G.R. Herberger's, Inc. v. Erickson, 6-96-CV-211.

• Decision Date: 23 July 1998
• Docket Number: No. 6-96-CV-211.,6-96-CV-211.
• Citation: 17 F.Supp.2d 932
• Parties: G.R. HERBERGER'S, INC. v. Barbara A. ERICKSON.
• Court: U.S. District Court — District of Minnesota

Page 932

17 F.Supp.2d 932

G.R. HERBERGER'S, INC. v. Barbara A. ERICKSON.

No. 6-96-CV-211.

United States District Court, D. Minnesota, Sixth Division.

July 23, 1998.

Miaja L. Gunewitz, Jacobson, Harwood, Bennett & Erickson, Kevin Dale Hofman, Halleland, Lewis, Nilan, Sipkins & Johnson, Mpls, MN, for Plaintiff.

Andrew Stuart Birrell, Ian A.J. Pitz, Robert Travis Snider, Birrell, Dunlap & Ritts, Mpls, MN, for Defendant.

ORDER

ROSENBAUM, District Judge.

The defendant sustained serious spinal injuries in a bicycle accident. Her employer's medical assistance plan paid her medical bills. The defendant has settled her claims arising out of the accident with a third party. The medical assistance plan now seeks reimbursement for her medical costs from the settlement funds.

The plaintiff asserts a subrogation interest in the settlement sum. The plaintiff claims its health insurance plan is a self-funded Medical/Dental employer-supplied ERISA ("Employee Retirement Income Security Act of 1974") Plan, and is entitled to reimbursement from the settlement proceeds. The defendant claims the Medical/Dental Plan is not qualified under ERISA, thus barring its recovery. Defendant also claims the settlement terms preclude any payment to the medical plan. On November 4, 1997, the Court heard oral argument on cross-motions for summary judgment, pursuant to Rule 56 of the Federal Rules of Civil Procedure ("Fed. R. Civ.P.").

I. Background

Defendant, Barbara A. Erickson, suffered a severe spinal cord injury in a bicycle accident on April 17, 1994. The accident occurred on property belonging to Independent School District No. 347 ("ISD No. 347") located in Willmar, Minnesota.

At the time of the accident, Ms. Erickson was employed by plaintiff, G.R. Herberger's, Inc. ("Herberger's"). The company provided health insurance through its Medical/Dental Plan ("the Plan"). The company self-insured the Plan for medical expenses up to the sum of $100,000, through employee and employer contributions. To protect itself against catastrophic losses exceeding $100,000, the Plan secured a reinsurance contract covering payments in excess of $100,000 to any single person. According to the Plan's terms, the plaintiff, as the fiduciary, had discretionary authority to construe the Plan's terms and determine benefit eligibility. The Plan paid Erickson's medical expenses resulting from her accident in the amount of $271,992.60.

After the accident, Ms. Erickson brought a Minnesota state lawsuit, in Kandiyohi County District Court, seeking damages against ISD No. 347. Herberger's filed a Complaint and Motion to Intervene, claiming its subrogation interest was inadequately represented. The Kandiyohi County Court denied Herberger's motion. Ms. Erickson settled her lawsuit against ISD No. 347 for $1,200,000. The settlement agreement specifically stated that the monetary recovery precluded any past or future medical expenses.

The plaintiff claims it is entitled to reimbursement under the Plan's subrogation clause, which provides:

In the event that any benefits are paid to a Covered Person under This Plan, This Plan, to the extent permitted by law, shall be subrogated and succeed to the Covered Person's right of recovery for medical expenses incurred against any third-party, and the Covered Person shall pay over to the Plan Administrator all sums recovered, by suit, settlement, or otherwise, on account of such medical expenses incurred, but not to exceed the amount of benefits paid under This Plan.

(Herberger's Summary Plan Description).

The Plan further requires that the covered person:

[T]ake such action, furnish such information and assistance, and execute such assignments and other instruments as the Plan Administrator may require to facilitate enforcement of their rights and interest hereunder. The Covered Person shall also take no action prejudicing such rights and interests.

Id.

The plaintiff claims Ms. Erickson's separate recovery from ISD No. 347 and her lack of cooperation entitles it to reimbursement from the settlement proceeds.

The plaintiff further claims it qualifies as a self-funded medical/dental insurance program under ERISA, and is entitled to its subrogation interest. Erickson denies that plaintiff qualifies as a self-funded plan under ERISA's terms and denies plaintiff is entitled to reimbursement. She further alleges the Plan administrator improperly interpreted the Plan's terms. Finally, Erickson claims the settlement agreement's language places her recovery beyond the reach of the Plan's subrogation clause. The $271,992.60 is presently in escrow.

