Cagle v. Bruner , 112 F.3d 1510 ( 1997 )

United States Court of Appeals,
Eleventh Circuit.
No. 95-3659.
Doug CAGLE, Adrian A. DeVogel, Guy Dickerson, Don Hopkins, Henry
Jenkins, Lenore Miller, as Trustees and Fiduciaries of the Retail,
Wholesale and Department Store International Union and Industry
Health and Benefit Fund, Plaintiffs-Counter-Defendants-Appellants,
v.
Nancy M. BRUNER, Defendant-Counter-Claimant-Cross-Defendant-
Appellee,
Memorial Hospital Jacksonville, Inc., Defendant-Counter-Claimant-
Cross Claimant-Third Party Plaintiff-Appellee,
University Medical Center, Inc., Movant-Appellee,
Cobbie L. Bruner, Sr., Third Party Defendant.
May 22, 1997.
Appeal from the United States District Court for the Middle
District of Florida. (No. 94-1015-Civ-J-16), John H. Moore, II,
Judge.
Before TJOFLAT, DUBINA and CARNES, Circuit Judges.
PER CURIAM:
In this appeal, we decide three issues relating to the
Employee Retirement Income Security Act, 29 U.S.C. §§ 1001-1461
("ERISA"). First, we consider whether a plan beneficiary's
assignment of the right to payment of ERISA benefits to a health
care provider gives the health care provider standing to sue the
plan. We hold that it does, at least where the plan does not
forbid such an assignment.
Second, we consider whether an ERISA plan may require a plan
participant to sign a subrogation agreement before paying claims
submitted by that participant on behalf of a plan beneficiary. We
hold that the plan may do so, where the required subrogation
agreement does not contain an arbitrary and capricious
interpretation of the plan's subrogation rights.
Finally, we consider an issue relating to the "make whole"
doctrine of insurance law. Under the "make whole" doctrine, an
insurer who pays less than an insured's total loss may not exercise
a right of subrogation until the insured is "made whole" for his
total loss. We address whether the "make whole" doctrine applies
where an ERISA plan neither explicitly adopts nor disavows the
doctrine. We conclude that the doctrine applies where the plan
does not explicitly disavow it.
I. BACKGROUND
A. FACTS
This action was brought by the trustees of the Retail,
Wholesale and Department Store International Union and Industry
Health and Benefit Fund. (We will refer to both the trustees and
the fund as "the Fund"). The Fund was established pursuant to
various collective bargaining agreements between employers and
local unions affiliated with the Retail, Wholesale and Department
Store International Union to provide benefits for plan participants
and beneficiaries. The Fund provides an "employee benefit plan"
governed by ERISA.
Nancy Bruner, a defendant in this action, is a plan
participant by virtue of her employment with Swisher & Sons, a
contributor to the Fund.1 Bruner's son, Cobbie Bruner, Jr., is
1
ERISA defines a plan participant to include:
any employee or former employee of an employer, ... who
is or may become eligible to receive a benefit of any
type from an employee benefit plan which covers
Bruner's dependent and a beneficiary of the Fund.2
On September 19, 1993, Cobbie Bruner, Jr. was involved in a
car accident caused by a third party. Immediately after the
accident, Cobbie Jr. received emergency treatment from University
Medical Center. On October 18, 1993, Cobbie Jr. was transferred to
Genesis Rehabilitation Hospital ("Genesis"), formerly Memorial
Hospital of Jacksonville. Cobbie Jr. remained at Genesis for four
months, and received outpatient treatment there for an additional
four months. When Cobbie Jr. was admitted to Genesis, his father,
Cobbie Bruner, Sr., signed a form assigning to Genesis his son's
right to payment of medical benefits. Soon after Cobbie Jr.'s
accident, the Fund paid an initial claim of $296.00 to Nancy Bruner
for Cobbie Jr.'s medical treatment. Yet, approximately one month
after Cobbie Jr. had been admitted to Genesis, the Fund refused to
pay or process any additional claims for him until Nancy Bruner
signed a standard subrogation form provided by the Fund. That
agreement provides:
I (we) understand that if payments are made under the Plan for
any treatment or services because of injury to, or sickness
of, an eligible individual who has a lawful claim, demand or
right against a third party or parties (including an insurance
carrier) for indemnification, damages or other payment with
respect to such injury or sickness, I (we) am (are) required
to subrogate to the RWDSU Health and Welfare Fund, the Plan,
to the extent of payments made under said plan, my (our)
employees of such employer or members of such
organization, or whose beneficiaries may be eligible to
receive any such benefit.
29 U.S.C.A. § 1002(7) (West Supp.1996).
2
"The term "beneficiary' means a person designated by a
participant, or by the terms of an employee benefit plan, who is
or may become entitled to a benefit thereunder." 29 U.S.C.A. §
1002(8) (West Supp.1996).
rights to receive or claim such indemnification, damages or
other payment.
In consideration thereof, if payments are made under said plan
for treatment or service on account of the same injury or
sickness and to the extent of such payments made (but not in
excess of the proceeds of any recovery),
(a) I (we) agree to reimburse the Plan in full from the
proceeds of any recovery received by me (us) because of
such injury or sickness, and
(b) The Plan shall be subrogated in full to my (our)
rights to such recovery and my (our) interest in the
proceeds of such recovery;
if such recovery is based upon the eligible individual's
lawful claim, demand or right against a third party or parties
(including an insurance carrier).
