Citizens Ins. of America v. American Medical Sec.

• Decision Date: 23 February 2000
• Docket Number: No. 1:99-CV-784.,1:99-CV-784.
• Citation: 92 F.Supp.2d 663
• Parties: CITIZENS INSURANCE COMPANY OF AMERICA, Plaintiff, v. AMERICAN MEDICAL SECURITY, INC., Defendant.
• Court: U.S. District Court — Western District of Michigan

92 F.Supp.2d 663

CITIZENS INSURANCE COMPANY OF AMERICA, Plaintiff, v. AMERICAN MEDICAL SECURITY, INC., Defendant.

No. 1:99-CV-784.

United States District Court, W.D. Michigan, Southern Division.

February 23, 2000.

Robert L. Goldenbogen, Meghan A. McGlynn, Garan, Lucow, Miller & Seward, PC, Port Huron, MI, for plaintiff.

Arthur J. LeVasseur, Lauren J. Hammett, Fischer, Franklin & Ford, Detroit, MI, for defendant.

OPINION

ROBERT HOLMES BELL, District Judge.

This case presents a priority dispute between two insurers whose mutual insured Sherele Fifelski, was injured in an automobile accident on April 29, 1997. At the time of her accident Fifelski was insured by Plaintiff Citizens Insurance Company ("Citizens"), a Michigan no-fault automobile insurance carrier. She was also insured under a United Wisconsin Life Insurance Company ("UWLIC") group insurance policy administered by American Medical Security, Inc. ("AMS"). The UWLIC policy was purchased by Fifelski's employer, Fifelski Auto Service, to fund an employee benefit plan governed by the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq.

The Citizens no-fault automobile insurance policy contains a coordination of benefits ("COB") clause which provides that it will not pay personal injury protection benefits if its insured has other health care coverage.¹

The UWLIC policy contains an excess coverage clause which similarly provides that it will not pay benefits if its insured has other insurance providing coverage for medical expenses.²

After the accident Citizens paid medical expenses in the amount of $4,450.79, and AMS paid medical expenses in the amount of $20,095.47 on behalf of Fifelski.

Plaintiff Citizens filed a complaint for declaratory relief in state court seeking an order declaring that it is entitled to recoup from Defendant AMS the medical expenses it paid on behalf of Fifelski, and further declaring that Defendant AMS is the primary health care benefit provider for Fifelski's medical expenses arising out of the April 29, 1997, accident. Defendant AMS removed the action to federal court and filed a counterclaim seeking a judgment in its favor and against Plaintiff Citizens in the amount of $20,095.47. This matter is currently before the Court on the parties' cross-motions for summary judgment.

I.

Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is proper if there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law.

In this case there are no material facts in dispute. The parties' cross-motions for summary judgment require this Court to resolve the purely legal primacy of coverage issue between a coordinated no-fault policy and an insurance policy purchased by an ERISA plan. This issue has not been squarely addressed by the Sixth Circuit.

Section 3109a of the Michigan No-Fault Act "mandates that no-fault carriers offer coordination of benefits at reduced premiums when the insured has `other health and accident coverage.'"³ Federal Kemper Ins. Co., Inc. v. Health Ins. Admin., Inc., 424 Mich. 537, 383 N.W.2d 590 (1986). As a result of this statutory requirement, Michigan has developed a priority of coverage rule known as the Federal Kemper Rule which provides that when there is a priority dispute between a no-fault insurer which has issued a coordinated policy under § 3109a and an accident victim's other health coverage provider, both of which contain a COB provision, the health insurer will be deemed primary. 424 Mich. at 551, 383 N.W.2d 590.

There is no problem in applying the Federal Kemper Rule when the health coverage provider is governed by state law. However, when a no-fault COB provision conflicts with a COB provision in a Plan governed by ERISA, the Court must consider the effects of ERISA's preemption clause:

Except as provider in subsection (b) of this section, the provisions of this subchapter and subchapter III of this chapter shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan....

29 U.S.C. § 1144(a). This broad preemption clause is qualified by the saving clause:

Except as provided in subparagraph (B), nothing in this subchapter shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking, or securities.

29 U.S.C. § 1144(b)(2)(A), and the deemer clause.

Neither an employee benefit plan ... nor any trust established under such plan, shall be deemed to be an insurance company or other insurer, bank, trust company, or investment company or to be engaged in the business of insurance or banking for purposes of any law of any State purporting to regulate insurance companies, insurance contracts, banks, trust companies, or investment companies.

29 U.S.C. § 1144(b)(2)(B).

The application of these three clauses has been summarized by the Sixth Circuit as follows:

[I]f a state law "relate[s] to" an ERISA benefit plan it is preempted; but if the state law "regulates insurance" it is not preempted. But an ERISA covered employee benefit plan that provides insurance coverage is "deemed" not to be an insurance company for purposes of state laws regulating insurance, and ERISA, therefore, preempts such state laws.

