Cite as: 526 U. S. 358 (1999)
Syllabus
the appeals court held that the notice-prejudice rule is saved from ERISA preemption as a law that "regulates insurance." Second, and contingently, the Ninth Circuit held that the Elfstrom agency rule does not "relate to" employee benefit plans, and therefore is not preempted by reason of ERISA. The court remanded the case for a determination whether UNUM suffered actual prejudice from Ward's late notice of claim; and if so, whether, under Elfstrom, Ward could prevail because he had timely filed his claim.
Held:
1. California's notice-prejudice rule is a "law . . . which regulates insurance," and is therefore saved from preemption by ERISA. Pp. 366-375.
(a) Because the parties agree that the notice-prejudice rule falls under ERISA's preemption clause as a state law that "relate[s] to" employee benefit plans, their dispute hinges on whether the rule "regulates insurance" and thus escapes preemption under the saving clause. This Court's precedent provides a framework for resolving that question. First, the Court asks whether, from a "common-sense view of the matter," the contested prescription regulates insurance. E. g., Metropolitan Life Ins. Co. v. Massachusetts, 471 U. S. 724, 740. Second, the Court considers three factors to determine whether the regulation fits within the "business of insurance" as that phrase is used in the McCarran-Ferguson Act: whether the regulation (1) has the effect of transferring or spreading a policyholder's risk, (2) is an integral part of the policy relationship between the insurer and the insured, and (3) is limited to entities within the insurance industry. Id., at 743. Pp. 366-368.
(b) The Ninth Circuit correctly concluded that the notice-prejudice rule "regulates insurance" as a matter of common sense. This Court does not normally disturb an appeals court's judgment on an issue so heavily dependent on analysis of state law, see Runyon v. McCrary, 427 U. S. 160, 181-182, and there is no cause to do so here. Because it controls the terms of the insurance relationship by requiring the insurer to prove prejudice before enforcing proof-of-claim requirements, the California rule, by its very terms, is directed specifically at the insurance industry and is applicable only to insurance contracts. The rule thus appears to satisfy the common-sense view as a regulation that homes in on the insurance industry and does not just have an impact on that industry. Pilot Life Ins. Co. v. Dedeaux, 481 U. S. 41, 50. The Court rejects UNUM's argument that the rule cannot be held to "regulate insurance" because it is merely an industry-specific application of the general principle that disproportionate forfeiture should be avoided in
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