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SPIRT v. TEACHERS INS. & ANNUITY ASSN.

August 9, 1979

Diana L. SPIRT, Plaintiff,
v.
TEACHERS INSURANCE AND ANNUITY ASSOCIATION, College Retirement Equities Fund, and Long Island University, Defendants



The opinion of the court was delivered by: WARD

This is an action alleging sex discrimination in the operation of certain retirement annuity programs administered by defendants Teachers Insurance and Annuity Association ("TIAA") and College Retirement Equities Fund ("CREF"). Plaintiff Diana L. Spirt ("Spirt"), a college professor who is required by her employer, defendant Long Island University ("LIU"), to participate in the TIAA and CREF plans, has moved for summary judgment, pursuant to Rule 56, Fed.R.Civ.P., alleging that the retirement annuity plans in question violate both the Civil Rights Act of 1964, 42 U.S.C. § 2000e Et seq., ("Title VII" or "the Act") and the Equal Protection Clause of the Fourteenth Amendment to the United States Constitution. Defendants TIAA and CREF have cross-moved for summary judgment. *fn1" For the reasons hereinafter stated, Spirt's motion is granted in part and denied in part; TIAA and CREF's cross-motion is granted as to TIAA and denied as to CREF.

The parties have submitted a detailed Stipulation of Facts which indicates the following: TIAA is a non-profit, legal reserve life insurance company, organized in 1918 by the Carnegie Foundation for the Advancement of Teaching. It functions as a service organization, providing retirement and insurance plans for educational institutions and their staff members. Eligibility is limited to colleges, universities, independent schools, and certain other non-profit institutions that are engaged primarily in education or research. CREF is a companion non-profit corporation to TIAA with the same limited eligibility. The purpose of both TIAA and CREF is to offer educational institutions retirement and other benefit plans suited to the needs of their teaching staffs and other employees. The essential difference between the two corporations is that TIAA provides fixed dollar annuities, while CREF provides variable annuities. *fn2" Over 85 percent of all private four-year colleges and universities and over 40 percent of all public colleges and universities have adopted retirement plans managed by TIAA and CREF. In all, more than 450,000 employees of approximately 2,800 participating institutions are insured by the TIAA and CREF system.

 LIU is one of the institutions which has adopted a retirement program for its employees managed by TIAA and CREF. Pursuant to a resolution of LIU's Board of Trustees, both the employee and the university contribute 5 percent of the first $ 4,800 of earnings; thereafter, the employee's contribution remains at 5 percent, and the institution contributes 11 percent. Participation in the plans by tenured professors at LIU, such as Spirt, is mandatory.

 Plaintiff's claim of sex discrimination does not rest upon the contribution formula under the TIAA and CREF plans, which is identical for men and women. Rather, the asserted discrimination derives from TIAA and CREF's use of sex-segregated mortality tables in determining the benefits purchased with the contributions. These tables reflect the fact, that, taken as a group or class, women have a greater life expectancy than men. Based upon the uncontested rationale that women as a class will receive annuity payments for a longer period of time than men as a class, female participants in the plans receive smaller monthly payments than male participants of the same age, years in in the plans, salary, and rate of contribution. Spirt contends that this discrimination violates Title VII and/or the Equal Protection Clause.

 I. Title VII

 A. The McCarran-Ferguson Act

 TIAA and CREF first assert that application of Title VII to them in this case is barred by the McCarran-Ferguson Act ("the McCarran Act"), 15 U.S.C. § 1011 Et seq., which provides in pertinent part:

 
No 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, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of insurance . . . .

 Id. § 1012(b).

 The McCarran Act was passed in response to the Supreme Court's decision in United States v. South-Eastern Underwriters Ass'n, 322 U.S. 533, 64 S. Ct. 1162, 88 L. Ed. 1440 (1944), which, overruling Paul v. Virginia, 8 Wall. 168, 75 U.S. 168, 183, 19 L. Ed. 357 (1869), held that insurance transactions were subject to federal regulation under the Commerce Clause. The purpose of the statute was "broadly to give support to the existing and future state systems for regulating and taxing the business of insurance . . . by removing obstructions which might be thought to flow from (congressional) power" and by declaring continued state regulation of the business of insurance to be in the public interest. *fn3" Prudential Ins. Co. v. Benjamin, 328 U.S. 408, 429-30, 66 S. Ct. 1142, 1155, 90 L. Ed. 1342 (1946); Accord, SEC v. National Securities, Inc., 393 U.S. 453, 458, 89 S. Ct. 564, 21 L. Ed. 2d 668 (1969). The effect of the legislation was to make federal statutes inapplicable to the business of insurance, returning to the states the plenary regulatory power they had enjoyed prior to the South-Eastern Underwriters decision, unless (1) federal legislation specifically related to the business of insurance; or (2) the challenged activity by the defendant did not constitute the business of insurance; or (3) the state had not enacted any law for the purpose of regulating the business of insurance which would be invalidated, impaired, or superseded by application of the federal law. Group Life & Health Ins. Co. v. Royal Drug Co., 440 U.S. 205, 218, 99 S. Ct. 1067, 1076 & nn. 16, 18, 59 L. Ed. 2d 261 (1979); SEC v. National Securities, Inc., supra, 393 U.S. at 458-61, 89 S. Ct. 564; Prudential Ins. Co. v. Benjamin, supra, 328 U.S. at 429-30, 66 S. Ct. 1142; Cochran v. Paco, 606 F.2d 460, 464 (5th Cir. 1979); Hamilton Life Ins. Co. v. Republic Nat'l Life Ins. Co., 408 F.2d 606, 611 (2d Cir. 1969); Monarch Life Ins. Co. v. Loyal Protective Life Ins. Co., 326 F.2d 841, 844 (2d Cir. 1963), Cert. denied, 376 U.S. 952, 84 S. Ct. 968, 11 L. Ed. 2d 971 (1964).

