaduasnaeaanan 10, 11, 16, 27

In re Life Ins. Co. of North America, 857 F.2d 1193

COU Ga Ss och eocentnecunencevesneseuvassseuas 20

John Hancock Mut. Life Ins. Co. v. Harris Trust &

Savings Bank, 510 U.S. 86 (1993).... 6, 11, 13, 16, 22, 27

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

ok. te | Se re 17, 18, 19

Lazar v. Superior Court, 909 P.2d 981 (1996).......... 26

Lewis v. Aetna Life Ins. Co., 78 F.Supp.2d 1202 (N.D.

Cs: Sins ook seukscvesee cewadeusdae el eeeneer ens 13

Mackey v. Lanier Collection Agency & Serv., Inc., 486

Gb Se SE eck es couse cuss eees eukaksuebe none 6

Marshall v. Bankers Life and Cas. Co., 2 Cal.4th 1045,

832 P.2d 573, cert. denied, 506 U.S. 1000 (1992)..... 19

Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S.

Se SE a bk ce nee aa as ee cect ce aees 13

Mertens v. Hewitt Associates, 508 U.S. 248 (1993) ..... 29

vi

TABLE OF AUTHORITIES - Continued

Page

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

Fe CRUG). cccvcccccccsesvveudeeteteceavunuveebecs 13

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

(IGG7) cc cccccccccccccvsceveseveneecestocesesee passim

Moran v. Rush Prudential HMO, Inc., 230 F.3d 959

(7th Cir. 2000), cert. granted, 150 L.Ed.2d 749

CROUE) ovncusesnenctvuecerneséneaeeees 2, 16, 23, 24, 25

Nations Personnel of Texas, Inc. v. American Medical

Security, 2000 U.S. Dist. Lexis 6838 (N.D. Tex.

BEDE c cccvevccsovcvesseseseesendevtaesstesaenbess’ 14

Nelson v. Unum Life Ins. Co. of America, 1999 WL

33226241 (N.D. Cal. 1999), mandamus petition

denied, Case No. 99-71367 (9th Cir.), cert. denied,

Fee FF. Fe: eee er ee 14

Norris v. Continental Cas. Co., 2000 U.S. Dist. Lexis

Cle CEE Fite BGG ves cceedsscasssseeeaeaee 14

Pas v. The Travelers Ins. Co., 7 F.3d 349 (3d Cir.

POM bcs ba0s c6dscdvceeneesd¥uneyeleniaeasesee 22

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

Pintor v. Ong, 259 Cal. Rptr. 577 (Cal. Ct. App.

BID) oc cnvevacvccedcsvesvcorstacseackmusaretpesen 26

Plumb v. Fluid Pump Service, Inc., 124 F.3d 849 (7th

- S. s Pieri 19, 20

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

GE, DOPE) ccccccccccevvcesesdenscestieneesseuseuss 23

Quezada v. Hart, 136 Cal. Rptr. 815 (Cal. Ct. App.

BOTT Ji cccccvcesvencecescedeussteueqeardeeeee 26

Ramirez v. Inter-Continental Hotels, 890 F.2d 760

CH Cie, BGG). ccesccvessvcesvevesoeveuenseees 20, 21

Vii

TABLE OF AUTHORITIES - Continued

Page

Ruble v. Unum Life Ins. Co. of America, 913 F.2d 295

Se Ga MOWER cnciveveccesesusducvegevenvenerares 21

Schneider v. Unum Life Ins. Co. of America, 149

Poepe.2e 169 CEU. FO. BOGE) « occocccccvcvcvcvcess 14

Shaw v. Delta Airlines, Inc., 463 U.S. 85 (1983)..... 6, 13

Unum Life Ins. Co. of America v. Ward, 526 U.S. 358

(SOGE) cc cccvcecseccevevivcsvecssevceesoveseses passim

Varity Corporation v. Howe, 516 U.S. 489 (1996)....... 29

STATUTES

et Eine SE noe ernkndssddedeseedsiucacessteureneh 4

BO Us Bitte 0 Obs ccc c rete sivevcentecsisavedes 1, 4

ee Ws Ce vesccecnseescedunnncuachecenn 13

ae ees GE oc kn bop 6a. bend das eh bnbebadeeenss 8

Te TE ii 8 0d db skeet bctteeseevess esas en 3, 6

Be Wes OE 6 oncovdecsecsvceuavasawanaaes 13

RULES

PUA Bie cccnnccccsecccccevevesevocssevesesesees 13

OTHER AUTHORITIES

Robert Pear and Robin Toner, Bush Demands Senate

Changes on Patient Bill, N.Y. Times, June 22, 2001 .... 28

Robert Pear, Bill Establishing Patients’ Rights Passes

in Senate, N.Y. Times, June 30, 2001............... 28

Robert Pear, Measure Defining Patients’ Rights

Passes in House, N.Y. Times, August 3, 2001....... 28

RESPONDENT’S BRIEF IN OPPOSITION

Petitioner sought disability benefits under an

employee welfare benefit plan governed by the Employee

Retirement Income Security Act of 1974, as amended, 29

U.S.C. §1001, et seq. (“ERISA”). In addition to her

remedies under ERISA, Petitioner attempted to pursue a

state law “bad faith” claim arising out of the processing

of her claim for disability benefits. Relying on precedent

from this Court, including the unanimous decision in

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

precedent from the federal circuit courts and earlier Cali-

fornia state court decisions which are based on Pilot Life

and other decisions by this Court, the court below held

that the remedies available to Petitioner under ERISA are

the exclusive means for remedying allegations of

improper processing of a claim for benefits and that

Petitioner’s state law claim is preempted because it con-

flicts with the exclusivity of ERISA’s remedies. Speci-

fically, the Court of Appeal of California rejected

Petitioner’s argument that a footnote in Unum Life Ins. Co.

of America v. Ward, 526 U.S. 358 (1999) somehow called

into question this Court’s multiple holdings that Con-

gress intended ERISA’s remedies to be the exclusive

means of resolving employee benefit plan disputes.

Petitioner has failed to demonstrate any of the cus-

tomary reasons for granting certiorari. First, there is no

split among the federal circuit courts, among the state

courts of last resort, or between the state courts of last

resort and the federal circuit courts, regarding any inter-

pretation of Ward. None of those courts have questioned

this Court’s earlier interpretations of ERISA. None of

those courts have suggesi «1 that Petitioner’s cause of

action is no longer preempted by ERISA. In fact, the only

circuit court decisions even touching on this issue since

Ward have followed this Court’s precedent and are in

accord with the state court decision in this case.