Nancy Bruner signed the agreement sent by the Fund, but
attached an addendum stating that the subrogation agreement does
not "in any way expand the subrogation rights" of the Fund. The
Fund rejected the amended agreement and sent Bruner an unmodified
subrogation agreement to sign, promising to pay benefits if a
signed unmodified version was returned. Bruner again returned the
agreement with an addendum, stating that the subrogation agreement
"does not, in any way, expand the subrogation rights of [the Fund]
beyond the rights as provided in the [summary plan description]."
That agreement was also rejected by the Fund. Bruner and Genesis
threatened to sue the Fund for nonpayment.
B. PROCEDURAL HISTORY
The Fund filed this lawsuit in the Middle District of Florida
pursuant to ERISA, 29 U.S.C. § 1132(a)(3) and 28 U.S.C. § 2201,
seeking declaratory and injunctive relief. Naming both Nancy
Bruner and Genesis as defendants, the Fund asked the district court
to declare that Bruner was required to execute the plan's standard
subrogation agreement without modification as a condition precedent
to the payment of Bruner's claims to Genesis. The Fund also
requested that the district court issue an injunction ordering
Bruner to execute the subrogation agreement.
Bruner counterclaimed against the Fund for: (1) a declaration
that Cobbie Bruner is entitled under the plan to be made whole
before the Fund may participate in any recovery from an at-fault
party; (2) a judgment awarding Bruner an amount equal to the
medical expenses covered by the Fund; and (3) attorney's fees and
costs.
Genesis cross-claimed against Nancy Bruner for the amount of
Cobbie Jr.'s medical bills and asserted four counterclaims against
the Fund. Genesis claimed that the Fund had breached a contract
with Genesis by denying payment to Genesis after the plan's
precertification agent approved Cobbie Jr.'s stay. Second, Genesis
claimed that the Fund had breached a contract with Genesis by
refusing to pay benefits to which Genesis was entitled as an
assignee. Third, Genesis claimed that the Fund had breached its
fiduciary duty to Cobbie Jr. by refusing to accept Nancy Bruner's
modified subrogation agreement and by refusing to pay Cobbie Jr.'s
benefits. Finally, Genesis claimed entitlement to a declaration of
its right to be paid by the Fund. The Fund answered Genesis'
counterclaims with two affirmative defenses: (1) that Genesis
lacks standing to sue the Fund under 29 U.S.C. § 1132(a); and (2)
that Genesis' state law claims are preempted by ERISA.
All of the parties moved for summary judgment on the issue of
whether the Fund could require Nancy Bruner to execute its standard
subrogation agreement before processing her claims. In its motion
for summary judgment, the Fund also argued that Genesis did not
have standing under ERISA, and that Genesis' state law claims were
preempted by ERISA. The district court held that Genesis has
standing to sue the Fund under 29 U.S.C. § 1132(a) as an assignee
of Cobbie Jr.'s right to medical benefits. The district court also
held that Genesis' state law claims are preempted by ERISA. On the
requests for declaratory relief, the district court held that the
Fund acted arbitrarily and capriciously in requiring Bruner to
execute the subrogation agreement prior to processing her claims.
The district court granted Bruner's motion for summary
judgment, including her request for a declaratory relief. The
court denied the Fund's motion for summary judgment and granted
summary judgment to Genesis on its claim for declaratory relief,
but not on its damages claim. After a trial on damages, the court
entered a judgment requiring the Fund to pay Genesis $56,744.57.
II. DISCUSSION
Summary judgment may be granted only when there is no genuine
issue as to any material fact, and the moving party is entitled to
judgment as a matter of law. Fed.R.Civ.P. 56. This Court reviews
de novo a district court's decision to grant or deny summary
judgment. E.g., United States v. Route 2, Box 472, 136 Acres More
or Less, 60 F.3d 1523, 1526 (11th Cir.1995).
A. GENESIS' STANDING TO SUE THE PLAN
Before addressing the district court's grant of summary
judgment, we must consider the Fund's argument that Genesis lacks
standing to counterclaim against the Fund. According to the Fund,
the only parties that have standing to sue an ERISA plan, and thus
to file counterclaims against it, are those listed in 29 U.S.C. §
1132(a): a "participant," "beneficiary," "fiduciary," or the
Secretary of Labor. See id. Because Genesis does not fall within
the definition of any of those terms, the Fund argues that Genesis
is not allowed to bring an action or file a counterclaim against
the Fund.
Genesis acknowledges that the list in § 1132(a) limits those
parties who have independent standing to sue an ERISA plan. See
Hermann Hosp. v. MEBA Medical & Benefits Plan, 845 F.2d 1286, 1289
(5th Cir.1988) (holding that parties not listed in § 1132(a) do not
have independent standing to sue an ERISA plan). However, Genesis
argues that § 1132(a)'s list of parties with standing does not bar
Genesis from suing the plan, because Genesis is an assignee of
rights held by an entity that is listed in § 1132(a). In other
words, Genesis argues that when Congress listed those who could
sue, it did not intend to alter the general rule that an assignee
of a right has the same standing to sue as the assignor. Because
Cobbie Jr. is a beneficiary of the plan, and the Bruners assigned
to Genesis his right to receive payment of benefits, Genesis
contends it may sue the Fund under § 1132(a).
