United States 6th Circuit Court of Appeals; Docket Nos. 99-4535 and 00-3012; Published
Judges Martin, Moore, and Tarnow; Unanimous
Official Reporter Citation: 243 F.3d 956
Coordination of ERISA Plans
Employee Retirement Income Security Act (ERISA – 29 USC 1001 Et Seq.)
In this published unanimous opinion, written by Chief Judge Martin, the United States Sixth Circuit Court of Appeals held that an ERISA health plan seeking subrogation and reimbursement from a member’s auto tort personal injury settlement is subject to the “make whole rule” of federal common law, and under such rule, the plan cannot claim any portion of the settlement unless the plan language specifically and clearly expresses both a priority to the funds recovered and a right to any full or partial recovery. The court also held that the “make whole rule” applies regardless of whether the ERISA plan is seeking to enforce its rights under a “subrogation” provision or under a “reimbursement” provision. In either case, the plan cannot make a settlement unless it uses the requisite precise language to conclusively establish its priority. In so holding, the Sixth Circuit relied upon its earlier opinion in Copeland Oaks v Haupt, 209 F3d 811 (6th Cir, 2000). In expressing this rule, the court stated:
"[The ERISA plan] argues that the make-whole rule does not apply to the subrogation provision because the subrogation provision unambiguously establishes that the Benefit Plan enjoys priority over the insured in recovering damages. While it may be true, as [the plan] argues, that the language contained in the subrogation provision establishes first priority to any funds recovered from a responsible party, Copeland Oaks commands that to avoid the application of the make-whole rule, the Plan must also unambiguously establish a right to any full or partial recovery. This the subrogation provision fails to do. Nor does the phrase ‘to the extent of any payments’ clearly disavow the make-whole rule. While this phrase may establish the Benefit Plan’s subrogation rights regarding any amount it paid toward [the member’s] medical expenses, it suffers from the same ambiguity as the plan language in Copeland Oaks: it does not address whether this right applies when [the member] has not been fully compensated for her injuries. We therefore find the subrogation provision ambiguous because it is silent as to whether the right of subrogation applies to partial recovery, and accordingly, the make whole-rule applies....
While subrogation and reimbursement are distinct doctrines, we see no principled reason for treating them differently when it comes to the default application of the make-whole rule to ambiguous provisions.... In the present case, the reimbursement provision, like the subrogation provision, fails to clearly establish that [the plan’s] right to reimbursement applies to any full or partial recovery. The provision merely obligates plan members to ‘reimburse [the Benefit Plan] to the extent of payments made.’ It thus fails to adequately inform [the member] that [the plan] could enforce this provision even if she had not been completely compensated for the financial expenses incurred as a result of her serious medical injuries. We therefore find the reimbursement provision ambiguous because it is silent as to whether the right of reimbursement applies to partial recovery, and accordingly, the make-whole rule applies.”
After finding both the subrogation and reimbursement provisions of the plan to be ambiguous because they did not clearly establish that they applied to a partial recovery by the insured, the court found that the make whole rule bars their enforcement because the plan member had not been made whole by her auto tort settlement. In this regard, the court noted that the plan member’s settlement was for $103,000, but it was estimated that the plan member would suffer future lost wages in the amount of $200,000 and approximately $4,000 per year in medical and chiropractic expenses. Therefore, the court affirmed the trial court’s conclusion that the plan member had not been fully compensated and thus the make whole rule prevented the plan from recovering any benefits out of the plan member’s auto tort settlement.
Finally, the court affirmed the trial court’s ruling that the plan administrator was not liable to the plan member for failing to furnish copies of the plan documents [which is required by 29 USC 1024(b)(4)] because the request was not submitted to the designated plan administrator but was, rather, submitted to the member’s employer. Because the request for plan documents was not submitted to the plan administrator as required by statute, the trial court correctly refused to sanction the plan administrator for failing to provide the requested documents.