Aetna Life Ins. Co. v. Parker
| Decision Date | 29 June 1988 |
| Docket Number | Civ. No. H-84-983(AHN). |
| Citation | 692 F. Supp. 94 |
| Parties | AETNA LIFE INSURANCE CO. v. Henry PARKER, as Treasurer of the State of Connecticut, and State of Connecticut. |
| Court | U.S. District Court — District of Connecticut |
Thomas J. Groark, Ann McClure, Alan B. Taylor, Day, Berry & Howard, Hartford, Conn., for plaintiff.
Brewster Blackall, William Prensky, Asst. Atty. Gen., Hartford, Conn., for defendants.
Over objection and after a careful review, the Magistrate's Recommended Ruling is hereby adopted, ratified and approved. SO ORDERED.
JOAN GLAZER MARGOLIS, United States Magistrate.
On September 10, 1984, plaintiff Aetna Life Insurance Company ("plaintiff" or "Aetna") brought this action for injunctive and declaratory relief pursuant to Section 502(a)(3) of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1132(a)(3); in its second amended complaint, filed December 24, 1986, plaintiff contends that the defendants State of Connecticut ("Connecticut" or "State") and its state treasurer have improperly demanded surrender under Connecticut's escheat statute, Conn.Gen.Stat. § 3-64a1, of more than $2,500,000 in uncashed checks and drafts issued in payment of individual benefits under ERISA plans. In their counterclaim, filed April 3, 1987, defendants assert that the unclaimed drafts constitute abandoned property to which they are entitled under the state escheat statute.
A Joint Stipulation of Facts ("Jt. Stip.") was filed on December 15, 1987. On January 15, 1988, defendants filed a motion for summary judgment; plaintiff's cross-motion for summary judgment was filed on January 19, 1988.2 Reply briefs were filed on January 29, 1988. Lengthy oral argument was held on April 8, 1988. The sole legal issue raised here is whether the Connecticut escheat statute is preempted by ERISA.
For the reasons stated herein, plaintiff's motion for summary judgment is granted and accordingly defendants' motion for summary judgment is denied.
The following facts are undisputed:
Plaintiff Aetna provides group and accident insurance to various employee benefit plans, some of which are subject to ERISA. (Jt.Stip. ¶ 3).
On April 8, 1982, Aetna entered a settlement agreement with the State in the amount of $7,131,772.71 regarding escheatment of Aetna's statutory obligations through 1981, including drafts issued under ERISA plans prior to ERISA's effective date. . Aetna charged these amounts to ERISA and non-ERISA plans equally. (Jt.Stip. ¶ 38). For drafts issued subsequent to the period covered by the settlement, Aetna now charges escheatable amounts directly to the plan under which the amounts arose. (Jt.Stip. ¶ 39). All outstanding drafts issued under life insurance policies prior to 1983 have been surrendered to the State regardless of the ERISA status of those policies. (Jt. Stip. ¶ 40). The parties agree that more than $2,500,000 in claim payment drafts issued by Aetna under ERISA plans prior to January 1, 1985 remain outstanding. (Jt.Stip. ¶ 33).
Aetna determines the amount of the premium it charges to the members of each insured group by an accounting procedure called "experience rating." (Jt.Stip. ¶ 8). Aetna bases premiums for the ensuing year on the amount actually paid in claims to members of that group during the previous year. (Jt.Stip. ¶ 8). Aetna does not include a claim from the previous year into its loss experience until the claim payment draft has cleared banking channels ("presented basis accounting"). (Jt.Stip. ¶¶ 10, 17). Only pharmacy and repetitive payment claims are charged to the appropriate plan at the time the drafts are issued ("issued basis accounting"). (Jt.Stip. ¶¶ 41, 18). Most of Aetna's competitors use "issued basis accounting" for all claims paid to the various insured groups. (Jt.Stip. ¶ 19).
Unrecoverable losses are also figured into the experience rating formula, while experience surpluses are either refunded or credited to the policyholder. (Jt.Stip. ¶¶ 11, 13). Deficits are recovered from future premiums. (Jt.Stip. ¶ 13).
When Aetna's payment for covered services does not clear banking channels during the policy year, Aetna sets aside a reserve fund for payment of these claims based upon the group's claims history. (Jt. Stip. ¶ 10). The company honors such unpaid drafts even when they are over three years old. (Jt.Stip. ¶ 10).
