Amicus Curiae Brief — Allen v. Pacheco

JAN 2.9 2004 (©)

No. 03-642

Jn The

Supreme Court of the Gnited States

-.

v

LAWRENCE S. ALLEN, M.D., MICHAEL K.

MILLER, M.D., TIMOTHY R. COLLINS, M.D., and

COLORADO PERMANENTE MEDICAL GROUP, P.C.,

Petitioners,

vs.

KAREN PACHECO,

Respondent.

¢

On Petition For A Writ Of Certiorari

To The Supreme Court

Of The State Of Colorado

ae

Vv

MOTION FOR LEAVE TO FILE AMICUS

CURIAE BRIEF; AMICUS CURIAE BRIEF

OF CIGNA HEALTHCARE OF CALIFORNIA,

INC. IN SUPPORT OF PETITIONERS

«

LISA PERROCHET

JOHN A. TAYLOR, JR.

JEREMY B. ROSEN*

Horvitz & LEVY LLP

15760 Ventura Boulevard, 18th Floor

Encino, California 91436-3000

(818) 995-0800 ¢ FAX (818) 995-3157

*Counsel of Record

Counsel for Amicus Curiae

Cigna HealthCare of California, Inc.

COCKLE LAW BRIEF PRINTING CO. (800) 225-6964

OR CALL COLLECT (402) 342-2831

MOTION FOR LEAVE TO

FILE AMICUS CURIAE BRIEF

CIGNA HealthCare of California, Inc. (CHC) respect-

fully moves for leave to file the attached belated amicus

curiae brief in this case. The consent of the attorney for

petitioners has been obtained. The consent of the attorney

for respondent was requested but refused.

CHC has a direct interest in securing a decision by

this Court that contractual arbitration agreements con-

tained in health care plans will be enforced. CHC is a

party in CIGNA HealthCare of Cal., Inc. v. Balaban-Zilke,

Case No. 03-709, which raises the identical “reverse-

preemption” issue presented by this case — whether the

McCarran-Ferguson Act saves state laws that impose

special requirements on arbitration agreements contained

in health care plans from preemption by the Federal

Arbitration Act. On January 12, 2004, this Court denied

CHC’s petition for writ of certiorari. CHC has sought

rehearing of the denial of its petition based on the pending

petition in this case. Moreover, the issues raised by peti-

tioners have been and will continue to be raised in other

litigation involving CHC.

Good cause exists for permitting this brief to be filed

because it does not merely restate arguments presented by

petitioners, but (1) demonstrates that the issue raised by

this petition is a recurring “important question of federal

law” that has been the subject of numerous conflicting

opinions by federal and state courts; (2) amplifies the

circuit conflicts identified in the petition involving applica-

tion of the McCarran-Ferguson Act to save state statutes

“enacted ... for the purpose of regulating the business of

insurance” from federal preemption; and (3) raises an

2

additional circuit conflict, not presented in the petition,

regarding whether a federal law “specifically relates to the

business of insurance” so that it can preempt contrary

state insurance laws notwithstanding the McCarran-

Ferguson Act.

CHC respectfully requests that this Court accept this

belated amicus curiae brief because CHC did not recognize

its significant interest in this petition for writ of certiorari

until CHC’s related petition was denied. By that time, the

December 31, 2003 deadline for filing an amicus brief in

this case had already passed. Neither party would suffer

any undue prejudice if this brief is accepted for filing.

Respectfully submitted,

LISA PERROCHET

JOHN A. TAYLOR, JR.

JEREMY B. ROSEN*

HORVITZ & LEVY LLP

15760 Ventura Boulevard,

18th Floor

Encino, California 91436-3000

(818) 995-0800 e

FAX (818) 995-3157

*Counsel of Record

Counsel for Amicus Curiae

Cigna HealthCare of

California, Inc.

TABLE OF CONTENTS

DE Ee HP EEE BB vise cnsenivnsssenssscnsenescovssssvoes

AMICUS CURIAE BRIEF OF CIGNA HEALTH-

CARE OF CALIFORNIA, INC. .......... eee eeeseeeeeeeeees

INTEREST OF AMICUS CURIAE........... cece ceeeeeeeeees

BE ee tS) | | eee

SUMMARY OF REASONS FOR GRANTING CERTIO-

NESW vnanesincsaicnvierantnnerinicenssnsenneresansopenss

CERTIORARI SHOULD BE GRANTED TO RE-

SOLVE CIRCUIT CONFLICTS OVER THE INTER-

PLAY BETWEEN THE MCCARRAN-FERGUSON

ACT AND THE FEDERAL ARBITRATION ACT......

A. Numerous state and federal courts have

reached conflicting decisions over whether the

Federal Arbitration Act preempts state laws

that impose restrictions on arbitration agree-

ments in health care or insurance contracts.....

B. The circuits that apply the Royal Drug and

Pireno test in non-antitrust first clause cases

are split over how the test applies.....................

C. There is a circuit split, in addition to that

identified by petitioners, over the determina-

tion of when a federal statute “specifically re-

lates to the business of insurance’ .................0

1. This Court has not fully resolved the

meaning of “specifically relates” as used in

the McCarran-Ferguson Act.................:0000

12

li

TABLE OF CONTENTS -— Continued

Page

2. Some courts have held that a federal law

can preempt a state insurance law even if

the federal law does not refer to insurance

SE Fa Pe ik cis soca aewinaedousantectancsvseeastardomniees 13

3. Other courts have held that if the text of a

federal law does not refer to insurance,

then it cannot “specifically relate to insur-

ili

TABLE OF AUTHORITIES

Page

CASES |

Ainsworth v. Allstate Insurance Co., 634 F. Supp.

Be Fe Be, BI so siesacchvessestceeeenaonanamamnene 7

Allen v. Pacheco, 71 P.3d 375 (Colo. 20038).................. % 6

American Bankers Insurance Co. of Florida v.

Crawford, 757 So. 2d 1125 (Ala. 1999)................cccseerseeee 7

American Deposit Corp. v. Schacht, 84 F.3d 834

FU Ce FI cindinincrvseicnsiinenitehmenoamea nse 9

American Heritage Life Insurance Co. v. Orr, 294

Pe FE COR Gr Be ive seraitecetratscaniscinciseeeenanenes 7

Autry v. Northwest Premium Services., Inc., 144

PO TORT CIR Ca Se itincsdeeettentseerieenn 11, 12

Balaban-Zilke v. CIGNA HealthCare of California,

Inc., No. B140672, 2003 WL 21228038 (Cal. Ct.

