Opposition Brief — Marsh ex rel. Marsh v. Allstate Life Insurance

No. 92-2020

IN THE

Supreme Court of the Gnited States

OCTOBER TERM, 1992

JONATHAN MARSH, a Minor,

by and through his Guardian Ad Litem,

Sharon Marsh,

Petitioner,

VS.

ALLSTATE LIFE INSURANCE COMPANY

OF NEW YORK,

Respondent.

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BRIEF IN OPPOSITION TO

PETITION FOR WRIT OF CERTIORARI

JOHN L. VIOLA, ESQ.

Counsel of Record

Of Counsel

MARGARET LEVY, ESQ.

Of Counsel ADAMS, DUQUE &

RALPH J. ELWART, ESQ. HAZELTINE

3100 Sanders Road 777 South Figueroa Street

Northbrook, IL 60062 Los Angeles, CA 90017

(708) 402-7435 (213) 620-1240

Attorneys for Respondent

Lawyers Brief Service * Appellate Brief Printers * (213) 613-1013 * (714) 720-1510

i.

QUESTIONS PRESENTED

1. Should this Court review the question whether,

where an ERISA welfare benefit plan expressly limits

medical expense benefits to those expenses incurred

while the group insurance policy which funds the plan is

in force, and where Congress has expressly limited the

requirement of “vested” benefits to pension plans, plan

participants have a “vested” right to benefits for ex-

penses incurred subsequent to the termination of the

policy and the expiration of any extended benefit period,

especially where the expenses stem from an accident

occurring prior to the effective date of the policy?

2. Should this Court review the question whether,

as a matter of federal common law, ambiguities in an

ERISA plan are to be construed under the rule of contra

proferentem, where the plan at issue is not ambiguous?

3. Should this Court review the question whether,

where an ERISA welfare benefit plan expressly provides

that a plan participant may elect to purchase conversion

coverage which will be in accordance with applicable

State law, and where state law provides for limited,

minimum conversion benefits, that plan participants

instead are entitled to the same level of benefits under

the conversion policy as provided under the group insur-

ance policy which funds the plan?

-

RULE 29.1 LISTING

1. Parents

Respondent Allstate Life Insurance Company of New

York is a subsidiary of Allstate Life Insurance Company,

Allstate Insurance Company, and Sears, Roebuck & Co.

2. Subsidiaries

Respondent Allstate Life Insurance Company of New

York has no subsidiaries.

TABLE OF CONTENTS

Page

Pepa EGMEWe PMEOEINIEI . . 1 wt et tt te i

Eg 6 a ii

py Ee ar Ey ys eo! yy | oh ae Vv

pememmems OF THE CASE ..........: 1

me memture Grime Case... . 1. 2c we ww 1

pp emOU PE OCH 2k tt tt 3

1. Petitioner’s Coverage Under The

oo a a a a a 3

2. The Group Policy Expressly Limits

Benefits Payable To Those Expenses

Incurred By An Insured While Cover-

eS 4

3. The Group Policy Provides Extended

Benefits Or Continued Benefits To

Individuals In Certain Circumstances_

When Their Coverage Terminates .. . 6

4. The Group Policy Provides That

Coverage May Be Converted To An

Individual Policy Which Is In Accord

With Applicable State Law. ...... Ej

C. The District Court’s Decision. ....... &

D. The Ninth Circuit’s Decision ........ i)

-iv-

REASONS WHY THE PETITION

SOUUraruae Ge BPECUTEEEED 6 bs Sis 4 ee 6 0 aS oes 10

I. THE FIRST QUESTION DOES NOT

PRESENT A QUESTION OF GEN-

oF eg te) ee 11

A. ERISA Does Not Require The

“Vesting” Of Welfare Benefits. .... 11

B. Petitioner Is Not Entitled To

“Vested” Benefits Under The

Terms Of The Group Policy ...... 13

C. Allstate Has No Liability To

Petitioner Even Under His Own

BROREy OE VOR kc ee a ew 16

D. Even State Law, Which Petitioner

Urges The Court To Adopt As

Federal Common Law, Does Not

Impose A Vesting Requirement. ... . 17

Il. THE SECOND QUESTION DOES

NOT PRESENT A QUESTION OF

GENERAL IMPORTANCE......... 21

Ill. THE THIRD QUESTION DOES NOT

PRESENT A QUESTION WHICH

SHOULD BE REVIEWED BY THIS

Se oa ee te ek ae aa ee ee 25

CES ea ea Ein hw ate alelclace lene 26

APPENDIX

Federal and State Statutes ........... A-1

src aaa

-V-

TABLE OF AUTHORITIES

Cases

Allstate Insurance Co. v. Ellison

4a9 Fae 1062 (7 CH. 1965) 2... es

Altiere v. Blue Cross & Blue Shield

SIR ae EO CPR, EOE) ok ee 6 aes

Antley v. Blue Cross/Blue Shield, Inc.

515 So.2d 1314 (Fla.App. 1987). .....

Arkansas Blue Cross & Blue Shield, Inc.

v. Foerster

38 Ark.App. 228, 832 S.W.2d 280 (1992) .

Blue Cross & Blue Shield of Florida, Inc.

v. Van Every

495 So.2d 923 (Fla. App. 1986) ......

Blue Cross - Blue Shield of Alabama

v. Turner

43 Ala.App. 542, 195 So.2d 807 (1966),

cert. denied, 280 Ala. 709,

EP eae A CEE) a. s cac wea ee es

Board of Trade v. Swiss Credit Bank

Ie? Pike 29D CO CH. UNF). ee is se

Brown v. Blue Cross & Blue Shield of

Mississippi, Inc.

427 30.20 1399 (0b6.. 1963) ie ee es

Coleman v. General Elec. Co.

643 F.Supp. 1229 (E.D. Tenn. 1986),

aff’d, 822 F.2d 59 (6th Cir. 1987) .....

Page

ear

- Vi -

Page

Danzig v. Dikman

53 N.Y.2d 926, 423 N.E.2d 402,

ue gt fT £7 e |) On ne rs 18

Duckett v. Piedmont Southern Life Ins. Co.

118 Ga.App. 3, 162 S.E.2d 531 (1968). ..... 20

Erwin v. United Benefit Life Ins. Co.

ve ume, 138, 371 P28 Fel (19)Z). ww ewe 19

Evans v. Safeco Life Ins. Co.

wre Wau 2457 oe CW. 1990) snk sc ree iz

Ewalt v. Mereen-Johnson Machine Co.

O26 .W.2e 20 (B.D. 19ST) cw a 20

Fassio v. Montana Physicians’ Service

170 Mont. 320, 553 P.2d 998 (1976). ...... 19

Fields v. Blue Shield of California

163 Cal.App.3d 570,

gon CMe. 781 (1965S). 2... wc te te ws 18

Firestone Tire & Rubber Co. v. Bruch

MBP US. 103 (1989). nn ee 22, 24

Forbau v. Aetna Life Ins. Co.

36 Tex.Sup.J. 607, 1993 Tex. LEXIS 22

et | a 19, 20

Gamble v. Connecticut General Life Ins. Co.

55 A.D.2d 838, 390 N.Y.S.2d 326 (1976) . . . .20

Guardian Life Ins. Co. v. Zerance

505 Pa. 345, 479 A.2d 949 (1984). ....... 20

- Vii -

Hamilton v. Travelers Ins. Co.

tae eae 13o0 (Ste Cir. 1965)... ees

Harrington v. Prudential Ins. Co.

477 So.2d 1272 (La.App. 1985) .......

Hebert v. Red Simpson, Inc.

544 So.2d 751 (La.App. 1989). .......

Henricks v. Metropolitan Life Ins. Co.

7 Cal.2d 619, 61 P.2d 1162 (1936). .....

Holz Rubber Co. v. American Star Ins. Co.

