No. 98-4112

IN THE UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT

JOHN DOE and RICHARD SMITH,
Plaintiffs-Appellees

v.

MUTUAL OF OMAHA INSURANCE COMPANY,
Defendant-Appellant

ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS

BRIEF FOR THE UNITED STATES AS AMICUS CURIAE
SUPPORTING APPELLEES AND URGING AFFIRMANCE

BILL LANN LEE
Acting Assistant Attorney General

JESSICA DUNSAY SILVER
GREGORY B. FRIEL
Attorneys
Department of Justice
P.O. Box 66078
Washington, D.C. 20035-6078
(202) 514-3876

TABLE OF CONTENTS

PAGE

IDENTITY AND INTEREST OF THE AMICUS CURIAE AND

THE SOURCE OF THE AUTHORITY TO FILE 1

STATEMENT OF THE ISSUES 2

STATEMENT OF THE CASE 2

STATEMENT OF FACTS 2

SUMMARY OF ARGUMENT 5

ARGUMENT:

I. TITLE III'S BAN ON DISABILITY-BASED
DISCRIMINATION APPLIES TO THE TERMS
AND CONDITIONS OF INSURANCE COVERAGE 7

II. MUTUAL HAS ENGAGED IN DISABILITY-
BASED DISCRIMINATION BY IMPOSING
SPECIAL RESTRICTIONS ON COVERAGE OF
AIDS-RELATED ILLNESSES THAT DO NOT
APPLY TO MOST OTHER MEDICAL CONDITIONS 15

III. THE MCCARRAN-FERGUSON ACT DOES NOT BAR
PLAINTIFFS' TITLE III CLAIMS 19

CONCLUSION 22

CERTIFICATE OF COMPLIANCE

ADDENDUM

CERTIFICATE OF SERVICE

TABLE OF AUTHORITIES

CASES:

Attar v. Unum Life Ins. Co., No. 96-367, 1998 WL 574885

(N.D. Tex. Aug. 31, 1998) . . . . . . . . . . . . . . . 7-8

Baker v. Hartford Life Ins. Co., No. 94-4416, 1995 WL 573430

(N.D. Ill. Sept. 28, 1995). . . . . . . . . . . . . . . . 8

Bragdon v. Abbott, 118 S. Ct. 2196 (1998) 12-13

- i -

CASES (continued): PAGE

Brewster v. Cooley Assocs./Counseling & Consulting

Servs., No. 97-0058, 1997 WL 823634

(D.N.M. Nov. 6, 1997) . . . . . . . . . . . . . . . . . . 8

Carparts Distribution Ctr., Inc. v. Automotive

Wholesaler's Ass'n 37 F.3d 12

(1st Cir. 1994) 8

Chabner v. United of Omaha Life Ins. Co., 994 F. Supp.

1185 (N.D. Cal. 1998), appeal pending,

No. 98-17060 (9th Cir.) . . . . . . . . . . . . . . . 7, 10

Chevron U.S.A., Inc. v. National Resources Defense

Council, Inc., 467 U.S. 837 (1984) 13

Citicorp Indus. Credit, Inc. v. Brock, 483 U.S. 27 (1987) 10

City of Edmonds v. Oxford House, Inc., 514 U.S. 725 (1995) 10

Cloutier v. Prudential Ins. Co., 964 F. Supp. 299

(N.D. Cal. 1997) . . . . . . . . . . . . . . . . . . . . . 7

Doukas v. Metropolitan Life Ins. Co., 950 F. Supp. 422

(D.N.H. 1996) . . . . . . . . . . . . . . . . . . . . . . 7

EEOC v. CNA Ins. Cos., 96 F.3d 1039 (7th Cir. 1996). . . . 17, 18

Ford v. Schering-Plough Corp., 145 F.3d 601 (3d Cir. 1998),

cert. denied, 1999 WL 8600 (Jan. 11, 199)

(No. 98-529) . . . . . . . . . . . . . . . . . . . . 8, 18

Hollander v. Paul Revere Life Ins. Co., No. 96-4911,

1997 WL 811531 (S.D.N.Y. Apr. 21, 1997) . . . . . . . . . 8

Humana, Inc. v. Forsyth, 119 S. Ct. 710 (1999) 20

Innovative Health Sys., Inc. v. City of White Plains,

117 F.3d 37 (2d Cir. 1997) 13

Kotev v. First Colony Life Ins. Co., 927 F. Supp. 1316

C.D. Cal. 1996). . . . . . . . . . . . . . . . . . . . 7, 10

Krauel v. Iowa Methodist Med. Ctr., 95 F.3d 674

(8th Cir 1996) . . . . . . . . . . . . . . . . . . . 16, 19

- ii -

CASES (continued): PAGE

Lenox v. Healthwise of Kentucky, Ltd., 149 F.3d 453,

(6th Cir. 1998) . . . . . . . . . . . . . . . . . . . . 8

Leonard F. v. Israel Discount Bank, 967 F. Sup.