The Fifth, Seventh, Eighth, and Ninth Circuits have held that
an assignee of ERISA-covered medical benefits has derivative
standing to bring an action under § 1132(a) against an ERISA plan,
if the plan does not forbid assignments of benefits. See Hermann,
845 F.2d at 1289; Kennedy v. Connecticut General Life Ins. Co.,
924 F.2d 698, 700-01 (7th Cir.1991); Lutheran Med. Ctr. v.
Contractors Health Plan, 25 F.3d 616, 619 (8th Cir.1994); Misic v.
Building Serv. Employees Health and Welfare Trust, 789 F.2d 1374,
1379 (9th Cir.1986). According to those courts, § 1132(a) does not
preclude assignees from enforcing rights assigned to them by those
listed in the statute as permissible plaintiffs. Only one circuit
appears to diverge from that view, and it has done so only in
dicta. In Northeast Dept. ILGWU Health and Welfare Fund v.
Teamsters Local Union No. 229 Welfare Fund, 764 F.2d 147 (3d
Cir.1985), a case which did not actually involve any assignment of
benefits, the court stated that the list of possible plaintiffs in
§ 1132(a) is exclusive and, for that reason, assignees do not have
standing to sue under that provision. See id. at 153-54 & n. 6.
Instead of following that dicta, we join our four sister
circuits that have grappled with the issue in a case requiring its
resolution. We hold that neither § 1132(a) nor any other ERISA
provision prevents derivative standing based upon an assignment of
rights from an entity listed in that subsection. As the Fifth
Circuit has pointed out, neither the text of § 1132(a)(1)(B) nor
any other ERISA provision forbids the assignment of health care
benefits provided by an ERISA plan. See Hermann, 845 F.2d at 1289.
The absence of any anti-assignment provision applicable to health
care benefits takes on added significance in view of the fact that
ERISA expressly prohibits the assignment of pension benefits
governed by ERISA. Id.; Misic, 789 F.2d at 1376. We agree with
the Fifth Circuit that the difference most likely exists because
Congress recognized that "[a]n assignment to a health care provider
facilitates rather than hampers the employee's receipt of health
benefits." Hermann, 845 F.2d at 1286.
Of course, an assignment will not facilitate a plan
participant's or beneficiary's receipt of benefits if the plan does
not pay the benefits it owes, and provider-assignees are not
permitted to sue on the participant's or beneficiary's behalf. If
provider-assignees cannot sue the ERISA plan for payment, they will
bill the participant or beneficiary directly for the insured
medical bills, and the participant or beneficiary will be required
to bring suit against the benefit plan when claims go unpaid. See
Hermann, 845 F.2d at n. 13. On the other hand, if
provider-assignees can sue for payment of benefits, an assignment
will transfer the burden of bringing suit from plan participants
and beneficiaries, to "providers[, who] are better situated and
financed to pursue an action for benefits owed for their services."
Id. For these reasons, the interests of ERISA plan participants
and beneficiaries are better served by allowing provider-assignees
to sue ERISA plans.
The Fund contends that we should reject the majority view and
its rationale because if we hold that Genesis has standing, it will
necessarily follow that Nancy Bruner does not. Only one entity can
wear Nancy Bruner's shoes, the argument goes, and in order to
protect her rights, we should reject Genesis' claim of standing.
Yet, we do not find Nancy Bruner's and Genesis' standing to be
mutually exclusive, because Bruner and Genesis have distinct
interests in this litigation. As an assignee, Genesis is concerned
with being paid for Cobbie Jr.'s bills to the extent that the plan
covers his treatment. Pursuant to that interest, Genesis has
counterclaimed against the Fund for damages and for a declaration
that it is entitled to be paid immediately. Meanwhile, Nancy
Bruner's primary concern in this case is whether the Fund's
subrogation agreement expands the Fund's subrogation rights beyond
the rights set forth in the benefits plan. That question is of
little or no concern to Genesis, which has no claim against any
damages that may be recovered from a third party.
The Fund also contends that we should not allow Genesis to
have standing, because doing so will provide Genesis with an unfair
advantage vis-a-vis other medical services providers that have
treated Cobbie Jr. According to the Fund, the plan will not pay
for all of Cobbie Jr.'s bills, and allowing Genesis to sue for
nonpayment will upset the plan's carefully drafted procedures for
paying all claims equitably. We see no reason why that must be
true. By recognizing Genesis' standing, we are not deciding the
amount Genesis is entitled to recover. We have not been asked to
determine how much the Fund will pay Genesis or any other health
care provider. All we decide is that Genesis, as a
provider-assignee, has derivative standing to sue the Fund under 29
U.S.C. § 1132(a).3
B. THE FUND'S INTERPRETATION OF THE PLAN
We now consider whether the Fund may condition the payment of
3
The Fund does not argue that the assignment of Cobbie Jr.'s
right to payment of benefits to Genesis is invalid as a matter of
contract law. Therefore, we need not decide what constitutes a
valid assignment of medical benefits covered by ERISA.
