American Progressive Life and Health Ins. Co. of New York v. Corcoran

Citation715 F.2d 784
Decision Date22 August 1983
Docket NumberD,No. 1349,1349
CourtUnited States Courts of Appeals. United States Court of Appeals (2nd Circuit)
Parties4 Employee Benefits Cas. 2139 AMERICAN PROGRESSIVE LIFE AND HEALTH INSURANCE COMPANY OF NEW YORK, Plaintiff-Appellant, v. James CORCORAN, as Superintendent of Insurance of the State of New York, Defendant-Appellee. ocket 83-7252.

Vincent R. Fitzpatrick, Jr., New York City (Dwight A. Healy, Alice K. Jump, White & Case, New York City, of counsel) for plaintiff-appellant.

Richard G. Liskov, Asst. Atty. Gen., New York City (Robert Abrams, Atty. Gen. of the State of N.Y., Melvyn R. Leventhal, Deputy First Asst. Atty. Gen., John M. Farrar, Asst. Atty. Gen., New York City, of counsel) for defendant-appellee.

Before OAKES, CARDAMONE and PIERCE, Circuit Judges.

CARDAMONE, Circuit Judge:

The case before us presents the sole issue of whether a particular New York State insurance regulation and a report concerning appellant prepared by the State of New York's Insurance Department (Department) constitute state regulation of an employee benefit plan preempted by the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001-1461. We conclude that neither the report nor the regulation are preempted by ERISA.

BACKGROUND

The facts of this case are not in dispute. American Progressive Life and Health Insurance Company of New York (Company) is licensed by New York to sell accident, health, and life insurance policies. During a three-year period ending on December 31, 1979 the Insurance Department conducted an extensive examination of the Company's organization, operations, and finances. It prepared a report dated March 10, 1981 (Report) detailing the results of its examination. Section 9 of the Report discusses the Company's sales of individual life insurance policies to union-management welfare and pension funds (ERISA plans). The Report criticized the Company's sales of such policies for several reasons. Included among the problems cited was the fact that while the Company had previously assured the Department that it would market the policies only on an individual sales basis, the Company actually mass merchandised the policies. The Report found, moreover, that the compensation paid to the Company's agents in connection with the sale of the policies was excessive and in violation of New York Insurance Regulation 65, 11 N.Y.C.R.R. § 202, which establishes a maximum commission for life insurance salesmen selling on a mass merchandising basis to union-management pension funds. The Report further criticized the Company because the In response to this unfavorable report, the Company filed the instant action in the United States District Court for the Southern District of New York seeking declaratory and injunctive relief against James Corcoran, as Superintendent of Insurance of the State of New York (Superintendent). The Company sought a declaration that the Report and Regulation 65 amount to state regulation of ERISA plans and are, therefore, preempted by ERISA. The Company also sought to enjoin the Superintendent from filing the Report for public inspection, taking any action against the Company based on the Report, and enforcing Regulation 65 against the Company. Following the submission of cross-motions for summary judgment, the district court (Gagliardi, J.) granted summary judgment in favor of the Superintendent and dismissed the Company's complaint. In so holding, the district court correctly reasoned that the Report and Regulation 65 are within the insurance exception to ERISA preemption.

                policies issued had a low cash surrender value in their early years due to excessive selling expenses.   Finally, the Report concluded that replacement policies issued to laid-off workers upon their return to work were sold at unreasonably high prices
                
DISCUSSION

On appeal the Company renews its contention that section 9 of the Report and Regulation 65 are not within purview of the insurance exception to ERISA preemption. It argues that while the Report and Regulation 65 ostensibly purport to relate to insurance, they effectively and exclusively regulate employee benefit plans. We disagree with this contention and believe that the Report and Regulation 65 fall squarely within the insurance exception.

We turn to the applicable provisions of ERISA. Section 514(a) states that the relevant provisions of the Act "shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan ...." 29 U.S.C. § 1144(a) (1976). This broad preemption provision is qualified by a savings clause that provides, in pertinent part, that "nothing in this subchapter shall be construed to exempt or relieve any person from any law of any State which regulates insurance ...." Id. at § 1144(b)(2)(A) (1976). To prevent evasion by state law of the broad preemption imposed by federal law, section 514(b)(2)(B) states that no employee benefit plan "shall be deemed to be an insurance company ... for purposes of any law of any State purporting to regulate insurance companies ...." 29 U.S.C. § 1144(b)(2)(B) (1976).

Admittedly, as appellant argues, the ERISA preemption provision was designed to have a sweeping preemptive effect in the employee benefit plan field, and the various exceptions to preemption are meant to be "narrow." Delta Air Lines, Inc. v. Kramarsky, 650 F.2d 1287, 1304 (2d Cir.), vacated in part on other grounds, 666 F.2d 21 (2d Cir.1981), prob. juris. noted, 456 U.S. 924, 102 S.Ct. 1968, 72 L.Ed.2d 439 (1982). Thus this Court, for example, has previously struck down, as preempted by ERISA, a state law that required employers to continue making contributions to a fund on behalf of employees receiving workers' compensation benefits. Stone & Webster Engineering Corp. v. Ilsley, 690 F.2d 323, 329-30 (2d Cir.1982); see also Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 101 S.Ct. 1895, 68 L.Ed.2d 402 (1981) (ERISA preempts state law prohibiting benefit plans from offsetting workers' compensation award against pension benefits); Kramarsky, 666 F.2d at 26 (ERISA preempts New York's Human Rights Law to extent that state statute required plans to provide benefits for disability due to pregnancy). None of these cases, upon which appellant relies, deals with the savings clause applicable to insurance that is currently before us.

More relevant are the decisions in Wayne Chemical, Inc. v. Columbus Agency Service Corp., 567 F.2d 692 (7th Cir.1977); and Wadsworth v. Whaland, 562 F.2d 70 (1st Cir.1977), cert. denied, 435 U.S. 980, 98 S.Ct. 1630, 56 L.Ed.2d 72 (1978). In Wayne Chemical, the Seventh Circuit held that ERISA did not preempt an Indiana insurance law forbidding the sale of unauthorized group insurance policies even though, as here, the policies were sold to employee benefit plans. See 567 F.2d at 700. ERISA's exemption of pension plans from state regulation did not extend, the court continued, to either insurers who sell to plans or insurance...

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