Opposition Brief — Marshall v. Bankers Life & Casualty Co.

INTHE

Supreme Court of the Anited

OCTOBER TERM, 1992

Fae oe. mss cust

a om 0 eer ae Rem UN

LINDA BROWN MARSHALL and DONALD MARSHALL,

Petitioners,

Vv.

BANKERS LIFE AND CASUALTY COMPANY,

an Illinois Corporation,

FRANK B. HALL AND COMPANY OF CALIFORNIA,

a California Corporation, and MIA ADMINISTRATORS,

a California Corporation,

Respondents.

Petition for Writ of Certiorari to the

Supreme Court of California

BRIEF IN OPPOSITION TO

PETITION FOR WRIT OF CERTIORARI

‘

¥

;

:

i

x

OPY ie

BEST AVAILABLE C

Henry C. THUMANN

Counsel of Record

O’MELVENY & MYERS

400 South Hope Street

Los Angeles, CA 90071

(218) 669-6000

RoBERT N. ECCLES

O’MELVENY & MYERS

555 18th Street, N.W.

Washington, D.C. 20004

(202) 383-5300

Marc J. Wopin

O’NgEaL & Wopin

8550 Balboa Boulevard

Suite 206

Northridge, CA 91325

ens

™ ———

QUESTION PRESENTED

Whether an employer that purchases at its expense

a group insurance policy in order to provide health,

life and disability benefits for its employees has es-

tablished an “employee welfare benefit plan” or ‘“‘wel-

fare plan’ within the meaning of section 3(1) of the

Employee Retirement Income Security Act of 1974

(“ERISA’’), 29 U.S.C. § 1002(1) (1988), so that the

provision and denial of benefits are governed by

ERISA to the exclusion of preempted state law.

ii

TABLE OF CONTENTS

QUE FE PMO RIGA? cctinsccicciassesanisenncscotasabdeenens l

STATEAMINE OF THE CAGE. cccecesccssctcsstsvensancasscvsnes 1

SUMMARY GF ARGUMENT vccsscscssksacssiscesremnmaen 3

ADIQUSEGRY scriininnuisstacnnngaeaneantaen 4

I. Introduction to Argument .................ceeeeeeeees 4

II. The Decision Below is Consistent with the

Statutory Language and Agency

BROT PWCRRIOR,.. oc icsrssisrxanccvuicnsenueierenmies

III. The Decision Below is Consistent with This

Coert's DORIGIOIE svciiccccctecen eee 10

IV. The Decision Below is Uniformly Consistent

with the Applicable Authority in the Lower

OMRIGE, .scevessesencconssiniieckanenbeheeeaeeaneanennnn 11

CONCLIUGIOIN csccceassncssessiveicnsensisesneaeniinnnaeeennnas 16

iil

TABLE OF AUTHORITIES

CASES Page

American Fed. of Unions v. Equitable Life Assur-

ance Soc’y, 841 F.2d 658 (5th Cir. 1988) ....... 8

Brundage-Peterson v. Compcare Health Servs. Ins.

Corp., 877 F.2d 509 (7th Cir. IEE ibitkbicenssieks 12,13

Credit Managers Ass’n v. Kennesaw Life & Accident

Ins. Co., 809 F.2d 617 (9th Cir. 1987) ........... 13

Dedeaux v. Pilot Life Ins. Co., 770 F.2d 131] (5th

Cir. 1985), rev’d, 481 U.S. 41 SENTD stibesciuknes 11

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

|__| EE nn OE 11-12,13,14

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

oa (SNES SEE Ee 5,6,10-11

Fugarino v. Hartford Life & Accident Ins. Co., 969

ems LPS (OU Cir, 1002) .n...cccccscccccscccescccss.... 12-13

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

SRS Rr gene 14

Gilbert v. Burlington Indus., Inc., 765 F.2d 320 (2d

Cir. 1985) affd, 477 U.S. 901 i: nee 6

Harris v. Arkansas Book Co., 794 F.2d 358 (8th

RN Iasi css osiecaneinnansessnsceseoiares. ce. 12

International Resources Inc. v. New York Life Ins.