Lincoln Mut., 970 F.2d at 209-10 (quoting Liberty Mutual Insurance Group v. Iron Workers Health Fund of Eastern Michigan, 879 F.2d 1384, 1386 (6th Cir.1989)).

In light of the ERISA preemption clause, cases decided after Federal Kemper have limited the reach of the Federal Kemper Rule. In Auto Club Ins. Ass'n v. Frederick & Herrud, Inc., 443 Mich. 358, 505 N.W.2d 820, (1993), the Michigan Supreme Court held that where there is a conflict between the COB clause in a no-fault policy and a COB clause in a self-funded ERISA plan, the COB clause in the ERISA plan must be given effect:

Although the Michigan statute purports to regulate insurance and not ERISA plans, we conclude that it has a direct effect on the administration of the plans in these cases because it would virtually write a primacy of coverage clause into the plans. This is the type of state regulation that would lead to administrative burdens that the historical progression of federal cases recounted earlier forbids.

443 Mich. at 387, 505 N.W.2d 820.

[W]e hold that an unambiguous COB clause in an ERISA health and welfare benefit plan must be given its plain meaning despite the existence of a similar clause in a no-fault policy because any conflict created by the requirements of M.C.L. § 500.3109a; M.S.A § 24.13109(1) and this Court's interpretation of the statute would have the direct effect of dictating the terms of the ERISA plans.

Id. at 389-90, 505 N.W.2d 820. Although Federal Kemper was overruled in part by Frederick & Herrud, the Court emphasized that the primacy of health care coverage over that in a no-fault policy continues with respect to "all cases not within the purview of this narrow holding." Id. at 390, 505 N.W.2d 820.

The Sixth Circuit decisions on the primacy of coverage between self-funded ERISA plans and no-fault policies are consistent with Frederick & Herrud. For example, in Auto Club Ins. Assoc. v. Health and Welfare Plans, 961 F.2d 588 (6th Cir.1992), the Sixth Circuit held that "self-insured ERISA plans, including self-insured ERISA plans containing coordination of benefits clauses, are not reached by 500.3109a." Id. at 593. Even if the ERISA plan is partially insured, through the purchase of stop-loss insurance, the ERISA plan's COB clause controls. Lincoln Mut. Cas. Co. v. Lectron Products, Inc. Employee Health Benefit Plan, 970 F.2d 206, 210 (6th Cir.1992). In Auto Owners Ins. Co. v. Thorn Apple Valley, 31 F.3d 371, 374 (6th Cir.1994), the Sixth Circuit stated that "when a traditional insurance policy and a qualified ERISA plan contain conflicting coordination of benefits clauses, the terms of the ERISA plan, including its COB clause, must be given full effect." Id. at 374.

Defendant AMS contends this line of cases controls the outcome in this case and requires that the ERISA plan's COB clause be given full effect, regardless of whether the ERISA plan is self-funded or insured. Plaintiff Citizens, on the other hand, contends that this line of cases applies only to self-funded ERISA plans,⁴ and that it is not controlling where, as here, the ERISA plan is fully insured.

The issue for this Court is whether the ERISA preemption recognized by these cases is limited to self-funded ERISA plans, or whether it applies equally to fully insured ERISA plans.

Defendant AMS relies on Lincoln Mutual, supra, in support of its contention that ERISA preempts application of § 3109a to a fully insured ERISA plan.

The ERISA plan at issue in Lincoln Mutual was a self-funded plan that purchased stop-loss insurance. When a dispute arose between the no-fault carrier and the Plan as to priority, the Court observed that application of § 3109a would have a direct effect on the administration of the plan, regardless of whether the plan had purchased stop-loss insurance. The Court accordingly held that ERISA preempted application of § 3109a. 970 F.2d at 210.

Defendant AMS contends that because the ERISA plan at issue in Lincoln Mutual had purchased stop-loss insurance, Lincoln Mutual stands for the proposition that ERISA preempts § 3109a irrespective of whether the ERISA plan at issue is self-funded or funded by insurance.

Defendant AMS has overstated the holding of Lincoln Mutual by improperly equating a plan that purchases stop-loss insurance with a plan that is fully insured. In Lincoln Mutual the Sixth Circuit was careful to distinguish a self-funded plan from a plan that purchased insurance, noting that the state may regulate the companies that insure ERISA plans:

Contrary to Lincoln's assertion, FMC [Corp. v. Holliday, 498 U.S. 52, 111 S.Ct 403, 112 L.Ed.2d 356 (1990)] does not hold that states are free to regulate...