Barnes v. Independent Auto. Dealers Ass'n of California Health and Welfare Benefit Plan

• Decision Date: 08 September 1995
• Docket Number: No. 93-16049,93-16049
• Citation: 64 F.3d 1389
• Parties: 19 Employee Benefits Cas. 1958, 95 Cal. Daily Op. Serv. 7111, 95 Daily Journal D.A.R. 12,137 Susan M. BARNES, Plaintiff-Appellant, v. INDEPENDENT AUTOMOBILE DEALERS ASSOCIATION OF CALIFORNIA HEALTH AND WELFARE BENEFIT PLAN, and Does 1 through 25, inclusive, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1389

64 F.3d 1389

19 Employee Benefits Cas. 1958, 95 Cal. Daily

Op. Serv. 7111,

95 Daily Journal D.A.R. 12,137

Susan M. BARNES, Plaintiff-Appellant, v. INDEPENDENT AUTOMOBILE DEALERS ASSOCIATION OF CALIFORNIA HEALTH AND WELFARE BENEFIT PLAN, and Does 1 through 25, inclusive, Defendants-Appellees.

No. 93-16049.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Dec. 14, 1994.

Decided Sept. 8, 1995.

Stephen D. Schear, Oakland, CA, for plaintiff-appellant.

William H. Leifer, Wild, Carter, Tipton & Oliver, Fresno, CA, for defendants-appellees.

Appeal from the United States District Court for the Northern District of California.

Before: BOOCHEVER, NORRIS, and HALL, Circuit Judges.

BOOCHEVER, Circuit Judge:

Susan Barnes appeals from the district court's grant of summary judgment in favor of Independent Automobile Dealers Association of California Health & Welfare Benefit Plan ("the Plan"). The district court found that the subrogation clause in the Plan's benefit agreement prevented Barnes from recovering for medical expenses. We conclude that Barnes is entitled to recover for medical expenses and remand for entry of summary judgment in her favor.

FACTS

Susan Barnes was an employee beneficiary of the Plan, a self-funded employee medical benefit program. The Plan entitled Barnes to payment of medical bills incurred as the result of an accident.

In October 1990, Barnes' car was hit from behind by a car driven by Catherine Clark. Clark disputed liability. Barnes underwent back surgery two months later, incurring medical bills totalling $23,075.40. As a result of the accident, Barnes lost time from work and incurred substantial pain and suffering. Barnes' automobile insurance policy provided for $5000 in medical payments.

Barnes sued Clark in California state court in January 1991, including a damage claim for medical bills. In February, Barnes submitted an accident claim form to the Plan. When no payment was received, Barnes' attorney wrote a demand letter to the Plan and Barnes settled with Clark in November 1991 for $25,000, the liability limit in Clark's auto insurance policy. Clark then filed a motion for good faith settlement, reciting the parties' agreement that the $25,000 represented general damages only. The state court granted the motion. Barnes also signed a general release, releasing Clark from all claims by any person related to Barnes' injuries.

to Barnes' automobile insurance company in April 1991. The Plan replied that because Barnes had filed a suit against a third party, the Plan would withhold payment on claims resulting from the accident, citing its subrogation clause in the benefit agreement. The Plan requested that Barnes keep it informed of the outcome of the suit. The Plan did not intervene or participate in any way in the legal action, nor did it pay Barnes any benefits. Barnes' automobile insurer subsequently paid her the $5000 policy limit.

In August 1992, Barnes filed a state court action against the Plan to collect payment for her outstanding medical bills. The Plan removed the lawsuit to federal district court, pursuant to Section 502(e)(1) of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. Sec. 1132(e)(1). Barnes asked for $18,075.40 plus interest, the amount of her medical bills minus the $5000 already paid by her automobile insurer. Both parties moved for summary judgment. Barnes submitted an affidavit from her attorney stating that the settlement value of her claim against Clark, including pain and suffering, was at least $65,000. The Plan argued that the subrogation clause entitled it to decline all payment to Barnes. The district court granted the Plan's motion. Barnes now appeals.

DISCUSSION

We review the district court's grant of summary judgment de novo. Mongeluzo v. Baxter Travenol Long Term Disability Benefit Plan, 46 F.3d 938, 942 (9th Cir.1995). Viewing the evidence in the light most favorable to Barnes, we must determine whether there are any genuine issues of material fact and whether the district court correctly applied the relevant substantive law. Id.