14 Cal.3d 45, 533 P.2d 1055,

120 Cal.Rptr. 415 (1975)... ....004.

Holzberg v. Mutual Life Ins. Co.

104 A.D.2d 972, 480 N.Y.S.2d 765 (1984),

appeal dismissed, 65 N.Y.2d 1025,

484 N.E.2d 668, 494 N.Y.S.2d 305 (1985)... .

Johnson v. G.A.B. Business Services, Inc.

165 Ga.App. 284, 300 S.E.2d 325 (1983)

Jones v. Mutual Liability Ins. Co.

336 S.W.2d 905 (Tex.App. 1960) ......

Keel v. Group Hospitalization Medical

Services, Inc.

695 F.Supp. 223 (E.D.Va. 1988). ......

Kunin v. Benefit Trust Life Ins. Co.

910 F.2d 534 (9th Cir.), cert. denied,

i ee Et eg ee eee

.20

- Vill -

Page

Le Blanc v. Travelers Ins. Co.

486 So.2d 828 (La.App. 1986). ......... 20

Lippo v. Mobil Oil Corp.

few Te, Le A) See 22

Lutsky v. Blue Cross Hospital Service, Inc.

OPS DS. W.20 Sra tho. IGS) . wc ee 18

Massachusetts v. Morash

ee Shee SE CED oe ee 6 Re Bw a eS 12

Matherne v. Prudential Ins. Co.

362, So.2d 823 (La.App. 1978). ......... 20

Mezzacappo v. Travelers Ins. Co.

523 So.2d 291 (La. App.), cert. denied,

oan ee Sie Cae. BPOE) 664 8 6 ee wee 20

Monninger v. Group Insurance Service

Center, Inc.

494 So.2d 41 (Ala. 1986) ............ 20

Moore v. Metropolitan Life Ins. Co.

856 F.2d 488 (2nd Cir. 1988) .......... 13

Myers v. Kitsap Physicians Service

78 Wash.2d 286, 474 P.2d 109(1970)...... 18

Northwestern National Life Ins. Co. v. Glenn

568 S.W.2d 693 (Tex.App. 1978)-........ 20

Pierrotti v. Life Ins. Co.

295 So.2d 826 (La.App.), cert. denied,

Eee BO.2e FPO, BOPE) 66 6 a ee ee Se 20

EEE

ieee

Quad Constr., Inc. v. Wm. A. Smith

Contracting Co.

534 F.2d 1391 (10th Cir. 1976) .......,

Record Club of America, Inc. v.

United Artists Records, Inc.

890 F.2d 1264 (2nd Cir. 1989)... .-...

Service Life Ins. Co. v. Branscum

243 Ark. 463, 352 S.W.2d 586 t's | oe

Sonneman v. Blue Cross & Blue Shield

403 N.W.2d 701 (Minn.App. 1987)... . .

Sparks v. Republic Nat. Life Ins. Co.

132 Ariz. 529, 647 P.2d 1127, cert. denied,

G59 U.S, TOPO (9982) 2 ww ts

St. Paul Fire & Marine Ins. Co. v. Purdy

129 Ga.App. 356, 199 S.E.2d 567 (1973)

Taylor v. Continental Group

933 F.2d 1227 (3rd Cir.1991)........

Thacker v. Arkansas Blue Cross & Blue Shield

761 F.Supp. 654 (W.D. Ark. a! |

Time Ins. Co. v. Williams

566 So.2d 14 (Fla.App. 1990) ........,

Turner v. Local No. 302, International

Brotherhood of Teamsters, etc.

604 F.2d 1219 (9th Cir. 1979)... 2...

Wardlow v. Kalispell General Hospital

164 Mont. 59, 518 P.2d 1164 (1974)... ..

Page

+

Page

Washer v. Continental Casualty Co.

418 S.W.2d 900 (Tex.App. 1967) ........ 19

West v. Greyhound Corp.

Sis Fam San Comm Cat. 1967). ww ce ces 12

Wulffenstein v. Deseret Mutual Benefit Assoc.

Gli P.26 360 (UteR 1900) .. wi ct 20

Federal Statutes

oP les OE 6 eK eK Re ee ee 12

Be Ub © UGGAMOD 6 nt te 12

et is Se ORE “Ga sg 6 hw ke A ee + * 7k 12

ao Um. OG TOGR(1}, 19661(8) 2 ww tt ss 12

29 U.S.C. §§ 1051-61, 1081-86. ........... ia

iP tee BOD a <4 wa es we ce 12

ee es ee BE gc 4s we sk ease eee es 2

29 U.S.C §§ 1161-1168 (“COBRA”) ....... 2, 26

rg eae ee ra la Rtg 1 ae ta 4

et Se BD 6 ne aks ee Rk ee a ee 26

State Statutes

California Civil Code

i a a ag ha eG ai eae ee ee ke 2 aed 23

BS reer arr ee ee ee 23

California Insurance Code

8. & Saree ee ee eee ee 17,18

AS a7 ko Pak uA cp Ye a ek Re ee 25

ES bd as aaa) age Mie ae Pee ae. ek ke 26

OB: Paar oe ee ee ee 18

el

- xi -

Page

Treatises

3 Corbin, Contracts, §§ 542, 542A, 543,579... .. 22

Restatement (Second) of Contracts, §§ 212(1)

and comment b, 202(1), 212(2) ......... 22

Restatement (Second) of Trusts, §164........ 22

Supreme Court Rule 10.1. ...........2.. .25

No. 92-2020

In The

SUPREME COURT OF THE UNITED STATES

October Term, 1992

JONATHAN MARSH, a Minor,

by and through his Guardian Ad Litem,

Sharon Marsh,

Petitioner,

VS.

ALLSTATE LIFE INSURANCE COMPANY

OF NEW YORK,

Respondent.

BRIEF IN OPPOSITION TO

PETITION FOR WRIT OF CERTIORARI

Respondent, Allstate Life Insurance Company of New

York (“Allstate”), respectfully requests that this Court

deny the Petition for Writ of Certiorari seeking review of

the Ninth Circuit’s decision in this case. The decision is

unpublished.

STATEMENT OF THE CASE

A. Nature Of The Case

Petitioner commenced this action against Allstate to

obtain benefits under the group insurance policy at issue

for medical expenses incurred by him after his father

.

voluntarily terminated coverage under the policy for

himself and his dependents, including Petitioner, after

his father voluntarily prematurely terminated Petitioner’s

right to receive continuation benefits pursuant to the

Consolidated Omnibus Budget Reconciliation Act of

1985, 29 U.S.C §§ 1161-1168 (“COBRA”), and after

Petitioner’s twelve month extension of benefits under

the policy ran out.

Petitioner’s claim is based on the concept of “vest-

ing,” a concept developed for accident and occurrence

type insurance policies but having no application to

medical expense policies, such as the policy at issue

here. Moreover, even if the “vesting” theory were appli-

cable here — and it is not — the accident or occurrence

giving rise to Petitioner’s alleged vested rights occurred

over three years before the effective date of the Allstate

policy. Indeed, the accident or occurrence took place

when the insurance coverage of another insurer sued by

Petitioner was in force. Accordingly, even if benefits

“vested,” they did not vest with respect to Allstate.

Faced with the fact that his coverage had been volun-

tarily terminated and that he was no longer insurable due

to his serious medical condition, Petitioner brought this

action under and pursuant to ERISA against Allstate and

two other insurers which had previously insured the .

employee benefit plan at issue, the Equitable Life Assur-

ance Society of the United States (“Equitable”) and

Travelers Insurance Company (“Travelers”). Petitioner,

however, up to the present has only pursued his claims

as against Allstate; the action has been stayed as against

Equitable and Travelers pending final resolution of

Petitioner’s claims against Allstate.

a

B. Statement Of Facts

1. Petitioner’s Coverage Under

The Group Policy

Petitioner, the dependent son of Richard V. Marsh, an

employee of Marsh Broadcasting, alleges that he suf-

fered a serious accident in 1982 which rendered him

totally disabled. [CR 1, 19.] By this lawsuit, he seeks

payment of benefits for medical expenses incurred by

him on or after May 1, 1990 and to be incurred by him in

the future as a result of that 1982 accident.