Second, this Court’s decision in Moran v. Rush Pru-

dential HMO, Inc., 230 F.3d 959 (7th Cir. 2000), cert.

granted, 150 L.Ed.2d 749 (2001) will not advance Peti-

tioner’s argument because Moran involves an entirely

different issue than the issue raised by Petitioner in this

case. The Seventh-Circuit decision in Moran is in conflict

with the Fifth Circuit decision in Corporate Health Ins., Inc.

v. Texas, 215 F.3d 526 (5th Cir. 2000) as to whether a state

law that mandates third-party review of certain medical

plan decisions is a type of state law that purports to

supplement the exclusive remedies of ERISA. There was

no question in Moran or in Corporate Health that ERISA’s

remedies are exclusive and that ERISA preempts state

remedy laws that purport to supplement ERISA’s reme-

dial provisions. If this Court agrees with the Seventh

Circuit that a state third-party review law is not a state

remedy law, that holding will not advance Petitioner’s

case because there is no question in this case that Peti-

tioner’s state “bad faith” claim is a state remedy law that

purports to supplement the exclusive remedies of ERISA

and is in conflict with the exclusivity of the federal

remedies. If this Court agrees with the Fifth Circuit that

the state third-party review law is a state remedy law that

conflicts with ERISA’s remedies and is preempted, such a

holding also would not advance Petitioner’s case. Either

way, the decision in Moran will not advance Petitioner’s

case and provides no basis for granting certiorari.

Third, Petitioner’s entire argument is based on a

faulty premise. The state law claim on which Petitioner

relies is not even a law that “regulates insurance” within

the meaning of ERISA and is therefore not saved from

preemption under ERISA’s express preemption provision,

§514 [29 U.S.C. §1144]. The California common law claim

of “bad faith” is no different than the Mississippi “bad

faith” claim that this Court held was not a law that

“regulates insurance” in Pilot Life. Thus, even if Peti-

tioner’s state law claim was not in conflict with the

exclusivity of ERISA’s remedies, which it is, it would still

be preempted under ERISA’s express preemption provi-

sion.

Rather than rely on customary bases for a writ of

certiorari, Petitioner is attempting to use her strained

interpretation of Ward to overturn settled precedent on a

matter of statutory interpretation. Petitioner is asking this

Court to reject previous determinations that Congress

intended ERISA’s remedies to be exclusive even though

ERISA’s remedy provisions have not changed and con-

gressional intent in enacting those provisions has not

changed. This Court has noted on several occasions that

ERISA was a product of compromise and that ERISA’s

remedial provisions constitute a careful balancing of com-

peting interests, which balance would be destroyed if

parties are permitted to supplement ERISA with state law

remedies that are not incorporated expressly in the fed-

eral statute. Petitioner’s request is nothing more than an

attempt to upset the balance struck by Congress. Only

Congress can change that balance. Respondent respect-

fully requests that the petition be denied.

+

JURISDICTION

This Court has discretionary jurisdiction to review

final judgments or decrees rendered by the highest court

of any State where the validity of a statute of the United

States is drawn in question or where any title, right,

privilege, or immunity is claimed under the statutes of

the United States. 28 U.S.C. §1257. Petitioner seeks review

of a judgment issued by the Court of Appeal of Califor-

nia, First District on May 17, 2001. The California

—Supreme Court denied review on August 22, 2001. For the

reasons set forth herein, Respondent submits that this

court should not exercise its jurisdiction over this matter.

+

STATUTES INVOLVED

This case involves the Employee Retirement Income

Security Act of 1974, as amended, 29 U.S.C. §1001, et seq.

(“ERISA”).

COUNTERSTATEMENT OF THE CASE

Petitioner filed this action, seeking judicial review of

Respondent's decision to deny Petitioner’s claim for long

term disability benefits under an employee welfare bene-

fit plan governed by ERISA. On several occasions, Peti-

tioner attempted to assert a state law claim for “bad

faith” arising out of the processing of her claim for ERISA

plan benefits. The trial court repeatedly ruled that this

matter was governed exclusively by ERISA and that Peti-

tioner’s state law claim was preempted. The matter even-

tually proceeded to trial under ERISA and a judgment for

benefits and attorney fees was awarded in favor of Peti-

tioner.

Respondent appealed portions of the attorney fee

award to the Court of Appeal of California. Respondent

cross-appealed, again asserting her right to pursue a state

law claim. On May 17, 2001, the Court of Appeal ruled in

favor of Respondent, overturning substantial portions of

the attorney fee award under ERISA. The Court of

Appeal affirmed the trial court’s rulings that Petitioner’s

state law_claims were preempted by ERISA. Respondent

petitioned for a rehearing on both the attorney fee and

preemption issues. Rehearing was denied. Petitioner then

requested the Supreme Court of California to review the

preemption ruling, abandoning her arguments regarding

the attorney fee award. The Supreme Court of California

denied Petitioner’s request for review on August 22,

2001.

REASONS FOR DENYING THE WRIT

I. THERE IS NO SPLIT OF AUTHORITY AMONG

THE FEDERAL CIRCUIT COURTS, AMONG THE

STATE COURTS OF LAST RESORT, OR BETWEEN

THE STATE COURTS OF LAST RESORT AND THE

FEDERAL CIRCUIT COURTS REGARDING ANY

INTERPRETATION OF WARD.

A. The Law is Settled in this Court that State Laws

that Purport to Supplement ERISA’s Remedies

are Preempted Even if they Regulate Insurance.

Petitioner’s argument reveals a fundamental misun-

derstanding of this Court’s precedent on the subject of

ERISA preemption. ERISA implicates two different

modes of preemption analysis: “express preemption” and

“conflict preemption.” First, in accordance with the

express language of ERISA §514 [29 U.S.C. §1144], ERISA

expressly preempts all state civil laws that “relate to”

employee benefit plans save those state laws that regulate

insurance, banking, or securities. This is ERISA’s “express

preemption” provision under which state laws need not

be in actual conflict with ERISA in order to be preempted.

Rather, even state laws that are fully consistent with

provisions of ERISA are preempted by §514 unless they

fall within the saving clause applicable to state insurance,

banking, or securities regulations. See, e.g., Mackey v. Lan-

ter Collection Agency & Serv., Inc., 486 U.S. 825, 829-30

(1988); Shaw v. Delta Airlines, Inc., 463 U.S. 85 (1983).

Second, ERISA also preempts state laws to the extent

that they “conflict[ ] with the provisions of ERISA or

operate[ | to frustrate its objects.” Boggs v. Boggs, 520 U.S.