Co., 950 F.2d 294 (6th Cir. 1991), cert. denied,

BAW Os Go MORE CIO) ovccocicsscisccscassscceacs....... 12

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

489 (9th Cir. 1988), cert. denied, 492 U.S. 906

a 12

Massachusetts v. Morash, 490 U.S. 107 (1989) ...... 9

Memorial Hosp. Sys. v. Northbrook Life Ins. Co.,

904 F.2d 236 (5th Cir. 1990) oo... 12,13,14

Nationwide Mut. Ins. Co. v. Darden, 112 S. Ct.

EEE ea 16

Peckham v. Gem State Mut. of Utah, 964 F.2d 1043

Se I ios ccacsacctaaranatnaseene... 12

iv

Table of Authorities Continued

Page

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

RIED casies, coevavitices <tuatencaguasictavapaaatgaecaeendemeaes 4,6,11

Schulist v. Blue Cross of Iowa, 717 F.2d 1127 (7th

Saar, UNIIIEE acu siistlosabintinesoapuaseuet qaumaatinbcalaasalaaceeiaas dake 8

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

CRI sinc rcskinrncirnateanatesteidantsananaiabnuabieeiakeimecnibe 6

Taggart Corp. v. Life & Health Benefits Admin.,

Inc., 617 F.2d 1208 (5th Cir. 1980), cert. de-

etl, 4D TT. TUS CIBGE) ciccesesciccssnnsccsecessinss 13-14

Turnbow v. Pacific Mut. Life Ins. Co., 765 P.2d

1160 (Nev. 1988), cert. denied, 490 U.S. 1102

PRN shvcancsccactuicsiiatlbaaies tis anpeccseadaamnbeusemnsoacaelanes 14-15

Wickman v. Northwestern Nat’l Ins. Co., 908 F.2d

1077 (1st Cir.), cert. denied, 111 S. Ct. 581

EINES a siucdivicceiadasiuuaeacieessouueulomiauniacie cota cauasectpacks 12

CODES, REGULATIONS AND STATUTES

Employee Retirement Income Security Act of 1974

(“ERISA’’):

29 U.S.C. § 1002(1) (1988) ......e.ccceccssscesessesesseseseeees 4,7

29 U.S.C. § 1002(4) (1988) ...c.cecccccccccscesessececscseceeees 4

29 U.S.C. §§ 1002(5)(8) (1988) ...cccccescccessesseseseeseeees 5

29 U.S.C. § 1102(bX2) (1988) .....c.ccccccecsscscecesseeseeee 7

29 U.S.C. § 1IOGEND) (ISEB) .o..nccscccscsscccssescessenseso. 7

ORS 6 1 Bn rb teete in 8

OP USC BAe I oi ec ee 3,4

Pension and Welfare Benefits Administration,

Department of Labor (1990):

29 C.F.R. § 2510.3-3(b), (cX1) (1991) .......... eens 15

SD CPLR. § BG10.8-1G) (EGO) ...nccccercccssccscssessersecnee 8-9

29 C.F.R. §§ 2560.503-1(cX1) and (g\2) (1991) ...... 8

Table of Authorities Continued

OTHER AUTHORITIES

120 Cong. Rec. 29,983 (1974) Loececceccccccecccccececccccec.,

40 Fed. Reg. 34,527 (August 15, i PROPER

United States Department of Labor, ERISA Opin-

ion Letter 76-06 (April 30, BUTE Sisamiccocnndeed bases

United States Department of Labor, ERISA Opin-

ion Letter 87-11A (December Bh; BOOED sccracece

IN THE

Supreme Court of the United States

OCTOBER TERM, 1992

No. 92-580

LINDA BROWN MARSHALL and DONALD MARSHALL,

Petitioners,

Vv.

BANKERS LIFE AND CASUALTY COMPANY,

an Illinois Corporation,

FRANK B. HALL AND COMPANY OF CALIFORNIA,

a California Corporation, and MIA ADMINISTRATORS,

a California Corporation.

Respondents.

