Marshall v. Employers Health Ins. Co.

• Decision Date: 04 June 1996
• Docket Number: No. 3:95-0541.,3:95-0541.
• Citation: 927 F. Supp. 1068
• Court: U.S. District Court — Middle District of Tennessee
• Parties: Sandra MARSHALL and husband, Harold Kenneth Marshall v. EMPLOYERS HEALTH INSURANCE COMPANY.

927 F. Supp. 1068

Sandra MARSHALL and husband, Harold Kenneth Marshall v. EMPLOYERS HEALTH INSURANCE COMPANY.

No. 3:95-0541.

United States District Court, M.D. Tennessee, Nashville Division.

June 4, 1996.

Patricia Ann McDade, Franklin, TN, for plaintiffs.

Eugene N. Bulso, Jr., Nashville, TN, for defendant.

MEMORANDUM

CAMPBELL, District Judge.

Pending before the Court are cross-motions for summary judgment (Docket Nos. 18 and 21). This Court has jurisdiction pursuant to 28 U.S.C. § 1332 (Docket No. 11). For the reasons described herein, the Defendant's Motion for Summary Judgment (Docket No. 18) is GRANTED and the Plaintiffs' Motion for Summary Judgment (Docket No. 21) is DENIED.

This case raises novel ERISA issues regarding the preemption of Tennessee subrogation law and the "make whole doctrine" under the federal common law.

The Court holds: (1) Tennessee subrogation law, including the make whole doctrine, is preempted by ERISA; (2) under federal common law, in the absence of a clear contractual provision to the contrary, an insured must be made whole before an insurer can enforce its right of subrogation under ERISA. Since the subrogation provision in this case does not clearly provide to the contrary, the make whole doctrine applies to the Defendant's right of subrogation; and (3) the ERISA plan in this case contains a right of reimbursement that is independent of the right of subrogation and the make whole doctrine. Accordingly, under the right of reimbursement provision, Defendant is entitled to reimbursement of the medical expenses it paid on behalf of Plaintiffs.

Facts

The following facts are undisputed:

Sandra J. Marshall, Plaintiff, was injured in an automobile collision on October 13, 1992. Mrs. Marshall sustained personal injuries in the collision for which she sought and received medical attention. The other driver involved in the collision, E. Leonard Sullivan, was killed.

The Defendant, Employers Health Insurance Company ("Employers Health"), has paid, pursuant to an employee benefit plan, medical expenses totaling $59,303.13 on behalf of Sandra J. Marshall for treatment of injuries which Mrs. Marshall received in the October 13, 1992 collision.

On June 11, 1993, Sandra J. Marshall filed an action in the Circuit Court of Williamson County, Tennessee, against Mildred Ann Sullivan, Executrix of the Estate of E. Leonard Sullivan, for personal injuries sustained in the collision. On February 3, 1995, the Circuit Court for Williamson County entered judgment on the jury's verdict in favor of Sandra J. Marshall against the Estate of E. Leonard Sullivan in the amount of $300,000.00.

To date, the Plaintiff has recovered $95,000.00 plus interest from the Estate of E. Leonard Sullivan in partial satisfaction of the $300,000.00 judgment. The sums recovered by the Plaintiff have been deposited with the Clerk of this Court.

The employee benefit plan at issue in this case ("Plan") is governed by the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001, et seq. The Plan at issue is insured, not self-funded, and is administered by the Defendant, Employers Health, a corporation organized under the laws of Wisconsin and licensed to do business in the State of Tennessee. The discretionary authority of the Plan administrator is as set out under ERISA, 29 U.S.C. § 1001, et seq.

Plaintiff Sandra J. Marshall has not been "made whole" by her recovery of the amounts now deposited with the Court.

Plaintiffs' counsel advised the Court that the Plaintiffs will be unable to recover the $205,000 balance on the state court judgment because the Estate of E. Leonard Sullivan has too few assets. This was not contested by Defendant.

Plaintiffs' counsel further advised the Court that the $95,000 paid into the Court is the full amount recovered without regard to the attorneys' fees and costs necessary to obtain the state court judgment. Defendant did not contest this fact.¹

The Plan provides, in pertinent part, as follows:

RIGHT OF SUBROGATION

If, after payments have been made under the Policy, You or Your covered Dependent has a right to recover damages from a responsible third party, We will be subrogated to Your rights to recover. You or Your covered Dependent will do whatever is necessary to enable Us to exercise Our right and will do nothing after loss to prejudice it. If We are precluded from exercising Our Right of Subrogation, We may exercise Our Right of Reimbursement.