833, 841 (1997). See also Egelhoff v. Egelhoff, 532 U.S. 141

(2001) (state statute that mandates the beneficiary of cer-

tain employee benefits on the death of the participant is

preempted where it “directly conflicts with ERISA’s

requirements that plans be administered, and benefits be

paid, in accordance with plan documents”). This “conflict

preemption” applies even to state laws, such as insurance

regulatory laws, that would otherwise be saved from

preemption under the express preemption provisions of

ERISA §514. See John Hancock Mut. Life Ins. Co. v. Harris

Trust & Savings Bank, 510 U.S. 86, 99 (1993) (“State law

governing insurance generally is not displaced, but

‘where [that] law stands as an obstacle to the accomplish-

ment of the full purposes and objectives of Congress,’

federal preemption occurs.”)

a

—|

The unanimous decision in Pilot Life Ins. Co. v.

Dedeaux, 481 U.S. 41 (1987) applied both types of ERISA

preemption. The plaintiff was a beneficiary under an

employee benefit plan insured by Pilot Life. The issue

before the court was whether ERISA “preempts state

common law tort and contract actions asserting improper

processing of a claim for benefits under an insured

employee benefit plan.” 481 U.S. at 43. The plaintiff

argued that ERISA did not preempt a cause of action

under Mississippi's law of bad faith because that law was

a state law that regulates insurance and was thus saved

from preemption under ERISA’s “express preemption”

clause, §514(b). The Court rejected the plaintiff’s argu-

ment, finding the Mississippi bad faith claim preempted

by ERISA for two separately stated reasons.

First, the Court determined that Mississippi's bad

faith law, while certainly “identified with the insurance

industry,” was not a law that regulates insurance within

the meaning of §514(b). The law was not specifically

aimed at the insurance industry, did not affect the spread-

ing of risk, and bore only an attenuated connection to the

insurer-insured relationship in that it affected only the

consequences of a breach of the insurance contract rather

than the terms of the contract itself. Id. at 50-51. Thus, the

law was not saved from preemption under ERISA’s

“express preemption” provision.

Second, and “most importantly,” id. at 57, the Court

determined that allowing ERISA beneficiaries to bring

varying state causes of action for claims that were within

the scope of ERISA’s civil enforcement provision “would

pose an obstacle to the purposes and objectives of Con-

gress.” Id. at 52. ERISA contains a civil enforcement pro-

vision that includes a panoply of remedies for ERISA

plan participants, beneficiaries, and fiduciaries. ERISA

§502(a) [29 U.S.C. §1132(a)]. The civil enforcement

scheme of ERISA “is one of the essential tools for accom-

plishing the stated purposes of ERISA.” Id. at 52. Examin-

ing the language and structure of ERISA’s civil

enforcement provision, and reviewing the legislative his-

tory of that provision, this Court concluded “that ERISA’s

civil enforcement remedies were intended to be exclu-

sive.” Id. at 54. The Court expressly endorsed the Solicitor

General’s position that Congress intended “the civil

enforcement provisions of ERISA §502(a) [to] be the

exclusive vehicle for actions by ERISA plan participants

and beneficiaries asserting improper processing of a

claim for benefits.” Id. at 52.

The Court held in Pilot Life that Congress created

what it deemed to be a properly balanced civil enforce-

ment scheme that would protect beneficiaries while also

encouraging the creation of benefit plans:

[T]he detailed provisions of §502(a) set forth a

comprehensive civil enforcement scheme that

represents a careful balancing of the need for

prompt and 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 under-

mined if ERISA-plan participants and benefici-

aries 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 enac-

ted .. . provide strong evidence that Congress

did not intend to authorize other remedies that

a

it simply forgot to incorporate expressly”

... The deliberate care with which ERISA’s civil

enforcement remedies were drafted and the bal-

ancing of policies embodied in its choice of

remedies argue strongly for the conclusion that

ERISA’s civil enforcement remedies were

intended to be exclusive.

Id. at 54. Any analysis of the impact of the insurance

saving clause must be based on an analysis of “the role of

the saving clause in ERISA as a whole.” Id. at 51. The

Court resolved any arguable inconsistency between the

language of the saving clause in §514(b) and the broadly

exclusive preemptive scope of the civil enforcement

scheme under §502(a) by concluding that “our under-

standing of the saving clause must be informed by the

_legislative intent concerning the civil enforcement provi-

sions provided by ERISA §502(a).” Id. at 52. Thus, even if

the Mississippi law of bad faith was saved from preemp-

tion under ERISA’s “express preemption” provision on

because it was a state law that regulates insurance, it was

still preempted under principles of “conflict preemption”

because it would interfere with the exclusivity of ERISA’s

civil enforcement provision by creating supplemental

remedies to ERISA. Id.

The decision in Metropolitan Life Ins. Co. v. Taylor, 481

U.S. 58 (1987) underscored the significance and force of

Pilot Life’s conclusion that the scope and contours of

ERISA’s preemptive effect go beyond consideration of the

“express preemption” provision alone. Metropolitan, the

insurer of an employee benefit plan, sought to remove to

federal court on federal question grounds various con-

tract and tort claims by a beneficiary under Michigan

state law challenging a termination of benefits under an

10 |

insured employee benefit plan. The Court noted that,

ordinarily, a preemption defense to a state lawsuit does

not justify removal of the suit to federal court on federal

question grounds. Id. at 63. The Court further acknowl-

edged that it had previously held that ERISA preemption

itself under the “express preemption” provision “without

more, does not convert a state claim into an action arising

under federal law.” Id. at 64 (citing Franchise Tax Bd. v.

Construction Laborers Vacation Trust for Southern Cal., 463

U.S. 1, 25-27 (1983)). The Court nevertheless allowed

removal on the basis of the “complete preemption doc-

trine” because “as a suit by a beneficiary to recover

benefits from a covered plan, it falls directly under

§502(a)(1){B) of ERISA, which provides an exclusive fed-

eral cause of action for resolution of such disputes.” Id. at

62-63. The preemptive effect of §502 is so complete that

an ERISA preemption defense provides a sufficient basis

for removal of the cause of action to the federal forum

notwithstanding the traditional limitation imposed by the

“well pleaded complaint” rule. I@. at 64-67. |

Ingersoll-Rand Co. v. McClendon, 498 U.S. 133 (1990),

further focused the Court’s emphasis upon the exclu-

sivity of ERISA’s civil enforcement provision, §502, as a

source of “conflict preemption” supplementary to

ERISA’s “express preemption” language in §514. After

finding a Texas common law cause of action preempted

under §514 because it related to ERISA plans, the Court

emphasized the independently preemptive effect of §502,

stating:

Even if there were no express preemption in this

case, the Texas cause of action would be

a ee

11

preempted because it conflicts directly with an

ERISA cause of action.

