Amicus Curiae Brief — Randol v. Mid-West National Life Insurance

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Bupreme Court, U.S.

FI 1)

AUG 11 1993

ihe CLERK

No. 93-77

OFFICE u

IN THE

Supreme Court of the United States

OCTOBER TERM, 1993

LINDA RANDOL and BRUCE RANDOL, JR..,

Petitioners,

Vv.

Mip-WEST NATIONAL LIFE INSURANCE COMPANY OF

TENNESSEE,

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Eleventh Circuit

BRIEF AMICUS CURIAE OF THE

AMERICAN COUNCIL OF LIFE INSURANCE

IN OPPOSITION TO THE PETITION FOR CERTIORARI

ERWIN N. GRISWOLD

PATRICIA A. DUNN

(Counsel of Record)

Of Counsel:

RICHARD E. BARNSBACK

PHILLIP E. STANO

AMERICAN COUNCIL OF

LIFE INSURANCE

1001 Pennsylvania Ave., N.W.

Washington, D.C. 20004-2559

(202) 624-2183

SHELBY J. HOOVER

LAURIE F, CALDER

JONES, DAY, REAVIS & POGUE

1450 G Street, N.W.

Washington, D.C. 20005-2088

(202) 879-3939

Counsel for Amicus Curiae

The American Council of

Life Insurance

WILSON - EPES PRINTING Co., INc.

- 789-0096 - WASHINGTON, D.C. 20001

QUESTION PRESENTED

Whether an employer that, for the purpose of helping

its employees obtain health insurance coverage, estab-

lishes a premium payment system for, and contributes

to the cost of, an insurance policy for its employees

“establishes or maintains” an “employee welfare benefit

plan” within the meaning of the Employee Retirement

Income Security Act of 1974,

(i)

TABLE OF CONTENTS

SURPEEENICEMNES We MOUEEEEET REED ssnssnessccacacensssscnnncssserscenesccesanses

pe SF ee tg |

INTERESTS OF THE AMICUS ..........00..00..000.0...02.2200---

PPR I RN CONTI oncecsnsncsssncnsncssenseseneocsnesee

ESET EEN oe a Ha I Ce OS A

II.

THE COURT NEED NOT REVIEW THE

ELEVENTH CIRCUIT’S DECISION THAT

THE EMPLOYER’S INSURANCE ARRANGE-

MENT IS AN EMPLOYEE WELFARE BEN-

EFIT PLAN BECAUSE IT IS CONSISTENT

WITH THE DECISIONS OF OTHER COURTS

OF APPEALS AND THIS COURT’S PRECE-

A. The Eleventh Circuit’s Analysis of ERISA

§3(1)’s “Established Or Maintained” Re-

quirement Is Fully Consistent With The

Analyses Of Other Courts of Appeals ............

B. The Eleventh Circuit’s Conclusion That The

Employer’s Insurance Arrangement Is Gov-

erned By ERISA Is Fully Consistent With

The Decisions Of This Court ..........................

THE COURT NEED NOT REVIEW THE

ELEVENTH CIRCUIT’S DECISION BE-

CAUSE IT IS CONSISTENT WITH ERISA’S

LANGUAGE AND UNDERLYING POLI-

(iii)

TABLE OF AUTHORITIES

CASES Page

Brundage-Peterson v. Compcare Health Serv. Ins.

Corp., 877 F.2d 509 (7th Cir. 1989) ............... 7,8,11,13

Credit Managers Ass’n v. Kennesaw Life & Acci-

dent Ins. Co., 809 F.2d 617 (9th Cir. 1987) ........ 11

Dependahl v. Falstaff Brewing Corp., 491 F. Supp.

1188 (E.D. Mo. 1980), aff’d in part and rev’d in

part, 653 F.2d 1208 (8th Cir.), cert. denied, 454

U.S. 968 and 454 U.S. 1084 (1981) _..00000000 2. 10

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

Se I be a ae 4,9,10

Ed Miniat, Inc. v. Globe Life Ins. Group, 805 F.2d

732 (7th Cir. 1986), cert. denied, 482 U.S. 915

$f APE Rceeaar gan Prue NO phen Senn PAROS CID MaDe PANEER TRU Cate 9

Firestone Tire & Rubber Co. v. Bruch, 489 U.S.

