Opinion ID: 693407
Heading Depth: 2
Heading Rank: 2

Heading: The Application of the McCarran-Ferguson Act to ERISA

Text: 23 In its cross-appeal, PLC argues that the district court erred in holding that Plaintiffs' claims are not barred by the McCarran-Ferguson Act. They claim that the McCarran-Ferguson Act prohibits the construction of ERISA upon which Plaintiffs' suit is based. Specifically, Defendants argue that Plaintiffs' construction of ERISA violates McCarran-Ferguson because it would impose liability for selecting ELIC as an annuity provider even though ELIC is licensed and regulated by California's comprehensive insurance regulatory system. The McCarran-Ferguson Act, in relevant part, states: No Act of Congress shall be construed to invalidate, impair, or supercede any law enacted by any State for the purpose of regulating the business of insurance ... unless such Act specifically relates to the business of insurance. 15 U.S.C. Sec. 1012(b). The applicability of the McCarran-Ferguson Act to ERISA is a question of law, which we review de novo. See General Motors Corp. v. California Bd. of Equalization, 815 F.2d 1305, 1309 (9th Cir.1987), cert. denied, 485 U.S. 941, 108 S.Ct. 1122, 99 L.Ed.2d 282 (1988); United States v. McConney, 728 F.2d 1195, 1201 (9th Cir.) (en banc), cert. denied, 469 U.S. 824, 105 S.Ct. 101, 83 L.Ed.2d 46 (1984). 24 The McCarran-Ferguson Act, by its own terms, does not preclude a construction of a federal statute that would affect state law if the congressional act specifically relates to the business of insurance. 15 U.S.C. Sec. 1012(b). Therefore, it must first be determined whether ERISA in general, or the section of ERISA relied upon by Plaintiffs in particular, specifically relates to the business of insurance. Id. 25 In Hewlett-Packard Co. v. Barnes, 571 F.2d 502, 505 (9th Cir.), cert. denied, 439 U.S. 831, 99 S.Ct. 108, 58 L.Ed.2d 125 (1978), we held that California's Knox-Keene Act was preempted by ERISA to the extent that it attempted to regulate ERISA covered employee benefit plans as part of its comprehensive health care service legislation. It was claimed that because the Knox-Keene Act is a state law regulating insurance, construing ERISA to preempt it would violate the McCarran-Ferguson Act. We rejected that argument: 26 [A]ppellant's argument not only ignores those ERISA sections that undeniably specifically relate to the business of insurance, but also overlooks ERISA's deemer clause, which states that an employee benefit plan shall not be deemed to be engaged in the business of insurance for the purposes of state law. If McCarran-Ferguson applies, therefore, ERISA falls within the clause excepting federal laws that specifically relate to the business of insurance. 27 Id. at 505 (citations omitted). PLC asserts that the pronouncement in Hewlett-Packard that ERISA falls within the specifically relates exception does not indicate that ERISA in its entirety relates to the business of insurance. Rather, it contends that Hewlett-Packard holds only that the portion of ERISA which prohibits state laws from regulating employee benefit plans by treating them as insurance companies falls within the specifically relates exception. 28 The resolution of this issue turns on whether ERISA in its entirety specifically relates to insurance, or whether only those sections of ERISA which explicitly deal with insurance should be deemed to specifically relate to insurance. We find guidance in the Supreme Court's opinion in John Hancock Mut. Life Ins. Co. v. Harris Trust & Sav. Bank, --- U.S. ----, 114 S.Ct. 517, 126 L.Ed.2d 524 (1993). The issue in Harris Trust was whether the contract was a guaranteed benefit policy under ERISA Sec. 401(b)(2), 29 U.S.C. Sec. 1101(b)(2). As a preliminary matter, the Supreme Court held that the McCarran-Ferguson Act did not preclude application of ERISA's fiduciary standards to the insured's management of assets held under the contract. Instead, we hold, ERISA leaves room for complementary or dual federal and state regulation, and calls for federal supremacy when the two regimes cannot be harmonized or accommodated. Id. at ----, 114 S.Ct. at 525. In rejecting the McCarran-Ferguson Act preclusion, the Court stated: 29 But as the United States points out, ERISA, both in general and in the guaranteed benefit policy provision in particular, obviously and specifically relates to the business of insurance. Thus, the McCarran-Ferguson Act does not surrender regulation exclusively to the States so as to preclude the application of ERISA to an insurer's actions under a general account contract. 30 Id. (citation omitted). 31 PLC contends that just as in Hewlett-Packard, the Court's holding in Harris Trust is not conclusive on this issue, because the Court was primarily concerned with the scope of ERISA Sec. 401(b)(2), 29 U.S.C. Sec. 1101(b)(2), which specifically refers to the business of insurance. 5 There are two flaws in PLC's argument. First of all, it is refuted by the broad language used by the Supreme Court. The Court states that both in general and ... in particular ERISA relates to the business of insurance. Id. (emphasis added). 6 Secondly, PLC misreads the saving clause in ERISA Sec. 514(b)(2)(A), 29 U.S.C. Sec. 1144(b)(2)(A), to be evidence that the McCarran-Ferguson Act reserves the business of insurance to the states. 7 It is true that this court has held, and the Supreme Court has implied, that the effect of ERISA's saving clause was to preserve the McCarran-Ferguson Act's reservation of insurance regulation to the state. See General Motors Corp., 815 F.2d at 1310; Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 744 n. 21, 105 S.Ct. 2380, 2391 n. 21, 85 L.Ed.2d 728 (1985). However, in Harris Trust the Court rejected the argument that the saving clause always prevents application of ERISA: 32 [W]e discern no basis for believing that Congress, when it designed ERISA, intended fundamentally to alter traditional preemption analysis. State law governing insurance generally is not displaced, but where [that] law stands as an obstacle to the accomplishment of the full purposes and objectives of Congress, federal preemption occurs.... As the United States recognizes, dual regulation under ERISA and state law is not an impossibility[;] [m]any requirements are complementary, and in the case of a direct conflict, federal supremacy principles require that state law yield. 33 --- U.S. at ----, 114 S.Ct. at 526 (citations omitted). 34 No decision of this Court has applied the saving clause to supercede a provision of ERISA itself. Id. at ---- n. 9, 114 S.Ct. at 526 n. 9. If this court were to accept PLC's argument, it would be the first decision of any court to apply the McCarran-Ferguson Act to supercede a provision of ERISA. 35 We find that the saving clause was inserted into ERISA specifically because ERISA relates to insurance, and Congress intended to prevent ERISA from preempting state insurance laws. The logical reading of the statutes and the Court's opinion in Harris Trust is that ERISA is not subject to the McCarran-Ferguson Act because ERISA relates to insurance. Although the saving clause generally precludes the application of ERISA's broad preemption provision to state insurance laws, that clause does not prevent the application of ERISA's fiduciary standards in areas governed by state insurance laws. 8 Accordingly, the district court was correct in finding that the McCarran-Ferguson Act does not bar the Plaintiffs' claims.