Safe, but not sound: limiting safe harbor immunity for health and disability insurers and self-insured employers under the Americans with Disabilities Act.

• Date: 01 December 2002
• Author: Ziegler, Rachel Schneller

TABLE OF CONTENTS INTRODUCTION I. INTERPRETING THE SAFE HARBOR PROVISION A. Statutory Language and Legislative History B. Agency Interpretations C. Other Health Care Statutes and Safe Harbors II. THE COURTS' OVEREXPANSION OF THE SAFE HARBOR A. An Examination of Safe Harbor Cases B. Courts' Reasons for a Broad Interpretation III. APPLICATION OF A NEW STANDARD A. The Undue Hardship Defense B. Application of the Undue Hardship Standard to Safe Harbor Cases C. Justifications for the Adoption of the Undue Hardship Standard D. Objections to the Adoption of the Undue Hardship Standard CONCLUSION INTRODUCTION

When Congress passed the Americans with Disabilities Act (1) ("ADA") on July 26, 1990, supporters heralded the Act as a full-scale victory for the 43 million disabled Americans. (2) The Act's protections went far beyond those of its predecessor, the Rehabilitation Act of 1974, (3) which only prohibited discrimination against individuals with disabilities by entities receiving federal funding. (4) The new act was intended to prevent discrimination by private and public employers, public services, and public accommodations. (5) In a bill signing ceremony at the White House, in front of more than two thousand advocates for the disabled, then President George Bush likened the ADA to the signing of the Declaration of Independence and the dismantling of the Berlin Wall. (6) Amidst mighty cheers from the crowd, President Bush proclaimed that, because of the new law, "every man, woman and child with a disability can now pass through once-closed doors into a bright new era of equality, independence, and freedom." (7) Sandra Swift Parrino, director of the National Council on Disability, stated assuredly that the ADA was "a new beginning ... [that would] shape the lives of those with disabilities for decades to come." (8)

Disability advocates' optimism about the broad reach of the ADA was certainly justified, for Congress also had grand goals in mind when enacting the law. The statute states that the main purposes of the ADA are to "provide a clear and comprehensive national mandate for the elimination of discrimination against individuals with disabilities" and "to provide clear, strong, consistent, enforceable standards addressing discrimination against individuals with disabilities...." (9) The legislative history also indicates that Congress intended the ADA to be far-reaching in scope and dramatic in impact. Both the Senate and House Reports state that the purpose of the ADA is to "end discrimination against individuals with disabilities and to bring persons with disabilities into the economic and social mainstream of American life...." (10)

Despite its initial glamour and fanfare, the ADA has proven to be only a modest protector of the disabled. (11) One study found that disabled plaintiffs lose in more than ninety-three percent of reported ADA employment cases decided on the merits at the trial court level. (12) Their chances of success at the appellate level are similarly unlikely. (13) In addition, on at least four occasions in recent years, courts have significantly limited the potential reach of the ADA. In a series of three cases--Sutton v. United Airlines, Inc., (14) Murphy v. United Parcel Service, Inc., (15) and Albertson's, Inc. v. Kirkingburg (16)--the Supreme Court held that an individual who uses a corrective device or medication to mitigate the effects of his disability does not qualify as "disabled" under the statute. (17) As a result, the Court limited the class of potential plaintiffs who could sue under the ADA. Similarly, in Toyota Motor Manufacturing v. Williams, (18) the Court limited the definition of "disability" by ruling that the plaintiff, a factory worker suffering from carpal tunnel syndrome, was not disabled under the statute because her illness only affected her ability to work, not her ability to perform "activities that are of central importance to most people's daily lives." (19) The unanimous court reasoned that "disability" should not be assessed by looking only at the plaintiff's ability to perform her job; rather, the plaintiff must present additional evidence of hardship outside of the work setting. (20) The Court's opinion increases the burden that plaintiffs bear in proving they are disabled. In Chevron U.S.A. Inc. v. Echazabal, (21) the Court broadened an employer's ability to defend against an employee's charge of disability discrimination. (22) It held that an employer may refuse to hire a disabled individual if the employee's job presents a threat to the employee's own health or safety because of his disability. (23) Prior to this holding, an employer was only permitted to deny employment if the employee's disability presented a threat to the health or safety of others. (24) Finally, in Board of Trustees v. Garrett, (25) the Court held that, pursuant to the Eleventh Amendment, (26) suits under Title I of the ADA cannot be brought against a State to recover for monetary damages. (27)