Petition for Writ of Certiorari to the

Supreme Court of California

BRIEF IN OPPOSITION TO

PETITION FOR WRIT OF CERTIORARI

STATEMENT OF THE CASE

This action seeks general, special and punitive dam-

ages arising from an alleged failure to pay medical

benefits due under a group insurance policy issued by

Bankers Life and Casualty Company (‘‘Bankers’’) to

Miller Import Datsun, Inc. (“Miller’’). According to

stipulated facts, (Petition for Writ of Certiorari, Ap-

pendix, ‘‘Pet. App.” at 53a-60a), Miller’s employee

manual stated that all employees would be provided

with group insurance coverage. (Pet. App. at 57a-58a,

¢ 4.) Miller purchased the policy in issue as part of

an employee benefit package in order to provide

health, life and disability insurance to its employees

and their dependents. (Pet. App. at 54a, 4{ 6, 7.)

Miller purchased the Bankers policy effective March

1, 1983 and cancelled it effective October 1, 1983,

replacing it with a policy purchased from a different

insurer. (Pet. App. at 12a-13a.)

All Miller employees were covered by the Bankers

policy, and the full premiums for their coverage were

paid by Miller. (Pet. App. at 54a, 4{ 7, 8; Pet. App.

at 55a, § 14.) Employees were permitted to enroll

their dependents for coverage under the policy at their

own expense. (Pet. App. at 55a, § 15.) Petitioner

Donald Marshall was an employee of Miller covered

under the policy. (Pet. App. at 55a, ¢ 9.) His wife,

petitioner Linda Marshall, was covered as a depend-

ent under the policy. (Pet. App. at 55a, ¢ 9.) Most

of the administration of the policy was performed by

Frank B. Hall and Company of California (‘“FBH”)

which was appointed by Bankers and made all deci-

sions whether to pay or deny benefit claims. (Pet.

App. at 57a, ¢ 1; Pet. App. at 58a, { 8.) Miller also

performed minor administrative functions.’

1 Miller’s functions included remitting employee and dependent

premiums, (Pet. App. at 55a, {{ 14, 15); providing enrollment

forms and change cards to employees and sending the completed

forms to FBH, (Pet. App. at 56a, 44 17-18); providing claim

forms to employees, (Pet. App. at 55a, { 19); advising FBH of

employees who had been hired or had terminated employment,

(Pet. App. at 55a, ¢ 16); distributing to employees informational

books that described the policy, (Pet. App. at 56a, ¢ 21); and

While the Bankers policy was in force, Linda Mar-

shall submitted a claim for hospitalization expenses

which was initially denied. (Pet. App. at 54a, § 1.)

Although the claim was ultimately paid, the Marshalls

brought suit in a California court seeking extra-con-

tractual damages on various state law causes of ac-

tion. (Pet. App. at 26a.) As an affirmative defense,

Bankers and FBH asserted that the Marshalls’ claims

were preempted because they related to an “employee

benefit plan” subject to ERISA, see 29 U.S.C.

§ 1144(a) (1988). The defense was sustained by the

trial court, whose decision was reversed by a division

of the California Court of Appeal. That decision was

in turn reversed by the California Supreme Court

which held that “‘an employee benefit plan is estab-

lished on these facts despite the employer’s minimal

involvement in plan administration and complete non-

involvement in claims processing. An action seeking

remedies under state law for an improper denial of

benefits is, therefore, preempted’’. (Pet. App. at la-

2a) (citations omitted).

SUMMARY OF ARGUMENT

The question presented for review concerns whether

an employer which provides health benefits to its em-

ployees through the purchase of a group insurance

policy must also administer the policy’s provision of

benefits in order for the benefit program to be a

‘welfare plan’? subject to ERISA. The California

Supreme Court correctly held that such employer

administration was not a necessary condition of ER-

responding to employees’ questions regarding the policy and re-

ferring to FBH questions that Miller could not answer, (Pet.

App. at 56a-57a, ¢ 23).

ISA coverage. That decision is faithful to ERISA’s

plain statutory language, which does not include a

requirement of employer administration, and accords

with interpretations of the Department of Labor, the

federal agency charged with interpretation of the rel-

evant provision of ERISA. Despite petitioners’ at-

tempts to portray a conflict among lower courts over

this question, no such conflict in fact exists. On the

contrary, the decision below is consistent with deci-

sions of this Court and with an unbroken line of au-

thority in the federal circuits. The few decisions on

which petitioners rely all involve a fact pattern which

represents a fundamental distinction from this case,

and all derive from a single decision, the relevant

rationale of which has been abandoned in its own

circuit and rejected elsewhere. Accordingly, there is

no reason why the decision below warrants review by

this Court.

