Opinion
File No. 1:01-CV-56
November 15, 2001
OPINION
This insurance coverage dispute comes before the Court on the parties' cross-motions for summary judgment.
I.
Plaintiff United Healthcare is the administrator of the IBM Health Plan, a self-funded health benefit plan sponsored by the IBM Corporation and governed by the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq.
Defendant Allstate Insurance Company is an insurance corporation licensed to and doing business in the State of Michigan.
On January 28, 1999, George Stallworth was injured in an automobile accident. At the time of the accident, Mr. Stallworth's license to operate a motor vehicle in Michigan was revoked because of previous convictions involving alcohol related driving offenses. Mr. Stallworth's wife, Fannie Carolyn Stallworth, was a member of the IBM Health Plan (the "Plan"). She also had a no-fault insurance policy through Allstate. Accordingly, at the time of the accident Mr. Stallworth was eligible for benefits under the Plan by virtue of being a dependant of a Plan member, and he was also eligible for personal injury protection benefits by virtue of being a "resident relative" of Mrs. Stallworth, the named insured under the Allstate no-fault insurance policy.
The Plan has paid $38,780.80 in medical benefits on behalf of Mr. Stallworth. Allstate also paid some personal injury protection benefits on behalf of Mr. Stallworth relating to injuries he suffered in the January 28, 1999, automobile accident.
Allstate has submitted the affidavit of Ken Price, Product Manager in charge of underwriting policy. Mr. Price states in his affidavit that Mrs. Stallworth never disclosed or advised Allstate that she was married to and living with Mr. Stallworth. At the time of the accident on January 27, 1999, Mr. Stallworth's license to operate a motor vehicle in Michigan was revoked because of previous convictions involving alcohol related driving offenses. According to Mr. Price, Mrs. Stallworth was obligated in the application and renewal processes, and by operation of the contract for no-fault insurance, to disclose the fact that she was married to and living with George J. Stallworth, and she would not have been issued no-fault insurance had she disclosed this fact. Mr. Price states that in response to its discovery of the misrepresentation, Allstate cancelled the no-fault policy on June 5, 2000. Allstate has refused the Plan's request for reimbursement of the medical benefits the Plan paid on behalf of Mr. Stallworth.
II.
Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is proper if there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. In evaluating a motion for summary judgment the Court must look beyond the pleadings and assess the proof to determine whether there is a genuine need for trial. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). If the movant carries its burden of showing there is an absence of evidence to support a claim then the non-moving party must demonstrate by affidavits, depositions. answers to interrogatories, and admissions on file, that there is a genuine issue of material fact for trial. Celotex Corp. v. Catrett, 477 U.S. 317, 324-25 (1986).
III.
Plaintiff United Healthcare filed this action seeking a declaration that the Plan is entitled to recoup from Allstate all amounts which the Plan has paid for medical benefits on behalf of George Stallworth for injuries he received in the January 28, 1999, motor vehicle accident. According to Plaintiff, this case presents an issue of priority between an ERISA Plan and a state no-fault benefit policy.
The Plan contains a coordination of benefits ("COB") provision at § 3.1.8.4 which states in pertinent part:
[B]enefits under the IBM Plan are coordinated not only with other group health benefit plans but also with other sources of payment. "Other sources of payment" include, but are not limited to, automobile insurance . . . . IBM coverage is secondary, to the fullest legally permissible extent, to such other sources of payment. If you have a claim for benefits under an auto insurance policy or group health insurance policy, you should submit a claim under that policy before submitting a claim for IBM benefits.
The Allstate policy contains a competing COB provision that purports to make a health insurer primarily liable for medical benefits:
1. If Allowable Expenses are identified as excess on the declarations page, Allowable Expenses benefits will be reduced by any amount paid or payable under the provisions of any:
a) individual, blanket or group accident disability or hospitalization insurance.
b) medical or surgical reimbursement plan.
c) automobile no-fault benefits or medical expense benefits, or premises insurance affording medical expense benefits.
(Allstate Policy at 12, Pl.'s Mot. Exh. 2).