App. Mingy 26, BI0G) ...ssccsecesoxncnecrvsacrevsestevarincenvennenennins 1,2

Barnett Bank of Marion County, N.A. v. Nelson,

517 U.S. 25 [116 S. Ct. 1103, 134 L. Ed. 2d 237]

CB viscrsnitirnigttcaomsearandnaaaanaen 3, 12,13

Bennett v. Liberty National Fire Insurance Co., 968

F.2d 969 (9th Cir. 1992).......... soos ns bansiinestciepansonterrtetnwlinties 7

Bernstein ex rel. Commissioner of Banking and

Insurance of the State of Vermont v. Centaur

Insurance Co., 606 F. Supp. 98 (S.D.N.Y. 1984)........ 7,14

Blackfeet National Bank v. Nelson, 171 F.3d 1237

CRB Ce, BI sisciceanvacsiccccessseosneonceiaenaen enn 15

Bullock v. United Benefit Life Insurance Co., 165

F. Supp. 2d 1259 (M.D. Ala. 2001)............cssssressssesesssens 7

Celtic Life Insurance Co. v. McLendon, 814 So. 2d

RD Ci, FIED viicscoskscvcvinveniniietecinneuasantondadadiiiaanalannaii a

lv

TABLE OF AUTHORITIES — Continued

Citizens Bank v. Alafabco, Inc., 123 S. Ct. 2037 [156

Bs Be, Be Be CD wi vecnsenecesospaceienorncioniassssensenievastantinntens 3

Cochran v. Paco, Inc., 606 F.2d 460 (5th Cir. 1979)...... 3, 16

Continental Insurance Co. v. Equity Residential

Properties Trust, 565 S.E.2d 603 (Ga. Ct. App. 2002)......... 8

Costle v. Fremont Indemnity Co., 839 F. Supp. 265

SE We ec asycsssniniraieeneendepesinesenionseieunavesniinbtreamnniintteds 7

Cox v. Woodmen of the World Insurance Co., 556

B.TE.3G SUT UG.C. Ch. Age. BOGE) osiesssnscessocvesssnessossveeeeneens 8

Davister Corp. v. United Republic Life Insurance

Co., 152 F.3d 1277 (10th Cir. 198B).....,..:..s00sscecsseessessneses 8

DiMercurio v. Sphere Drake Insurance, PLC, 202

a Fo Ge Ge Bisnis ssancectscensémsnseresinnasteavenepnuinninnnistten 7

Doctor’s Associates, Inc. v. Casarotto, 517 U.S. 681

[116 S. Ct. 1652, 134 L. Ed. 2d 902] (1996)..................... 2

Doe v. Norwest Bank Minnesota, N.A., 107 F.3d

Be Se Bein vcrecccotaierrsecrecislasncnanietiamaes 10

Eden Financial Group, Inc. v. Fidelity Bankers Life

Insurance Co., 778 F. Supp. 278 (E.D. Va. 1991)............ 8

Friday v. Trinity Universal of Kansas, 939 P.2d 869

PR. SIFT ® osevsassvcsnsvsxecesnssiceonvinnpseinissteslassomnanaaaenas 8

Group Life and Health Insurance Co. v. Royal Drug

Co., 440 U.S. 205 [99 S. Ct. 1067, 59 L. Ed. 2d

CPU ences ccenminsonetsininnsoneateintninneniaaiiadaibelian 3, 4, 5,9

Hamilton Life Insurance Co. of New York v. Repub-

lic National Life Insurance Co., 408 F.2d 606 (2d

NE: FID tievasecensnctsncessntntinencateanntgnenapissiieanaammiaaiinen 7

Hart v. Orion Insurance Co., 453 F.2d 1358 (10th

NE Fe sacersniconatisinnsscescnnasteassentsarenetsctatalatelinca mae 7

TABLE OF AUTHORITIES — Continued

Page

Imbler v. PacifiCare of California, Inc., 126 Cal.

Rote. 24 715 (Ct. App. GOOZ)........cccreserccorsosersoscscsvereveseeess 8

Lander v. Hartford Life and Annuity Insurance Co.,

, ios Fs fe __; | Renee tee 14, 15

Life of America Insurance Co. v. Aetna Life Insur-

ance Co., 744 F.2d 409 (5th Cir. 1984)... eee 7

In re Liquidation of Union Indemnity Insurance Co.

of New York, 521 N.Y.S.2d 617 (N.Y. Sup. Ct. 1987).......... 8

Maryland Casualty Co. v. Cushing, 347 U.S. 409

[74 S. Ct. 608, 98 L. Ed. 806] (1954) ..................ccccseeeees 15

Merchants Home Delivery Service, Inc. v. Hall and

Co., 50 F.3d 1486 (Oth Cir. 1995)............1....0..0000000+00s. 9,11

Miller v. National Fidelity Life Insurance Co., 588

ee i ey Ge Be i icicisincincerscvanccisestceentamsianmnreeeeia 7

Murff v. Professional Medical Insurance Co., 97

es Ce Se eden seccnntincdestenietocntnntinsinntnniians 16

Mutual Reinsurance Bureau v. Great Plains Mutual

Insurance Co., Inc., 750 F. Supp. 455 (D. Kan. 1990).......... 7

Mutual ‘Reinsurance Bureau v. Great Plains Mu-

tual Insurance Co., Inc., 969 F.2d 931 (10th Cir.

BIE 2.2) ce ncsicpdndeaachabiaeh al aiacemaeaianacesalamibiacmnren 8

NAACP v. American Family Mutual Insurance Co.,

Fe Fe Be Cr Ge BE tatctseecsccsinnseivetintigneiionne 16

Owensboro National Bank v. Stephens, 44 F.3d 388

CO Is, Re niicicadnnastncersceseicasdaienvinsnnendinnaaecasnmmateneiiinite 9

PacifiCare Health Systems, Inc. v. Book, 123 S. Ct.

