Roberts v. Richard

• Citation: 743 So.2d 731
• Decision Date: 28 July 1999
• Docket Number: No. 99-259.,99-259.
• Parties: Jacqueline ROBERTS, Plaintiff—Appellee, v. Gregory J. RICHARD & Progressive Security Insurance Company & State Farm Mutual Automobile Insurance Company, Defendants-Appellants.
• Court: Court of Appeal of Louisiana — District of US

Page 731

743 So.2d 731

Jacqueline ROBERTS, Plaintiff—Appellee, v. Gregory J. RICHARD & Progressive Security Insurance Company & State Farm Mutual Automobile Insurance Company, Defendants-Appellants.

No. 99-259.

Court of Appeal of Louisiana, Third Circuit.

July 28, 1999.

Writ Denied November 19, 1999.

Mark Anthony Delphin, Lake Charles, Eulis Simien, Jr., Baton Rouge, for Jacqueline Roberts.

Charles V. Musso, Jr., Lake Charles, for State Farm Mutual Automobile Ins. Co.,

Robert E. Landry, Lake Charles, for Westlake Polymer Corp.

BEFORE: YELVERTON, SAUNDERS, and DECUIR, Judges.

YELVERTON,, J.

Mrs. Jacqueline Roberts was injured in an automobile accident on May 6, 1996. Westlake Polymers Corporation was the employer and self-insured health insurer of Mrs. Roberts' husband. Westlake Polymers paid medical expenses on Mrs. Roberts' behalf totaling $10,543.28. Westlake Polymers' plan provided subrogation rights in Westlake Polymers' favor if the covered person (Mrs. Roberts in the instant case) recovered from a third party. Mrs. Roberts filed a damage suit against the third-party tortfeasor, Gregory Richard. She settled the tort claim for a total of $37,000 ($10,000 in damages paid by the tortfeasor's insurer, $25,000 paid by the UM insurer, and $2,000 in med-pay from her own insurer). She provoked a concursus over the ownership of the $10,543.28 of the settlement proceeds equaling the medical expenses which Westlake Polymers had paid on her behalf. The trial court ruled in favor of Mrs. Roberts.

Westlake Polymers appeals arguing that it is entitled to reimbursement from Mrs. Roberts, based on its health care plan provided to its employees and their dependents which contains the following provision:

7.07 Subrogation Rights

Any payments made by this Plan for Sickness or Injury caused by the negligent or wrongful act of any third party are made with the agreement and understanding that the Covered Person will reimburse the Plan for any amounts which are later recovered from the third party by way of settlement or in the satisfaction of any judgment. The amount which must be reimbursed to the Plan will be the lesser of the payments actually made by the Plan, or the amount received by the Covered Person from the third party. As security for the Plan's rights to reimbursement, the Plan will be subrogated to all of the Covered Person's rights of recovery against a third party (or the party's insurers) to the extent of any payments made by the Plan. The Claims Administrator will withhold payments of claims made under this Plan, to the extent that the Claims Administrator has actual knowledge of a negligent or wrongful act of a third party, until the Covered Person or the Covered Person's legal representative executes a subrogation reimbursement agreement.

The above subrogation rights also apply to medical payments made by the Covered Person's own auto insurance.

Mrs. Roberts argues that she is entitled to keep the money in accordance with the trial court's decision. The trial court's decision was based on Evans v. Midland Enterprises, 754 F.Supp. 91 (M.D.La. 1990), wherein the federal district court, utilizing the Make Whole Doctrine, held that an injured employee did not have to reimburse his employer's health plan unless it was found that the employee was fully compensated for his injuries. It is undisputed that the settlement did not fully compensate Mrs. Roberts for her injuries.

The issue presented for our review is whether Mrs. Roberts is entitled to retain the $10, 543.28 Westlake Polymers paid on her behalf.

Westlake Polymers administers a self-funded health and dental care plan for the exclusive benefit of eligible employees and their dependents. The plan is an ERISA benefit plan. "The federal Employee Retirement Income Security Act of 1974, 88 Stat. 829, as amended, 29 U.S.C. § 1001 et seq. (ERISA), inclusively regulates employee pension and welfare plans." A. Copeland Enterprises, Inc. v. Slidell Memorial Hosp., 94-2011 (La.6/30/95); 657 So.2d 1292, 1300. Mrs. Roberts is a beneficiary under the plan. 29 U.S.C. § 1002(8).