 Federal legislation is deemed to "specifically relate to the business of insurance" within the meaning of the McCarran Act only if it contains an express indication to that effect. Prudential Ins. Co. v. Benjamin, supra, 328 U.S. at 429-30, 66 S. Ct. at 1155; Cochran v. Paco, supra, 606 F.2d at 464-465; Hamilton Life Ins. Co. v. Republic Nat'l Life Ins. Co., 291 F. Supp. 225, 230 (S.D.N.Y.1968), aff'd, 408 F.2d 606, 611 (2d Cir. 1969); Ben v. General Motors Acceptance Corp., 374 F. Supp. 1199, 1201 (D.Colo.1974); Gerlach v. Allstate Ins. Co., 338 F. Supp. 642, 649 (S.D.Fla.1972). The federal statute relied on here, Title VII, is a law of general applicability to employers in commerce with no explicit reference to insurance. Compare § 514(a) of ERISA, 29 U.S.C. § 1144(a), Discussed in Hewlett-Packard Co. v. Barnes, 571 F.2d 502 (9th Cir.), Cert. denied, 439 U.S. 831, 99 S. Ct. 108, 58 L. Ed. 2d 125 (1978). Thus, the supremacy of state regulation of the TIAA and CREF plans cannot be overridden on this basis.

 The next consideration under McCarran Act analysis is whether the activities of defendants challenged by plaintiff constitute the "business of insurance." Although neither Congress nor the courts has defined the exact contours of the term, the general parameters were set by the Supreme Court in SEC v. National Securities, Inc., 393 U.S. 453, 459-60, 89 S. Ct. 564, 569, 21 L. Ed. 2d 668 (1969):

 
Insurance companies may do many things which are subject to paramount federal regulation; only when they are engaged in the "business of insurance" does the statute apply. Certainly the fixing of rates is part of this business; that is what South-Eastern Underwriters was all about. The selling and advertising of policies, FTC v. National Casualty Co., 357 U.S. 560, 78 S. Ct. 1260, 2 L. Ed. 2d 1540 (1958), and the licensing of companies and their agents, cf. Robertson v. California, 328 U.S. 440, 66 S. Ct. 1160, 90 L. Ed. 1366 (1946), are also within the scope of the statute. Congress was concerned with the type of state regulation that centers around the contract of insurance, the transaction which Paul v. Virginia held was not "commerce." The relationship between insurer and insured, the type of policy which could be issued, its reliability, interpretation, and enforcement these were the core of the "business of insurance." Undoubtedly, other activities of insurance companies relate so closely to their status as reliable insurers that they too must be placed in the same class. But whatever the exact scope of the statutory term, it is clear where the focus was it was on the relationship between the insurance company and the policyholder. Statutes aimed at protecting or regulating this relationship, directly or indirectly, are laws regulating the "business of insurance."

 The activity challenged in the instant case the use of sex-segregated mortality tables in the computation of annuity benefits is an integral part of the relationship between the insurance company and the policyholder and specifically centers on the type of policy which can be issued. As such, it would appear to fall squarely within the "business of insurance" as defined by National Securities.

 However, the Supreme Court has also interpreted the word "insurance" under the McCarran Act to require some Investment risk-taking on the part of the insurance company. SEC v. Variable Annuity Co., 359 U.S. 65, 79 S. Ct. 618, 3 L. Ed. 2d 640 (1959); Accord, Group Life & Health Ins. Co. v. Royal Drug Co., supra, 99 S. Ct. at 1073-74. Thus, the Court has held that variable annuity companies, which assume only the risk of mortality but no investment risk *fn4" do not issue insurance within the meaning of the Act. SEC v. Variable Annuity Co., supra, 359 U.S. at 69-73, 79 S. Ct. 618. While TIAA offers fixed annuities which subject it to investment risk, CREF is a variable annuity company. *fn5" Under the rationale of SEC v. Variable Annuity Co., therefore, it cannot be exempted from the dictates of Title VII as a result of state regulation of its policies. Consequently, the Court rejects this ground of CREF's motion for summary judgment.