ARGUMENT

I. Introduction to Argument

Causes of action based on state law are preempted

by ERISA if they relate to an ‘employee benefit

plan”, including an ‘“‘employee welfare benefit plan’.

29 U.S.C. § 1002(4), § 1144(a) (1988); Prlot Life Ins.

Co. v. Dedeaux, 481 U.S. 41 (1987). Section 3(1) of

ERISA, 29 U.S.C. § 1002(1) (1988), defines an ‘‘em-

ployee welfare benefit plan’’ or ‘“‘welfare plan’’ to in-

clude ‘‘any plan, fund, or program ... established or

maintained by an employer ... for the purpose of

providing for its participants or their beneficiaries,

through the purchase of insurance or otherwise, (A)

medical, surgical, or hospital care or benefits. .. .”’

_— Eo

There is no dispute that the medical benefits at

issue here are described in Section 3(1) or that the

statute expressly contemplates that benefits under a

‘‘welfare plan’? may be provided “through the pur-

chase of insurance’. Likewise, there is no dispute

that Miller was an “employer” or that the Marshalls

were “participants” or “beneficiaries” if an ERISA

plan existed. See 29 U.S.C. §§ 1002(5)-(8) (1988). The

only question is whether through its purchase of the

Bankers policy Miller ‘‘established or maintained’ a

“plan, fund, or program”’ for providing employee ben-

efits.

While petitioners occasionally suggest otherwise,

there can be no doubt that a “plan” or ‘““program”’

of benefits existed here. In Fort Halifax Packing Co.

v. Coyne, 482 U.S. 1, 9 (1987), this Court character-

ized a “plan” or “program” of benefits as involving

‘a commitment systematically to pay certain bene-

fits’’ and as requiring such functions as “determining

the eligibility of claimants, calculating benefit levels,

making disbursements ... and keeping appropriate

records”. Miller’s purchase of the policy, Bankers’

contractual commitment to provide benefits, and

F'BH’s performance of the typical administrative func-

tions necessary to fulfill such a commitment conclu-

sively demonstrate that a_ benefit “plan’’ or

‘“program’”’ existed.?

* Moreover, the administrative contract between Bankers and

FBH expressly refers to the benefits under the policy as a

“plan”’. (Pet. App. at 57a, ¢ 1.) Even petitioners repeatedly refer

to the question presented here as involving employer adminis-

tration of an insurance or benefit “program’’. (Petition for Writ

of Certiorari, ‘‘Pet.”’ at 3, 10, 11, 12, 13.)

aa

The core question presented by petitioners is, in

their phrase, whether ‘“‘any program which provides

benefits of the type described in ERISA and which

requires ongoing administrative activity constitutes a

‘plan’”’ or whether, instead, “‘only a program of ben-

efits described in ERISA which requires ongoing ad-

ministrative activity by an employer constitute[s] a

‘plan’[ ]’’. (Pet. at 12) (emphasis in original).®

Petitioners argue that review should be granted be-

cause this question is an important one due to the

prevalence throughout the United States of ‘‘health

insurance ... provided through an employment re-

lationship’, and because there is ‘‘a split in authority

among both federal and state courts’ over the ques-

tion. (Pet. at 8, n.2.)

Neither of these grounds warrants review. ERISA

was intended to provide comprehensive and uniform

federal regulation of employee benefit plans, Shaw v.

Delta Air Lines, Inc., 463 U.S. 85, 99 n.20 (1983),

and to ‘‘elimina[te] the threat of conflicting or in-

consistent State and local regulation of employee ben-

efit plans’”’. Pilot Life at 46 (quoting 120 Cong. Rec.

29,933 (1974)). As the petition itself asserts, Miller’s

’In the California Supreme Court, petitioners unsuccessfully

argued that the facts that Miller never intended to create an

ERISA plan and did not comply with certain ERISA require-

ments should mean that no ERISA coverage existed. See Pet.

App. at 15a-17a. Although their petition to this Court refers to

these facts, it does not argue that they present any issue war-

ranting review by this Court. In view of the relevant case law,

this position is readily understandable. See Gilbert v. Burlington

Indus., Inc., 765 F.2d 320, 328 (2d Cir. 1985) affd, 477 U.S.