DU VEE ca ae a ee aed ewes eae 2

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

5, 5 IE RROREU RS cetera aI BANE RN ear, Ue 12, 13

Hansen v. Continental Ing. Co., 940 F.2d 971 (5th

Ce SE nt ee eh 1,9

Kanne v. Connecticut General Life Ins. Co., 867

F.2d 489 (9th Cir. 1988) (per curiam), cert.

dented, 482 US. G06 CIGGOD. .......--ccncnevcecceseesecesnee-s. 10, 11

Kidder v. H & B Marine, Inc., 932 F.2d 347 (5th

CBr. Te Cr RN os esi cette ete 11

Massachusetts Mutual Life Ins. Co. v. Russell, 473

Se Se I rit ciece an ea anes 2

Massachusetts v. Morash, 490 U.S. 107 (1989) .... 12, 13

MDPhysicians & Assocs. v. State Bd. of Insurance,

957 F.2d 178 (5th Cir.), cert. denied, 113 S. Ct.

DTW SEE > veiccstessnccantrese tecenctadiicancdaeaceaiens 8

Memorial Hosp. Sys. v. Northbrook Life Ins. Co.,

004 F.2a SOG (Oth Cir. TOGO wisest 8,9

Metropolitan Life Ins. Co. v. Massachusetts, 471

U.S. 724 (1985) ........... i Nedas tp nemdanttieeten De aati Dente 11,

Peckham v. Gem State Mutual of Utah, 964 F.2d

BOGS. CRG Ut: See kek 7,8, 11

Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987)... 2

Roe v. General American Life Ins. Co., 712 F.2d

GED CEE GER TD weccinctibcoeicts cine ccvctnanliies 11

TABLE OF AUTHORITIES—Continued

Page

Scott v. Gulf Oil Corp., 754 F.2d 1499 (9th Cir.

Fi RAN a ett nA Te NE Cee RCS SS eR TALC 10

Taggart Corp. v. Life & Health Benefits Admin.

Inc., 617 F.2d 1208 (5th Cir. 1980), cert. de-

a Bk | anna Le 8

Wickman v. Northwestern Nat'l Ins. Co., 908 F.2d

1077 (ist Cir.), cert. denied, 498 U.S. 1013

REE a RRA So eA EDS DEAS EASE ORME SAIS OT TaD 9,10

STATUTES

Employee Retirement Income Security Act of

1974, 29 U.S.C. §§ 1001-1461 (1988 and Supp.

Oe MRED cetera Aeiemnacacmmananemenpcnncemanaantiicanaanil 2

5 3(6), Se USA. § 10GR(S) -.............................. 8

§ 3(16) (A), 29 U.S.C. § 1002 (16) (A) -........... 14

§ 3(38), 29 U.S.C. § 1002(38) ............................ 14

§ 3(40), 29 U.S.C. § 1002(40) -........................... 8

§ 401 (b) (2), 29 U.S.C. § 1101 (b) (2) -............... 14

§ 408 (b) , 29 U.S.C. § 1108 (b) ............................ 14

§ 405(c) (1), 29 U.S.C. § 1105(c) (1)... 14

§ 408 (b) (5), 29 U.S.C. § 1108 (b) (5) 0200... 14

5007 (3), Se Ue. 6 R508 {)) ............................. 15

RULES AND REGULATIONS

Preamble to the Proposed Regulation at 29 C.F.R.

§ 2510.3-1(j), 40 Fed. Reg. 24,643 (1975) ........

gee A Re fF Sl ih . een

MISCELLANEOUS

A. Foster Higgins & Co., 1988 Foster Higgins

Health Care Benefits Survey (1988) _.................. 15

O. Mitchell & E. Andrews, Scale Economics in

Private Multi-Employer Pension Systems, 34

Indus. & Lab. Rel. Rev. 522 (1981) ..........000000.... 16

Se ae Ee

IN THE

Supreme Court of the United States

OCTOBER TERM, 1993

No. 93-77

LINDA RANDOL and BRUCE RANDOL, JR.,

‘ Petitioners,

Mip-WEST NATIONAL LIFE INSURANCE COMPANY OF

TENNESSEE,

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Eleventh Circuit

BRIEF AMICUS CURIAE OF THE

AMERICAN COUNCIL OF LIFE INSURANCE

IN OPPOSITION TO THE PETITION FOR CERTIORARI

INTERESTS OF THE AMICUS!

The American Council of Life Insurance (‘““ACLI’’)

submits this brief on behalf of respondent Mid-West Na-

tional Life Insurance Company of Tennessee. The ACLI

is the largest life insurance trade association in the United

States, representing the interests of 616 member life insur-

ance companies. The ACLI’s members currently hold 95

percent of the life insurance in force in legal reserve life

insurance companies in the United States. These mem-

bers often sell insurance to employers who choose to

1 Counsel for all parties have consented to the filing of this amicus

brief. Amicus has filed those consents with the Clerk of this Court

pursuant to Rule 37.2 of the Rules of this Court.

establish their employee welfare benefit plans through the

purchase of insurance.