Id. at 142.

Finally, the principle that even state insurance regula-

tory law is preempted by ERISA if it conflicts with con-

gressional intent pertaining to specific aspects or

provisions of ERISA was relied upon yet again in John

Hancock, supra. There, the Court found a state law that

admittedly regulated insurance, and was thus otherwise

saved from “express preemption” under §514, neverthe-

less preempted because it conflicted with one of ERISA’s

purposes. John Hancock, 510 U.S. at 99. (When state insur-

ance regulation “stands as an obstacle to the accomplish-

ment of the full purpose and objectives of Congress,

federal preemption occurs.”)

B. There is No Dispute Among the Federal Circuit

Courts or the State Courts of Last Resort

Regarding Ward.

Against the foregoing background, Petitioner argues

that a footnote in Unum v. Ward casts doubt on the

exclusivity of the civil enforcement scheme of §502 and

that “conflict preemption” should not bar her claim

under state law. Petitioner urges that footnote 7 Consti-

tutes a pronouncement that the relevant scope of ERISA

preemption has changed since Pilot Life or that courts

since*Pilot Life have misread that decision. Footnote 7

simply acknowledges a discussion by the Solicitor Gen-

eral on a matter that was not at issue in Ward. 526 U.S. at

376 n.7. In fact, the Solicitor General’s current position is |

in accord with Pilot Life and other decisions by this Court

that Congress intended ERISA’s remedies to be exclusive,

12

thereby preempting any supplemental remedies under

state law:

After noting that causes of action outside of

Section §502(a) would lead to the award of judi-

cial remedies, such as compensatory and puni-

tive damages, that Congress had rejected... the

Court [in Pilot Life] concluded 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’

That reasoning clearly prevents a State from adopt-

ing causes of action under state law to enforce the

terms of an ERISA plan (including incorporating

provisions of state law) as an alternative to the cause

of action under federal law in Section 502(a)(1)(B).

For the same reasons, a State could not under any

circumstances make a plan or its insurer liable to the

participant or beneficiary for punitive damages.

Such a requirement would be far removed from

what private parties might ordinarily contract

for and would directly upset the policy choices

reflected in Congress’ inclusion of certain

remedies and the exclusion of others.!

Petitioner’s argument that there is a so-called

“furious debate” regarding preemption law in the district

courts following Ward is irrelevant, wrong, and mislead-

ing. The argument is irrelevant because a disagreement

among the district courts is not a basis for Supreme Court

1 Brief of the United States as Amicus Curiae in Rush

Prudential HMO, Inc. v. Moran, No. 00-1021 at Part ITII(B)(1)(f)

(emphasis added).

=

13

review. Sup.Ct.R. 10. Petitioner’s argument is wrong

because Petitioner ignores the fact that most of the

post-Ward trial court decisions that allow state law claims

do not even address the exclusive remedy and conflict

preemption holdings in Pilot Life, Taylor, Ingersoll-Rand,

John Hancock, and other decisions. See, e.g., Lewis v. Aetna

Life Ins. Co., 78 F.Supp.2d 1202 (N.D. Okla. 1999) (holding

that Oklahoma “bad faith” law regulates insurance but

failing to address the exclusive remedies of ERISA).?

2 Petitioner also relies on a law review article (the “Bogan

article”), the reasoning of which is suspect at best. According to

Petitioner, Bogan’s premise is that ERISA was not intended to

regulate non-pension benefits. However, this premise is

rebutted by the fact that the statute itself expressly governs both

pension plans and welfare plans. ERISA, §3(1)-(3) [29 U.S.C.

§1002(1)-(3)}. ERISA welfare plans are plans that provide

“medical, surgical, or hospital care or benefits, or benefits in the

event of sickness, accident, disability, death or

unemployment. ...” Id. at §3(1). According to Petitioner, Bogan

also states that ERISA contains no substantive regulation of

employee welfare benefits. However, the truth is that ERISA

contains substantial substantive regulation of certain welfare

plans, including group health plans, by mandating continued

coverage after employment ceases, mandating certain

portability requirements, prohibiting discrimination based on

past health history, requiring parity of benefits for mental

health, and the like. Id. at §§601-734 [29 U.S.C. §§1161-1185a].

Petitioner ’s argument based on the Bogan article also misses the

fact that numerous ERISA decisions in this Court have involved

non-pension welfare benefits. See, e.g., Egelhoff v. Egelhoff, supra

(death benefits); Unum v. Ward, supra (disability benefits);

Metropolitan Life v. Taylor, supra (disability benefits); Pilot Life v.

Dedeaux, supra (disability benefits); Massachusetts Mut. Life Ins.

Co. v. Russell, 473 U.S. 134 (1985) (disability benefits);

Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724 (1985)

(health benefits); Shaw v. Delta Air Lines, supra (health and

disability benefits).

14

Petitioner's argument is misleading because it ignores the

fact that the majority of federal trial courts continue to

follow settled precedent, holding that state laws that

purport to supplement ERISA’s remedies are in conflict

with ERISA and are preempted.*

The disagreement among some district courts has not

resulted in a split among the circuit courts of appeal. The

3 See, e.g., Clancy v. Employers Health Ins. Co., 101 F.Supp.2d

463 (E.D. La. 2000), aff’d., 248 F.3d 1142 (5th Cir.), cert. denied, 151

L.Ed.2d 22 (2001) (“[Ward] did not change the proposition that

§502(a) provides the exclusive remedy for enforcing ERISA”);

Connors v. Maine Medical Center, 70 F.Supp.2d 40 (D. Me. 1999)

(“[T]he Supreme Court’s decision in Ward provides no authority

for the plaintiff's proposition that a violation of state statutory

law may form an additional basis for Unum’s liability under the

civil enforcement provisions of ERISA”); Nerris v. Continental

Cas. Co., 2000 U.S. Dist. Lexis 9163, *4-7 (E.D. Pa. 2000) (“[Ward]

did not alter or undermine Pilot Life”); Estate of Cencula v. John

Alden Life Ins. Co., 2001 U.S. Dist. Lexis 5519 (N.D. Ill. 2001)

(state bad faith penalty statute preempted by ERISA; “Pilot Life

remains good law”); Schneider v. Unum Life Ins. Co. of America,

149 FSupp.2d 169 (E.D. Pa. 2001) (state bad faith law is not

saved from preemption because it is not a law that “regulates

insurance”); Chilton v. Prudential Ins. Co. of America, 124

F.Supp.2d 673 (M.D. Fla. 2000) (following Pilot Life and holding

that Florida’s unfair claims statute is preempted because

ERISA’s remedies are exclusive); Nations Personnel of Texas, Inc.

v. American Medical Security, 2000 U.S. Dist. Lexis 6838 (N.D.

