Amicus Curiae Brief — Allstate Life Insurance v. Hibma

MUTION FILED

MAY 15 1997; No. 96-1476

IN THE

Supreme Court of the Gmted States

OCTOBER TERM, 1996

ALLSTATE LIFE INSURANCE COMPANY

Petitioners,

Vv

MICHAEL HIBMA, et al.,

Respondent.

On Petition for a Writ of Certiorari to the

Court of Appeals of the State of Arizona

MOTION TO FILE BRIEF AMICI CURIAE AND

BRIEF AMICI CURIAE OF THE AMERICAN COUNCIL

OF LIFE INSURANCE AND THE HEALTH INSURANCE

ASSOCIATION OF AMERICA IN SUPPORT

OF THE PETITION

Of Counsel: BARBARA MCDOWELL

PHILLIP E. STANO (Counsel of Record)

AMERICAN COUNCIL OF LIFE PATRICIA A. DUNN

INSURANCE JULIA M. BROAS

1001 Pennsylvania Ave., N.W. JONES, DAY, REAVIS &

Washington, D.C. 20004 POGUE

(202) 624-2183 1450 G Street, N.W.

— Washington, D.C. 20005

(202) 879-3939

HEALTH INSURANCE ASSOCIATION

OF AMERICA Counsel for Amici Curiae

555 Thirteenth Street, N.W.

Washington, D.C. 20004-1109

(202) 824-1679

MOTION FOR LEAVE TO FILE BRIEF AMICI CURIAE

FOR THE AMERICAN COUNCIL OF LIFE INSURANCE

AND THE HEALTH INSURANCE ASSOCIATION OF

AMERICA IN SUPPORT OF THE PETITION

The American Council of Life Insurance (“ACLI”) and the

Health Insurance Association of America (“HIAA”) hereby move,

pursuant to Rule 37.2 of the Rules of this Court, for leave to file

the attached brief as amici curiae. Counsel for the petitioner has

consented to the filing of this brief; counsel for the respondent has

refused consent.

ACLI represents 557 member companies that underwrite most

of the nation’s life insurance. HIAA represents more than 250

health insurance companies that cover more than 60 million

Americans. These companies frequently serve as administrators

or Claims fiduciaries of employee benefit plans.

Defining which rules of law govern employee benefit plans and

plan administrators is of vital importance to ACLI and HIAA.

The state court decision below and others like it—which hold that

ERISA does not apply to plans that are arranged and paid for by

the employer-—-through an independent insurance company, but

that are not administered by the employer conflict with Congress’s

intent in ERISA, with the decisions of many federal courts of

appeals, and with the Department of Labor’s regulations

construing ERISA. These state court decisions threaten to

eliminate ERISA coverage for the most common variety of

employee benefit plan.

As a result of their significant experience in administering such

plans, amici bring a unique perspective to this case. As the

attached brief seeks to demonstrate, decisions like the one below

have created considerable confusion for plan administrators,

including ACLI’s and HIAA’s member companies, as to whether

their rights and obligations are to be governed by federal or state

law.

2

For these reasons, the Court should grant this motion for leave

to file the attached brief amici curiae in support of the petition for

certiorari.

Of Counsel:

PHILLIP E. STANO

AMERICAN COUNCIL OF LIFE

INSURANCE

1001 Pennsylvania Ave., N.W

Washington, D.C. 20004

(202) 624-2183

DEBRA A. COHN

HEALTH INSURANCE ASSOCIATION

OF AMERICA

555 Thirteenth Street, N.W.

Washington, D.C. 20004-1109

(202) 824-1679

May 15, 1997

Respectfully submitted,

BARBARA MCDOWELL

(Counsel of Record)