We also decline to address the issue of whether a
provider-assignee can sue an ERISA plan, where the terms of
the plan forbid such an assignment. That situation is not
before us in this case.
benefits on Nancy Bruner's execution of the Fund's subrogation
agreement. Bruner urges us to affirm the district court's decision
granting summary judgment in her favor on the ground that the
subrogation agreement expands the Fund's subrogation rights beyond
those set forth in the plan. In its argument for reversal, the
Fund contends that it may condition the payment of benefits on the
execution of the agreement, because the agreement is not an
arbitrary interpretation of its subrogation rights under the plan.
1. The Standard of Review of the Fund's Decision
As an initial matter, we must decide the proper standard of
review of the Fund's interpretation of the plan. The parties agree
that this case should be treated as a denial-of-benefits case. In
such a case, the Fund's (conditional) denial of ERISA benefits is
subject to de novo review, unless "the benefit plan gives [the
Fund] discretionary authority to determine eligibility for benefits
or to construe the terms of the plan." Firestone Tire and Rubber
Co. v. Bruch, 489 U.S. 101, 115, 109 S. Ct. 948, 956-57, 103 L. Ed. 2d
80 (1989); Lee v. Blue Cross/Blue Shield of Alabama, 10 F.3d 1547,
1549 (11th Cir.1994). If the plan reserves that discretion to the
Fund, the arbitrary and capricious standard of review applies, see
Firestone, 489 U.S. at 115, 109 S.Ct. at 956-57, unless the Fund's
construction "would advance a conflicting interest of [the Fund] at
the expense of the affected beneficiary." Brown v. Blue Cross and
Blue Shield of Alabama, Inc., 898 F.2d 1556, 1566-67 (11th
Cir.1990). If such a conflict of interest is shown, the burden
shifts to the Fund to demonstrate that its interpretation of the
plan is not tainted by self-interest. Lee, 10 F.3d at 1552;
Brown, 898 F.2d at 1566.
Genesis claims that the Fund's decision creates a conflict of
interest, but we agree with the district court that there is no
conflict in this case. Conflicts arise when a fiduciary or
administrator pays benefits to participants and beneficiaries from
its own assets; an example is an insurance company administering
an ERISA plan that the company also insures. See Brown, 898 F.2d
at 1561. In that situation, the insurance company's role as
administrator "lies in perpetual conflict with its profit-making
role as a business." Id. In contrast, the Fund is a nonprofit
entity, and benefits are paid out of a trust funded from the
contributions of several employers. In such an arrangement, the
Fund's decision to require a signed subrogation agreement merely
protects the assets in the trust for other participants and
beneficiaries. That requirement does not benefit the Fund (i.e.,
the trustees) in any way which could create a conflict of interest
at the expense of a plan participant or beneficiary.
Since there is no conflict of interest in this case, either
the de novo or the arbitrary and capricious standard applies,
depending upon whether the plan documents give the Fund sufficient
discretion. The Fund argues that it is provided sufficient
discretion to interpret the plan in the Trust Agreement and in the
Rules and Regulations. In opposition, both Genesis and Bruner
argue that the plan's Summary Plan Description ("SPD"), not other
plan documents, must contain the discretionary language in order
for the Fund to receive the deference required under the
arbitrariness standard. We reject that argument. Both the Supreme
Court and this Court have reviewed trust documents and other
non-SPD documents in the search for a reservation of discretion for
plan administrators or fiduciaries. See Firestone, 489 U.S. at
109-13, 109 S.Ct. at 954-55; Guy v. Southeastern Iron Workers'
Welfare Fund, 877 F.2d 37, 39 (11th Cir.1989). Accord Diaz v.
Seafarers Int'l Union, 13 F.3d 454, 457 (1st Cir.1994); Luby v.
Teamsters Health, Welfare and Pension Trust Funds, 944 F.2d 1176,
1180-81 (3d Cir.1991). Accordingly, we look to all of the plan
documents to determine whether the plan affords the Fund enough
discretion to make the arbitrariness standard applicable.
In this plan, the Declaration of Trust and the Trust Rules and
Regulations expressly reserve discretionary authority for the Fund
on certain matters. The Declaration of Trust provides:
Section 4. ELIGIBILITY REQUIREMENTS FOR BENEFITS. The
Trustees shall have full authority to determine eligibility
requirements for benefits and to adopt Rules and Regulations
setting forth same which shall be binding on the Employees,
their families and dependents.
Section 5. METHOD OF PROVIDING BENEFITS. The benefits
shall be provided and maintained by such means as the Trustees
shall in their sole discretion determine....
Agreement and Declaration of Trust, Article VI. The Rules and
Regulations state:
The determination of any question arising in connection with
the Plan, including (but not limited to) the interpretation of
the terms of the Plan, shall rest with the Trustees, and their
decision or action as to any such questions shall be final and
conclusive, and binding upon the Employers and any Employee,
Dependent or Beneficiary.
