United States Court of Appeals for the Sixth Circuit; Docket No. 91-1371; Published
Judges Merritt, Milburn and Brown; Unanimous
Official Federal Reporter Citation: 970 F 2d 206; Link to Opinion
This unanimous Opinion by Judge Brown involves yet another priority dispute between a no-fault insurance company with a coordinated benefits provision in its policy and an ERISA self-funded insurer with coverage limitations limiting benefits to $300 per family member where the injuries arise from automobile accidents and where coverage is also available pursuant to a state coordinated no-automobile insurance policy. A related issue concerned whether the ERISA plan involved in this case was subject to regulation by the Michigan no-fault act because the plan has "stop loss" coverage for losses exceeding $75,000 per year.
The automobile accident resulted in injuries to eight members of the same family. Expenses exceeded $247,900. The injured parties sought payment for their medical expenses from the ERISA regulated employee benefit plan of the injured persons' employer. The plan is self-funded, but has obtained "stop loss insurance" to cover its losses which exceed $75,000 for two or more family members in one year.
The plan also has coverage language limiting coverage to $300 for expenses arising from automobile accidents when coverage is also available pursuant to a state's no-fault automobile insurance act. Based upon this language, the plan refused to pay the health care providers more than $300 per family member involved in this accident Lincoln Mutual then paid the benefits and sued the plan seeking reimbursement on grounds that Lincoln Mutual had a coordination of benefits clause in its policy and, therefore, pursuant to §3109a and its interpretation in Federal Kemper Insurance v Health Insurance Administration (Item No. 897), the ERISA plan was primary and the no-fault insurer secondary with respect to payment of no-fault allowable expenses.
The plan filed for summary disposition in the district court on the grounds that the ERISA law preempts state law which would hold the plan primarily responsible. The district court held, based upon the recent Supreme Court ruling in FMC Corp v Holliday, 112 L Ed 2d 356 (1990) that the state of Michigan could not regulate the provisions of the plan nor the terms and conditions of payment of benefits under the plan.
The United States Court of Appeals affirmed the trial court ruling in which it was determined that under the ERISA law, the plan is deemed not to be an insurance company for purposes of state laws such as §3109a, and therefore, Michigan case law purporting to elevate the ERISA plan to a primary pay position was preempted by the provisions of the ERISA statute, 29 USC §1144(a) and §1144(b)(2)(A).
The court next determined whether the purchase by the plan of "stop loss" insurance for claims in excess of $75,000 would require a different conclusion than the conclusion that ERISA preempts application of Michigan no-fault law. Lincoln contended that for claims above $75,000, the plan was "insured" and insured plans were subject to state regulation under §3109a. The United States Court of Appeals held that this contention was without merit, and again relying on FMC, supra, held that if a plan is insured, a state may only regulate it indirectly through regulation of its insurer and its insurer's insurance contracts. FMC does not hold that states are free to regulate ERISA plans insofar as the plans are insured. The ERISA law relieves ERISA benefit plans - -both uninsured and insured plans -- from direct state regulation, but, because the ERISA law does not relieve a plan's insurer, state regulation may have an incidental, or "indirect" effect on ERISA plans. Consequently, in this case, the court held that ERISA preempts the application of state law even though the plan holds stop loss insurance for losses in excess of $75,000. The court also stated that to the extent that its opinion in Northern Group Services Inc v Auto Owners Insurance Company (Item No. 1090) held otherwise, it is no longer viable in light of FMC.
Finally, the court addressed the issue of whether ERISA preemption resolves the dispute as to which party must pay these benefits. The court held that federal preemption merely answers the question of whether Michigan law governs the dispute. Having answered that question in the negative, the court then proceeded to address whether the plan contains a provision which competes with the coordination of benefits plan in the Michigan no-fault insurance policy. The court noted that the fact that §3109a is preempted by ERISA does not necessarily render the no-fault insurance company's coordination of benefits clause void, nor does it necessarily mean that the plan's terms prevail. Where there are two valid, unambiguous, and irreconcilable clauses purporting to coordinate benefits, the court held that the issue must be resolved by applying federal common law. Referring to its earlier similar holding in Auto Club Insurance Association v Health and Welfare Plans Inc (Item No. 1543), the court remanded the case to the district court for resolution of the conflict between the incompatible coordination of benefit clauses of the no-fault policy and the plan. As with its earlier holding in Auto Club, supra, the Sixth Circuit gave no other indication as to how the district court should resolve such a conflict between two coordination clauses.