Auto Club Ins. Ass'n v. Frederick & Herrud, Inc.

• Decision Date: 01 March 1993
• Docket Number: Nos. 93816,93925,Nos. 7-8,s. 93816,s. 7-8
• Citation: 443 Mich. 358,505 N.W.2d 820
• Parties: , Pens. Plan Guide (CCH) P 23890M AUTO CLUB INSURANCE ASSOCIATION, Subrogee of Ali Chehab, Faysal Masaloum, Houhad Jamil Bazzi, Hussein E. Habab, Nasri Jomaa, Ali K. Hashem and Sami M. Alaouie, Plaintiff-Appellant, v. FREDERICK & HERRUD, INC., Defendant-Appellee. AUTO CLUB INSURANCE ASSOCIATION, Plaintiff-Appellant, v. PENTWATER WIRE PRODUCTS, INC., Self-Funded Employee Health Benefit Plan, Defendant-Appellee. Calendar,
• Court: Michigan Supreme Court

Page 820

505 N.W.2d 820

443 Mich. 358, Pens. Plan Guide (CCH) P 23890M

AUTO CLUB INSURANCE ASSOCIATION, Subrogee of Ali Chehab,

Faysal Masaloum, Houhad Jamil Bazzi, Hussein E.

Habab, Nasri Jomaa, Ali K. Hashem and Sami M. Alaouie, Plaintiff-Appellant, v. FREDERICK & HERRUD, INC., Defendant-Appellee.

AUTO CLUB INSURANCE ASSOCIATION, Plaintiff-Appellant, v. PENTWATER WIRE PRODUCTS, INC., Self-Funded Employee Health

Benefit Plan, Defendant-Appellee.

Nos. 93816, 93925.

Calendar Nos. 7-8, March Term, 1993.

Supreme Court of Michigan.

Argued March 3, 1993.

Decided Aug. 31, 1993.

[443 Mich. 360] John Wesley Kline, Novi, MI (Nancy L. Bosh, Detroit, MI, of counsel), for plaintiff in Frederick & Herrud, Inc.

Brandt, Hanlon, Becker, Lanctot, McCutcheon, [443 Mich. 361] Schoolmaster & Taylor by David J. Lanctot, Detroit, MI (Gross & Nemeth by Paul L. Kaliszewski, James G. Gross, and Mary T. Nemeth, of counsel), for plaintiff in Pentwater Wire Products, Inc.

Finkel, Whitefield & Selik, P.C. by Bradley T. Raymond, Farmington Hills, MI, for defendant in Frederick & Herrud, Inc.

Honigman, Miller, Schwartz & Cohen by Stephen Wasinger and John Eggertsen, Detroit, MI, for defendant in Pentwater Wire Products, Inc.

OPINION

RILEY, Justice.

In this case, we are called upon to decide the primacy of insurance liability between plaintiff no-fault insurer and two different employee health benefit plans established by defendants pursuant to the Employee Retirement Insurance Security Act, ¹ in which each contract with their insured contains unambiguous coordination-of-benefits (COB) clauses. Related questions are whether the ERISA permits subrogation of claims, whether the issue was properly preserved for this Court's review, and whether the existence of "stop-loss" insurance has any bearing on our determination of the first issue.

We hold that subrogation of claims is permitted under the ERISA. We also conclude that the ERISA issues were preserved for this Court's review. In addition, we find that the COB clause in an ERISA plan must be given its plain meaning despite the existence of a similar clause in a no-fault insurance policy as a matter of federal common law. Finally, we conclude that the existence of stop-loss insurance is irrelevant to the issue of preemption under the facts of these cases. Thus, we affirm the opinions of the Court of Appeals.

I Facts and Procedural History

A

AUTO CLUB v. FREDERICK & HERRUD, INC.

Plaintiff Auto Club paid no-fault automobile accident benefits to seven of its insureds who worked for defendant Frederick & Herrud or who were dependents of Frederick & Herrud employees. ² Pursuant to a COB clause ³ in its contract with the insureds and a related subrogation clause, plaintiff filed a complaint to recover its expenditures from defendant under the terms of defendant's self-funded employee welfare benefits plan (hereafter "Frederick plan") that also contains a COB clause. ⁴

In response to defendant's motion for summary disposition, the circuit court concluded that neither party was entitled to a judgment that the other was solely responsible for the benefits paid. Having determined that the competing COB clauses were unambiguous, the court entered a judgment ordering both parties to pay half the benefits owed to the insureds.

The Court of Appeals reversed the circuit court's summary judgment order concluding that the legislative intent behind M.C.L. § 500.3109a; M.S.A. § 24.13109(1) required that a no-fault insurer provide only secondary coverage in cases involving competing COB clauses. 145 Mich.App. 722, 728, 377 N.W.2d 902 (1985). The case was remanded to the circuit court for entry of an appropriate order.

Following remand, defendant retained the services of different counsel. Defendant moved for leave to file an amended answer and notice of affirmative defenses that, for the first time, asserted preemption of any state law claims by the ERISA. The circuit court denied the motion to amend. Several months later, it entered an order denying defendant's motion for summary disposition for lack of subject matter jurisdiction and granted plaintiff's motion for entry of judgment.