The ACLI files this brief to provide its unique perspec-

tive, based on its broad-based constituency, concerning

why the Court should not grant certiorari review in this

case. The issue presented in this case—whether an em-

ployer’s contributions to the cost of an insurance policy

for employees, coupled with its establishment of a premium

payment system, “establishes or maintains” an “employee

welfare benefit plan” under the Employee Retirement

Income Security Act of 1974, 29 U.S.C. §§ 1001-1461

(1988 & Supp. III 1991) (“ERISA”), —is thus vitally

important to the ACLI’s members, but correctly decided

by the court below. In other cases before the Court

involving ERISA questions that affect its members, the

ACLI has participated as an amicus. See, e.g., Firestone

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

Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987); Massa-

chusetts Mutual Life Ins. Co. v. Russell, 473 U.S. 134

(1985).

STATEMENT OF THE CASE

This case concerns the application of the Employee

Retirement Income Security Act of 1974, as amended

(“ERISA”), to an employee welfare benefit arrangement

funded, in part, by employer contributions to the cost of

an insurance policy purchased from Mid-West National

Life Insurance Company of Tennessee (“Mid-West”).

Petitioners Bruce and Linda Randol, respectively an em-

ployee of Ed’s Tire Store, Inc. (the “employer”) and

his spouse, contend that this arrangement does not con-

stitute an “employee welfare benefit plan” under ERISA

and, accordingly, that ERISA does not preempt the state

law claims in their complaint. The Eleventh Circuit dis-

agreed. Consistent with the other courts of appeals that

have addressed the issue squarely, the Eleventh Circuit

held that the employer’s welfare benefit arrangement con-

stitutes an ERISA plan.

1. The employer, a small tire franchise in Mobile,

Alabama, offered no insurance to its three employees

prior to March 1988 (Pet. App. 2a). At that time, while

the Randols were apparently seeking medical insurance

coverage, an agent of Mid-West met with Mr. Randol on

the employer’s premises, with the employer’s permission,

concerning his insurance options (id. at 2a-3a). Because

of its employees’ interest in obtaining insurance from Mid-

West, the employer agreed to assist them in the purchase

of this insurance. To this end, the employer: (1) wrote

a check to Mid-West on its corporate account to cover

the initial premium payment for Randol and its other

interested employee (id. at 3a); (2) agreed to contribute

$75 each month toward the monthly premium payments

for each of its covered employees (id.); (3) agreed to

collect the balance of the premium from each covered

employee through weekly payroll deductions (id.); and

(4) signed a bank draft authorization form allowing

Mid-West to withdraw the monthly premiums from its

account (Pet. Br. 4). The employer did the foregoing

“in order to facilitate his employees’ obtaining health

coverage” (Pet. App. 9a).

Mid-West insured and administered the insurance pro-

gram, which was considered “group” insurance coverage

(Pet. App. 3a). The Randols, therefore, submitted their

claims for medical benefits arising from complications with

Mrs. Randol’s pregnancy to Mid-West. When Mid-West

denied the Randols’ claim for medical benefits, they sued

Mid-West in state court, claiming that this denial consti-

tuted a breach of contract, a bad-faith denial of a claim

for benefits, and fraud (id. at la).

2. On July 22, 1991, Mid-West removed this action

to federal district court (Pet. App. la). On October 11,

1991, the district court dismissed petitioners’ state com-

mon law tort and contract claims on the grounds that the

insurance policy was an “employee welfare benefit plan”

within the meaning of ERISA and, therefore, ERISA pre-

empted petitioners’ state claims (id. at 13a).

The Eleventh Circuit affirmed the district court’s deci-

sion on April 12, 1993 (Pet. App. la, lla). First, the

court held that the employer’s insurance arrangement did

not fall within the scope of the Department of Labor’s

safe harbor regulation, which identifies practices that, in

the opinion of the Department, do not amount to “estab-

lishing” or “maintaining” an ERISA “plan, fund, or pro-

gram” (id. at 6a; see discussion infra at 6-7). Next,

after noting that it is “unsettled . . . whether the safe

harbor regulations’ description of group insurance plans

excluded from [ERISA] is exhaustive” (id. at 6a n.3),

the court held that the employer’s insurance arrangement

was an ERISA § 3(1) “plan,” as the Eleventh Circuit

defined that term in Donovan v. Dillingham, 688 F.2d

1367, 1373 (11th Cir. 1982) (en banc) (id. at 7a-8a).

Finally, the court held that the employer “maintained”

the plan within the meaning of ERISA by “wr[iting] the

first check purchasing the policies, establish[ing] a system

whereby the premiums would be paid monthly by means

of a bank draft on the corporate account, contribut[ing]

$75 per employee per month toward the premiums, and

collect[ing] from the employees the balance of the pre-

miums through a withholding system” (id. at 8a-9a).

The court further noted that “the employer did the fore-

going in order to facilitate his employees’ obtaining health

coverage” (id. at 9a).