PATRICIA A. DUNN

JULIA M. BROAS

JONES, DAY, REAVIS &

POGUE

1450 G Street, N.W.

Washington, D.C. 20005

(202) 879-3939

Counsel for Amici Curiae

TABLE OF CONTENTS

Page

Wee Se ERE IEEE 5 66 eA ee ea es ee eS il

INTEREST OF THE AMICICURIAE ............ I

INTRODUCTION AND SUMMARY ............. 2

REASONS FOR GRANTING THE PETITION ....... 4

I. THE CURRENT CONFUSION IN THE LAW

DEFINING ERISA-COVERED PLANS

UNDERMINES THE PURPOSES OF ERISA ..... 4

Il. THE DECISION BELOW SHARPLY CON-

FLICTS WITH ESTABLISHED FEDERAL

PRECEDENT REGARDING THE DEFINI-

TION OF A PLAN UNDER ERISA ........... 6

lll. THIS ISSUE IS RECURRING AND

I ee, gare ng a Sd at Sea es as )

a es eg woe Ge aS 1]

TABLE OF AUTHORITIES

Page

Cases

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

ge. Us Bh -. Peer ores 2 ero ra a perry 8

Blue Cross/Blue Shield of Florida, Inc. v. Weiner,

543 So. 2d 794 (Fla. Ct. App. 1989), cert. denied,

pe aies SE EE 8 ee Oe a ie cheek eee as 7

Brundage-Peterson v. Compcare Health Services

Insurance Corp., 877 F.2d 509 (7th Cir. 1989) ..... 7,9

Donovan v. Dillingham, 688 F.2d 1367 (11th Cir. 1982) .. 8

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

COE 6 eS Rew hee Ge we eR 5, 9, 10

Fugarino v. Hartford Life and Accident Insurance Co.,

969 F.2d 178 (6th Cir. 1992), cert denied, 507

Sea EEE PE ORERS CN RNG OE 8 8,9

Grimo v. Blue Cross/Blue Shield of Vermont,

og 8 a A rn eer ee ae 8

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

Ce 65k 34s SE eee eee 4,5, 10

Kanne v. Connecticut General Life Insurance Co..,

867 F.2d 489 (9th Cir. 1988), cert. denied,

Te Us POE ee ve a ee le eae 8,9

Kornman v. Blue Cross/Blue Shield of Louisiana,

662 So. 2d 498 (La. Ct. App. 1995), cert. denied,

Eee ee ee SE eS ke er ew SE re a ee 7

Madonia v. Blue Cross & Blue Shield of Virginia,

11 F.3d 444 (4th Cir. 1993), cert. denied,

ee See: PE EE i 8 a ON Oe Cee eee es 8

Massachusetts v. Morash, 490 U.S. 107 (1989) ........ 8

Memorial Hospital System v. Northbrook Life Insurance

Ca, ee ae ae ee Gs Be ee oe es 8

Nachman Corp. v. Pension Benefit Guaranty Corp.,

OE Se a OE S62 Dia ks A OS 4

TABLE OF AUTHORITIES

(Continued)

Page

New York State Conf. of Blue Cross & Blue Shield

Plans v. Travelers Insurance Co., 115 S. Ct. 1671

CRUE & wo 8 ce a ee ee ELE Se Eee ee 5

Peters v. Boulder Insurance Agency, Inc. , 829 P.2d 429

Cl SS: CO Te 6 irs ecw FRSA eee 7

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

Ls SPR ae ele marae ea mts Panta ea Raper ree re 10

Qualls v. Blue Cross of Calif., 22 F.3d 839

ee a Pe hs Sk ew i ee 8

Robertson v. Gem Insurance Co., 828 P.2d 496 (Utah

Ce: OD: Doren hw oN Re eee 6,9

Roe v. General America Life Insurance Co., 712 F.2d

ee ee es BE Re ek ese oe earn 8

Shaw v. Delta Air Lines, Inc., 463 U.S. 85 (1983) ..... 4,5

Williams v. Wright, 927 F.2d 1540 (llth Cir. 1991) ..... 8

Statutes and Regulations

The Employee Retirement Income Security Act of

ie Ae ROR BT | Pe rere rie 1,4

p SRS oe FO er een er: 4

Se as PIE «ree be ek ee 10

Se As en GAPE 8 50 eR rhea 8

Legislative History

H.R. Rep. No. 94-1785, 94 Cong., 2d Sess. (1977) ..... 4

ex eS kt ee re re eae te 5

Le SP EOP OR LUPO 6 a 6c 05 4 eee a we 5

Miscellaneous Authority

Reorg. Plan No. 4 of 1978, 43 Fed. Reg. 47,713 (1978) .. 8

INTEREST OF THE AMICI CURIAE'

The American Council of Life Insurance (“ACLI”) and the

Health Insurance Association of America (“HIAA”) represent the

nation’s providers of life, disability, health, and other insurance.

