Thompson Publishing             January 2011               Volume. 19, No. 1

As we have often pointed out, Michigan law provides that no-fault auto insurance is secondary to health plans. However, a long line of cases involving that statute establishes that ERISA preempts the Michigan law’s application to self-insured ERISA health plans. A recent opinion by a U.S. District Court in Michigan confirms preemption despite some interesting arguments made by the no-fault insurer.

The court’s decision dismissed the auto insurer’s claim at the pleading stage of litigation. Typically, courts don’t dismiss lawsuits on the pleadings very often. They usually wait until the discovery phase of a case is completed, at which point, the court has access to all applicable facts and can rule on motions for summary judgment based on the law’s relation to those facts. In a recent action (Auto-Owners Ins. Co. v. Edward D. Jones & Co. Emp. Health and Welfare Program, 2010 WL 3810214 (W.D. Mich., Sept. 23, 2010)), a federal district court dismissed a case on the pleadings, saying that it was not necessary to wait for a complete record because even if the record had been complete, it would have granted summary judgment.

The Facts

When Andrew Cove was injured in an automobile accident on July 28, 2003, he was covered by both the self-insured ERISA plan sponsored by his employer, Edward D. Jones & Co. (hereafter the plan) and by his own no-fault auto insurance policy, written by Auto- Owners Insurance Co. (hereafter Auto-Owners). Initially, the plan began paying for Cove’s health care, but after about a month, it stopped paying benefits, insisting that it was secondary to the Auto-Owners coverage. It sought reimbursement from Auto-Owners for about $10,500 (the amount it had paid up to that point). Auto-Owners reimbursed the plan about $9,500 of that amount (which apparently was sufficient for the plan).

Subsequently, Auto-Owners paid about $195,300 for Cove’s health benefits up to the time that his auto insurance coverage ended in 2005. Nothing else happened until Oct. 13, 2009, when Auto-Owners began this lawsuit against the plan seeking reimbursement for the benefits it paid. The plan moved to dismiss the complaint.

The Decision

The court first considered whether Michigan’s sixyear statute of limitations barred the Auto-Owner’s lawsuit. However, in this case, ERISA preempted the Michigan law. The plan’s provisions contained both a two-year limit for Cove to make a claim under the plan and a three-year limit from the date of its denial for Cove to bring a lawsuit challenging its denial. The court found that the plan’s limitation periods would apply, and thus a claim for benefits would be barred under either the two-year or three-year period. Thus, it dismissed Auto-Owners’ complaint for failure to state a claim upon which relief could be granted.

The court went on to determine that even if the sixyear statute of limitations for contract issues were applicable, the Auto-Owners claim would still be barred because it would have had six years from the date the plan decided to reject Cove’s claim if it was secondary to the coverage provided by Auto-Owners.

The court noted that this was not a case involving coordination of benefits (COB) because the plan’s COB provisions apply only to other group plans — not to auto insurance. Instead, the plan relied on its subrogation provisions. While the court admitted that the plan’s subrogation provision had “shortcomings,” it held that the language was sufficient “to evince its intent to subordinate its coverage” in virtually all circumstances that Cove could receive payments from an alternate source, even if that source was not the party at fault. The court went on to conclude that:

Here, Mr. Cove had two potential sources of coverage for the medical expenses from his July 28, 2003 automobile accident: Auto-Owners or the Plan. The Plan clearly intended that, in such circumstances, Mr. Cove would seek coverage from his insurance company, Auto-Owners, and that the Plan would pay only as secondary. Thus, in accordance with Congressional intent to shield ERISA plans against unanticipated claims, this court concludes that Auto-Owners remains primary in this case. If the matter had not been time-barred, the Court would have nonetheless granted [the Plan] summary judgment.

Implications

This decision falls within the mainstream of cases dealing with the conflict regarding auto insurers subject to the Michigan no-fault law and self-insured ERISA plans. The court’s opinion focuses primarily on the law relating to the various periods of limitation that could possibly apply. There is no explanation for Auto- Owners’ delay in asserting its arguments.

This is not the first time that a case involved an insurer that was slow in asserting its rights. The opinion also discussed whether the plan was entitled to summary judgment rather than a dismissal of the complaint for failure to state a cause of action. It should be noted that, although it was not part of the court’s ruling, the court’s ultimate conclusion, quoted above, indicates that had the lawsuit been filed on a timely basis, the court would have nevertheless granted summary judgment based on the information available to it through the pleadings.

The court’s comment regarding the difference between COB and reimbursement is well taken. In both instances, the resolution of the dispute between two insurers is determined by a finding on which of them pays first. That’s why it is best to think of such problems not as COB but rather as issues of duplicate coverage. When two group health plans cover the same expenses, the order of benefits is determined through COB rules.

Other situations exist in which a person has duplicate coverage. These include coverage under group health plans and workers’ compensation; group health plans and Medicare; group health plans and other federal medical programs (such as Medicaid, VA and the Indian Health Service); and, as is involved in this case, group health plans and third-party liability.

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This entry was posted by cmonfils on Tuesday, March 1st, 2011 at 11:02 am and is filed under ERISA, Michigan. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.