Amicus Curiae Brief — Levine v. United Healthcare Corp.

8

savings clause jurisprudence: “We believe that our use

of the McCarran-Ferguson case law in the ERISA

context has misdirected attention, failed to provide

clear guidance to lower federal courts, and, as this case

demonstrates, added little to the relevant analysis.”

Kentucky Ass'n, supra, at 339-40 (2003). The Levine

opinion below destabilizes rather than streamlines

savings clause standards within the Third Circuit. The

decision below identified three discreet reasons for

preempting the New Jersey Rule. First, the Levine

decision found that the New Jersey Rule is one that

regulates entities other than insurance companies.

Levine, supra, at 165. Second, the Third Circuit

maintained that the “driving intent” of the New Jersey

Rule was not with respect to insurance companies but,

rather, to any litigant irrespective of the presence of

insurance. /d. Third, the Court read the “plain

language” of the state statute to support its conclusion

that the New Jersey Rule is one of general application.

Id. at 165-66. In support of these three findings, the

Levine Bench made a number of ancillary observations

worth highlighting. It acknowledged that “the

legislative history and the Perreira decision do indicate

an intent to lighten the burden on the liability insurance

industry. . . .” Id. at 165 (referencing Perreira v.

Rediger, 778 A.2d 429 (NJ, 2001) (italics original). The

Third Circuit also did not appear to dispute that the

New Jersey Rule is “aimed at” the business of

insurance. Levine, supra, at 166 (citing FMC Corp. v.

Holliday, 498 U.S. 52 (1990)). The Court relied upon

but misapplied the clear guidance supplied in Kentucky

Ass'n.

The purpose of this Court’s decision in Kentucky

Ass'n was to harmonize savings clause jurisprudence.

Kentucky Ass'n, id., at 340. In so doing, the Court

9

appears to have replaced the McCarran-Ferguson test

and adopted a two-factor test as influenced by the

McCarran-Ferguson factors. Kentucky Ass'n, supra, at

341. These factors are credited as “considerations [to

be] weighed” (Kentucky Ass'n, supra, at 341 (quoting

Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S.

724, 742-43 (1985)), “checking points” (Kentucky Ass'n,

id. (quoting UNUM Life Ins. Co. v. Ward, 526 U.S. 358,

374 (1999)), and “guidepost.”. Kentucky Ass'n,

id.(quoting. Rush Prudential HMO v. Moran, 536 US.

355, 373 (2002)). This Court has also credited a savings

clause determination based upon “common sense”.

UNUM, id.

The Third Circuit’s holding below denigrated

from the Kentucky Ass'n holding. First, it disregarded

New Jersey court decisions, including two from its

Supreme Court, that squarely held that the New Jersey

Rule is aimed at insurance entities. See Fayer v. Keene

Corp., 709 A.2d 808 (NJ. App. Div., 1998); Kiss v.

Jacob, 650 A.2d 336 (N.J., 1994); Lusby v. Hitchner, 642

A.2d 1055 (N.J. App. Div., 1994); Parker v. Esposito,

677 A.2d 1159 (NJ. App. Div., 1996); and Perreira,

supra. The Levine Court observed, finally, that the

New Jersey Rule did not possess the “driving intent”

necessary to ward off preemption but, nonetheless, was

admittedly “aimed at” insurance companies. Levine,

supra, at 165, 166. This holding denigrated from

savings clause jurisprudence by relying upon the

ancillary effects of the state law at issue rather than its

overriding purpose. Kentucky Ass'n, supra, at 342

("First, the state law must be specifically directed

toward entities engaged in insurance."). In this sense,

the Third Circuit’s finding as to the purpose of the New

Jersey Rule is difficult to discern, especially since the

emuasi

Court had access to a sizable body of state court

decisions finding in the alternative.

The standards set out in Kentucky Ass'n

represent an innovative yet practical template for

resolving savings clause disputes. Of especial

importance in the field of employee benefits,

subordinate courts hearing ERISA matters should be

advised not to stray from the two-part test and

associated guidance provided in Kentucky Ass'n.

Accordingly, this Court is presented with an

opportunity to firmly remind the subordinate federal

courts not to adopt radical approaches to the

interpretative standard mandated by the two-part test.