When an ERISA plan is cancelled or terminated, Aetna continues to pay claims submitted under the plan in the usual manner after a period of two years. (Jt.Stip. ¶ 29). Two years after the plan ends, the company returns reserve funds to the Plan, but it deducts a 2% residual for unrecorded claims which may subsequently be presented under the terminated plan. (Jt.Stip. ¶ 14). Once final accounting has taken place, about two years after cancellation of a plan, Aetna no longer charges the plan for outstanding drafts subsequently presented for payment. (Jt.Stip. ¶ 29).
By the terms of its contracts with policyholders, Aetna may set the experience credit amount. (Jt.Stip. ¶ 22). On occasion Aetna has negotiated the amount with ERISA plans and has made adjustments to prevent policyholders from terminating or cancelling their policies. (Jt.Stip. ¶¶ 23, 24).
The limitations of Aetna's previous filing system prevent identification of the specific ERISA plans or payees to whom outstanding claim drafts issued prior to January 1, 1982 should be charged. (Jt.Stip. ¶ 25). Aetna did not attempt to contact those ERISA draft payees. (Jt.Stip. ¶ 26). Aetna also does not know which outstanding drafts for January 1, 1975 through December 31, 1983 were issued under ERISA plans and under non-ERISA plans. (Jt. Stip. ¶ 33). However, it sent contact letters to payees of outstanding drafts of over $250 issued during 1982 and to payees of drafts over $100 issued in 1983 or later, regardless of ERISA status. (Jt.Stip. ¶ 26). Aetna does not seek payees of outstanding drafts through publication. (Jt.Stip. ¶ 27). It has no record of which ERISA plans have been terminated or cancelled. (Jt. Stip. ¶ 28).
Aetna could not apply any loss due to funds escheated by the state to premium increases for ERISA plans cancelled or terminated prior to November 1, 1984 because it cannot charge a plan's loss experience with funds paid out more than two years after cancellation or termination of the plan. (Jt.Stip. ¶¶ 30, 31).
Section 514(a) of ERISA explicitly provides that the provisions of ERISA "shall supercede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan" under ERISA. 29 U.S.C. § 1144(a). As the United States Supreme Court stated in Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 523, 101 S.Ct. 1895, 1906, 68 L.Ed.2d 402 (1981) ("Alessi"), § 1144(a) was "meant to establish pension plan regulation as exclusively a federal concern." (footnote omitted). The Alessi Court drew upon the definition of "State" found in 29 U.S.C. § 1144(c)(2)3 to hold that "even indirect state action bearing upon private pensions may encroach upon the exclusive federal concern." Id. at 525, 101 S.Ct. at 1907.
Id. at 99, 103 S.Ct. at 2901, quoting 120 Cong.Rec. 29933 (1974). Thus the Court ruled that the "breadth of § 1144(a)'s preemptive reach is apparent from that section's language." 463 U.S. at 96, 103 S.Ct. 2899 (footnote omitted). It further held that a law "relates to" an ERISA plan "in the normal sense of the phrase, if it has a connection with or reference to such a plan." Id. at 97, 103 S.Ct. at 2900 (footnote omitted). The Supreme Court later stated that Shaw gave this phrase a "broad common-sense meaning." Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 739, 105 S.Ct. 2380, 2389, 85 L.Ed.2d 728 (1985) ("Metropolitan v. Massachusetts").
While recognizing that the Shaw court accorded § 1144(a) a broad and liberal construction, the Second Circuit nonetheless characterized the preemptive scope of ERISA as "neither all-encompassing ... nor unlimited ..." Rebaldo v. Cuomo, 749 F.2d 133, 138 (2d Cir.1984), cert. denied, 472 U.S. 1008, 105 S.Ct. 2702, 86 L.Ed.2d 718 (1985) (citations omitted) ("Rebaldo"). Like the Supreme Court in Alessi, the Second Circuit referred to § 1144(c)(2), which defines the term "State,"4 to restrict the preemptive effect of ERISA to only those state laws which "purport to regulate, ... the terms and conditions of employee benefit plans ..."5
As defendants appropriately point out, escheat of unclaimed property is an area of traditional state control, rooted in English common law and adopted in this country after the American Revolution. (Defendants' Brief at 9-10). Indeed, the Second Circuit on two occasions found no preemption by ERISA of two New York statutes which involved the exercise of the state's police powers. E.g., Rebaldo, supra, 749 F.2d at 138-40 (); American Telephone & Telegraph Co. v. Merry, 592 F.2d 118, 122 (2d Cir.1979) ("Merry") () (cited Shaw, supra, 463 U.S. at 100 n. 21, 103 S.Ct. at 2901 n. 21). However, that factor in and of itself appears insufficient to vitiate ERISA's preemptive effect. See, e.g., Alessi, supra (workers' compensation statute); Gilbert v. Burlington Industries, Inc., 765 F.2d...
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