802 (S.D.N.Y. 1997), appeal pending,

No. 98-7320 (2d Cir.) . . . . . . . . . . . . . . . . . 8

Lewis v. Aetna Life Ins. Co., 982 F. Supp. 1158

(E.D. Va. 1997) . . . . . . . . . . . . . . . . . . . . 7

Modderno v. King, 82 F.3d 1059 (D.C. Cir. 1996),

cert. denied, 117 S. Ct. 772 (1997) 19

Pallozzi v. Allstate Life Ins. Co., 998 F. Supp. 204

(N.D.N.Y. 1998), appeal pending, No. 98-7552 (2d Cir.). . 8

Paralyzed Veterans of Am. v. D.C. Arena L.P.,

117 F.3d 579 (D.C. Cir. 1997), cert. denied,

118 S. Ct. 1184 (1998) 13

Parker v. Metropolitan Life Ins. Co., 121 F.3d 1006

(6th Cir. 1997) (en banc), cert. denied,

118 S. Ct. 871 (1998) . . . . . . . . . . . . . . . 8, 17-18

Stinson v. United States, 508 U.S. 36 (1993) . . . . . . . . . 13

Thornburg v. Gingles, 478 U.S. 30 (1986) . . . . . . . . . . 11

Traynor v. Turnage, 485 U.S. 535 (1988) . . . . . . . . . . . 19

Welsh v. Boy Scouts of Am., 993 F.2d 1267 (7th Cir.),

cert. denied, 510 U.S. 1012 (1993 . . . . . . . . . . . 8-9

Winslow v. IDS Life Ins. Co., 29 F. Supp. 2d 557,

(D. Minn. 1998) . . . . . . . . . . . . . . . . . . . . . .7

World Ins. Co. v. Branch, 966 F. Supp. 1203

(N.D. Ga. 1997), aff'd in part, vacated in

part as moot, 156 F.3d 1142 (11th Cir. 1998). . . . . . . .7

- iii -

STATUTES: PAGE

Americans With Disabilities Act (ADA),

42 U.S.C. 12201(c) (Section 501(c)) passim

42 U.S.C. 12201(c)(1) 10

42 U.S.C. 12206(c)(3) 1

Title II,

42 U.S.C. 2000a 9

Title III,

42 U.S.C. 12181-12189 passim

42 U.S.C. 12181(7)(F) 8, 9, 20

42 U.S.C. 12182(a) 8, 9, 17

42 U.S.C. 12182(b)(1)(A)(i) 9

42 U.S.C. 12182(b)(1)(A)(ii) 9

42 U.S.C. 12186(b) 1

42 U.S.C. 12188(b) 1

McCarran-Ferguson Act,

15 U.S.C. 1012 et seq. passim

15 U.S.C. 1012(b) 6, 20

State Statute:

215 Ill. Comp. Stat. 5/364 21

RULES AND REGULATIONS:

Federal Rules of Appellate Procedure:

Rule 29(a) 1

28 C.F.R. Pt. 36 (1998) 1

28 C.F.R. § 36.307(a) (1998) 13

28 C.F.R. Pt. 36, App. B § 36.212 (1998) 12

28 C.F.R. Pt. 36, App. B § 36.302 (1998) 13

28 C.F.R. Pt. 36, App. B § 36.307 (1998) 13

LEGISLATIVE HISTORY:

H.R. Rep. No. 485, Pt. 2, 101st Cong., 2d Sess. (1990) 11

H.R. Rep. No. 485, Pt. 3, 101st Cong., 2d Sess. (1990) 11

S. Rep. No. 116, 101st Cong., 1st Sess. (1989) 11

- iv -

MISCELLANEOUS: PAGE

ADA Title III Technical Assistance Manual (Nov. 1993) 1, 12

Section III-3.11000 12

EEOC's "Interim Enforcement Guidance on Application of

ADA to Health Insurance" (June 8, 1993) 16

Preamble to Regulation on Nondiscrimination on the Basis

of Disability by Public Accommodations and in

Commercial Facilities (July 26, 1991) 12

- v -

IN THE UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT

No. 98-4112

JOHN DOE and RICHARD SMITH,
Plaintiffs-Appellees

v.

MUTUAL OF OMAHA INSURANCE COMPANY,
Defendant-Appellant

ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS

BRIEF FOR THE UNITED STATES AS AMICUS CURIAE
SUPPORTING APPELLEES AND URGING AFFIRMANCE

IDENTITY AND INTEREST OF THE AMICUS CURIAE
AND THE SOURCE OF THE AUTHORITY TO FILE

The Department of Justice submits this amicus brief on behalf of the United States, under Fed. R. App. P. 29(a). This appeal raises questions about the proper interpretation of Title III of the Americans With Disabilities Act (ADA), 42 U.S.C. 12181-12189 (Title III). The Department of Justice enforces Title III. 42 U.S.C. 12188(b). Pursuant to 42 U.S.C. 12186(b) and 12206(c)(3), the Department has also issued regulations and a Technical Assistance Manual interpreting Title III. See 28 C.F.R. Pt. 36 (1998); ADA Title III Technical Assistance Manual (1993). The Department has consistently construed Title III as prohibiting unjustified disability-based discrimination in the terms and conditions of insurance policies. This Court's decision could, therefore, affect the Department's enforcement of the statute. The United States participated as an amicus curiae in this case in the district court.

STATEMENT OF THE ISSUES

1. Whether Title III of the Americans With Disabilities Act (ADA), 42 U.S.C. 12181-12189, applies to the terms and conditions of insurance coverage.

