PM Group Life Ins. Co. v. Western Growers Assur. Trust

• Decision Date: 09 January 1992
• Docket Number: No. 90-55909,90-55909
• Citation: 953 F.2d 543
• Parties: , 14 Employee Benefits Cas. 2233 PM GROUP LIFE INSURANCE CO., Plaintiff-Appellee, v. WESTERN GROWERS ASSURANCE TRUST, Defendant-Appellant, Loma Linda University Medical Center, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 543

953 F.2d 543

60 USLW 2459, 14 Employee Benefits Cas. 2233

PM GROUP LIFE INSURANCE CO., Plaintiff-Appellee, v. WESTERN GROWERS ASSURANCE TRUST, Defendant-Appellant, Loma Linda University Medical Center, Defendant-Appellee.

No. 90-55909.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted July 10, 1991.

Decided Jan. 9, 1992.

Roy G. Weatherup, Haight, Brown & Bonesteel, Santa Monica, Cal., for defendant-appellant Western Growers Assur. Trust.

Theodore K. Stream, Stream & Associates, Riverside, Cal., for defendant-appellee Loma Linda University Medical Center.

John L. Viola, Adams, Duque & Hazeltine, Los Angeles, Cal., for plaintiff-appellee PM Group Life Ins. Co.

Appeal from the United States District Court for the Central District of California.

Before POOLE, KOZINSKI and LEAVY, Circuit Judges.

KOZINSKI, Circuit Judge.

The next worst thing to having no insurance at all is having two insurance companies cover the same claim. In the absence of consistent coordination of coverage provisions, the two companies can dissipate months, even years, wrangling with one another, while the insured and the provider of the covered services are left holding the bag. This is such a case, involving two ERISA-covered health benefit plans.

Facts

On January 1, 1988, Maria Campos gave birth to a daughter, Elizabeth. The baby was born over three months premature and spent the first five and a half months of her life in the neo-natal intensive care unit at Loma Linda University Medical Center. The medical expenses incurred during that period total $344,000.

Maria Campos and her husband Jose were covered by the employee benefit plans of their respective employers. Maria's employer provided medical benefits under a plan administered by Western Growers Assurance Trust (Western); Jose's employer provided medical benefits under a plan administered by Pacific Mutual Life Insurance Company (PM).

Each plan, standing alone, covers virtually all of the $344,000 expended in saving little Elizabeth's life. To this much everyone agrees. Yet as of this date, nearly four years after Elizabeth's birth, only $3,840 has been paid to Loma Linda. ¹

The district court granted PM's motion for summary judgment, basing its decision on a California insurance regulation that adopts the "birthday rule," under which the plan of the employee whose birthday comes earlier in the calendar year is primarily responsible. See 10 Cal.Admin.Code § 2232.56(d)(2). Because Maria's birthday comes earlier in the year than Jose's, and Western covers Maria, the district court held Western primarily responsible. Western appeals.

Discussion

I

A. PM and Western are employee benefit plans and therefore subject to the Employee Retirement Income Security Act, 29 U.S.C. §§ 1001-1461 (1988) (ERISA). As we have previously noted, "ERISA contains one of the broadest preemption clauses ever enacted by Congress." Evans v. Safeco Life Ins. Co., 916 F.2d 1437, 1439 (9th Cir.1990). The statutory language certainly supports this conclusion: "Except as provided in subsection (b) of this section, the provisions of this subchapter ... 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 "saving clause" in the following subsection contains an exception: "[N]othing in this subchapter shall be construed to exempt or relieve any person from any law of any State which regulates insurance." Id. § 1144(b)(2)(A). The "deemer clause," which immediately follows the saving clause, makes clear, however, that employee benefit plans are not to be "deemed" insurance companies "for purposes of any law of any State purporting to regulate insurance companies, [or] insurance contracts." Id. § 1144(b)(2)(B).

In FMC v. Holliday, --- U.S. ----, 111 S.Ct. 403, 112 L.Ed.2d 356 (1990), and Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 105 S.Ct. 2380, 85 L.Ed.2d 728 (1985), the Supreme Court recognized that ERISA--specifically the interaction of the saving and deemer clauses with the general preemption clause--treats insured plans and self-funded plans differently for preemption purposes. State insurance regulation of insured plans is permissible, but state insurance regulation of self-funded plans is preempted. Holliday, 111 S.Ct. at 407-11; Metropolitan Life, 471 U.S. at 738-47, 105 S.Ct. at 2388-93. ² In Holliday the Court reasoned that this distinction between insured and self-funded plans follows directly from the language of the statute. "State laws that directly regulate insurance ... do not reach self-funded employee benefit plans because the plans may not be deemed to be insurance companies." Holliday, 111 S.Ct. at 409.

