Equity Fire and Cas. Co. v. Youngblood

• Decision Date: 12 November 1996
• Docket Number: No. 85507,85507
• Citation: 1996 OK 123,927 P.2d 572
• Parties: Pens. Plan Guide (CCH) P 23930D, 1996 OK 123 EQUITY FIRE AND CASUALTY COMPANY, Plaintiff, v. Kim YOUNGBLOOD and Shalon Youngblood, Minors, by and through their parents Yvonne and L.C. Youngblood, et al., Defendants-Appellees, Employers Health Insurance, Defendant-Appellant.
• Court: Oklahoma Supreme Court

Page 572

927 P.2d 572

Pens. Plan Guide (CCH) P 23930D, 1996 OK 123

EQUITY FIRE AND CASUALTY COMPANY, Plaintiff, v. Kim YOUNGBLOOD and Shalon Youngblood, Minors, by and through their parents Yvonne and L.C. Youngblood, et al Defendants-Appellees Employers Health Insurance, Defendant-Appellant.

No. 85507.

Supreme Court of Oklahoma.

Nov. 12, 1996.

Dennis N. Shook, Wagoner, for Defendants-Appellees.

Ronald Bennett, Tulsa, for Defendant-Appellant.

WATT, Justice.

Appellant, Employers Health Insurance, is the manager of the Ft. Howard Paper Company's employee benefit plan. The Plan appeals from an order of the District Court of Wagoner County, Honorable G. Bruce Sewell District Judge, ordering payment of $40,000.00 held in the registry of the court to Appellee, Yvonne Youngblood as mother and next friend of Kim Youngblood a minor. ¹ The $40,000.00 was paid into court in an interpleader action by two liability insurance companies, Equity Fire and Casualty Company and State Farm Mutual Automobile Insurance Company, under the terms of an automobile liability policy and two uninsured motorist policies.

Kim Youngblood was injured in an automobile accident covered by the two liability insurance companies' policies. The liability insurance companies were dismissed from the action when they paid the limits of their policies into court. The liability insurance companies are not parties to this appeal. Ft. Howard Paper Company's self funded insurance benefit plan is covered under ERISA (the Employee Retirement Income Security Act of 1974, 29 U.S.C.A. § 1144(a), (b)(2)(A,B)). The Plan paid Kim Youngblood's medical expenses arising from the accident, $31,845.14. The Youngbloods allege that Kim Youngblood's total damages were more than $150,000.00, and the Plan admits this to be true.

Article 11 of the Plan, entitled "Subrogation and Reimbursement," gives the Plan certain rights to repayment of amounts it has paid on behalf of a "Plan Member." ² The

Plan Member here was L.C. Youngblood, who is Kim Youngblood's father, and an employee of Ft. Howard Paper company.

ISSUE

The issue to be resolved is whether ERISA mandates the enforcement of the Plan's reimbursement provision, despite the fact that Kim Youngblood has received compensation far less than the total amount of her damages. We hold that ERISA does not mandate such a result here, and that the Plan's reimbursement provision does not apply here.

DISCUSSION

The issue before us subsumes a question of Oklahoma law of first impression: Is a contractual subrogation or reimbursement provision, which contains no priority of payment provision, enforceable under Oklahoma law where the recipient of the benefits sought to be recovered has not been fully compensated by payments from a third party? We answer no.

ERISA and Its Effect On Oklahoma Law

ERISA (the Employee Retirement Income Security Act of 1974, § 514(a), (b)(2)(A, B), as amended 29 U.S.C.A. § 1144(a), (b)(2)(A, B)) contains three provisions regarding preemption of state law. The first provision states that Congress intended ERISA to preempt state laws that relate to self funded employee benefit plans:

Except as provided 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). The general preemptive effect on subsection (a) is specifically limited by subsection (b), commonly called 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). The power that subsection (b) reserves to the states to regulate insurance, banking, and securities is expressly limited by subparagraph (2)(B) of that subsection, commonly called the "deemer clause":

Neither an employee benefit plan ... nor any trust established under such a 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).