Retail, Wholesale and Department Store International Union and
Industry Health and Benefit Fund Rules and Regulations, § 8.11.
We have held that reservations of "full and exclusive
authority to determine all questions of coverage and eligibility"
along with "full power to construe the [ambiguous] provision[s]" of
the plan reserve enough discretion to make the arbitrary and
capricious standard applicable. See Guy, 877 F.2d at 39. The
Declaration of Trust in this case reserves "full authority to
determine eligibility requirements for benefits," while the Rules
and Regulations reserve discretion in the Fund to interpret
ambiguous sections of the plan. Consequently, the Fund's
interpretations of the plan are subject to review under the
arbitrary and capricious standard.
2. Whether the Fund Acted Arbitrarily and Capriciously
The Fund's right to subrogation arises out of the following
language in the SPD:4
Subrogation seeks to conserve the assets of the Benefit
Fund by imposing the expense for accidental injuries suffered
by members or eligible dependent's [sic] on those responsible
for causing them. If you or one of your dependents, for
example, should receive benefits from the Fund for injuries
caused by someone else (such as an automobile accident,) the
Benefit Fund through subrogation has the right to seek
repayment from the other party or his insurance company, or in
the event you or your dependent recovers the amount of medical
expense paid by the Fund by suit, settlement or otherwise from
any third person or his insurer, the Fund has the right to be
reimbursed therefor through subrogation.
The Benefits Fund will provide benefits to you and your
dependents at the time of need, but you may be asked to
execute documents or take such other action as is necessary to
assure the rights of the Fund.
The Fund contends that this language enables it to require Bruner
to sign its standard subrogation agreement before paying benefits.
4
The parties agree that the SPD language is controlling on
the issue of the Fund's subrogation rights; no other plan
documents are cited by the parties on that specific issue.
The subrogation agreement provides in pertinent part:5
I (we) agree to reimburse the Plan in full from the proceeds
of any recovery received by me (us) because of such injury or
sickness, and
(b) The Plan shall be subrogated in full to my (our) rights to
such recovery and my (our) interest in the proceeds of such
recovery....
Under the arbitrary and capricious standard of review, we are
limited to deciding whether the Fund's interpretation of the plan
was made rationally and in good faith. Blank v. Bethlehem Steel
Corp., 926 F.2d 1090, 1093 (11th Cir.1991) (citing Guy v.
Southeastern Iron Workers' Welfare Fund, 877 F.2d 37, 39 (11th
Cir.1989)). Factors relevant to that determination include: (1)
the uniformity of the Fund's construction; (2) the reasonableness
of its interpretation; and (3) possible concerns with the way
unexpected costs may affect the future financial health of the
Fund.6 See id.
Bruner and Genesis challenge both the language of the
subrogation agreement and the Fund's requirement that the agreement
be signed before benefits are paid. Although the district court
conflated the two issues in its analysis, we will analyze the
issues separately.
a. The Fund's subrogation rights
5
The entire text of the subrogation agreement is quoted in
Section I.A. of this opinion.
6
Other factors that may be relevant in reviewing a fiduciary
or administrator's decision for arbitrariness are the internal
consistency of a plan, the relevant regulations formulated by
administrative agencies, and the factual background of the
determination, including any inferences of bad faith. Blank, 926
F.2d at 1093. The parties do not argue that those factors are
particularly relevant to this case, and we agree that they are
not.
In deciding whether the Fund has acted arbitrarily and
capriciously in choosing the particular language contained in the
subrogation agreement, the district court was required to consider
the uniformity of the Fund's interpretation. The Fund claims it
has consistently interpreted the SPD to provide itself with a right
of subrogation to any recovery obtained from an at-fault third
party. The Fund's view is set forth in the standard subrogation
agreement, and the Fund has never accepted any modified or amended
form of that agreement. Bruner and Genesis failed to put forth any
evidence that the Fund has ever interpreted the SPD to provide
subrogation rights for the Fund that were narrower or in any way
different from those set out in the standard subrogation agreement.
Consequently, the uniformity factor indicates that the Fund's
interpretation was not arbitrary and capricious.
Another factor the district court was required to consider in
its review was whether the Fund's interpretation of the SPD's
relevant language is reasonable. According to Bruner and Genesis,
the SPD limits the Fund's subrogation rights to a recovery of
"medical expenses" paid by a third party. By contrast, the Fund
interprets the SPD to allow it to recover the medical expenses it
has paid to a participant or beneficiary, out of any recovery
achieved against the at-fault third party. While Bruner and
Genesis' interpretation is plausible, the Fund's interpretation is
more persuasive, because the SPD says the plan has a right of
reimbursement in the event a participant recovers "the amount of
medical expenses paid by the Fund" (emphasis added). The
subrogation agreement is consistent with the SPD insofar as the
Fund's right to subrogation out of third-party recoveries is
concerned.7
The district court thought that both the Fund's interpretation
and the interpretation suggested by Genesis and Bruner were
plausible. Faced with competing plausible interpretations, the
district court construed all ambiguities in the SPD against the
Fund and concluded that the Fund's interpretation was arbitrary.
