UNUM Life Insurance Company of America v. Ward

PETITIONER: UNUM Life Insurance Company of America
RESPONDENT: Ward
LOCATION: Alden's Workplace

DOCKET NO.: 97-1868
DECIDED BY: Rehnquist Court (1986-2005)
LOWER COURT: United States Court of Appeals for the Ninth Circuit

CITATION: 526 US 358 (1999)
ARGUED: Feb 24, 1999
DECIDED: Apr 20, 1999

ADVOCATES:
Edwin S. Kneedler - On behalf of the United States as amicus curiae supporting the Petitioner in part and the Respondent in part
Jeffrey I. Erlich - Argued the cause for the respondent
Jeffrey L. Ehrlich - on behalf of the Respondent
William J. Kayatta, Jr. - Argued the cause for the petitioner

Facts of the case

UNUM Life Insurance Company of America (UNUM) issued a long-term group disability policy to Management Analysis Company (MAC) as an insured welfare benefit plan governed the Employee Retirement Income Security Act of 1974 (ERISA). The policy provides that proof of claims must be furnished to UNUM within one year and 180 days after the onset of disability. John E. Ward, a California MAC employee, became permanently disabled in May 1992. Ward informed MAC of his disability in late February or early March 1993. UNUM received proof of Ward's claim on April 11, 1994. Ward was notified that his claim was denied as untimely because his notice was late under the terms of the policy. Ward then filed suit under ERISA's civil enforcement provision to recover the disability benefits provided by the plan. Ward argued that, under California's common-law agency rule, an employer administering an insured group health plan should be deemed to act as the insurance company's agent; therefore, his notice of permanent disability to MAC, in late February or early March 1993, sufficed to supply timely notice to UNUM. The District Court rejected Ward's argument and ruled in favor of UNUM, citing ERISA's preemption clause, which states that ERISA provisions "shall supersede ... State laws" to the extent that those laws "relate to any employee benefit plan." In reversing, the Court of Appeals noted that Ward might prevail under California's "notice-prejudice" rule, under which an insurer cannot avoid liability although the proof of claim is untimely, unless the insurer shows it suffered actual prejudice from the delay.

Question

Does the Employee Retirement Income Security Act of 1974 preempt California's common-law agency rule, under which a California employer administering an insured group health plan should be deemed to act as the insurance company's agent? Does ERISA preempt California's "notice-prejudice" rule?

Media for UNUM Life Insurance Company of America v. Ward

Audio Transcription for Oral Argument - February 24, 1999 in UNUM Life Insurance Company of America v. Ward

Audio Transcription for Opinion Announcement - April 20, 1999 in UNUM Life Insurance Company of America v. Ward

William H. Rehnquist:

The opinion of the Court in No. 97-1868, UNUM Life Insurance Company of America versus Ward will be announced by Justice Ginsburg.

Ruth Bader Ginsburg:

This case concerns the Employee Retirement Income Security Act ERISA is its acronym.

It is complex legislation and it is a constant supplier of questions in need of adjudication.

Two of ERISA's most litigated clauses, the Preemptions Clause and the Saving Clause are again at issue.

The Preemption Clause broadly states that ERISA provisions shall supersede state laws that relate to any employee benefit plan.

The Saving Clause prays with similar breadth exempts from preemption "any law of any State which regulates insurance".

The key words "regulate insurance" in the Saving Clause and relate to in the Preemption Clause require interpretation for their meaning is not plain.

To apply ERISA sensibly we must measure its key words in context.

The context here is a suit to recover disability benefits under an ERISA-governed policy issued by the defendant-petitioner UNUM Life Insurance Company.

Plaintiff-respondent, John Ward submitted his proof of disability claim to UNUM outside the time limit set in the policy, and UNUM therefore denied Ward's application for benefits.

Ruling in Ward's favor and reversing the District Court's judgment for UNUM, the Court of Appeals for the Ninth Circuit relied on decisional law in California, the State in which Ward worked.

We affirm the Court of Appeals' judgment in Prime Part.

The Ninth Circuit's judgment rested on two grounds.

That court relied first on California's "notice-prejudice" rule, under which an insurer cannot avoid liability although the proof of claim is untimely, unless the insurer shows it was prejudiced by the delay.

The "notice-prejudice" rule is saved from ERISA preemption, the Court of Appeals held, because it is law which regulates insurance.

We agree.

By its very terms, the "notice-prejudice" rule is specifically directed at the insurance industr.

Our opinion explains in detail why we are satisfied that the "notice-prejudice" rule is not simply an industry-specific application of the general principle that law abhors a forfeiture rather it is a notably stringent adaptation of that principle of rule made mandatory only for insurance contracts.

The Court of Appeals stated a second contingent ground for reversing the District Court's judgment for UNUM, one that would come into play only if on remand the insurer proved prejudice due to the delayed notice.

Under California decisions, the Ninth Circuit said, an employer could be deemed an agent of the insurer in administering group insurance policies.

Ward's employer knew of his disability within the time the policy allowed for proof of claim.

The generally applicable agency law of California the Ninth Circuit held, does not relate to employee benefit plans, and therefore is not preempted by ERISA.

We disagree with this contingent ruling deeming the employer or the agent of the insurer would have a marked effect on plan administration, forcing the employer to assume a role with attendant legal duties and consequences that the employer had not bargained for.

We are therefore satisfied that the California agency law involved, does relate to ERISA plans and accordingly does not escape preemption.

In sum, we affirm on the main ground the "notice-prejudice" rule and reverse on the contingent employer as agent holding.

The opinion of the Court is unanimous.