901 (1986); see also Fort Halifax at 18 n.10.

arrangement for providing health insurance to its em-

ployees through purchase of a group insurance policy

represents ‘‘the most common arrangement of insur-

ing for health care costs in the United States” and

is “‘a ‘garden variety’” such arrangement. (Pet. at ‘2

quoting Pet. App. at 37a.) Certainly, if the California

Supreme Court had not found ERISA coverage of

such a typical employee benefit program, it would

have opened a gaping hole in the uniform federal

regulation mandated by ERISA. The decision by the

California Supreme Court that ERISA does apply to

Miller’s program, however, preserves ERISA’s man-

date of uniform regulation. Moreover, as discussed

below, that decision does not conflict with, but is

instead consistent with, all pertinent authority.

II. The Decision Below is Consistent with the Statutory

Language and Agency Interpretation

Nothing in the statute supports petitioners’ argu-

ment that an employer must administer an employee

benefit program to constitute the program a plan sub-

ject to ERISA. ERISA’s statutory language contains

no requirement of employer administration but merely

states that a plan to provide benefits may be estab-

lished or maintained by an employer ‘“‘through the

purchase of insurance or otherwise’. 29 U.S.C.

§ 1002(1) (1988). Indeed, various provisions of ERISA

confirm that administrative responsibilities under a

plan may be freely delegated and allocated. See 29

U.S.C. §§ 1102(b\2) and 1105(c)(1) (1988).

‘Moreover, as the California Supreme Court observed, it is

‘common practice’’ for insurers or their third-party administra-

tors to administer benefits under an insurance policy and ‘‘hold-

ers of group insurance policies commonly do not bear primary

The Department of Labor has repeatedly confirmed

the plain meaning of the statute that self-administra-

tion of benefits by the employer is not a requirement

of ERISA coverage. For example, in a 1976 opinion

letter dealing with facts indicating no employer in-

volvement in benefits administration, the Department

opined that an employer which, like Miller here, had

purchased a group insurance policy to provide health

and other benefits to employees and their dependents

had thereby established an ERISA plan.’ Moreover,

in regulations published shortly after the effective date

of ERISA, the Department addressed the role of

“certain group or group-type insurance programs” in

the establishment of a statutory “‘welfare plan’’. 29

C.F.R. § 2510.3-1(j) (1991).° As explained in its pream-

responsibility for processing claims’’. (Pet. App. at 7a.) This

practice is well evidenced in the ERISA case law concerning

insurers which exercise fiduciary discretion in a plan’s admin-

istration. See American Fed. of Unions v. Equitable Life Assur-

ance Soc’y, 841 F.2d 658, 662-63 (5th Cir. 1988); Schulist v. Blue

Cross of Iowa, 717 F.2d 1127 (7th Cir. 1983).

° See United States Department of Labor, ERISA Opinion Let-

ter 76-06 (April 30, 1976). The Department has also repeatedly

taken the position—consistent with its position as plaintiff in

Donovan v. Dillingham, 688 F.2d 1367 (11th Cir. 1982) (en banc)

and accepted by the court there—that an employer which pur-

chased group health insurance for employees through a multiple

employer trust has established an ERISA-covered ‘‘welfare plan”’

even though the employer lacked any administrative role in the

benefit program. See, e.g., United States Department of Labor,

ERISA Opinion Letter 87-11A (December 21, 1987). The De-

partment’s regulations under ERISA’s claim procedure provi-

sion, 29 U.S.C. § 1133 (1988), also expressly recognize that an

employee benefit plan may be “administered by an insurance

company”, 29 C.F.R. §§ 2560.503-1(cX1) and (gX2) (1991) (em-

phasis added).

29 C.F.R. § 2510.3-1(j) (1991) provides:

ble to that regulation, the “key” to ERISA exclusion

of a group insurance policy is “the absence of em-

ployer involvement”. 40 Fed. Reg. 34,527 (August

15, 1975). Obviously, an employer’s selection and pur-

chase of a group policy constitutes a degree of in-

volvement that is inconsistent with exclusion from

ERISA coverage under the Department’s interpre-

tation and regulations.

