Wimer v. Pebtf

• Decision Date: 27 December 2007
• Docket Number: No. 38 WAP 2006.,38 WAP 2006.
• Citation: 939 A.2d 843
• Parties: Gary E. WIMER, Appellee, v. PENNSYLVANIA EMPLOYEES BENEFIT TRUST FUND (PEBTF), Appellant.
• Court: Pennsylvania Supreme Court

939 A.2d 843

Gary E. WIMER, Appellee, v. PENNSYLVANIA EMPLOYEES BENEFIT TRUST FUND (PEBTF), Appellant.

No. 38 WAP 2006.

Supreme Court of Pennsylvania.

Argued March 5, 2007.

Decided December 27, 2007.

Richard Kirschner, Esq., for Pennsylvania Employees Benefit Trust Fund (PEBTF).

Cynthia M. Danel, Esq., Edgar Snyder & Associates, L.L.C, Pittsburgh, for Gary E. Wimer.

BEFORE: CAPPY, C.J., and CASTILLE, SAYLOR, EAKIN, BAER and BALDWIN, JJ.

OPINION

Justice BAER.

We granted review in this healthcare subrogation case to address the following issues. First, whether a recipient of healthcare benefits paid by the Pennsylvania Employees Benefit Trust Fund (hereinafter "PEBTF" or "Appellant") is contractually obligated, when challenging a subrogation claim and a termination of healthcare benefits, to exhaust internal appeals to PEBTF's Board of Trustees prior to seeking recourse through filing an action for declaratory judgment with a court. Second, whether PEBTF's right to subrogation against a healthcare recipient's recovery from a third party tortfeasor accrues as of the date of the recipient's injury, or on the date when PEBTF reimburses the healthcare recipient's medical expenses. As will be discussed, if PEBTF's right to subrogation accrued on the date of the injury, PEBTF would be entitled to subrogate over $35,000 in benefits it paid after January 1, 1998, when, as explained fully below, it ceased operating as an ERISA qualified plan. If, however, the right to subrogate accrued after it paid the healthcare recipient's medical benefits, PEBTF could only subrogate the $186 it paid when it was an ERISA qualified plan. For the following reasons, we conclude that a recipient of healthcare benefits paid by PEBTF need not exhaust internal administrative remedies prior to filing suit, and that PEBTF's right to subrogation only arises once PEBTF has paid the recipient's medical benefits. Accordingly, we affirm the decision of the Superior Court.

The facts of this case are undisputed. Appellee Gary E. Wimer was employed by the Commonwealth of Pennsylvania as a corrections officer at SCI Camp Hill, and his healthcare benefits were provided by PEBTF. On October 3, 1997, Appellee was injured when a vehicle operated by Willie Taylor and owned by the J.F. Cartage Company ("the third parties") collided with Appellee's automobile. On the date of the accident, PEBTF was a self-funded "employee welfare benefit plan" under the Employees Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et seq., which entitled it to exercise subrogation rights notwithstanding the anti-subrogation provision of the Pennsylvania Motor Vehicle Responsibility Law (MVFRL), 75 Pa.C.S. § 1720.¹² See FMC Corp. v. Holliday, 498 U.S. 52, 111 S.Ct. 403, 112 L.Ed.2d 356 (1990) (holding that, for ERISA qualified plans, ERISA preempted application of the anti-subrogation provision of the MVFRL). As detailed below, the anti-subrogation provision of the MVFRL precludes governmental healthcare plans (non-ERISA qualified plans) from exercising subrogation rights against a healthcare recipient's tort recovery. 75 Pa.C.S. § 1720; Wirth v. Aetna U.S. Healthcare, 588 Pa. 313, 904 A.2d 858, 864-65 (2006).

Following the accident, Appellee initially submitted his medical bills to his automobile insurance carrier, Erie Insurance Company, which paid for Appellee's medical expenses until the policy's $10,000 limit was exhausted. Thereafter, Appellee's medical bills were submitted to PEBTF for payment. In total, PEBTF paid $186.00 on behalf of Appellee through the end of 1997.

On January 1, 1998, PEBTF's status changed from an ERISA qualified plan to a governmental plan, and, as such, it became subject to the anti-subrogation provision of the MVFRL. Shortly thereafter, Appellee filed a liability action against the third parties and, the following year, secured a settlement for an undisclosed sum. Upon learning of this settlement, PEBTF filed a subrogation claim against Appellee for $35,815.90, which represented the total benefits it had paid on Appellee's behalf since January 1, 1998.³ However, Appellee refused to pay PEBTF on grounds that it was no longer entitled to seek subrogation. PEBTF then terminated Appellee's benefits pursuant to a provision in PEBTF's governing documents entitling it to terminate coverage if a healthcare recipient refuses to cooperate in the exercise of PEBTF's subrogation rights.