POINT III

THE THIRD CIRCUIT'S DECISION BELOW

PERMITS FULLY-INSURED ERISA PLANS TO

REAP THE BENEFIT OF COLLECTING

INSURANCE PREMIUMS WITHOUT PROVIDING

COVERAGE.

ERISA contains many of the participant-

protective features existing at the common law of

trusts. Bruch, supra, at 110 (“ERISA abounds with the

language and terminology of trust law.”). ERISA

jurisprudence, moreover, has recognized the

beneficient purposes of the statute as geared “to

promote the interests of employees and their

beneficiaries in employee benefit plans’. . . ‘and to

protect contractually defined benefits."" Bruch, id., at

113 (quoting, respectively, Shaw v. Delta Air Lines,

Inc., 463 U.S. 85, 90 (1983), and Massachusetts Mutual

Life Ins. Co. v. Russell, 473 U.S. 134, 148 (1985)).

Indeed, a savings clause holding which does not take

ll

into account the overriding policy goals of ERISA is

disfavored:

In the present case, moreover, we are obliged in

interpreting the savings clause to consider not

only the factors by which we were guided in

Metropolitan Life, but also the role of the

savings clause in ERISA as a whole. On

numerous occasions we have noted that “in

expounding a statute, we must not be guided

by a single sentence or member of a a

sentence, but look to the provisions of the

whole law, and to its object and policy.”””

Pilot Life Insurance Co. v. Dedeaux, 481 U.S. 41, 51

(1987)(emphasis supplied)(quoting Kelly v. Robinson,

479 U.S. 36, 48 (1986), quoting Offshore Logistics, Inc.

v. Tallentire, 477 U.S. 207, 221 (1986) (quoting Mastro

Plastics Corp. v. NLRB, 350 U.S. 270, 285 (1956) (in

turn quoting United States v. Heirs of Boisdore, 8 How.

113, 122 (1849))).

The decision below created an anomalous result

in that individuals who participate in ERISA plans

have fewer protections than non-ERISA consumers

who purchase individual health insurance policies.

Insurance carriers providing indemnification with

respect to ERISA plans are permitted to retain

premium payments and, at the same time, evade

coverage obligations. The purchase of an individual

(non-ERISA) health insurance policy, on the other

hand, affords the individual purchaser the benefit of the

New Jersey Rule. As noted by one commentator:

12

.. . [I}f an insurer is allowed to subrogate and >

recover the money it paid its insured on the

claim, then it finds itself in the position of having

suffered no loss. Additionally, the insurer

retains the premium initially charged to cover

that risk.[] By virtue of this analysis, it appears

as though ‘~ insurer receives a pure windfall,[]

at least on those claims where there is a

tortfeasor or other third party liable for the

injuries sustained by the insured.

Roger M. Baron, Subrogation: A Pandora's Box

Awaiting Closure, 41 S.D.L.Rev, 237, 243

(1996)(internal footnotes removed).

Concerns of fairness have permeated ERISA

jurisprudence as reflected in this Court’s 1984 decision

in Pension Benefit Guaranty Corporation v. R.A. Gray

& Co., 467 U.S. 717 (1984). Fairness has guided this

Court in determining rights and responsibilities in the

context of ERISA. As noted by the R.A. Gray Court’s

dissent, ‘“[iJndeed, if one looks beyond the

administrative burden, one finds that Washington's

statute poses no obstacle, but furthers ERISA's

ultimate objective - developing a fair system for

protecting employee benefits." Egelhoff v. Egelhoff,

532 U.S. 141, 158, 121 S.Ct. 1322, 149 L.Ed.2d 264 (2001)

(Breyer, J., dissenting)(citing R.A. Gray, id.(emphasis

supplied). The Egelhoff dissent goes on to state:

David did not change the beneficiary designation

in the pension plan or life insurance plan during

the 6-month period between his divorce and his

death. As a result, Donna will now receive a

windfall of approximately $80,000 at the expense

13

of David's children. The State of Washington

enacted a statute to prevent precisely this

kind of unfair result. But the Court, relying on

an inconsequential . administrative burden,

concludes that Congress required it.

Egelhoff, id., at 159 (emphasis supplied).

