California Insurance Guarantee v. Alex M. Azar, II

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
CALIFORNIA INSURANCE GUARANTEE Nos. 17-56526
ASSOCIATION, 17-56528
Plaintiff-Appellee/
Cross-Appellant, D.C. No.
2:15-cv-01113-
v. ODW-FFM
ALEX M. AZAR II, Secretary of
Health and Human Services; U.S. OPINION
DEPARTMENT OF HEALTH & HUMAN
SERVICES; CENTER FOR MEDICARE
AND MEDICAID SERVICES,
Defendants-Appellants/
Cross-Appellees.
Appeal from the United States District Court
for the Central District of California
Otis D. Wright II, District Judge, Presiding
Argued and Submitted May 16, 2019
Pasadena, California
Filed October 10, 2019
2 CAL. INS. GUARANTEE ASS’N V. AZAR
Before: Jacqueline H. Nguyen and John B. Owens, Circuit
Judges, and Michael M. Baylson, * District Judge.
Opinion by Judge Nguyen
SUMMARY **
Medicare / Preemption
The panel reversed the district court’s judgment in favor
of Medicare in an action brought by the California Insurance
Guarantee Association (“CIGA”), seeking declaratory relief
after Medicare paid for and demanded reimbursement from
CIGA for medical expenses of certain individuals whose
workers’ compensation benefits CIGA was administering.
CIGA provides funding when one of its member insurers
becomes insolvent and unable to pay its insureds’ claims.
California state law prohibited CIGA from reimbursing state
and federal government agencies, including Medicare. The
district court concluded that federal law preempted
California law to the extent it prohibited CIGA from
reimbursing Medicare.
The panel held that as a “secondary payer,” Medicare
was entitled to seek reimbursement from a beneficiary’s
“primary payer,” typically private insurance. The panel
*
The Honorable Michael M. Baylson, United States District Judge
for the Eastern District of Pennsylvania, sitting by designation.
**
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
CAL. INS. GUARANTEE ASS’N V. AZAR 3
further held that CIGA was not a primary plan, and
specifically not a “workmen’s compensation law or plan,”
42 U.S.C. § 1395y(b)(2)(A)(ii), but instead CIGA was an
insolvency insurer of last resort. The panel noted that
insurance regulation was a field traditionally occupied by the
states, and the panel presumed that the Medicare secondary
payer provisions did not preempt state insurance laws unless
Congress clearly manifested its intent to do so. The panel
held that nothing in the Medicare statute or its implementing
regulations suggested that Congress meant to interfere with
state schemes to protect against insurer insolvencies. The
panel reversed and remanded for further proceedings.
COUNSEL
Daniel Tenny (argued) and Alisa B. Klein, Appellate Staff;
Nicola T. Hanna, United States Attorney; Joseph H. Hunt,
Assistant Attorney General; Civil Division, United States
Department of Justice, Washington, D.C.; for Defendants-
Appellants/Cross-Appellees.
Steven T. Whitmer (argued), Hugh S. Balsam, and Julie L.
Young, Locke Lord LLP, Chicago, Illinois, for Plaintiff-
Appellee/Cross-Appellant.
Benjamin F. Aiken, Orrick Herrington & Sutcliffe LLP,
Washington, D.C.; John Blatt, National Conference of
Insurance Guaranty Funds, Indianapolis, Indiana; Thomas
Welsh, Orrick Herrington & Sutcliffe LLP, Sacramento,
California; for Amicus Curiae National Conference of
Insurance Guaranty Funds.
Xavier Becerra, Attorney General; Diane S. Shaw, Senior
Assistant Attorney General; Lisa W. Chao, Supervising
4 CAL. INS. GUARANTEE ASS’N V. AZAR
Deputy Attorney General; Laura E. Robbins, Deputy
Attorney General; Office of the Attorney General, Los
Angeles, California; for Amicus Curiae Dave Jones,
Insurance Commissioner of the State of California.
OPINION
NGUYEN, Circuit Judge:
California requires insurers providing certain types of
coverage to participate in the California Insurance Guarantee
Association (“CIGA”), which provides funding when a
member insurer becomes insolvent and unable to pay its
insureds’ claims. State law prohibits CIGA from
reimbursing state and federal government agencies,
including Medicare.
CIGA filed this declaratory action after Medicare paid
for and demanded reimbursement from CIGA for medical
expenses of certain individuals whose workers’
compensation benefits CIGA was administering. The
district court ruled in favor of Medicare, concluding that
federal law preempted California law to the extent it
prohibited CIGA from reimbursing Medicare. We reverse.
