562 F.2d 70 (1st Cir. 1977), 77-1135, Wadsworth v. Whaland

Docket Nº:77-1135 and 77-1136.
Citation:562 F.2d 70
Party Name:Bruce W. WADSWORTH, Administrator of New Hampshire Employers' Benefit Trust and Northern New England Benefit Trust, Appellant, v. Francis E. WHALAND, Commissioner, Department of Insurance, State of New Hampshire, Appellee. James M. DAWSON, Administrator of Northern New England Carpenters Health and Welfare Fund, New Hampshire Masons Health and Welf
Case Date:September 01, 1977
Court:United States Courts of Appeals, Court of Appeals for the First Circuit

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562 F.2d 70 (1st Cir. 1977)

Bruce W. WADSWORTH, Administrator of New Hampshire

Employers' Benefit Trust and Northern New England

Benefit Trust, Appellant,


Francis E. WHALAND, Commissioner, Department of Insurance,

State of New Hampshire, Appellee.

James M. DAWSON, Administrator of Northern New England

Carpenters Health and Welfare Fund, New Hampshire Masons

Health and Welfare Fund, New Hampshire Plumbers Health and

Welfare Fund, New Hampshire Sheet Metal Workers # 297 Health

and Welfare Fund, Appellant,


Francis E. WHALAND, Commissioner, Department of Insurance,

State of New Hampshire, Appellee.

Nos. 77-1135 and 77-1136.

United States Court of Appeals, First Circuit

September 1, 1977

Heard June 2, 1977.

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[Copyrighted Material Omitted]

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David L. Nixon, Manchester, N. H., with whom Randolph J. Reis, Nashua, N. H., and Brown & Nixon Professional Assn., Manchester, N. H., were on brief, for James M. Dawson, etc., appellant.

John J. Flaherty, Portland, Maine, with whom Peter H. Rysman and Preti & Flaherty, Portland, Maine, were on brief, for Bruce W. Wadsworth, appellant.

George J. Pantos, Michael J. Bartlett, Vedder, Price, Kaufman, Kammholz & Day, Washington, D. C., and Robert S. Stone, Senior Counsel, International Business Machines Corporation (IBM), Armonk, N. Y., on brief, for Erisa Industry Com., amicus curiae.

James C. Sargent, Jr., Asst. Atty. Gen., Concord, N. H., with whom David H. Souter, Atty. Gen., and Andrew R. Grainger, Atty., Concord, N. H., were on brief, for appellees.

Warren R. Spannaus, Atty. Gen., Richard B. Allyn, Sol. Gen., Richard A. Lockridge, and Stephen Shakman, Sp. Asst. Attys. Gen., St. Paul, Minn., on brief, for the State of Minnesota, amicus curiae.

Before COFFIN, Chief Judge, LAY, Circuit Judge, [*] CAMPBELL, Circuit Judge.

LAY, Circuit Judge.

This case presents an important and fundamental question of federal preemption because of an alleged conflict between the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C § 1001 et seq., and the New Hampshire state law regulating the content of group insurance policies, Chapter 57 of the Laws of 1976, N.H.Rev.Stat.Ann. §§ 415:18-a, 419:5-a and 420:5-a (1976). Chapter 57 requires the "issuers" of group health insurance policies to provide coverage for the treatment of mental illnesses and emotional disorders. 1 ERISA does not require this. Administrators of various health and welfare funds which provide benefits chiefly through the purchase of group health insurance, 2 brought this action against Francis E. Whaland, Commissioner of Insurance for the State of New Hampshire, seeking a declaration that Chapter 57 is unconstitutional and an injunction

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restraining its enforcement. The fund administrators' principal contention is that ERISA preempts the provisions of Chapter 57, to the extent that that chapter applies to employee benefit plans. 3 Alternatively, they assert that the New Hampshire statutory scheme is an undue burden on interstate commerce and violates the due process and equal protection clauses of the United States Constitution. Both parties filed motions for summary judgment. After an evidentiary hearing relating primarily to the issue of irreparable harm, the district court, the Honorable Hugh H. Bownes presiding, held that ERISA did not preempt state regulation of group insurance policies, and that Chapter 57 did not contravene any provision of the Constitution. We affirm.



