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Aetna Life Insurance Co. v. Borges

decided: February 23, 1989.

AETNA LIFE INSURANCE COMPANY, PLAINTIFF-APPELLEE,
v.
FRANCISCO L. BORGES, TREASURER OF THE STATE OF CONNECTICUT, AND STATE OF CONNECTICUT, DEFENDANTS-APPELLANTS



Appeal from a judgment of the District Court for the District of Connecticut (Alan H. Nevas, Judge) approving a magistrate's recommended ruling that Connecticut escheat law, as applied to uncollected checks for employee benefits, is preempted by the Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001-1461 (1982 & Supp. IV 1986). Aetna Life Insurance Co. v. Parker, 692 F. Supp. 94 (D. Conn. 1988).

Newman, Pierce, and Mahoney, Circuit Judges.

Author: Newman

NEWMAN, Circuit Judge.

On this appeal, we once again confront the often litigated issue of the scope of federal preemption under the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001-1461 (1982 & Supp. IV 1986). The question presented is whether ERISA preempts the application of Connecticut's escheat law to ERISA-covered benefit checks and drafts that have been issued but have not been collected or presented for payment by the beneficiaries. The Treasurer and the State of Connecticut appeal from a judgment of the District Court for the District of Connecticut (Alan H. Nevas, Judge) summarily approving a magistrate's recommended ruling that the escheat law is preempted. Aetna Life Insurance Co. v. Parker, 692 F. Supp. 94 (D. Conn. 1988). We reverse and remand.

Background

The stipulated facts are as follows. Appellee Aetna Life Insurance Company ("Aetna") contracts with employers to provide group health and accident insurance coverage to employees. The benefit plans at issue here are covered by ERISA, the federal law regulating pension and other employee benefit programs. The premium that Aetna charges to employers is based on each employer's "experience rating"--that is, it is related to the cost of providing benefits to the employees of that company in previous years. The more benefits paid out under a plan, the higher the premium will be for the employer.

Not infrequently, after Aetna approves an employee's claim for benefits and issues a draft on an Aetna account to pay the claim, the employee fails to present the draft for payment. The draft then remains on Aetna's records as outstanding. Aetna has no specific deadline for presenting uncollected drafts, but its policy has been to honor drafts for longer than three years.

Aetna generally calculates the experience rating of employers on the basis of checks presented for payment ("presented basis" accounting) rather than on all checks that have been issued ("issued basis" accounting). A small reserve to cover unpresented drafts that may be collected in the future is also figured into the calculation of premium cost, again based on the experience of the particular plan. The amount reserved is a small percentage of the total amount of all unpresented checks.

Most other insurers in Connecticut use issued basis accounting. To the extent that issued basis accounting may lead to higher premiums, Aetna enjoys a competitive marketing advantage over its competitors.

In 1981, Connecticut revised its abandoned property laws, changing the time period for abandonment from seven years to three years. Conn. Gen. Stat. § 3-64a (1987). After property is abandoned, the holder must deliver it to the state treasurer, and the holder is then relieved of liability for claims to the property. The owner has twenty years to file a claim for the property with the State. After twenty years, the State can begin escheat proceedings. Conn. Gen. Stat. § 3-72a.

Pursuant to the new law, the State determined that Aetna had uncollected drafts for ERISA-covered benefits totaling more than $2.5 million. The State instituted proceedings in state court to recover the money from Aetna. Aetna filed suit in the District Court for the District of Connecticut seeking an injunction and a declaratory judgment that ERISA preempts the application of the escheat law to ERISA-covered benefit plans. Federal question jurisdiction was properly invoked. See Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96 n.14, 77 L. Ed. 2d 490, 103 S. Ct. 2890 (1983). The parties stipulated to the facts and filed cross-motions for summary judgment.

Magistrate Joan Glazer Margolis wrote a recommended ruling that the escheat law was preempted, and Judge Nevas adopted the opinion. Judge Nevas entered judgment for Aetna on its prayer for declaratory relief and denied the claim for injunctive relief without prejudice.

The Magistrate's opinion determined that the escheat law is preempted because it has too great an impact on the administration of ERISA plans. The Magistrate noted that in a similar case, the Michigan Court of Appeals ruled that the State of Michigan's escheat law was not preempted by ERISA. Attorney General v. Blue Cross & Blue Shield, 168 Mich. App. 372, 424 N.W.2d 54 (1988). But the Magistrate believed that the factual record was not ...


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