COURT OF
APPEALS DECISION DATED AND
RELEASED April
18, 1996 |
NOTICE |
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adverse decision by the Court of Appeals.
See § 808.10 and Rule
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This opinion is subject to further editing. If published, the official version will appear in the bound
volume of the Official Reports. |
No. 95-0246
STATE OF WISCONSIN IN
COURT OF APPEALS
DISTRICT IV
KEVIN
MARTIN
AND
SHEILA MARTIN,
PEKIN
INSURANCE COMPANIES,
Plaintiffs-Respondents,
v.
NORTH
AMERICAN INSURANCE COMPANY
AND
STEENBERG HOMES, INC.,
Plaintiffs-Intervenors-Appellants,
INTEGRITY
MUTUAL INSURANCE COMPANY,
Defendant,
MEDDAUGH
RANCH, INC.,
Defendant-Respondent.
APPEAL
from a judgment of the circuit court for Clark County: MICHAEL W. BRENNAN, Judge. Affirmed.
Before
Eich, C.J., Gartzke, P.J., and Dykman, J.
GARTZKE,
P.J. Steenberg Homes, Inc. and its reinsurer, North American
Insurance Company, appeal from a summary judgment dismissing their subrogation
claims against Kevin and Sheila Martin and Meddaugh Ranch, Inc. We affirm.
The
relevant facts are undisputed. Kevin,
Steenberg's employee, was injured in an automobile accident involving a
Meddaugh employee. Pursuant to its
Group Health Plan covering its employees, Steenberg paid $75,327.98 to or for
Kevin, to cover his medical expenses.
Kevin
and Sheila, his wife, brought an action against Meddaugh for damages arising
out of the accident. Meddaugh's
liability insurer successfully interposed a coverage defense. Before the matter was tried, the Martins
entered a settlement agreement with Meddaugh, the terms of which are not
pertinent to our decision except that Meddaugh will pay a total of $12,000 and
convey forty acres of cropland as consideration for the Martins' releases. Kevin's damages far exceed his share of the
settlement. Steenberg and its reinsurer
were permitted to intervene in the action against Meddaugh because they claim
that Steenberg's subrogation rights under its Group Health Plan entitle them to
the settlement proceeds. The trial
court held otherwise, and Steenberg and North American appeal.
Steenberg
relies on the following subrogation provisions in its Group Health Plan
Document:
A third party may have to pay benefits to you
or your covered Dependents. If
the Covered Person has received benefits under this Plan for an Illness
or injury caused by the third party, then the Company may at its sole
option:
- take
over the Covered Person's right to receive payment for benefits from the
third party. In this case, the Covered
Person will also transfer to the Company any rights he may have to
take legal action against the third party;
- recover from the Covered Person any
payment for the benefits the Covered Person receives from the third
party; ....
Steenberg's
plan is self-insured and governed by the Employee Retirement Income and
Security Act (ERISA), 29 U.S.C. §§ 1001, et seq. ERISA preempts state law related to unfunded
employee benefits plans. FMC
Corp. v. Holliday, 498 U.S. 52, 61 (1990). Federal courts are authorized to create common law for use in
ERISA cases. Pilot Life Ins. Co.
v. Dedeaux, 481 U.S. 41, 56 (1987).
We
had a comparable subrogation issue in Schultz v. Nepco Employees Mut.
Benefit, 190 Wis.2d 742, 528 N.W.2d 441 (Ct. App. 1994). In Schultz, we relied on Sanders
v. Scheidler, 816 F. Supp. 1338 (W.D. Wis. 1993), aff'd by
unpublished order, 25 F.3d 1053 (7th Cir. 1994), as having established
"federal common law make-whole doctrine" to resolve a subrogation
dispute between the administrator of an employee benefit plan subject to ERISA
and the beneficiaries of the plan. In Sanders,
the employee and his family were injured in an automobile accident, and the
adverse driver's liability insurer was willing to pay its policy limits,
$50,000. The plan had paid over
$156,000 in medical benefits to the employee and his family. Both the plan administrator and the employee
claimed the right to the entire $50,000.
The plan contained a subrogation clause that did not address which of
the conflicting claims had priority.
