American Manufacturers Mutual Insurance Company v. Sullivan

Instead of filing lawsuits, workers in Pennsylvania were required to use the state’s workers’-compensation system to receive compensation for on-the-job injuries. When the workers’-compensation system was first implemented, most employers bought insurance to cover potential workers’-compensation claims. However, a provision of the workers’-compensation law requiring insurers to pay claims within 30 days resulted in the payment of unjustified claims, which could not later be reimbursed, driving up employers’ insurance premiums. Therefore, the provision was amended to allow insurers to deny claims if they notified the state and privately arbitrated disputes arising from denied claims. Although businesses were required to notify the state of denied claims, the state was not empowered to approve or deny the notices. American Manufacturers Mutual Insurance Company (insurer) (defendant) denied several employees’(plaintiffs) workers’-compensation claims. The employees filed a lawsuit pursuant to 42 U.S.C. § 1983, arguing that the workers’-compensation system was so heavily regulated by the state that the insurer’s workers’-compensation decisions were joint private-state decisions and thus the insurer had acted under color of state law in denying the employees’ claims. The district court dismissed the suit. The United States Court of Appeals for the Third Circuit found for the employees, and the United States Supreme Court granted certiorari.