In 1990 the United States Supreme Court decided FMC Corporation v. Holliday, 498 U.S. 52, 111 S.Ct. 403, 112 L.Ed.2d 356 (1990). The court held that under ERISA, the subrogation clause in FMC Corporation's self-funded employee benefit plan was enforceable. The plan had paid the medical expenses of one of FMC's employee's daughter, whose injuries resulted from an automobile accident. The district court and the court of appeals had held that a Pennsylvania statute prohibiting subrogation or reimbursement in actions arising out of the maintenance or use of an automobile applied to the FMC plan. The Supreme Court observed that while ERISA returns to the states the power to regulate insurance, it expressly provides that a self funded plan shall not be "deemed to be an insurance company." Employee Retirement Income Security Act of 1974, § 514(a), (b)(2)(A, B), as amended 29 USCA § 1144(a), (b)(2)(A, B). The court said that the reason ERISA limits state regulation of ERISA plans is "Congress's desire to avoid 'endless litigation over the validity of State action.' " 498 U.S. at 65, 111 S.Ct. at 411, quoting Senator Javits's remarks in the Congressional Record.

The terms of the FMC plan's subrogation and reimbursement provisions were not stated in the opinion. Neither did the court discuss the effect of whether the beneficiary of the payments made by FMC had been fully compensated for her injuries.

Decisions Since FMC Corporation v. Holliday

ERISA as interpreted by FMC Corporation v. Holliday has spawned many opinions, both state and federal. No clear rule can be discerned from these cases. A few guidelines do appear, however. First, state subrogation rules generally are preempted by ERISA. Second, an ERISA plan's rights to subrogation and reimbursement are governed by the terms of the plan when those terms are unambiguous. The courts have significantly disagreed over the effect of reimbursement language similar to that contained in the Ft. Howard plan when, as is the case here, the undisputed facts show that the plan beneficiary was not "made whole" by the payments she received. In most states reimbursement is not allowed against one who has not been made whole by the settlement or judgment in which the party seeking reimbursement claims a right. ³

Decisions Construing Genuinely Unambiguous Subrogation of Reimbursement Provisions

We have found only a few cases involving what to our minds were genuinely unambiguous reimbursement provisions. For example, in Hershey v. Physicians Health Plan, 498 N.W.2d 519, 520 (Minn.App.1993) the court enforced a plan provision, which said that the plan "will be reimbursed from any other existing claims including any claim by you for general damages.... [The plan] may collect ... regardless of whether you have been fully compensated. " [Emphasis added.] In Ryan v. Federal Express Corporation, 78 F.3d 123 (3d Cir.1996) the court enforced as unambiguous a plan that provided, it shall "be reimbursed ... 100% of the amount of covered benefits paid," and "If you receive any payments from the third party, the Company expects 100% reimbursement for any plan benefits paid." See also Riley v. Herbes, 524 N.W.2d 523 (Minn.App.1994), where the court enforced a plan subrogation provision providing that the plan "shall be paid ... before the payment of any recovery due from that party to the participant."

A Different Result Is Called For Where the Plan's Terms Do

Not Specify Priority of Repayment and Do Not Give

Plan Managers the Right to Interpret the Plan

Unlike the examples cited above, most plans' reimbursement provisions, including the reimbursement provision before us today, are silent as to the priority of payment. We find persuasive the reasoning of a line of cases, representing both state and federal courts, which are similar on their facts to the case at bar. Those cases held that if a plan is silent about the priority of payment, does not expressly give its managers the right to resolve ambiguities, and the facts do not clearly show that the beneficiary's settlement included reimbursement for medical expenses, the plan will not be allowed to recover, despite ERISA.

In Sanders v. Scheideler and NEPCO EMBA, 816 F.Supp. 1338, 1344 (D.C.W.D.Wis.1993), affirmed without opinion, 25 F.3d 1053, 1994 WL 234497 (7th Cir.1994), the court said:

The subrogation clause does not address the priority of the plan's subrogation rights ... to the undesignated proceeds of a limited insurance settlement. The majority common law rule precludes an insurer from exercising a right of reimbursement unless the insured's entire loss has been paid.

In holding against the plan, the court first held that a de novo standard of review was appropriate. That is the court would not defer to the judgment of the plan's managers concerning the plan's interpretation, but would independently interpret the plan's terms. The authority of the plan managers to "pass upon all claims by a member against the Association" was deemed insufficient to cause the court to defer to the managers' interpretation of the plan. ⁴ The court then adopted as the federal common law Wisconsin's make whole rule, which prohibits a party seeking subrogation or reimbursement out of recoveries made due to personal injuries from recovering until the injured party has been fully compensated.

In Murzyn v. Amoco Corporation, 925 F.Supp. 594 (D.C.N.D.Ind.1995), from which no appeal was taken, the court cited Sanders with approval, and adopted a federal common law make whole rule that applied in place of the Indiana rule, which mandated...