ARGUMENT

In asking this Court to grant review, petitioners seek

to generate decisional conflicts where none exist. The

Eleventh Circuit correctly held that the insurance ar-

rangement in this case—where the employer, with the

intent of helping its employees obtain health insurance

coverage, established a premium payment system for, and

contributed to the cost of, a health insurance policy for

its employees—constituted an ERISA employee welfare

benefit plan. The court recognized that ERISA fully con-

templates that employers (and, in particular, small em-

ployers) will often establish employee welfare benefit

plans through insurance arrangements and, in doing so,

will delegate most of the administrative duties relating to

those plans to insurers or outside administrators.

When reviewing this type of insurance arrangement,

this Court and the courts of appeals have similarly recog-

nized that employers can—and often do—play limited,

yet meaningful, roles in these plans, without removing

them from ERISA’s expansive reach. Because the Elev-

enth Circuit’s decision is entirely consistent with this

uniform understanding, as well as with ERISA’s language

and underlying policies, there is no good reason for the

Court to review it.

I. THE COURT NEED NOT REVIEW THE ELEV-

ENTH CIRCUIT'S DECISION THAT THE EM-

PLOYER’S INSURANCE ARRANGEMENT IS AN

EMPLOYEE WELFARE BENEFIT PLAN BE-

CAUSE IT IS CONSISTENT WITH THE DECI-

SIONS OF OTHER COURTS OF APPEALS AND

THIS COURT'S PRECEDENT

Section 3(1) of ERISA, 29 U.S.C. § 1002(1), states

that an “employee welfare benefit plan” is:

any plan, fund, or program which was. . . estab-

lished or maintained by an employer .. . to the

extent that such plan, fund, or program was estab-

lished or is maintained for the purpose of providing

for its participants or their beneficiaries, through the

purchase of insurance or otherwise, .. . medical...

benefits . . .

(emphasis added). The Eleventh Circuit held that the

employer in this case satisfied Section 3(1)’s “mainte-

nance” requirement by: (1) writing a check to purchase

medical insurance policies from Mid-West; (2) establish-

ing a system whereby the premiums would be paid monthy

by means of a bank draft on the corporate account; (3)

contributing $75 per employee per month toward the

premiums; (4) collecting from the employees the balance

of the premiums through a withholding system; and (5)

doing all of these things to “facilitate his employees’ ob-

taining health coverage” (Pet. App. 9a). This holding

and reasoning are fully consistent with the decisions of

other courts of appeals and with this Court’s precedent,

rendering review in this Court unnecessary.

A. The Eleventh Circuit’s Analysis of ERISA § 3(1)’s

“Established Or Maintained” Requirement Is Fully

Consistent With The Analyses Of Other Courts of

Appeals

Contrary to petitioners’ assertion (Pet. Br. 22-27),

there is no meaningful distinction between the Eleventh

Circuit’s analysis of ERISA’s “maintenance” require-

ment and the analyses of the Fifth, Seventh, and Tenth

Circuits. Like the court below, the Fifth, Seventh, and

Tenth Circuits all conduct the essential inquiry into the

degree of employer involvement in the operation of the

plan before subjecting the plan to ERISA regulation.

1. That there is no hard and fast rule for determining

the minimum level of employer involvement that will

subject an insurance arrangement to ERISA hardly rises

to the level of a conflict. This area is not without mean-

ingful guidance. At one end of the spectrum, the De-

partment of Labor has promulgated a regulation that

provides a “safe harbor’ for insured benefit programs

where employer involvement is so minimal that the

requisite ‘“‘establishment or maintenance” activity required

for ERISA coverage is absent. See Preamble to the Pro-

posed Regulation at 29 C.F.R. § 2510.3-1(j), 40 Fed.

Reg. 24,643 (1975). To qualify for this safe harbor:

(1) The employer can make no contributions;

(2) Participation in the program must be completely

voluntary for employees;

(3) The employer’s sole functions under the pro-

gram may be to permit the insurer to publicize

the program to employees, to collect premiums

through payroll deductions and to remit them

to the insurer, without taking any action that

could be considered an “endorsement” of the

program; and

| (4) The employer may not receive any considera-

tion in the form of cash or otherwise in connec-

tion with the program, other than reasonable

compensation for administrative services actu-

ally rendered in connection with payroll de-

ductions.