Concerns of fairness, as expressed by the

Supreme Court, are not limited to Title I of ERISA:

"In sum, as in Connolly, the employer ‘voluntarily

negotiated and maintained a pension plan which was

determined to be within the strictures of ERISA,’

making the burden the MPPAA imposed upon it

neither unfair nor unjust." E. Enters. v. Apfel, 524

U.S. 498, 528, (citing Concrete Pipe & Products of Cal.,

Inc. v. Construction Laborers Pension Trust for

Southern Cal., 508 U.S. 602, 646, 124 L.Ed.2d 539, 113

S.Ct. 2264 (1993) (referencing Connolly v. Pension

Benefit Guaranty Corporation, 475 U.S. 211 (1986) and

the Multiemployer Pension Plan Amendment Act of

1980, 94 Stat. 1208)italics original; bold-faced type

supplied).

An obvious unfairness to participants frustrates

the bedrock purposes of the ERISA law: “ERISA is a

comprehensive statute designed to promote the

interests of employees and their beneficiaries in

employee benefit plans." Shaw v. Delta Air Lines, 463

U.S. 85, 90 (1983) citing Nachman Corp. v. Pension

Benefit Guaranty Corp., 446 U.S. 359 (1980) & Alessi v.

Raybestos-Manhattan, Inc., 451 U.S. 504 (1981). Of

note, preemption caselaw includes observations of the

rank unfairness sometimes experienced by ERISA

participants: “In practice, however, nothing has been

further from the truth -- ERISA generally, and §514(a)

particularly, have become virtually impenetrable

14

shields that insulate plan sponsors from any meaningful

liability for negligent or malfeasant acts committed

against plan beneficiaries in all too many cases."

DiFelice v. Aetna U.S. Healthcare, 346 F.3d 442,456

(3d.Cir, 2003) (wnpublished) (Becker, CW.,

concurrence). The concerns expressed in DiFelice are

founded upon jurisprudence out-of-accord with the

participant-friendly purposes of ERISA.

An anomaly of this nature - ERISA participants

having fewer protections as a result of ERISA — has

been cogently rejected by the U.S. Supreme Court:

“Adopting Firestone’s reading of ERISA would require

us to impose a standard of review that would afford less

protection to employees and their beneficiaries than

they enjoyed before ERISA was enacted.” Bruch,

supra, at 113-114. Moreover, this Court has made legal-

policy decisions based upon ERISA's concern for well

being of individuals who depend upon such plans:

ERISA's solicitude for the economic security of

surviving spouses would be undermined by

allowing a predeceasing spouse's heirs and

legatees to have a community property interest

in the survivor's annuity. Even a plan

participant cannot defeat a nonparticipant

surviving spouse's statutory entitlement to an

annuity. It would be odd, to say the least, if

Congress permitted a predeceasing

nonparticipant spouse to do so. Nothing in the

language of ERISA supports concluding that

Congress made such an inexplicable decision. . . .

Perhaps even more troubling, the recipient of

the testamentary transfer need not be a family

member. For instance, a surviving spouse's §

1055 annuity might be substantially reduced so-

15

that funds could be diverted to support an

unrelated stranger.

Boggs v. Boggs, 520 U.S. 833, 843-44 (1997).

The Third Circuit’s decision in Levine provides

no constructive policy contributions to the body of

savings clause law. Rather, the holding places ERISA

participants in a less-favorable position than non-

ERISA health-insurance consumers. Accordingly, the

Court's holding below frustrates the equitable,

participant-protective purposes of ERISA.

POINT IV

THE DECISION BELOW IMPERMISSIBLY

INVADES THE TRADITIONAL SPHERES OF

STATE REGULATORY POWERS

Judge Garth's dissent below recognizes New

Jersey's right to design and interpret its own insurance

law: “Contrary to the majority, I conclude that our

understanding of the New Jersey collateral source

statute must be informed by the New Jersey Supreme

Court's interpretation." Levine, supra, at 171. The

dissent's respect for New Jersey's sovereignty

comports with ERISA's preservation of state authority

with respect to securities, banking, and insurance. The

decision in Travelers specifically incorporates this

Court's acknowledgement of traditional spheres of state

authority even in the context of ERISA:

And yet, despite the variety of these

opportunities for federal preeminence, we have

never assumed lightly that Congress has

derogated state regulation, but instead have

16

addressed claims of pre-emption with the

starting presumption that Congress does not

intend to supplant state law .. . Indeed, in

cases like this one, where federal law is said to

bar state action in fields of traditional state

regulation, . . . we have worked on the

“assumption that the historic police powers of the

States were not to be superseded by the Federal

Act unless that was the clear and manifest

purpose of Congress."

