Commercial Life Ins. Co. v. Superior Court, No. S003129

• Court: United States State Supreme Court (California)
• Writing for the Court: PANELLI; LUCAS; MOSK; BROUSSARD
• Citation: 47 Cal.3d 473,764 P.2d 1059,253 Cal.Rptr. 682
• Parties: , 764 P.2d 1059, 57 USLW 2452, 10 Employee Benefits Cas. 2020 COMMERCIAL LIFE INSURANCE COMPANY et al., Petitioners, v. The SUPERIOR COURT of San Diego County, Respondent; Joseph V. JULIANO, Real Party in Interest.
• Decision Date: 15 December 1988
• Docket Number: No. S003129

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253 Cal.Rptr. 682 47 Cal.3d 473, 764 P.2d 1059, 57 USLW 2452, 10 Employee Benefits Cas. 2020 COMMERCIAL LIFE INSURANCE COMPANY et al., Petitioners,
v.
The SUPERIOR COURT of San Diego County, Respondent;
Joseph V. JULIANO, Real Party in Interest. No. S003129. Supreme Court of California,
In Bank. Dec. 15, 1988.

[47 Cal.3d 474] Hill, Genson, Even, Crandall & Wade, Edmond D. Wade, Curtis L. Metzgar, Adams, Duque & Hazeltine and David L. Bacon, Los Angeles, for petitioners.

Rogers, Joseph, O'Donnell & Quinn, Joseph W. Rogers, Jr., Susan M. Popik, San Francisco, Joe W. Peel, Washington, D.C., Terri Sorota, Jack H. Blaine, Washington, D.C., and Phillip E. Stano as amici curiae on behalf of petitioners.

No appearance for respondent.

Wingert, Grebing, Anello & LaVoy, Michael M. Anello, Thomas O. LaVoy, Robert M. Caietti, San Diego, Shernoff, Scott & Bidart and Bill Shernoff, Claremont, for real party in interest.

[47 Cal.3d 475] PANELLI, Justice.

We are asked to decide whether the Employee Retirement Income Security Act of 1974 (ERISA) (29 U.S.C. § 1001 et seq.) preempts a private cause of action brought under California Insurance Code section 790.03, subdivision (h), ¹ where the action asserts a claim arising from an employee benefit plan. We conclude that ERISA does preempt such an action.

Joseph V. Juliano's employer sponsored an employee benefit plan insured by Commercial Life Insurance Company and Automatic Data Processing, Inc. (collectively referred to as Commercial). It is undisputed that the plan was the type regulated by ERISA. The benefits under the plan included group term life insurance, accidental death and dismemberment insurance, major medical expense benefits, prescription drug and medicine benefits, and dental care benefits.

Juliano suffered from diabetes, which adversely affected his eyesight. Doctors recommended surgery. Following the surgery, Juliano forwarded his medical bills to

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Commercial. Commercial refused payment, claiming that the treatment was not [764 P.2d 1060] covered by the plan because it arose from a preexisting condition.

Juliano brought suit against Commercial. The complaint alleged eight common law causes of action for bad faith, waiver, and estoppel. The complaint also alleged a single statutory cause of action for bad faith under section 790.03, subdivision (h). ² Commercial answered the complaint. Then, [47 Cal.3d 476] prior to trial, Commercial filed a motion for judgment on the pleadings, alleging that each cause of action set forth by Juliano was preempted by ERISA. In response, Juliano conceded that Pilot Life Ins. Co. v. Dedeaux (1987) 481 U.S. 41, 107 S.Ct. 1549, 95 L.Ed.2d 39 compelled the conclusion that his common law causes of action were preempted by ERISA. However, he argued that his statutory cause of action under section 790.03, subdivision (h), was not preempted. The trial court agreed with Juliano and denied Commercial's motion for judgment on the pleadings as to the statutory cause of action for violation of section 790.03, subdivision (h).

Commercial filed a petition for writ of mandate and/or prohibition in the Court of Appeal. The Court of Appeal summarily denied the petition. We granted review and issued an alternative writ.

In his return to the writ, Juliano argues that section 790.03, subdivision (h) is exempt from preemption because it "regulates insurance" within the meaning of ERISA's "saving clause."

I

ERISA comprehensively regulates employee pension and welfare plans. (Metropolitan Life Ins. Co. v. Massachusetts (1985) 471 U.S. 724, 732, 105 S.Ct. 2380,

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2385, 85 L.Ed.2d 728; 29 U.S.C. §§ 1003, 1002.) The act protects interstate commerce[764 P.2d 1061] and the participants of employee benefit plans by requiring disclosure to participants, establishing standards of conduct and fiduciary duties, and providing for remedies, sanctions, and ready access to federal courts. (29 U.S.C. § 1001(b).) While ERISA imposes upon benefit plans a variety of substantive requirements relating to participation, [47 Cal.3d 477] funding, and vesting, it contains almost no federal regulation of the substantive terms of benefit plans. (Metropolitan Life, supra, 471 U.S. at p. 732, 105 S.Ct. at p. 2385.)