 Having met the first two conditions for supremacy of state regulation of the business of insurance, TIAA must still demonstrate that New York State has enacted a law for the purpose of regulating the business of insurance which would be invalidated, impaired, or superseded by the application of Title VII in the instant case. Plaintiff argues that New York State has not regulated the question before the Court. The McCarran Act does not specify the extent to which a state must have regulated the business of insurance before application of a federal statute will be deemed to "invalidate, impair, or supersede" state law. However, this language has been judicially construed as satisfied whenever the state has either occupied the field of regulating the business of insurance or else has regulated the same general subject within the business of insurance as that potentially affected by the federal statute. See Lowe v. Aarco-American, Inc., 536 F.2d 1160, 1162 (7th Cir. 1976); Cochran v. Paco, Inc., 409 F. Supp. 219, 222 (N.D.Ga.1975), rev'd on other grounds, 606 F.2d 460 Ca. (78) (5th Cir. 1979); Ben v. General Motors Acceptance Corp., supra, 374 F. Supp. at 1201; Gerlach v. Allstate Ins. Co., supra, 338 F. Supp. at 649-50. *fn6" This interpretation is supported by the legislative intent that, except as otherwise expressly provided, plenary power to regulate the business of insurance rests in the states. SEC v. National Securities, Inc., supra, 393 U.S. at 459-60, 89 S. Ct. 564; Prudential Ins. Co. v. Benjamin, supra, 328 U.S. at 429-30, 66 S. Ct. 1142; Cochran v. Paco, Inc., supra, 606 F.2d at 462 - 464.

 In the instant case, New York has occupied the field of regulating the business of insurance through one of the most comprehensive insurance codes in the country. It has also pervasively regulated the subject of discrimination between policyholders. For example, § 209 of the Insurance Law provides Inter alia that no life insurance company doing business in the state shall make or permit any unfair discrimination between individuals of the same class and of equal expectation of life in premiums, rates, dividends or benefits of policies for life insurance or annuities. The restriction of § 209's proscription to discrimination between individuals of the same class evidences a legislative acceptance of discrimination between individuals based on their membership in classes or groups which, from an actuarial point of view, are known to present different insurance risks. Indeed, such risk classification is a concept fundamental to the operation of insurance systems. The Supreme Court, 1977 Term, 92 Harv.L.Rev. 57, 302 (1978); Note, Sex Discrimination and Sex-Based Mortality Tables, 53 B.U.L.Rev. 624, 625-26 & nn. 9-10, 627 n.18, 653-54 (1973). Since defendants' use of sex-segregated mortality tables is based on the demonstrated difference in longevity between men as a class and women as a class, it is the type of discrimination contemplated by New York's regulatory scheme. Consequently, application of Title VII to enjoin the use of such tables by TIAA would invalidate, impair, or supersede New York law.

 Other provisions of the New York Insurance Law not only regulate the subject of discrimination between policyholders, but also evidence a legislative belief that discrimination on the basis of sex in the rates and benefits of annuity contracts is not unlawful. For example, implicit in §§ 159(1)(d) and 160(c), which refer to remedies for misstatements of age and sex in annuity contracts, is the notion that New York views sex as a permissible factor in setting annuity rates and benefits. The same conclusion is suggested by a comparison of § 40(10) with § 40-e. The former section contains a sweeping prohibition of discrimination in "any . . . manner whatsoever" on account of race, color, creed, or national origin. By contrast, sex discrimination is subject to a separate, limited prohibition in § 40-e, which makes it unlawful for an insurer to refuse to issue or to cancel or decline to renew a policy on account of the sex of the applicant. See January 28, 1975 Opinion and Report Pursuant to Section 278 of the Insurance Law; News Memorandum re Chapter 564, issued by the Executive Chamber of the State of New York, August 4, 1975.

 The Court is persuaded on the basis of this evidence that New York State has regulated the business of insurance, including the subject of discrimination between policyholders, in a pervasive manner and that, within that comprehensive system of regulation, discrimination on the basis of sex in computing rates and benefits is considered to be permissible. Consequently, application of Title VII to TIAA in the instant case would invalidate, impair, or supersede New York law regulating the business of insurance. Accordingly, the Court holds that application of Title VII to TIAA in this case is precluded by the McCarran Act. *fn7"

 B. Title VII Procedural Prerequisites

 TIAA *fn8" and CREF make the additional preliminary argument that plaintiff's Title VII claim must be dismissed because she has failed to comply with the statute's elaborate procedural requirements. Among the jurisdictional prerequisites to the maintenance of a civil action under Title VII is that the grievant have filed timely charges of employment discrimination with the Equal Employment Opportunity Commission ("EEOC") and received from that agency a statutory notice of the right to sue. 42 U.S.C. § 2000e-5(a), (e), (f); McDonnell Douglas Corp. v. Green, 411 U.S. 792, 798, 93 S. Ct. 1817, 36 L. Ed. 2d 668 (1973); Silver v. Mohasco Corp., 602 F.2d 1083, 1085-1086 (2d Cir. 1979); Weise v. Syracuse University, 522 F.2d 397, 412 (2d Cir. 1975). When the alleged unlawful employment practice occurs within a state having a law prohibiting such a practice, an aggrieved person must also preliminarily seek relief from the relevant state authority. The EEOC may not act upon the charge until 60 days after state proceedings have been ...


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