The Sixth Circuit delineated the rule for dealing with competing COB clauses in Auto-Owners Ins. Co. v. Thorn Apple Valley, Inc., 31 F.3d 371 (6th Cir. 1994). The Court held that when a traditional insurance policy and a qualified ERISA plan contain conflicting COB clauses that are both facially valid, the terms of the ERISA plan, including its COB clause, "must be given full effect in order to comply with a primary goal of ERISA, which is to safeguard the financial integrity of qualified plans by shielding them from unanticipated claims." Id. The Court noted that through ERISA "Congress sought to guard qualified benefit plans from claims . . . which have been expressly disavowed by the plans." Id. Thus, where the ERISA plan contains an "express disavowal" of claims covered by other plans, the no-fault automobile insurance policy will be deemed primarily liable, and the ERISA plan will be deemed secondarily liable. Primax Recoveries v. State Farm Mutual, 147 F. Supp.2d 775, 785 (E.D.Mich. 2001); CNA Ins. Co. v. Allstate Ins. Co., 36 F. Supp.2d 957, 965 (E.D.Mich. 1999); Travelers v. Auto-Owners Ins. Co., 971 F. Supp. 298, 301 (W.D.Mich. 1997). An express disavowal is a statement wherein the benefit plan specifically subordinates itself to other coverages. CNA Ins. Co., 36 F. Supp.2d at 963.
The COB clause in Plaintiff's ERISA Plan specifically subordinates itself to other coverages. Accordingly, Plaintiff's Plan's COB clause is entitled to be given full effect.
Defendant Allstate contends it is nevertheless entitled to judgment as a matter of law because Plaintiff was subrogated to the rights of Mr. Stallworth when it paid his medical benefits, and as a subrogee Plaintiff has no greater nor lesser rights than Mr. Stallworth to recover under Defendant's policy. According to Defendant Allstate, Mr. Stallworth was not entitled to no-fault benefits because he failed to provide reasonable proof for his claim. Moreover, Defendant contends that Plaintiff's claim is barred by operation of the one-year statute of limitations applicable to Michigan no-fault claims. M.C.L.A. § 500.3145.
Defendant Allstate's subrogation argument based upon Plaintiff's (or Mr. Stallworth's) failure to meet certain procedural requirements of the Michigan No-Fault Act lacks merit. Defendant Allstate's reliance on Amerisure Cos. v. State Farm Mut. Automobile Ins. Co., 222 Mich. App. 97 (1997), is misplaced. That case involved an action between two no-fault insurers, and does not govern claims by ERISA plans. ERISA preempts all state laws insofar as they relate to any employee benefit plan covered by ERISA. 29 U.S.C. § 1144(a). A claim based upon a conflict of COB clauses is not governed by ERISA or the Michigan No-Fault Insurance Act. "Because no federal statute addresses the resolution of the conflict between the COB clauses, application of federal common law is appropriate." 31 F.3d at 374. Under federal common law, actions between an ERISA plan and a no-fault insurer arising out of conflicting COB clauses are not deemed subrogation claims and the ERISA plan is not bound by the procedural requirements under the state no-fault law. See, e.g., Prudential Property Cas. Ins. v. Delfield Co. Group Health Plan, 187 F.3d 637 (Table), 1999 WL 617992 (6th Cir. August 6, 1999) (unpublished) (no-fault insurer in action against ERISA plan is not a subrogee, but rather asserts its own rights under federal common law in seeking a declaration of liability under the respective COB clauses).
Defendant Allstate contends in the alternative that it is entitled to judgment as a matter of law because there is no applicable automobile no-fault insurance coverage with which to coordinate. While the ERISA Plan is not required to meet all of the procedural requirements that an insured must meet under Michigan no-fault law, there is no question that there can be no coordination of benefits if there is no valid policy of no-fault insurance.
All of the cases Plaintiff relies on in support of its contention that the ERISA policy is secondarily liable to a no-fault policy presuppose the existence of a valid policy of no-fault insurance. See, e.g., Thorn Apple Valley, 31 F.3d at 372 (noting that insured had health care coverage at same time his no-fault policy was in force); Primax, 147 F. Supp.2d at 778 (insured was insured under both ERISA plan and no-fault policy); CNA, 36 F. Supp.2d at 960 (issue was which of the "available" coverages was primary); Travelers, 971 F. Supp. at 299 (involving coverage dispute regarding the parties' "mutual insured"). None of these cases stand for the proposition that a no-fault insurer can be forced to reimburse an ERISA plan even though it had no underlying obligation to insure. According to Defendant Allstate, it does not owe any no-fault coverage because the insured misrepresented the facts of insurability.
Plaintiff objects to Defendant's reliance on "rescission" as a defense in this case. According to Plaintiff, Defendant never raised rescission as a reason for rejecting Plaintiff's claim for reimbursement or as an affirmative defense.