Marsh Broadcasting provided medical expense insur-

ance to its employees (and their dependents) by joining

together with other companies to procure health insur-

ance for their employees by association with Universal

Broadcasting Corporation (“Universal”). Universal, in

turn, procured insurance for the employees of its

members from Equinet Small Group Network Trust

(“Equinet”). [CR 1, 9 4.]

At the time of Petitioner’s accident, in 1982, he was

covered for and received benefits as a dependent under a

policy issued by Equitable to Equinet. Subsequently,

Equinet replaced the Equitable policy with a policy

issued by Travelers. Equinet later replaced the Travelers

policy with Allstate’s Group Policy No. 64700289 (the

“Group Policy”), issued to Equinet effective April 10,

1986. [CR 1, 9 4.]

Because Petitioner was receiving benefits under an

extension of benefits pursuant to the policy issued by the

predecessor insurer (Travelers), Allstate did not begin

providing benefits to Petitioner until on or about January

1, 1988, almost six years after the swimming pool acci-

dent for which Petitioner seeks “vested benefits.” [CR

1,99 12, 13.]

~~ =

Richard V. Marsh voluntarily terminated his (and

Petitioner’s) coverage under the Allstate Group Policy

effective April 30, 1988. Mr. Marsh subsequently

elected and Petitioner received continuation benefits

pursuant to COBRA until April 30, 1989, when

Mr. Marsh voluntarily terminated that coverage some six

months before it otherwise would have expired.’ [CR

29, p. 56, 13; 29 U.S.C. § 1162 (individual may elect up

to 18 months of COBRA continuation coverage).] Then,

after the voluntary termination of Petitioner's COBRA

coverage on May 1, 1989, Allstate continued to provide

benefits to Petitioner under the Extension of Benefits

provision of the Group Policy. The extension expired on

May 1, 1990. [CR 29, p. 56, 7 3.]

Richard V. Marsh elected to purchase conversion

coverage for his family, including Petitioner, upon ter-

mination of his coverage under the Group Policy. [CR

29, pp. 33-34.]

2. The Group Policy Expressly

Limits Benefits Payable To

Those Expenses Incurred By

An Insured While Coverage Is

In Effect.

The Group Policy expressly limits the medical ex-

pense benefits available to “Eligible Expenses” incurred

while an individual is insured:

. Although Petitioner claims that Allstate unilaterally terminated the

group coverage [Petition, p. 5], there is absolutely no support in the

record for this claim. Rather, as the District Court found, Mr. Marsh

voluntarily terminated Petitioner’s coverage under the Group Policy.

[See, Petition, Appendix E, p. 38; CR 8, p. 34, 13.]

RU ic i i as i a i a a la ana us ema

+

“MEDICAL BENEFIT

The Medical Benefit is paid for Eligi-

ble Expenses incurred for an Injury or

Sickness while insured.” ‘ccR 29,

p. 69 (emphasis added). ]

“Eligible Expense” is defined as meaning “the following

types of Expense incurred for an Injury or Sickness

while insured . . .” [CR 29, p. 71 (emphasis added). ]

Further, the Group Policy defines “Expense” to mean:

“a charge a person is legally obligated

to pay. ‘Expense’ is deemed to be

incurred on the date the service or

supply is furnished....” [CR 29,

p. 82 (emphasis added). ]

Finally, the Group Policy defines when coverage

terminates as follows:

“TERMINATION OF INSURANCE

EMPLOYEES’ INSURANCE

Subject to the Continuance of Insur-

ance provision, your insurance ends

when the first of these events takes

place:

* the date the group policy ...

ends...

The end of insurance will not affect

any claim for a loss that took place

while the insurance was in force... .”

A similar provision applies to dependents’ insurance.

[CR 29, pp. 64-65. ]

Thus, the Group Policy provides benefits only for

expenses incurred while coverage is in force; it does not

provide benefits for expenses incurred after termination

=

of coverage, unless, as indicated below, the individual is

entitled to continued or extended benefits.

3. The Group Policy Provides

Extended Benefits Or Contin-

ued Benefits To Individuals In

Certain Circumstances When

Their Coverage Terminates.

The Group Policy provides additional, limited bene-

fits to individuals who. are totally disabled when their

coverage would otherwise terminate.

In the case of the termination of the Group Policy, a

one year extension of benefits is provided where an

individual is totally disabled:

“EXTENSION OF BENEFIT

We will pay the Medical Benefit after

a person’s insurance ends, if:

¢ the person is Totally Disabled

on the day the insurance ends;

* the person stays’ Totally

Disabled until the Expense is

incurred;

* the Expense is directly related

to the Total Disability;

* the Expense is incurred within

12 months after the day the

insurance ends; and

* the person has not become

insured by another group plan

offering essentially the same

coverages.” [CR 29, p. 75

(emphasis added). ]

. -

Further, the Group Policy also provides that coverage

may be continued if an employee is on a leave of ab-

sence or temporary layoff, for a period of no longer than

six months. [CR 29, p. 65.]

And, regardless of whether coverage is extended or

continued, the Group Policy provides a medical conver-

sion privilege under which an insured whose coverage

terminates because the Group Policy ends may elect to

purchase an individual policy from Allstate without

evidence of insurability. [CR 29, p. 81.]

4. The Group Policy Provides

That Coverage May Be Convert-

ed To An Individual Policy

Which Is In Accord With Appli-

cable State Law.

The Group Policy provides that:

“A person whose medical Expense

Insurance ends may be eligible to buy

health insurance coverage from us...

“The form, benefits provided, pre-

mium and other terms of the conver-

sion coverage will be in accord with

all state laws and regulations which

apply.” [CR 29, p. 81.]

Pursuant to an enrollment form submitted to it by

Mr. Marsh, Allstate Life Insurance Company enrolled

Mr. Marsh and his family, including Petitioner, under its

policy number 64400200 effective May 1, 1989 (the

“Conversion Policy”). [CR 29, p. 34, 1 6.]

Although Petitioner claims that Mr. Marsh “detrimen-

tally relied” on the Group Policy’s “implicit promise”

that the Conversion Policy would provide benefits

o>

equivalent to those provided under the Group Policy

[Petition, pp. 36-44], there is no support in the record for

this claim. Mr. Marsh did not even know that a conver-

sion policy was available until informed by Allstate that

it intended to terminate the extended benefits being

provided to Petitioner. [CR 2, p. 21]. Thus, contrary to

Petitioner’s claims [Petition, p. 43], Mr. Marsh could not

have relied on an assumption that the conversion cover-

age would be equal to the group coverage until after the

termination of the group coverage.

C. The District Court’s Decision

Based on the express terms of the policy, the District

Court, construing the entire policy, held that the Group

Policy expressly limits benefits to expenses incurred

while the policy is in effect and that Petitioner does not

have a right to “vested” benefits. It therefore granted

Allstate’s motion for summary judgment. [Petition,

Appendix E.]

In ruling in favor of Allstate, the District Court cor-

rectly noted that while the concept of “vesting” typically

arises in the context of accident or casualty policies,

under which liability is triggered by a “happening” or

“occurrence,” the Allstate Group Policy is a medical

expense policy, under which liability is triggered by the

“accru?! of a medical expense.” [Petition, Appendix E,

pp. 41-42.] Under medical expense policies, the Court

held, “an insured’s right to benefits does not ‘vest’ at the

occurrence of an injury.” [/d. at 42.] Moreover, the

Court noted that “it would be illogical to hold [that]

[Petitioner’s] rights ‘vested’ with Allstate in 1982 when,

in point of fact, Allstate was not even the carrier at the

time of [Petitioner’s] accident.” [/d.]

a.

