Wahl v. Northern Telecom Inc., Civ. A. No. 89-C-299.

• Decision Date: 04 December 1989
• Docket Number: Civ. A. No. 89-C-299.
• Citation: 726 F. Supp. 235
• Parties: Jennifer L. WAHL, Plaintiff, v. NORTHERN TELECOM INC., Defendant.
• Court: U.S. District Court — Eastern District of Wisconsin

726 F. Supp. 235

Jennifer L. WAHL, Plaintiff, v. NORTHERN TELECOM INC., Defendant.

Civ. A. No. 89-C-299.

United States District Court, E.D. Wisconsin.

December 1, 1989.

As Amended December 4, 1989.

Joseph J. Welcenbach, Welcenbach & Widmann, Milwaukee, Wis., for plaintiff.

Terry E. Nilles and Catherine Mode, Gibbs, Roper, Loots & Williams, Milwaukee, Wis., for defendant.

AMENDED DECISION AND ORDER

REYNOLDS, Senior District Judge.

FACTS

On June 29, 1986, the plaintiff Jennifer L. Wahl ("Jennifer") a resident of Wisconsin, was involved in an automobile accident which caused her physical injury. The automobile was driven by Theresa Grosskopf. Theresa's parents, Kenneth and Shirley Grosskopf, were insured by State Farm Mutual Insurance Company ("State Farm"). Jennifer was a minor at the time of the accident, and her mother, Nancy Wahl ("Ms. Wahl"), petitioned the Waukesha County Circuit Court of Wisconsin to appoint a guardian ad litem to oversee any claims Jennifer had against the Grosskopfs. The court granted Ms. Wahl's petition on May 16, 1988, and appointed attorney Richard Double as Jennifer's guardian ad litem.

Jennifer's father is Wayne Paul Wahl ("Mr. Wahl"), an employee of defendant, Northern Telecom Inc. ("Northern"), a Delaware corporation with headquarters in Tennessee. On July 31, 1978, an amended decree of dissolution of Mr. and Mrs. Wahl's marriage was entered by the Bonneville, Idaho County Court. As part of the dissolution decree, the Idaho state court ordered Mr. Wahl to pay "any reasonable medical and optical expenses incurred for the care and treatment of the minor children of the parties."

Mr. Wahl included Jennifer as a dependent beneficiary under Northern's Group Benefits Plan for Employees ("the Plan"). The Plan is a self-insured employee welfare benefit plan subject to the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001, et seq. (1988). The Plan paid in excess of $42,000 in medical expenses incurred by Jennifer as a result of the injuries suffered in the accident. In addition, the Grosskopfs' insurance company, State Farm, agreed to pay Jennifer the maximum amount of coverage under the Grosskopfs' insurance plan, $100,000, in full settlement of all her claims against the Grosskopfs and State Farm.

On February 7, 1989, Jennifer's guardian ad litem commenced an action against Northern in the Circuit Court for Waukesha County, Wisconsin. Although entitled a "third party complaint," Jennifer was seeking a declaratory judgment that Northern had no subrogation rights under the terms of the Plan to money she would receive in a settlement with State Farm. State Farm was not a party to this action. On March 10, 1989, Northern filed a petition for removal to this court and a counterclaim against Jennifer seeking a declaratory judgment that the terms of the Plan entitled it to share in any settlement Jennifer enters into with a third party. Removal was proper pursuant to Title 28 U.S.C. §§ 1441 and 1332 because the amount in controversy exceeds $10,000 and there is diversity of citizenship between Northern and Jennifer.

On July 13, 1989, Northern moved this court for summary judgment. Northern claims that there are no material facts in dispute and that the Plan's terms require Jennifer to reimburse it for payments it has made on her behalf if she receives payments related to her injuries from a responsible third party (e.g., the Grosskopfs and State Farm). Northern argues that the terms of the Plan are dispositive of its subrogation rights to any settlement Jennifer receives because the Wisconsin common law on subrogation is preempted by ERISA.

On October 24, 1989, this court held an oral argument on Northern's motion for summary judgment and granted Jennifer's permission to file a cross-motion for summary judgment. This court also requested both parties to supplement the record by filing affidavits supporting their arguments for summary judgment. On October 27, 1989, Jennifer filed a cross-motion for summary judgment with supporting affidavits, and on November 1, 1989, Northern supplemented its summary judgment motion with a supporting affidavit.

Jennifer does not dispute Northern's claim that there are no disputed material facts, but instead claims that the terms of the Plan are ambiguous and that she therefore is not required to reimburse the Plan until she is fully compensated for the injuries she has suffered. She also argues that she is not liable to the Plan because (1) the Wisconsin common law pertaining to subrogation should apply and (2) she never agreed to repay the plan for benefits received if she obtained a settlement from a third party.