29 C.F.R. § 2510.3-1(j) (1992). This safe harbor regu-

lation thus ensures that, when an employer’s involvement

in an insurance arrangement amounts to no more than

that of a “passive bystander,” the arrangement will not

fall within ERISA’s regulatory scope.

e.—

Beyond this “passive bystander’ rule, the courts have

uniformly recognized that more meaningful employer in-

volvement will trigger ERISA coverage. They also uni-

formly recognize that such involvement may take many

forms. See, e.g., Hansen v. Continental Ins. Co., 940

F.2d 971, 978 (Sth Cir. 1991) (employer involvement

may take the form of “collection of premiums, adminis-

tration of the policy, or submission of claims” (emphasis

added) ); Peckham v. Gem State Mutual of Utah, 964

F.2d 1043, 1049 (10th Cir. 1992) (employer “estab-

lished or maintained” an ERISA plan because it “joined

[a multi-employer trust] in order to obtain insurance for

its employees, purchased basic insurance . . . for its em-

ployees, and listed insurance in its company manual as

an employment benefit’); Brundage-Peterson v. Comp-

care Health Serv. Ins. Corp., 877 F.2d 509, 511 (7th

Cir. 1989) (employer’s contract with an insurance com-

pany to insure employees, establishment of a single eligi-

bility requirement for that insurance coverage, and con-

tribution of the workers’ share of the premiums brought

the insurance arrangement under ERISA).

These courts also make clear that the employer’s in-

volvement in the plan may well be quite minimal—and

need not include control over the eligibility for coverage

—

or participation in processing claims for benefits. Delega-

tion of these functions to an insurer or outside agent is

perfectly consistent with the language and purposes of

ERISA. See, e.g., Peckham, 964 F.2d at 1048 n.9;

Brundage-Peterson, 877 F.2d at 511; Memorial Hosp.

Sys. v. Northbrook Life Ins. Co., 904 F.2d 236, 243

(5th Cir. 1990).°

2. Petitioners also are mistaken in invoking Taggart

Corp. v. Life & Health Benefits Administration, Inc., 617

F.2d 1208 (Sth Cir. 1980), cert. denied, 450 U.S. 1030

(1981), as a source of discord between the Fifth and

the Eleventh Circuits. In Taggart, the Fifth Circuit held

that an employer’s “bare purchase[] of health insurance”’

through a Multiple Employer Trust did not establish an

ERISA plan under the facts and circumstances of that

case. Id. at 1211. The court below made clear that the

facts in this case “differ significantly from those in

Taggart” (Pet. App. 10a): unlike the employer in

Taggart, the employer here “established a system for

withholding premiums from employee wages and paying

them directly to the carrier, . . . contributed $75 per

employee toward the monthly premium and did so for

the purpose of helping the employees obtain health in-

surance coverage” (id.).

2 MDPhysicians & Assocs. v. State Bd. of Ins., 957 F.2d 178, 185

(5th Cir.), cert. denied, 113 S. Ct. 179 (1992), upon which peti-

tioners also rely (Pet. Br. 19), is not to the contrary. In MDPhysi-

cians, the court determined whether, by establishing a multiple

employer welfare arrangement (“MEWA”) within the meaning of

ERISA § 3(40), the manager of the MEWA established a single

ERISA-covered plan. The court thus examined the question whether

the manager was acting on behalf of a group of related employers,

which would make the manager an “employer” within the meaning

of ERISA §3(5) and the MEWA a single ERISA-covered plan.

The court expressly stated that its decision did not address the

question whether any of the subscribing employers themselves es-

tablished ERISA-covered plans for their employees by subscribing

to the MEWA. MDPhysicians, 957 F.2d at 182 n.4. MD Physicians

thus has no relevance to this case.

In any event, in other contexts, both the Fifth Circuit

—even after Taggart—and the Eleventh Circuit have

agreed that the purchase of insurance, without more, may

not conclusively establish a plan, fund, or program, but

that “ ‘the purchase of a policy or multiple policies cover-

ing a class of employees offers substantial evidence that

a plan, fund, or program has been established.’ ”” Memo-

rial Hosp. Sys. v. Northbrook Life Ins. Co., 904 F.2d

236, 242 (Sth Cir. 1990) (quoting Donovan vy. Dilling-

ham, 688 F.2d 1367, 1373 (11th Cir. 1982) (en banc)

(emphasis added)). See also Wickman v. Northwestern

Nat'l Ins. Co., 908 F.2d 1077, 1083 (1st Cir.), cert.

denied, 498 U.S. 1013 (1990) (same). Taggart, then,

is not a source of a circuit court split. Even had there

been such a conflict, these courts themselves have seem-

ingly resolved it.

3. Petitioners’ effort to create a conflict with other

circuits, pointing to a heightened “intent” requirement

that the court below supposedly did not apply, is simi-

larly misplaced. The Eleventh Circuit twice made clear

that the employer participated in the purchase of the in-

surance policies and the continued operation of the plan

“in order to facilitate his employees’ obtaining health

coverage” (Pet. App. 9a (emphasis added) ); see also id.

at 10a. To the extent that the cases upon which peti-

tioners rely might be regarded as purporting to establish

an intent requirement, the Eleventh Circuit’s analysis

more than satisfies it. See Hansen v. Continental Ins.