The district court erred in its "reasonable interpretation"
analysis. The "reasonable interpretation" factor and the arbitrary
and capricious standard of review would have little meaning if
ambiguous language in an ERISA plan were construed against the
7
We were recently confronted with the same issue—the
consistency between a plan's SPD and its reimbursement agreement
on the issue of the plan's reimbursement rights—in a case that
did not require us to defer to the plan's interpretation, and we
concluded that the provisions were not in conflict. See Wright
v. Aetna Life Ins. Co., 110 F.3d 762, 764-65 (11th Cir.1997).
The SPD at issue in Wright gave the plan a right to be reimbursed
out of any "damages" received by a plan participant from a
third-party tortfeasor. See id. at 763 & n. 1. The plan's
reimbursement agreement provided the plan with the right to be
reimbursed out of any recovery from a third-party tortfeasor, to
the extent such recovery was "attributable to" medical expenses
paid by the plan. See id. at 763 & n. 2.
Wright, the participant, settled with a third-party
tortfeasor, and the settling parties allocated all of the
damages to pain, suffering, and wage loss. See id. at 763-
64. After Wright refused to reimburse the plan out of that
recovery, the plan argued that the SPD and the reimbursement
agreement were inconsistent, and that the SPD gave the plan
a right to be reimbursed out of the participant's recovery.
See id. We held that the SPD and the agreement were
consistent; the agreement only interpreted the ambiguous
language in the SPD. See id. at 764-65. We also held that
the plan's reimbursement rights were controlled by the more
specific reimbursement agreement, though not by the settling
parties' "allocation" of damages in their settlement
agreement. See id. at 765 & n. 3. We remanded the case so
that the district court could determine what portion of the
recovery was actually attributable to medical expenses paid
by the plan. See id. at 764-65.
Fund. If the Fund's interpretation is reasonable and is consistent
with the law, then the reasonableness-of-interpretation factor
militates against a conclusion that the Fund has acted arbitrarily
and capriciously.
The third and final factor that the district court was
required to consider was whether the Fund's interpretation was
arbitrary and capricious in light of concerns about unexpected
costs and the future financial stability of the Fund. The Fund
believes that trust assets will be endangered if the Fund's
subrogation rights do not extend to any recovery obtained by plan
participants and beneficiaries from third parties. If the Fund is
limited to subrogation of "medical expenses" recovered from the
tortfeasor, plan participants and beneficiaries could destroy the
Fund's subrogation rights by negotiating with the tortfeasor to
label all or most of the damages received from the tortfeasor as
"pain and suffering," even when they actually are intended to
compensate for medical expenses. The district court recognized
that the Fund's concern was a genuine one, but it concluded that
cost concerns were insufficient to overcome what the court
perceived to be the "unreasonableness" of the Fund's
interpretation, when all ambiguities were construed against the
Fund.
Whether or not cost concerns can trump an unreasonable
interpretation of plan language, the Fund's subrogation agreement
advances a reasonable interpretation of the subrogation rights
provided in the SPD. Given the reasonableness of the Fund's
interpretation, the uniformity of that interpretation, and the
genuine cost concerns that underlie it, we hold that the Fund did
not act arbitrarily and capriciously in requiring Nancy Bruner to
sign its subrogation agreement.
b. Requiring the agreement to be signed before paying benefits
Next, we consider whether it was arbitrary and capricious for
the Fund to require that Nancy Bruner sign its standard subrogation
agreement before paying benefits, instead of later. We turn again
to the Blank factors (uniformity of interpretation, reasonableness
of interpretation, and cost concerns) to determine whether the
Fund's decision survives review under the arbitrary and capricious
standard.
Nancy Bruner argues that the "uniform interpretation" factor
weighs in her favor, because the Fund has been inconsistent about
requiring a signed subrogation agreement prior to the payment of
benefits. The Fund admits that it requires such an agreement
before it pays benefits only when a large sum is at stake and the
participant's or beneficiary's lawyers indicate that they may
challenge the plan's subrogation rights. If only small sums are at
issue, or if a large sum is at issue but the Fund is convinced that
the participant's or beneficiary's lawyers will not object to the
Fund's subrogation rights, no agreement is required.
According to Nancy Bruner, the fact that the Fund does not
always require a signed subrogation agreement before paying
benefits demonstrates that the Fund has inconsistently interpreted
its right to insist upon the agreement being signed up-front. We
disagree. The Fund's policy fully recognizes its right to insist
upon a signed subrogation agreement as a prerequisite to receiving
benefits, but also withholds the exercise of that right in
circumstances where it does not appear to be necessary to protect
the Fund's assets. Here it did appear to be necessary, and the
accuracy of that appearance was confirmed by Nancy Bruner's
position in this litigation. Based on the evidence in the record,
we conclude that the Fund has uniformly interpreted the plan to
allow it to require a signed subrogation agreement before paying
benefits, and the Fund has done so in circumstances like those in
this case.
On the "reasonable interpretation" factor, the district court
determined that the Fund unreasonably interpreted the plan to allow
it to require a signed subrogation agreement prior to paying
benefits. According to Bruner, the district court correctly found
the Fund's position to be unreasonable, because the Fund has no
right of subrogation until benefits are paid. We believe that
Bruner is confusing the issues. It is true that because the Fund
has no right of subrogation until the plan pays benefits, it cannot
enforce the subrogation agreement until it pays benefits.
