In the case of American Manufacturers Mutual Insurance Company v. Delores Scott Sullivan, 1998, the U.S Supreme Court ruled that private insurance companies acting under Pennsylvania's workers' compensation laws were not "state actors" and thus their actions did not constitute state action subject to constitutional constraints. The plaintiffs had argued that by denying or delaying payment for certain medical treatments without first obtaining approval from a state agency or court violated due process rights. However, the majority opinion held that while these insurers were heavily regulated by the state and provided a public service, they remained fundamentally private entities making independent decisions about claims handling procedures based on business considerations rather than governmental policy directives. Therefore, their conduct could not be attributed to the state nor subjected to constitutional scrutiny.

In the dissenting opinion for American Manufacturers Mutual Insurance Company v. Delores Scott Sullivan, Justice Stevens argued that the majority's decision was based on a flawed interpretation of due process rights. He contended that private insurance companies acting under Pennsylvania's Workers' Compensation Act were effectively performing a state function and should therefore be subject to constitutional constraints. In his view, when an insurer decides whether or not to continue paying benefits without obtaining prior approval from a state agency, it is exercising power delegated by the state and thus qualifies as "state action." This means such decisions should be subject to judicial review before they are implemented in order to protect individuals' property interests in their ongoing benefit payments. The majority’s ruling against this notion undermined these protections and allowed insurers too much discretion over workers’ compensation claims with little oversight or accountability.