As a “secondary payer,” Medicare is entitled to seek
reimbursement from a beneficiary’s “primary payer,”
typically private insurance. But CIGA is not a primary plan,
and specifically not a “workmen’s compensation law or
plan.” 42 U.S.C. § 1395y(b)(2)(A)(ii). Instead, it is an
insolvency insurer of last resort. Insurance regulation is a
field traditionally occupied by the states, and we must
presume that the Medicare secondary payer provisions do
not preempt state insurance laws unless Congress clearly
manifested its intent to do so. Nothing in the Medicare
CAL. INS. GUARANTEE ASS’N V. AZAR 5
statute or its implementing regulations suggests that
Congress meant to interfere with state schemes designed to
protect against insurer insolvencies. We therefore remand
for further proceedings.
I. Background
A. California’s Guarantee Act
Beginning in the 1930s, individual states experimented
with insurance guaranty funds to address the problem of
insurer insolvencies. See, e.g., Carpenter v. Pac. Mut. Life
Ins. Co. of Cal., 74 P.2d 761, 773 (Cal. 1937) (recognizing
California’s “comprehensive statutory scheme” regarding
“the rehabilitation and liquidation of insurance companies”),
aff’d sub nom. Neblett v. Carpenter, 305 U.S. 297 (1938);
see also Michael P. Duncan, The NAIC Model Property and
Casualty Post-Assessment Guaranty Funds, in American
Bar Association, Law and Practice of Insurance Company
Insolvency 460 (David M. Spector ed., 1986). At first, these
funds concerned a single type of insurance, such as workers’
compensation or taxicab liability. Duncan, supra, at 460.
Following a spate of insolvencies by automobile insurers in
the 1950s and 60s, Congress entertained various legislative
proposals that would have created a nationwide scheme. Id.
The first proposed bill was limited to automobile insurance,
but a later proposal would have covered virtually all property
and casualty insurance. See Linda M. Lasley et al.,
Insurance Guaranty Funds: The New “Money Pit”?, in
Practicing Law Institute, Insolvency and Solidity of
Insurance Companies 115–18 (1987).
Under the threat of federal regulation, the insurance
industry in the late 1960s successfully lobbied individual
states to enact guaranty funds, most based on the National
Association of Insurance Commissioners’ model act. Id.
6 CAL. INS. GUARANTEE ASS’N V. AZAR
at 116–19. Congress dropped plans to legislate in this area,
and today every state has some form of insurer insolvency
scheme. Id. at 119. California’s scheme, CIGA, was
established in 1969 by the Guarantee Act, Cal. Ins. Code
§§ 1063–1063.18, to insure against “loss arising from the
failure of an insolvent insurer to discharge its obligations
under its insurance policies.” Isaacson v. CIGA, 750 P.2d
297, 303 (Cal. 1988) (quoting Biggs v. CIGA, 179 Cal. Rptr.
16, 17 (Ct. App. 1981)).
An insurer’s participation in CIGA is mandatory. See id.
(citing Cal. Ins. Code §§ 1063(a), 1063.1(a)). When a
member insurer becomes insolvent, the Guarantee Act
authorizes CIGA to discharge certain of the defunct insurer’s
obligations referred to as “covered claims.” Middleton v.
Imperial Ins. Co., 666 P.2d 1, 3 (Cal. 1983). CIGA funds
the covered claims in part by collecting premiums from its
member insurers in proportion to their market share. See id.
(citing Cal. Ins. Code §§ 1063.1(c), 1063.5). Policyholders
of the insolvent insurer who opt to proceed through CIGA
“assign their claims against the estate of the insolvent insurer
to CIGA.” Id. (citing Cal. Ins. Code § 1063.4). CIGA then
becomes a creditor in the insolvency proceeding and
“share[s] in the assets of the insolvent company on final
distribution.” Id. (citing Cal. Ins. Code § 1033). After
paying the covered claims, CIGA applies any
reimbursements from the liquidator and unused member
premiums “to reduce future premium charges.” Cal. Ins.
Code § 1063.5(g).
As an insolvency insurer, CIGA “provides a limited form
of protection for the public, and not for the protection of
insurers.” Interstate Fire & Cas. Ins. Co. v. CIGA, 178 Cal.
Rptr. 673, 677 (Ct. App. 1981). CIGA “does not assume
responsibility for claims where there is any other insurance
CAL. INS. GUARANTEE ASS’N V. AZAR 7
available,” and is thus “an insurer of last resort.” R. J.
Reynolds Co. v. CIGA, 1 Cal. Rptr. 2d 405, 408 (Ct. App.
1991); see Cal. Ins. Code § 1063.1(c)(9)(A). In addition,
CIGA’s obligation is generally limited to “a claim by . . . the
original claimant under the insurance policy in his or her
own name.” Cal. Ins. Code § 1063.1(c)(9)(B). CIGA does
not cover “a claim asserted by an assignee or one claiming
by right of subrogation,” id., or “any obligations to insurers,
insurance pools, or underwriting associations, [or] their
claims for contribution, indemnity, or subrogation,” id.
