State, Not ERISA, Controls Assignment of Benefits to Minor
Just when it appears that a well-drafted subrogation and reimbursement provision of an ERISA group health plan takes precedent over state-law restrictions on the plan’s recovery, we find that the Supreme Court of Mississippi has ruled that ERISA does not preempt a state law that requires approval of a Mississippi court regarding the allocation of a minor’s settlement proceeds from a tort claim. The case is In re Guardianship of Danielle Holmes, 2007 WL 2792491 (Sup. Ct., Miss., Sept. 27, 2007).
Rashan Danielle Holmes, a minor, was injured in an auto accident. She was covered under her mother’s employer’s self-insured ERISA plan, which included a well drafted subrogation and reimbursement provision. The plan made an advance payment of about $46,000 toward her medical expenses. Her claim against a third party was settled for $750,000, the plan asserted a subrogation lien against the proceeds and the amount advanced pending settlement of its claim for reimbursement.
As soon as the settlement was reached, the plan brought an action in a Mississippi state court to settle what the court described as a doubtful claim of a minor under Mississippi law. An amount sufficient to cover the plan’s claim (about $78,000) was set aside and deposited with the court pending outcome of the litigation regarding the plan’s entitlement to reimbursement. The plan, seeking reimbursement of the amount it advanced, moved for summary judgment. The trial court ruled against the plan, holding that the administration of a minor’s estate is entirely a matter of state law and is not preempted by ERISA. The plan appealed that ruling to the Mississippi Supreme Court.
Citing several prior decisions of the Mississippi Supreme Court and federal courts (including several by the U.S. Supreme Court), the court concluded that it was well established that ERISA did not preempt a state law courts, since “the administration of a minor’s estate is entirely a matter of state law, and is law of general application which affects a broad range of matters entirely unrelated to ERISA plans.”
The court went on to say that, “There is no direct clash between state law and the provisions of ERISA in the instant case. Moreover, compliance with both federal and state regulation is not a physical impossibility. Mississippi law does not absolutely prohibit assignment, bur requires prior chancery approval.” It concluded:
Family law is an area traditionally regulated by the states. There is a presumption against preemption. Although ERISA does state its intent to pre-empt state law by positive enactment, there is no clear intention of Congress to pre-empt cases dealing with minors’ rights. Moreover, there is no damage to any clear and substantial federal interest. Accordingly, for these reasons stated above, the judgment of the Lee County Chancery Court is hereby affirmed.
In this case, it appears the child was made whole. It is unclear why the plan did not seek to remove the case to federal court, as it well could have. This ruling is quite different from several recent federal court decisions that allow ERISA plans to prevail against funds set aside in special needs trusts even when they virtually wiped out the funds in those trusts.
It appears that the chancery court did not rule on the merits of the plan’s claim. Rather it, appears that before any ruling on whether the plan could recover the benefits it paid, the plan appealed the court’s determination that it had jurisdiction to rule against the plan’s right to reimbursement based on Mississippi law. The decision of the Mississippi Supreme Court seems to be consistent with established precedent in litigation regarding the extent of ERISA preemption.