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Auto Club Insurance Association v Frederick & Herrud lnc and Auto Club Insurance Association v Pentwater Wire Products Inc.; (MSC-PUB, 8/31/1993; RB #1628)


Michigan Supreme Court; Docket Nos. 93816 and 93925; Published  
Opinion by Justice Riley; Unanimous 
Official Michigan Reporter Citation:  443 Mich 358; Link to Opinion alt  

Coordination with Other Health and Accident Medical Insurance [§3109a]  
Coordination with ERISA Plans [§3109a]

Employee Retirement Income Security Act (ERISA – 29 USC Section 1001, et seq.)  

In this unanimous Opinion by Justice Riley, the Supreme Court resolved a conflict involving coordination of benefits clauses contained in both an automobile accident insurance policy and in an employee health benefit plan established under ERISA and held that the coordination of benefits clause contained in the ERISA plan controls and requires that the injured party's benefits be paid by the automobile insurance policy.  

In these two consolidated cases, Auto Club paid no-fault benefits to its insureds who worked for employers who also provided these employees with health benefits under employee health benefit plans established by their employers pursuant to the Employee Retirement Insurance Security Act (ERISA). Auto Club had a coordination of benefits clause in its automobile insurance policies, and contended that the employee benefits plans were obligated to pay the benefits pursuant to the provisions of §3109a which has been interpreted by the Supreme Court in Federal Kemper Insurance Company v Health Insurance Administration, 424 Mich 537 (1986). Federal Kemper held that the health insurance provider is primarily responsible for payment of benefits and the no-fault insurer is secondarily liable for medical benefits in cases where there is any other form of health care coverage, and where the insurers both seek to escape liability through the use of competing coordination of benefits clauses.  

The issues raised on appeal in these two consolidated cases concerned a number of procedural and substantive issues concerning the right of the automobile insurance company to be subrogated to the claims of the injured parties, preservation of ERISA issues for appeal, interpretation of the ERISA coordination of benefits clause, the existence of stop loss insurance and its affect on the issue of federal preemption.  

In the procedural issue regarding subrogation, the Supreme Court held that Auto Club was a proper subrogee of its insured's right to seek payment from their ERISA plans. The ERISA creates a cause of action against an employee benefit plan in favor of participants and beneficiaries. 29 USC 1132(a)(1). Auto Club argued that it was a subrogee of a plan participant or beneficiary, and therefore, was entitled to bring its claim for a benefit under the plan on behalf of its insureds. While recognizing a conflict among federal courts as to the entitlement of subrogees to bring such actions, the Michigan Supreme Court held that the better approach is to permit subrogation as a matter of public policy. Subrogation insures the rapid payment of benefits to an injured person who might otherwise have to wait for resolution of any litigation over which insurer is liable for benefits. Therefore, a subrogee may stand in the shoes of a subrogor ERISA plan member.  

In addressing the main issue concerning whether the coordination of benefits clause in an ERISA plan must be given its plain meaning and thus make a no-fault insurer primarily liable in spite of the auto insurer's coordination of benefits clause, the Supreme Court held that the no-fault insurer was primarily liable for the benefits at issue. The Supreme Court traced the development of federal law addressing the primary issue concerning whether federal law preempts no-fault coordination of benefits clauses where they conflict with coordination of benefits clauses contained in an ERISA plan. The court noted that ERISA was signed into law in 1974 with the primary purpose of protection of employees pension rights for plans created under ERISA. Upon review of recent federal cases, the Supreme Court held that it was persuaded that what must ultimately solidify the federal common law on the multitude of ERISA issues is Congress' intent to prevent a patchwork scheme of regulation that would introduce considerable inefficiencies in benefit program operation, which might lead those employers with existing plans to reduce benefits, and those without such plans to refrain from adopting them. The court noted conflicting public policies, one reflecting federal concern over the continued existence and growth of ERISA plans, and the other reflecting state concern over spiraling costs in the context of automobile accidents involving no-fault insurers.

By its enactment of the preemption clause [29 USC 1144(a)], Congress made clear its intention to make federal law and policy supreme in the ERISA context.

The Michigan Supreme Court agreed with the recent United States District Court decision in Lincoln Mutual Casualty Company v Lectron Products Inc, 970 F2d 206 (1992), which held that a coordination of benefits clause in an ERISA plan must be given its clear meaning without the creation of any artificial conflict based upon §3109a. Since the ERISA plans at issue in these consolidated cases provide that the no-fault insurance is primary where the potential for duplication of benefits occurs, the Supreme Court held that the ERISA plans terms control. The no-fault insurer, Auto Club, is primarily liable for the benefits at issue. Although the Michigan no-fault law purports to regulate insurance and not ERISA plans, the Supreme Court concluded that it has a direct effect on the administration of the plans in these cases because it would virtually write a primacy of coverage clause into the plans. This is the type of state regulation that would lead to administrative burdens which federal cases interpreting the ERISA law forbid. Therefore, §3109a does not reach an ERISA plan with a coordination of benefits clause where that clause is unambiguous.  

The Supreme Court also addressed the issue of whether federal preemption would apply to any amounts that are the subject of "stop loss" insurance. In the Pentwater plan, it is provided that the plan will pay for the first $14,000 of any valid claim and any amounts over $1 million. The gap in coverage between these two amounts is filled by "stop loss" insurance. The Supreme Court held that the existence of stop loss insurance has no bearing on the outcome in these cases, because the plan administrator retains discretion to pay or deny claims and that discretion was never delegated to the stop loss insurers. Therefore, any attempt to regulate administration of an ERISA plan would have a significant effect on the administration of the plan and would be impermissible under the doctrine of federal preemption.  

Finally, the court held that to the extent that its decision in Federal Kemper is inconsistent with its holding in these cases, Federal Kemper is overruled. However, the court emphasized that the primacy of health care coverage over that in a no-fault policy continues in Michigan jurisdiction in all cases not within the purview of this narrow holding.  

Lansing car accident lawyer Stephen Sinas is the lead editor of the appellate case summaries published on this site regarding the Michigan auto insurance law. To learn more about how Stephen Sinas and how the Sinas Dramis Law Firm can help you if you have been injured in a Michigan auto accident, visit

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