§ 1063.1(c)(5).
In particular, CIGA is prohibited from paying “any
obligations to a state or to the federal government.” Id.
§ 1063.1(c)(4). If a person has “a claim or legal right of
recovery under any governmental insurance or guaranty
program that is also a covered claim,” the person must “first
exhaust his or her right under the program” before seeking a
recovery from CIGA for any remaining unpaid portion of the
claim. Id. § 1063.2(e).
B. The Medicare Act and Secondary Payer Provisions
Medicare is a federally funded health insurance program
that primarily benefits aged and disabled persons. Palomar
Med. Ctr. v. Sebelius, 693 F.3d 1151, 1154–55 (9th Cir.
2012). Since its 1965 enactment, Medicare has paid claims
covered by workers’ compensation on a secondary basis.
The Medicare Act provides that when “payment has been
made, or can reasonably be expected to be made . . . under a
workmen’s compensation law or plan,” any payment by
Medicare for the medical service “shall be conditioned on
reimbursement.” Health Insurance for the Aged Act, Pub.
L. No. 89-97, § 1862(b), 79 Stat. 286, 325 (1965) (codified
at 42 U.S.C. § 1395y(b)(2)(A)(ii), (b)(2)(B)(i)).
8 CAL. INS. GUARANTEE ASS’N V. AZAR
Other than medical services covered by workers’
compensation insurance, Medicare was originally the
primary payer of its beneficiaries’ medical costs, “even
when such services were covered by other insurance.”
Zinman v. Shalala, 67 F.3d 841, 843 (9th Cir. 1995). During
the 1980s, to cut the program’s burgeoning costs, Congress
amended the Medicare Act several times by expanding the
situations in which Medicare was a secondary payer and
facilitating Medicare’s ability to seek reimbursement from
primary payers. 1 See Haro v. Sebelius, 747 F.3d 1099, 1105
(9th Cir. 2014).
The statute now “forbid[s] Medicare payments when a
primary plan . . . is reasonably expected to make payment for
the same medical care.” Id. (citing 42 U.S.C.
§ 1395y(b)(2)(A)–(B)). As relevant here, “the term ‘primary
plan’ means . . . a workmen’s compensation law or plan, an
automobile or liability insurance policy or plan (including a
1
See Omnibus Budget Reconciliation Act of 1980, Pub. L. No. 96-
499, § 953, 94 Stat. 2599, 2647 (making Medicare the secondary payer
for services covered under “under an automobile or liability insurance
policy or plan . . . or under no fault insurance”); Deficit Reduction Act
of 1984, Pub. L. No. 98-369, § 2344, 98 Stat. 494, 1095 (authorizing the
United States to bring an action against a primary payer to recover
payments); Omnibus Budget Reconciliation Act of 1986, Pub. L. No. 99-
509, § 9319, 100 Stat. 1874, 2010–11 (making Medicare the secondary
payer for certain disabled employees covered by large group health plans
and authorizing a private cause of action against primary payers that fail
to pay beneficiaries); Omnibus Budget Reconciliation Act of 1989, Pub.
L. No. 101-239, § 6202, 103 Stat. 2106, 2225–32 (introducing
“secondary payer” terminology and improving the mechanism for
Medicare to determine when it is a secondary payer).
CAL. INS. GUARANTEE ASS’N V. AZAR 9
self-insured plan) or no fault insurance.” 2 42 U.S.C.
§ 1395y(b)(2)(A).
“[W]hen a primary insurer cannot reasonably be
expected to pay promptly,” the statute permits Medicare to
make a conditional payment that later must be reimbursed.
Haro, 747 F.3d at 1105 (citing 42 U.S.C.
§ 1395y(b)(2)(B)(i)–(ii)). Medicare is entitled to recover
this payment by filing a lawsuit against the primary plan. Id.
(citing 42 U.S.C. § 1395y(b)(2)(B)(iii)). If the primary plan
has already disbursed the funds at issue, Medicare can
recover them from any entity that currently possesses them,
including the plan beneficiary or an attorney. See 42 U.S.C.
§ 1395y(b)(2)(B)(iii); Haro, 747 F.3d at 1105.
C. Procedural History
CIGA administers the workers’ compensation claims of
several Medicare beneficiaries whose insurers became
insolvent. CIGA alerted Medicare’s administrator, the
Center for Medicare Services (“CMS”), that these
individuals may be Medicare beneficiaries. CMS, which
contends that CIGA is a primary payer of medical expenses
related to these individuals’ work injuries, demanded that
CIGA reimburse it for conditional payments that CMS had
made on the Medicare beneficiaries’ behalf. When the
parties could not resolve their dispute over CIGA’s liability
for the conditional payments, CIGA filed suit against CMS
and related government defendants seeking declaratory and
injunctive relief.
