Aetna Life Ins. Co. v. Borges

• Decision Date: 23 February 1989
• Docket Number: No. 658,D,658
• Citation: 869 F.2d 142
• Parties: , 10 Employee Benefits Ca 2001 AETNA LIFE INSURANCE COMPANY, Plaintiff-Appellee, v. Francisco L. BORGES, Treasurer of the State of Connecticut, and State of Connecticut, Defendants-Appellants. ocket 88-7843.
• Court: U.S. Court of Appeals — Second Circuit

Page 142

869 F.2d 142

57 USLW 2515, 10 Employee Benefits Ca 2001

AETNA LIFE INSURANCE COMPANY, Plaintiff-Appellee, v. Francisco L. BORGES, Treasurer of the State of Connecticut and State of Connecticut, Defendants-Appellants.

No. 658, Docket 88-7843.

United States Court of Appeals, Second Circuit.

Argued Jan. 25, 1989.

Decided Feb. 23, 1989.

Carl J. Schuman, Asst. Atty. Gen., Hartford, Conn. (Joseph I. Lieberman, Atty. Gen., William J. Prensky, Asst. Atty. Gen., Hartford, Conn., on the brief), for defendants-appellants.

Allan B. Taylor, Hartford, Conn. (Ann McClure, Day, Berry & Howard, Hartford, Conn., on the brief), for plaintiff-appellee.

Before NEWMAN, PIERCE and MAHONEY, Circuit Judges.

JON O. NEWMAN, Circuit Judge:

On this appeal, we once again confront the often litigated issue of the scope of federal preemption under the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. Secs. 1001-1461 (1982 & Supp. IV 1986). The question presented is whether ERISA preempts the application of Connecticut's escheat law to ERISA-covered benefit checks and drafts that have been issued but have not been collected or presented for payment by the beneficiaries. The Treasurer and the State of Connecticut appeal from a judgment of the District Court for the District of Connecticut (Alan H. Nevas, Judge) summarily approving a magistrate's recommended ruling that the escheat law is preempted. Aetna Life Insurance Co. v. Parker, 692 F.Supp. 94 (D.Conn.1988). We reverse and remand.

Background

The stipulated facts are as follows. Appellee Aetna Life Insurance Company ("Aetna") contracts with employers to provide group health and accident insurance coverage to employees. The benefit plans at issue here are covered by ERISA, the federal law regulating pension and other employee benefit programs. The premium that Aetna charges to employers is based on each employer's "experience rating"--that is, it is related to the cost of providing benefits to the employees of that company in previous years. The more benefits paid out under a plan, the higher the premium will be for the employer.

Not infrequently, after Aetna approves an employee's claim for benefits and issues a draft on an Aetna account to pay the claim, the employee fails to present the draft for payment. The draft then remains on Aetna's records as outstanding. Aetna has no specific deadline for presenting uncollected drafts, but its policy has been to honor drafts for longer than three years.

Aetna generally calculates the experience rating of employers on the basis of checks presented for payment ("presented basis" accounting) rather than on all checks that have been issued ("issued basis" accounting). A small reserve to cover unpresented drafts that may be collected in the future is also figured into the calculation of premium cost, again based on the experience of the particular plan. The amount reserved is a small percentage of the total amount of all unpresented checks.

Most other insurers in Connecticut use issued basis accounting. To the extent that issued basis accounting may lead to higher premiums, Aetna enjoys a competitive marketing advantage over its competitors.

In 1981, Connecticut revised its abandoned property laws, changing the time period for abandonment from seven years to three years. Conn.Gen.Stat. Sec. 3-64a (1987). After property is abandoned, the holder must deliver it to the state treasurer, and the holder is then relieved of liability for claims to the property. The owner has twenty years to file a claim for the property with the State. After twenty years, the State can begin escheat proceedings. Conn.Gen.Stat. Sec. 3-72a.

Pursuant to the new law, the State determined that Aetna had uncollected drafts for ERISA-covered benefits totaling more than $2.5 million. The State instituted proceedings in state court to recover the money from Aetna. Aetna filed suit in the District Court for the District of Connecticut seeking an injunction and a declaratory judgment that ERISA preempts the application of the escheat law to ERISA-covered benefit plans. Federal question jurisdiction was properly invoked. See Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96 n. 14, 103 S.Ct. 2890, 2899 n. 14, 77 L.Ed.2d 490 (1983). The parties stipulated to the facts and filed cross-motions for summary judgment.

Magistrate Joan Glazer Margolis wrote a recommended ruling that the escheat law was preempted, and Judge Nevas adopted the opinion. Judge Nevas entered judgment for Aetna on its prayer for declaratory relief and denied the claim for injunctive relief without prejudice.