ACLI represents 557 member companies that underwrite most of

the nation’s life and disability insurance. HIAA represents more

than 250 health insurance companies that cover more than 60

million Americans.

As insurers, ACLI’s and HIAA’s member companies are

integrally involved in the provision of insurance benefits through

employee benefit plans that are covered by ERISA. These

companies frequently serve as ERISA plan administrators or

claims fiduciaries. They consequently have a vital interest in

legal questions affecting the interpretation of ERISA, in

promoting uniform and consistent rules of ERISA plan

administration and ERISA coverage, and in preserving uniformity

in the interpretation of the definition of a plan under ERISA.

The legal and practical consequences of the Arizona Court of

Appeals’ decision, and others like it, are of grave concern to

ACLI, HIAA, and their member companies. In holding that

ERISA does not apply to employee medical insurance that an

employer obtains and pays for through an insurance company, if

the employer delegates to the insurance company the

administration of the insurance benefits, these decisions would

eliminate ERISA coverage of the most common variety of

employee benefit plan. See Pet. 2 (noting that more than 148

million Americans are covered by private-sector employer-

sponsored group health insurance similar to the coverage in this

case). ACLI and HIAA seek to provide this Court with the

unique perspective of their broad-based constituencies on this

important federal question.

‘No counsel for any party had any role in authoring this brief, and no

person other than the named amici and their counsel made any monetary

contribution to its preparation and submission.

2

INTRODUCTION AND SUMMARY

This case implicates an important and recurring issue under the

Employee Retirement Security Act of 1974: whether an employer

establishes an “employee benefit plan” within the scope of ERISA

by selecting, applying for, and buying a health insurance policy

for its employees—even if the employer does not administer the

insurance policy itself, but instead delegates that task to the

insurance company. The Arizona Court of Appeals held that an

ERISA-covered plan was not established in these circumstances,

and thus that an insured’s state-law claims with respect to the

insurance policy were not preempted by ERISA.

In 1987, the employer in this case, Prescott Glass, applied to

Allstate Life Insurance Company for major medical group

insurance to cover its two employees. Prescott paid the initial

application fees and at least some of the monthly premiums as a

benefit to the employees. Allstate administered Prescott’s

insurance program. As required by ERISA, Allstate provided

Prescott and the employees with plan documents describing the

medical insurance policy and the procedures for filing claims for

benefits. Under the policy, Allstate had the right to terminate

with 60 days’ written notice. In 1989, Allstate exercised its rights

under the policy and notified Prescott that it was terminating the

policy, as it was withdrawing from the group health insurance

market.

An individual who was covered under the insurance policy then

filed this suit against Allstate in Arizona state court, asserting

state-law causes of action for, inter alia, breach of contract,

breach of fiduciary duty, bad faith, fraud, and negligence.

Allstate moved for summary judgment on the ground that

Prescott’s insurance policy constituted an “employee welfare

benefit plan” within the meaning of ERISA and, therefore, that

ERISA preempted all of the plaintiff's state-law claims.

The trial court denied Allstate’s motion, and the Arizona Court

of Appeals affirmed, holding that Prescott did not establish an

ERISA-covered plan by obtaining and paying for the Allstate

insurance policy. The court reasoned that “garden variety

3

employee health insurance benefits” are not covered by ERISA,

unless the employer, as opposed to the insurance company,

engages in “administrative activity” with respect to those benefits.

Pet. App. 3a-4a. Accordingly, because Prescott did not admi-

ister the insurance program at issue here, the court held that the

plaintiff's state-law claims were not preempted. The Arizona

Supreme Court denied review.