Travelers, supra, at 654-55 (quoting Rice v. Santa Fe

Elevator Corp., 331 U.S. 218, 230 (1947)\emphasis

supplied)internal cites omitted), see also Alessi,

supra, at 522 (confirming this Court's “respect for the

separate spheres of governmental authority preserved

in our federalist system.").

The Third Circuit's decision below impedes the

State of New Jersey's legitimate right to design its own

insurance law. The Levine decision star’s contrary to

statements of New Jersey's Supreme Court in

interpreting its own law. The “presumption against

pre-emption" (Travelers, id., at 655.), when considered

with the overriding purposes of ERISA and its savings

clause, indicates the Third Circuit's impermissible

encroachment upon an area specifically reserved to the

. states under ERISA. Supplanting federal law in an

area where the individual states have particular

authority creates the risk of misinterpretation of the

state law. Levine's dissent identifies this risk and ~

states:

While the Supreme Court has held that "laws of

general application that have some bearing on

17

insurers do not quality," ... the New Jersey

collateral source statute presents the inverse

proposition -- it is a law specifically directed

towards the insurance industry that has some

bearing on non-insurers. As such, it “homes [sic]

in on the insurance industry and does ‘not just

have an impact on [that] industry’." . . . Because

the New Jersey statute had its genesis in specific

legislative action, as opposed to general

principles of tort or contract lew, the majority

opinion's reliance on Pilot Life is entirely

misplaced.

Levine, supra, at 170 (internal cites removed)(brackets

original)(quoting Miller, supra, at 334, UNUM, infra,

at 368, and Pilot Life, supra, at 50).

The savings clause specifies clearly that the

fields of banking, securities and insurance are saved

from federal ERISA preemption. 29 U.S.C. §

1144(b)(2)(A). This Court upheld state insurance

authority, in fact, even while acknowledging that such

sovereignty “creates disuniformities ..." for ERISA

plans purchasing insurance. UNUM v. Ward, 526 US.

358, 376 (fn 6)(1999). Judge Becker's dissent below

reflects (although on a variant issue) concern for the

right of New Jersey to speak of its own insurance law:

As a result, I believe that the proper course for

this Court to take would be to certify the issue of

retroactivity to the New Jersey Supreme Court.

Levine, supra, at 171.

18

While this Court made a “clean break" with the

components of the prior savings clause test, it still

preserved the preservationist theme of the McCarran-

Ferguson Act. Kentucky Ass'n, supra, at 341

(crediting the value of the McCarran-Ferquson factors

in guiding savings clause analysis) (internal cites

removed). Regulatory guidance reaffirms the solid

authority of the individual states to regulate insurance:

By providing that only State insurance law that

does not prevent the application of the

regulatory standards will be saved from

preemption, subparagraph (k)(1) preservers the

procedural protections required by the

regulation, which the Department finds essential

to the full and fair review mandated by section

503 of the act, but recognizes that States may

impose non-conflicting standards for

internal processes.

65 F.R. 70246, 70254 (Nov. 21, 2000)("Preemption of

State Law") (emphasis supplied).

Preemption standards reflecting the autonomy

of the individual states are mandated by ERISA. The

Third Circuit's decision in Levine interferes with the

manner in which New Jersey has chosen to deliver an

insurance law to its regulated community. Sound policy

is reflected in savings clause decisions which contribute

to rather than subtract from state autonomy.

CONCLUSION

The decision of the United States Court of

Appeals for the Third Circuit in Levine destabilizes

19

savings clause standards, places ERISA participants in

a position less favorable than non-ERISA insurance

consumers, and interferes with New Jersey's right to

frame its own insurance law. This matter represents an

opportunity for this Court to settle an area of law

which, until recently, was admittedly chaotic and

roiling.

Respectfully submitted,

NIEDWESKE BARBER, PC

Matthew Justin Vance

Counsel of Record

98 Washington Street

Morristown, NJ 07960

Phone: (973) 401-0064

Fax: (973) 401-0061

www.N-BLaw.com

Attorneys for Amicus Curiae

Association of Trial Lawyers of

America-NJ