Baxter By and Through Baxter v. Lynn

• Decision Date: 07 November 1989
• Docket Number: No. 88-2647,88-2647
• Parties: , 11 Employee Benefits Ca 1698 Christopher BAXTER, a minor, By and Through his Next Friend and Mother, Sandra BAXTER and Sandra Baxter, Appellant, v. Charlene F. LYNN and Allstate Insurance Company and, Central States, Southeast and Southwest Areas Health and Welfare Fund, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 182

886 F.2d 182

58 USLW 2184, 11 Employee Benefits Ca 1698

Christopher BAXTER, a minor, By and Through his Next Friend and Mother, Sandra BAXTER and Sandra Baxter, Appellant, v. Charlene F. LYNN and Allstate Insurance Company and,

Central States, Southeast and Southwest Areas Health and

Welfare Fund, Appellee.

No. 88-2647.

United States Court of Appeals,

Eighth Circuit.

Submitted June 13, 1989.

Decided Sept. 22, 1989.

Rehearing and Rehearing En Banc Denied Nov. 7, 1989.

James K. Blickhan, Kansas City, Mo., for appellant.

Anita M. D'Arcy, Chicago, Ill., for appellee.

Before BEAM, Circuit Judge, HEANEY, Senior Circuit Judge, and HANSON, ^* Senior District Judge.

HEANEY, Senior Circuit Judge.

Christopher Baxter and his mother, Sandra Baxter, appeal from an order of the district court granting summary judgment in favor of Central States, Southeast and

Southwest Areas Health and Welfare Fund (the Fund). We affirm in part and reverse in part.

BACKGROUND

In 1985, Christopher Baxter, a passenger in his grandmother's car, was injured when the car collided with a vehicle driven by Charlene Lynn. Christopher's father, Kenneth Baxter, was a participant in an employee benefit plan regulated by the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. Secs. 1001-1461 (1985). Pursuant to the plan, the Fund paid medical expenses totaling $23,305 on behalf of Christopher. Lynn, the driver of the second car, did not have insurance. Christopher's grandmother, Alice Campbell, had an insurance policy issued by Allstate Insurance Company, a provision of which provided for $25,000 of coverage to the vehicle's occupants if involved in an accident with an uninsured motorist. The policy also provided for medical payments coverage of $5,000.

In 1986, the Baxters filed suit against Lynn and Allstate in state court. Allstate interpled the Fund as its plan included a clause subrogating the Fund to the Baxters' rights of recovery from third parties. Allstate did not contest its duty to pay the policy limit, deposited the $30,000 with the court and has had no further involvement in the case. In 1987, the Fund removed this case to federal court pursuant to 28 U.S.C. Sec. 1441 (1982), and sought a declaratory judgment entitling it to full satisfaction of the purported subrogation lien from the monies deposited by Allstate.

The issue in this case involves the interpretation of the Fund's subrogation provision in paragraph 17.14 of the plan. The Fund argues that this paragraph created a subrogation lien for the amount of the benefits it paid to the Baxters against the uninsured motorist policy benefits paid by Allstate. The Baxters argued that neither state common law nor the plan allows such subrogation. The district court held that common law restrictions on subrogation did not apply here as the law of ERISA preempted any state law which attempted to regulate ERISA benefit plans. It also held that the trustee's interpretation of the subrogation clause was not arbitrary or capricious and granted summary judgment in favor of the Fund.

DISCUSSION

I. ERISA PREEMPTION

The first issue presented is whether ERISA preempts the application of state subrogation law to this employee benefit plan. ERISA comprehensively regulates employee pension and welfare plans. Title 29 U.S.C. Sec. 1002(1) defines an employee welfare benefit plan as any fund or program through which an employer provides employees "through the purchase of insurance or otherwise" with "medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment." The statute imposes participation, funding, and vesting requirements on pension plans and sets various uniform standards, including rules concerning reporting, disclosure, and fiduciary responsibilities, for both pension and welfare plans. Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 91, 103 S.Ct. 2890, 2896, 77 L.Ed.2d 490 (1983).

Section 514(a) of ERISA preempts "any and all State laws in so far as they may now or hereafter relate to any employee benefit plan" covered by ERISA. 29 U.S.C. Sec. 1144(a). ¹ The United States Supreme Court has affirmed the broad preemptive scope of ERISA and the prohibition of even indirect state action relating to self-funded employee benefit plans. See e.g., Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 739, 105 S.Ct. 2380, 2388, 85 L.Ed.2d 728 (1985); Shaw, 463 U.S. at 98-99, 103 S.Ct. at 2900-01; Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 525, 101 S.Ct. 1895, 1907, 68 L.Ed.2d 402 (1981). The express preemption provision of ERISA is deliberately expansive, and it is designed to establish pension plan regulation as exclusively a federal concern. Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 46, 107 S.Ct. 1549, 1552, 95 L.Ed.2d 39 (1987). An exception to this general preemption provision is found in 29 U.S.C. Sec. 1144(b)(2)(A). ² This section, known as the "insurance saving clause," exempts state laws regulating insurance, banking, or securities from the preemption clause.