2. Whether an insurer engages in disability-based discrimination under Title III of the ADA by: (a) imposing a lifetime cap on benefits for treatment of AIDS-related conditions that is dramatically lower than the lifetime limit for most other illnesses, and (b) refusing to allow reinstatement of coverage for AIDS-related conditions once the lifetime AIDS cap is reached, even though such restoration of benefits is allowed for non-AIDS-related illnesses.

3. Whether the McCarran-Ferguson Act, 15 U.S.C. 1012 et seq., precludes the plaintiffs from using Title III of the ADA to challenge the terms and conditions of insurance policies.

STATEMENT OF THE CASE

The parties' briefs adequately describe the nature and history of the case.

STATEMENT OF FACTS

1. John Doe and Richard Smith purchased health insurance policies from Mutual of Omaha Insurance Company (Mutual). Those policies impose lifetime caps on expenses for treatment of AIDS and AIDS-related conditions (App. 35-36, 51).(1) The AIDS cap is $25,000 in Smith's policy and $100,000 in Doe's (App. 35-36, 51). Mutual applies the AIDS caps to any treatment or care related to a policyholder's infection with the Human Immunodeficiency Virus (HIV) (App. 15). Doe and Smith are HIV-positive (App. 15).

By contrast, both insurance policies have a lifetime cap of $1 million for most medical conditions unrelated to HIV or AIDS (App. 22, 42). Even if an insured exhausts that $1 million cap, Mutual will reinstate benefits for non-AIDS-related conditions (and provide a new $1 million limit) if the insured does not incur any medical expenses for two consecutive years (App. 15, 27, 46). Mutual provides no such opportunity for reinstatement of benefits for AIDS-related conditions once the insured reaches the lifetime AIDS cap (App. 15, 35-36, 51).

2. The district court denied Mutual's motion to dismiss plaintiffs' Title III claims (App. 109, 131). First, the district court rejected Mutual's argument that Title III of the ADA does not reach the terms and conditions of insurance policies. The court concluded that Mutual's argument was contrary to the statutory language, the legislative history, and the Department of Justice's interpretations of Title III (App. 113-124). The court emphasized, however, that Mutual might avoid liability under Title III if it later demonstrated that it qualified for the limited insurance exemption in § 501(c) of the ADA, 42 U.S.C. 12201(c) (App. 124).

Next, the court rejected Mutual's argument that the McCarran-Ferguson Act, 15 U.S.C. 1012 et seq., precluded the use of Title III to challenge the terms and conditions of the insurance policies (App. 124-126).

Finally, the court held that plaintiffs had stated a claim of disability-based discrimination. The court reasoned that Mutual was subjecting plaintiffs to "altogether different terms and conditions" of insurance coverage in comparison to non-disabled persons by: (1) imposing lifetime caps on benefits for treatment of AIDS-related conditions that were dramatically lower than the lifetime limit for most other illnesses, and (2) refusing to allow reinstatement of coverage for AIDS-related conditions after exhaustion of the lifetime AIDS caps, even though such reinstatement was allowed for other medical conditions if the insured did not incur medical expenses for two years after exhausting the standard lifetime benefits cap (App. 126-128).

3. The district court entered final judgment in favor of the plaintiffs on the Title III claims, pursuant to a stipulation between the parties that preserved Mutual's right to appeal (App. 14-21). The parties stipulated, and the district court found, that:

Mutual's coverage for its insureds with AIDS and ARC [AIDS-related conditions] is less favorable than Mutual's coverage for its other insureds. Once the AIDS Caps are reached, insureds with AIDS or ARC do not receive and cannot depend upon coverage for medical needs and treatments that are afforded to other insureds paying equivalent premiums.

(App. 16). Mutual further stipulated that:

If an expense is incurred by an insured and is not related to AIDS or ARC, Mutual will cover the expense (absent another coverage exception). If the same expense [is] related to AIDS or ARC it would be subject to the AIDS Caps. For example, Mutual will provide coverage of up to $1 million for hospitalizations and other treatment related to pneumonia unless the pneumonia presents itself as a complication of AIDS or ARC. For insureds with AIDS or ARC, these same expenses are subject to the AIDS Caps. If, for instance, Smith had already exhausted his $25,000 limit under the AIDS Cap, he would be denied coverage for AIDS- or ARC-related pneumonia treatment. An individual who is not infected with HIV and who is not diagnosed with another AIDS-related condition or AIDS and who had not reached the $1 million cap would not be denied coverage. Further, even if such an individual had exhausted his $1 million maximum, he would be entitled to a reinstatement of benefits, provided he did not incur any expenses for two consecutive calendar years.

(App. 15-16).

As part of the stipulation, Mutual also agreed not to assert that its AIDS caps qualified for the insurance exemption in § 501(c) of the ADA, 42 U.S.C. 12201(c) (App. 18). Mutual stipulated, and the district court found, that the insurance company could not show that the AIDS caps are consistent with state law or otherwise justified by "sound actuarial principles, actual or reasonably anticipated experience, [or] bona fide risk classification" (App. 17).