Tex. 2000) (holding that Ward “did not create any new law” and

that footnote 7 “implicitly suggests that the Court did not accept

the government's argument”); Nelson v. Unum Life Ins. Co. of |

America, 1999 WL 33226241 (N.D. Cal. 1999), mandamus petition

denied, Case No. 99-71367 (9th Cir.), cert. dented, 146 L.Ed.2d 794

(2000) (rejecting plaintiff's argument that Ward changed

preemption law and stating “reading footnote 7 and then

reading plaintiff’s analysis of it, the court wonders whether it is

reading the same footnote plaintiff is”).

15

only two federal appellate courts to have addressed the

issue since Ward have continued to hold that state laws

that purport to supplement ERISA’s exclusive remedies

are in conflict with ERISA and are preempted, even if

they also “regulate insurance.” The Fifth Circuit has held

that a state law is still preempted, even if it “regulates

insurance,” where it creates an alternative remedy for

challenging a denial of benefits under an ERISA plan.

Corporate Health Ins., Inc. v. Texas, 215 F.3d 526 (5th Cir.

2000) involved a state statute that mandated third party

review of certain medical plan coverage decisions. The

Fifth Circuit held that the state law “regulated insurance”

within the meaning of ERISA. Id. at 538. Nevertheless, the

Court held that the state law was still preempted because

the court concluded that the third-party review law cre-

ated a state law remedy that purported to supplement

ERISA’s exclusive remedies:

[E]ven if the provisions would otherwise be

saved, they may nonetheless be preempted if

they conflict with a substantive provision of

ERISA. In Pilot Life v. Dedeaux, the Supreme

Court held that ‘our understanding of the sav-

ing clause must be informed by the legislative

intent concerning [ERISA’s] civil enforcement

provisions. The Court interpreted Congress’s

intent regarding the exclusivity of ERISA’s

enforcement scheme very broadly, concluding

that the scheme preeimpts not only directly con-

flicting remedial schemes, but also supplemen-

tal state law remedies. Thus, the saving clause

does not operate if the state law at issue creates

an alternative remedy for obtaining benefits

under an ERISA plan.

Id. at 538-39.

16

The other federal circuit court decision, Moran v.

Rush Prudential HMO, Inc., 230 F.3d 959 (7th Cir. 2000),

cert. granted, 150 L.Ed.2d 749 (2001), also held that

ERISA’s remedial scheme is exclusive. Moran reviewed a

state law that provided for third party review of certain

health plan benefit decisions. Like the Fifth Circuit,

Moran held that such a law “regulates insurance.” Unlike

the Fifth Circuit, Moran held that the law was saved from

preemption, but only because the Seventh Circuit concluded

that it did not purport to supplement or supplant ERISA’s

exclusive civil enforcement scheme. 230 F.3d at 971-72. In

tact, the Court held that Moran’s claim under the third

party review statute was enforceable solely through

ERISA, §502(a). Id. Thus, the only two federal appellate

courts to have addressed the issue since Ward continue to

apply this Court’s holdings that the remedies in ERISA’s

civil enforcement scheme are exclusive, thereby rebutting

Petitioner's “furious debate” argument.

C. The Decision Below is Consistent with Settled

Authority in this Court and in the Federal

Courts of Appeals that State Laws that Purport

to Supplement ERISA’s Remedies Are in Con-

flict with the Exclusivity of ERISA’s Remedies.

The Court of Appeal of California followed this

Court's lead in Pilot Life, Taylor, Ingersoll-Rand, and John

Hancock to hold that Petitioner’s state common law “bad

faith” claim is preempted by ERISA because it conflicts

with the exclusivity of ERISA’s civil remedy provisions.

[Petition for Writ of Certiorari, A-14 to A-19.] The Court

of Appeal also followed precedent in the Supreme Court

of California in Commercial Life Ins. Co. v. Superior Court of

17

San Diego County, 47 Cal.3d 473, 764 P.2d 1059 (1988), cert.

denied, 490 U.S. 1075 (1989).

The issue before the California Supreme Court in

Commercial Life was whether a state statutory bad faith

claim was preempted by ERISA or whether, it was saved

from preemption as a state law that regulates insurance.

Following the letter and spirit of Pilot Life, the Court held

that ERISA’s civil remedies were intended to be exclusive

and could not be supplemented by state law claims and

remedies, regardless of whether the state law “regulates

insurance”:

The Supreme Court concluded that Congress

clearly expressed an intent that the civil enforce-

ment provisions of ERISA be the exclusive vehi-

cle for actions by ERISA-plan participants and

beneficiaries asserting improper processing of a

claim for benefits ... The court’s determination

of exclusivity is supported by the language and

structure of ERISA’s civil enforcement provi-

sions and by the legislative history of the act.

47 Cal.3d at 480. The California Supreme Court noted that

its reading of Pilot Life was consistent with the Ninth

Circuit’s application of Pilot Life in Kanne v. Connecticut

General Life Ins. Co., 867 F.2d 489 (9th Cir. 1988). Id. at 483.

The plaintiff in Kanne argued that Pilot Life’s preemption

holding was not intended to apply to laws that fell within

ERISA’s insurance saving clause. The California Supreme

4 Like Petitioner in this case, the plaintiff in Commercial Life

also asserted a common law claim for bad faith. However, the

plaintiff conceded that Pilot Life “compelled the conclusion that

his common law causes of action were preempted by ERISA.” 47

Cal.3d at 476.

18

Court noted that the Ninth Circuit rejected such an argu-

ment:

The Kanne court rejected the plaintiffs’ argument

for limiting Pilot Life’s preemption holding to

only those state laws which do not fall within

the savings clause: ‘To accept this argu-

ment ... we would have to ignore the second

half of Pilot Life .. . in which the Court made

abundantly clear that its preemption holding

was equally based on its acceptance of the Solic-

itor General’s view that Congress clearly

express an intent that the civil enforcement pro-

visions of ERISA §502(a) be the exclusive vehicle

for actions asserting improper processing of a

claim for benefits.’ The [Kanne] court concluded

that it was not possible to read the Pilot Life

discussion of congressional intent as permitting

a state statute like section 790.03, subdivision

(h) to supplement the ERISA civil enforcement

provisions available to remedy improper claims

processing.