As the preamble to the Act indicates, 4 ERISA is the result of a congressional endeavor

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to curb the funding and disclosure abuses of employee pension and welfare benefit plans by establishing minimum federal standards. Title I of ERISA, composed of five main subparts, provides the substantive regulatory provisions governing two basic types of employee benefit plans. Those two types are pension plans, which provide for retirement or deferred income, 5 and welfare benefit plans, which provide medical, health, sickness, accident, and other non-pension benefits. 6

Part one of Title I 7 deals with the reporting and disclosure requirements for both types of plans. The basic purposes of these requirements are to inform employees of their rights, and to assist the Secretary of Labor in determining the financial soundness of the plan. See Brummond, Federal Preemption of State Insurance Regulation Under ERISA, 62 Iowa L.Rev. 57, 61-62 (1976). Thus, the fund administrators are required to provide each participant and each beneficiary with a summary description of their plan drafted in language understandable by the average plan participant 8 and to make available a copy of the plan's annual report. 9 A copy of the information provided to participants and beneficiaries, as well as other data, must be furnished to the Secretary of Labor. 10

Parts two 11 and three 12 of Title I are limited in that they apply only to pension benefit plans. Part two creates minimum vesting standards and participation requirements, while part three provides funding requirements.

Part four 13 of the Title sets forth the fiduciary standards for the management of employee pension and welfare benefit plans. These standards provide in part that the plan be in writing, 14 the assets be held in trust 15 exclusively for the benefit of employees, 16 and that the plan investments be diversified. 17 A "prudent man" standard is established for fund administrators, and prohibited financial transactions are listed. 18

Finally, part five 19 contains the administrative and enforcement provisions which apply to both employee pension plans and welfare benefit plans. It creates broad criminal and civil penalties 20 and sets forth general guidelines governing claims procedures. 21 Part five also gives the Secretary of Labor broad investigative powers 22 and authority to promulgate regulations. 23


The "Funds".

The funds administered by plaintiffs are employee welfare benefit plans within the

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meaning of § 3 of ERISA. 24 All of the funds, with the exception of New Hampshire Employer's Benefit Trust, are "Taft-Hartley Trusts" in that they are also regulated by § 302 of the Labor Management Relations Act. 25 Also with the exception of New Hampshire Employer's Benefit Trust, which is voluntarily operated by employees, the funds are the products of collective bargaining agreements that require employers to contribute at a specified level. While the level of contributions is specified by the collective bargaining agreements, benefits are not.

Each year the fund administrators meet with local unions to determine the types of coverage desired by the members. The fund administrators must obtain, at the least possible cost, the coverage chosen. To fulfill this obligation the fund administrators, with the aid of insurance consultants, put together packages upon which they request sealed bids from insurance companies. Although the funds are self-insurers on a few benefits, approximately 90 per cent of the benefits are provided through group insurance policies. However, for all practical purposes, under the group insurance policies the funds are self-insurers who retain the insurance companies to provide the administrative service of processing claims. 26 Because the premiums are experience rated the amount of claims for the year is projected; if the actual amount of claims is higher than the projection, the premium is adjusted upward; if the actual amount of claims is lower than the projection, the premium is adjusted downward. So in the long run, the funds reimburse the insurance company for all claims.


  1. The Preemption Issue.

    The preemption issue is raised by § 514 of ERISA 27 which provides that all state laws that "relate to" employee benefit plans are superseded. 28 This sweeping language is modified by a saving clause which reaffirms the authority of the states to regulate insurance. 29 However, the saving clause is further limited in that no plan will be "deemed" to be an insurance company, insurer or engaged in the business of insurance for the purpose of any state insurance law. 30

    Plaintiffs contend that § 514 preempts any direct or indirect regulation of employee

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    benefit plans by the state. 31 They urge that Chapter 57 clearly "relates" to employee benefit plans and therefore the provisions of ERISA "supersede" Chapter 57 as it applies to them. On the other hand the Commissioner urges that no direct conflict between ERISA and Chapter 57 exists, and that the saving clause specifically preserves the efficacy of state regulation of insurance. The Commissioner finds support for his position in the McCarran-Ferguson Act 32 which reflects a congressional policy to allow the states to regulate the business of insurance. 33

  2. The New Hampshire Act.

    In resolving the preemption issue, it is first necessary to determine the scope of the New Hampshire statute. Chapter 57 applies to "each insurer that issues or renews any policy of group or blanket accident or health insurance" and "certificate holders of such insurance." The issue is whether employee welfare funds are insurers under the statute. In the event they are, we would have no difficulty finding explicit preemption by ERISA notwithstanding the saving clause. 34

    In determining the scope of Chapter 57 we are without the aid of a definitive New Hampshire state court interpretation. The state attorney general, without conceding its direct non-applicability to employee benefit plans, indicates that "Chapter 57 is not a disclosure law, and it does not purport to regulate benefit plans." The plaintiffs, on the other hand, assert that they are not "self-insurers," despite the fact that their...

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