Co., 940 F.2d 971, 978 (Sth Cir. 1991) (the evidence

must show that the employer had an “ ‘intent to provide

its employees with a welfare benefit program through the

purchase and maintenance of [the] group insurance pol-

icy” (citation omitted) ); Ed Miniat, Inc. v. Globe Life

Ins. Group, 805 F.2d 732, 741 (7th Cir. 1986), cert.

denied, 482 U.S. 915 (1987) (“In the case before us the

corporation has, via written agreement, established its

intent potentially to provide benefits to all salaried em-

ployees.”’).* Indeed, in Wickman v. Northwestern Nat'l

Life Ins. Co., 908 F.2d at 1083, the First Circuit relied

on the Eleventh Circuit’s analysis in Donovan v. Dilling-

ham, 688 F.2d at 1374-75, as an example of how its

stated intent requirement works in practice. Petitioners

thus have failed to show how the Eleventh Circuit’s ap-

plication of the so-called “intent” requirement meaning-

fully deviates from the analysis of any of the other courts

of appeals.*

4. In all events, petitioners’ suggestion that a circuit

court conflict exists fails to find any support in the words

or actions of the very courts on which petitioners seek to

rely. Those courts, which supposedly have “implicitly or

explicitly rejected the Eleventh Circuit’s test” (Pet. Br.

3 Kanne v. Connecticut General Life Ins. Co., 867 F.2d 489, 493

(9th Cir. 1988) (per curiam), cert. denied, 492 U.S. 906 (1989),

upon which petitioners rely, does not purport to establish an “in-

tent” requirement. In that case, the Ninth Circuit simply noted

that evidence existed showing that the plan administrator intended

to create an ERISA plan.

4 Petitioners suggest (Pet. Br. 6), without case law support, that

a “plan” does not fall within the purview of ERISA unless an

employer has an intent to establish an ERISA-covered plan or

satisfies all ERISA requirements. The reason that petitioners find

no support for this remarkable proposition is clear: such a require-

ment would give persons establishing or maintaining such arrange-

ments the ability to circumvent ERISA by either expressly denying

any intent to establish a plan or merely failing to perform certain

duties required under ERISA. See Donovan v. Dillingham, 688

F.2d 1367, 1372 (11th Cir. 1982) (en banc); see also Scott v. Gulf

Oil Corp., 754 F.2d 1499, 1503 (9th Cir. 1985); Dependahl v.

Falstaff Brewing Corp., 491 F. Supp. 1188, 1195 (E.D. Mo. 1980),

aff'd in part and rev’d in part, 653 F.2d 1208 (8th Cir.), cert.

denied, 454 U.S. 968 and 454 U.S. 1084 (1981). The Eleventh Cir-

cuit thus decided correctly (and consistent with the decisions of

other courts) that the fact that the employer here had no written

plan, denied any intention of creating an ERISA-covered plan, com-

plied with none of the reporting or disclosure requirements of

ERISA, appointed no official plan administrator (separate from

the insurer), and had no designated plan fiduciaries was irrelevant

to the determination of ERISA plan status.

22), repeatedly invoke Eleventh Circuit precedent in

support of their reasoning and conclusions. See, eé.g.,

Kidder v. H & B Marine, Inc., 932 F.2d 347, 353 (Sth

Cir. 1991) (per curiam); Brundage-Peterson v. Comp-

care Health Serv. Ins., 877 F.2d 509, 511 (7th Cir.

1989); Peckham v. Gem State Mutual of Utah, 964 F.2d

1043, 1047 (10th Cir. 1992); Kanne v. Connecticut Gen-

eral Life Ins. Co., 867 F.2d 489, 492 (9th Cir. 1988)

(per curiam), cert. denied, 492 U.S. 906 (1989). And

the courts do so without even hinting that they disagree

with any part or parts of the Eleventh Circuit’s approach.

Even more tellingly, the circuits that are in supposed

conflict with the Eleventh Circuit have ruled that insur-

ance arrangements with the same or even less employer

involvement than the arrangement at issue here constitute

“employee welfare benefit plans.” See, e.g., Roe v. Gen-

eral American Life Ins. Co., 712 F.2d 450, 451-52 (10th

Cir. 1983) (plan existed where employer made life in-

surance available to its employees and contributed part

of each employee’s premium); Memorial Hosp. Sys. v.

Northbrook Ins. Co., 904 F.2d 236, 241 (Sth Cir. 1990)

(““Noffs established and maintained the plan by purchas-

ing the policy and paying the premiums directly to

Northbrook”); Credit Managers Ass’n v. Kennesaw Life

& Accident Ins. Co., 809 F.2d 617, 625 (9th Cir. 1987)

(“Even if an employer does no more than arrange for a

‘group-type insurance program,’ it can establish an

ERISA plan, unless it is a mere advertiser who makes

no contributions on behalf of its employees”). These

words and actions plainly contradict the notion that a

meaningful conflict exists that this Court must resolve.

