U.S. District Court for the Western District of Michigan; Docket No. l:99-CV-822;
Honorable Robert Holmes Bell; Unpublished
Official Federal Reporter Citation: Not Applicable; Link to Opinion
In this written Opinion, Judge Bell held that an "escape clause " contained in an ERISA self-funded employee benefit plan was valid and that it was not a breach of the company's fiduciary responsibility to adopt such escape clauses. Because the escape clause precluded coverage for medical expenses to the extent benefits are available under no-fault motor vehicle insurance, and because the plan was self-funded and controlled by federal law, under federal common law, the no-fault automobile insurer was primarily liable for the employee's benefits.
Judge Bell declined to adopt the ruling in Northeast Department ILGWU v Teamsters Local Union 229,764 F2d 147 (3rd Cir, 1985), which held that such escape clauses were, per se, invalid. The Third Circuit had reasoned that because a participant of a plan with an escape clause loses expected coverage in the presence of another insurance plan, a decision by a plan's fiduciary to include an escape clause is "arbitrary and capricious" and unenforceable under ERISA's regulatory scheme.
Judge Bell, in refusing to adopt the Third Circuit holding, relied on Musto v American General Corp., 861 F2d 897 (6th Cir, 1988), which rejected the assumption that escape clauses in ERISA welfare plans are automatically invalid. The court in Musto observed mat at least with respect to single employer plans, it was not a breach of fiduciary responsibility for the company to adopt an escape clause.
Judge Bell reasoned that the fiduciary duties owed to participants and beneficiaries under ERISA apply only to the administration of a plan, not to its formation, amendment or modification. ERISA does not regulate the substantive content of welfare benefit plans. Pursuant to the Sixth Circuit authority, there is no basis for holding an escape clause in an ERISA plan to be unenforceable as a matter of law.