PES TUG Ue. Tle. Be BF Gy CG) wccstescsssseesevsicccrsnssesnnssesens 3

Pagarigan v. Superior Court; 126 Cal. Rptr. 2d 124

CR: BI. BI vc schivssicdersceniscnndsccsasecconnevscaneiiintanssesnniilaons 8

TABLE OF AUTHORITIES — Continued

Page

Patenaude v. Equitable Life Assurance Society of

United States, 290 F.3d 1020 (9th Cir. 2002).............0... 3

Preziose v. Lumbermen’s Mutual Casualty Co., 152

VE, GG, SR Be Bere CROP cusncccccsnscesspssoscnsanssnsnnnsnessssons 8

Quackenbush v. Allstate Insurance Co., 121 F.3d

Se HB i ce teiscdiiitsiendbsndinininknasnninananaabtniendnioninnts 7

SEC v. National Securities, Inc., 393 U.S. 453 [89

S. Ct. 564, 21 L. Ed. 2d 668] (1969)..........,...........ccseeseee 3

Sabo v. Metropolitan Life Insurance Co., 137 F.3d

ee Te MIE Sesicetuedaabcotsancucinacesarsgeeeensiabeunianianeees 9,10

Sears, Roebuck & Co. v. All States Life Insurance

Co., 246 F.2d 161 (Sth Cir. 1967)..........c.cccccssssessesscesseees 16

Simmons v. Sea-Land Services, Inc., 462 U.S. 1114

EEE ckssaipndisonhsdpebisiaheibiiansdsaleiaebessicitins lala a aaa 2

Smith v. PacifiCare Behavioral Health of Califor-

nia, Inc., 113 Cal. Rptr. 2d 140 (Ct. App. 2001)... 8

Spirt v. Teachers Insurance and Annuity Ass’n, 691

Se Se Se Brie dense sictsannenacnianensactinctanidciesnians 13

Spirt v. Teachers Insurance and Annuity Ass’n, 735

NE See Ce HN EE secnccteeessecnncacmeaseniasciinennsicnsoumeconisasins 13

St. Paul Fire and Marine Insurance Co. v. Courtney

Enterprises, Inc., 270 F.3d 621 (8th Cir. 2001)............... 7

Standard Security Life Insurance Co. of New York

v. West, 267 F.3d 821 (8th Cir. 2001)....................seseseceees 8

Stephens v. American International Insurance Co.,

ee Ge ey Sei tccnderntsiensscsmnnsnenniasdcsntdcnnagantion 8

Stephens v. National Distillers & Chemical Corp.,

OD Fe BAO CG CAR Bin vccccesiesncsevcsscesesiecsisssvesens 13, 14

TABLE OF AUTHORITIES — Continued

Teachers Insurance & Annuity Association v. Spirt, 463

U.S. 1223 [103 S. Ct. 3564, 77 L. Ed. 2d 1406] (1983)..

Towe, Hester & Erwin, Inc. v. Kan. City Fire & Marine

Insurance Co., 947 P.2d 594 (Okla. Ct. App. 1997).....

United States Department of Treasury v. Fabe, 508

ee ati aiiecoseahsncerenitcahnalanemaaeeaenciensaness

Union Labor Life Insurance Co. v. Pireno, 458 U.S. 119

[102 S. Ct. 3002, 73 L. Ed. 2d 647] (1982)..................

Washburn v. Corcoran, 643 F. Supp. 554 (S.D.N-Y. 1986)

Zolezzi v. PacifiCare of California, 129 Cal. Rptr. 2d

| ESRI nae oe rT Te

STATUTES

eis: 0 Ie tek estcndnninsnninitancantacontnacdininldusachasniemabinaiidiins 2

15 U.S.C.A. § 1012(b)....... sina anil uinle datadbiapsiamele 3, 4, 12

Alaska Statutes § 09.55.535 (Michie 2003).................... 6

California Health and Safety Code § 1363.1 (West 2003).....1, 6

Colorado Revised Statutes § 13-64-403 (2008)............... 1,6

Georgia Code Annotated § 9-9-2(c)(3) (2003)... ee eeeee 6

710 Illinois Compiled Statutes Annotated 15/9

CPR ID iiseissiestesscenscidiedeiednaeraiennield 6

Kansas Statutes Annotated § 5-401(c)(1) (2002) ................ 6

Louisiana Revised Statutes Annotated § 9:4235

CR SE cnseniencsicineniiecnstoinnisbiaeensacivausnniamicaieemianstenines 6

Maine Revised Statutes Annotated tit. 24-A, § 2747

PIE SII sscisnssvsceovsiennstnsnaccceanionnbcamamenacatanibacuaeuasnbasees 6

Massachusetts General Laws ch. 175, § 22 (2003)............. 6

Vill

TABLE OF AUTHORITIES — Continued

Page

Missouri Revised Statutes § 435.350 (2003)...................008 6

Nevada Revised Statutes 689B.067 (2003).............. eee 6

Ohio Revised Code Annotated § 2711.23-2711.24

SINE SII soni ctestesnpenitaneennubansionvenssubabebianhesiabedinonends 6

Oklahoma Statutes tit. 15, § 802 (2003).............cc eee eee eee ee 6

Rhode Island General Laws § 10-3-2 (2002)....................... 6

South Carolina Code Annotated § 15-48-10 (Law

I Fe ccsentibitindcaclidndatieuncelsiuiipneiensadmigeniciridanuaenincnes 6

South Dakota Codified Laws § 21-25B-3 (Michie 2003).......... 6

Utah Code Annotated § 78-14-17 (2003)............... cee eeeeeeeeee 6

Vermont Statutes Annotated tit. 12, § 5653 (20038)............ 6

Virginia Code Annotated § 38.2-5803 (Michie 2003).......... 6

MISCELLANEOUS

Kristen Angus, Tenth Circuit Surveys: Arbitration,

Fe ee ie Bs CE elittierisncnentntinnitnivterieinns 9

Jennifer N. Taylor, Recent Development: Erickson v.