As there are no material facts in dispute, summary judgment is proper pursuant to Fed.R.Civ.P. 56(c). After reviewing the briefs, exhibits, and affidavits submitted by the parties, this court finds (1) that the Wisconsin common law pertaining to subrogation rights is preempted by ERISA, (2) that federal common law determines the limitations on the subrogation rights a selfinsured employee benefit plan has against a participant or beneficiary, and (3) that Northern does not have a contractual right to subrogation of payments Jennifer may receive. Thus, this court denies Northern's motion for summary judgment and grants Jennifer's cross-motion for summary judgment.

DISCUSSION

I. FEDERAL PREEMPTION

The first question this court must answer is whether or not the Wisconsin common law on subrogation is preempted by ERISA. The Wisconsin Supreme Court has stated:

It appears clear that, under Wisconsin law as recapitulated in Garrity, one who claims subrogation rights, whether under the aegis of either legal or conventional subrogation, is barred from any recovery unless the insured is made whole.

Rimes v. State Farm Mut. Auto. Ins. Co., 106 Wis.2d 263, 272, 316 N.W.2d 348, 353 (1982) (referring to Garrity v. Rural Mutual Insurance Company, 77 Wis.2d 537, 253 N.W.2d 512 (1977)). Thus, if the Wisconsin common law ("the Rimes doctrine") is applicable to the dispute between Northern and Jennifer, the Plan is barred from recovering any money from Jennifer until she has been made whole.

Northern does not dispute that the Rimes doctrine prohibits it from recovering from Jennifer until she is made whole, but instead, argues that this state law is automatically preempted by 29 U.S.C. § 1144(b)(2)(B), otherwise known as the "deemer clause," (see Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 45, 107 S.Ct. 1549, 1552, 95 L.Ed.2d 39 (1987)) because the Plan is self-insured. Jennifer has not objected to Northern's assertion that ERISA governs the Plan nor that the Plan is selfinsured. Upon review of Title 29 U.S.C. §§ 1002(1), 1003, and 1132, and the terms of the Plan, this court finds (1) that Jennifer's claim for clarification of her rights under the Plan is governed by ERISA and (2) that the Plan is self-insured.

There are three provisions in ERISA which determine when state law is preempted: (1) the general "preemption clause" in 29 U.S.C. § 1144(a); (2) the "savings clause" in 29 U.S.C. § 1144(b)(2)(A); and (3) the "deemer clause" in 29 U.S.C. § 1144(b)(2)(B). The United States Supreme Court has repeatedly held that the first two provisions operate to preempt a state law that in any way "relates to" employee benefit plans unless the state law "regulates insurance." Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 45, 107 S.Ct. 1549, 1552, 95 L.Ed.2d 39 (1987); Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 62, 107 S.Ct. 1542, 1546, 95 L.Ed.2d 55 (1987); Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 733, 105 S.Ct. 2380, 2385, 85 L.Ed.2d 728 (1984); Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 91, 103 S.Ct. 2890, 2896, 77 L.Ed.2d 490 (1983). In addition, even if the state law "regulates insurance," it is still preempted if it falls within the "deemer clause." Pilot, 481 U.S. at 45, 107 S.Ct. at 1552.

A. The "Preemption Clause"

In Pilot, the Supreme Court reiterated the expansive common-sense meaning it had given to the phrase "relate to" in Metropolitan v. Massachusetts and Shaw. The court held that a state law "relates to" an employee benefit plan and is therefore preempted under the "preemption clause" if it has any connection or reference to the plan. Pilot, 481 U.S. at 47-48, 107 S.Ct. at 1553. The Rimes doctrine is connected to the Plan because it directly affects the relationship between the insurer and insured. Thus, the Wisconsin law is preempted unless it "regulates insurance" pursuant to 29 U.S.C. § 1144(b)(2)(A).

B. The "Savings Clause"

The Supreme Court in Pilot considered three factors in determining whether or not a state law claim was saved from preemption because the state law regulated insurance within the meaning of 29 U.S.C. § 1144(b)(2)(A): (1) the common-sense meaning of the term "regulates insurance," (2) the criteria that are used to determine if a practice is considered the "business of insurance" under the McCarran-Ferguson Act, and (3) the Congressional intent that ERISA's civil enforcement scheme be exclusive. 481 U.S. at 57, 107 S.Ct. at 1558. Only the first two factors are relevant in this case because the Rimes doctrine does not involve the civil enforcement scheme of ERISA. After considering the two pertinent factors, this court finds that the Rimes doctrine "regulates insurance" within the meaning of 29 U.S.C. § 1144(b)(2)(A).

First, the Court in Pilot wrote that, "a common-sense view of the word `regulates' would lead to the conclusion that in order to regulate insurance a law must not just have an impact on the insurance industry, but must be specifically directed toward the industry." 481 U.S. at 50, 107 S.Ct. at 1554. The subrogation rule of Rimes was directed at the insurance industry, and the common law roots of the rule are firmly imbedded in insurance case law. See generally Rimes 106 Wis.2d 263, 316 N.W.2d 348; Garrity, 77 Wis.2d 537, 253 N.W.2d 512.

Second, ...