Regents of University of Michigan v. Employees of Agency Rent-A-Car Hosp. Ass'n, RENT-A-CAR

• Decision Date: 12 August 1997
• Docket Number: RENT-A-CAR,A-C,No. 96-1329,96-1329
• Citation: 122 F.3d 336
• Parties: 21 Employee Benefits Cas. 1928 REGENTS OF THE UNIVERSITY OF MICHIGAN, Plaintiff-Appellee, v. EMPLOYEES OF AGENCYHOSPITAL ASSOCIATION and Agency Rent-ar Employees Health Care Plan, Defendants-Appellants.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 336

122 F.3d 336

21 Employee Benefits Cas. 1928

REGENTS OF THE UNIVERSITY OF MICHIGAN, Plaintiff-Appellee, v. EMPLOYEES OF AGENCY RENT-A-CAR HOSPITAL ASSOCIATION and Agency Rent-A-Car Employees Health Care Plan Defendants-Appellants.

No. 96-1329.

United States Court of Appeals Sixth Circuit.

Argued April 24, 1997.

Decided Aug. 12, 1997.

Diana Raimi (argued and on brief), Stein, Moran, Raimi & Goethal, Ann Arbor, MI, L. Stewart Hastings, Hastings & Kerka, Cleveland, OH, for Plaintiff-Appellee.

Kerin Lyn Kaminski, Karen Giffen (argued and briefed), Cavitch, Familo, Durkin &amp Frutkin, Cleveland, OH, for Defendants-Appellants.

Before: KEITH, BATCHELDER, and DAUGHTREY, Circuit Judges.

OPINION

BATCHELDER, Circuit Judge.

This action involves the interpretation of a coordination of benefits clause ("COB") contained in an Employee Retirement Income Security Act ("ERISA") health care plan. Defendants, Agency Rent-A-Car Employees Health Care Plan and Employees of Agency Rent-A-Car Hospital Association (hereinafter referred to collectively as "Agency" or defendants) assert that the COB clause in the Agency Plan permits the Plan to refuse to pay valid health care claims in light of the insolvency of the primary ERISA plan. The district court granted plaintiff's motion for summary judgment finding that defendants' coverage "dropped down," requiring defendants to pay the amount due for the medical care above and beyond that amount paid by the insolvent primary ERISA insurer. For the reasons that follow, we affirm the order of the district court.

Summary judgment is appropriate where "there is no genuine issue as to any material fact and [ ] the moving party is entitled to a judgment as a matter of law." FED.R.CIV.P. 56(c). We review a district court's grant of summary judgment de novo. Pinney Dock & Transp. Corp. v. Penn Cent. Corp., 838 F.2d 1445, 1472 (6th Cir.1988).

The facts of this case are straightforward. Jeffrey and Karen Westra had separate policies of medical insurance through their respective employers. Mr. Westra's insurance was through Agency Rent-A-Car Health Care Plan. Mrs. Westra was insured through a 65 Security Plan. Both policies are governed by ERISA. In 1991 and 1992, the Westra family incurred substantial medical bills related to the care of their infant son who was treated at the University of Michigan's Medical Center. After the medical care was provided, each ERISA plan, citing the COB clause in its respective contract, claimed that the other company's coverage was primary and that its own coverage was excess. Accordingly, each declined payment of the claims, and the Westras eventually sued both companies.

On March 11, 1993, the district court held that the 65 Security Plan was the primary insurer, ¹ and that the Agency Plan coverage was excess. Approximately three months after this ruling, a number of creditors of the now-insolvent 65 Security Plan filed claims against the Plan in federal district court in New York. Jeffrey and Karen Westra assigned all of their rights against the Plan to the University of Michigan Medical Center, which participated in the district court proceedings as a creditor. Agency was not a creditor of the Plan and did not participate in those proceedings. The district court ordered the 65 Security Plan to pay 10% of the medical expenses owed to the Hospital. The 65 Security Plan has paid some of the 10% owed.