The Court does not agree with Plaintiff's contention that it has been ambushed by this argument. In its February 8, 2000, letter to Mr. Stallworth, Allstate advised that it needed verification not only of Mr. Stallworth's claim for lost wages, but verification of coverage for his entire claim. (Def.'s Mot. Exh. G). Allstate accordingly requested Mr. Stallworth to provide a statement under oath concerning his claim and the policy of insurance. Id. In its May 22, 2000, letter to Mr. Stallworth Allstate advised that medical benefits had been suspended so that Allstate could "verify the loss facts, the injuries sustained in the accident, and whether you are entitled to coverage under the above noted policy." (Pl.'s Resp. Br. Exh. 7) (emphasis added)
Defendant alleged in its affirmative defense number 7:
Plaintiff's subrogor, or persons acting in concert with Plaintiff's subrogor, may have misrepresented material facts in connection with the procurement of the policy or Plaintiff's claim under the policy, thereby voiding the policy and any applicable coverage under it.
(Def.'s Affirmative Defenses, No. 7, Pl. Mot. Exh. 10). Defendant identified the factual basis for this affirmative defense in its May 22, 2001, answers to interrogatories:
Affirmative Defense number 7 provides that Plaintiff's subrogor, or persons acting in conjunction with Plaintiff's subrogor, misrepresented material facts in the connection with the procurement of the Allstate policy of insurance issued to Fannie Carolyn Stallworth. Specifically, the policy at issue did not identify as a resident in the same household, or additional driver, George Stallworth. It is alleged that Mr. Stallworth was not identified as required under the applicable policy because his operator's license had been revoked for alcohol related driving offenses. Allstate Insurance Company would not have issued the policy to Plaintiff's subrogor, or Fannie Carolyn Stallworth, had the insured not misrepresented the material facts in connection with her obtaining the applicable policy.
(Resp. to Req. for Admission at 7-8, Pl.'s Mot. Exh.4).
The Court is satisfied that Plaintiff was appropriately placed on notice of Defendant's intention to raise the issue of misrepresentation in the procurement of the policy. The issue, then, is whether Defendant's cancellation of the policy on June 5, 2000, operated as a rescission of the policy ab initio, or whether it merely cancelled the policy as of that date.
Under Michigan law "a material misrepresentation made in an application for no-fault insurance entitles the insurer to void or to cancel retroactively the policy." Farmers Ins. Exchange v. Anderson, 206 Mich. App. 214, 218, 520 N.W.2d 686, 688 (1994) (citing Katinsky v. Auto Club Ins. Ass'n, 201 Mich. App. 167, 170, 505 N.W.2d 895 (1993) ("A false representation in an application for no-fault insurance that materially affects the acceptance of the risk entitles the insurer retroactively to void or cancel a policy."). Once an insurance company determines that misrepresentation occurred, it has the option to rescind the policy ab initio or to cancel the policy and keep the premium payment. Burton v. Wolverine Mutual Ins. Co., 213 Mich. App. 514, 517-18; 540 N.W.2d 480 (1995).
Although the right to rescind a policy altogether ceases to exist once there is a claim involving an innocent third-party, Farmers Ins. Exchange, 206 Mich. App. at 218; Katinsky, 201 Mich. App. at 170-171, Mr. Stallworth's claim for no-fault insurance benefits does not qualify as a claim by an innocent third-party. Mr. Stallworth claims benefits as the insured, not as a third-party. Moreover, his position was not "innocent." According to Defendant, Mrs. Stallworth was able to obtain insurance only by failing to disclose Mr. Stallworth's status as her "resident relative." Mr. Stallworth's position vis-a-vis the no-fault policy is not unlike that of the plaintiff in Hammoud v. Metropolitan Property and Cas. Ins. Co., 222 Mich. App. 485, 563 N.W.2d 716 (Mich.App. 1997):
Plaintiff was the owner of the insured vehicle, with the responsibility to maintain a policy of no-fault insurance. To save money, he allowed his older brother to obtain the necessary insurance by misrepresenting plaintiff's status as a driver of the vehicle. Under these circumstances, plaintiff was actively involved in defrauding defendant and was not an innocent third party. Accordingly, the trial court did not err in finding that defendant was entitled to ab initio rescission of its policy covering the Thunderbird.Id. at 488-89.
[The insurer] must either rescind the policy upon discovery of the misrepresentation and refund the premium or cancel the policy, retaining the premium earned until the effective date of the cancellation and provide coverage until the effective date of the cancellation. But it cannot have its premium and deny coverage too.Id. at 520. See also Hill v. Pioneer State Mut. Ins. Co., 2001 WL 1353655, *2 (Mich.App. Nov. 2, 2001) (unpublished) (no-fault insurer who cancels policy cannot later rescind policy to avoid paying benefits for accident that occurs before cancellation date). The distiction between rescission and cancellation is not insignificant:
To rescind a contract is not merely to terminate it, but to abrogate and undo it from the beginning; that is, not merely to release the parties from further obligation to each other in respect to the subject of the contract, but to annul the contract and restore the parties to the relative positions which they would have occupied if no such contract had ever been made. Rescission necessarily involves a repudiation of the contract and a refusal of the moving party to be further bound by it.Lash v. Allstate Ins. Co., 210 Mich. App. 98, 102, 532 N.W.2d 869, 872 (1995). Cancellation of a contract, on the other hand, merely entails terminating the contract from that day forward. Cancellation is without prejudice to any claim originating before the cancellation. M.C.L.A. § 500.3020(5).
