United States District Court, Western District of Michigan; Docket No. l:92-CV-583;
Honorable Robert Holmes Bell; Unpublished
Official Federal Reporter Citation: Not Applicable; Link to Opinion
In this ERISA case involving a self-funded employee benefit plan and a Michigan no-fault coordinated insurance policy, each of which contained conflicting "other insurance" or coordination of benefits provisions, Judge Bell ruled that primary liability must be shared on a. pro rata basis by the insuring parties. In so holding, Judge Bell noted that the question presented in this case appears to be one of first impression in this circuit.
Judge Bell began his analysis by stating that the preemption claim is "all but settled" and that state no-fault laws are preempted by ERISA. Judge Bell referred to the Supreme Court's recent decision in FMC Corporation v Holliday, which holds that where state laws, such as the Michigan No-Fault Act, relate to an ERISA plan, the federal law of ERISA preempts the operation of the state law. However, mat does not end the inquiry. The holding that ERISA preempts the issue does not resolve the coverage dispute, but merely suggests that it is federal law, rather than state law, that governs the dispute. That, therefore, raises the major issue which is the determination of how the dispute is resolved under federal law.
With regard to this second question, Judge Bell noted that the ERISA statute itself does not provide any answer. Accordingly, there is no statutory ERISA rule that can be applied to resolve this dispute. Therefore, the federal courts have developed "federal common law" to address various issues involving rights and obligations under an ERISA plan. In formulating a federal common law rule for evaluating coverage priority questions, the federal courts have reviewed state law approaches. Two principal state law approaches have emerged. The Michigan Supreme Court has distinguished them as the "majority" and "minority" rules. See, Federal Kemper v Health Insurance Administration (Item No. 897). In Federal Kemper, the Michigan Supreme Court did not endorse either approach. The "majority rule" attempts to reconcile the competing provisions by discerning the parties' intent. The "minority rule" holds that liability must be pro rated between the parties. In deciding which of these approaches was preferable, Judge Bell noted that the Seventh Circuit Court of Appeals had, in the case of Winstead v Indiana Insurance Company, 855 F2d 430 (CA 7,1988) adopted the minority view and held that liability between an ERISA plan and a non-ERISA automobile insurance policy governed by the Michigan no-fault insurance law should be apportioned on a pro rata basis. Judge Bell agreed with the Winstead ruling, because it is a simple rule that is predictable and easy to apply. Judge Bell stated:
"Accordingly, this court adopts the following rule as the appropriate coordination of benefits rule under ERISA: When there is a conflict between unambiguous, valid, and irreconcilable 'other insurance' or coordination of benefits provisions in an ERISA plan and a non-ERISA insurer, such as a Michigan no-fault insurer, the coverage responsibility must be apportioned between the insurers on a pro rata basis."
Accordingly, the liability for medical expenses in this case, including future expenses, must be shared on a pro rata basis with 50% being paid by the no-fault insurer and 50% by the ERISA self-funded plan.
Finally, Judge Bell held that the exhaustion of remedies requirement is not applicable in such a case, when a beneficiary of an ERISA plan is challenging the plan's denial of a benefit claim, nor it is applicable in cases involving declaratory judgment.