The questions presented by Allstate’s Petition require the

Court’s attention for two reasons. First, the decision below

undermines the congressional intent for ERISA of ensuring

uniformity in the operation and regulation of employee benefit

plans. This uniformity is, as Congress recognized, advantageous

for all those who sponsor, administer, or participate in employee

benefit plans. Under the approach taken by the Arizona courts in

this case, state courts are given free rein to apply their own

standards to determine whether an employee benefit plan is

covered by ERISA, thereby opening the door to conflicting rules

of law in the federal and state systems regarding the duties and

liabilities of plans and plan administrators.

Second, the decision below, together with the similar decisions

of other state appellate courts, squarely conflicts with the

decisions of federal courts of appeals as to what constitutes an

employee benefit plan covered by ERISA. It also conflicts with

the Department of Labor’s “safe harbor” regulations, which

define when an employer’s activity is too minimal to create an

ERISA-covered plan. Without clarification by this Court of the

proper standard to apply, neither plan administrators, nor plan

sponsors, nor plan participants can have any certainty about their

rights and obligations, thus undermining the purposes of an

important federal statute.

4

REASONS FOR GRANTING THE PETITION

I. THE CURRENT CONFUSION IN THE LAW DEFIN-

ING ERISA-COVERED PLANS UNDERMINES THE

PURPOSES OF ERISA

The Employee Retirement Income Security Act of 1974, 29

U.S.C. §§ 1001-1461 (“ERISA”), imposed a comprehensive

scheme of federal regulation on plans established by employers to

provide employees with fringe benefits. ERISA was designed to

balance the interests of employees and their families in obtaining

secure and well-administered benefits, with the interests of

employers and plan administrators in having their duties with

respect to such benefits clearly defined. To that end, Congress

provided that the rights and obligations of all parties to

ERISA-covered employee benefit plans were to be controlled by

a single body of law—federal law. See Nachman Corp. v.

Pension Benefit Guaranty Corp., 446 U.S. 359, 361-362 (1980).

Section 514(a) of ERISA, 29 U.S.C. § 1144(a) (1994),

contains a broad preemption provision. It exempts ERISA plans

from “any and all State laws insofar as they may now or hereafter

relate to any employee benefit plan,” with a few exceptions not

at issue in this case. The sweep of this provision is expansive

because Congress’s purpose was to eradicate any potentially

inconsistent state or local regulation of employee benefit plans.

Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 141 (1990).

The need for uniformity in the law governing employee benefit

plans was a recurring theme in the congressional discussions

following the enactment of ERISA. The House Report, for

example, emphasized that “‘the Federal interest and the need for

national uniformity are so great that enforcement of state

regulation should be precluded.’” Shaw v. Delta Air Lines, Inc.,

463 U.S. 85, 100 n.21 (1983) (quoting H.R. Rep. No. 94-1785

at 47, 94th Cong., 2d Sess. (1977)).

Indeed, this Court has recognized that Congress’s “crowning

achievement” in ERISA was its “reservation to Federal authority

the soie power to regulate the field of employee benefit plans,”

5

thereby “round[ing] out the protection afforded participants by

eliminating the threat of conflicting and inconsistent State and

local regulation.” Shaw, 463 U.S. at 99 (quoting Representative

Dent, one of ERISA’s sponsors, see 120 Cong. Rec. 29197

(1974)). The elimination of inconsistency was “intended to apply

in its broadest sense to all actions of State or local governments,

or any instrumentality thereof, which have the force or effect of

law.” 463 U.S. at 99 (quoting Senator Williams, another ERISA

sponsor, see 120 Cong. Rec. 29933 (1974)).

As the Court has observed, in preempting the field of

employee benefit law for federal regulation, Congress accom-

plished several salutary purposes. These include “minimiz[ing]

the administrative and financial burden of complying with con-

flicting directives among States or between States and the Federal

Government” and preventing “the potential for conflict in

substantive law . . . requiring the tailoring of plans and employer

conduct to the peculiarities of the law of each jurisdiction.”

Ingersoll-Rand, 498 U.S. at 142. For example, in the absence of

ERISA’s preemption provision,

{a] plan would be required to keep certain records in some

States but not in others; to make certain benefits available in

some States but not in others; to process claims in a certain

way in some States but not in others; and to comply with

certain fiduciary standards in some States but not in others.

Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 9 (1987); see

also New York State Conf. of Blue Cross & Blue Shield Plans v.

Travelers Ins. Co., 115 S. Ct. 1671, 1677-78 (1995) (“The basic

thrust of the [ERISA] pre-emption clause, then, was to avoid a

multiplicity of regulation in order to permit the nationally uniform

administration of employee benefit plans.”).

The decision below, together with others like it, gives rise to

precisely what Congress sought to avoid in ERISA: “conflicting

and inconsistent State and local regulation” that, if allowed to

stand, will necessitate “the tailoring of plans and employer

conduct to the peculiarities of the law of each jurisdiction.” Such

6

a result cannot be reconciled with the plain language and

legislative history of ERISA.

Il. THE DECISION BELOW SHARPLY CONFLICTS

WITH ESTABLISHED FEDERAL PRECEDENT

REGARDING THE DEFINITION OF A PLAN UNDER

ERISA

Federal courts have, consistent with Congress’s intent in

ERISA, applied a broad construction of when an employer has

“established or maintained” an employee benefit plan within the

meaning of ERISA. But some state appellate courts have taken

a much narrower approach, thereby exempting a large number of

employee benefit programs from ERISA. These courts have, like

the court below, construed ERISA to apply only to plans

— administered by the employer itself, as opposed to the vast

majority of plans administered by insurance companies or other

third parties. This construction of ERISA conflicts with the

decisions of several federal courts of appeals, as well as with the

regulations issued by the Department of Labor.

In this case, although the employer had obtained the group

medical insurance policy for its employee and paid some or all of

the premiums for their coverage, the Arizona Court of Appeals

refused to find that an ERISA-covered plan had thereby been

created. In so holding, the court accorded “critical importance”

to the fact that the employer’s own involvement in the

administration of the plan was only “negligible.” Pet. App. 3a,

4a, 12a. The Arizona court adopted this analysis from Robertson

v. Gem Insurance Co., 828 P.2d 496 (Utah Ct. App. 1992),

which had likewise placed decisive weight on whether the

employer itself was the administrator of the employee benefits.

The Utah court had reasoned that “the regulatory concerns of

ERISA are not implicated” where an employer, after setting up

an employee benefit plan, does not engage in “administrative

activity” with respect to the plan, but instead delegates

administration to a third party. /d. at 502-03 (quotation omitted).

Consistent with this case and Robertson, other state appellate

courts, in assessing whether an employee benefit plan is covered

|

7

by ERISA, have focused on the extent of the employer's role in

plan administration.’

A number of federal appellate decisions, in contrast, have

recognized that an employee benefit plan is covered by ERISA,

whether or not the employer administers the plan itself or

delegates that task to an insurance company or other third party.

A leading decision in this regard is Brundage-Peterson v.

Compcare Health Services Insurance Corp., 877 F.2d 509 (7th

Cir. 1989), which held that an ERISA-covered plan existed on

facts strikingly similar to those in this case.

In Brundage-Peterson, as here, the employer had arranged for

medical insurance for its employees, paid the premiums for the

employees’ coverage, and delegated administration of the benefits

to the insurers. Also as here, the plaintiff argued that these

insurance benefits were not a “plan” under ERISA, and thus that

state-law claims concerning those benefits were not preempted by

ERISA. The Seventh Circuit, in an opinion by Judge Posner,

recognized that even such a concededly “barebones” benefit plan

came within the coverage of ERISA. /d. at 511. The court

observed that ERISA “by its express terms encompasses the

provision of [employee health and welfare] benefits by means of

insurance”—a mechanism that necessarily entails little, if any,

employer “participation in the actual provision of the benefits.”

Id. The court went on to observe that “delegation of

administration of the plan to an insurance company” is “in fact

contemplated by the statute.” /d.

? See, e.g., Peters v. Boulder Ins. Agency, Inc., 829 P.2d 429 (Colo. Ct.

App. 1991) (no ERISA coverage where employer did not maintain any

significant administrative role in operation of group insurance plan);

Blue Cross/Blue Shield of Florida, Inc. v. Weiner, 543 So. 2d 794 (Fla.