B. The Eleventh Circuit’s Conclusion That The Em-

ployer’s Insurance Arrangement Is Governed By

ERISA Is Fully Consistent With The Decisions Of

This Court.

Petitioners’ contention that the decision below conflicts

with past decisions of this Court is equally unfounded.

As an initial matter, petitioners fail to mention Metro-

iia ie

politan Life Insurance Co. v. Massachusetts, 471 U.S. 724

(1985), in which this Court made clear that insurance

arrangements, like the arrangement in this case, generally

are “employee welfare benefit plans.” See id. at 739.

Instead, petitioners cite Fort Halifax Packing Co. v.

Coyne, 482 U.S. 1 (1987), and Massachusetts v. Morash,

490 U.S. 107 (1989), neither of which even addresses

the issue of how much employer involvement is necessary

to bring an insurance arrangement under ERISA. More-

over, to the extent that Fort Halifax and Morash have

any bearing on this case, they support the conclusion

that the employer’s insurance arrangement here is an

ERISA “employee welfare benefit plan.”’

In Fort Halifax, the Court addressed the question

whether a Maine statute that required employers to pro-

vide a one-time severance payment to employees in the

event of a plant closing required an employer to es-

tablish or maintain an employee welfare benefit plan.

In holding that the statute did not do so, the Court ex-

plained that a “plan,” as opposed to a mere “benefit.”

“embodies a set of administrative practices vulnerable to

the burden that would be imposed by a patchwork scheme

of regulation.” Jd. at 11.12. Under this reasoning, the

statute did not require employers to establish or maintain

plans because “[t]he theoretical possibility of a one-time

obligation in the future simply creates no need for an

ongoing administrative program for processing claims and

paying benefits.” Jd. at 12.

Like Fort Halifax, Morash focuses on the nature of

the benefits provided, rather than on the employer’s in-

volvement in providing those benefits. The Court there

considered whether a Massachusetts statute that required

employers to pay a discharged employee for unused vaca-

tion time on the date of discharge required an employer

to establish or maintain an employee welfare benefit plan.

The Court held that the statute did not do so, reason-

ing that: “Because ordinary vacation benefits are typi-

ee TN

cally fixed, due at known times, and do not depend on

contingencies outside the employee’s control, they present

none of the risks that ERISA is intended to address.”

Morash, 490 U.S. at 115.

The insurance arrangement in this case easily meets

the “plan”? requirement set out in Fort Halifax and

Morash. Providing medical benefits through Mid-West’s

insurance policy indisputably involves ‘“‘a host of obliga-

tions, such as determining the eligibility of claimants,

calculating benefit levels, making disbursements, monitor-

ing the availability of funds for benefit payments, and

keeping appropriate records in order to comply with ap-

plicable reporting requirements.” Fort Halifax, 482 US.

at 9. It also implicates the risks that ERISA was de-

signed to address. Nothing in Fort Halifax or Morash

states that some or all of these obligations or risks must

be undertaken or borne by an employer, as opposed to

an insurer-administrator. See Brundage-Peterson, 877 F.2d

at 511 (“The contingent feature of a true welfare ben-

efits plan, stressed in . . . Massachusetts yv. Morash,

[490 U.S. 107] (1989) is unaffected by the delegation

of administration of the plan to an insurance company—

a delegation in fact contemplated by statute”).

The Eleventh Circuit’s decision in this case thus is

fully consistent with the decisions of other courts of ap-

peals and this Court. The courts have given employers

(both large and small) ample notice that, by admini-

stratively and financially helping their employees to obtain

health insurance coverage, the employers may have to

submit to ERISA regulation. No further guidance from

this Court is necessary.

II. THE COURT NEED NOT REVIEW THE ELEV-

ENTH CIRCUIT’S DECISION BECAUSE IT IS

CONSISTENT WITH ERISA’S LANGUAGE AND

UNDERLYING POLICIES

This Court’s review of the Eleventh Circuit’s decision

is unnecessary for another reason. The decision below

properly interprets ERISA’s language and implements its

underlying policies, both of which contemplate that em-

ployers often will establish employee welfare benefit plans

through insurance arrangements like the arrangement at

issue in this case.

In enacting ERISA, Congress clearly contemplated that

insurers would play vital roles in both funding and ad-

ministering employer-sponsored welfare benefit programs.