SUMMARY OF ARGUMENT

The district court correctly entered judgment in favor of Doe and Smith on their Title III claims. Mutual engaged in disability-based discrimination when it imposed special lifetime caps on health insurance benefits for treatment of HIV and other AIDS-related conditions -- caps dramatically lower than the $1 million lifetime maximum that the insurance policies allow for most other conditions. Mutual's policies are also discriminatory because they preclude reinstatement of coverage for AIDS-related conditions once the lifetime AIDS cap is reached, while allowing restoration of coverage for other conditions even after exhaustion of the $1 million standard lifetime benefits cap.

Such disability-based discrimination violates Title III of the ADA. The plain language, the legislative history, and the Department of Justice's interpretation of Title III make clear that the statute was intended to reach disability-based discrimination in the terms and conditions of insurance policies.

Even if an insurance practice constitutes disability-based discrimination under Title III, however, it is not necessarily unlawful under the ADA. An insurer can avoid liability if it qualifies for the exemption in 42 U.S.C. 12201(c), which protects certain insurance practices that Title III otherwise would prohibit. But since Mutual stipulated that it had no defense under that exemption, it cannot avoid liability for its disability-based discrimination.

Finally, the McCarran-Ferguson Act, 15 U.S.C. 1012(b), does not preclude the plaintiffs from relying on Title III of the ADA to challenge the terms and conditions of their insurance policies. The McCarran-Ferguson Act is irrelevant here because: (1) the ADA specifically relates to the business of insurance, and (2) the Department of Justice's interpretation of Title III would not invalidate, impair, or supersede relevant state law.

ARGUMENT

I

TITLE III'S BAN ON DISABILITY-BASED
DISCRIMINATION APPLIES TO THE TERMS
AND CONDITIONS OF INSURANCE COVERAGE

Mutual argues (Br. 10) that Title III of the ADA does not prohibit disability-based discrimination in the "content of insurance policies." That argument conflicts with the statute's plain language, legislative history, and broad remedial purposes, as well as the Department of Justice's consistent interpretation of Title III. In accordance with the Department's position, numerous courts have properly recognized that Title III reaches disability-based discrimination in insurance coverage. E.g., Winslow v. IDS Life Ins. Co., 29 F. Supp. 2d 557, 561-564 (D. Minn. 1998); Chabner v. United of Omaha Life Ins. Co., 994 F. Supp. 1185, 1190-1193 (N.D. Cal. 1998); Lewis v. Aetna Life Ins. Co., 982 F. Supp. 1158, 1163-1165 (E.D. Va. 1997); World Ins. Co. v. Branch, 966 F. Supp. 1203, 1207-1209 (N.D. Ga. 1997), aff'd in part, vacated in part as moot, 156 F.3d 1142 (11th Cir. 1998); Cloutier v. Prudential Ins. Co. of Am., 964 F. Supp. 299, 301-302 (N.D. Cal. 1997); Doukas v. Metropolitan Life Ins. Co., 950 F. Supp. 422, 425-427 (D.N.H. 1996); Kotev v. First Colony Life Ins. Co., 927 F. Supp. 1316, 1321-1323 (C.D. Cal. 1996).(2) See also Carparts Distribution Ctr., Inc. v. Automotive Wholesaler's Ass'n, 37 F.3d 12, 20 (1st Cir. 1994) (instructing district court to consider Title III challenge to insurance cap on AIDS-related illnesses).

Title III provides, in relevant part, that "[n]o individual shall be discriminated against on the basis of disability in the full and equal enjoyment of the goods [or] services * * * of any place of public accommodation * * *." 42 U.S.C. 12182(a). The statute defines such a "public accommodation" to include an "insurance office" whose operations affect commerce. 42 U.S.C. 12181(7)(F). Since Mutual is engaged in the business of "offer[ing] and sell[ing] its insurance directly to members of the public at various office locations" in this country (R. 47 at 3), it is a "public accommodation" covered by Title III.(3) And insurance coverage is undoubtedly one of the "goods" or "services" offered by Mutual's insurance offices. Therefore, the plain language of 42 U.S.C. 12182(a) prohibits discrimination on the basis of disability in the terms or conditions of Mutual's insurance policies.

The statute prohibits various types of insurance discrimination. It covers refusals to sell an insurance policy to a person because of his or her disability. See 42 U.S.C. 12182(b)(1)(A)(i) ("denial of the opportunity" to "benefit from the goods [or] services" of a public accommodation). Title III also applies where a company sells an insurance policy to an individual with a disability, but that policy contains terms or conditions that discriminate on the basis of disability. Under such circumstances, the insurer has "afford[ed] an individual * * * with the opportunity to participate in or benefit from a good [or] service * * * that is not equal to that afforded to other individuals." 42 U.S.C. 12182(b)(1)(A)(ii).

Section 501(c) of the ADA confirms that Title III reaches disability-based discrimination in insurance coverage. That provision creates a limited exemption for certain insurance practices, decreeing that Title III of the ADA "shall not be construed to prohibit or restrict * * * an insurer * * * from underwriting risks, classifying risks, or administering such risks that are based on or not inconsistent with State law." 42 U.S.C. 12201(c)(1). Section 501(c) also emphasizes that the exemption "shall not be used as a subterfuge to evade the purposes of" Title III. 42 U.S.C. 12201(c). If the broad language of Title III did not otherwise cover insurance practices, there would have been no need for Congress to emphasize in § 501(c) that the exemption protected certain insurance practices from the scope of the statute. Chabner, 994 F. Supp. at 1190-1191; Kotev, 927 F. Supp. at 1322.