Although Allstate argues in its brief in support of its motion for summary judgment that Allstate exercised its right to "rescind" the policy, the evidence Allstate has supplied does not support this assertion. Mr. Price clearly states in his affidavit that in response to its discovery of the misrepresentation, Allstate "cancelled" the no-fault policy.
This choice by Allstate to cancel rather than rescind the policy is demonstrated by Allstate's underwriting notice. Following the investigation of the Stallworth policy, the underwriting response indicates that it has taken the following action: cancellation. Notably, the term "rescission ab initio" has been crossed out, and instead, the term cancellation is checked. (Pl.'s Resp. Br. Exh. 10). Defendant Allstate has offered no evidence that the cancellation was retroactive to the effective date of the policy. Neither has Allstate offered any evidence that the premiums were returned.
Based upon the unrefuted evidence of record, this Court must conclude that the cancellation was not effective until June 5, 2000. Because Mr. Stallworth's right to benefits accrued prior to the effective date of the cancellation of the policy, this Court concludes that there was valid no-fault insurance coverage as of January 28, 1999, the date of the accident, that this case does present a COB issue, and that under Thorn Apple Valley the no-fault policy is the primary insurer.
The final issue for the Court's consideration is Plaintiff's request for reimbursement of its actual attorney fees and costs in prosecuting this action. Plaintiff makes this request pursuant to 29 U.S.C. § 1132(g)(1), which provides in pertinent part:
In any action under this subchapter . . . by a participant, beneficiary, or fiduciary, the court in its discretion may allow a reasonable attorney's fee and costs of action to either party.29 U.S.C. § 1132(g)(1).
In Thorn Apple Valley the Sixth Circuit observed that ERISA does not specifically provide for an action between a traditional insurance policy and an ERISA plan based upon conflicting COB clauses. 31 F.3d at 374. Plaintiff's claim in this case is governed by federal common law rather than the ERISA statute. Accordingly, the Court finds that the provision for attorney fees in 29 § 1132(g)(1) does not apply to this case. Plaintiff's request for attorney fees will accordingly be denied.
For the reasons stated above, Plaintiff United Healthcare's motion for summary judgment will be granted, Defendant Allstate's motion for summary judgment will be denied, and the Court will enter a judgment in favor of Plaintiff United Healthcare, declaring that the Plan is entitled to recoup from Defendant Allstate all amounts which the Plan has paid for medical benefits on behalf of George Stallworth, for injuries as a result of the motor vehicle accident on January 28, 1999, and that as to any future medical benefits which George Stallworth may become entitled to as a result of said motor vehicle accident, Defendant Allstate shall be deemed the primary provider for personal injury protection benefits, and the Plan, as excess health care coverage provider pursuant to its COB clause, shall become liable only in the event that the amounts paid on behalf of George Stallworth by Allstate exceed the available coverage under Allstate's policy.
An order and judgment consistent with this opinion will be entered.
ORDER AND JUDGMENT
HON. ROBERT HOLMES BELLIn accordance with the opinion entered this date,
IT IS HEREBY ORDERED that Plaintiff United Healthcare's motion for summary judgment (Docket #15) is GRANTED.
IT IS FURTHER ORDERED that Defendant Allstate Insurance Company's motion for summary judgment (Docket # 16) is DENIED.
IT IS FURTHER ORDERED that a DECLARATORY JUDGMENT is entered in favor of Plaintiff
United Healthcare, declaring that the self-funded ERISA-qualified employee welfare benefit plan sponsored by IBM Corporation and administered by Plaintiff is entitled to recoup from Defendant Allstate all amounts which the Plan has paid for medical benefits on behalf of George Stallworth, for injuries as a result of the motor vehicle accident on January 28, 1999, and that as to any future medical benefits to which George Stallworth may become entitled as a result of said motor vehicle accident, Defendant Allstate shall be deemed the primary provider for personal injury protection benefits, and the Plan, as excess health care coverage provider pursuant to its coordination of benefits clause, shall become liable only in the event that the amounts paid on behalf of George Stallworth by Allstate exceed the available coverage under Allstate's policy.