§ 4.3.6.5.2 STATE LAWS REGULATING INSURANCE BANKING AND SECURITIES

• Jurisdiction: Arizona

§ 4.3.6.5.2 State Laws Regulating Insurance Banking and Securities. ERISA was not intended to preempt state laws regulating banking, insurance, or securities.⁹⁴ This exemption was part of a congressional attempt to reconcile the McCarran-Ferguson Act⁹⁵ with ERISA. The problem with this exemption lies in identifying those state laws which constitute the regulation of insurance, banking, or securities, and separating them from those state laws having a direct impact on employee benefit plans covered by ERISA. Thus far, most of the focus has been on the insurance component of this exemption.

The exemption has two parts that are difficult to reconcile. The first part (known as the savings clause) notes the congressional intent to avoid preempting traditional state insurance, banking, and securities law. The second part (the "deemer" clause) provides that no employee benefit plan may be deemed to be an insurance company, bank, trust company, or investment company, or to be engaged in the business of insurance, banking, or securities. Interpreting these two parts of the statute has proved problematic. Justice O'Connor noted this problem in her opinion for the majority in Metropolitan Life Insurance Company v. Massachusetts.⁹⁶ There, the Court noted:

The two pre-emption sections, while clear enough on their faces, perhaps are not a model of legislative drafting, for while the general pre-emption clause broadly pre-empts state law, the saving clause appears broadly to preserve the state's law making power over much of the same regulation. While Congress occasionally decides to return to the states what it has previously taken away, it does not normally do both at the same time.⁹⁷

Metropolitan Life provided a two-prong approach to determining whether a state law was within the ambit of the insurance savings clause. This approach was subsequently reaffirmed in the Court's 1987 decision, Pilot Life Insurance Co. v. Dedeaux.⁹⁸ First, the Court adopted what it refers to as a "common sense view" of the language of the savings clause itself. Second, the Court applied the body of case law used to interpret the phrase "business of insurance" under the McCarran-Ferguson Act to determine whether a particular practice constitutes the business of insurance. In Rush Prudential HMO, Inc. v Moran,⁹⁹ the Court shifted and found an HMO was, for all practical purposes an insurance company and applied the exemption to substantive state law regulating health maintenance organizations. The following year it formally abandoned the McCarran-Ferguson prong of the test.¹⁰⁰ Next, the Court reaffirmed that despite recent re-visitation of the exemption, the states were still not free to create alternative enforcement schemes to recover plan benefits.¹⁰¹ Generally, claims administration is not the business of insurance for purposes of this exemption.¹⁰² The most recent elephants that have taken up residence in the ERISA preemption parlor are the Massachusetts state health plan and the San Francisco Ordinance, and as to the later the Court declined to adjudicate.

State minimum benefit laws have found mixed success escaping preemption.¹⁰³ Generally, whether a state law compelling an employer to provide minimum employee...