United States District Court, Western District of Michigan; Docket No. 1:00-CV-865; Written
Honorable Robert Holmes Bell
Official Michigan Reporter Citation: Not Applicable, Link to Opinion 
STATUTORY INDEXING:
Coordination with ERISA Plans [3109a]
TOPICAL INDEXING:
Employee Retirement Income Security Act
Uninsured Motorist Benefits: Lien and Reimbursement Rights of Uninsured Motorist Insurers
CASE SUMMARY:
In this written opinion, Judge Robert Holmes Bell decided the issue of whether an ERISA health plan that paid medical expenses on plaintiff’s behalf arising out of an automobile accident could obtain reimbursement out of an award of uninsured motorist benefits received by plaintiff which represented noneconomic loss. The plaintiff in this case sustained injury in an automobile accident caused by an uninsured drunk driver. Plaintiff incurred medical expenses, some of which were paid by plaintiff’s ERISA health plan. Plaintiff also had a coordinated no-fault PIP insurance policy with State Farm. However, the ERISA health plan made itself primary with regard to any coordinated auto no-fault plan. Therefore, the ERISA health plan properly paid the medical expenses in this case. The next question was whether the ERISA health plan could obtain reimbursement for those expenses out of any recovery obtained by the plaintiff arising out of the accident. In this case, plaintiff obtained a $100,000 uninsured motorist arbitration award which represented noneconomic loss only. The ERISA health plan contained reimbursement language that permitted the plan to recover reimbursement from a participant if “The participant has a right to claim or a right to recover damages from any person or organization for causing the need for the benefits paid by the plan.”
Judge Bell held that the right of the ERISA health plan to seek reimbursement under this language is controlled by the “make-whole rule of federal common law.” In explaining this rule, Judge Bell stated, “The make-whole rule is based on the equitable principle that an insured must be restored, as much as possible, to the position he was in before the covered accident.... Therefore, an insurance company may not enforce its rights to subrogation if to do so would result in the insured’s not being made whole. Sixth Circuit precedent dictates that the insured must be made whole before an insurer may enforce its right to subrogation under ERISA, unless there is a clear and unambiguous contractual provision to the contrary. A subrogation clause must be clear and specific in establishing a priority over the funds to be recovered and a right to any full or partial recovery. If, however, the subrogation clauses are unambiguous, then they must be enforced as written.” Judge Bell went on to analyze the language in the Felpausch ERISA plan and held that it was ambiguous and therefore, not enforceable under the “make whole rule.” In this regard, Judge Bell stated:
“Here, the subrogation clause is ambiguous as to the type of damages that Felpausch is allowed to recover. Felpausch argues in its brief that the clause means that it may recover damages awarded for any reason, but this is not clear from the wording of the Right to Recover clause. The clause states that Felpausch may recover ‘damages,’ not ‘any damages’ as asserted in the brief. There is room for disagreement as to whether ‘damages’ means damages awarded for any reason, or damages awarded that are identical to the benefits already paid by Felpausch.... Because the subrogation clause is ambiguous, the Court applies the make-whole rule. Here, Plaintiff has a total of $136,787.74 in damages–$36,787.74 in medical expenses and workmans’ compensation and $100,000 in non-economic pain and suffering. Should Felpausch be allowed reimbursement from the pain and suffering award, Plaintiff will end up with a total of $106,838.29 in monies for $136,787.74 in damages. He will not be made whole.”
Judge Bell also stated that the language of the ERISA health plan did not clearly create the right to recover reimbursement because it limited the right to recovery from any person or organization “causing the need for the benefits paid by the plan.” The uninsured motorist company that paid plaintiff $100,000 was not an insurer of any party that caused the need for the benefits to be paid. Therefore, the subrogation clause, on its face, does not allow reimbursement of the award plaintiff received from the uninsured motorist carrier.
Judge Bell also held that the reimbursement agreement signed by plaintiff and his wife did not entitle the ERISA health plan to enforce its subrogation claim because the reimbursement agreement is void for lack of consideration under the pre-existing duty rule. In so holding, Judge Bell cited the Michigan Supreme Court opinion in Yerkovich v AAA [Item No. 2113].