The Baxters argue that neither common law nor paragraph 17.14 allows subrogation against uninsured motorist benefits. The Fund asserts that state law regarding subrogation is irrelevant as ERISA preempts its application to this employee benefit plan. Thus, the issue here is whether ERISA has preempted the common law of subrogation. We agree with the district court that the question must be answered in the Fund's favor.

To analyze the preemption claim in this case, we first determine whether the state law in question "relates to" employee benefit plans within the meaning of section 514(a). Shaw, 463 U.S. at 96, 103 S.Ct. at 2899. Such a relationship exists when the state law in question "has a connection with or reference to" an employee benefit plan. Pilot Life Ins. Co., 481 U.S. at 47, 107 S.Ct. at 1553; Shaw, 463 U.S. at 97, 103 S.Ct. at 2900. This phrase is not to be limited to those state laws which deal specifically with ERISA plans or with subject matters covered by ERISA plans. Shaw, 463 U.S. at 98, 103 S.Ct. at 2900. Thus, any provision of state law which conflicts with a proper provision of an ERISA plan must give way to the latter. Davis v. Line Constr. Benefit Fund, 589 F.Supp. 146, 149 (W.D.Mo.1984).

In the present case, the Baxters allege that under state common law, the Fund is not entitled to subrogation because it had a contractual obligation, independent of Allstate's obligation, to pay for the medical expenses arising from the automobile accident. The district court held that any state statutory or common law which arguably curtailed the Fund's claimed right of subrogation had a connection with the employee benefit plan and thus "related to" the plan. We agree. Any state law prohibiting employers from structuring their employee benefit plans in a manner that requires reimbursement in the event of recovery from a third party creates a conflict with paragraph 17.14 of the Fund's employee benefit plan. Thus, the common law clearly "relates to" the employee benefit plan in this case. Accord United Food & Commercial Workers v. Pacyga, 801 F.2d 1157, 1160 (9th Cir.1986) (Arizona antisubrogation law relates to ERISA plan); Davis, 589 F.Supp. at 149 (Missouri law of subrogation relates to ERISA plan); Hunt by Hunt v. Sherman, 345 N.W.2d 750, 753 (Minn.1984) (Minnesota subrogation law relates to ERISA plan).

This holding does not end the inquiry. We must next determine whether the applicable state law escapes preemption via the insurance saving clause. See Pilot Life Ins., 481 U.S. at 48, 107 S.Ct. at 1553; Metropolitan Life Ins., 471 U.S. at 740, 105 S.Ct. at 2389. According to the Supreme Court, if one gives a common sense reading to the language of the insurance saving clause, only laws specifically directed toward the insurance industry are exempt from ERISA preemption. Pilot Life Ins., 481 U.S. at 50, 107 S.Ct. at 1554. The Court also held that only laws that regulate insurance within the McCarran-Ferguson Act's definition of the "business of insurance" fall within the scope of the insurance saving clause. Metropolitan Life Ins., 471 U.S. at 742-43, 105 S.Ct. at 2390-91. These factors are: (1) whether a particular practice has the effect of transferring or spreading a policyholder's risk; (2) whether the practice is an integral part of the policy relationship between the insurer and the insured; and (3) whether the practice is limited to entities within the insurance industry. Id. at 743, 105 S.Ct. at 2391.

We agree with the district court that the law of subrogation, while generally applicable to insurance contracts, is not specifically directed toward the insurance industry. While laws regulating subrogation rights apply in part to holders of insurance, they do not regulate the insurance industry directly. Application of differing state subrogation laws to plan providers throughout the United States would frustrate ERISA's uniform treatment of benefit plans. Thus, a common sense reading of the insurance saving clause indicates that common law rules on subrogation are not the type of state insurance regulations intended to survive the broad scope of ERISA preemption. See also Minnesota Chamber of Commerce & Indus. v. Hatch, 672 F.Supp. 393, 399 (D.Minn.1987) (Minnesota statute requiring employers who provide self-funded health benefit plans to file security or surety bond is not directed exclusively toward insurance industry).

Furthermore, we find, as did the district court, that the three-part analysis under the McCarran-Ferguson Act yields a similar result. The practice of subrogation does not transfer the risk from a policyholder to his or her insurer. Rather, it limits the recovery available to the policyholder by preventing a double recovery. While we believe that subrogation rights play an integral role in defining the relationship between Christopher Baxter and the Fund, we believe that...