Ct. App. 1989) (no ERISA coverage although employer obtained

medical insurance policy for employees and paid premiums), cert.

denied, 494 U.S. 1028 (1990); Kornman v. Blue Cross/Blue Shield of

Louisiana, 662 So. 2d 498 (La. Ct. App. 1995) (no ERISA coverage

where employer, after obtaining and paying for insurance, delegated

administration to Blue Cross), cert. denied, 116 S.Ct. 2527 (1996).

8

Other federal courts of appeals have found ERISA-covered

plans to exist in similar circumstances. For example, the Sixth

Circuit has held that an employer establishes an ERISA-covered

employee benefit plan simply by obtaining a medical insurance

policy for its employees and paying the premiums on the policy.

Fugarino v. Hartford Life and Accident Ins. Co., 969 F.2d 178,

184 (6th Cir. 1992), cert denied, 507 U.S. 966 (1993). It was

not necessary that the employer participate in the administration

of the benefits. /d. The same approach to determining whether

an employer has, in fact, established an ERISA-covered plan has

been employed by the Second, Fourth, Fifth, Ninth, Tenth, and

Eleventh Circuits.’

Not only does the decision below, together with Robertson and

similar state appellate decisions, conflict with the decisions of

eight federal circuits, but it also is inconsistent with the federal

Department of Labor’s “safe-harbor” regulation, 29 C.F.R.

2510.3-1(j) (1996), which provides guidance as to when an

employer may assist its employees in obtaining their own

insurance without being deemed to have created an

ERISA-covered plan.* Under this regulation, an employer who

obtains insurance for its employees will be deemed to have

> See, e.g., Grimo v. Blue Cross/Blue Shield of Vermont, 34 F.3d 148

(2d Cir. 1994); Madonia v. Blue Cross & Blue Shield of Virginia, \1

F.3d 444 (4th Cir. 1993), cert. denied, 511 U.S. 1019 (1994); Memorial

Hospital Sys. v. Northbrook Life Ins. Co. , 904 F.2d 236 (Sth Cir. 1990);

Qualls v. Blue Cross of Calif., 22 F.3d 839 (9th Cir. 1994); Kanne v.

Connecticut General Life Ins. Co., 867 F.2d 489 (9th Cir. 1988), cert.

denied, 492 U.S. 906 (1989); Roe v. General Am. Life Ins. Co., 712

F.2d 450 (10th Cir. 1983); Williams v. Wright, 927 F.2d 1540 (11th

Cir. 1991); Belasco v. W.K.P. Wilson & Sons, 833 F.2d 277 (11th Cir.

1987); Donovan v. Dillingham, 688 F.2d 1367 (11th Cir. 1982).

*The Department of Labor has the authority to interpret the provisions

of Title I of ERISA. See Reorg. Plan No. 4 of 1978, 43 Fed. Reg.

47,713 (1978). See also Massachusetts v. Morash, 490 U.S. 107, 116-

19 (1989) (giving deference to Labor Department’s regulations in 29

C.F.R. § 2510.3-1 and its interpretations thereunder).

Eel

9

created an ERISA-covered plan unless the employer can satisfy

each of four requirements. Among these requirements are that

the employer pay no portion of the employees’ insurance and that

the employer’s “sole function” be “to publicize the program to

employees or members, to collect premiums through payroll

deductions or dues checkoffs, and to remit them to the insurer.”

Id. While the federal courts of appeals have sought to define

ERISA-covered plans consistently with this regulation—see, e.g.,

Fugarino, 969 F.2d at 184; Brundage-Peterson, 877 F.2d at 511;

Kanne v. Connecticut General Life Ins. Co., 867 F.2d 489,

492-93 (9th Cir. 1988), cert. denied, 492 U.S. 906 (1989)—the

court below and other state courts have disregarded the

regulation, see Pet. App. 3 (quoting Robertson, 828 P.2d at 503).

In sum, the Seventh Circuit observed in Brundage-Peterson

that, if the question whether a given employee benefit plan is

covered by ERISA were left to the sort of “complicated, variable,

case-by-case standard” applied below, the result would be un-

warranted “uncertainty and litigation.” 877 F.2d at S11.