The Magistrate's opinion determined that the escheat law is preempted because it has too great an impact on the administration of ERISA plans. The Magistrate noted that in a similar case, the Michigan Court of Appeals ruled that the State of Michigan's escheat law was not preempted by ERISA. Attorney General v. Blue Cross & Blue Shield, 168 Mich.App. 372, 424 N.W.2d 54 (1988). But the Magistrate believed that the factual record was not as fully developed in the Michigan case and that the impact on the administration of ERISA plans was not as clear.

Discussion

ERISA is a comprehensive statute designed to promote the interests of employees and their beneficiaries in employee benefit plans. See Shaw v. Delta Air Lines, Inc., supra, 463 U.S. at 90, 103 S.Ct. at 2896. The statute does not mandate that employers provide any particular benefits. But for employers that do provide certain pension and welfare benefits, ERISA imposes participation, funding, and vesting requirements, 29 U.S.C. Secs. 1051-1086, and sets various uniform standards, including rules concerning reporting, disclosure, and fiduciary responsibility. 29 U.S.C. Secs. 1021-1031, 1104-1114. The statute does not prescribe any particular procedure for the handling of benefits that are awarded but uncollected, nor does it specify a time limit for honoring such claims.

The statute also includes an express preemption provision. Section 514(a) of ERISA provides that the statute "shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan" covered by the statute. 29 U.S.C. Sec. 1144(a). ¹

The purpose of Congress is the ultimate touchstone in determining whether a federal law preempts a state law. Pilot Life Insurance Co. v. Dedeaux, 481 U.S. 41, 107 S.Ct. 1549, 1552, 95 L.Ed.2d 39 (1987). We must seek to give effect to the "full purposes and objectives" of federal statutes. Hines v. Davidowitz, 312 U.S. 52, 67, 61 S.Ct. 399, 404, 85 L.Ed. 581 (1941). At the same time, we must assume "that the historic police powers of the States were not to be superseded by [a] Federal Act unless that was the clear and manifest purpose of Congress." Ray v. Atlantic Richfield Co., 435 U.S. 151, 157, 98 S.Ct. 988, 994, 55 L.Ed.2d 179 (1978) (quotation omitted).

The Supreme Court has examined the scope of ERISA preemption on several occasions. The Court has stated that "the express pre-emption provisions of ERISA are deliberately expansive, and designed to 'establish pension plan regulation as exclusively a federal concern.' " Pilot Life Insurance Co. v. Dedeaux, supra, 107 S.Ct. at 1552 (quoting Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 523, 101 S.Ct. 1895, 1906, 68 L.Ed.2d 402 (1981)). The words "relate to" in section 514(a) are to be interpreted broadly; ERISA does not preempt only state laws specifically designed to affect employee benefit plans or dealing with the subject matters covered by ERISA--reporting, disclosure, fiduciary responsibility, and the like. Shaw v. Delta Air Lines, Inc., supra, 463 U.S. at 98, 103 S.Ct. at 2900.

The Supreme Court recently elaborated on the purposes of ERISA's preemption provisions An employer that makes a commitment systematically to pay certain benefits undertakes a host of obligations, such as determining the eligibility of claimants, calculating benefit levels, making disbursements, monitoring the availability of funds for benefit payments, and keeping appropriate records in order to comply with applicable reporting requirements. The most efficient way to meet these responsibilities is to establish a uniform administrative scheme, which provides a set of standard procedures to guide processing of claims and disbursement of benefits. Such a system is difficult to achieve, however, if a benefit plan is subject to differing regulatory requirements in differing States. A plan would be required to keep certain records in some States but not in others; to make certain benefits available in some States but not in others; to process claims in a certain way in some States but not in others; and to comply with certain fiduciary standards in some States but not in others.

....

It is thus clear that ERISA's pre-emption provision was prompted by recognition that employers establishing and maintaining employee benefit plans are faced with the task of coordinating complex administrative activities. A patchwork scheme of regulation would introduce considerable inefficiencies in benefit program operation, which might lead those employers with existing plans to reduce benefits, and those without such plans to refrain from adopting them. Pre-emption ensures that the administrative practices of a benefit plan will be governed by only a single set of regulations.

Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 107 S.Ct. 2211, 2216-17, 96 L.Ed.2d 1 (1987).

The Court has also recognized, however, that Congress, in seeking to preempt all state laws that "relate to" employee benefit plans, could not possibly have meant to preempt all laws having any impact on such plans, no matter how small or how tangential. "Some state actions may affect employee benefit plans in too tenuous, remote, or peripheral a manner to warrant a finding that the law 'relates to' the plan." Shaw v. Delta Air Lines, Inc., supra, 463 U.S. at 100 n. 21, 103 S.Ct. at 2901 n. 21....