Kachanis v. US

• Decision Date: 08 February 1994
• Docket Number: Civ. A. No. 92-0487 P.
• Parties: Peter KACHANIS, Plaintiff, v. UNITED STATES of America, Amica Mutual Insurance Company, The Rhode Island Insurers' Insolvency Fund, and Guaranty Fund Management Services, Defendant.
• Court: U.S. District Court — District of Rhode Island

844 F. Supp. 877

Peter KACHANIS, Plaintiff, v. UNITED STATES of America, Amica Mutual Insurance Company, The Rhode Island Insurers' Insolvency Fund, and Guaranty Fund Management Services, Defendant.

Civ. A. No. 92-0487 P.

United States District Court, D. Rhode Island.

February 8, 1994.

Aram R. Schefrin, Lovett, Schefrin, Gallogly & Harnett, Providence, RI, for plaintiff.

Stephanie S. Browne, U.S. Atty's Office, Thomas C. Angelone, Hodosh, Spinella & Angelone, Providence, RI, Sally A. Vanderweele, Hutchins, Wheeler & Dittmar, Boston, MA, for defendant.

MEMORANDUM AND ORDER

PETTINE, Senior District Judge.

Plaintiff Peter Kachanis brought this declaratory judgment action under 28 U.S.C. § 2201 (1988) to determine the respective rights and liabilities of defendants under the Federal Employees' Compensation Act, 5 U.S.C. §§ 8101 et seq (1988) ("FECA") and the Rhode Island Insurers' Insolvency Fund Act, R.I.Gen.Laws §§ 27-34-1 et seq. (1993) ("Insolvency Act"). Cross-motions for summary judgment were filed. The Magistrate-Judge recommended granting the motion of defendants Rhode Island Insurers' Insolvency Fund and Guaranty Fund Management Services (collectively "the Fund") and denying the motions of Mr. Kachanis and the United States of America. Magistrate-Judge's Report and Recommendation at 18 ("Report and Recommendation"). Mr. Kachanis and the United States filed objections to the Magistrate-Judge's report. For the reasons set forth below, I grant the Fund's motion for summary judgment and deny the motions of the United States and Mr. Kachanis.¹

I. Factual and Statutory Background

The underlying facts are not in dispute. In January 1986, Mr. Kachanis was a resident of Rhode Island and an employee of the United States Internal Revenue Service. While in the course of his employment, Mr. Kachanis was involved in a motor vehicle accident with Lisbeth Woloohojian on January 27, 1986. At the time of the accident, Mr. Kachanis had an automobile insurance policy with Amica Mutual Insurance Company ("Amica"), including coverage for uninsured motorist benefits in the amount of $50,000. Ms. Woloohojian was insured by American Universal Insurance Company ("AU") with a policy provided limit of $500,000.

At this point, a brief overview of the relevant statutes would be instructive. The purpose of the Rhode Island Insurers' Insolvency Fund Act is "to avoid excessive delay in payment and to avoid financial loss to claimants or policyholders because of the insolvency of an insurer, and to create an entity to assess the cost of such protection and distribute it equitably among member insurers." R.I.Gen.Laws § 27-34-2 (1993).² Under the statute, all member insurers must pay into a fund as a requirement of transacting business in the state of Rhode Island.³ When an insurer becomes insolvent, the Fund takes over the obligations of that insurer and pays up to $300,000 on each "covered claim." Id. at § 27-34-8(1)(a)(iii). A "covered claim" does not include any subrogation claim due any insurer, reinsurer, insurance pool, or underwriting association. Id. at § 27-34-5(8)(b)(iii). Before receiving any recovery from the Fund, a claimant is required to exhaust all other available coverage under any other applicable insurance policy, governmental insurance, or guaranty program. Id. at § 27-34-12. The Fund then reduces the amount payable on a covered claim by the amount received from other sources. Id.

FECA was enacted to provide federal employees with a comprehensive system of recovery for work related injuries. "The United States shall pay compensation ... for the disability or death of an employee resulting from personal injury sustained while in the performance of his duty." 5 U.S.C. § 8102(a). An employee may be required to reimburse the government for the FECA benefits. This reimbursement obligation arises when the federal employee's injuries are caused by a third party who is liable for damages. Id. at § 8132. Once the employee obtains recovery from the third party, she must reimburse the United States to the extent of that recovery. Id. Under section 8131, the United States has a subrogation right to any recovery received from the third party and may require the employee to assign the right of action to the United States or prosecute the action in her own name. Id. at § 8131(a).⁴

With this statutory framework in mind, the remaining facts can be more easily understood. After the accident, Mr. Kachanis began receiving medical and salary benefits from the United States Department of Labor pursuant to FECA. Mr. Kachanis also filed a claim for damages against AU, Ms. Woloohojian's insurer. However, subsequent to the accident, AU was determined to be insolvent. Thus, under the Insolvency Act, the Fund became obligated to pay the claims against AU. Mr. Kachanis' insurer, Amica, offered to pay its policy limit of $50,000 which Mr. Kachanis accepted. The United States agreed to waive any lien it may have as to such payment and Amica was dismissed as a defendant with the consent of all parties. Report and Recommendation at 4.