ERISA § 3(1) defines an “employee welfare benefit plan”

as “any plan, fund, or program which was. . . established

or maintained by an employer .. . through the purchase

of insurance or otherwise” (emphasis added). ERISA’s

terms also permit the delegation of administrative duties

to third parties (such as insurers) without requiring the

employer/sponsor to retain any particular duties under

the plan (ERISA § 405(c) (1), 29 U.S.C. § 1105(c)(1));

indeed, ERISA’s definition of “plan administrator” ex-

pressly states that the administrator may be someone other

than the employer (ERISA § 3(16)(A), 29 U.S.C.

§ 1002(16)(A)). These terms and others sprinkled

throughout ERISA ° plainly reflect Congress’s intent that

5 See, e.g., ERISA § 3(38), 29 U.S.C. § 1002(38) (defining the

entities that may serve as investment managers for ERISA-covered

plans, including any insurance company qualified to perform serv-

ices under the laws of more than one state); ERISA § 401(b) (2),

29 U.S.C. § 1101(b) (2) (concerning the treatment of assets of an

insurer that issues a guaranteed benefit policy to an ERISA-covered

plan); ERISA § 403(b) (1) & (2), 29 U.S.C. §1103(b) (1) & (2)

(concerning the exemption from the general trust requirement for

those assets of ERISA-covered plans that consist of insurance con-

tracts or policies); ERISA § 408(b) (5), 29 U.S.C. § 1108(b) (5)

(concerning the exemption from the prohibited transaction provi-

insurers and their insurance products would play an ex-

tensive role in ERISA-covered plans.

The Eleventh Circuit’s decision that the employer’s

insurance arrangement is an employee welfare benefit

plan also furthers ERISA’s underlying policies. Indeed,

to hold that the arrangement is not covered by ERISA

would be tantamount to eliminating ERISA coverage for,

and denying ERISA protections to, employees of many

employers who select insurance as the funding mechanism

for their employee benefit arrangements and who delegate

the administration of those arrangements to an insurer.

The employers who most frequently select insurance as

the funding mechanism for their plans and who delegate

the administration of those plans to insurers are not large

employers; they are small employers, just like Mr.

Randol’s employer, for whom these types of insurance

arrangements to provide benefits to their employees are,

as a practical matter, essential.

In fact, a recent study showed that approximately 65

percent of the large employers in the United States self-

fund their plans; in contrast, a majority of small em-

ployers fund their plans through insurance.* Small em-

ployers often turn to insurers to provide the benefits un-

der, and to administer, their plans for obvious reasons.

They typically do not have the staff, ability or time to

sions for certain ERISA-covered plans that purchase insurance

contracts or annuities from certain insurers); ERISA § 607(1),

29 U.S.C. § 1167(1) (concerning the definition of what constitutes a

“group health plan” (an employee welfare benefit plan that provides

medical care to participants directly or through insurance, reim-

bursement, or otherwise) for purposes of determining the appli-

\ cability of the requirements of Part 6 of ERISA, which extend

coverage under group health plans to plan participants after certain

coverage terminating events).

6A. Foster Higgins & Co., 1988 Foster Higgins Health Care

Benefits Survey 23 (1988). A large employer is defined in this

study as one with 1,000 or more employees. A small employer is

defined as one employing fewer than 1,000 employees.

a ieeeninnineetenaiemmmel

administer their own plans. They need the broad spread-

ing of risk that a group insurance policy can provide.

And they need the efficiencies of scale that an insurer’s

established claims processing procedure and trained per-

sonnel offer.’

In enacting ERISA, Congress clearly understood that

these special concerns faced small employers and that in-

surers would thus play a very significant role in ERISA-

covered plans. The Eleventh Circuit properly refused to

decide that a small employer may not be considered to

have either “established or maintained” a “plan” under

ERISA, even though it has (1) facilitated its employees’

participation in an insured health benefit arrangement

by promising them partial premium payments, (2) set

up a premium payment procedure that includes giving

authorization to the insurer to draw on the employer’s

corporate bank account for the premium payments, and

(3) contributed a significant portion of each premium for

payment for each participating employee.

A contrary decision would provide a blueprint to all

small employers for precisely how to “opt out” of ERISA

regulation. It would be bizarre, indeed, if a small em-

ployer could avoid ERISA’s reach merely by stating that

it does not “intend” to establish an ERISA plan when it

contributes to the cost of insurance for its employees,

by refusing to comply with any of ERISA’s requirements,

and by appointing an independent third party (whether an

insurer or not) to administer its plan. The Eleventh Cir-

cuit properly rejected this unwarranted result and, in the

process, rendered a decision entirely faithful to the stat-

ute, this Court’s decisions, and the decisions of other

courts of appeals.

7 See O. Mitchell & E. Andrews, Scale Economics in Private Multi-

Employer Pension Systems, 34 Indus. & Lab. Rel. Rev. 522 (1981).

This study shows that administrative expenses per participant are

over ten times as high for plans with 100 participants as for those

with 20,000 participants.

CONCLUSION

The petition for certiorari should be denied.