Amicus Curiae Brief — Auto-Owners Insurance v. Thorn Apple Valley, Inc.

MOTION FILED

JAN 26 1995

>>

\

No. 94-1137

In Che

Supreme Court of the United States

*> October Cerm, 1994 «

el pe —

AUTO-OWNERS INSURANCE COMPANY,

Petitioner,

-vs-

THORN APPLE VALLEY, INC.,

Respondent.

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

MOTION

OF MICHIGAN ASSOCIATION OF INSURANCE COMPANIES

FOR LEAVE TO FILE BRIEF AMICUS CURLE

IN SUPPORT OF PETITION FOR WRIT OF CERTIORARI

~AND~

BRIEF AMICUS CURL®, WITH APPENDICES

JAMES G. GROSS

Counsel of Record

GROSS, NEMETH & SILVERMAN, P.L.C.

Attorneys for Amicus Curie

444 Penobscot Building °

Detroit, Michigan 48226

(313) 963-8200

Interstate Brief & Record Company, a division of North American Graphics, Inc.

1629 West Lafayette Boulevard, Detroit, MI 48216 (313) 962-6230

sy a

No. 94-1137

In The

Supreme Court of the Hnited States

> October Term, 1994 «

— wo ee

ee

AUTO-OWNERS INSURANCE COMPANY,

Petitioner,

-VS-

THORN APPLE VALLEY, INC.,

eae Respondent.

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

MOTION

OF MICHIGAN ASSOCIATION OF INSURANCE COMPANIES

FOR LEAVE TO FILE BRIEF AMICUS CURLE

IN SUPPORT OF PETITIONER, AUTO OWNERS INSURANCE COMPANY

Michigan Association of Insurance Companies (MAIC)

moves for leave to file the attached brief Amicus Curie

in this case. The consent of the attorney for Petitioner

has been obtained. The consent of the attorney for the

Respondent was requested, but refused.

Amicus Curie, Michigan Association of Insurance

Companies, is a non-profit public affairs trade associa-

tion of approximately 50 property-casualty insurance

companies, 30 of which are domestic or Michigan-based

companies. MAIC’s members insure over 80% of the pri-

vate passenger vehicles registered in the State of

Michigan. One of the purposes of MAIC is to analyze

and present its opinions concerning court decisions

which affect the insurance industry and public.

MAIC’s interest in this case arises from the fact that

the Sixth Circuit’s decision in the instant case invali-

dates coordination of benefits (COB) clauses in all no-

2

fault automobile insurance policies issued by its mem- |

bers to persons who are participants or beneficiaries of

ERISA plans.

In the instant case, the Sixth Circuit justified its

holding on the ground that it would protect the inter-

ests of ERISA participants and beneficiaries. (Petition

for Writ of Certiorari, 10a-lla). However, no apparent

consideration was given to the impact of that decision

on the no-fault insurance premiums paid by ERISA par-

ticipants and beneficiaries, who will no longer be per-

mitted to purchase coordinated no-fault coverage.

Neither party is in a position to address that matter,

because the record does not contain any of the data

necessary to do so. The brief which Amicus Curie seeks

leave to file provides such data as well as an analysis of

the financial impact the instant case will have on those

intended to be protected by the ERISA.

Respectfully submitted,

By:

/s/ JAMES G. GROSS

Counsel of Record

for Amicus Curige

444 Penobscot Building

Detroit, Michigan 48226

(313) 963-8200

Dated: January 26, 1995

TABLE OF CONTENTS

PAGE

SRT, SURO AEMRIEEE COMED secenscsnssntscteciavsnvedesirssesseresennssevesoees ii

INTEREST OF AMICUS CURIE, MICHIGAN

ASSOCIATION OF INSURANCE COMPANIES ................. ]

ARGUMENT:

THE SIXTH CIRCUIT’S DECISION IN THE INSTANT

CASE WILL RESULT IN AN AGGREGATE ANNUAL

INCREASE OF APPROXIMATELY $165 MILLION IN

AUTOMOBILE INSURANCE PREMIUMS PAID BY

MICHIGAN PARTICIPANTS AND BENEFICIARIES OF

I Siri kesindi isd estsbaduaxebscumnchioscsucbsbebiakisistsbviecnieeies 2

RITE IN NE ay ERO ee ere ae ne 6

APPENDICES:

APPENDIX I — 11/19/94 Memorandum

from Terry Buckles to James Gross ... A-1

APPENDIX 2 -— 1/13/95 Letter

from Terry Buckles to James Gross ... A-3

ii

INDEX OF AUTHORITIES

PAGE(S)

CASE:

Northeast Department ILGWU Health & Welfare

Fund v. Teamsters Local Union No. 229 Welfare

Fund, 764 M. 2d 147 (3rd Cir. 1985) oo. eeeeees bs)

STATUTE:

WECL, SOR S1ODa; MSA ZATSIGO) .nccsncsccecercssasnvsssnserscenise 3

No. 94-1137

In The

Supreme Court of the United States

> @ctober Cerm, 1994 «

AUTO-OWNERS INSURANCE COMPANY,

Petitioner,

-V8S-

THORN APPLE VALLEY, INC.,

Respondent.

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

BRIEF AMICUS CURL

IN SUPPORT OF PETITION FOR WRIT OF CERTIORARI

INTEREST OF AMICUS CURIA,

MICHIGAN ASSOCIATION OF INSURANCE COMPANIES

Amicus Curie, Michigan Association of Insurance

Companies (MAIC), is a non-profit public affairs trade

association of approximately 50 property-casualty insur-

ance companies, 30 of which are domestic or Michigan-

based companies. MAIC’s members insure over 80% of

the private passenger vehicles registered in the State of

Michigan. One of the purposes of MAIC is to analyze

and present its opinions concerning court decisions

which affect the insurance industry and public.

The Sixth Circuit decision in the instant case invali-

dates all coordination of benefits (COB) clauses in all

no-fault automobile insurance policies issued by MAIC’s

members to all participants or beneficiaries of ERISA

health plans. The result in the short term is a loss to

the insurers because the premiums calculated on poli-

cies affected by that decision did not reflect the

insurers’ actual exposures for payment of medical bene-

2

fits. However, the long term result will be that coordi-

nated no-fault coverage will not be available in Michigan

to ERISA participants or beneficiaries. That will result in

a substantial increase in the premiums paid by those

persons for no-fault insurance. Both the short-term

impact on its members and the long-term impact on its

members’ insureds are matters in which MAIC has a

substantial interest.

ARGUMENT

THE SIXTH CIRCUIT’S DECISION IN THE INSTANT CASE

WILL RESULT IN AN AGGREGATE ANNUAL INCREASE OF

APPROXIMATELY $165 MILLION IN AUTOMOBILE INSUR-

ANCE PREMIUMS PAID BY MICHIGAN PARTICIPANTS AND

BENEFICIARIES OF ERISA PLANS.

As the Sixth Circuit pointed out in the instant case,

the fundamental purpose of the ERISA is to protect the

interests of employee benefit plan participants and

beneficiaries. (Petition for Writ of Certiorari, 10a). lroni-

cally, that court’s decision will result in a substantial

increase in the premiums paid for no-fault automobile

insurance by Michigan participants in ERISA plans,

without any apparent net benefit to those participants.

In 1991,' 83% of full-time employees of medium to

large private establishments? in this country were

participants in employer-provided medical care plans.

Current Labor Statistics, U.S. Bureau of Labor Statis-

tics, Monthly Labor Review (December 1994), p 95. In

1 The 1991 figures are the most current available from the U.S.

Bureau of Labor Statistics.

2 That category includes all private sector establishments

employing 100 workers or more in all industries. (Current Labor

Statistics, U.S. Bureau of Labor Statistics, Monthly Labor Review

[December 1994], p 95 n 1).

iia imate

3

1993,* the State of Michigan had an average annual em-

ployment of 4,374,000. Source: Michigan Employment

Security Commission, Information and Reports Section.

Assuming that Michigan workers participate in ERISA

plans at the national rate’ 3,630,420 Michigan employees

are ERISA plan participants.

In 1993, 5,488,966 policies of Michigan no-fault automo-

bile insurance were issued. Source: Michigan Cata-

strophic Claims Association (see Appendix 2). Of those,

approximately 75%, or 4,116,725 policies, provided coor-

dinated medical coverage. (Appendix 2). The estimated

total premium reduction for the purchase of coordi-

nated policies in 1993 was between $200 million and

$300 million. (/d.).