Although § 501(c) creates a limited exemption for certain practices, it does not nullify Title III's general prohibitions against discrimination in insurance coverage. It is well-established that statutory exemptions -- especially exemptions from remedial statutes such as the ADA -- must be construed narrowly. See City of Edmonds v. Oxford House, Inc., 514 U.S. 725, 731-732 (1995). The exemption in § 501(c) therefore must be read to reach only those insurance practices that are "plainly and unmistakably" within its "terms and spirit." Citicorp Indus. Credit, Inc. v. Brock, 483 U.S. 27, 35 (1987) (citation omitted).

The legislative history explains that disability-based distinctions in insurance coverage ordinarily will not qualify for the § 501(c) exemption -- and thus will be prohibited under Title III -- unless they are justified by increased risks associated with the disability:

Virtually all States prohibit unfair discrimination among persons of the same class and equal expectation of life. The ADA adopts this prohibition of discrimination. Under the ADA, a person with a disability cannot be denied insurance or be subject to different terms or conditions of insurance based on disability alone, if the disability does not pose increased risks.

H.R. Rep. No. 485, Pt. 2, 101st Cong., 2d Sess. 136 (1990); S. Rep. No. 116, 101st Cong., 1st Sess. 84 (1989). Similarly, the Committee reports state that a public accommodation ordinarily will be prohibited from "limit[ing] the amount, extent, or kind of coverage available to an individual, * * * solely because of a physical or mental impairment, except where the refusal, limitation, or rate differential is based on sound actuarial principles or is related to actual or reasonably anticipated experience." H.R. Rep. No. 485, Pt. 2, supra, at 137; S. Rep. No. 116, supra, at 85; H.R. Rep. No. 485, Pt. 3, 101st Cong., 2d Sess. 71 (1990). These committee reports are an "authoritative source" for interpreting Congress's intent in enacting Title III. See Thornburg v. Gingles, 478 U.S. 30, 43 n.7 (1986).

Moreover, the Department of Justice has consistently construed Title III to prohibit insurers from engaging in unjustified discrimination in the terms and conditions of insurance policies. In the commentary to its Title III regulations, the Department explained that the statute "reach[es] insurance practices by prohibiting differential treatment of individuals with disabilities in insurance offered by public accommodations unless the differences are justified" by evidence that those disabilities "'pose increased risks.'" Preamble to Regulation on Nondiscrimination on the Basis of Disability by Public Accommodations and in Commercial Facilities (July 26, 1991) (citation omitted), reprinted at 28 C.F.R. Pt. 36, App. B, § 36.212 at 601 (1998). The commentary further emphasized that Title III covers "unjustified discrimination in all types of insurance provided by public accommodations." Id. at 602. The Department adopted the same interpretation in its Title III Technical Assistance Manual, which explains that "[i]nsurance offices are places of public accommodation and, as such, may not discriminate on the basis of disability in the sale of insurance contracts or in the terms or conditions of the insurance contracts they offer." Manual § III-3.11000 (Nov. 1993) (emphasis added) (reproduced in Addendum to this brief).

As the Supreme Court has recently emphasized, the Department of Justice's interpretations of Title III are "entitled to deference," because the DOJ is "the agency directed by Congress to issue implementing regulations, see 42 U.S.C. § 12186(b), to render technical assistance explaining the responsibilities of covered individuals and institutions, § 12206(c), and to enforce Title III in court, § 12188(b)." Bragdon v. Abbott, 118 S. Ct. 2196, 2209 (1998). See also Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 843 & n.11 (1984). Courts owe the same deference to the Department's commentary interpreting its own regulations. See Stinson v. United States, 508 U.S. 36, 45 (1993). And the Department's Technical Assistance Manuals are also entitled to deference. See Bragdon, 118 S. Ct. at 2209; Paralyzed Veterans of Am. v. D.C. Arena L.P., 117 F.3d 579, 584-585 (D.C. Cir. 1997), cert. denied, 118 S. Ct. 1184 (1998); Innovative Health Sys., Inc. v. City of White Plains, 117 F.3d 37, 45 & n.8 (2d Cir. 1997). Thus, although we submit that the plain language of the ADA demonstrates Congress's intent to prohibit discrimination in the terms and conditions of insurance policies, this Court should defer to the Attorney General's interpretation and affirm the district court's judgment even if it finds the statute ambiguous.

Mutual, however, has attacked the Department's position by trying to show an inconsistency in our interpretation of Title III. Mutual relies (Br. 30-31) on 28 C.F.R. 36.307(a), which states that a public accommodation is not required "to alter its inventory to include accessible or special goods that are designed for, or facilitate use by, individuals with disabilities." In interpreting that regulation, the Department has explained that Title III does not require a public accommodation "to alter the nature or mix of goods that [it] has typically provided." 28 C.F.R. Pt. 36, App. B, § 36.307 at 612 (1998); see id., § 36.302 at 604. But that regulation is perfectly consistent with the Department's interpretation of Title III as reaching discrimination in insurance policies. For example, a company that traditionally has sold insurance policies that contain a uniform lifetime benefit cap of only $100,000 need not start offering policies with a $1 million cap, even though some persons with disabilities may have a great need for the higher lifetime limit. However, once a company decides to offer coverage with a $1 million cap, it must avoid unjustified differential treatment in deciding which customers can take advantage of the higher limit.

