FMC Corp. v. Holliday

Citations: 112 L. Ed. 2d 356; 111 S. Ct. 403; 498 U.S. 52; 1990 U.S. LEXIS 6114Docket: 89-1048

Court: Supreme Court of the United States; November 27, 1990; Federal Supreme Court; Federal Appellate Court

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FMC Corporation's self-funded health care plan sought reimbursement from Cynthia Ann Holliday for medical expenses paid after an automobile accident. Holliday obtained a declaratory judgment stating that Pennsylvania's Motor Vehicle Financial Responsibility Law, specifically § 1720, prohibits such reimbursement. The Court of Appeals upheld this judgment, concluding that ERISA does not preempt § 1720.

The Supreme Court held that ERISA preempts § 1720 as it relates to FMC's Plan. ERISA's preemption clause establishes federal control over state laws that 'relate to' employee benefit plans. While ERISA's saving clause allows states to enforce laws regulating insurance, the deemer clause clarifies that self-funded ERISA plans are not considered insurance companies and are exempt from state laws that regulate insurance. Consequently, § 1720 is preempted because it relates to an employee benefit plan but does not fall under the saving clause, as it does not regulate insurance. The Court's interpretation aligns with precedents indicating that Congress intended to preserve traditional state regulations while avoiding conflicts with ERISA. The decision vacated the lower court's ruling and remanded the case for further proceedings.

Justice O'Connor delivered the Court's opinion regarding whether ERISA pre-empts Pennsylvania law, specifically a provision that prohibits employee welfare benefit plans from exercising subrogation rights on tort recoveries. FMC Corporation operates the FMC Salaried Health Care Plan, which is self-funded and includes a subrogation clause requiring members to reimburse the Plan for benefits paid if they recover from third-party claims. Respondent Cynthia Ann Holliday, whose medical expenses were covered by the Plan after her serious auto accident, refused to reimburse FMC based on Pennsylvania's Motor Vehicle Financial Responsibility Law, which bars such subrogation. The Federal District Court granted summary judgment in favor of Holliday, a decision affirmed by the Third Circuit, which concluded that unless ERISA's deemer clause exempted the Plan from state regulations, FMC was prohibited from enforcing its subrogation rights. The Third Circuit's ruling contrasted with other appellate decisions that interpreted the deemer clause as protecting self-funded plans from state insurance regulations. The Supreme Court granted certiorari to resolve this conflict and ultimately reversed the Third Circuit's decision.

Determining federal pre-emption of state statutes hinges on congressional intent, which can be expressed or implied. Pre-emption is mandated whether Congress's directive is clearly articulated or inferred from the statute's framework and objectives. If congressional intent is unambiguous, it must be upheld. The evaluation starts with the language used by Congress, assuming its ordinary meaning reflects legislative intent. 

The Employee Retirement Income Security Act (ERISA) includes specific provisions addressing pre-emption: the pre-emption clause (29 U.S.C. § 1144(a)) states that ERISA supersedes all state laws relating to employee benefit plans; the saving clause (29 U.S.C. § 1144(b)(2)(A)) allows states to enforce laws regulating insurance, banking, or securities, with some exceptions; and the deemer clause (29 U.S.C. § 1144(b)(2)(B)) clarifies that employee benefit plans are not considered insurance entities for state regulatory purposes.

The pre-emption clause is notably broad, covering any state law that relates to ERISA-governed plans. Pennsylvania's antisubrogation law is considered to relate to employee benefit plans as it has a connection to them, in line with the interpretation that Congress intended "relate to" to encompass a wide array of state laws, not just those explicitly targeting employee benefit plans. This interpretation supports the existence of ERISA § 514(b)(4), which exempts generally applicable state criminal laws from pre-emption.

Interpreting the ERISA pre-emption clause solely in relation to state laws on specific subjects such as reporting, disclosure, and fiduciary duties contradicts its legislative history. The original limited pre-emption clauses proposed in the House and Senate versions of ERISA were rejected in favor of broader language, indicating a wider pre-emptive scope. Pennsylvania's antisubrogation law references ERISA benefit plans, stating that in motor vehicle-related actions, there is no right to subrogation or reimbursement concerning benefits paid under section 1719, which encompasses various benefit payment arrangements. This law has a 'connection' to ERISA plans; previous rulings have applied ERISA's pre-emption clause to state laws that could create conflicting regulations for plan administrators. The potential for a patchwork of state regulations would complicate nationwide benefit plan administration, detracting from efficiency and potentially leading to decreased benefits for employees. Pennsylvania's antisubrogation law requires plans to calculate benefits based on differing state liability conditions, thus frustrating the uniformity needed for benefit calculations. The law is acknowledged to fall within ERISA's insurance saving clause, which allows state regulation of insurance, but it directly impacts insurance contract terms by invalidating subrogation provisions.

The deemer clause in ERISA exempts self-funded employee benefit plans from state laws that regulate insurance, meaning such plans cannot be deemed as insurance companies or engaged in the business of insurance for regulatory purposes. Consequently, state laws that directly regulate insurance are "saved" but do not apply to self-funded plans, which are shielded from state regulations that relate to them. In contrast, insured employee benefit plans remain subject to indirect state regulation through their insurers, as insurers are not exempt from state laws regulating insurance. This distinction between insured and uninsured plans arises from congressional intent reflected in the deemer clause, and the courts have upheld this interpretation, acknowledging the presumption against preemption of traditional state regulatory areas. The McCarran-Ferguson Act further affirms that the business of insurance is to be regulated by state laws, encompassing both direct insurer regulation and the substantive terms of insurance contracts.