The Michigan No-Fault Act requires only that insurers

offer the option of coordinating no-fault insurance with

other health and accident coverage which is available to

the insured if he is involved in an automobile accident.

“An insurer providing personal protection insur-

ance benefits shall offer, at a [sic] appropriately

reduced premium rates, deductibles and exclu-

sions reasonably related to other health and acci-

dent coverage on the insured.”

MCL 500.3109a; MSA 24.1309(1) (emphasis added).

3 In making the calculations set forth in the text, Amicus Curie

opted to use the most current statistics available. Although using

1991 ERISA data with 1993 Michigan employment figures will neces-

sarily result in some inaccuracy, Amicus Curig@ opted to do so in

order to provide the best estimate of the current situation, rather

than a more accurate calculation of the situation as it existed three

years ago. Also, the text approach will require the substitution of

only one figure to correct the, inaccuracies when the 1993 ERISA

figures become available from the U.S. Bureau of Labor Statistics.

4 The Pension and Welfare Benefits Administration of the U.S.

Department of Labor does not have a breakdown of the number of

Michigan employees who are participants of ERISA health plans.

4

It is self-evident that if the Sixth Circuit’s decision is

allowed to stand, a no-fault insured whose “other

health and accident coverage” is an ERISA plan will

not be able to purchase coordinated no-fault medical

coverage. (The no-fault premium reduction “reasonably

related” to the existence of an ERISA plan would be

zero.) As a result, assuming that they currently pur-

chase coordinated no-fault coverage at the same rate

as the Michigan motoring public in general, Mich-

igan ERISA plan participants will pay approximately

$165 million per year in increased auto insurance

premiums.

Nor does it follow that reversal of the Sixth Circuit’s

decision would result in those costs being simply

passed back to Michigan ERISA participants in the form

of increased employee contributions to plans or a

reduction in benefits provided by those plans.

In the first place, the increase in costs to ERISA plans

would not be equal to the cost of providing Michigan

no-fault benefits. Michigan is the only state in this

country which provides full lifetime medical benefits to

victims of automobile accidents. Very few, if any, ERISA

plans provide such extensive coverage. Consequently,

the increased cost to a ERISA plan would only be that

of affording the far more limited plan coverage to vic-

tims of automobile accidents. Michigan no-fault insurers

would still pay the difference between that limited cov-

erage and the total medical expenses incurred by the

insured.

Second, any cost increase that would result would not

necessarily be borne solely by Michigan ERISA partici-

pants. By hypothesis, COB or exclusion clauses ren-

dering no-fault insurers primarily or exclusively

responsible for medical benefits will affect only those

5

plans in states with no-fault automobile insurance sys-

tems.® In other states, such clauses are nullities.

However, the general or prevalent underwriting predi-

cate of ERISA plans of firms doing business in other

states as well as Michigan is unknown. If, as seems

likely, such plans calculate their projected costs on the

basis of their entire (multi-state) exposure for auto acci-

dent-related medical expenses, then the cost of

requiring coverage for Michigan motor vehicle accidents

would be spread over a premium base larger than one

consisting only of Michigan insureds. The result is that

the increased cost per Michigan ERISA participant

would be diluted accordingly.

Consequently, to the extent that the foregoing is true,

by requiring Michigan plan participants to bear the

entire cost increase engendered by a reversal of the

Sixth Circuit’s decision in the instant case, employers

would be imposing a disproportionate share of the cost

on them. It should not be assumed that employers

would act in such an arbitrary manner.

In short, it does not necessarily follow that reversing

the Sixth Circuit’s decision in the instant case will result

in imposing on Michigan ERISA plan participants an

additional $165 million in increased ERISA costs. It will,

however, increase their no-fault insurance premiums by

that amount. Thus, the net result of the Sixth Circuit's

decision is a palpable and demonstrable economic

5 Although it is outside the scope of its interest in this case,

Amicus Curie points out that in states with no-fault systems which

provide very limited benefits, giving full effect to escape clauses

such as Petitioner’s will result in participants and beneficifries

receiving less than what the plan provides. That result is directly

contrary to the Congressional intent of the ERISA. Northeast Depart-

ment ILGWU Health & Welfare Fund v. Teamsters Local Union No. 229

Welfare Fund, 764 M. 2d 147 (3rd Cir. 1985).

6

detriment to the very persons whom the ERISA was

intended to protect.

