Health Insurer That Paid Another Insurer’s Claims Is Not Entitled To Reimbursement

Although an insurer that covered students’ sports injuries was obligated to pay for their medical expenses where its policy and a health insurer’s policies overlapped, it did not have to reimburse the health insurer for payments that had already been made on the students claims, according to the Sixth Circuit U.S. Court of Appeals in Central States, Southeast and Southwest Areas Health and Welfare Fund v. First Agency, Inc. (No. 13-2077). This was because the claim was brought under ERISA Sec. 502(a)(3)(B), which only provides for equitable, not monetary relief, the court held. The terms of the two insurers’ policies conflicted with regard to which company was responsible for making payments.

Central States, Southeast and Southwest Areas Health and Welfare Fund (Central States) is a health and welfare fund that provides health insurance for Teamsters and their families, and Guarantee Trust provides sports injury coverage for student athletes. When 13 high school and college athletes, all children of Teamsters, were injured playing sports, they submitted claims to both companies. Only Central States paid the bills.

Central States’ contract. A coordination of benefits provision in Central States’ contract stated that, when two insurance contracts overlap, whichever insurer covered the insured “other than as a Dependent” had the primary responsibility for paying claims. Central States covered the students as dependents, but Guarantee Trust covered them other than as dependents, so that each student had coverage in his or her own name. Therefore, under the terms of Central States’ contract, it was Guarantee Trust that had to pay the students’ claims.

Guarantee Trust’s contract. Guarantee Trust’s contract created what the court termed a “gastonette” or “you first” paradox, because its contract had a blanket coordination of benefits rule whereby another insurer always had the primary responsibility for paying claims whenever it overlapped with Guarantee Trust’s insurance. Guarantee Trust asserted that Central States had to pay the students’ medical claims up to its maximum before Guarantee Trust would pay anything.

Central States then sued Guarantee Trust (along with Guarantee Trust’s administrator, First Agency) under ERISA Sec. 502(a)(3)(B)’s civil enforcement provisions, and a district court ruled that Guarantee Trust was responsible for paying the students’ claims. The court ordered Guarantee Trust to reimburse Central States for the student athletes’ claims that it had paid out, and Central States also was awarded attorneys’ fees. Guarantee Trust then appealed.

The Sixth Circuit first pointed out that, where the coordination of benefits clauses of an ERISA plan and an insurance policy conflict, the terms of the ERISA plan hold sway (citing Auto Owners Ins. Co. v. Thorn Apple Valley, Inc., 31 F3d 371, 384 (CA-6) 1994). Therefore, because it was the Central States plan that was the ERISA plan, Guarantee Trust had the primary responsibility for paying the students’ claims.

Not excess insurance. Guarantee Trust had responded that it was only providing excess insurance, instead of ordinary insurance, and that, generally, ERISA plans may not coordinate benefits with excess policies. The court found, however, that the Guarantee Trust plan did not provide excess insurance, because, unlike a true excess insurance policy, Guarantee Trust’s policy lacked a fixed threshold above which its coverage would kick in and below which it would recede. Instead Guarantee Trust’s policy was ordinary coverage subject to a blanket coordination of benefits clause.

The court then said that, regardless of whether or not the Guarantee Trust policy was excess insurance, an ERISA plan can, indeed, coordinate benefits with another policy. It just cannot redefine the coverage of another policy. The court explained that, in the absence of Central States’ plan, Guarantee Trust’s plan would, without question, cover the students’ sports injury bills. Central States’ plan was simply insisting that the Guarantee Trust plan provide the same coverage whether the Central States plan existed or not. This was a permissible coordination of benefits, the court held.

No monetary recovery. Unfortunately for Central States, the court then held that, even though it was upholding the declaratory judgment against Guarantee Trust, Central States could not recover the $112,000 in claims that it had already paid out. ERISA Sec. 502(a)(3)(B) provides only for legal restitution, not monetary restitution, the court advised.

Central States had not ask for a constructive trust or lien on any identifiable fund, the court added, meaning that it had sought legal, monetary relief, as opposed to equitable relief. Central States had argued that it is rare for a plan fighting with an insurance company to ever find a specific fund that is held by the insurance company, but belongs to the plan. The application of the legal/equity distinction would leave plans without a remedy and thwart ERISA’s objective of enforcing plan terms, said Central States.

The court responded, however, that an appeal to ERISA’s purpose cannot “overcome the words of its text,” (citing Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 210 (2002)). The court then affirmed the declaratory judgment against Guarantee Trust, finding that it was responsible for paying the student athletes’ claims, but it reversed the award of damages to Central States.

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