Both PM and Western are self-funded plans. They are therefore exempt from state insurance regulation under the interpretation of ERISA proffered by the Supreme Court in Holliday and Metropolitan Life. Our only remaining question is whether California's coordination of benefits provision is a state insurance regulation. No doubt it is. The provision resolves disputes between insurance companies when two of them provide coverage for the same claim, it is part of the state's insurance regulations and it was adopted from uniform language promulgated by the National Association of Insurance Commissioners (NAIC). The California insurance regulation governing the coordination of benefits is thus preempted insofar as it purports to apply to the two self-funded employee benefit plans involved in this case.

B. It is one thing to find that federal law governs the coordination of benefits; it's quite another to determine what that law is. Because ERISA does not include a coordination of benefits provision to resolve conflicts such as this, we must decide whether to adopt a uniform federal coordination of benefits rule ³ or to defer, as a matter of federal law, to the law of the forum state--in this case, California.

Federal courts often rely on state law to fill the gaps Congress leaves in federal statutes. See 19 C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure § 4514, at 264-69 (1982 & Supp.1991); see also De Sylva v. Ballentine, 351 U.S. 570, 580-81, 76 S.Ct. 974, 980, 100 L.Ed. 1415 (1956) (drawing on "ready-made body of state law" to define "children" within meaning of copyright statute). The case for adopting state law rules is strongest where Congress legislates interstitially, leaving state law largely undisturbed. Under those circumstances, comity and common sense counsel against exercising the power of federal courts to fashion rules of decision as a matter of federal common law. Where, however, Congress expressly sweeps away state law, incorporation is far less appropriate: "It would make little sense to adopt a state law rule, which Congress has chosen to preempt, as a matter of federal common law." Evans, 916 F.2d at 1440.

This is the case here. ERISA contains a very broad preemption provision, one that "empower[s] the [federal] courts to develop, in the light of reason and experience, a body of federal common law governing employee benefit plans." Menhorn v. Firestone Tire & Rubber Co., 738 F.2d 1496, 1499 (9th Cir.1984); see also Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 56, 107 S.Ct. 1549, 1557, 95 L.Ed.2d 39 (1987) (courts are to develop "federal common law of rights and obligations under ERISA-regulated plans"). We thus have the authority, indeed the obligation, to adopt a federal rule--that is, a rule that best comports with the interests served by ERISA's regulatory scheme. See Note, Employer Recapture of ERISA Contributions Made by Mistake: A Federal Common Law Remedy to Prevent Unjust Enrichment, 89 Mich.L.Rev. 2000, 2021-23 (1991).

Here, additional considerations militate against incorporating state law. To begin with, the coordination of benefits provision promulgated by California is not a model of clarity; in fact, the opposite is closer to the truth. It is internally inconsistent, leads to perverse incentives, ⁴ and even includes an obvious and significant typographical error. ⁵ Why this should be is unclear, as California has adopted almost verbatim a uniform rule promulgated by the NAIC. In any event, a uniform federal rule will help to avoid interpretive difficulties such as that caused by California's regulation.

Two other considerations support our fashioning a federal coordination of benefits rule. First, if the matter is left to state law, a multistate employer may find itself subject to different rules in different states. As the Supreme Court has acknowledged, ERISA is designed to relieve employers from the difficulties of complying with diverse state law. "Congress intended pre-emption to afford employers the advantages of a uniform set of administrative procedures governed by a single set of regulations." Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 11, 107 S.Ct. 2211, 2217, 96 L.Ed.2d 1 (1987). This uniformity enables employers "to predict the legality of proposed actions without the necessity of reference to varying state laws." Pilot Life, 481 U.S. at 56, 107 S.Ct. at 1557.

Second, while both Western and PM are in California, this may not always be the case, as spouses may wind up working, or even living, in different states. Many states have adopted the NAIC rule, but not all have; even those that have are free to change the rule at any time. We can envision the case where two plans covering the same claim are located in different states and where those states have inconsistent coordination of benefits rules. Such a conflict would almost certainly lead to litigation, thereby burdening the insured employees, the providers of covered services, and the plans themselves--as well as the federal courts. Adoption of a uniform federal rule avoids such confusion and expense, and thus best serves the purposes of ERISA.

C. We turn now to fashioning the appropriate rule. While we are free to adopt any rule,...