The cases discussed above illustrate four ways in which the Supreme Court has limited the reach of the ADA in protecting the disabled and, in doing so, undermined the purposes of the law. This Note addresses another example. It discusses how courts have broadly interpreted Section 501(c) of the ADA (28)--the safe harbor provision--such that health and disability insurers and self-insured employers are nearly fully exempt from Titles I (29) and III (30) of the ADA. In [section] 501(C), (31) Congress qualified the reach of the statute as it applies to health and disability insurers and self-insured employers by offering these entities a partial exemption from the statute. The provision states:

Titles I through IV of the Act shall not be construed to prohibit or restrict--

(1) an insurer, hospital, or medical service company, health maintenance organization, or any agent, or entity that administers benefit plans, or similar organizations from underwriting risks, classifying risks, or administering such risks that are based on or not inconsistent with State law: or

(2) a person or organization covered by this Act from establishing, sponsoring, observing or administering the terms of a bona fide benefit plan that are based on underwriting risks, classifying risks, or administering such risks that are based on or not inconsistent with State law; or

(3) a person or organization covered by this Act from establishing, sponsoring, observing or administering the terms of a bona fide benefit plan that is not subject to State laws that regulate insurance.

Paragraphs (1), (2), and (3) shall not be used as a subterfuge to evade the purposes of subchapter I and II of this Chapter. (32)

A threshold issue must be addressed prior to further discussion of the safe harbor. The federal circuits are split as to whether Title III requires insurers to offer the disabled equal access to the goods and services of public accommodations--in this case, insurance policies--or merely physical entry to their buildings. (33) This Note assumes that Congress intended that the statute be applied more broadly to include equal access to goods and services. If Title III only required insurers to provide physical entry to insurance offices, insurers would be permitted to discriminate against the disabled in the provision of insurance policies without violating the ADA, and any further discussion of the safe harbor would be pointless. A number of arguments support this Note's assumption. First, the statute itself calls for the equal enjoyment of the goods and services of public accommodations. (34) Second, the existence of the safe harbor suggests that Title III applies to the sale of insurance policies; otherwise, the safe harbor would be superfluous. Third, among the list of public accommodations, Congress included entities, such as a travel service, that primarily offer their services by phone or mail. If Title III were to apply to these entities in any meaningful way, it would need to require more than just physical entry for the disabled. (35)

Assuming that Title III requires insurers to provide equal access to insurance policies permits further inquiry into the intent of the safe harbor provision. Congress carved out the safe harbor exemption to allow insurers to continue to underwrite risks. (36) Underwriting is the process by which an insurer assesses an individual policyholder's likelihood of requiring benefits or filing claims to determine the individual's premium payment. (37) The impracticality of determining individually-rated premiums leads insurers to group individuals by lifestyle, behaviors, or health status and then set premiums for each group. (38) This process permits insurers to guarantee their ability to pay benefits later and limits the need for cross-subsidization across policyholders. (39) It also results in higher premium payments for disabled and sick individuals who the insurer predicts will require more benefits. Congress created an exemption from the ADA for insurers because it feared that attempts by insurers to underwrite the policies of disabled individuals would violate the statute. (40) Congress was concerned that if insurers were no longer able to underwrite, the ADA would destroy the profitability of the insurance industry.

Although Congress intended the safe harbor provision to offer insurers an exemption from the ADA, its ambiguous language raises questions as to the extent of the exemption. (41) Congress placed two limitations on this exemption. First, disability-based discrimination is only exempt if insurers and employers are "underwriting risks, classifying risks, or administering such risks." (42) Second, discrimination is not exempt if the insurer has engaged in "subterfuge to evade the purposes of Titles I and III." (43) Congress failed, however, to explain these two limiting clauses. (44) These ambiguous clauses have prompted a debate between disability rights advocates, who...