The Boeing Company v. Thurmon, No. 4:09-cv-1456, in the United States District Court for the Eastern District of Missouri, December 7, 2009. This is a subrogation case, significant for its fresh and express reiteration of the bedrock proposition that purchase of stop loss insurance by the sponsor of a self-insured employee benefit plan does not affect pre-emption analysis. In other words, a self-insured plan is still a self-insured plan, despite the existence of excess loss coverage.

Boeing’s HMO Plan contained the following provision:

[R]egardless of whether or not you have been fully compensated, we may collect from the proceeds of any full or partial recovery that you or you legal representative obtain, whether in the form of a settlement (either before or after determination of liability) or judgment, the reasonable value of services provided under the Plan.

According to the Court’s description of the allegations of Boeing’s Complaint, Boeing paid out $65,000 in plan benefits for medical care received by participant Linda Thurmon after she was injured in an automobile accident. Allegedly, Ms. Thurmon hired The Floyd Law Firm, which filed suit against a third party on her behalf. The case allegedly settled, the law firm took its fee from the proceeds, and disbursed the balance to Thurmon, who allegedly spent it (imagine that). Relying on the Plan’s subrogation provision, Boeing sued Ms. Thurmon and (yikes!) the law firm, seeking reimbursement of the monies its Plan paid out on Ms. Thurmon’s behalf. Thurmon and the law firm moved to dismiss the Complaint on the theory that it did not assert a legally sufficient claim.

Those interested in ERISA subrogation law will be engaged by the Court’s analysis of and conclusions regarding whether the Boeing Plan created an equitable lien, and whether it identified a particular “fund” from which it should be reimbursed, sufficient under the U.S. Supreme Court’s decision in Sereboff. The Court concluded that the subrogation provision did so, and denied the motion to dismiss.

One of the arguments raised by the defendants related to a claim concerning the existence of stop loss coverage. In its reply brief, the defendants asserted that Boeing’s Plan was in fact “heavily insured,” and that there was evidence from the Form 5500 filed by the Plan to suggest that the TPA, United Healthcare, was paid $5.5 million during 2007 in “commissions and fees.” Defendant’s Reply Brief at p. 3. Defendants stated that “Part of this payment extends to work by United Healthcare as claims administrator, but Defendants believe that a substantial portion of this payment extends also to health insurance coverage, either directly or in the nature of reinsurance or stop loss coverage.” Id. Beyond this, the Defendants claimed that the “notion of a ‘self-funded’ plan garnering extensive preemption and avoidance of state law…is not consistent with the more current trend, which is to apply state law where appropriate.” Id. at p. 4.

The Court rejected the latter claim head-on, relying on the familiar twin pillars of precedent reflected in the 4th Circuit’s decision in American Medical Security v. Bartlett, 111 F.3d 358 (4th Cir. 1997), cert. denied 524 U.S. 936 (1998) and the 3rd Circuit’s decision in Bill Gray Enterprises, Inc. Employee Health & Welfare Plan v. Gourley, 248 F.3d 206 (3rd Cir. 2001):

The purchase of stop-loss insurance does not change a plan’s status; it does “not convert a self-funded or self-insured employee benefit plan into a fully insured plan for preemption purposes.” Bartlett, 915 F. Supp. at 742; see also Bill Gray Enters., Inc. Employee Health and Welfare Plan v. Gourley, 248 F.3d 206, 214 (3rd Cir. 2001) (“[W]hen an ERISA plan purchases stop-loss insurance but does not otherwise delegate its financial responsibilities to another third party insurer, it remains an uninsured self-funded welfare plan for ERISA preemption purposes.”).

Opinion at p. 9. In its concluding paragraph, the Court noted that Defendants would have the opportunity through discovery in the case to determine whether Boeing’s allegation that its Plan was self-funded was accurate or not. But it is at least clear from this opinion that the existence of stop loss coverage, if proven, will not alter the self-funded character of the Plan for pre-emption purposes.

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This entry was posted by Adam V. Russo on Friday, January 29th, 2010 at 6:13 pm and is filed under Missouri, Preemption, Stop Loss. 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.