State Supreme Courts Rule on COB Between Insured-Group and No-Fault Auto Coverage
The highest appellate courts of Maryland and Montana handed down decisions relating to the method by which insured group health plans and the personal insurance protection (PIP) benefits are to be coordinated. In both cases, a group plan refused to cover medical expenses for which PIP reimbursement is provided through auto liability policies. The courts came up with different results.
In the Maryland case, the insured had the right under Maryland law to elect that the PIP coverage would be secondary to his group health coverage. However, the Maryland Court of Appeals (equivalent to most other states’ Supreme Court) held that the section of insurance law giving people that right overrode the group plan’s right to exclude liability for medical expenses covered by an auto insurer’s PIP coverage. The case is MAMSI Life & Health Insurance Co., et al. v. Wu, 2009 WL 3353675 (Ct. of App., Md., Oct. 20, 2009).
The Montana case involved a lawsuit by an insurer against the state insurance commissioner, who disapproved a similar exclusion in the insurance form to be used for group medical policies. That exclusion had previously been approved by the commissioner, but was rejected when the insurer renewed its group policy forms. That case if Blue Cross and Blue Shield of Montana, Inc. v. Montana State Auditor and Commissioner of Insurance, 329 P.3d 475 (Sup. Ct., Sept. 24, 2009).
The Maryland court upheld the right of the insurer to use exclusion. The Montana court upheld the commissioner’s rejection of such provisions.
Facts of the Maryland (MAMSI) Case
Kwei-I Wu was injured in an auto accident. MAMSI provided her health coverage as a full-time student at the University of Maryland and she had a GEICO auto insurance policy. The MAMSI plan was not subject to ERISA. Her MAMSI policy contained what the court described as “a Coordination of Benefits provision that explicitly excluded any no-fault automobile insurance payments, such as PIP, from being considered in the application of the Coordination of Benefits procedures.” The MAMSI Provider Manual for its health plans directed that “when a patient has been involved in an automobile accident, {physicians and practitioners} must collect PIP benefits from the patient’s automobile insurer first, before submitting any claims to MAMSI for payment.”
Wu brought an action in the Baltimore County Circuit Court challenging MAMSI’s procedures as being in violation of a provision of Maryland law stating that PIP benefits “shall be payable without regard to… any collateral source of medical, hospital or wage continuation benefits.” In due course, the matter was certified as a class action lawsuit involving several other similarly situated individuals. The case was removed to the U.S. District Court, which determined that legal question to be “an issue of first impression in Maryland law.” Therefore, it certified the following question to the Maryland Court of Appeals:
Does Maryland Code, Insurance Article §19-507 prohibit or restrict a Maryland health insurer or a Maryland health maintenance organization from providing its group or individual contracts of insurance or membership contracts that its contractual health benefits may be secondary to Personal Injury Protection (“PIP”) benefits under an automobile liability insurer is legally obligated to provide benefits for healthcare expenses?
The relevant portion of §19-507 provides:
(a) When benefits payable – The benefits described in §19-507 of this subtitle shall be payable without regard to:
(1) the fault or nonfault of the named insured or the recipient of benefits in causing or contributing to the motor vehicle accident; and
(2) any collateral source of medical, hospital, or wage continuation benefits.
(b) Coordination of policies. –
(1) Subject to paragraph (2) of this subsection, if the insured has both coverage for the benefits described in §19-507 of this subtitle and a collateral source of medical, hospital or wage continuation benefits, the insurer pr insurers may coordinate the policies to provide for nonduplication of benefits subject to appropriate reductions in premiums for one or both of the policies approved by the Commissioner.
(2) The named insured may:
(i)elect to coordinate the policies by indicating in writing which is to be the primary policy; or
(ii)reject the coordination of policies and nonduplication of benefits
The Decision in the Maryland Case
The Court of Appeals noted that it previously ruled that law providing for PIP coverage clearly intended that insurers “must pay PIP benefits regardless of any collateral source of benefits; that is, regardless of whether a health insurance provided, HMO, or other collateral source provides the benefits.” However, it went on to note provisions of other sections of the Maryland law relating to HMOs and health insurers. Regarding HMOs, the court noted that the applicable statute did not place similar additional restrictions on HMO contracts. That section provides:
In accordance with regulations that the commissioner adopts, the Commissioner shall allow health insurance policies and policies of nonprofit health service plans to contain nonduplication provisions or provisions to coordinate health benefits with:
(1) other health insurance policies, including commercial individual, group, and blanket policies of nonprofit health services plans;
(2) subscriber contracts that are issued by health maintenance organization; and
(3) other established programs under which the insured may take a claim. Insurance Article §15-105(b) [Emphasis added.]
That led the court to conclude that the Maryland legislature did not intend to impose additional restrictions regarding the coordination provisions in HMO policies; furthermore, it was not logical for the court to conclude that Maryland legislature intended for motor vehicles provisions §19-507(b) “to restrict or prevent the exclusions of such provisions within health insurance policies.” Accordingly, it ruled “that §19-507 of the Insurance Article does not restrict or prohibit HMOs or health insurers from providing by contract that their health benefits are secondary to PIP benefits [nor does it] render superfluous those provisions of §19-507(b) that permit an insured to elect to coordinate policies or reject the coordination of policies.”
