Attorney General v. Travelers Ins. Co.

• Citation: 433 N.E.2d 1223,385 Mass. 598
• Parties: , 114 L.R.R.M. (BNA) 2365, 3 Employee Benefits Cas. 1673 ATTORNEY GENERAL v. The TRAVELERS INSURANCE COMPANY et al. 1
• Decision Date: 24 March 1982
• Court: United States State Supreme Judicial Court of Massachusetts

Page 1223

433 N.E.2d 1223

385 Mass. 598, 114 L.R.R.M. (BNA) 2365,

3 Employee Benefits Cas. 1673

ATTORNEY GENERAL v. The TRAVELERS INSURANCE COMPANY et al. ¹

Supreme Judicial Court of Massachusetts, Suffolk.

Argued Dec. 9, 1981.

Decided March 24, 1982.

Jay Greenfield, New York City (Moses Silverman and Nancy Kilson, New York City, with him), for Metropolitan Life Ins. Co.

Lane McGovern, Boston, for Travelers Ins. Co.

John T. Montgomery, Asst. Atty. Gen., for the Commonwealth.

Before HENNESSEY, C. J., and WILKINS, LIACOS, NOLAN and O'CONNOR, JJ.

HENNESSEY, Chief Justice.

General Laws c. 175, § 47B, specifies mandatory minimum mental health care benefits for Massachusetts residents, which must be included in any general insurance policy, accident or sickness insurance policy, or employee health care plan, if the policy or plan covers hospital and surgical expenses. ² The principal question before us is whether § 47B is preempted by either the Employee Retirement Income Security Act, 29 U.S.C. § 1001 et seq. (1976, Supp. I 1977, & Supp. II 1978) (ERISA), or the National Labor Relations Act, 29 U.S.C. § 151 et seq. (1976 & Supp. III 1979) (NLRA). In addition, the defendant insurance companies raise issues concerning severability, the effect of § 47B on policies issued before its effective date in 1976, and the applicability of the contract clause of the United States Constitution, art. 1, § 10. We conclude that the provisions of § 47B pertaining to insurance are not preempted, and that they are severable from a provision pertaining to employee benefit plans, which the parties have assumed to be preempted. We also conclude that § 47B applies to certain policies issued by the defendants before 1976, and that this application of the statute does not violate the contract clause.

The Attorney General brought this action for declaratory and injunctive relief to enforce § 47B against insurance companies that issue group insurance policies providing medical coverage to Massachusetts employees. ³ The parties stipulated that nearly all of the defendants' group policies covering Massachusetts employees insure welfare benefit plans subject to ERISA. In addition, a number of the policies insure plans mandated by collective bargaining agreements negotiated pursuant to the NLRA.

A Superior Court judge issued a preliminary order requiring the defendants to provide the mental health coverage described in § 47B. After trial, a second judge granted a permanent order to the same effect. We granted the defendants' application for direct appellate review.

1. Severability.

Although § 47B applies by its terms to "employees' health and welfare fund(s)," as well as to policies of insurance, the Attorney General has not enforced it against uninsured plans subject to ERISA. The present case involves only insurers, and all parties have assumed that direct enforcement against plans is preempted by ERISA. A threshold question, therefore, is whether the provisions of § 47B requiring the inclusion of mental health care benefits in policies of insurance are severable from the provision pertaining directly to benefit plans. We believe that they are. The insurance requirements "have independent force, thus justifying the inference that the enacting body would have passed one without the other." DelDuca v. Town Adm'r of Methuen, 368 Mass. 1, 13, 329 N.E.2d 748 (1975). The judge's findings indicate that many plans purchase insurance, and that § 47B as currently enforced (against insurers only) has brought about significant improvements in mental health care in Massachusetts. The judge also found that there was no credible evidence that partial enforcement of § 47B had caused plans to shift to self-insurance.

In light of our conclusion that the insurance provisions of § 47B are independently enforceable, the following discussion of preemption will be limited to the statute's application to policies of insurance.

2. Preemption-General Principles.

By the operation of the supremacy clause of the United States Constitution, art. 6, Federal law preempts conflicting State law. Gibbons v. Ogden, 22 U.S. (9 Wheat.) 1, 210-211, 6 L.Ed. 23 (1824). The conflict may be direct, in the sense that State regulation contradicts Federal regulation, see McDermott v. State, 228 U.S. 115, 132-134, 33 S.Ct. 431, 435-436, 57 L.Ed. 754 (1913), or interferes with Federal policy, see Burbank v. Lockheed Air Terminal, Inc., 411 U.S. 624, 639, 93 S.Ct. 1854, 1862, 36 L.Ed.2d 547 (1973), or it may arise from congressional intent, express or implied, to exclude all State regulation from a particular area. See Commonwealth v. Federico, --- Mass. ---, ---, Mass.Adv.Sh. (1981) 1052, 1056, 419 N.E.2d 1374; Alessi v Raybestos-Manhattan, Inc., 451 U.S. 504, 522-525, 101 S.Ct. 1895, 1905-1907, 68 L.Ed.2d 403 (1981); Chicago & N.W. Transp. Co. v. Kalo Brick & Tile Co., 450 U.S. 311, 324-326, 101 S.Ct. 1124, 1133-1134, 67 L.Ed.2d 258 (1981). See generally L. Tribe, American Constitutional Law 376-389 (1978). Preemption, however, is not favored, and State laws should be upheld unless a conflict with Federal law is clear. A finding of preemption must rest upon "persuasive reasons-either that the nature of the regulated subject matter permits no other conclusion, or that the Congress has unmistakably so ordained." Alessi v. Raybestos-Manhattan, Inc., supra, 451 U.S. at 522, 101 S.Ct. at 1905, quoting from Florida Lime & Avocado Growers v. Paul, 373 U.S. 132, 142, 83 S.Ct. 1210, 1217, 10 L.Ed.2d 248, amended in other respects, 373 U.S. 929, 83 S.Ct. 1210, 10 L.Ed.2d 248 (1963).