Mutual essentially argues that Title III does not apply as long as all individuals are permitted to buy the same insurance policy, even if the terms or conditions set forth in the policy are discriminatory (see Br. 16 n.9, 21-22, 26). But that argument rests on an overly simplistic view of the goods or services offered by an insurance company. The most important good or service provided to insureds is not the ability to purchase an insurance policy per se, but rather, the level and scope of benefits available under that policy. If an insurance policy is available to everyone, but nonetheless contains restrictions that discriminate on the basis of disability in the benefits that are provided, such disparate treatment is covered by Title III.

Although Title III covers disability-based discrimination in insurance coverage, such discrimination is not unnecessarily unlawful under the ADA. As previously explained, § 501(c) of the ADA, 42 U.S.C. 12201(c), provides a limited exemption for some insurance practices that would otherwise constitute unlawful discrimination under Title III. See pp. 10-11, supra. But since Mutual has agreed not to assert that its AIDS cap qualifies for the § 501(c) exemption (App. 17-18), it has no valid defense to the plaintiffs' claims of discrimination under Title III.

II

MUTUAL HAS ENGAGED IN DISABILITY-BASED
DISCRIMINATION BY IMPOSING SPECIAL RESTRICTIONS
ON COVERAGE OF AIDS-RELATED ILLNESSES THAT DO
NOT APPLY TO MOST OTHER MEDICAL CONDITIONS

Mutual's insurance policies impose lifetime caps for treatment of AIDS-related illnesses that are significantly lower than the lifetime limit on benefits for most other conditions. In addition, Mutual precludes reinstatement of coverage for AIDS-related illnesses once the lifetime AIDS caps are reached, while allowing restoration of coverage for other conditions even after exhaustion of the $1 million standard lifetime benefits limit if the insured does not incur medical expenses for two consecutive years.

Placing a lower cap on benefits for AIDS-related conditions, as opposed to other illnesses, is disability-based discrimination within the plain language of the ADA. A health insurance plan is "disability-based" if it "'singles out a particular disability (e.g., deafness, AIDS, schizophrenia), a discrete group of disabilities * * *, or disability in general (e.g., non-coverage of all conditions that substantially limit a major life activity).'" Krauel v. Iowa Methodist Med. Ctr., 95 F.3d 674, 677 (8th Cir. 1996) (emphasis added), quoting EEOC's "Interim Enforcement Guidance on Application of ADA to Health Insurance" (June 8, 1993).

Indeed, Mutual has stipulated that it provides coverage to persons with AIDS-related conditions that is "less favorable than [its] coverage for its other insureds," and that (once the AIDS caps are reached) "insureds with AIDS or ARC do not receive and cannot depend upon coverage for medical needs and treatments that are afforded to other insureds paying equivalent premiums" (App. 16). Mutual has acknowledged, for example, that it "will provide coverage of up to $1 million for hospitalizations and other treatment related to pneumonia unless the pneumonia presents itself as a complication of AIDS or ARC," in which case the drastically lower AIDS cap will apply (App. 15-16). Thus, Mutual's own stipulations confirm that it is engaging in disparate treatment on the basis of disability. And the discriminatory nature of the AIDS cap is exacerbated by Mutual's absolute bar on reinstating coverage for AIDS-related conditions once the insured reaches the lifetime AIDS limit.

The following hypothetical illustrates the discriminatory treatment that can occur as a result of Mutual's AIDS cap and its refusal to restore coverage for AIDS-related conditions:

Suppose that a non-disabled policyholder has received $1 million in medical benefits under the Mutual insurance policy, but then does not incur any medical expenses for two consecutive years. At that point, the non-disabled person's medical coverage will be restored. If, immediately following the restoration of benefits, the policyholder develops bacterial pneumonia and requires hospitalization, Mutual will cover the cost of his treatment up to $1 million. By contrast, suppose that plaintiff Smith has previously received only $25,000 in medical benefits under the policy and that the entire amount has been for AIDS-related illnesses. Further suppose that, upon reaching the cap, Smith incurs no medical expenses for two consecutive years. Also assume that shortly after that two-year period, Smith develops bacterial pneumonia because his immune system is weakened as a result of AIDS. He will receive no benefits to pay for the treatment of the pneumonia (or any other AIDS-related condition) for the rest of his life because he has reached the $25,000 AIDS cap. In sum, even though Smith has the same illness (bacterial pneumonia) as the non-disabled policyholder and has cost the insurance company far less money than the non-disabled person ($25,000 vs. $1 million), he will be treated less favorably than the other policyholder simply because his illness is related to a disability. This is literally discrimination "on the basis of disability." 42 U.S.C. 12182(a).