Aetna Health Plans of California, Inc.: When the

Federal Arbitration Act Closes One Courtroom

Door, Let the McCarran-Ferguson Act Open An-

other, 28 W. St. U. L. Rev. 257 (2000/2001)..................... 8

Willy E. Rice, Federal Courts and the Regulation of

the Insurance Industry: An Empirical and His-

torical Analysis of Courts’ Ineffectual Attempts to

Harmonize Federal Antitrust, Arbitration, and

Insolvency Statutes with the McCarran-Ferguson

Act — 1941-1993, 43 Cath. U. L. Rev. 399 (1994)............. 8

AMICUS CURIAE BRIEF OF CIGNA

HEALTHCARE OF CALIFORNIA, INC.

INTEREST OF AMICUS CURIAE'

CIGNA HealthCare of California, Inc. (CHC)’ is a

California corporation that operates managed care net-

works facilitating the provision of medical and hospital

services to eligible members. It does not itself treat pa-

tients, but merely administrates the payment of claims for

health care services provided by doctors. Many of the

health care plans offered by CHC contain arbitration

provisions requiring the arbitration of all disputes relating

to services provided under the plan.

California law, like the Colorado law at issue in this

petition, imposes special restrictions on the enforcement of

arbitration agreements contained in health care plans.

Compare Colo. Rev. Stat. § 13-64-403 (2003) with Cal.

Health & Safety Code § 1363.1 (West 2003). California

courts, like the Colorado Supreme Court here, have

refused to enforce contractual arbitration provisions that

do not comply with state law. See Balaban-Zilke v. CIGNA

HealthCare of Cal., Inc., No. B140672, 2003 WL 21228038,

* No counsel for a party authored this brief in whole or in part, nor

did any person or entity, other than amici or its counsel, make a

monetary contribution to the preparation or submission of this brief.

* CIGNA HealthCare of California, Inc. is a wholly owned subsidi-

ary of Healthsource, Inc. Healthsource, Inc. is a wholly owned subsidi-

ary of CIGNA Health Corporation. CIGNA Health Corporation is a

wholly owned subsidiary of Connecticut General Corporation. Connecti-

cut General Corporation is a wholly owned subsidiary of CIGNA

Holdings, Inc. CIGNA Holdings, Inc. is a wholly owned subsidiary of

CIGNA Corporation. CIGNA Corporation is a public company, traded on

the New York Stock Exchange and other exchanges. No single publicly

held company owns 10% or more of the stock of CIGNA Corporation.

2

at *2-6 (Cal. Ct. App. May 28, 2003); Allen v. Pacheco, 71

P.3d 375, 377 (Colo. 2003). This Court recently denied

CHC’s petition for writ of certiorari in the Balaban-Zilke

case. See Jan. 12, 2004 Order in Case No. 03-709. CHC’s

petition for writ of certiorari raised the identical “reverse

preemption” issue as this petition — whether the McCar-

ran-Ferguson Act saves state laws that impose special

requirements on arbitration agreements contained in

health care plans from preemption by the Federal Arbitra-

tion Act. CHC has a strong interest in securing a decision

by this Court that contractual arbitration agreements

contained in health care plans will be enforced. Moreover,

the issues raised by petitioners have been and will con-

tinue to be raised in other litigation involving CHC.

CHC has sought rehearing of the denial of its petition

for writ of certiorari in the Balaban-Zilke case based upon

the pending petition in this case. See, e.g., Simmons uv.

Sea-Land Servs., Inc., 462 U.S. 1114 (1983) (rehearing

granted and case remanded in light of Supreme Court

opinion in a related case).

+

LEGAL BACKGROUND

This case presents one of the most important issues

facing the health care and insurance industries today:

whether states can impose unique restrictions on the

enforcement of mandatory arbitration provisions in health

care plans.

Ordinarily, state laws imposing restrictions on arbi-

tration agreements would be preempted by the Federal

Arbitration Act. 9 U.S.C.A. §2; Doctor’s Assocs., Inc. v.

Casarotto, 517 U.S. 681, 686-87 (1996). In this past term,

3

this Court reiterated its “presumption in favor of arbitra-

tion.” PacifiCare Health Sys., Inc. v. Book, 123 S. Ct. 1531,

1536 n.2 (2003). This Court also held that the terms

“Snvolving commerce’” in the Federal Arbitration Act are

“words of art that ordinarily signal the broadest permissi-

ble exercise of Congress’ Commerce Clause power.” Citi-

zens Bank v. Alafabco, Inc., 123 S. Ct. 2037, 2040 (2003).

However, the McCarran-Ferguson Act provides that

“[InJo Act of Congress shall be construed to invalidate,

impair, or supersede any law enacted by any State for the

purpose of regulating the business of insurance .. . unless

such Act specifically relates to the business of insurance.”

15 U.S.C.A. § 1012(b). The McCarran-Ferguson Act was

passed to reaffirm that states have primary regulatory

control over insurance. Barnett Bank of Marion County,

N.A. v. Nelson, 517 U.S. 25, 40-41 (1996). In enacting the

McCarran-Ferguson Act, “Congress was mainly concerned

with the relationship between insurance ratemaking and

the antitrust laws, and with the power of the States to tax

insurance companies.” SEC v. Natl Sec., Inc., 393 U.S.

453, 458-59 (1969) (emphasis added). The purpose of the

McCarran-Ferguson Act is “the avoidance of ‘inadvertent

federal intrusion’ into state insurance regulation,”

Patenaude v. Equitable Life Assurance Soc’y of United

States, 290 F.3d 1020, 1026 (9th Cir. 2002), and it “is to be

‘narrowly construed in the face of valid federal regulatory

interests.’” Cochran v. Paco, Inc., 606 F.2d 460, 467 (5th

Cir. 1979) (emphasis added).

In Group Life and Health Insurance Co. v. Royal Drug

Co., 440 U.S. 205 (1979) and Union Labor Life Insurance

Co. v. Pireno, 458 U.S. 119 (1982), this Court set forth a

three-factor test for determining when a state law regulates

4

“the business of insurance” under the second clause of the

McCarran-Ferguson Act applying to antitrust cases.’ Since

Royal Drug and Pireno, there has been a question in the

lower courts as to whether this three-factor test applies in

determining whether state laws were “enacted ... for the

purpose of regulating the business of insurance” pursuant

to the first clause of the McCarran-Ferguson Act in non-

antitrust cases. In United States Department of Treasury v.

Fabe, 508 U.S. 491 (1993), this Court observed that Royal

Drug and Pireno did not completely determine the scope of

the non-antitrust first clause of the McCarran-Ferguson

Act.