As
we said in Schultz, 190 Wis.2d at 751, 528 N.W.2d at 445:
[B]ecause the plan's subrogation clause did not address
the priority of [the plan's] rights with respect to "competing claim[s]
... to the undesignated proceeds of a limited insurance settlement," the Sanders
court faced the problem of attempting to ascertain such a priority.... After discussing several alternatives, the
court looked to the common-law rule in Wisconsin—the "make-whole
doctrine" of Rimes v. State Farm Mut. Auto. Ins. Co., 106
Wis.2d 263, 271-72, 316 N.W.2d 348, 353 (1982), that states that an insurer
cannot assert a subrogation right until the insured is fully compensated for
his or her injuries—and adopted the rule as "federal common law,"
which would apply in cases where a plan fails to designate priority rules or
provide its fiduciaries the discretion necessary to construe the plan
accordingly. Sanders, 816
F. Supp. at 1346-47. (Footnote
omitted.)
On
appeal, Steenberg asserts that its Group Benefit Plan unequivocally gives the
plan administrator discretion and "final decision" over issues
involving claims and benefits. We disagree. Nothing in the plan gives the administrator
the discretion necessary to establish priority rules. The plan prescribes the procedure for presenting benefit claims. The claimant who disagrees with the reasons
for a denial may obtain review by giving notice to the administrator, and
"notice of the final decision will be given sixty days after receipt of a
request for review." "Final
decision" in this context means nothing more than a decision terminating
the dispute.
Steenberg
cites Cutting v. Jerome Foods, Inc., 993 F.2d 1293 (7th Cir.
1993), as having refused to apply a federal version of the make-whole doctrine
because of an unequivocal subrogation provision. The Cutting court said, "[B]ecause, as the
Cuttings concede, the make-whole rule is just a principle of interpretation, it
can be overridden by clear language in the plan." 993 F.2d at 1298-99. The court said, "[W]e cannot say that
the company was unreasonable in interpreting this plan as disclaiming
the make-whole principle...." Id.
at 1299. The language of the
subrogation provision in Cutting and the language of Steenberg's
own subrogation provision are identical, and Steenberg concludes that its
administrator was no less reasonable in its interpretation of its plan than was
the interpretation of the administrator in Cutting.
Steenberg
misreads Cutting v. Jerome Foods. The plan before the Cutting court provided that
"all decisions concerning the interpretation or application of this Plan
shall be vested in the sole discretion of the plan administrator." 993 F.2d at 1295. The court therefore applied a deferential standard of review to
the administrator's decision.
If the plan itself vests discretion in the
administrator—if as here it gave the administrator a long leash—the courts pull
back and defer broadly although not totally to the administration's
determination, upending it only if persuaded that the administrator acted
unreasonably.
Id. at 1296. Having sustained the
administrator's claim to the priority of the plan subrogation on that ground,
the Cutting court found it unnecessary to "decide ...
whether the merits of the [make-whole] rule are sufficient on balance to
warrant its use as a principle of interpretations of ERISA plans." Id. at 1298.
Unlike
the plan before the Cutting court, Steenberg's plan does not
provide that decisions concerning its interpretation or application are
"vested in the sole discretion of the plan administrator." For that reason, we do not apply the reasonableness
standard of review to the administrator's claim that its subrogation claim has
priority over Kevin Martin's claim against Meddaugh.[1] And because the Steenberg plan does not
designate priority rules or provide its administrator with discretion necessary
to construe the plan to grant the administrator priority, the "federal
common law make-whole doctrine" recognized by the Sanders
court means that Kevin's claim to the settlement proceeds prevails over
Steenberg's subrogation claim.
Nor
do we believe that the Cutting decision overrules Sanders's
recognition of a "federal common law make-whole doctrine." The Cutting opinion (which was
released just two months after Sanders) leaves Sanders
untouched and, indeed, does not cite Sanders. And as we noted, the Seventh Circuit
affirmed Sanders by an unpublished order, 25 F.3d 1053 (7th Cir.
1994).
Having
concluded that the trial court properly dismissed Steenberg's subrogation
claim, we do not reach the other issues Steenberg raises in this appeal.
By
the Court.—Judgment affirmed.
Not
recommended for publication in the official reports.
[1] When an ERISA plan vests discretion as to its
interpretation with an administrator, and the administrator interprets the plan
to enforce a subrogation even if the covered person has not been made whole, we
have deferred to that interpretation if it is reasonable. Newport News Shipbuilding Co. v.
T.H.E. Ins. Co., 187 Wis.2d 365, 371-72, 523 N.W.2d 270, 272-73 (Ct.
App. 1994).