In other words, the court ruled that exclusion appearing in the MAMSI policy was not overridden by §19-507(b) related to PIP coverage.
The Dissent in the Maryland Case
The Chief Justice dissented from the court’s opinion. In his view, the legislative history of §19-507 demonstrated that the provision was intended to enable drivers to obtain auto coverage at a lower premium by allowing them to choose secondary PIP coverage if they had other health coverage. He noted that the law’s provisions relating to HMOs and health insurance policies did not clearly reference automobile policies, while the “clear and unambiguous terms” of §19-507(b) made it clear that the legislative intent was to permit the named insured of the auto policy to decide whether it, the health policy or HMO would be primary.
After an extensive discussion of the court’s previous rulings interpreting statutory language, he went on to conclude:
[I]t is illogical to suppose that, in one statute, the [Legislature] would give to insureds a right to elect or reject an insurance option and, by not expressly mentioning that right in another statute, addressing the very benefits affected in the prior statute, intend to negate that right, even when the insured under both policies is the same. That does not make sense. Just how absurd that interpretation is can be further demonstrated by recalling that one insurance company may supply both automobile and health insurance. In that event, under the majority’s analysis, that insurance company could issue an automobile policy, under which the insured could reject coordination and then, or at the same time, negate the insured’s exercise of the option by issuing the same insured a health policy that does not give the insured that option. It is well settled that we do not, or are not supposed to, interpret statutes to reach such nonsensical or unreasonable results.
The Facts in the Montana Case
In 2001, Blue Cross and Blue Shield of Montana (BCBS) submitted forms for use in its group medical policies for approval by the insurance commissioner. those forms contained coverage exclusions under which BCBS would not pay for health case costs of its injured beneficiaries who received or were entitled to receive benefits from any automobile or premises liability policies. The commissioner initially disapproved those forms. But in March 2002, after BCBS requested an administrative hearing and apparently engaged in discussions with the commissioner, the commissioner and BCBS reached an agreement allowing it to use that exclusion in it policy forms. That agreement was contained in correspondence between the attorneys for the parties, but there was no formal written settlement agreement, and the administrative proceeding was not dismissed.
That exclusion was included in BCBS forms used through 2006, but when BCBS submitted new forms using the same exclusion, the commissioner disapproved them in May 2007 on the grounds that the exclusion language conflicted with statutory provisions, and “deceptively affect[ed] the risk purported to be assumed in the general coverage of the contract of the [BCBS policy contracts].” After a hearing on the matter, the hearing examiner issued an order upholding the decision to disapprove the forms. The disapproved provisions stated that BCBS would not pay health benefits for:
Services, supplies, and medications provided to treat any injury to the extent the member receives or would be entitled to receive where liability is reasonably clear, benefits under an automobile insurance policy [… or form a premises liability policy, including homeowners or business liability policies.]. Such benefits received by the member shall be used first to satisfy any remaining coinsurance, copayments and deductibles related to the injury for which claims are submitted to the plan. The injury related claims must be submitted to the plan to apply any applicable credit to coinsurance, copayments and/or deductibles.
In March 2008, the Montana state auditor and the insurance commissioner issued an order adopting the proposed decision. BCBS sought judicial review in a state district court, which issued a memorandum and order upholding the disapproval of the BCBS forms in December 2008. BCBS appealed to the Supreme Court of Montana.
The Decision in the Montana Case
BCBS argued that having approved the disputed language in 2002, the commissioner could not now disapprove it. The Montana Supreme Court rejected those arguments, as follows:
The Commissioner had broad statutory power over the content of insurance documents. and the statutes require that this power be exercised to protect the insured public and to further the goals on Montana’s laws on insurance… The position of BCBS here, and particularly in it argument that the Commissioner waived any right to object to the exclusion by agreeing to them in 2002, would immortalize any provision of an insuring document approved in a similar manner. This would be true however onerous or deceptive the provision proved to be. The provision would survive even if there were statutory changes that caused it to conflict with expressed in the insurance codes…and with the Commissioner’s powers over insurers for the protection of the public. Application and enforcement of these statutes, enacted for the public benefit, cannot be waived.
The court then went on to determine whether the commissioner’s decision was subject to disapproval because it violated the Montana’s laws on subrogation, which provide:
A hospital or medical service plan contract issued by a health service corporation may contain a provision providing that, to the extent necessary for reimbursement of benefits paid to or on behalf of the insured, the health service corporation is entitled to subrogation, as provided in 33-30-1102, against a judgment or recovery received by the insured from a third party found liable for a wrongful act or omission that caused the injury necessitating benefit payment.
Section 33-30-1102 provides that a health service corporation’s right of subrogation “may not be enforced until the injured insured has been fully compensated for his injuries.”
The court concluded that under §§33-30-1101 and –1102, BCBS would be entitled to subrogation only after it had paid its benefits to its insured, and then only if the insured had been made whole. Accordingly, it ruled that “the Commissioner was within his statutory power and duty to disapprove the BCBS exclusions” because they violated Montana and statutory case law on subrogation.