* The McCarran-Ferguson Act has two clauses that make reference

to the “business of insurance.” The first clause, applicable to non-

antitrust cases, provides that “[n]o Act of Congress shall be construed to

invalidate, impair, or supersede any law enacted by any State for the

purpose of regulating the business of insurance.” 15 U.S.C.A. § 1012(b)

(emphasis added). The second clause, governing antitrust cases,

provides that “the Act ... known as the Sherman Act ... and the Act

... known as the Clayton Act, and the Act ... known as the Federal

Trade Commission Act ... shall be applicable to the business of

insurance to the extent that such business is not regulated by State

law.” Id. The three factors for when a state law constitutes the “busi-

ness of insurance” under the second clause are “first, whether the

practice has the effect of transferring or spreading a policyholder’s risk;

second, whether the practice is an integral part of the policy relation-

ship between the insurer and the insured; and third, whether the

practice is limited to entities within the insurance industry.” Pireno,

458 US. at 129.

5

SUMMARY OF REASONS FOR

GRANTING CERTIORARI

The petition for writ of certiorari raises the question

whether the McCarran-Ferguson Act saves state laws that

impose special requirements on arbitration agreements

contained in health care plans from preemption by the

Federal Arbitration Act. This Court should grant the

petition.

First, the question presented by this petition is a

recurring question in state and federal courts. Some courts

have held that the Federal Arbitration Act preempts state

laws that impose restrictions on arbitration agreements in

health care or insurance plans, while other courts have

held that the McCarran-Ferguson Act saves those state

laws from preemption.

Second, as demonstrated by the petition, there is a

circuit split regarding the correct interpretation of what

constitutes a state law enacted “for the purpose of regulat-

ing the business of insurance” under the first clause of the

McCarran-Ferguson Act. Some courts have held that the

Royal Drug and Pireno three-factor test should still be

utilized in first clause cases, while other courts have held

that the test has no utility for first clause cases after Fabe.

There is also an additional circuit split among those

circuits that apply the Royal Drug and Pireno test in first

clause cases regarding how broadly to apply the test.

Third, there is an additional circuit split, not ad-

dressed in the petition, regarding what constitutes a

federal law that “specifically relates to the business of

insurance” so that it can preempt contrary state insurance

laws. Some courts have held that a federal law can be so

6

clearly meant to preempt any contrary state law — includ-

ing insurance laws — that preemption may apply notwith-

standing the McCarran-Ferguson Act even if the text of

the federal statute does not refer to insurance, while other

courts have reached the opposite conclusion.

¢

LEGAL ARGUMENT

CERTIORARI SHOULD BE GRANTED TO

RESOLVE CIRCUIT CONFLICTS OVER THE

INTERPLAY BETWEEN THE MCCARRAN-

FERGUSON ACT AND THE FEDERAL AR-

BITRATION ACT.

A. Numerous state and federal courts have reached

conflicting decisions over whether the Federal

Arbitration Act preempts state laws that impose

restrictions on arbitration agreements in health

care or insurance contracts.

Numerous states in addition to Colorado prohibit the

enforcement of arbitration agreements in health care or

insurance plans altogether, or impose special requirements

on them before they can be judicially enforced.* These

* E.g., Alaska Stat. § 09.55.535 (Michie 2003); Cal. Health & Safety

Code § 1363.1 (West 2003); Colo. Rev. Stat. § 13-64-403 (2003); Ga. Code

Ann. § 9-9-2(c)(3) (2003); Kan. Stat. Ann. § 5-401(c)(1) (2002); 710 Ill.

Comp. Stat. Ann. 15/9 (West 2003); La. Rev. Stat. Ann. § 9:4235 (West

2003); Mass. Gen. Laws ch. 175, § 22 (2003); Me. Rev. Stat. Ann. tit. 24-

A, § 2747 (West 2003); Mo. Rev. Stat. § 435.350 (2003); Nev. Rev. Stat.

689B.067 (2003); Ohio Rev. Code Ann. § 2711.23-2711.24 (Anderson

2003); Okla. Stat. tit. 15, § 802 (2003); R.I. Gen. Laws § 10-3-2 (2002);

S.C. Code Ann. § 15-48-10 (Law Co-op. 2003); S.D. Codified Laws § 21-

25B-3 (Michie 2003); Utah Code Ann. § 78-14-17 (2003); Vt. Stat. Ann.

tit. 12, § 5653 (2003); Va. Code Ann. § 38.2-5803 (Michie 2003).

7

statutes have generated a wave of litigation over whether

such restrictions on arbitration agreements in health care

or insurance plans are preempted by the Federal Arbitra-

tion Act, which is designed to prevent states from impos-

ing special rules on arbitration agreements that are not

applied to contracts generally.

The courts that have considered the relationship

between the McCarran-Ferguson Act and the Federal

Arbitration Act are in conflict. Some courts have found

that the Federal Arbitration Act preempts state laws that

target arbitration agreements in health care or insurance

plans’ and other courts, like the Colorado Supreme Court

° E.g., Am. Heritage Life Ins. Co. v. Orr, 294 F.3d 702, 708-09 (5th

Cir. 2002); St. Paul Fire & Marine Ins. Co. v. Courtney Enters., Inc., 270

F.3d 621, 625 (8th Cir. 2001); DiMercurio v. Sphere Drake Ins., PLC,

202 F.3d 71, 75-81 (1st Cir. 2000); Quackenbush v. Allstate Ins. Co., 121

F.3d 1372, 1381 (9th Cir. 1997); Bennett v. Liberty Nat'l Fire Ins. Co.,

968 F.2d 969, 972-73 (9th Cir. 1992); Life of Am. Ins. Co. v. Aetna Life

Ins. Co., 744 F.2d 409, 411-13 (5th Cir. 1984); Miller v. Nat'l Fid. Life

Ins. Co., 588 F.2d 185, 187 (5th Cir. 1979); Hart v. Orion Ins. Co., 453

F.2d 1358, 1360 (10th Cir. 1971); Hamilton Life Ins. Co. of N.Y. v.

Republic Nat'l Life Ins. Co., 408 F.2d 606, 610-11 (2d.Cir. 1969); Bullock

v. United Benefit Life Ins. Co., 165 F. Supp. 2d 1259, 1261-62 (M.D. Ala.