With respect to the conversion policy issue, the Dis-

trict Court found that there was no evidence to support

Petitioner’s claim that Mr. Marsh relied on any portion

of the Group Policy with respect to his understanding as

to the scope and level of conversion benefits. [Petition,

Appendix E, pp. 58-59.]

D. The Ninth Circuit’s Decision

The Ninth Circuit, in an unpublished Memorandum

Decision filed January 22, 1992, affirmed the District

Court’s decision.

In doing so, the Court, applying the normal rules of

contract construction, interpreted the Group Policy as a

whole and found that it “unambiguously precludes the

vesting of benefits ...” [Petition, Appendix A, pp.

10-11.]

The Court also rejected Petitioner’s argument with

respect to the Conversion Policy. The Court held that

“nothing in the [Group] Policy implies that [Petitioner]

. Should receive the same benefits under the conver-

sion policy as he did under the [Group] Policy”; that

Petitioner “has pointed to nothing in the [Group] Policy

that would have caused a reasonable person to draw such

inference”; and that Petitioner “has [not] offered any

evidence that he held such belief and relied on it.” [Peti-

tion, Appendix A, p. 10.]

By order filed March 17, 1993, the Ninth Circuit

denied Petitioner’s petition for rehearing and rejected

the suggestion for rehearing en banc. [Petition, Appen-

dix B.]

—

REASONS WHY THE PETITION

SHOULD BE DENIED

The Petition for Writ of Certiorari should be denied.

In the first question, Petitioner urges this Court to

ignore the plain wording of the contract and do that

which Congress has refused to do, Le., adopt a rule

requiring “vesting” for employee welfare benefit plans.

This case does not properly raise that question, however.

Rather, as both the District Court and the Ninth Circuit

recognized, the plan language at issue is very detailed,

specific and unique and unambiguously precludes vest-

ing. Moreover, even if the plan language were ambigu-

ous — and it is not — the “loss” allegedly giving rise to

Petitioner’s alleged right to “vested” benefits took place

some three and one-half years before the policy was in

force. This Court should not review a question which

turns on the alleged ambiguity of a plan which in fact is

not ambiguous and which, even if read in Petitioner’s

favor, would not result in a finding of “vested” benefits

under the facts and circumstances of the case.

Similarly, the second question also is not properly

raised by this case. The rule of contra proferentem that

Petitioner urges the Court to establish construes insur-

ance policies such that ambiguities are construed against

the insurance company. Again, since the policy at issue

simply is. not ambiguous, and, even if it were, would still

not require a finding in Petitioner’s favor, the Court need

not reach this question.

Finally, via the third question, Petitioner would have

this Court step in and rewrite not only the policy, but

State laws regarding conversion policy benefits. The

Court should not do so.

wees

Thus, this case turns on the specific wording of a

number of very detailed, specific and unique provisions

in the insurance policy at issue. The inquiry is highly

fact specific. Although the questions presented by the

Petition are important to the parties, there is no public

importance associated with their outcome and the ques-

tions are not of sufficient importance to warrant review

by this Court.

THE FIRST QUESTION DOES

NOT PRESENT A QUESTION OF

GENERAL IMPORTANCE:

The first question presented by the Petition is whether

where the Group Policy expressly limits medical~ex-

pense benefits to those expenses incurred while the

policy is in force, and where Congress has expressly

required “vested” benefits only for pension plans, this

Court should rewrite the Group Policy, override Con-

gress’ legislation in this area, and establish federal law

providing for the “vesting” of benefits under welfare

benefit plans. In essence, Petitioner would have the

Court find ambiguity where none exists and rewrite

ERISA in a manner in which Congress has refused.

A. ERISA Does Not Require The “Vest-

ing” Of Welfare Benefits.

ERISA specifically draws a distinction between

“employee pension benefit plans” (which provide pen-

sion benefits which, by definition, vest for future

availability) and “employee welfare benefit plans”

(which provide, among other things, medical expense

o 12-

benefits during the period coverage exists). Compare 29

U.S.C. § 1002(1) with § 1002(2)(a). Congress included

both pension and welfare plans in ERISA’s reporting and

disclosure requirements, 29 U.S.C. §§ 1021-1031, and

standards of fiduciary conduct governing plan admin-

istration, 29 U.S.C. §§ 1101-4. ERISA, moreover,

assures the protection of vested pension benefits by

prescribing participation requirements, funding require-

ments, and vesting and accrual schedules, 29 U.S.C.

§§ 1051-61, 1081-86, and by providing that an em-

ployee’s right to his or her normal retirement benefit

shall be “nonforfeitable,” 29 U.S.C. § 1053(a). Con-

gress, however, expressly excluded welfare plans from

ERISA’s participation and vesting and funding require-

ments. 29 U.S.C. §§ 1051(1), 1081(a).

As this Court stated in Massachusetts v. Morash, 490

U.S. 107, 119 (1989):

“... ERISA’s vesting and funding

requirements do not apply to welfare

benefit plans .. .”

Similarly, in West v. Greyhound Corp., 813 F.2d 951,

954 (9th Cir. 1987), the Court held that:

“ERISA ... expressly exempts em-

ployee welfare benefit plans from the

sections concerned with vesting and

accrual. 29 U.S.C. §1051(1). While

ERISA, in 29 U.S.C. §1322, also

guarantees the payment of all non-

forfeitable benefits, this protection is

applicable only to pension, stock

bonus or profit-sharing plans. 29

U.S.C. §1321(a); 26 U.S.C. §401(a).

There is no language in ERISA which

provides for the accrual of welfare

benefits or guarantees that such

= #6.

benefits are vested or nonforfeitable.”

(Emphasis added.)

Numerous other courts have agreed that ERISA does not

require the “vesting” of benefits under welfare benefit

plans. See, e.g., Moore v. Metropolitan Life Ins. Co.,

856 F.2d 488, 491 (2nd Cir. 1988); Turner v. Local No.

302, International Brotherhood of Teamsters, etc., 604

F.2d 1219, 1225 n.5 (9th Cir. 1979); Coleman v. General

Elec. Co., 643 F.Supp. 1229 (E.D. Tenn. 1986), aff'd,

822 F.2d 59 (6th Cir. 1987).

Accordingly, since ERISA does not require the “vest-

ing” of medical expense benefits, “vesting” should not

be read into a plan, as Petitioner attempts to do here,

unless the plan explicitly and unambiguously so

provides.” As discussed below, the plan at issue simply

does not provide for the vested benefits Petitioner seeks.

And, even if it did so provide, Allstate was not even the

insurance carrier at the time of the accident or occur-

rence giving rise to Petitioner’s alleged vested rights.

B. Petitioner Is Not Entitled To

“Vested” Benefits Under The Terms

Of The Group Policy.

Petitioner bases his claim to “vested” benefits on a

reading of isolated phrases in the Group Policy. An

analysis of the entire policy, however, reveals that

Petitioner’s claims are misplaced and that the Group

Policy does not provide the “vested” benefits he seeks.

2 Petitioner’s claim that “[i]n the court below, Allstate argued that

. vesting could not be applied to an employee welfare benefit

plan” [Petition, p. 29] is incorrect. In fact, Allstate’s argument in

the Ninth Circuit on this score was identical to the position set forth

by Allstate in this Brief in Opposition.

ota»

Under the express terms of the Group Policy, an indi-

vidual is entitled to medical benefits only for expenses

incurred while the policy is in force. In particular, the

Group Policy provides:

“The Medical Benefit is paid for Eligi-

ble Expense incurred for an Injury or

Sickness while insured.” (Emphasis

added.)

The clear intent of this language was to provide cover-

age only with respect to expenses incurred while the

policy was in force. That intent was further clarified by

the provision of the Group Policy stating that an indi-

vidual’s insurance ends on the date of termination of the

policy:

“Your insurance terminates ... the

date the Group Policy . . . ends.”