In an attempt to show that its AIDS restrictions are not discriminatory, Mutual relies on decisions rejecting ADA challenges to long-term disability (LTD) benefit plans. Br. 39-42, citing EEOC v. CNA Ins. Cos., 96 F.3d 1039 (7th Cir. 1996); Parker v. Metropolitan Life Ins. Co., 121 F.3d 1006 (6th Cir. 1997) (en banc), cert. denied, 118 S. Ct. 871 (1998); and Ford v. Schering-Plough Corp., 145 F.3d 601 (3d Cir. 1998), cert. denied, 1999 WL 8600 (Jan. 11, 1999) (No. 98-529). The LTD plans in CNA, Parker, and Ford imposed a two-year cap on benefits paid for mental disabilities, but no such limit on physical disabilities. The courts in those cases stated that such a distinction between mental and physical disabilities was not discriminatory in the context of LTD benefits. CNA, 96 F.3d at 1044; Parker, 121 F.3d at 1018-1019; Ford, 145 F.3d at 608-610.

But even if we assume, for the sake of argument, that the reasoning of CNA, Parker, and Ford is correct, those decisions are distinguishable because they involved distinctions only between two categories of disabilities (physical and mental disabilities) -- not differential treatment between persons with and without disabilities. Since only individuals with disabilities could qualify for the LTD benefits at issue in CNA, Parker, and Ford, no non-disabled persons were treated more favorably than individuals with disabilities. Indeed, the individuals who were allegedly disadvantaged by the two-year cap on benefits (those with mental disabilities) were treated more favorably than all non-disabled persons.

By contrast, Mutual's AIDS cap subjects individuals with a disability to less favorable treatment than that afforded to non-disabled persons (see pp. 16-17, supra). Although it may be permissible under certain circumstances to provide special benefits for one type of disability that are unavailable for other disabilities, Traynor v. Turnage, 485 U.S. 535, 549 (1988) (interpreting § 504 of Rehabilitation Act), that principle does not allow defendants to treat individuals with a disability less favorably than non-disabled persons. See id. at 548 ("central purpose" of § 504 "is to assure that handicapped individuals receive 'evenhanded treatment' in relation to nonhandicapped individuals") (citation omitted).

Mutual also relies on Modderno v. King, 82 F.3d 1059 (D.C. Cir. 1996), cert. denied, 117 S. Ct. 772 (1997), which rejected a challenge to a health insurance plan that imposed a $75,000 cap on benefits for mental, but not physical, conditions (see Br. 42-43). Modderno concluded that such a distinction between mental and physical conditions was not facially discriminatory. Id. at 1061. But Modderno is inapposite here because, as that court made clear, the cap for mental conditions was not defined in terms of a disability and broadly applied to both disabling and non-disabling illnesses. Ibid. See also Krauel, 95 F.3d at 678. Here, by contrast, the AIDS caps are expressly defined in terms of a disability, are limited to one particular disability, and adversely affect only individuals with that disability.

III

THE MCCARRAN-FERGUSON ACT DOES NOT
BAR PLAINTIFFS' TITLE III CLAIMS

Mutual argues (Br. 35-39) that the McCarran-Ferguson Act precludes plaintiffs from relying on Title III to challenge the terms and conditions of their insurance policies. That contention is meritless.

The McCarran-Ferguson Act provides that "[n]o Act of Congress shall be construed to invalidate, impair, or supersede 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. 1012(b). For two independent reasons, that statute does not preclude Title III's application to insurance policies.

First, the ADA "specifically relates to the business of insurance." 15 U.S.C. 1012(b). The statute provides that an "insurance office" is a "public accommodation" for purposes of Title III if its operations affect commerce. 42 U.S.C. 12181(7)(F). Further, § 501(c) of the ADA, which is entitled "Insurance," provides that the underwriting practices of an "insurer" shall not be used to evade the purposes of Title III. 42 U.S.C. 12201(c).

Second, the McCarran-Ferguson Act is inapplicable because the Department of Justice's interpretation of Title III would not "invalidate, impair, or supersede" relevant state law. 15 U.S.C. 1012(b). "When federal law does not directly conflict with state regulation, and when application of the federal law would not frustrate any declared state policy or interfere with a State's administrative regime, the McCarran-Ferguson Act does not preclude its application." Humana Inc. v. Forsyth, 119 S. Ct. 710, 717 (1999). No direct conflict exists between Title III and Illinois law (the relevant state law in this case). Mutual has not identified any Illinois law that would require or even permit it to impose AIDS caps. Nor would application of the ADA frustrate state policy or interfere with the state's regulation of insurance practices. Indeed, Illinois law prohibits an insurer, in issuing health insurance policies, from imposing

any distinction or discrimination against individuals solely because of handicaps or disabilities * * * in the amount of any dividends or other benefits payable thereon, or in any other terms and conditions of the contract it makes, except where the distinction or discrimination is based on sound actuarial principles or is related to actual or reasonably anticipated experience.

215 Ill. Comp. Stat. 5/364. The Justice Department's interpretation of Title III would thus promote, not hinder, Illinois' goal of prohibiting unjustified disability-based discrimination in the terms and conditions of insurance policies. To be sure, Illinois law does not impose an absolute bar on disability-based distinctions in insurance coverage. But neither does the ADA. Because compliance with state law can be an affirmative defense to an alleged violation of Title III, see 42 U.S.C. 12201(c), the ADA will not interfere with the state's policy of permitting insurers to impose some disability-based distinctions in insurance coverage if there is a legitimate actuarial basis for doing so. But since Mutual has stipulated that it cannot show that the AIDS cap is consistent with state law, is based on "sound actuarial principles," or is related to "actual or reasonably anticipated experience," (App. 17), it would have no valid defense under Illinois law.