2001); Costle v. Fremont Indem. Co., 839 F. Supp. 265, 274-75 (D. Vt.

1993); Mut. Reinsurance Bureau v. Great Plains Mut. Ins. Co., Inc., 750

F. Supp. 455, 459-62 (D. Kan. 1990), rev’d, 969 F.2d 931 (10th Cir.

1992); Ainsworth v. Allstate Ins. Co., 634 F. Supp. 52, 56-57 (W.D. Mo.

1985); Bernstein ex rel. Comm’r of Banking & Ins. of the State of Vt. v.

Centaur Ins. Co., 606 F. Supp. 98, 101-03 (S.D.N.Y. 1984); Celtic Life

Ins. Co. v. McLendon, 814 So. 2d 222, 226 (Ala. 2001); Am. Bankers Ins.

Co. of Fla. v. Crawford, 757 So. 2d 1125, 1131-36 (Ala. 1999); Allen v.

Pacheco, 71 P.3d at 388 (Kourlis, J., dissenting) (“In short, I suggest

that the interpretation the Majority affords the McCarran-Ferguson Act

sweeps with a broad and wide arc that could swallow federal preemp-

tion under the Supremacy Clause.”); Towe, Hester & Erwin, Inc. v. Kan.

City Fire & Marine Ins. Co., 947 P.2d 594, 597-99 (Okla. Ct. App. 1997);

(Continued on following page)

8

in this case, have found that such laws are saved from

Federal Arbitration Act preemption by the McCarran-

Ferguson Act.°

As stated by one of the commentators struck by the

split among jurisdictions, “courts have reached differing

conclusions over whether the McCarran-Ferguson Act

precludes Federal Arbitration Act preemption.” See Jenni-

fer N. Taylor, Recent Development: Erickson v. Aetna

Health Plans of California, Inc.: When the Federal Arbitra-

tion Act Closes One Courtroom Door, Let the McCarran-

Ferguson Act Open Another, 28 W. St. U. L. Rev. 257, 272-

74 (2000/2001); see also Willy E. Rice, Federal Courts and

the Regulation of the Insurance Industry: An Empirical

and Historical Analysis of Courts’ Ineffectual Attempts to

Harmonize Federal Antitrust, Arbitration, and Insolvency

Statutes with the McCarran-Ferguson Act - 1941-1993, 43

Preziose v. Lumbermen’s Mut. Cas. Co., 152 Vt. 604, 605-07, 568 A.2d

397, 398-99 (1989).

* E.g., Standard Sec. Life Ins. Co. of N.Y. v. West, 267 F.3d 821, 823-

24 (8th Cir. 2001); Davister Corp. v. United Republic Life Ins. Co., 152

F.3d 1277, 1281-82 (10th Cir. 1998); Stephens v. Am. Int'l Ins. Co., 66

F.3d 41, 45-46 (2d Cir. 1995); Mut. Reinsurance Bureau v. Great Plains

Mut. Ins. Co., Inc., 969 F.2d 931, 934-35 (10th Cir. 1992); Eden Fin.

Group, Inc. v. Fid. Bankers Life Ins. Co., 778 F. Supp. 278, 282 (E.D. Va.

1991); Washburn v. Corcoran, 643 F. Supp. 554, 557-58 (S.D.N.Y. 1986);

Zolezzi v. PacifiCare of Cal., 129 Cal. Rptr. 2d 526, 539 n.11 (Ct. App.

2003); Imbler v. PacifiCare of Cal., Inc., 126 Cal. Rptr. 2d 715, 717 (Ct.

App. 2002); Pagarigan v. Superior Court, 126 Cal. Rptr. 2d 124, 134-35

(Ct. App. 2002); Smith v. PacifiCare Behavioral Health of Cal., Inc., 113

Cal. Rptr. 2d 140, 142-44 (Ct. App. 2001); Allen, 71 P.3d at 377; Cont’

Ins. Co. v. Equity Residential Props. Trust, 565 S.E.2d 603, 604 (Ga. Ct.

App. 2002); Friday v. Trinity Universal of Kan., 939 P.2d 869, 872-73

(Kan. 1997); In re Liquidation of Union Indem. Ins. Co. of N.Y., 521

N.Y.S.2d 617, 620-21 (N.Y. Sup. Ct. 1987); Cox v. Woodmen of the World

Ins. Co., 556 S.E.2d 397, 401-02 (S.C. Ct. App. 2001).

9

Cath. U. L. Rev. 399, 431-32 (1994). Another commentator,

describing the split among the circuits, has noted that

“Accepting certiorari on [United States Department of

Treasury v. Fabe, 508 U.S. 491], the Supreme Court failed

to define the relationship between the McCarran-Ferguson

Act and the [Federal Arbitration Act].... This lack of

direction from the Supreme Court has led to a split in the

circuits on the question of whether the [Federal Arbitra-

tion Act] applies to insurance contracts. The Tenth Cir-

cuit’s decision marks a rare instance where other public

policy concerns outweigh the presumption favoring arbi-

trability. [The Tenth Circuit’s decision] further marks the

rare instance where the presumption favoring arbitrability

is overcome, not by a congressional command, but by

judicial directive.” Kristen Angus, Tenth Circuit Surveys:

Arbitration, 76 Denv. U. L. Rev. 681, 692 (1999).

B. The circuits that apply the Royal Drug and

Pireno test in non-antitrust first clause cases are

split over how the test applies.

The petition for writ of certiorari and reply brief in

support of the petition amply demonstrate that the lower

courts are in conflict over when a state law has been

“enacted ... for the purpose of regulating the business of

insurance.” See Allen Pet. at 9-19; Allen Reply Br. at 3-8.

The Third, Sixth, Seventh, and Ninth Circuits have held

that Fabe does not abrogate the use of the three-factor test

from Royal Drug and Pireno in non-antitrust cases. E.g.,

Sabo v. Metro. Life Ins. Co., 137 F.3d 185, 191 & n.3 (3d

Cir. 1998); Owensboro Nat'l Bank v. Stephens, 44 F.3d 388,

391-92 (6th Cir. 1994); Am. Deposit Corp. v. Schacht, 84

F.3d 834, 840 (7th Cir. 1996); Merchs. Home Delivery Serv.,

Inc. v. Hall & Co., 50 F.3d 1486, 1490 n.2 (9th Cir. 1995).