The phrasing of the Group Policy not only provides

for benefits for covered medical expense charges in-

curred by an insured individual “while insured,” but it

also extends coverage beyond termination only for a

limited time period, and only in limited circumstances,

under the Extension of Benefits and Continuance of

Insurance provisions.

Thus, when the Group Policy is read as a whole, it

provides only for limited post-termination benefits. If

Petitioner’s claim that he is entitled, after termination of

Group Policy coverage, to benefits for expenses incurred

after termination, is correct, it would render the Exten-

sion of Benefits and Continuance of Insurance provi-

sions meaningless.

In the face of this clear language, Petitioner contends

that one phrase in the Group Policy, when viewed in

isolation, provides him with a right to “vested” benefits.

~

Lae.

The phrase upon which Petitioner relies is “The end

of insurance will not affect any claim made for a loss

that took place while the insurance was in force.”

According to Petitioner, this provision means that ter-

mination of the policy will not affect claims for eligible

expenses incurred after the termination of the policy for

injury or sickness that occurred while the policy was in

force. [Petition, pp. 9-14.]

To reach this result, however, Petitioner would ignore

those portions of the Group Policy limiting benefits to

expenses incurred while the policy is in effect and limit-

ing benefits available post-termination to continued and

extended benefits. Indeed, it is submitted that even when

viewed in isolation the provision at issue does not give

rise to “vested” benefits. Instead, by its plain terms, the

provision merely states that the termination of coverage

will not affect claims for expenses incurred prior to

policy termination. This reading is reinforced by the

fact that the provision is found in the general, “Insuring

Provisions” section of the policy, which applies to life

and accidental death insurance benefits as well as to

> Petitioner’s claim that Allstate “itself admitted in its Opposition to

the Preliminary Injunction [that] this [provision] is a classic ‘vest-

ing’ provision” [Petition, p. 9], is nothing but wishful thinking. In

fact, the record, which Petitioner has conveniently ignored through-

out the Petition, indicates that Allstate merely observed that the

provision in question refers to the situation where, under the

“Accidental Death and Dismemberment Benefit” portion of the

Group Policy, benefits are payable if the specific loss in question,

i.e., death or loss of a limb or an eye, occurs within 90 days of an

accident. [See CR 8, p. 17, n.3.] Allstate made this observation

because, as the District Court noted, in the context of an accident

policy the event giving rise to liability is an accident or occurrence,

whereas in medical expense policies, the “event” giving rise to

liability is the incurring of medical expenses. [See Petition, Appen-

dix E, pp. 41-43, pp. 62-63, endnote 6.]

; - 16-

medical expense insurance benefits. In this regard the

provision operates, for example, to provide that acciden-

tal death benefits will be paid if the specific loss in

question, t.e., death or loss of limb or an eye, occurs

within 90 days of an accident. [CR 29, p. 53.]

Petitioner attempts to subvert the plain language of

the policy by inventing a new provision. Under

Petitioner’s “new and improved” version of the policy,

even though the Group Policy requires that an expense

be incurred “while insured” for benefits to be payable,

the insured remains “insured” because benefits have

“vested.” [Petition, pp. 12-13.] This argument is pure

sophistry. The very issue in this case is whether the

insured remains “insured” because benefits have

“vested.” Petitioner attempts, by this tortured construc-

tion, to “overlook the obvious”; if insurance was still “in

force” as he claims, this case would never have arisen.

Thus, under the express terms of the Group Policy,

benefits are limited to those expenses incurred while the

policy is in effect and during any period of extended

benefits.

C. Allstate Has No Liability To Peti-

tioner Even Under His Own Theory

of “Vesting.”

Even assuming, for the sake of argument,_ that

Petitioner’s construction of the Group Policy is correct,

Allstate has no liability to Petitioner for “vested”

benefits.

Again, the language which Petitioner claims gives rise

to his “vested” rights is as follows:

eats

“[t]he end of insurance will not affect

any claim for a loss that took place

while the insurance was in force.”

Here, the alleged “loss” at issue is Petitioner’s 1982

Swimming pool injury. That “loss” did not occur while

the Group Policy was in force, but rather, some 3-1/2

years before the Group Policy was in force and during

coverage by a prior carrier, which carrier is also a defen-

dant in the action. As noted above, Allstate’s Group

Policy does not provide benefits for events occurring

prior to the date it was in effect. If benefits have

“vested,” as Petitioner contends, then they have vested

with respect to the carrier whose policy was in force at

the time of the “loss,” and not with respect to Allstate.

This other carrier, in fact, is a named defendant in

Petitioner’s Complaint. [CR 1.]

D. Even State Law, Which Petitioner

Urges The Court To Adopt As Fed-

eral Common Law, Does Not Im-

pose A Vesting Requirement.

Not only does ERISA not impose a vesting require-

ment and not only does the Group Policy not provide for

vested benefits, but even state law, which Petitioner

urges the Court to adopt as federal common law [Peti-

tion, pp. 24-29], does not impose a vesting requirement.

California law, for example, expressly negates the

existence of the “vested rights” which Petitioner claims.

California Insurance Code section 10128.2, entitled

“Extension of benefits; discontinuance of policy,” pro-

vides a 12 month extension of benefits period for em-

ployees or dependents who become totally disabled

while insured under the policy and who continue to be

totally disabled upon the termination of the policy.

— e

In addition, California Insurance Code section 12692

provides a 90-day extension of benefits period in certain

circumstances where the section 10128.2 continuance is

not applicable.

California law, therefore, expressly defines the post-

termination benefits that an insurance company must

make available to individuals when their group coverage

terminates.

Further, although Petitioner claims that “[vJesting of

medical and health insurance benefits has been adopted

as a rule of law in numerous states” [Petition, p. 24], a

review of the cases cited by Petitioner for this proposi-

tion reveals that they are based upon elements or factors

not present here, t.e., ambiguous policy language;* the

reasonable expectations of the insured;~ modifications

of policy language to exclude or limit coverages of ex-

penses stemming from illnesses or Gisease commencing

under more expansive policy language;° policies insur-

ing the individuals for accidents occurring during the

policy period; ’ policies expressly providing that charges

4 Wardlow v. Kalispell General Hospital, 164 Mont. 59, 518 P.2d

1164 (1974); Lutsky v. Blue Cross Hospital Service, Inc., 695

S.W.2d 870 (Mo. 1985); Danzig v. Dikman, 53 N.Y.2d 926, 423

N.E.2d 402, 440 N.Y.S.2d 925 (1981); Myers v. Kitsap Physicians

Service, 78 Wash.2d 286, 474 P.2d 109 (1970); Sparks v. Republic

Nat. Life Ins. Co., 132 Ariz. 529, 647 P.2d 1127, cert. denied, 459

U.S. 1070 (1982).

> Brown v. Blue Cross & Blue Shield of Mississippi, Inc., 427 So.2d

139 (Miss. 1983); Myers v. Kitsap Physicians’ Service, supra.

© Fields v. Blue Shield of California, 163 Cal.App.3d 570, 209

Cal.Rptr. 781 (1985); Danzig v. Dikman, supra.

7 Service Life Ins. Co. v. Branscum, 243 Ark. 463, 352 S.W.2d 586

(1962).

-19-

incurred after termination would be covered;® and poli-

cies covering specific conditions beginning during the

policy period.”

Indeed, one of the cases cited by Petitioner, Fassio v.

