Northeast Dept. ILGWU Health and Welfare Fund v. Teamsters Local Union No. 229 Welfare Fund
| Decision Date | 23 May 1985 |
| Docket Number | No. 84-5036,84-5036 |
| Citation | 764 F.2d 147 |
| Parties | 6 Employee Benefits Ca 1874 NORTHEAST DEPARTMENT ILGWU HEALTH AND WELFARE FUND and Sol Hoffman, Appellees, v. TEAMSTERS LOCAL UNION NO. 229 WELFARE FUND, Appellant. |
| Court | U.S. Court of Appeals — Third Circuit |
Charles W. Johnston (argued), Handler, Gerber, Johnston, Strokoff & Cowden, Harrisburg, Pa., for appellees.
Robert D. Mariani (argued), Mariani & Greco, Scranton, Pa., for appellant.
Before SLOVITER and BECKER, Circuit Judges, and FULLAM, District Judge. *
This appeal, arising from a dispute between two employee benefit plans existing under the Employee Retirement Income Security Act, 29 U.S.C. Secs. 1002(1) & (3) (ERISA), presents two difficult questions. The first concerns the existence of federal subject matter jurisdiction. The second, a classic insurance coverage question, requires us to determine which of the two ERISA plans, the Northeast Department International Ladies' Garment Workers' Union Health and Welfare Fund (ILGWU Fund) plan or the Teamsters Local Union No. 229 Welfare Fund (Teamsters Fund) plan, each of which contains "other insurance" provisions, is responsible for the medical bills of a woman who is a participant of the former and a beneficiary of the latter.
We conclude that the district court properly exercised subject matter jurisdiction over this suit. 1 We also conclude that trustees of an employee benefit plan have the power to incorporate into the plan "other insurance" provisions unless in doing so they violate ERISA's fiduciary duty standard, 29 U.S.C. Sec. 1104, by acting in an arbitrary and capricious manner. Finally, we conclude that the decision of trustees to incorporate an escape clause in a benefit plan--through which the plan attempts to escape all liability if a participant or beneficiary is covered by another plan, regardless of the level of benefits provided by the other plan--constitutes arbitrary and capricious conduct. We will therefore reverse the judgment of the district court that enforced the escape provision in the ILGWU plan and assigned liability for the benefits in question to the Teamsters Fund.
Ruth Fazio is an employee in the garment industry and a participant in the ILGWU plan, an employee benefit plan within the meaning of ERISA, 29 U.S.C. Secs. 1002(1) & (3). Mrs. Fazio's husband, Nicholas Fazio, is a participant in the Teamsters plan, which is likewise an employee benefit plan within the meaning of ERISA. Both plans pay for medical care for their respective employees. In addition, the Teamsters Fund provides medical coverage for the spouse and children of covered employees, and Mrs. Fazio is thus a beneficiary of the Teamsters Fund.
In March 1981, Mrs. Fazio underwent medical treatment and subsequently submitted her medical bills to the ILGWU Fund. The ILGWU Fund advised Mrs. Fazio that she was not eligible for benefits under its plan because she was covered by the Teamsters plan. Mr. Fazio thereupon submitted a claim for his wife's medical bills to the Teamsters Fund, but that fund advised Mrs. Fazio that it would not pay these bills because she was covered by the ILGWU plan.
Faced with one set of medical bills and two insurers who refused to pay, Mrs. Fazio filed suit in the United States District Court for the Middle District of Pennsylvania, naming both funds as defendants. Federal jurisdiction was grounded on 29 U.S.C. Sec. 1132(a)(1)(B). From the outset, it was clear that Mrs. Fazio was entitled to reimbursement for her medical expenses from one of the funds. The district court thus thought it unfair for Mrs. Fazio to incur counsel fees and to wait for payment while the court decided which of the funds was liable for her bills. The court therefore suggested, and defendants agreed, that (1) the ILGWU Fund would pay Mrs. Fazio's claim, (2) the action brought by Mrs. Fazio would then be dismissed, and (3) the ILGWU Fund would file, contemporaneously with the dismissal, a complaint in federal court against the Teamsters Fund seeking a declaration of the rights and obligations of the two funds regarding Mrs. Fazio and persons similarly situated.