Nevertheless, nothing in the plan forbids the Fund from requiring
the agreement to be signed before it pays any claims. The SPD
states that "[the participant or beneficiary] may be asked to
execute documents or take such other action as is necessary to
assure the rights of the Fund." That language can be read to
require execution of the subrogation agreement before payment as
easily as it can be read to require execution of the agreement
after payment. Thus, the Fund's interpretation is not
unreasonable, given the language of the plan.
When we consider the practical reasons for requiring the
subrogation agreement to be signed before paying any benefits, the
reasonableness of that policy becomes abundantly clear. The Fund
uses the subrogation agreements in negotiations with at-fault third
parties. Once benefits are paid, participants and beneficiaries
have little incentive (other than the fear of a lawsuit) to sign a
subrogation agreement. If the Fund cannot require the agreement
beforehand, it often will have to resort to lawsuits or at least
the threat of lawsuits to obtain the agreements. Lawsuits cost
money, sometimes a lot of it. In addition, delay becomes
inevitable, and while the Fund is attempting to obtain the
agreements from participants and beneficiaries, the Fund is
hampered in its negotiations with at-fault third parties. In
short, having the agreement in hand before paying benefits provides
significant protection to trust assets. Cost concerns weigh in
favor of the Fund's policy.
The Blank factors all weigh in the Fund's favor. Accordingly,
we conclude that the Fund has not acted arbitrarily or capriciously
by requiring Nancy Bruner to sign its standard subrogation
agreement as a condition to the processing and payment of claims
for Cobbie Jr.
C. THE MAKE WHOLE RULE
The final issue we must decide is whether the "make whole"
doctrine of insurance law applies to this case. In Nancy Bruner's
answer to the Fund's complaint, she counterclaimed for a
declaration that the Fund has no right of subrogation with regard
to Cobbie Jr.'s recoveries from third parties, unless and until
Cobbie Jr. is "made whole." The district court granted Nancy
Bruner's motion for summary judgment in its entirety, and the Fund
seeks a reversal of the "make whole" declaratory relief judgment
Bruner obtained.
Under the "make whole" doctrine, "an insured who has settled
with a third-party tortfeasor is liable to the insurer-subrogee
only for the excess received over the total amount of his loss."
Guy v. Southeastern Iron Workers' Welfare Fund, 877 F.2d 37, 39
(11th Cir.1989). See also 16 Couch on Insurance § 61:64 (2d ed.
1983) (if an insurer pays less than the insured's total loss, the
insurer cannot exercise a right of reimbursement or subrogation
until the insured's entire loss has been compensated). State
courts generally treat the "make whole" doctrine as a default rule
that is read into insurance contracts, except where it is
explicitly excluded. See Fields v. Farmers Ins. Co., Inc., 18 F.3d
831, 835-36 (10th Cir.1994) (diversity case listing states that
apply the make whole doctrine as a default rule).
According to the Fund, the "make whole" doctrine is a matter
of state law, and it has no force in the ERISA context. To the
extent that the Fund argues that this Court is not bound in ERISA
cases by doctrines of state insurance law, the Fund is correct.
But the Fund errs in claiming that the "make whole" doctrine is not
part of the federal common law of this circuit. We recognized in
the Guy case that the "make whole" doctrine applies in at least
some ERISA cases.8 See Guy, 877 F.2d at 39-40.
8
Guy involved two claims for benefits submitted by an ERISA
plan participant. The participant filed the first claim on
behalf of his son, after his son was involved in an accident with
At most, the "make whole" doctrine operates as a default
rule. See Cutting v. Jerome Foods, Inc., 993 F.2d 1293, 1297 (7th
Cir.1993) (describing the "make whole" doctrine as a "gap filler"
and holding that it was not arbitrary for the plan to conclude it
was not part of the ERISA plan); Barnes v. Independent Auto.
Dealers Ass'n, 64 F.3d 1389, 1394 (9th Cir.1995) (applying the
"make whole" doctrine as a default rule). But see Sunbeam-Oster
Co., Inc. Group Benefits Plan v. Whitehurst, 102 F.3d 1368, 1378
(5th Cir.1996) (doubting whether court would adopt the "make whole"
doctrine as a default rule) (dicta).9 As a default rule, the "make
a third party. The plan paid eighty percent of the son's medical
bills. The participant's ex-wife later sued the third-party
tortfeasor in her individual capacity and as the next friend of
her son, and the participant joined the suit in his individual
capacity. The participant received $15,000 in a settlement with
the tortfeasor. 877 F.2d at 37-39.
The plan claimed it had a right of subrogation
regarding the settlement recovery of the participant. The
participant claimed the plan had no right to participate in
that recovery, because the son's unpaid medical bills
exceeded the amount recovered in the settlement. In other
words, because the son had not been made whole, the
participant argued that the plan's subrogation right was not
mature. While this dispute was being litigated, the
participant made an unrelated claim for benefits for his own
medical care. The plan denied his claim on the ground that
the participant owed the plan money for the benefits
previously paid to the son. Id. at 38.