Montana Physicians’ Service, 170 Mont. 320, 553 P.2d

998 (1976), held that the rule of vesting was not applica-

ble to a medical expense policy, such as the Group

Policy involved in this case. In addition, while Peti-

tioner lists the State of Texas as being a jurisdiction

which has adopted vesting as “a rule of law” [Petition,

pp. 24, 26], he fails to inform the Court of the Supreme

Court of Texas’ recent decision in Forbau v. Aetna Life

Ins. Co., 36 Tex.Sup.J. 607, 1993 Tex. LEXIS 22 (May

5, 1993), in which the court rejected plaintiff’s argument

that she was entitled to plan benefits beyond the one

year extension of benefits period provided by the policy

after cancellation of the policy.

Moreover, the vast majority of cases dealing with this

issue have rejected Petitioner’s “vesting” argument and

have held that a group health insurer is not required to

provide coverage in connection with expenses for in-

juries suffered before the policy is terminated where the

expenses are incurred after termination. The courts’

reasoning is generally premised on two factors, both of

which are present here: (1) that such policies expressly

State that coverage terminates on the date the policy

terminates; and, (2) that the policies provide express

provisions detailing the circumstances wherein coverage

8 Erwin v. United Benefit Life Ins. Co., 70 N.M. 138, 371 P.2d 791

(1962); Washer v. Continental Casualty Co., 418 S.W.2d 900

(Tex.App. 1967).

9 Blue Cross - Blue Shield of Alabama v. Turner, 43 Ala.App. 542,

195 So.2d 807 (1966), cert. denied, 280 Ala. 709, 195 So.2d 814

(1967).

= 99<

will be provided after termination of the policy, i.e., an

extension or continuation of benefits.!°

Indeed, many courts base their conclusion that there is

no “vested” right to continued coverage solely on the

first factor.’

- See, e.g., Monninger v. Group Insurance Service Center, Inc.,

494 So.2d 41 (Ala. 1986); Blue Cross & Blue Shield of Florida, Inc.

v. Van Every, 495 So.2d 923 (Fla. App. 1986); Mezzacappo v.

Travelers Ins. Co., 523 So.2d 291 (La. App.), cert. denied, 531

So.2d 473 (La. 1988); Pierrotti v. Life Ins. Co., 295 So.2d 826

(La.App.), cert. denied, 299 So.2d 790 (La. 1974); Sonneman v. Blue

Cross & Blue Shield, 403 N.W.2d 701 (Minn.App. 1987); Gamble v.

Connecticut General Life Ins. Co., 55 A.D.2d 838, 390 N.Y.S.2d

326 (1976); Guardian Life Ins. Co. v. Zerance, 505 Pa. 345, 479

A.2d 949 (1984); Forbau v. Aetna Life Ins. Co., supra; Northwestern

National Life Ins. Co. v. Glenn, 568 S.W.2d 693 (Tex.App. 1978);

Jones v. Mutual Liability Ins. Co., 336 S.W.2d 905 (Tex.App. 1960).

il See, e.g., Hamilton v. Travelers Ins. Co., 752 F.2d 1350 (8th Cir.

1985); Thacker v. Arkansas Blue Cross & Blue Shield, 761 F.Supp.

654 (W.D. Ark. 1991); Keel v. Group Hospitalization Medical

Services, Inc., 695 F.Supp. 223 (E.D.Va. 1988); Altiere v. Blue

Cross & Blue Shield, 551 So.2d 290 (Ala. 1989); Arkansas Blue

Cross & Blue Shield, Inc. v. Foerster, 38 Ark.App. 228, 832 S.W.2d

280 (1992); Time Ins. Co. v. Williams, 566 So.2d 14 (Fla.App.

1990); Johnson v. G.A.B. Business Services, Inc., 165 Ga.App. 284,

300 S.E.2d 325 (1983); St. Paul Fire & Marine Ins. Co. v. Purdy,

129 Ga.App. 356, 199 S.E.2d 567 (1973); Duckett v. Piedmont

Southern Life Ins. Co., 118 Ga.App. 3, 162 S.E.2d 531 (1968);

Antley v. Blue Cross/Blue Shield, inc., 515 So.2d 1314 (Fia.App.

1987); Hebert v. Red Simpson, Inc., 544 So.2d 751 (La.App. 1989);

Le Blanc v. Travelers Ins. Co., 486 So.2d 828 (La.App. 1985);

Harrington v. Prudential Ins. Co., 477 So.2d 1272 (La.App. 1985);

Matherne v. Prudential Ins. Co., 362 So.2d 823 (La.App. 1978);

Holzberg v. Mutual Life Ins. Co., 104 A.D.2d 972, 480 N.Y.S.2d 765

(1984), appeal dismissed, 65 N.Y.2d 1025, 484 N.E.2d 668, 494

N.Y.S.2d 305 (1985); Ewalt v. Mereen-Johnson Machine Co., 414

N.W.2d 28 (S.D. 1987); Wulffenstein v. Deseret Mutual Eenefit

Assoc., 611 P.2d 360 (Utah 1980).

~~

Accordingly, Petitioner’s argument that this Court

should adopt a “vesting” rule as federal common law for

ERISA plans is fatally flawed. The express terms of the

policy at issue, federal and state legislation and case law

all do not provide Petitioner with the “vested” rights he

implores this Court to establish. Further, even if the

Court were to establish such a rule, it would not apply to

Petitioner because the accident in question occurred

prior to the effective date of Allstate’s policy. The

Court, therefore, should not review the first question.

Il.

THE SECOND QUESTION DOES

NOT PRESENT A QUESTION OF

GENERAL IMPORTANCE

The second question presented by the Petition is

whether as a matter of federal common law ambiguities

in an insurance policy issued to an ERISA plan are to be

construed under the rule of contra proferentem. Peti-

tioner also appears to propose a different rule of con-

struction for insured as opposed to self-funded ERISA

plans, and perhaps state a third rule for claims under

self-funded plans with stop-loss insurance coverage.

This question is not of sufficient importance to war-

rant review by this Court. Rather, this case does not

properly present this question because, as noted above,

there is no ambiguity in the plan at issue.

As shown below, Petitioner confuses the difference

between rules of interpretation, which seek the parties’

intent, and contract rules of construction, which are

applied only if the intent cannot be determined. Under

the law of trusts, which is incorporated in ERISA, the

plan documents must be read by the plan administrator

o 22s

not under the contract doctrine of contra proferentem,

but in light of all the circumstances, including the set-

tlor’s intent. Firestone Tire & Rubber Co. v. Bruch, 489

U.S. 101, 109 (1989); Restatement (Second) of Trusts,

§ 164. The same is true under the law of contracts.

Restatement (Second) of Contracts, §§ 212(1) and com-

ment b, 202(1), 212(2); 3 Corbin, Contracts, §§ 542,

542A, 543, 579.

It is submitted that terms in ERISA _ insurance

policies, just like terms in non-ERISA_ insurance

policies, are to be interpreted in light of the settlor’s

intent and “in an ordinary and popular sense as would a

[person] of average intelligence.... We will ‘not artifi-

cially create ambiguity where none exists.’... ‘If a

reasonable interpretation favors the insurer and any other

interpretation would be strained, no compulsion exists to

torture or twist the language of the policy.’ ” Evans v.

Safeco Life Ins. Co., 916 F.2d 1437, 1441 (9th Cir.

1990) (citations omitted), quoting Allstate Insurance Co.

v. Ellison, 757 F.2d 1042, 1044 (9th Cir. 1985).

Contra proferentem is not applied under contract law

except as a constructional tool of last resort when the

parties’ intent cannot be determined. Taylor v. Conti-

nental Group, 933 F.2d 1227, 1233-34 (3rd Cir. 1991);

Record Club oj America, Inc. v. United Artists Records,

Inc., 890 F.2d 1264, 1271 (2nd Cir. 1989); see also,

Lippo v. Mobil Oil Corp., 776 F.2d 706, 714 n. 15 (7th

Cir. 1985); Quad Constr., Inc. v. Wm. A. Smith Contract-

ing Co., 534 F.2d 1391, 1394 (10th Cir. 1976). Judge

(now Justice) Anthony M. Kennedy summed up this

point as follows: |

“A rule for construing contracts

against the author is not an alternative

to construing it as the parties in-

tended. It is to be applied after the

-

court has inquired into the intent of |

the parties, and then only if its mean-

ing remains uncertain.”