The Dissent in the Montana Case
The dissenting Justice concurred with the court’s determination that the commissioner had the authority to withdraw a prior approval of the BCBS policy forms, but dissented from the resolution of the second issue “because it fails to recognize the distinction between subrogation and insurance exclusions.”
He pointed out that the provisions (quoted above) that BCBS wanted to put into its policies appeared under the heading of “exclusions and limitations” and that neither of them referred to subrogation. He also pointed out that those provisions do not include either the work or concept of subrogation, which he described as “a substitutionary legal action, whereby one party acquires the legal rights of another in exchange for assuming that person’s risk.” In the insurance context, it occurs “so that the [insurer] will succeed to the rights of the [insured] in relation to the debt or claim.”
He distinguished that from exclusions, which he explained are “insurance-policy provision[s] that except certain events or conditions from coverage,” which, he said the court previously held “will be narrowly and strictly construed because they are contrary to the fundamental protective purpose of an insurance policy.”
Next, he pointed out that under Montana law, insurance contracts may include exclusions “without violating public policy if the exclusion applies to optional, rather than mandatory, coverages.” While automobile liability coverage for bodily injury and property damage is mandatory in Montana, medical payments (or PIP) coverage is optional. And health coverage is also optional under Montana law. This led him to conclude that “the inclusion of medical payments coverage in an insurance contract is at the sole discretion of the parties to the contract,” and thus BCBS has properly “exercised it discretion and right to contract in the way it drafted the requested policy provisions.”
This analysis led him to conclude that the commissioner’s arguments for disapproving the BCBS provision presumed that BCBS was in fact engaging in subrogation, when all it was doing was establishing and exclusion of liability to the extent it insured also had PIP coverage for the same loss.
Implications
While both courts considered what amounts to the same issue – whether a group health policy’s exclusion of expenses paid or payable under PIP coverage was valid – they came to opposite conclusions. In each instance, the majority concluded that the language of the applicable statutes led to the result they reached, and in each case, a dissenting justice concluded the opposite.
None of the majority and dissenting opinions are without problems. It appears that the majority opinion of the Maryland court looked at different provisions of state insurance law that, in the context of the case before it, led to contradictory results. So the majority simply concluded that the provision’s health plan language allowing such plans to include coordination provisions that extend to PIP coverages. The dissent, on the other hand, relied mainly on legislative history to conclude that the provision allowing a person who elected PIP coverage to choose which plan would be primary should prevail. While each opinion explained why it reached its conclusions, neither provided a satisfactory analysis of why the other opinion was wrong.
Similarly, the majority opinion of the Montana court took the position that the health insurer’s exclusion was really nothing more than a clever way of avoiding the fact that it would not have a subrogation remedy to recover its payments unless it could establish that the insured individual was made whole through other reimbursement for his injuries. The exclusions proposed by BCBS were typical of provisions used in group policies issued in most other states. The dissent’s argument correctly notes that the BCBS provision is an exclusion and does not deal with subrogation. But it ignores the fact that using the exclusion would allow BCBS to avoid the limitations of the subrogation remedy that the statute clearly makes available, subject to the made-whole rule, which usually applies to defeat reimbursement. Both opinions fail to address that subrogation is a remedy arising from a tort recovery, while an exclusion in a policy is a contract provision. Neither opinion appears to satisfactory explain how they should interrelate.
The real problem with both cases is that in each state, the applicable statutes were adopted by the legislatures at different times to deal with specific problems without recognizing that those solutions could create new problems that would (and in each case did) arise. This is not unusual. When that happens, courts have to resolve those conflicts, and are given little guidance by the legislatures to do so.
The job of the courts is to resolve the problems created by such legislative activity. But the job of the legislatures is to determine what public policy should be and pass laws that advance such policy. When they fail to do so it’s usually because they are focused on specific problems and don’t realize that other laws advancing other public policies might conflict with what they end up doing. The different decisions in these two cases show that there is no one correct approach to resolving the problems created by legislation that in some way contradicts the provisions of other laws.
In a perfect world, legislatures would be aware of existing laws when they consider new ones and recognize the need for practical and administratively simple approaches consistent with a unified view of what is in the public’s interest. In these cases, it would be best to recognize that one form of insurance can’t cover every possible loss, and that different resources should be applied to different losses. But we don’t live in a perfect world. the different outcomes of the two courts, reached by analyses that seem to be less than fully persuasive, are not unusual.
In today’s complex world, medical expenses can be reimbursed through group health insurance, non-group health insurance, other health coverage provided under auto or other casualty insurance, workers’ compensation and government programs (such as Medicare, Medicaid and other federal and state programs). They can also be reimbursed through our tort system when wrongdoers are held financially responsible for medial costs resulting from their negligent or intentional wrongful acts. It probably would take a perfect legislative body in a perfect world to determine the right way for all those entities to assume their proper share of reimbursement of medical expenses. Or in the alternative, to decide that one of them should handle it and give them the proper resources to do so. Unfortunately, that’s not likely to happen any time soon, and perhaps not even anytime later.
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