The court below accorded “deference” to such rea-

sonable views of the Department. In so doing, it did

no more than pursue faithfully the teaching of this

Court. See Massachusetts v. Morash, 490 U.S. 107,

116 (1989).

“Certain group or group-type insurance programs.

“For purposes of Title I of the Act and this chapter, the

terms “employee welfare benefit plan” and “welfare plan”’ shall

not include a group or group-type insurance program offered by

an insurer to employees or members of an employee organiza-

tion, under which

“(1) No contributions are made by an employer or employee

organization;

(2) Participation in the program is completely voluntary for

employees or members;

‘(3) The sole functions of the employer or employee organi-

zation with respect to the program are, without endorsing the

program, to permit the insurer to publicize the program to em-

ployees or members, to collect premiums through payroll de-

ductions or dues checkoffs and to remit them to the insurer;

and

(4) The employer or employee organization receives no con-

sideration in the form of cash or otherwise in connection with

the program, other than reasonable compensation, excluding any

profit, for administrative services actually rendered in connection

with payroll deductions or dues checkoffs.”

10

III. The Decision Below is Consistent with This Court’s

Decisions

In their attempt to create an issue worthy of review

by this Court, petitioners misread and thereby ad-

vance as supportive of their argument this Court’s

decision in Fort Halifax Packing Co. v. Coyne, 482

U.S. 1 (1987). In Fort Halifax, the Court held that

a Maine statute, which required employers to make

a one-time lump sum severance payment to employees

laid off through a plant closing, did not establish or

require the maintenance of an ERISA plan. Jd. at 6.

The essential rationale underlying the Court’s decision

was that the phrase “plan, fund, or program’’ in-

cluded in ERISA’s definition of “‘welfare plan’ con-

notes an ongoing administrative program to pay

benefits. Because the Maine statute required only a

one-time lump sum payment and not any ongoing ben-

efit program, the Court concluded that it did not in-

volve an ERISA plan.

The question decided in Fort Halifax relates to an

entirely different issue, involving a different aspect

of ERISA’s definition of “‘welfare plan’, than the

question presented here. Because the benefit involved

in Fort Halifax—severance pay—was payable from an

employer’s general assets and not from an insurance

policy, the Court occasionally referred to employer

administration as contextually relevant to the ques-

tion it was deciding. But the question decided in Fort

Halifax was whether there was sufficient ongoing ad-

ministrative activity to constitute a “plan, fund, or

program”’ in the first place—not whether an obviously

ongoing plan had been ‘established or maintained’”’

by an employer as opposed to some alternative pre-

cipitating cause. Thus, as the California Supreme

1]

Court concluded: ‘‘Properly understood, Fort Halifax

requires us to consider not the level of the employer’s

participation in an ongoing administrative program,

but rather whether such a program exists at all.”

(Pet. App. at 8a.) (footnote omitted; emphasis in orig-

inal). As discussed, supra, p. 5, there is no question

that the Bankers policy constituted a ‘“program”’ of

benefits. Fort Halifax, therefore, does not address the

question presented here and is fully consistent with

the decision below.

Moreover, in Pilot Life Insurance Co. v. Dedeaux,

481 U.S. 41 (1987), this Court addressed an employee

benefit program indistinguishable from the program

at issue here. In Pilot Life, as here, the insurer pos-

sessed sole authority to make benefit determinations,

and the employer’s role ‘‘was predominantly a min-

isterial one’. Dedeaux v. Pilot Life Ins. Co., 770 F.2d

1311, 1312-13 (5th Cir. 1985), rev’d, 481 U.S. 41

(1987). Because no party in Pilot Life disputed such

an arrangement’s status as an ERISA plan, this Court

did not separately address the question of ERISA

applicability. The Court’s holding that state law causes

of action were preempted, however, was necessarily

dependent on ERISA coverage. Thus, the conclusion

reached below by the California Supreme Court is

identical to the conclusion reached by this Court in

Pilot Life.