10

Meanwhile the Eighth Circuit has held that in such cases,

Fabe completely abrogates use of the three-factor test.

E.g., Doe v. Norwest Bank Minn., N.A., 107 F.3d 1297,

1305 n.8 (8th Cir. 1997), overruled on other grounds,

Humana Inc. v. Forsyth, 525 U.S. 299, 305 n.6 & 314

(1999).

Even in those circuits that still utilize the Royal

Drug/Pireno test in some manner for first clause cases,

there is an additional circuit split over the degree of utility

that test retains. The split centers on the question of

whether it is relevant that the defendant’s challenged

conduct in the case actually constitutes the business of

insurance, or whether McCarran-Ferguson reverse pre-

emption is triggered so long as the particular state statute

invoked by the plaintiff is intended to regulate the busi-

ness of insurance.

Third Circuit: The Third Circuit has remarked on this

circuit split: “We note at the outset that federal courts

have seemingly disagreed as to the proper analytic inquiry

into McCarran-Ferguson Act preclusion. ... Some courts

draw upon a four-part inquiry.... Other courts have

announced a more truncated three-part test that does not

require a specific conclusion that the defendant’s conduct

constitutes the business of insurance.” Sabo, 137 F.3d at

189 n.2.

Ninth Circuit: The Ninth Circuit employs a four-part

inquiry to determine whether the McCarran-Ferguson Act

precludes the preemption of a state insurance law by

another federal statute in non-antitrust first clause cases:

“(1) [the federal] statute does not ‘specifically relate’ to

[the] business of insurance, (2) [the] acts challenged under

the [state] statute constitute [the] business of insurance,

11

(3) [the] state has enacted a law or laws regulating [the]

challenged acts, and (4) [the] state law would be super-

seded, impaired or invalidated by the application of [the]

federal statute.” Merchs. Home Delivery Serv., Inc., 50 F.3d

at 1489. The important aspect of this approach is the

second factor, which requires that defendant’s conduct

itself constitutes the business of insurance.

Seventh Circuit: The Seventh Circuit directly chal-

lenges the Ninth Circuit’s requirement that the defen-

dant’s conduct itself constitutes the business of insurance.

Instead, the Seventh Circuit employs a three-part test

that focuses on the purpose behind the state statute that

is sought to be preempted: “first, does the federal statute

at issue ‘specifically relate to the business of insurance;’

second, was the state statute ‘enacted ... for the purpose

of regulating the business of insurance;’ and third, would

application of the federal statute ‘invalidate, impair or

supersede’ the state law.” Autry v. Northwest Premium

Servs., Inc., 144 F.3d 1037, 1040-41 (7th Cir. 1998).’

The Seventh Circuit rejects the Ninth Circuit’s four-

part test because “[t]he four-part test requires the court to

examine the activity at issue to determine whether the

activity being regulated is part of the ‘business of insur-

ance.’ However, the statutory language counsels us to

examine the purpose for which the statute was enacted to

determine whether the statute is one ‘enacted ... for the

" The first and third parts of the Seventh Circuit’s test are

identical to the first and fourth parts of the Ninth Circuit’s test. The

split in authority centers around the difference between the Seventh

Circuit’s second part of the test and the Ninth Circuit’s second and

third parts of the test.

12

purpose of regulating the business of insurance.’ While

this distinction may seem somewhat semantic, the effect is

far from inconsequential.” Jd. at 1041.

C. There is a circuit split, in addition to that identi-

fied by petitioners, over the determination of

when a federal statute “specifically relates to

the business of insurance.”

1. This Court has not fully resolved the mean-

ing of “specifically relates” as used in the

McCarran-Ferguson Act.

Although not addressed by the petition, an additional

circuit conflict is also implicated by this case — whether a

federal law whose text does not refer to insurance, such as

the Federal Arbitration Act, can be so clearly meant to

preempt any contrary state law (including insurance laws)

that preemption may apply notwithstanding the McCar-

ran-Ferguson Act.

This court has only once addressed the meaning of the

phrase “specifically relates” in the first clause of the

McCarran-Ferguson Act, providing that “[n]o Act of Con-

gress shall be construed to invalidate, impair, or supersede

any law enacted by any State for the purpose of regulating

the business of insurance ... unless such Act specifically

relates to the business of insurance.” 15 U.S.C.A. § 1012(b)

(emphasis added). In Barnett Bank of Marion County,

N.A., 517 U.S. 25, this court noted that “[t]he word ‘relates’

is highly general, and this Court has interpreted it broadly

in other pre-emption contexts.” Id. at 38. “‘specifically’ can

mean ‘explicitly, particularly, [or] definitely.’” Jd. Applying

that definition, this court found that a law that “grants

national banks permission to ‘act as the agent for any fire,

13

life, or other insurance company,’ to ‘solici[t] and sell[l]

insurance ” did “specifically relate” to insurance. Id. at 39.

Barnett does not resolve the question implicated here,

because the statute in Barnett involved a law that did

refer to insurance in its text. Barnett thus left open the

question of whether a federal law can be so clearly in-

tended to preempt all contrary state laws, including those

relating to insurance, that the McCarran-Ferguson Act

does not apply regardless of whether the law refers to

insurance in its text.

2. Some courts have held that a federal law can

preempt a state insurance law even if the fed-

eral law does not refer to insurance in its text.

Second Circuit: The Second Circuit has interpreted

the McCarran-Ferguson Act quite narrowly on this point.

In Spirt v. Teachers Insurance and Annuity Ass’n, the

court determined that Title VII applied to an insurance

company and preempted a contrary state law even though

Title VII did not specifically provide that it was meant to

apply to insurance. 691 F.2d 1054, 1065-66 (2d Cir. 1982),

vacated on other grounds, Teachers Ins. & Annuity Ass’n v.

Spirt, 463 U.S. 1223 (1983), reinstated on other grounds,

Spirt v. Teachers Ins. & Annuity Ass’n, 735 F.2d 23 (2d Cir.

1984). The court relied on the “broad and explicit preemp-

tion provision” contained in Title VII and on the fact that

“Title VII is not being construed to implicitly pre-empt

state laws.” Spirt, 691 F.2d at 1065.