This agreement was promptly carried out. Federal jurisdiction over the new suit was predicated on two provisions of ERISA, 29 U.S.C. Secs. 1132(a)(1)(B) and 1132(a)(3). In addition to the ILGWU Fund, Sol Hoffman, Chairman of the Trustees of the ILGWU Fund, was added as a party-plaintiff. The parties stipulated to the facts and cross-moved for summary judgment. Each fund contended that its applicable "other insurance" provision, that is, the language in its benefits plan purporting to exclude from coverage persons in Mrs. Fazio's position, was controlling. In addition, the Teamsters Fund argued that, if the ILGWU Fund's provision operated as the ILGWU trustees contended, those trustees were acting in an arbitrary and capricious manner, in violation of their fiduciary duties as set out in ERISA at 29 U.S.C. Sec. 1104, because they were discriminating among participants on the basis of sex and marital status.
Both the ILGWU and the Teamsters plans have "other insurance" clauses providing for situations in which a participant or beneficiary is covered by another insurance policy or plan. Specifically, each plan has a coordination of benefits ("COB") section that sets out when the plan intends to be the primary insurer of a participant or beneficiary and when it intends to be a secondary or excess insurer. See infra notes 9 & 10. The Teamsters Fund's COB provision states that "a[nother] plan covering the patient directly, rather than as an employee's dependent, is primary." The ILGWU Fund COB provision does not apply to the situation in which a participant is also a potential beneficiary of a spouse's plan. Instead, the ILGWU plan has a separate section labeled "Exception to Eligibility," which states:
Exception to Eligibility--You are not eligible for hospital, medical-surgical, or Major Medical benefits under this plan if there exists at your spouse's place of employment a group plan which provides for family coverage of these types of benefits so long as 50% or more of the cost of such family coverage is paid for by other than you or a member of your family.
Id. at 54a. The Teamsters plan does not have any provision comparable to the ILGWU plan's "Exception to Eligibility" clause.
The district court, 584 F.Supp. 68, granted summary judgment for ILGWU, holding the Teamsters Fund liable for Mrs. Fazio's medical bills. The court predicated its judgment on the fact that the "Exception to Eligibility" language in the ILGWU plan excludes coverage for employees if there exists at their spouse's place of employment a group plan that provides for family coverage, whereas the Teamsters plan provides that it will be an excess insurer only if a beneficiary is covered by another plan. The court concluded that, since the Teamsters Fund exists, Mrs. Fazio is not covered by the ILGWU plan. The court further concluded that, because the Teamsters Fund purports to provide excess coverage only where a participant's spouse is covered by another plan and provides primary coverage otherwise, the Teamsters Fund is liable for all of Mrs. Fazio's medical expenses. Influencing the court's analysis was its concern that the ILGWU Fund ought to be able to protect its "limited financial resources" by shifting liability to the wealthier Teamsters Fund. See Appellant's Appendix at 130a n. 6 ( ) Finally, the court rejected the Teamsters Fund's argument that the ILGWU Fund provision is discriminatory and in violation of Sec. 1104 of ERISA.
The Teamsters Fund appeals. Although both funds maintain that we have jurisdiction over this suit, we expressed concern about this issue at oral argument and requested that the funds file supplemental briefs on this point. In addition to supporting the allegation in its complaint that jurisdiction properly rests on Sec. 1132 of ERISA, the ILGWU Fund contended in its supplemental brief that federal jurisdiction also can be based on 28 U.S.C. Sec. 1331.
The first question we must address is whether this action is cognizable in federal court. Although the panel is unanimous that the district court acted properly in exercising jurisdiction, it is divided as to the basis for this conclusion. Part IIA reflects the view of Judges Sloviter and Becker that jurisdiction over this suit cannot be obtained through the express grant of ERISA, 29 U.S.C. Sec. 1132. Part IIB reflects Judge Becker's theory that jurisdiction can be founded upon the federal question statute, 28 U.S.C. Sec. 1331, because the case arises under federal common law. Judge Sloviter agrees that Sec. 1331 provides subject matter jurisdiction, but sets forth her theory of federal question jurisdiction in a separate statement. In his separate concurrence, Judge Fullam expresses the view that this suit is cognizable under Sec. 1132(a)(3).
Federal jurisdiction over Mrs. Fazio's original suit was unassailable. ERISA, at 29 U.S.C. Sec. 1132, provides, in pertinent part, that:
(a) A civil action may be brought--
(1) by a participant or beneficiary--
* * * (B) to recover benefits due to him under the terms of the plan, to enforce his right under the terms of the plan, or to clarify his rights to future benefits under the plan ...
Mrs. Fazio is a beneficiary of the Teamsters plan and a participant of the ILGWU plan, 2 and her suit...
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