II. Discussion

Summary judgment is appropriate if there are no genuine issues as to any material fact and the moving party is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322-323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 246, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The parties agree, and the Court concurs, there are no undisputed material facts at issue. Summary judgment is warranted.

The Court must determine whether the Plan is, in fact, governed by ERISA. See 29 U.S.C. § 1001 et seq. Plaintiff administered the Plan as a benefit for its employees under a "Master Plan Document." Each employee received a condensed version of the Master Plan Document entitled "Summary Plan Description."

A medical plan qualifies under ERISA if a reasonable person could ascertain: (1) the intended benefits; (2) beneficiaries; (3) source of financing; and (4) procedures for receiving benefits. See Donovan v. Dillingham, 688 F.2d 1367, 1372 (11th Cir. 1982); see also Northwest Airlines, Inc. v. Federal Ins. Co., 32 F.3d 349, 354 (8th Cir. 1994). In its 30-page Summary, Herberger's satisfies the four Donovan elements by: (1) enumerating the benefits available to the covered employees; (2) describing the terms of employee eligibility; (3) identifying the Plan as a "Self-funded Welfare Plan;" and (4) providing "the procedures to be followed in presenting claims for benefits."

The question is more complex in this case, however, because the Plan secured insurance for medical expenses exceeding $100,000. As an initial matter, the Supreme Court has determined that insured employee benefit plans are subject to indirect regulation by state insurance laws. See Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 747, 105 S.Ct. 2380, 85 L.Ed.2d 728 (1985). It contrasted insured plans with self-insured employee benefit plans, which are completely exempt from state insurance laws. See id. The Court made this distinction by analyzing ERISA's savings clause, 29 U.S.C. § 1144(b)(2)(A). The savings clause states that, "[E]xcept as provided in subparagraph (B) [— the deemer clause —] nothing in this subchapter shall be construed to exempt or relieve any person from any law of any State which regulates insurance, ..." Id. The deemer clause, however, provides that "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." Id. On this basis, the Supreme Court found that an ERISA self-insured plan enjoys plenary exemption from state insurance laws and regulations.

Therefore, the Court must determine whether Herberger's employee benefit plan qualifies as self-funded.

Herberger's Plan is funded by employer and employee contributions, supplemented by purchased reinsurance covering individual losses exceeding $100,000. The ultimate question before the Court, then, is whether this $100,000 deductible self-insurance policy causes the plaintiff to lose its ERISA self-funded plan status. The Eighth Circuit has not spoken on the subject, and the defendant claims there is a split among those circuits which have.

The Ninth Circuit has held that the purchase of reinsurance, covering only a portion of a plan's potential liability, does not negate its standing as a self-funded program. See United Food & Commercial Workers & Employers Arizona Health & Welfare Trust v. Pacyga, 801 F.2d 1157, 1161-62 (9th Cir. 1986). Defendant argues that the Sixth Circuit has made a contrary decision, determining that purchasing reinsurance renders a medical plan "insured," rather than self-funded. See Michigan United Food & Commercial Workers Union v. Baerwaldt, 767 F.2d 308, 312-13 (6th Cir.1985). It appears to the Court, however, that later Sixth Circuit cases, as well as district court cases within the Sixth District, have effectively overruled Baerwaldt's holding. See Lincoln Mut. Cas. Co. v. Lectron Products, Inc., 970 F.2d 206, 210 n. 3 (6th Cir.1992); Auto Club Ins. Ass'n v. Safeco Life Ins. Co., 833 F.Supp. 637, 641-43 (W.D.Mich.1993) ("The Sixth Circuit has determined ... that a Plan's purchase of stop-loss insurance does not make it an insured Plan.").

In Minnesota Chamber of Commerce & Industry v. Hatch, 672 F.Supp. 393, 399 (D.Minn.1987), the Honorable Harry H. MacLaughlin of this court followed the Ninth Circuit, and found that self-insured benefit plans did not lose their status when they purchased reinsurance. This Court agrees, and finds that Herberger's purchase of reinsurance, protecting itself against a catastrophic loss exceeding $100,000, does not negate its status as an ERISA self-insured plan. The Court considers this to be consonant with the goals of ERISA — to protect the pensions and benefits of America's working men and women.

A contrary decision would jeopardize the entire benefit structure of this company. The company self-insures to secure maximum health care coverage for its employees. By doing so, it is able to devote virtually all of its health care contributions to paying employee-costs up to $100,000. By self-insuring, it avoids transaction costs expended through service charges and insurer profits on smaller claims. If the Plan loses its ERISA status by simply purchasing...