In Stephens v. National Distillers and Chemical Corp.,

69 F.3d 1226, 1231 (2d Cir. 1995), the court was confronted

with the question of whether the McCarran-Ferguson Act

precluded the Foreign Sovereign Immunities Act (FSIA)

14

from preempting a contrary state law. The court recog-

nized that the state law in question regulated the business

of insurance and that the FSIA did not refer to insurance

in its text. Jd. Nonetheless, the court held that the FSIA

preempted the state law: “the McCarran-Ferguson Act

does not preclude the preempting of New York’s pre-

judgment security requirement. The Supreme Court’s

language in Fabe in no way compels such a broad reading

of the McCarran-Ferguson Act, while prior case law in this

Court, at the very least, recommends a narrower reading

of the statute.” Id. The court recognized that where a

federal statute has a “‘broad and explicit preemptive

provision’” and “wherever federal law clearly intends to

displace all state laws to the contrary,” then the McCar-

ran-Ferguson Act provides no bar to the federal law’s

application to insurance even if there is not a specific

reference to insurance made in the text of the statute. Jd.

at 1232-33; see also Bernstein, 606 F. Supp. at 101 n.6

(“The Second Circuit has found that the lack of an explicit

reference to insurance in a federal law does not automati-

cally place it within the McCarran-Ferguson Act.”). In

Stephens, the Second Circuit also reaffirmed its pre-Fabe

holding in Spirt v. Teachers Ins. & Annuity Ass’n. See

Stephens, 69 F.3d at 1233.

The Second Circuit has also held that the Securities

Litigation Uniform Standards Act of 1998 (SLUSA) is not

reverse-preempted by the McCarran-Ferguson Act even

though SLUSA does not refer to insurance in its text.

Lander v. Hartford Life & Annuity Ins. Co., 251 F.3d 101,

116-17 (2d Cir. 2001). In support of its holding, the court

noted that “[iJt is only when a statute, by unintended

implication, encroaches on the insurance regulatory

regime of a state that McCarran-Ferguson prevents

15

application of the federal statute.... But when the in-

tended effect of a federal statute is to displace state

regulations, we must give effect to this intent, regardless

of whether an insurance company is involved.” Jd. The

court also noted that “Congress passed SLUSA-to provide

uniform, national standards for litigation concerning a

defined set of nationally marketed securities ... — a topic

undisputably of national concern.” Jd. at 117.

Eleventh Circuit: The Eleventh Circuit has acknowl-

edged the Second Circuit’s conclusion that the McCarran-

Ferguson Act does not apply to a federal law that is clearly

meant to apply to insurance, even though it does not refer

to insurance in its text: “[t]here has been some suggestion

that the McCarran-Ferguson reverse preemption provi-

sions should not apply in the context of the Bank Act,

because the Bank Act was by its nature intended to

preempt all conflicting state laws. In other contexts,

federal laws involving issues of paramount national

concern — such as the Foreign Sovereign Immunities Act

(FSIA) and the Civil Rights Act of 1964 (Title VII) — have

been held to be exempt from the reverse preemption

provisions of McCarran-Ferguson.” Blackfeet Nat'l Bank v.

Nelson, 171 F.3d 1237, 1244 n.10 (11th Cir. 1999). The

court ultimately found that the Bank Act did not rise to

the same level of national concern as the FSIA or Title VII,

but did not explain when a national policy embodied in a

federal law becomes sufficiently important so as to pre-

empt state laws notwithstanding the McCarran-Ferguson

Act. Id. at 1244.

Other courts: Other courts have also found that

federal statutes can apply to preempt contrary state

insurance laws notwithstanding their failure to specifi-

cally refer to insurance. E.g., Md. Cas. Co. v. Cushing, 347

16

U.S. 409, 422 (1954) (Federal Maritime Law); Sears,

Roebuck & Co. v. All States Life Ins. Co., 246 F.2d 161, 172

(5th Cir. 1957) (Lanham Act).

3. Other courts have held that if the text of a

federal law does not refer to insurance, then

it cannot “specifically relate to insurance.”

Seventh Circuit: The Seventh Circuit has directly

challenged the Second Circuit’s decision in Spirt and has

offered a broader reading of the McCarran-Ferguson Act:

“No Act of Congress’ could not be more comprehensive.

The McCarran-Ferguson Act creates a rule of construction

applicable to all other federal laws, a ‘plain statement’

approach. ... The second circuit [in Spirt] posed the wrong

question when inquiring whether Congress meant to

insulate the insurance business from civil rights laws.

Congress did not tie its hands; instead it prescribed the

consequences of silence and specificity in other acts past

and future. ... [F]ederal laws inconsistent with state laws

apply when Congress says so directly.” NAACP v. Am.

Family Mut. Ins. Co., 978 F.2d 287, 294-95 (7th Cir. 1992).

Consequently, the court held that Title VIII cannot pre-

empt contrary state insurance laws because Title VIII does

not specifically refer to insurance in its preemption provi-

sion. Id. at 295.

Fifth and Eighth Circuits: Other courts have also held

that a federal statute that does not refer to insurance in

its text cannot preempt any contrary state insurance laws

because of the McCarran-Ferguson Act. E.g., Cochran v.

Paco, Inc., 606 F.2d at 464 (Truth in Lending Act); Murff v.

———

17

Prof Med. Ins. Co., 97 F.3d 289, 291 (8th Cir. 1996) (Age

Discrimination in Employment Act).

rs

v

CONCLUSION

This case involves numerous circuit splits over impor-

tant issues regarding the interaction between the McCar-

ran-Ferguson Act and the Federal Arbitration Act.

Accordingly, certiorari is warranted. Moreover, the McCar-

ran-Ferguson Act and the Federal Arbitration Act are both

important federal statutes which are frequent subjects of

litigation in state and federal courts. The intersection of

these two important federal statutes has caused tremen-

dous difficulty in the lower courts, and it is incumbent on

this Court to provide guidance to the lower courts on the

questions presented by this petition.

Respectfully submitted,

LISA PERROCHET

JOHN A. TAYLOR, JR.

JEREMY B. ROSEN*

HORVITZ & LEVY LLP

*Counsel of Record

Attorneys for Amicus Curiae

Cigna HealthCare of

California, Inc.