Appellee subsequently filed a Complaint for Declaratory Judgment against PEBTF in the Court of Common Pleas of Westmoreland County, and requested that the court enter an order providing that any subrogation rights be limited to the $186 paid by PEBTF prior to January 1, 1998, when it was an ERISA qualified plan. Appellee also requested that the court order PEBTF to reinstate his benefits, reimburse him for medical expenses incurred subsequent to the termination of his benefits, and direct PEBTF to pay costs and counsel fees.

In response, PEBTF filed preliminary objections and a petition to transfer the action to Dauphin County. In its preliminary objections, PEBTF asserted that Appellee failed to exhaust his internal administrative remedies before commencing the instant litigation, and that Appellee failed to state a valid cause of action. In support of the former claim, PEBTF alleged that Appellee was contractually obligated under the Summary Plan Description and the Plan Document (collectively, "the plan documents"), which applied to his coverage, to appeal to PEBTF's Board of Trustees as a prerequisite to filing the instant declaratory judgment action.⁴ In furtherance of the latter claim, PEBTF asserted that Appellee failed to state a valid cause of action because, in its view, its right to subrogation accrued on the date of the accident, when it was still an ERISA qualified plan permitted to seek subrogation, and not on the dates it paid Appellee's benefits, when it was a governmental plan subject to the MVFRL's anti-subrogation provision.

Following a hearing, the trial court issued an opinion and order dismissing PEBTF's preliminary objections and its petition to transfer venue, and directed that PEBTF file a responsive pleading to Appellee's complaint within twenty days. Accordingly, PEBTF filed an answer and, after Appellee filed his reply, PEBTF filed a Motion for Judgment on the Pleadings and/or Summary Judgment, raising the identical issues and arguments it had raised in its preliminary objections. In response, Appellee filed an answer to this motion and a cross-motion for summary judgment.

On September 10, 2002, the trial court issued a second opinion and order denying PEBTF's motion for summary judgment and granting Appellee's cross-motion for summary judgment.⁵ In addressing PEBTF's argument that Appellee failed to exhaust his internal remedies, the court observed that PEBTF was relying on provisions of the plan documents which grant healthcare recipients a right to appeal to the Board of Trustees where their eligibility or claim for benefits have been denied. However, the court found these provisions inapplicable because the decision to terminate Appellee's benefits in this case was not premised upon his eligibility or on the denial of a claim for benefits, but was based instead on his refusal to reimburse PEBTF.

The trial court then turned to PEBTF's claim that its subrogation rights accrued on the date of Appellee's injury rather than on the date of payment. In this regard, the trial court, adopting the analysis it had used in denying PEBTF's preliminary objections, noted that subrogation presupposes an actual payment by the party seeking to be subrogated. See Hagans v. Constitution State Serv. Co., 455 Pa.Super. 231, 687 A.2d 1145, 1149 (1997) ("subrogation presupposes an actual payment and satisfaction of a debt or claim by the entity asking to be subrogated"). Thus, according to the trial court, PEBTF's right to subrogate to recover the $35,815.90 did not accrue until PEBTF actually paid Appellee's medical benefits after January 1, 1998. Because this date was after PEBTF had relinquished its status as an ERISA qualified plan, the trial court concluded that PEBTF was subject to Section 1720 of the MVFRL and therefore not entitled to subrogate.

An en banc panel of the Superior Court affirmed in a published decision.⁶ Wimer v. Pa. Employees Benefit Trust Fund (PEBTF), 868 A.2d 8 (2005). In its opinion, the court agreed with the trial court that the provisions of the plan documents relied upon by PEBTF were inapplicable and did not support its argument that Appellee was required to appeal his claim internally before commencing this action. The court observed that these provisions, by granting healthcare recipients the "right" to appeal to the Board of Trustees, did not contain any mandatory language that would have affirmatively required Appellee to pursue such a remedy.

The Superior Court next considered whether PEBTF was entitled to subrogation for the payments it made after its change in status on January 1, 1998, and noted that subrogation is an equitable doctrine that presumes the party seeking subrogation has actually made a payment in satisfaction of a debt or obligation to the subrogor. See, e.g., Daley-Sand v. West Am. Ins. Co., 387 Pa.Super. 630, 564 A.2d 965, 969-70 (1989); Hagans, 687 A.2d at 1149. In light of this principle, the court agreed with the trial court that PEBTF's right to subrogation could not have accrued until after it had paid Appellee's medical bills, which, as relevant here, followed PEBTF's change in status to a governmental plan. The court also distinguished this Court's opinion in support of affirmance in Gokalp v. Pennsylvania Manufacturers' Ass'n Insurance Co., 553 Pa. 452, 719 A.2d 1033 (1998), and the Commonwealth Court in DePaul Concrete v. Workers' Compensation Appeal Board (White), 734 A.2d 481 (Pa.Cmwlth.1999), relied upon by PEBTF, which stated generally that a subrogation claim...