“Employers, employees, and insurance companies would have no

clear idea whether their rights and obligations were defined by

federal law or by state law.” Jd. Yet, the state appellate courts

are creating that very “uncertainty” through decisions like the one

in this case—decisions that cannot be reconciled with

Brundage-Peterson, with the decisions of seven other federal

courts of appeals, and with the “safe-harbor” regulation issued by

the Department of Labor. This Court’s intervention is necessary

in order to resolve these two conflicting lines of authority.

Ill. THIS ISSUE IS RECURRING AND IMPORTANT

The decision below, and the growing number of others like it,

create the sort of “patchwork scheme of regulation” of employee

benefit plans that, as this Court has recognized, gives rise to

“considerable inefficiencies in [plan] operation.” Fort Halifax,

482 U.S. at 11. These inefficiencies have severe consequences

not only for insurance companies that administer employee benefit

plans, but also for employers who have chosen to provide

10

employee benefits through insurance companies, and for

employees and their families.

The members of ACLI and HIAA, who administer insured

employee benefit plans, are most immediately affected by these

decisions. They will be required to ascertain and comply not only

with ERISA’s extensive requirements, but also with potentially

inconsistent state-law requirements in every jurisdiction where

their plans operate. A single plan administered by one of these

companies may, of course, operate in a number of states at the

same time. Accordingly, these companies will be required,

contrary to Congress’s intent in ERISA, to “tailor{ ]” their plans,

and their conduct in administering those plans, “to the

peculiarities of the law of each jurisdiction.” Jngersoll-Rand, 498

U.S. at 142. And, if they fail to do so to the satisfaction of the

state courts, they may be subject to penalties, such as punitive

damages, that are foreclosed under ERISA. Pilot Life Ins. Co. v.

Dedeaux, 481 U.S. 41, 53 (1987).

- It is not only insurance companies and other plan administra-

tors, however, that will bear the burdens of this confusion. In

order to offset their costs of conforming to conflicting legal

standards and their increased litigation exposure, insurers may

have to raise premiums, curtail benefits, or even cease to do

business in particular states. In turn, “those employers with

existing plans [may] reduce benefits, and those without such plans

[may] refrain from adopting them.” Fort Halifax, 482 U.S. at

11.

Employees and other plan beneficiaries not only may suffer a

reduction in their current insurance benefits as a result of deci-

sions such as the one below, but also may lose the considerable

protections afforded them by ERISA. For example, they would

be deprived of their COBRA right to continued insurance

coverage for a period after leaving employment. See 29 U.S.C.

§ 1161(a) (1994). The Arizona Court of Appeals’ decision

provides a road map for benefits providers to escape ERISA

applicability for their plans. Employers need only delegate

administrative authority to a third party in order to opt out of the

11

Statute, effectively denying employees the very protections

envisioned by ERISA.

Only this Court can finally resolve the confusion among the

federal and state courts over what constitutes an ERISA-covered

employee benefit plan. This important issue of plan definition

should be decided now. It will only increase the costs and reduce

the availability of employee benefits—to the detriment of

employers, employees, and their families—to allow this issue to

percolate any further in the lower courts.

CONCLUSION

For the foregoing reasons, amici urge the Court to grant

certiorari in this case.

Respectfully submitted,

Of Counsel:

PHILLIP E. STANO

AMERICAN COUNCIL OF LIFE

INSURANCE

1001 Pennsylvania Ave., N.W.

Washington, D.C. 20004

(202) 624-2183

DEBRA A. COHN

HEALTH INSURANCE ASSOCIATION

OF AMERICA

555 Thirteenth Street, N.W.

Washington, D.C. 20004-1109

(202) 824-1679

May 15, 1997

BARBARA MCDOWELL

(Counsel of Record)

PATRICIA A. DUNN

JULIA M. BROAS

JONES, DAY, REAVIS &

POGUE

1450 G Street, N.W.

Washington, D.C. 20005

(202) 879-3939

Counsel for Amici Curiae