We apply federal law to this ERISA dispute. According to Nat. Employee Benefit Trust v. Sullivan, 940 F.Supp. 956 (W.D.La.1996), ERISA preempts state law interpreting provisions of an ERISA benefit plan. Likewise, the Supreme Court has made it clear that "ERISA preempts state regulatory laws as well as state statutory and common-law rules related to self-funded employer benefit plans." In Re Roy, 31,383 (La.App. 2 Cir. 1/20/99); 726 So.2d 1048, 1050 (citing FMC Corp. v. Holliday, 498 U.S. 52, 111 S.Ct. 403, 112 L.Ed.2d 356 (1990)). State subrogation and reimbursement laws are also preempted by ERISA. Sunbeam-Oster Co. Group Ben. Plan v. Whitehurst, 102 F.3d 1368 (5 Cir.1996). Therefore, federal law governs the dispute.

Westlake, as administrator, was vested with the discretionary authority to interpret the plan. Section 8.01 of the plan provides:

Section 8.01 Plan Administrator

Westlake Polymers Corporation shall have all authority and responsibility for the administration and interpretation of the Plan, and, for purposes of ERISA, shall be the "administrator" of the Plan and its "named fiduciary" with respect to matters for which it is responsible, provided that the Board shall have the sole authority to amend or terminate the Plan. To the maximum extent permitted by ERISA, every action and determination of the Board shall be final and binding upon each Participant, beneficiary, other Employee and every other person entitled to or claiming participation in the Plan or benefits from the Plan. No member of the Board shall be entitled to act on or decide any matter relating solely to himself or any of his rights or benefits under the Plan.

The law is clear that where an ERISA plan grants its administrator discretion to interpret plan provisions, the court may set aside the administrator's interpretation only if there has been an abuse of discretion. Spacek v. Maritime Ass'n, 134 F.3d 283 (5 Cir.1998); Walker v. Wal-Mart Stores, 159 F.3d 938 (5 Cir.1998).

The Make Whole Doctrine is an insurance principle which mandates that, in the absence of a contrary agreement, an insurance company may not enforce its subrogation rights until the insured has been fully compensated for her injuries— "made whole." Nat. Employee Benefit Trust, 940 F.Supp. 956. It is considered a rule of interpretation or gap filler which becomes significant only when contracts fail to clearly address the issue. Id.

In Sunbeam-Oster Co. Group Ben. Plan, 102 F.3d 1368, employee Leonard Whitehurst was injured in an automobile accident. Sunbeam-Oster's self-funded employee welfare benefits plan paid medical expenses on behalf of Whitehurst in the amount of $137,000. Whitehurst and his family subsequently sued the driver of the rig, its owner, and the owner's insurer which caused his injury. The Plan did not intervene or participate in settlement negotiations. The Whitehursts settled for $509,000.

Sunbeam's summarized plan document contained a subrogation clause which provided:

The Plan has subrogation and reimbursement provisions which allow the Plan to recover for benefits it pays which are duplicated from another source. The Plan provides an automatic lien on any funds subject to reimbursement or subrogation.

Reimbursement gives the Plan the right to collect from you money that you receive in a settlement or lawsuit that covers expenses that the Plan has already paid for . . . .

Id. at 1371.

The Plan instituted suit against Whitehurst for reimbursement of the medical expenses it paid on Whitehurst's behalf. The trial court denied the Plan's claim utilizing the Make Whole Doctrine of construction and holding that the Plan could not recover through reimbursement or subrogation until the beneficiary was made whole through compensatory damages. Finding that Whitehurst suffered $2,000,-00 in damages but only recovered $500,-000, the trial court rejected the Plan's claim for reimbursement.

The Fifth Circuit reversed in light of the language in the Plan's subrogation provision and concluded that the Plan was indeed entitled to full reimbursement by the beneficiary of the amounts the Plan paid on his behalf. Further, the court noted that the Plan's failure to specifically address partial recovery situations was not fatal to the Plan's right to full reimbursement—"the absence of more particularized and technical legal language addressing the partial recovery situation cannot be grounds for supplanting the Plan Priority rule when recovery is partial . . . ." Id. at 1376. Finding the language of the Plan's reimbursement and subrogation provisions clear and unambiguous, the court did not address the issue of the appropriate default rule for reimbursement or subrogation in the absence of clear language in the Plan documents.

The Fifth Circuit, in dicta, also emphasized its "most serious concern"—the district court's "res nova selection of the Make Whole rule as the appropriate default...