Board of Trade v. Swiss Credit Bank, 597 F.2d 146, 149

(9th Cir. 1979).

Indeed, under any rule of interpretation, be it federal

law, California law, or the law of some other jurisdic-

tion, the Court must apply certain rules of interpretation

to ascertain the intent of the parties to a contract prior to

using a rule of construction, such as the one resolving

ambiguity against the drafting party. See, e.g., Califor-

nia Civil Code §§ 1636, 1654. These rules require the

Court to construe the contract as a whole, not in isolated

parts, so as to give effect to every provision. See, e.g.,

California Civil Code § 1641. Whenever reasonably

possible, meaning must be given to every sentence,

clause and word, so as to avoid rendering parts of a

policy inoperative. Holz Rubber Co. v. American Star

Ins. Co., 14 Cal.3d 45, 533 P.2d 1055, 120 Cal.Rptr. 415

(1975). A construction which would give effect to one

sentence of a policy, but completely ignore an entire

paragraph dealing with the same subject matter, is not

required by the rule, espoused by Petitioner, that an

insurance policy should be liberally construed in favor

of the insured. Henricks v. Metropolitan Life Ins. Co.,-7

Cal.2d 619, 631, 61 P.2d 1162 (1936).

The proper application of the rules of contract inter-

pretation leads to the conclusion that Petitioner has no

right to benefits under the Group Policy for expenses

incurred by him after termination of coverage. !*

12 it is especially important that these rules be applied in determin-

ing whether medical expense benefits “vest” under employee welfare

benefit plans. It would be anomalous to utilize state common law

rules of construction to bring in, via the “backdoor,” a mandated

(continued)

-24-

Indeed, the terms of the Group Policy are not even

ambiguous under the very case relied on by Petitioner

for this proposition, Kunin v. Benefit Trust Life Ins. Co.,

910 F.2d 534 (9th Cir.), cert. denied, 498 U.S. 1013

(1990). Even the Kunin court recognized that the rule of

contra proferentem is applied only “if after applying the

normal principles of contractual construction, ‘the insur-

ance contract is fairly susceptible of two different inter-

pretations ...’” Jd. at 539 (citation omitted). More-

over, the Kunin court itself proceeded to analyze the

entire policy at issue in that case, not just an isolated

phrase or phrases, id. at 541, as Petitioner would have

this Court do here. Only because it determined that it

could not cure the ambiguity of a term by reference to

the plan as a whole did the Kunin court apply the rule of

contra proferentem. [Id. at 541.]

In his attempt to somehow, someway, obtain a benefit

for which he did not bargain and which Congress refused

to grant, Petitioner ignores this Court’s ruling in Fires-

tone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989),

that in construing the terms of the policy, the Court must

seek out the intent of the trustor. The Court should not,

as Petitioner urges it to do, construe the policy in an

effort to find ambiguities where none exist and to con-

Strue them against the drafter. The Court may not prefer

one party’s interpretation over that of another.

What Petitioner is really seeking is the right to ignore

both well-established state common law rules of contract

interpretation and this Court’s rules regarding the con-

struction of ERISA plans and instead read an isolated

word or phrase in a group insurance policy in isolation

from and in conflict with the rest of the agreement.

(fn. continued)

vesting requirement which Congress itself rejected. The Court

should not utilize preempted state law rules to rewrite ERISA.

ia aialieliaeeiaell

.

The Court should not review the second question,

which is not properly presented by this case.

III.

THE THIRD QUESTION DOES

NOT PRESENT A _ QUESTION

WHICH SHOULD BE REVIEWED

BY THIS COURT

The third question presented by the Petition is

whether the Court should step in and rewrite the policy

and state law providing for limited, minimum conversion

benefits to provide Petitioner with the same level of

benefits provided under the Group Policy.

This question does not involve a federal question, let

alone a split among the circuits or a question of general

importance, to warrant review by the Court under

Supreme Court Rule 10.1.

Quite simply, it is undisputed that the Group Policy

meets the requirements of California law with respect

to conversion policies. California law does not require

a conversion policy to provide the same or similar bene-

fits. as does the group policy providing the right to

convert./? Rather, the legislature made a policy deci-

sion — as it did with the vesting issue — that only a

minimum level of benefits is required to be provided

under conversion policies. See, California Insurance

Code §§ 12670 (Legislature’s intent to ensure that per-

sons converting from group to individual policies “have

access tO minimum benefits” under the converted

13 Mr. Marsh admits that he understood that Allstate would provide

the minimum benefits required by California law. [CR 31, p. 3, 95.]

~ -

policy); 12684 (providing for minimum conversion

benefits). Those minimum levels have been met here.

Compare CR 1, pp. 41-42 and CR 29, pp. 40-49, with

California Insurance Code § 12684.

Further, Congress, as a matter of federal law, has

provided, in certain circumstances, that ERISA plan

participants may continue the coverage provided by the

group policy for up to eighteen months. 29 U.S.C.

§§ 1161-68. In addition, plan participants have “the

option of enrollment under a conversion health plan

otherwise generally available under the plan” when such

continuation coverage expires. 29 U.S.C. § 1162(5)

(emphasis added). If Congress wished to impose a fur-

ther requirement that such continuation coverage be

made available for a longer period of time, or that the

“conversion health plan” available under the group

policy funding the plan offered the same level of bene-

fits as did the group policy, it could easily have done so.

Accordingly, this Court need not review the third

question.

CONCLUSION

The Petition for Writ of Certiorari in this case pre-

sents questions of limited significance because they were

resolved against Petitioner by both courts below based

upon the particular and highly unique facts of the case.

When these facts are analyzed, it is clear that the terms

of the policy itself, statutory law and decisional law

simply do not provide Petitioner with the right to vested

benefits he seeks.

The Petition is nothing more than a last-gasp effort by

Petitioner to have this Court step in, rewrite the policy,

and do what both Congress and the California legislature

ae.

have refused to do in requiring that employee welfare

benefits “vest” and that conversion policies provide the

same level of benefits as the group policies providing the

right to convert. The Petition, therefore, should be

denied.

DATED: July 13, 1993.

Respectfully submitted,

JOHN L. VIOLA

Counsel of Record

Of Counse!

MARGARET LEVY

ADAMS, DUQUE &

HAZELTINE

Of Counsel

RALPH J. ELWART

Attorneys for Respondent

Allstate Life Insurance Company

of New York

APPENDIX

~ BEST AVAILABLE COPY

a Be

STATUTES

29 U.S.C. § 1002. Definitions

For purposes of this subchapter:

(i) the terms “employee welfare benefit plan” and

“welfare plan” mean any plan, fund, or program which

was heretofore or is hereafter established or maintained

by an employer or by an employee organization, or by

both, to the extent that such plan, fund, or program was

established or is maintained for the purpose of providing

for its participants or their beneficiaries, through the

purchase of insurance or otherwise, (A) medical, surgi-

cal, or hospital care or benefits, or benefits in the event

of sickness, accident, disability, death or unemployment,

or vacation benefits, apprenticeship or other training

programs, or day care centers, scholarship funds, or

prepaid legal services, or (B) any benefit described in

section 186(c) of this title (other than pensions on

retirement or death, and insurance to provide such

pensions).

(2) (A) Except as provided in subparagraph (B), the

terms “employee pension benefit plan” and “pension

plan” mean any plan, fund or program which was

heretofore or is hereafter established or maintained by an

employer or by an employee organization, or by both, to

the extent that by its express terms or as a result of

Surrounding circumstances such plan, fund, or program

(i) provides retirement income to employees,

or

(ii) results in a deferral of income by employ-

ees for periods extending to the termination of

covered employment or beyond,

+ YS >

regardless of the method of calculating the contributions

made to the plan, the method of calculating benefits

under the plan or the method of distributing benefits

from the plan....