47 Cal.3d at 482. Based on this authority, the California

Supreme Court held in Commercial Life that a state law

bad faith claim is preempted by the exclusivity of

ERISA’s civil enforcement provision, §502, under princi-

ples of “conflict preemption,” regardless of whether it is

“saved” under ERISA’s “express preemption” provisicn:

We find no merit in the argument that if there is

any conflict between ERISA remedies and sec-

tion 790.03, subdivision (h) remedies, such con-

flict was created by Congress when it enacted

ERISA’s preemption clause and saving clause.

The argument asserts that the saving clause

allows states to regulate insurance and hence to

enact conflicting remedies. However, while the

19

saving clause may allow states to enact statutes

that regulate the substantive terms of insurance

policies . . . the clause does not allow states to

enact statutes that provide conflicting procedural

remedies . .. A contrary rule would undermine

ERISA’s important policy of promoting unifor-

mity in employee benefit-plan remedies, by cre-

ating the potential for conflicting standards of

recovery.

Id. at 484. See also Marshall v. Bankers Life and Cas. Co., 2

Cal.4th 1045, 832 P.2d 573, cert. denied, 506 U.S. 1000

(1992) (ERISA preempts state bad faith claims).

Consistent with the precedent of this Court, the deci-

sion of the Court below, the decision of the California

Supreme Court in Commercial Life, and the decision of the

Ninth Circuit in Kanne, the federal circuit courts have

uniformly held that the exclusive nature of the remedies

in ERISA §502(a) preempts any state laws that purport to

supplement those exclusive remedies under principles of

“conflict preemption.” For example, in Plumb v. Fluid

Pump Service, Inc., 124 F.3d 849 (7th Cir. 1997), the Sev-

enth Circuit held that a state law that regulates insurance

and falls within the saving clause is still preempted by

ERISA’s civil enforcement provision:

The Supreme Court revisited the saving

clause in Pilot Life .. . The Court there decided

that certain common law causes of action arising

under Mississippi law . . . were preempted by

ERISA. After deciding that the state claims fell

within ERISA’s general preemption provision,

the Court, applying Metropolitan [Life Ins. Co. v.

Taylor], held that the Mississippi common law of

bad faith did not regulate insurance within the

meaning of the saving clause. Yet the Court -

20

went further. It agreed with the Solicitor Gen-

eral that ‘Congress clearly expressed an intent

that the civil enforcement provisions of ERISA

§502(a) be the exclusive vehicle for actions by

ERISA-plan participants and beneficiaries

asserting improper processing of a claim for

benefits’ .. . The Court concluded that the civil

enforcement remedies found in §502(a) ‘were

intended to be exclusive’ . . . and explained that

the federal remedies found in the substantive

provisions of ERISA displace all state causes of

action, even if those causes of action otherwise

fall within the saving clause... .

Id. at 860. Likewise, in In re Life Ins. Co. of North America,

857 F.2d 1193 (8th Cir. 1988), the Eighth Circuit held that

Missouri's vexatious refusal to pay penalty statute was

preempted by the exclusive remedy provisions of ERISA,

regardless of whether it constituted a state law that regu-

lates insurance:

The Court in Pilot Life could not have stated

with any greater clarity that the remedies

afforded under ERISA are exclusive, and no

state law purporting to supply additional

remedies will escape the preemptive effect of

§[514(a)] as laws ‘which regulate insur-

ance’... There can be no doubt after Pilot Life

that a state vexatious refusal to pay claim is

preempted by ERISA where it relates to an

employee benefit plan. Every court to have con-

sidered the question since Pilot Life was decided

has reached the same conclusion.

Id. at 1194.

The same result was reached by the Fifth Circuit in

Ramirez v. Inter-Continental Hotels, 890 F.2d 760 (5th Cir.

21

1989). In that case, the Court held that a state insurance

law provided a private cause of action for bad faith but

that the cause of action was preempted even if the law

was saved as a law that regulates insurance:

Even if section 16, by virtue of its location

within the Texas Insurance Code, bears a closer

relationship to the regulation of insurance than

does the Mississippi law of bad faith, this law-

suit is in one vital respect indistinguishable

from Pilot Life. Ramirez, like the plaintiff in Pilot

Life, seeks to recover, under a state law cause of

action, remedies unavailable to him under

ERISA. To interpret the savings clause as

authorizing such inconsistent state remedies

would be to defeat Congressional intent by

destroying the exclusivity of ERISA’s civil

enforcement provisions . . . In sum, Pilot Life

requires us to conclude that ERISA preempts

section 16-based claims to recover benefits from

an ERISA plan.

Id. at 763-64. See also Gaylor v. John Hancock Mut. Life Ins.

Co., 112 F.3d 460, 466 (10th Cir. 1997) (ERISA preempts

state bad faith law because ERISA is the “exclusive vehi-

cle for actions by ERISA-plan participants and benefici-

aries asserting improper processing of a claim for

benefits” and enforcement of a cause of action under state

law “would pose an obstacle to the purposes and objec-

tives of Congress”); Ruble v. Unum Life Ins. Co. of America,

913 F.2d 295, 297 (6th Cir. 1990) (even though state insur-

ance law mandating the inclusion of certain benefits in an

insurance policy was saved from preemption “any action

brought by a beneficiary to enforce the policy as so

modified could only be brought under §502(a) of

ERISA”); Anschultz v. Connecticut Gen. Life Ins. Co., 850

to

ro

F.2d 1467 (11th Cir. 1988) (state statute providing cause of

action to redress violations of state insurance code held

preempted by ERISA).

The above authorities establish that the Court of

Appeal decision in this case is consistent with previous

decisions in the state courts of California and with deci-

sions in the federal circuit courts, all of which have

consistently applied the precedent of this Court to hold

that state insurance laws that might be “saved” from

“express preemption” under §514 are still preempted by

the exclusivity of ERISA’s civil enforcement provisions

where they purport to supplement the exclusive remedies

of ERISA §502.5 2

5 In the fourteen years that have passed since Pilot Life was

decided, and out of thousands of lawsuits by ERISA

beneficiaries against insurers of ERISA plans, Petitioner can

point to only one anomalous decision in which a circuit court of

appeals allowed an ERISA beneficiary to maintain a state law

claim against an ERISA fiduciary challenging a benefit

termination. See Franklin H. Williams Trust v. Travelers Ins. Co., 50

F.3d 144 (2d Cir. 1995). Williams is nothing more than an

anomaly inconsistent with established Supreme Court case law.