IV. The Decision Below is Uniformly Consistent with the

Applicable Authority in the Lower Courts

The federal circuits have uniformly followed the test

established in Donovan v. Dillingham, 688 F.2d 1367

(11th Cir. 1982) (en banc) for determining that a

‘plan, fund, or program” of benefits exists within the

meaning of ERISA if ‘“‘from the surrounding circum-

ee

12

stances a reasonable person can ascertain the in-

tended benefits, a class of beneficiaries, the source of

funding, and procedures for receiving benefits’. Jd.

at 1373.7 As the California Supreme Court stated:

“(t]hese criteria are easily met in this case’’. (Pet. at

9a.) Indeed, although petitioners disparage the Don-

ovan v. Dillingham test, they do not dispute that a

“program” of benefits existed here.

Consistent circuit court authority also holds that an

employer has ‘‘established or maintained”’ a plan when

it purchases a group insurance policy to provide ben-

efits to employees, even if the employer plays no role

in benefits administration. Donovan v. Dillingham in-

volved a multiple-employer trust, 1.e., a for-profit en-

terprise formed to sell health insurance to small

employers for their employees and dependents. Al-

though the employers played absolutely no role in

administration of the trust or the policy, the court

nonetheless held that, by their purchase of the policy,

they had established welfare plans. /d. at 1373-75. All

other circuits which have addressed this question have

endorsed that view.*

7 See, e.g., Peckham v. Gem State Mut. of Utah, 964 F.2d 1043,

1047 (10th Cir. 1992); International Resources Inc. v. New York

Life Ins. Co., 950 F.2d 294, 297-98 (6th Cir. 1991), cert. denied,

112 S. Ct. 2941 (1992); Memorial Hosp. Sys. v. Northbrook Life

Ins. Co., 904 F.2d 236, 241-42 (5th Cir. 1990); Wickman v.

Northwestern Nat’l Ins. Co., 908 F.2d 1077, 1082-83 (1st Cir.),

cert. denied, 111 S. Ct. 581 (1990); Brundage-Peterson v. Comp-

care Health Servs. Ins. Corp., 877 F.2d 509, 511 (7th Cir. 1989);

Kanne v. Connecticut Gen. Life Ins. Co., 867 F.2d 489 (9th Cir.

1988), cert. denied, 492 U.S. 906 (1989); Harris v. Arkansas

Book Co., 794 F.2d 358, 360 (8th Cir. 1986).

® See Fugarino v. Hartford Life & Accident Ins. Co., 969 F.2d

13

Petitioners argue that this line of authority conflicts

with Taggart Corp. v. Life & Health Benefits Admin-

stration, Inc., 617 F.2d 1208 (5th Cir. 1980), cert.

denied, 450 U.S. 1030 (1981) and two decisions which

follow Taggart. In Taggart, the court held that a cor-

poration which purchased insurance from a multiple

employer trust to provide health coverage for the

family of the corporation’s owner, who was its sole

employee, had not established an ERISA plan. Re-

ferring to the employer’s actions as the “bare pur-

chase[ ] of health insurance’’, the court stated that

ERISA did not apply ‘‘where, as here, the purchasing

employer neither directly nor indirectly owns, con-

trols, administers or assumes responsibility for the

policy or its benefits’. Jd. at 1211.

The overbroad reading which plaintiffs place on

Taggart’s language—i.e., that employer administration

of an insurance policy is necessary in order for an

ERISA plan to exist—has been uniformly rejected by

post-Taggart decisions in the federal circuits. In Don-

ovan v. Dillingham, 688 F.2d 1367 (11th Cir. 1982),

the Court of Appeals for the then-newly created Elev-

enth Circuit considered Taggart en banc, as its rules

required where it was considering deviation from a

precedent of the former Fifth Circuit. In a unanimous

178, 185 (6th Cir. 1992); Memorial Hosp. Sys. at 242-43: Brun-

dage-Peterson at 511 (referring to a health insurance policy under

which benefits were administered by the insurer, not the em-

ployer, as ‘‘a common method by which employers provide health

and other welfare benefits to their employees, and not one that

has heretofore been thought to take a benefits plan out of ER-

ISA’); Credit Managers Ass'n v. Kennesaw Life & Accident Ins.

Co., 809 F.2d 617, 625 (9th Cir. 1987) (“Even if an employer

does no more than arrange for a ‘group-type insurance program’

it can establish an ERISA plan .. .”).

a

14

decision—joined by the author of the Taggart opinion

and by another member of the Taggart panel (both

of whom had become judges of the Eleventh Circuit)—

the en banc court expressly rejected the reading of

Taggart which petitioners advance, holding instead

that an employer need not administer a group insur-

ance policy in order for ERISA coverage to apply.