CONCLUSION

This Court should affirm the district court's judgment in favor of plaintiffs on their Title III claims.

Respectfully submitted,

BILL LANN LEE Acting Assistant Attorney General

JESSICA DUNSAY SILVER
GREGORY B. FRIEL
Attorneys
Department of Justice
P.O. Box 66078
Washington, D.C. 20035-6078
(202) 514-3876

CERTIFICATE OF COMPLIANCE

I hereby certify, pursuant to Fed. R. App. P. 32(a)(7)(C), that the attached BRIEF FOR THE UNITED STATES AS AMICUS CURIAE is monospaced, has 10.5 characters per inch, and contains 5,207 words.

GREGORY B. FRIEL
Attorney

CERTIFICATE OF SERVICE

I hereby certify that on February 16, 1999, two copies of the foregoing BRIEF FOR THE UNITED STATES AS AMICUS CURIAE SUPPORTING APPELLEE AND URGING AFFIRMANCE were served by first- class mail, postage prepaid, on each of the following attorneys:

Joel H. Kaplan, Esq.
Seyfarth, Shaw, Fairweather
& Geraldson
55 East Monroe Street
Suite 4300
Chicago, Illinois 60603

Heather C. Sawyer, Esq.
Lambda Legal Defense &
Education Fund, Inc.
11 East Adams Street
Suite 1008
Chicago, Illinois 60603-6303

Stuart I. Graff, Esq.
Schiff Hardin & Waite
6600 Sears Tower
Chicago, Illinois 60606

Ann Hilton Fisher, Esq.
Aids Legal Council of Chicago
220 South State Street
Suite 1330
Chicago, Illinois 60604

Jeffrey Gabardi, Esq.
Health Insurance Association
of America
555 13th Street, N.W., East Tower
Washington, D.C. 20004-1600

Phillip Stano, Esq.
American Council of Life Insurance
1001 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2599

Stephanie W. Kanwit, Esq.
Epstein Becker & Green, P.C.
1227 25th Street, N.W., Suite 700
Washington, D.C. 20037-1156

Ann Elizabeth Reesman, Esq.
McGuiness & Williams
1015 Fifteenth Street, N.W.
Suite 1200
Washington, D.C. 20005

I further certify that copies of the same brief were also filed in accordance with Fed. R. App. P. 25(a)(2)(B)(i) by sending them to the Clerk of the United States Court of Appeals for the Seventh Circuit by first-class mail, postage prepaid, on February 16, 1999.

GREGORY B. FRIEL
Attorney

1. "App. __" refers to the page number of the appendix on appeal, "Br. __" denotes the page number of appellant's opening brief, and "R. __" refers to the entry number on the district court docket sheet.

2. Accord Attar v. Unum Life Ins. Co., 1998 WL 574885, at *2-*3 (N.D. Tex. Aug. 31, 1998); Hollander v. Paul Revere Life Ins. Co., 1997 WL 811531, at *1-*2 (S.D.N.Y. Apr. 21, 1997); Baker v. Hartford Life Ins. Co., 1995 WL 573430, at *3 (N.D. Ill. Sept. 28, 1995). Other courts, however, have stated (or at least suggested) that Title III does not reach discrimination in the content of insurance policies. See Lenox v. Healthwise of Kentucky, Ltd., 149 F.3d 453, 456-457 (6th Cir. 1998); Parker v. Metropolitan Life Ins. Co., 121 F.3d 1006, 1012-1013 & n.4 (6th Cir. 1997) (en banc), cert. denied, 118 S. Ct. 871 (1998); Ford v. Schering-Plough Corp., 145 F.3d 601, 613 (3d Cir. 1998), cert. denied, 1999 WL 8600 (Jan. 11, 1999) (No. 98-529); Leonard F. v. Israel Discount Bank, 967 F. Supp. 802, 805 (S.D.N.Y. 1997), appeal pending, No. 98-7320 (2d Cir.); Brewster v. Cooley Assocs./ Counseling & Consulting Servs., 1997 WL 823634 (D.N.M. Nov. 6, 1997). Cf. Pallozzi v. Allstate Life Ins. Co., 998 F. Supp. 204, 207 (N.D.N.Y. 1998) (taking inconsistent positions as to whether Title III covers the content of insurance policies), appeal pending, No. 98-7552 (2d Cir.).

3. For this reason, Mutual gains no support from Welsh v. Boy Scouts of Am., 993 F.2d 1267 (7th Cir.), cert. denied, 510 U.S. 1012 (1993). Welsh held that a membership organization such as the Boy Scouts did not fall within the statutory definition of "place of public accommodation" under Title II of the Civil Rights Act of 1964, 42 U.S.C. 2000a. This Court emphasized that Title II's statutory definition "fails to refer to, much less delineate, anything resembling a membership organization or an association." 993 F.2d at 1269. By contrast, Title III expressly defines "public accommodation" to include an "insurance office" that affects commerce. 42 U.S.C. 12181(7)(F). Mutual operates such insurance offices by selling insurance coverage directly to members of the public, by processing and paying claims under those policies, and by otherwise enforcing the terms of the policies against its insureds.