The Williams court also appears not to have considered this

Court’s decision in John Hancock. In addition, Petitioner’s

citation to Pas v. The Travelers Ins. Co., 7 F.3d 349 (3d Cir. 1993) is

misplaced because that case did not even address preemption of

a state “bad faith” claim or any other state law claim that was

intended to supplement ERISA’s remedies. That case involved a

state discrimination law. The Third Circuit observed that ERISA

does not purport to remedy discrimination and the state law

would not conflict with ERISA. Id. at 356-57. In fact, the Third

Circuit recently relied on Pilot Life, Taylor, and other decisions

by this Court to hold that a state law bad faith claim arising out

of the processing of a claim for ERISA plan benefits is

completely preempted by ERISA so as to be subsumed by the

—-

nN

w

Il. NEITHER AN AFFIRMANCE NOR A REVERSAL

OF THE SEVENTH CIRCUIT’S DECISION IN

MORAN WILL ADVANCE PETITIONER’S POSI-

TION IN THIS CASE OR REQUIRE REVERSAL OF

THE COURT BELOW.

As noted above, this Court recently granted review

of the Seventh Circuit’s Moran decision to resolve the

conflict with the Fifth Circuit as to whether a state third-

party review law is preempted by ERISA. Petitioner

argues that this Court’s decision in Moran will effectively

determine whether Petitioner can pursue a “bad faith”

claim in this case. Petitioner misses the entire point of the

Moran case.

_—

The Seventh Circuit’s decision in Moran (and the sole

conflict between Moran and Corporate Health) involved the

nature of a state third-party review law and whether it

constituted a state remedy law that would conflict with

the exclusivity of ERISA’s remedial provisions. The Sev-

enth Circuit held that the third-party review law was not

a state remedy law and was not in conflict with ERISA

because it did not purport to supplement ERISA’s exclu-

sive remedies. The Seventh Circuit disagreed with the

Fifth Circuit’s characterization of a similar state law in

Corporate Health, supra. The Fifth Circuit held that a state

third-party review law did constitute a state remedial

provision and that it did conflict with the exclusivity of

ERISA’s remedies. Both the Seventh Circuit in Moran and

the Fifth Circuit in Corporate Health agreed with this

exclusive remedies of ERISA. Pryzbowski v. U.S. Healthcare, Inc.,

245 F.3d 266 (3d Cir. 2001). Thus, the Third Circuit is in line with

the vast majority of circuit courts following this Court’s

precedent that ERISA’s remedial scheme is exclusive.

24

Court's ongoing precedent that if the state law constitu-

ted a state remedial provision, then it would conflict with

the exclusivity of ERISA’s remedial scheme.

In contrast to Moran (and Corporate Health), there is no

debate in this case about the characterization of Peti-

tioner’s proposed “bad faith” claim as a state remedy law

that arises from the processing of a claim tor ERISA plan

benefits and that purports to supplement the exclusive

remedies of ERISA. In other words, the conflict between

-the Fifth and Seventh Circuits to be resolved in Moran, i.e.,

whether a state third-party review law is a state remedy

law that purports to supplement ERISA’s remedies, is not

in dispute in this case. Although some of the amici in

Moran are apparently attempting to use Moran as a vehicle

to overturn precedent in this Court that ERISA’s remedies

are exclusive, that is certainly not the focus of the conflict

between the Seventh Circuit and the Fifth Circuit. Indeed,

those circuits agree that ERISA’s remedies are exclusive.

They also agree that if the third-party review law is a type

of state law that purports to supplement ERISA’s

remedies, it would conflict with the exclusivity of the

federal remedies and would be preempted.

In summary, resolution of the conflict between the

Fifth and Seventh Circuits in Moran will not advance

Petitioner's claim in this case. If this Court agrees with

the Seventh Circuit that the third-party review law is not

the type of state law that purports to supplement the

exclusive remedies of ERISA, that decision will not

impact the fact that Petitioner’s “bad faith” claim is

beyond a doubt a state law that does purport to supple-

ment ERISA’s remedies and is therefore in conflict with

the exclusivity of those remedies. If this Court agrees

with the Fifth Circuit that a state third-party review law

25

is a state law that purports to supplement ERISA’s

remedies and is therefore in conflict with and preempted

by ERISA, that decision also will not-advance Petitioner’s

position. Either way, Moran will not advance Petitioner’s

claim and provides no basis for granting certiorari in this

case.

III. CALIFORNIA’S LAW OF “BAD FAITH” IS ALSO

PREEMPTED BECAUSE IT IS NOT A STATE LAW

THAT “REGULATES INSURANCE” UNDER

ERISA §514.

As a general proposition, it is difficult to conceive of

any state law cause of action that could be said to be a

state law which regulates insurance within the meaning

of this Court’s interpretations of the saving clause.

Causes of action challenging benefit determination pro-

cesses and/or the state of mind of the fiduciary, like the

one in Pilot Life, affect only the consequences of a breach

of the insurance contract by way of remedy. They do not

mandate or alter the terms of the contract itself but

merely impose penalties for failing to conform to the

contract. See Pilot Life, 481 U.S. at 50-51.

Even if one accepts the theoretical proposition that

there could be a state law cause of action that could be

said to be a law that regulates insurance within the

meaning of §514(b), it is clear that the California common

law bad faith cause of action presented in this case is not

such a law. According to Petitioner, California bad faith

law arose out of public-policy concerns reflecting the

importance of insurance in our society. But the same was

said of Mississippi bad faith claims. Pilot Life, 481 U.S. at

50-51.

26

The California claim, like the Mississippi claim in

Pilot Life, has its roots firmly in common law principles of

general application. California has long recognized the

existence of an “implied covenant of good faith and fair

dealing in every contract that neither party will do any-

thing which will injure the right of the other to receive

the benefits of the agreement.” Comunale v. Traders &

General Ins. Co., 328 P.2d 198, 200 (Cal. 1958). More gener-

ally, the California cases allowing tort recovery for bad

faith breach of contract are but applications of the

broader California common law doctrine that tort dam-

ages are recoverable for a breach of contract whenever

the breach also constitutes an independent tort. See Free-

man & Mills, Inc. v. Belcher Oil Co., 900 P.2d 669 (Cal.

1995); Egan v. Mutual of Omaha Life Ins., 620 P.2d 141, 146

(Cal. 1979); Gruenberg v. Aetna Ins. Co., 510 P.2d 1032,

1036-37 (Cal. 1973); Crisci v. Security Ins. Co., 426 P.2d 173,

176-78 (Cal. 1967); Comunale, 328 P.2d 200-01; Quezada v.