Id. at 1875.

Likewise, in Memorial Hospital the Court of

Appeals for the Fifth Circuit, which had decided Tag-

gart, also rejected a broad reading and limited Tag-

gart to its owner/employee context. Addressing a fact

situation identical to that presented here, Memorial

Hospital followed Donovan v. Dillingham and held

that an ERISA plan existed, stating: “(t]he fact that

[the employer’s] administrative functions under the

policy are minimal is perfectly in keeping with its

intent that [the insurer] administer the plan as well

as insure it’’. 904 F.2d at 248. The same analysis has

been followed in all of the other federal circuits that

have addressed the question presented here. See cases

cited at n.8, supra.

In Memorial Hospital, the court distinguished Tag-

gart as involving only ‘“‘the bare purchase of insurance

by a lone employee” through a multiple employer

trust. Jd. at 242. The same distinction applies to the

other two cases asserted by petitioners to be in con-

flict with the decision below. In Gahn v. Allstate Life

Insurance Co., 926 F.2d 1449 (5th Cir. 1991), a busi-

ness owner purchased group health insurance through

a multiple employer trust for himself and his imme-

diate family who were the only employees of the busi-

ness.* Likewise, Turnbow v. Pacific Mutual Life

* Moreover, in Gahn, the court did not adopt petitioners’ broad

15

Insurance Co., 765 P.2d 1160 (Nev. 1988), cert. de-

nied, 490 U.S. 1102 (1989), involved a claim by the

sole proprietor of a liquor store who had purchased

health insurance for herself and three employees

through a multiple employer trust. Indeed, one of the

bases on which the Turnbow court concluded that

ERISA did not preempt her state law causes of action

was that a sole proprietor cannot be an ‘‘employee”’

and thus cannot be a “‘participant”’ in a plan covered

by ERISA. Jd. at 1162 (alternative holding).

Because they involved claims by business owners

or their immediate family members, the decisions in

Taggart, Gahn, and Turnbow present no essential con-

flict with either the decision below or the overwhelm-

ing authority holding that an ERISA plan is

established when an employer purchases, but does not

administer, a group health insurance policy. Indeed,

regulations of the U.S. Department of Labor provide

that ERISA’s definition of ‘‘welfare plan’’ does not

include a plan which covers only a business owner

and his or her spouse and covers no other common

law employees. See 29 C.F.R. § 2510.3-3(b), (c)(1)

(1991). But this case, in any event, presents no ques-

tion relating to a benefit program concerning a busi-

ness owner and his or her family members. Miller

had some 193 full-time employees all of whom were

covered by the benefit plan in issue. See Respondents’

Appendix in Lieu of Clerk’s Transcript filed in court

below at 179, lines 18-21. Thus, this case is a wholly

inappropriate vehicle for considering the continuing

vitality, if any, of Taggart and its dwindling prog-

reading of Taggart but instead applied its own precedent in

Memorial Hospital. See Id. at 1452.

16

eny.'° Moreover, in the relevant arena of plans re-

lating to arms-length employer-employee relationships,

the applicable authority is both singular and uniformly

consistent with the decision below.

CONCLUSION

For the foregoing reasons, the petition for a writ

of certiorari should be denied.

Respectfully submitted,

HENRY C. THUMANN

Counsel of Record

O’MELVENY & MYERS

400 South Hope Street

Los Angeles, CA 90071

(213) 669-6000

ROBERT N. ECCLES

O’MELVENY & MYERS

555 18th S reet, N.W.

Washingto , D.C. 20004

(202) 383-5300

Marc J. WODIN

O’NEAL & WODIN

8550 Balboa Boulevard

Suite 206

Northridge, CA 91325

(818) 893-8717

November 6, 1992

10 Moreover, if the Court were to review that issue, it would

undoubtedly want to do so in the context of a decision that had

considered the significance of Nationwide Mutual Insurance Co.

v. Darden, 112 S. Ct. 1344 (1992), which, by holding that ERISA

incorporates the common law definition of employee, casts doubt

on the validity of both the Department of Labor regulations and

even the limited rationale of Taggart and Turnbow.