The Regents of the University of Michigan brought this action against Agency pursuant to ERISA, 29 U.S.C. §§ 1132(a)(1) and (3) and 1132(d), to obtain payment of the remainder of the bills owed. Agency defended, relying upon this language of its COB clause:

DO BENEFITS UNDER OTHER PLANS AFFECT THESE BENEFITS?

Yes. Some individuals have medical or dental expense coverage in addition to coverage under this Plan. When this happens, the benefits from the "other plans" will be deemed to provide primary coverage. This may require a reduction in benefits under this Plan, so that the combined benefits will not be more than the expenses recognized under these plans.

An "other plan" means any plan of medical or dental expense coverage provided by:

1. Group insurance or any other arrangement of medical/dental coverage available to a member or enrolled eligible dependents.

According to Agency, this language means that Agency's coverage is excess in nature, and is not triggered until the primary insurer has paid claims in the amount of the policy limits. Because the 65 Security Plan has never paid the full extent of its coverage, Agency has no obligation to pay at all.

The district court, in a published opinion, granted plaintiff's motion for summary judgment, finding Agency liable for all medical bills not covered by the 65 Security Plan. Regents of University of Michigan v. Employees of Agency Rent-A-Car Hosp. Ass'n, 898 F.Supp. 492 (E.D.Mich.1995). The district court held that Agency's COB was not ambiguous, and that the

plan language provides that the "benefits" from the "other plan" will reduce the benefits to be provided under Agency's plan.... [T]he language refers to benefits "received" from the "other plan" because the language specifically directs itself to the concern that benefits will not exceed expenses. Furthermore, the language of Agency's plan specifically refers to coverage "available."

Id. at 493-94. In essence, the district court held that because the 65 Security Plan is insolvent, there are no funds "available" from the "other plan," and therefore Agency is liable for payment of the medical bills remaining due.

Agency argues that the term "available" means only that the insured had coverage under another insurance plan; the term does not require that other plan be solvent or able to pay claims. Therefore, Agency says, since the Westras had coverage under the 65 Security Plan, the Westras had other coverage available. Since that coverage was available, it was primary, and the Agency Plan's coverage is not triggered until the primary insurance has paid claims in the amount of its policy limits. That the primary insurer can never make payment in that amount because of insolvency is irrelevant. Furthermore, Agency says, even if "available" were read to mean that the primary insurer must have the funds actually to pay the policy limits, "availability" must be determined as of the time the medical bills were incurred. In this case, since the primary insurer was not declared insolvent until after the bills were incurred, the coverage was available at that time; the primary insurer has not paid out the full extent of its coverage, and Agency's liability has not been triggered.

Both parties agree that ERISA does not address COB clause interpretations. In those limited situations where ERISA fails to address a particular issue, federal courts are expected to develop a body of federal common law to fill the interstitial gap in the statutory mandate. Auto Owners Ins. Co. v. Thorn Apple Valley, Inc., 31 F.3d 371, 374 (6th Cir.1994) (citing Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 56, 107 S.Ct. 1549, 1557-58, 95 L.Ed.2d 39 (1987)). In developing such federal common law, the federal court may take direction from the law of the state in which it sits, or it may generally review law on the issue and adopt a federal rule. In any case, the rule used must be the one "that best comports with the interests served by ERISA's regulatory scheme." PM Group Life Ins. Co. v. Western Growers Assur. Trust, 953 F.2d 543, 546 (9th Cir.1992). The district court correctly noted that the question of what rule to use in interpreting COB clauses is an issue of first impression in this circuit, and there appear to be no cases exactly on point.

The state law to which the federal court may look in this case is that of Michigan, which follows general contractual rules when interpreting insurance contracts.

Under Michigan law, insurance policies are to be construed in a manner consistent with the ordinary and popular sense of the language used therein. A technical construction of a policy's language which would defeat a reasonable expectation of coverage is not favored.... Accordingly, an insurer has a duty to express clearly the limitations in its policy; any ambiguity will be construed liberally in favor...