29 U.S.C. § 1162. Continuation coverage

For purposes of section 1161 of this title the term

“continuation coverage” means coverage under the plan

which meets the following requirements:

(1) Type of benefit coverage

The coverage must consist of coverage which,

as of the time the coverage is being provided, is

identical to the coverage provided under the plan to

similarly situated beneficiaries under the plan with

respect to whom a qualifying event has not oc-

curred. If coverage is modified under the plan for

any group of similarly situated beneficiaries, such

coverage shall also be modified in the same manner

for all individuals who are qualified beneficiaries

under the plan pursuant to this part in connection

with such group.

(2) Period of coverage

The coverage must extend for at least the

period beginning on the date of the qualifying event

and ending not earlier than the earliest of the

following:

(A) Maximum required period

(i) General rule for terminations and

reduced hours

In the case of a qualifying event

described in section 1163(2) of this

title, except as provided in clause (ii),

en |

-A 3-

the date which is 18 months after the

date of the qualifying event. ...

(5) Conversion option

In the case of a qualified beneficiary whose

period of continuation coverage expires under paragraph

(2)(A), the plan must, during the 180-day period ending

on such expiration date, provide to the qualified

beneficiary the option of enrollment under a conversion

health plan otherwise generally available under the plan.

California Insurance Code § 10128.2. Extension of

benefits; discontinuance of policy

Every policy containing a life insurance benefit

shall contain a reasonable extension of such benefit upon

discontinuance of the policy with respect to employees

who become totally disabled while insured under the

policy on or after the date this article becomes applicable

to such policy and who continue to be totally disabled at

the date of discontinuance of the policy. Every policy

containing a loss of time benefit, or a hospital, medical,

or surgical expense benefit shall contain a reasonable

extension of such benefits upon discontinuance of the

policy with respect to employees or dependents who

become totally disabled while insured under the policy

on or after the date this article becomes applicable to

such policy and who continue to be totally disabled at

the date of discontinuance of the policy... .

(d) Every policy providing hospital, medical

or surgical benefits on an expense-incurred or service

basis shall be deemed to include a reasonable extension

of such benefits upon discontinuance of the policy if it

provides benefits for covered expenses directly relating

to the condition causing total disability existing at the

time premium payments for the employee or dependent

-A 4-

cease and incurred during a period of not less than 12

months thereafter, which period shall not be interrupted

by discontinuance of the policy.

That extension of benefits may be terminated at

such time as the employee or dependent is no longer

totally disabled or at such time as a succeeding carrier

may elect to provide replacement coverage to that

employee or dependent without limitation as to the

disabling condition.

(e) The benefits payable during any extension

of benefits may be subject to all limitations or restric-

tions contained in the policy.

California Insurance Code § 12670. Legislative intent

It is the intent of the Legislature to ensure that

persons covered by a group policy, who become in-

eligible for such coverage have access to minimum

benefits pursuant to this part by requiring employers,

employee organizations, and other entities which provide

such coverage to their employees or members to also

make available conversion policies for such persons and

to ensure that insurers as herein defined offer conversion

policies. In addition, it is the intent of the Legislature to

encourage the continuation of group health coverage by

requiring the entities herein defined to make available

continuation benefits for widows, widowers, divorced

spouses, and dependents who were covered by the group

policy on the date of termination of coverage.

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California Insurance Code § 12684. Major medical

group coverage; minimum conversion benefits

Subject to the provisions and conditions of this part,

if the group policy from which conversion is made

provides the employee or member with major medical or

comprehensive medical insurance, the employee or

member shall be entitled to obtain a converted policy

providing comprehensive medical coverage providing at

least the following benefits:

(a) A payment per covered person for all

covered medical expenses incurred during the person’s

lifetime equal to one hundred thousand _ dollars

($100,000); provided, however, that for treatment of

mental illness payment may be limited to ten thousand

dollars ($10,000) during the person’s lifetime.

(b) Payment of benefits at the rate of 75 per-

cent of covered medical expenses; provided, however,

that if coverage is provided for expenses incurred for

Outpatient treatment of mental illness, payment of

benefits may be at the rate of 50 percent of such covered

expenses, and the insurer may limit the amount of

covered expense for each outpatient visit and the amount

of Lenefits payable for expenses incurred during each

calendar year for that outpatient treatment.

(c) A cash deductible for each benefit period

at the option of the insured of two hundred dollars

($200), five hundred dollars ($500), or one thousand

dollars ($1,000), but not less than the cash deductible

which applied to the insured under the group policy

which entitles him or her to a converted policy.

(d) Covered medical expenses shall include

the charges for a semiprivate hospital room and board,

but need not exceed the lesser of one hundred fifty

dollars ($150) per day or the hospital’s most common

charge for a semiprivate room, covered expenses for

fi ts

intensive care shall be at least two and one-half times the

covered hospital room and board charge. The maximum

dollar amount for hospital room and board daily covered

expense may be redetermined by the commissioner as to

conversion coverage issued after the redetermination.

That redetermination shall not be made more often than

once in three years. The maximum dollar amount

redetermined by the commissioner shall not exceed the

average semiprivate room rate then charged in the state.

(e) Covered expenses under this section shall

include benefits for expense incurred by the employee,

member, or spouse in connection with pregnancy,

provided that:

(1) The pregnancy commenced _ while

covered under the group policy from which conversion

was made;

(2) The expense is of a type which would

have been covered under such group policy; and

(3) The conversion policy is in_ force

when the expense is incurred.

(f) Covered expense under this section need

not include expense for dental or vision care, or other

optional benefits not normally offered by the insurer

under a major medical or comprehensive medical ex-

pense plan.

California Insurance Code § 12692. Continuation

benefit coverage; duration; eligible dependents; condi-

tions of availability of coverage

On and after January 1, 1985, every insurer and

nonprofit hospital service plan issuing group disability

insurance which covers hospital, medical, or surgical

expenses Shall offer to group policyholders a continua-

tion benefit which if selected, shall have a duration of at

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least 90 days and which shall be offered consecutively to

any federal requirement for continuation benefits. The

terms and conditions shall include continuation benefit

coverage for widows, widowers, divorced or legally

separated spouses, spouses of covered employees be-

coming entitled to benefits under Title XVIII of the

Social Security Act, and their dependents, including

dependent children who cease to be dependent children

under the plan, who were covered by the group contract

on the date of termination of coverage. However, any

existing provisions of law regarding termination of a

dependent child status shall not be affected by this

section.

The continuation of coverage shall be available only

under the following conditions:

(a) Those eligible remain within the State of

California, although the departure of a dependent child

to another state shall not invalidate the continuation

provisions for any other family members.

(b) Those eligible do not marry or remarry,

although the marriage of any dependent child shall not

invalidate the continuation provisions for other family

members.

(c) Those eligible are not eligible for any

comparable state, federal, or private group medical plan,

although the eligibility of any dependent child shall not

invalidate the continuation provisions for other family

members.

(d) Those eligible do not find employment

with an employer that has a group plan of its own, even

if the plan is less substantive, although the entry into

such an employee plan by a dependent child shall not

invalidate the continuation provisions for other family

members.

(e) The group policy is not terminated or the

employer’s participation in the group policy is not

terminated.

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(f) Those eligible do not knowingly furnish

incorrect information or otherwise improperly obtain the

benefits of the plan.

(g) The continuing individual shall pay the

premium amount in the manner specified in the group

policy for both his or her share of the premium and the

group policyholder’s share, if any.

(h) Eligible persons under this section shall be

notified in the same manner required for conversion

notification pursuant to Section 12689. Every insurer

shall communicate the availability of such coverage to

all group policyholders and to all prospective group

policyholders with whom they are negotiating.