A distinction is made between insurers of employee benefit plans, which are regulated by state law, and self-insured plans governed by ERISA, which are not subject to state regulation. The deemer clause in ERISA states that neither an employee benefit plan nor its trust is to be considered an insurance company or engaged in the business of insurance under any state law that regulates insurance companies or contracts. Respondent argues for a narrow interpretation of this clause, suggesting it only excludes certain state laws that are pretexts for infringing on ERISA's core issues. Conversely, amici curiae propose that the deemer clause limits states from classifying plans as insurers solely in relation to laws governing the business of insurance, such as licensing and capitalization. However, the interpretation that aligns with ERISA's language indicates that laws appearing to regulate insurance companies or contracts are included within the deemer clause's scope. The Conference Report clarifies that an employee benefit plan is not to be regarded as an insurer for any state law regulating insurance. The deemer clause is interpreted as broadly applying to any state law that purports to regulate insurance, not just those governing the business of insurance. This interpretation ensures that if a plan is insured, states may regulate it through the insurer, but if it is self-insured, states cannot impose regulations, thus preventing conflicting state regulations on employee benefit plans.

The Supreme Court in Shaw v. Delta Air Lines held that ERISA pre-empts Pennsylvania's Motor Vehicle Financial Responsibility Law concerning employee benefit plans, affirming Congress' intent to exempt such plans from direct state regulation to avoid prolonged litigation. The Court criticized a narrow interpretation of the deemer clause, which could lead to administrative challenges and contradict the desire for a clear regulatory framework. The judgment of the Third Circuit was vacated and the case remanded for further proceedings.

Justice Stevens dissented, arguing that the Court's distinction between self-insured and insured plans is illogical and unjustifiable. He contended that if Congress intended to pre-empt state laws affecting self-insured plans, it would have explicitly stated so, eliminating the need for the 'saving' and 'deemer' clauses. Stevens pointed out the irrationality of treating similarly situated beneficiaries differently and emphasized that the Court's broad interpretation of ERISA's pre-emption clause overextends its reach, potentially undermining established state laws unrelated to employee benefits. He suggested a more limited reading of the pre-emption provisions to align with Congress' original intent and the legislative history focused primarily on avoiding conflicts between federal and state requirements.

The Senate bill aimed to pre-empt state laws related to the subjects governed by the Act, while the House bill specifically mentioned state laws concerning fiduciary, reporting, and disclosure duties for those managing employee benefit plans. The final statutory language, which refers to laws that "relate to any employee benefit plan," appears to be a compromise rather than a significant expansion of coverage. When interpreting statutory pre-emption, there exists a strong presumption against invalidating established state laws. This presumption influenced decisions in notable cases, suggesting that pre-emption should only affect state laws that directly regulate ERISA subjects or conflict with its core purposes.

The excerpt argues against Congress's intent to prevent Pennsylvania from enforcing its antisubrogation law against ERISA plans, particularly regarding self-insured plans. Even with broad interpretation of the "relate to" language, the specific wording of the deemer clause implies caution against pre-emption. Historical context reveals that the growth of self-insured plans in the 1960s and 1970s highlighted concerns that state regulation would hinder their viability. Past state court rulings, such as the one in Missouri, reinforced the idea that self-insured plans could not operate under state insurance laws without meeting regulatory requirements, which could effectively negate their purpose. The discussion emphasizes the ongoing tension between state laws and federal ERISA regulations, particularly concerning the treatment of self-insured plans.

The legislative history of ERISA and the deemer clause does not reference the Missouri case or provide an explanation for the clause's enactment. The deemer clause is designed to shield pension plans from state regulations typically applicable to insurance companies. It explicitly states that an employee welfare plan is not to be classified as an insurance company or engaged in the insurance business for the purpose of state laws regulating insurance entities. Pennsylvania's insurance code exemplifies such state regulations, covering the certification of insurance companies, capital requirements, and rates, which the deemer clause prevents from being enforced against ERISA plans.

However, this exemption does not imply that ERISA plans are exempt from state statutes that regulate matters beyond insurance. For example, Pennsylvania's Motor Vehicle Financial Responsibility Law applies to various entities, including those not classified as insurance companies. The compliance of ERISA plans with such laws is not affected by their classification under the deemer clause.

The interpretation of the "relate to" language in ERISA's pre-emption clause influences the obligation of ERISA plans concerning state laws. The saving clause in ERISA is broader than the deemer clause, allowing state laws that regulate entities—including non-insurance-related matters—to coexist with ERISA. Therefore, while the deemer clause limits the applicability of laws that specifically aim to regulate insurance companies, the saving clause permits broader regulatory authority over laws that may incidentally affect insurance activities.

The saving clause of ERISA exempts state laws that broadly regulate insurance from pre-emption, while the deemer clause allows pre-emption of state laws that expressly regulate insurance as applicable to ERISA plans if states can deem such plans to be insurance companies. Pennsylvania's Motor Vehicle Financial Responsibility Law is classified under the saving clause since it regulates entities beyond insurance companies and influences subrogation and indemnity agreements independent of insurance contracts. However, the law does not fall under the deemer clause, which specifically pertains to insurance-related entities, thus maintaining its exemption from ERISA's pre-emption. Consequently, the petitioner remains subject to the provisions of Pennsylvania’s Motor Vehicle Financial Responsibility Law. The law includes sections on subrogation and coordination of benefits, detailing rules regarding workers' compensation and the hierarchy of benefits from insurance policies. Historical legislative context indicates that proposed ERISA legislation aimed to pre-empt state laws related to employee benefit plans, and specific provisions of ERISA clarify the non-insurance status of employee benefit plans concerning state insurance regulation laws.