When a participant files an action challenging an ERISA plan's denial of benefits, the district court reviews the plan's interpretation of the agreement de novo, unless the benefit plan gives the administrator discretion to determine eligibility for benefits or to construe the terms of the plan. Id.; Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 956-57, 103 L.Ed.2d 80 (1989). Because the Plan document in this case gives no such discretionary authority to any administrator, de novo review is appropriate in this case. See Mongeluzo, 46 F.3d at 942. We keep in mind that "ERISA is remedial legislation which should be liberally construed in favor of protecting participants in employee benefit plans." Batchelor v. Oak Hill Medical Group, 870 F.2d 1446, 1449 (9th Cir.1989).

Subrogation is the insurer's right to be put in the position of the insured, in order to recover from third parties who are legally responsible to the insured for a loss paid by the insurer. 16 Couch on Insurance 2d Sec. 61:1 at 75 (rev. ed. 1983). The right to subrogation, even when created by agreement between the insured and the insurer, "is designed to compel discharge of the obligation by the one who in equity should bear the loss." Id. If the insurer paid the insured the full amount of his claim and the insured then recovers from the third party, the insured must reimburse the insurer any amount recovered in excess of his own claim. Id. Sec. 61:29 at 109-11. We must decide whether the Plan's right of subrogation, as provided for in the benefit agreement, entitles the Plan to decline all payment to Barnes because she settled with Clark for $25,000.

Because the Plan is governed by ERISA, we do not apply state subrogation law to interpret the provisions of the Plan document. ERISA preempts state regulatory laws and common-law rules related to self-funded employee benefit plans. FMC Corp. v. Holliday, 498 U.S. 52, 61, 111 S.Ct. 403, 409, 112 L.Ed.2d 356 (1990) (state laws regulating subrogation clauses are preempted); Scott v. Gulf Oil Corp., 754 F.2d 1499, 1501-02 (9th Cir.1985) (state common law is also This appeal presents two issues: first, whether the subrogation clause in the Plan's benefit agreement is ambiguous, and second, whether Barnes prejudiced the Plan's subrogation rights, if any.

preempted). "Congress intended for the courts, borrowing from state law where appropriate, and guided by the policies expressed in ERISA and other federal labor laws, to fashion a body of federal common law to govern ERISA suits." Scott, 754 F.2d at 1502.

I. Ambiguity

On appeal, Barnes argues that the subrogation clause in the Plan agreement is ambiguous, and as a result, must be construed against the Plan. Once the clause is so construed, Barnes contends that the Plan must pay her for her remaining medical expenses.

The Plan's benefit agreement provided as follows:

SUBROGATION--This plan may withhold payment of benefits when a party other than the employee or dependent may be liable for expenses until liability is legally determined. However, if this plan makes payment which the employee, dependent or any other party is or may be entitled to recover against any person or organization responsible for an accident or illness, this Plan is subrogated to all rights of recovery to the extent of its payment. The employee, dependent, or other person or organization receiving payment from this Plan shall execute and deliver instruments and papers and do whatever else is necessary to secure such rights to the Plan, and shall do nothing either before or after payment by the Plan to prejudice such rights.

(emphasis added).

The parties agree that the first sentence of this clause unambiguously provides that the Plan may wait to make payment until the liability of a third person has been determined. They disagree, however, on the interpretation of the second sentence. Barnes argues that the phrase "if this plan makes payment ... this Plan is subrogated to all rights of recovery to the extent of its payment" means that the Plan's right to subrogation arises only after it has made payment to the employee. The Plan counters that it is entitled to subrogation even though it never made any payment to Barnes.

We think the interpretation that is most consistent with the Plan document's language is that the Plan's right to subrogation arises only after the Plan makes payment to the insured. The Plan document provides that the Plan is subrogated if it makes payment, but it is silent regarding what the Plan's rights are if it refuses to pay. Under the doctrine of expressio unius est exclusio alterius, we must assume that by expressly providing for subrogation in cases in which the Plan makes payment, the Plan document excludes subrogation when no payment is made. See Longview Fibre Co. v. Rasmussen, 980 F.2d 1307, 1312-1313 (9th Cir.1992) (doctrine means that mention of one thing implies exclusion of the other); Hardware Mut. Ins. Co. v. Dunwoody, 194 F.2d 666, 668 (9th Cir.1952) (applying the doctrine to a subrogation clause in an insurance contract); see also Shell v. Amalgamated Cotton Garment, 43 F.3d 364, 366 (8th Cir.1994) (ERISA plan administrators abused their discretion in interpreting subrogation clause providing for reimbursement of benefits that plan "has paid" to mean reimbursement for all benefits paid, regardless of whether before or after settlement with third party). This interpretation of the Plan document's language is consistent with general principles of insurance law. See 16 Couch, supra, Sec. 61:49 at 133 ("No right of subrogation arises until the claim has been paid.").

Even if we consider the Plan language to be ambiguous because it does not specifically provide that there is no right to subrogation in the absence of payment, we would reach the same result. We must...