Defendant appealed the denial of its motion to amend and its motion for summary disposition. The Court of Appeals affirmed the judgment on the basis of the holding of the United States Court of Appeals for the Sixth Circuit in Northern Group Services, Inc. v. Auto Owners Ins. Co., 833 F.2d 85 (C.A.6, 1987), cert. den. 486 U.S. 1017, 108 S.Ct. 1754, 100 L.Ed.2d 216 (1988), which provided that the Michigan rule for coordination of benefits in M.C.L. § 500.3109a; M.S.A. § 24.13109(1) was not preempted by the ERISA. 175 Mich.App. 412, 417-419, 438 N.W.2d 320 (1989). This Court denied defendant's application for leave to appeal. ⁵

Defendant sought a writ of certiorari in the United States Supreme Court. ⁶ In lieu of plenary consideration, the United States Supreme Court vacated the judgment of the Court of Appeals and remanded for further consideration in light of its recently decided FMC Corp. v. Holliday, 498 U.S. 52, 111 S.Ct. 403, 112 L.Ed.2d 356 (1990).

On remand, the Court of Appeals noted that Northern Group Services, supra, was effectively overruled by FMC Corp. 191 Mich.App. 471, 474, 479 N.W.2d 18 (1991). Accordingly, it ruled that the state regulation found in M.C.L. § 500.3109a; M.S.A. § 24.13109(1) is preempted by the ERISA and reversed the circuit court's judgment. Id. That defendant's health plan may have been partially insured was held to be immaterial because plaintiff failed to preserve the issue. Id. This Court granted plaintiff's application for leave to appeal for consideration with the companion case. ⁷

B AUTO CLUB v. PENTWATER WIRE PRODUCTS

Plaintiff Auto Club paid no-fault automobile accident benefits to its insured, Alice Guetzka. Pursuant to a COB clause ⁸ in the contract, together with its right of subrogation of the insured's claims, plaintiff filed a complaint against defendant, the ERISA health plan of her estranged husband's employer, seeking recoupment of $357,699 in benefits paid, together with roughly $150,000 in interest and attorney fees. The employee health benefits plan ("Pentwater plan") provided for payment of the first $14,000 of any valid claim in addition to any amounts over $1,000,000. The gap in coverage occasioned by these provisions was filled by "stop-loss" insurance. ⁹ The Pentwater plan also contains a COB clause. ¹⁰

One month after the complaint was filed in a state court, defendant sought to remove the case to the United States District Court for the Western District of Michigan on the ground that the ERISA preempted plaintiff's claim. Shortly thereafter, the parties stipulated to an abeyance pending the decision of the United States Court of Appeals for the Sixth Circuit in Northern Group Services, Inc. v. Auto Owners Ins. Co., supra. Following issuance of the decision in Northern Group Services, the district court remanded the case to the state court because "Auto Club [pleaded] a state law cause of action only" in the absence of preemption.

On remand, the circuit court granted plaintiff's motion for summary disposition while denying defendant's motion. An order was entered on July 25, 1989, granting plaintiff's motion for partial summary judgment. On April 9, 1990, the circuit court entered an amended judgment in favor of plaintiff for $511,253.08. Defendant's motion for a new trial or relief from the judgment was denied on January 29, 1990. ¹¹

Defendant filed its claim of appeal after the United States Supreme Court decided FMC Corp. The Court of Appeals did, however, have the benefit of the FMC Corp. holding because it had already been considered and adopted by another panel in the companion case. ¹² Therefore, relying on this earlier precedent, the Court reversed, concluding that M.C.L. § 500.3109a; M.S.A. § 24.13109(1) was preempted by ERISA, that the existence of "stop- S S S insurance was irrelevant to the issue of preemption, and that plaintiff failed to preserve its argument that ERISA preemption required consideration of the federal common law on the conflicting clauses issue rather than dismissal of the action. Unpublished opinion per curiam of the Court of Appeals, decided January 6, 1992 (Docket No. 126174). With the assistance of new counsel, plaintiff moved for a rehearing that was denied in an order entered April 2, 1992. This Court granted plaintiff's application for leave to appeal for consideration of the ERISA issues together with the companion case. ¹³

C

Before turning to the substantive issues, a brief overview of how the issues have reached this Court is in order. It would be fair to say that the primary issue regarding the conflicting coordination-of-benefits clauses has only recently been defined by a flurry of federal cases. Originally, plaintiff filed complaints for the recoupment of its expenditures alleging state law claims surrounding the interpretation of its COB clauses and its rights under a subrogation theory. In 1985, our Court of Appeals held that a no-fault insurer was to be considered secondarily liable to any health and accident insurer where both insurers' contracts with an insured contained COB clauses. Frederick & Herrud, 145 Mich.App. at 727-731, 377 N.W.2d 902. ¹⁴

In 1985, the federal courts also began to focus their attention on the ERISA preemption problem in cases involving health and welfare benefits plans. ¹⁵ And, following the landmark decision in FMC Corp., the issues implicated here reached the Sixth Circuit in several cases. In Auto Club Ins. Ass'n v. Health & Welfare Plans, Inc., 961 F.2d 588 (C.A.6, 1992), the court determined that ERISA preemption, a point made clear in FMC Corp., did not ipso facto render the COB clause in a no-fault insurance policy void where it conflicted with a similar clause in an ERISA health plan. The case was remanded to the district court to determine "how a court...