RIGHT OF REIMBURSEMENT

If benefits are paid under the policy and You or Your covered Dependent recovers from a responsible third party by settlement, judgment, or otherwise, We have the right to recover from You or Your covered Dependent an amount equal to the amount we paid.

Defendant claims it has a subrogation interest in the $95,000.00 paid into the Court. Plaintiffs assert that Defendant is not now entitled to the $95,000.00 recovered on the $300,000.00 judgment because of the "make whole doctrine" of the federal common law.

Preemption

The parties agree that ERISA applies to preempt Tennessee subrogation law, including the Tennessee make whole doctrine, but disagree about the effects of such preemption. The Court holds that ERISA preempts Tennessee subrogation law, including the Tennessee make whole doctrine, in this case.

ERISA contains three provisions regarding preemption. The Sixth Circuit summarized the way these provisions work in Electro-Mechanical Corp. v. Ogan, 9 F.3d 445 (6th Cir.1993):

"The first provision states that Congress intended ERISA to preempt state laws which relate to 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) (1988). The general preemptive effect on subsection (a), however, is specifically limited by subsection (b) of the Act, commonly referred to as 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) (1988). Finally, the power which subsection (b) reserves to the states to regulate insurance, banking and securities is likewise expressly limited by subparagraph (2)(B) of that subsection, commonly referred to as 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) (1988)." Electro-Mechanical Corp., 9 F.3d at 448-49 (emphasis omitted).

In FMC Corp. v. Holliday, 498 U.S. 52, 58, 111 S.Ct. 403, 407, 112 L.Ed.2d 356 (1990), the Supreme Court described the scope and effect of these preemption provisions:

The pre-emption clause is conspicuous for its breadth. It establishes as an area of exclusive federal concern the subject of every state law that "relates to" an employee benefit plan governed by ERISA. The saving clause returns to the States the power to enforce those state laws that "regulate insurance," except as provided in the deemer clause. Under the deemer clause, an employee benefit plan governed by ERISA shall not be "deemed" an insurance company, an insurer, or engaged in the business of insurance for purposes of state laws "purporting to regulate" insurance companies and insurance contracts.

Id.

The issue in FMC Corp. was whether ERISA preempted the application of Pennsylvania's antisubrogation statute to a self-funded ERISA plan. The Court initially found that ERISA's general preemption clause applied because the antisubrogation statute related to an employee benefit plan. Id. at 58-59, 111 S.Ct. at 407-08. The Court next found that the antisubrogation statute was saved from preemption by the savings clause because it was a law that regulated insurance. Id. at 60-61, 111 S.Ct. at 408-09. Finally, the Court held that the antisubrogation statute was preempted because the deemer clause exempted self-funded ERISA plans from state laws that regulate insurance. Id. at 61, 111 S.Ct. at 409.

The FMC Corp. Court drew a clear distinction between ERISA's preemptive effect upon self-funded and insured plans:

As a result, self-funded ERISA plans are exempt from state regulation insofar as that regulation "relates to" the plans. State laws directed toward the plans are preempted because they relate to an employee benefit plan but are not "saved" because they do not regulate insurance. State laws that directly regulate insurance are "saved" but do not reach self-funded employee benefit plans because the plans may not be deemed to be insurance companies, other insurers, or engaged in the business of insurance for purposes of such state laws. On the other hand, employee benefit plans that are insured are subject to indirect state insurance regulation. An insurance company that insures a plan remains an insurer for purposes of state laws "purporting to regulate insurance" after application of the deemer clause.... The ERISA plan is consequently bound by state insurance regulations insofar as they apply to the plan's insurer.

Id. The Court then summarized the effect of this distinction:

Our interpretation of the deemer clause makes clear that if a plan is insured, a State may regulate it indirectly through regulation of its insurer and its insurer's insurance contracts; if the plan is uninsured, the State may not regulate it. As a result, employers will not face "`conflicting or inconsistent State and local regulation of employee benefit plans.'"

Id. at 64, 111 S.Ct. at 411 (...