Hart, 136 Cal. Rptr. 815, 818 (Cal. Ct. App. 1977) (describ-

ing breach of covenant cases as intentional tort cases); see

“d also Lazar v. Superior Court, 909 P.2d 981, 985, 989-90

(1996) (authorizing tort and contract recovery for fraudu-

lent inducement of contract); Chelini v. Nieri, 196 P.2d 915

(1948) (mortician’s breach of duty to properly embalm);

Buxbom v. Smith, 145 P.2d 305, 311 (Cal. 1944) (tortious

interference with business relations); Pintor v. Ong, 259

Cal. Rptr. 577 (Cal. Ct. App. 1989) (statutory failure to

recovery trust deed); Hawkins v. Oakland Title Ins. & Guar-

anty Co., 331 P.2d 742, 746 (Cal. Ct. App. 1958) (negligent

title search). Thus, even if the state law claim on which

Petitioner relies were not preempted because it conflicts

with the exclusivity of ERISA’s civil enforcement

remedies, Petitioner's claim would still be preempted

~

ee

27

under principles of “express preemption” by a straight-

forward reading of §514 alone: It relates to an ERISA plan

within the meaning of §514(a) and it is not a law which

regulates insurance within the meaning of §514(b).

IV. PETITIONER’S ARGUMENT FOR THE RETRAC-

TION OF PREEMPTION UNDER ERISA IS AN

ISSUE FOR CONGRESS RATHER THAN FOR

THE COURTS.

Notwithstanding Petitioner’s arguments regarding

Ward, Petitioner is really asking this Court to overrule

years of case law on an issue of statutory interpretation

without any showing of a change in the statutory provi-

sions and without any showing of a deviation from this

Court’s precedent by the federal circuit courts or the state

courts of last resort. Petitioner is merely asking this Court

to reinterpret federal law in a way that is more to Peti-

tioner’s liking. However, this Court has already deter-

mined the intent of Congress, including congressional

intent that ERISA’s remedies be the exclusive vehicle for

participants and beneficiaries to assert improper process-

ing of a claim for plan benefits. The law has not changed

since Pilot Life, Taylor, Ingersoll-Rand, and John Hancock

and therefore congressional intent in enacting the law has

not changed. If Petitioner wants the law changed in the

future, she must appeal to Congress, not this Court.

Courts should be reluctant to change ongoing prece-

dent on an issue of statutory interpretation, particularly

when the issue is currently being debated by Congress. In

the health care arena, the very subject of this petition -

whether ERISA preemption should be modified to allow

28

an insured to pursue state law remedies against an ERISA

plan - is at the heart of this debate.© The United States

Senate and the House of Representatives have passed

conflicting bills that address ERISA preemption of state

law causes of action and which propose certain amend-

ments to ERISA preemption. S. 1052, 107th Cong., Ist

Sess. (2001); H.R. 2563, 107th Cong., 1st Sess. (2001).

The fact that there is a debate in Congress regarding

ERISA preemption of state law claims rebuts Petitioner’s

position that ERISA remedies were not intended to be

exclusive. If state law causes of action are already avail-

able to supplement ERISA as Petitioner urges, why is

Congress spending so much time and energy debating

the issue? If state law causes of action are not preempted,

why would the President threaten to veto legislation that

would amend ERISA to allow state law causes of action in

employee health plan disputes? The answer is that such

causes of action are not currently available because they

have been preempted since ERISA was enacted in 1974.

This Court has repeatedly held that the federal civil

remedies under ERISA provide the exclusive mechanisms

© See, e.g., Robert Pear and Robin Toner, Bush Demands

Senate Changes on Patient Bill, N.Y. Times, June 22, 2001, at Al

(“Bush says he fears Democratic bill could lead to explosive

growth in lawsuits. . .. ”); Robert Pear, Bill Establishing Patients’

Rights Passes in Senate, N.Y. Times, June 30, 2001, at Al (“The bill

would, for the first time . . . allow patients to file suit, in federal

or state court, to enforce their rights.”); Robert Pear, Measure

Defining Patients’ Rights Passes in House, N.Y. Times, August 3,

2001, at Al (“House . . . hands important victory to President

Bush, who argued that earlier versions of bill would encourage

frivolous lawsuits. ... ”).

29

for relief in employee benefit plan disputes, including the

dispute in this case.

Petitioner’s assertion of a state law “bad faith” claim

is nothing less than an attempt to destroy the careful

balance struck by Congress when it enacted ERISA’s civil

enforcement provision. In Pilot Life, this Court noted Con-

gress’ “careful balancing of the need for prompt and fair

claims settlement procedures against the public interest

in encouraging the formation of employee benefit plans.”

481 U.S. at 54. This Court has also observed that ERISA is

“an enormously complex and detailed statute that

resolved innumerable disputes between powerful com-

peting interests — not all in favor of potential plaintiffs.”

Mertens v. Hewitt Associates, 508 U.S. 248, 262 (1993). More

recently, this Court again recognized this legislative bal-

ance under ERISA by stating that “courts may have to

take account of competing congressional purposes, such

as Congress’ desire to offer employees enhanced protec-

tion for their benefits, on the one hand, and, on the other,

its desire not to create a system that is so complex that

administrative costs, or litigation expenses, unduly dis-

courage employers from offering welfare benefit plans in

the first place.” Varity Corporation v. Howe, 516 U.S. 489,

497 (1996). This balance is one that was struck by Con-

gress. The above cases make it clear that the courts

should not interfere with that balance by imposing addi-

tional or alternative remedies that were not incorporated

expressly in the statute.

30

CONCLUSION

For the foregoing reasons, Respondent respectfully

requests that the petition for writ of certiorari be denied.

Respectfully submitted,

Mark E. SCHMIDTKE

Counsel of Record

HoeppNer, WAGNER &

Evans LLP

103 E. Lincolnway

P.O. Box 2357

Valparaiso, Indiana

46384-2357

(219) 465-7368

Mary ELIzaBeTH FouGcere, Esa.

Unum Lire INSURANCE

COMPANY OF AMERICA

2211 Congress Street

Portland, Maine 04122

(207) 575-3045

WituuaM J. Kayartrta, JR.

Pierce ATWOOD

One Monument Square

Portland, Maine 04122

(207) 791-1100

JosepH M. Rmac, Esa.

ANNA M. Martin, Esa.

Rmac & Martin, P.C.

1700 California Street,

Suite’ 470

San Francisco, California

94109

(415) 561-8440

Attorneys for Respondent