3. Does ERISA Preempt § 47B?

Congress enacted ERISA in 1974 to protect the interests of beneficiaries of employee benefit plans. 29 U.S.C. § 1001 (1976). Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 510, 101 S.Ct. 1895, 1899, 68 L.Ed.2d 403 (1981). Nachman Corp. v. Pension Benefit Guaranty Corp., 446 U.S. 359, 374-375, 100 S.Ct. 1723, 1732-1733, 64 L.Ed.2d 354 (1980). Prior Federal law ⁴ had preserved primary responsibility for regulation of benefit plans to the States. See Malone v. White Motor Corp., 435 U.S. 497, 505-512, 98 S.Ct. 1185, 1190-1193, 55 L.Ed.2d 443 (1978). See generally Hutchinson & Ifshin, Federal Preemption of State Law under the Employee Retirement Income Security Act of 1974, 46 U.Chi.L.Rev. 23, 25-30 (1978). In its place, ERISA outlined a detailed system for Federal regulation of benefit plan administration. Alessi v. Raybestos-Manhattan, Inc., supra, 451 U.S. at 510, 101 S.Ct. at 1899.

ERISA applies to two types of benefit plan-"pension plans," which provide retirement benefits or deferred income; ⁵ and "welfare plans," which provide nonpension benefits including medical and hospital expenses. ⁶ Wadsworth v. Whaland, 562 F.2d 70, 74 (1st Cir. 1977), cert. denied, 435 U.S. 980, 98 S.Ct. 1630, 56 L.Ed.2d 72 (1978). ERISA's regulatory provisions establish disclosure requirements and fiduciary standards applicable to both pension and welfare plans, ⁷ as well as funding and vesting requirements applicable only to pension plans. ⁸ Other sections of the act provide for enforcement and administration, and for national insurance against termination of pension plans. See generally, Hutchinson & Ishfin, supra at 30-34.

ERISA also contains express provisions defining its preemptive effect on State law. Three provisions are relevant here. First, the act's general preemption clause states in sweeping terms that ERISA supersedes all State laws that "relate to" employee benefit plans. ⁹ This general clause, however, is followed by a savings clause that exempts any State law that "regulates insurance" from the preemptive effect of the act. ¹⁰ The savings clause is limited in turn by a third clause which provides that a State may not "deem" that a benefit plan is an insurer subject to its insurance laws. ¹¹

The Attorney General argues that § 47B is a law that "regulates insurance," and is therefore exempted from preemption by ERISA's savings clause. The defendants argue that because the purpose and effect of § 47B are to regulate benefits, it should not be saved from preemption as an insurance law.

Persuasive authority supports the Attorney General's position. Both the United States Court of Appeals for the First Circuit and the Supreme Court of New Hampshire have rejected preemption challenges to a New Hampshire law nearly identical to § 47B. ¹² Wadsworth v. Whaland, 562 F.2d 70 (1st Cir. 1977); Metropolitan Life Ins. Co. v. Whaland, 119 N.H. 894, 410 A.2d 635 (1979). The defendants suggest that these decisions are not soundly reasoned, and have been undermined by a recent decision of the United States Supreme Court, Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 101 S.Ct. 1895, 68 L.Ed.2d 403 (1981). We disagree. In light of the Alessi decision, however, we will set forth our reasoning in some detail.

We first address the language of ERISA's preemption and savings provisions, to determine whether Congress has "unmistakably ... ordained" preemption of § 47B. Id. at 522, 101 S.Ct. at 1905, quoting Florida Lime & Avocado Growers v. Paul, 373 U.S. 132, 142, 83 S.Ct. 1210, 1217, 10 L.Ed.2d 248, amended in other respects, 373 U.S. 929, 83 S.Ct. 1210, 10 L.Ed.2d 248 (1963). In Alessi, the Supreme Court adopted a broad construction of ERISA's general preemption clause, holding that the clause applied to a New Jersey workers' compensation law that prohibited set-offs of workmen's compensation payments against pension benefits. The Court reasoned that the New Jersey statute was a law "relat(ing) to" pension plans because it foreclosed a method of calculating pension benefits. 451 U.S. at 524-525, 101 S.Ct. at 1906-1907. The Court added that "(i)t is of no moment that New Jersey intrudes indirectly, through a workers' compensation law rather than directly, through a statute called 'pension regulation.' " Id. at 525, 101 S.Ct. at 1907. See also 29 U.S.C. § 1144(c)(2) (1976).

The...