ERISA's civil remedies are comprehensive in their scope. A participant or beneficiary of an ERISA plan may bring a civil action for monetary relief from an administrator's failure to provide requested information, or to recover benefits or enforce present or future rights under the terms of the plan. (29 U.S.C. § 1132(a).) Moreover, a participant, beneficiary, or fiduciary may sue to enjoin any act which violates ERISA or the terms of the plan, and may also sue for other equitable relief, or for breach of fiduciary duty. (Ibid.) The Secretary of Labor may also bring an action for breach of fiduciary duty, for injunctive or equitable relief, for relief from failure of the administrator to provide information, or to collect any civil penalties under the act. (Ibid.)

In addition, ERISA contains detailed provisions for claims enforcement and procedure. (29 U.S.C. §§ 1132, 1133.) Moreover, regulations promulgated by the Department of Labor pursuant to 29 United States Code section 1133 provide specific claims-handling rules and procedures. (29 C.F.R. § 2560.502-1 et seq.)

ERISA also contains a broad preemption provision. The "preemption clause" provides: "Except as provided in subsection (b) of this section, the provisions of this subchapter and subchapter III of this chapter shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan described in section 1003(a) of this title and not exempt under section 1003(b) of this title. This section shall take effect on January 1, 1975." (29 U.S.C. § 1144(a).) The breadth of the preemption clause is qualified, however, by the "saving clause," which provides in pertinent part: "[N]othing in this subchapter shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking, or securities." (29 U.S.C. § 1144(b)(2)(A).)

II

Our resolution of this case is aided by previous decisions of the United States Supreme Court. In Metropolitan Life Ins. Co. v. Massachusetts, supra, 471 U.S. 724, 105 S.Ct. 2380, the Supreme Court addressed the question whether ERISA preempted a Massachusetts statute which required certain minimum mental-health-care benefits to be included in employee health-care plans. The Massachusetts statute regulated the substantive terms of insurance contracts by requiring health-insurance policies to provide, among other things, [47 Cal.3d 478] 60 days of coverage for confinement in a mental hospital and certain minimum outpatient benefits.

Noting that there is a presumption against preemption (Metropolitan Life, supra, 471 U.S. at p. 741, 105 S.Ct. at p. 2389), the court concluded that the Massachusetts statute was saved from preemption because it regulated insurance within the meaning of ERISA's saving clause.

The court applied the following analysis to determine whether the Massachusetts statute regulated insurance. Initially, the court took a "common sense" view of the matter, concluding that the Massachusetts statute regulated insurance because it controlled the substantive terms of insurance policies. (Metropolitan Life, supra, 471 U.S. at p. 740, 105 S.Ct. at p. 2389.)

Next, the court applied three criteria adopted by case law to define the "business of insurance" under the McCarran-Ferguson Act (15 U.S.C. § 1011 et seq.): ³ [764 P.2d 1062]

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" 'first, whether the practice has the effect of transferring or spreading a policyholder's risk; second, whether the practice is an integral part of the policy relationship between the insurer and the insured; and third, whether the practice is limited to entities within the insurance industry.' " (Metropolitan Life, supra, 471 U.S. at p. 743, 105 S.Ct. at p. 2391, quoting Union Labor Life Ins. Co. v. Pireno (1982) 458 U.S. 119, 129, 102 S.Ct. 3002, 3008, 73 L.Ed.2d 647, original emphasis.)

The United States Supreme Court found that all three McCarran-Ferguson factors were satisfied. Addressing the first factor, the court held that the Massachusetts statute "obviously" effected the spreading of risk, because the statute "was intended to effectuate the legislative judgment that the risk of mental-health care should be shared." (Metropolitan Life, supra, 471 U.S. at p. 743, 105 S.Ct. at p. 2391.) Turning to the second factor, the court held that "mandated-benefit laws directly regulate an integral part of the relationship between the insurer and the policyholder by limiting the type of insurance that an insurer may sell to the policyholder." (Ibid.) The third factor was also met, because the Massachusetts statute imposed requirements only on insurers. (Ibid.)

The Supreme Court had a further opportunity to determine the scope of ERISA preemption in Pilot Life Ins. Co. v. Dedeaux, supra, [47 Cal.3d 479] 107 S.Ct. 1549. Pilot Life presented the issue whether ERISA preempted common law tort and contract actions arising from the improper processing of a claim for benefits under an insured employee benefit plan. Everate Dedeaux injured his back while working for Entex, Inc. Dedeaux sought disability benefits under an employee benefit plan insured by Pilot Life Insurance Company (Pilot Life). Pilot Life terminated Dedeaux's benefits after two years, and Dedeaux brought a diversity suit in federal district court. Dedeaux alleged Mississippi common law claims for fraud, breach of fiduciary duty, and breach of contract. However, he did not assert any of the causes of action available to him under ERISA. Pilot Life moved for summary judgment, arguing that ERISA preempted all of Dedeaux's claims. The district court granted summary judgment, but the circuit court of appeals reversed.

The Supreme Court reversed the court of appeals....