We held in Guy that because the son had not been made
whole by the settlement recovery, the plan's right to
subrogation regarding that recovery was not mature.
Accordingly, the plan's denial of benefits—which was based
on the plan's view of its subrogation rights—was deemed to
be arbitrary and capricious. Id. at 39.
9
In Sunbeam, the Fifth Circuit concluded that the plan
before it was not ambiguous on the issue of whether the plan
could exercise its right of subrogation before a plan beneficiary
was "made whole." See 102 F.3d at 1376. Because the plan was
not ambiguous, the Sunbeam Court had no cause to decide whether
the "make whole" doctrine should apply as a default rule in ERISA
whole" doctrine applies to limit a plan's subrogation rights where
an insured has not received compensation for his total loss and the
plan does not explicitly preclude operation of the doctrine.
Although we did not describe the "make whole" doctrine as a default
rule in Guy, our analysis in that case is consistent with the
default rule view. See 877 F.2d at 39 (recognizing that there are
possible exceptions to the "make whole" doctrine). We hold today
that the "make whole" doctrine is a default rule in ERISA cases.
Because the "make whole" doctrine is a default rule, the
parties can contract out of the doctrine. Barnes, 64 F.3d at 1395;
Cutting, 993 F.2d at 1297. Indeed, the Fund contends that it has
contracted out of the "make whole" doctrine in its benefits plan.
In support of that argument, the Fund points to the plan's
language, which gives the Fund:
the right to seek repayment from the other party or his
insurance company, or in the event you or your dependent
recovers the amount of medical expense paid by the Fund by
suit, settlement or otherwise from any third person or his
insurer, ... the right to be reimbursed therefor through
subrogation.
That language is standard subrogation language, which we think does
not demonstrate a specific rejection of the "make whole" doctrine.
See Barnes, 64 F.3d at 1395-96 (general subrogation language does
not override "make whole" doctrine). See also Guy, 877 F.2d at 38-
39 (applying the "make whole" doctrine even though the plan had a
right to reimbursement from "all amounts recovered by suit,
settlement or otherwise from any third person or his insurer to the
cases. Id. Nevertheless, the Sunbeam Court expressed without
explanation its reservations about adopting the "make whole"
doctrine as a default rule in ERISA cases. Id. at 1378.
extent of benefits provided hereunder"). An ERISA plan overrides
the "make whole" doctrine only if it includes language
"specifically allow[ing] the Plan the right of first reimbursement
out of any recovery [the participant] was able to obtain even if
[the participant] were not made whole." See Barnes, 64 F.3d at
1395.
The Fund contends that specific language rejecting the "make
whole" doctrine is not necessary where, as in this case, the Fund
has discretion in interpreting the plan. We recognize that in
Cutting v. Jerome Foods, Inc., 993 F.2d 1293 (7th Cir.1993), the
Seventh Circuit held that where a plan did not specifically accept
or reject the "make whole" doctrine, and the administrator had
discretionary authority to interpret ambiguous language in the
plan, it was not arbitrary for the administrator to conclude that
the plan did not incorporate the "make whole" doctrine. Id. at
1299. We decline to follow Cutting. In our Guy decision, we
concluded that the "make whole" doctrine was applicable to a
subrogation dispute even though the administrators of the plan had
discretion to interpret the plan, and the administrators claimed
the "make whole" doctrine was inapplicable. See 877 F.2d at 39-40.
We believe Guy reached the right result. As we explained
above, the "make whole" doctrine exists because parties to an
insurance contract do not always explicitly address what happens
when the insurer pays less than the insured's total loss, and the
insured achieves a recovery from a third party. The effect of the
doctrine is to imply into ambiguous insurance contracts (including
ERISA plans) a default provision governing that situation. Either
the "make whole" doctrine is implied into the plan (the default
scenario), or it is not (if there is clear language rejecting it).
There is no interpretative question for the Fund to consider.
Under the Cutting approach, the Fund could avoid a default
rule of insurance law applicable in the ERISA context merely by
giving itself discretion to interpret the plan. We do not believe
that ERISA gives the Fund that kind of authority, which is denied
to insurance companies not governed by ERISA. Moreover, we think
Cutting 's broad grant of discretion is unwarranted, because if the
Fund wants to escape the "make whole" doctrine, it need only
include language in the plan explicitly providing the Fund with the
right to first recovery, even when a participant or beneficiary is
not made whole. The Fund did not include such language in its
plan. Therefore, the "make whole" doctrine applies to this case.
III. CONCLUSION
We REVERSE the district court's grant of summary judgment to
Genesis on its request for a declaration that the Fund must accept
Bruner's modified subrogation agreement and process Genesis' claims
thereafter. The Fund need not pay Genesis or Bruner until Bruner
signs an unmodified, standard subrogation agreement. At that time,
Genesis will have a right to receive payment for whatever the plan
owes Cobbie Jr. for his treatment at Genesis.
We AFFIRM the district court's grant of summary judgment to
Nancy Bruner on her request for a declaration that the Fund may not
participate in any recovery from a third party until Cobbie Jr. is
made whole. We REMAND to the district court for further
proceedings consistent with this opinion.