Finally, in any event, even if we assume that the

increased cost to ERISA plans would equal the amount

of no-fault premium increases, and that they would all

be passed back to Michigan ERISA plan participants, the

net result would be an economic nullity. Participants

would neither benefit nor suffer. And that would leave

the Sixth Circuit’s decision bereft of any basis in the

Congressional intent.

CONCLUSION

The Sixth Circuit’s decision in the instant case will

undeniably and substantially increase the automobile

insurance premiums of ERISA plan participants and

beneficiaries. Moreover, it will do so without any

demonstrable net benefit to them. That being so, said

decision is contrary to the Congressional intent in

enacting the ERISA. This Court should grant certiorari

for the purpose of reversing the decision of the Sixth

Circuit in the instant case.

Respectfully submitted,

By: /s/ JAMES G. GROSS

Counsel of Record

for Amicus Curie

444 Penobscot Building

Detroit, Michigan 48226

(313) 963-8200

Dated: January 26, 1995

A-1

APPENDICES TO BRIEF AMICUS CURIE

APPENDIX 1

11/19/94 MEMORANDUM

FROM TERRY BUCKLES TO JAMES GROSS

_ MAIC

MICHIGAN ASSOCIATION OF INSURANCE COMPANIES

404 Kalamazoo Plaza, Suite 100 — Lansing, Michigan 48933

517/482-1643 — Fax 517/482-0031

To: Jim Gross — FAX 313-964-6577

Re: Data survey for Auto-Owners v Thorn Apple Valley

From: Terry Buckles

Below is a detailed description of the data we plan to

collect for your use. Please review and advise me by

November 18 if this will not meet your needs. If I don't

hear from you, we will proceed.

It is our intent, by the way, to seek participation of AAA,

Auto-Owners, Citizens, State Farm and Allstate. Collec-

tively, they control about 74% of the private passenger

auto insurance market in Michigan.

Data to be requested by private passenger auto

coverage in Michigan during calendar years 1990,

1991, 1992, and 1993

1. Number of vehicles insured

2. Number of insured vehicles with coordinated medical

benefits PIP coverage

3. Direct written premium for the medical benefits por-

tion of PIP coverage (excluding premium written for

A-2

replacement services, wage loss, funeral, etc., cov-

erage)

. Total premium reduction given to insureds for pur-

chasing a policy with coordinated medical benefits

PIP coverage

. Total amount of claims paid and incurred for the

medical benefits portion of PIP coverage (excluding

claims paid under replacement services, wage loss,

funeral, etc., coverage)

A-3

APPENDIX 2

1/13/95 LETTER FROM TERRY BUCKLES TO JAMES GROSS

MAIC

MICHIGAN ASSOCIATION OF INSURANCE COMPANIES

404 Kalamazoo Plaza, Suite 100 — Lansing, Michigan 48933

517/482-1643 — Fax 517/482-0031

James G. Gross January 13, 1995

Gross, Nemeth & Silverman, P.L.C.

444 Penobscot Building

Detroit, MI 48226-4018

Dear Jim:

Here is the information you requested for Auto-Owners v

Thorn Apple Valley. \t is not as precise or comprehen-

sive as I had hoped. Not all of the insurers were able to

provide the numbers as I had requested them; but |

hope this will be satisfactory for your purposes.

Responses in items 2, 3 and 4 below are estimates

developed from data provided by four insurer groups

which write about 67 percent of the private passenger

no-fault Personal Injury Protection (PIP) coverage for

Michigan residents:

1. Private passenger (not including motorcycles) earned

vehicle year exposures under Michigan no-fault in

1993 were 5,488,966. Source: Michigan Catastrophic

Claims Association.

2. Estimated number of such exposures subject to coor-

dination of PIP benefits during 1993: 4,116,724 or 75

percent.

3. Estimated dollar amount of premium reduction

received by Michigan private passenger insureds for

A-4

the purchase of coordinated PIP coverage in 1993:

$200 to $300 million.

4. Estimated dollar amount of paid (but not incurred)

medical claims under Michigan private passenger PIP

coverage during 1993: approximately $400 million.

Bill VonSeggern, Chief Actuary of AAA Michigan, has

offered his assistance in drafting technical aspects of

the brief. If you are interested, you can reach him at

313-462-7286.

Cordially,

Terry N. Buckles

President

re oe Meee te ee