The key question, reduced to its simplest form, is whether the Fund is required to pay Mr. Kachanis (who would then reimburse the United States) or whether the Fund is entitled to deduct from its liability limit the FECA benefits already paid to Mr. Kachanis. The United States has asserted a lien to any recovery Mr. Kachanis may receive from AU and/or the Fund. In support of its position, the United States argues that FECA preempts the Insolvency Act pursuant to the Supremacy Clause and that the United States' lien is part of Mr. Kachanis' claim so that the Fund must make full payment up to its maximum limit. The Fund, however, contends that the Insolvency Act is not preempted, that the lien of the United States is not part of Mr. Kachanis' claim and that the Fund may reduce any payment to Mr. Kachanis by the amounts received from the United States and Amica.

This matter is before the court on cross-motions for summary judgment. Summary judgment is appropriate when "there is no genuine issue as to any material fact and ... the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). To survive a motion for summary judgment, the non-moving party must establish that there is a genuine issue of material fact. Matsushita Elec. Industrial Co. v. Zenith Radio, 475 U.S. 574, 585, 106 S.Ct. 1348, 1355, 89 L.Ed.2d 538 (1986). "Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). Here, all parties have stipulated that there is no dispute as to any material facts. Report and Recommendation at 6. Therefore, the issues before me are pure questions of law.

II. Federal Preemption

The threshold issue which must be decided is the question of federal preemption.

Under the Supremacy Clause, U.S. Const., Art. VI, cl. 2, the enforcement of a state regulation may be preempted by federal law in several circumstances: first, when Congress, in enacting a federal statute, has expressed a clear intent to pre-empt state law; second, when it is clear, despite the absence of explicit preemptive language, that Congress has intended, by legislating comprehensively, to occupy an entire field of regulation and has thereby `left no room for the States to supplement' federal law; and, finally, when compliance with both state and federal law is impossible, or when the state law `stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.'

Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691, 698-99, 104 S.Ct. 2694, 2699-2701, 81 L.Ed.2d 580 (1984) (citations omitted). While the above-mentioned tests are applicable to all state laws, Congress has passed specific legislation concerning preemption of state laws in the area of insurance.

"No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any state for the purpose of regulating the business of insurance ... unless such Act specifically relates to the business of insurance." 15 U.S.C. § 1012(b) (1988). This statute, known as the McCarran-Ferguson Act, was enacted in response to United States v. South-Eastern Underwriters Ass'n, 322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440 (1944). See United States Dep't of Treasury v. Fabe, ___ U.S. ___, ___, 113 S.Ct. 2202, 2207, 124 L.Ed.2d 449 (1993) (discussing the history of the McCarran-Ferguson Act). The South-Eastern decision held that "an insurance company that conducted a substantial part of its business across state lines was engaged in interstate commerce and thereby was subject to the antitrust laws." Fabe, 113 S.Ct. at 2207. The decision was "widely perceived as a threat to state power to tax and regulate the insurance industry." Id. Congress enacted the McCarran-Ferguson Act to allay those fears.

Courts have created a three-part test to determine if the McCarran-Ferguson Act is applicable to a given situation. Cochran v. Paco, Inc., 606 F.2d 460, 464 (5th Cir.1979); First Nat'l Bank of Pennsylvania v. James Sedgwick of Minnesota, 792 F.Supp. 409, 417 (W.D.Pa.1992); Duane v. Gov't Employees Ins. Co., 784 F.Supp. 1209, 1220 (D.Md.1992). The initial question is whether the federal act, FECA in this case, "specifically relates to the business of insurance" within the meaning of section 1012(b). Cochran, 606 F.2d at 464; First Nat'l Bank, 792 F.Supp. at 418. If the answer to this question is yes, then the McCarran-Ferguson Act is inapplicable by its own terms. If, however, FECA does not specifically relate to the business of insurance, then I must decide whether the Insolvency Act was "enacted for the purpose of regulating the business of insurance." Cochran, 606 F.2d at 464. If the Insolvency Act was not enacted for such a purpose, then the...