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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 2002
- **Citation:** 536 U.S. 939

## Text

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386009_0790%3A2. Public record. Not legal advice.