2
In certain circumstances, a “primary plan” also includes “a group
health plan or large group health plan.” 42 U.S.C. § 1395y(b)(2)(A).
10 CAL. INS. GUARANTEE ASS’N V. AZAR
The district court determined that under the Medicare
Act, CIGA is a primary plan for the workers’ compensation
claims it was administering and that CMS was entitled to
reimbursement for the conditional payments it had made
because any contrary provisions in the Guarantee Act were
preempted. After the district court’s resolution of subsidiary
issues, 3 the parties stipulated to entry of judgment, from
which both sides appeal.
II. Jurisdiction and Standard of Review
The district court had jurisdiction under 28 U.S.C.
§ 1331. We have jurisdiction under 28 U.S.C. § 1291. 4 We
review de novo the district court’s ruling that CIGA is a
primary payer liable for the conditional payments CMS
made on behalf of Medicare beneficiaries. See Allied
3
CIGA challenges the district court’s ruling that the federal
government as sovereign is immune from the Guarantee Act’s claim-
filing deadline, and CMS disputes the court’s ruling that its billing
practices were potentially unlawful. We need not reach either issue in
light of our conclusion that CIGA is not a primary payer.
4
We considered the parties’ supplemental briefs and agree with the
parties that the district court’s judgment was final. Although the court
did not resolve all issues necessary to determine whether CMS’s billing
practices were unlawful in three instances, CIGA abandoned its claims
for declaratory and injunctive relief beyond that which the district court
had already provided when it stipulated to entry of judgment on the
court’s extant orders. See Golan v. Pingel Enter., Inc., 310 F.3d 1360,
1366 n.3 (Fed. Cir. 2002) (applying Ninth Circuit law); James v. Price
Stern Sloan, Inc., 283 F.3d 1064, 1070 (9th Cir. 2002) (“We . . . hold that
when a party that has suffered an adverse partial judgment subsequently
dismisses remaining claims without prejudice with the approval of the
district court, and the record reveals no evidence of intent to manipulate
our appellate jurisdiction, the judgment entered after the district court
grants the motion to dismiss is final and appealable under 28 U.S.C.
§ 1291.”).
CAL. INS. GUARANTEE ASS’N V. AZAR 11
Concrete & Supply Co. v. Baker, 904 F.3d 1053, 1060 (9th
Cir. 2018).
III. Discussion
A. Legal Principles Governing Preemption
Every preemption case is guided by two jurisprudential
cornerstones. First, “the purpose of Congress is the ultimate
touchstone.” Wyeth v. Levine, 555 U.S. 555, 565 (2009).
Second, courts “start with the assumption that the historic
police powers of the States were not to be superseded by the
Federal Act unless that was the clear and manifest purpose
of Congress,” “particularly in those [cases] in which
Congress has ‘legislated . . . in a field which the States have
traditionally occupied.’” Id. Insurance is such a field. See,
e.g., Galilea, LLC v. AGCS Marine Ins. Co., 879 F.3d 1052,
1058 (9th Cir. 2018); see also McCarran-Ferguson Act, Pub.
L. No. 79-15, § 2(b), 59 Stat. 33, 34 (1945) (“No Act of
Congress shall be construed to invalidate, impair, or
supersede any law enacted by any State for the purpose of
regulating the business of insurance, or which imposes a fee
or tax upon such business, unless such Act specifically
relates to the business of insurance . . . .”) (codified at
15 U.S.C. § 1012(b)). 5
Congressional intent “primarily is discerned from the
language of the preemption statute and the statutory
framework surrounding it.” Omnipoint Commc’ns, Inc. v.
City of Huntington Beach, 738 F.3d 192, 193 (9th Cir. 2013)
5
The district court concluded—and we assume without deciding—
that the McCarran-Ferguson Act is inapplicable to the preemption
question here because Medicare’s secondary payer provisions
specifically relate to insurance. See United States v. R.I. Insurers’
Insolvency Fund (“RIIIF”), 80 F.3d 616, 622 (1st Cir. 1996).
12 CAL. INS. GUARANTEE ASS’N V. AZAR
(quoting Medtronic, Inc. v. Lohr, 518 U.S. 470, 486 (1996)).
In addition, courts consider “the structure and purpose of the
statute as a whole,” including “the way in which Congress
intended the statute and its surrounding regulatory scheme
to affect . . . the law and parties whose actions are affected
by the statute.” Id. (quoting Lohr, 518 U.S. at 486) (internal
quotation mark omitted). Agency regulations that
reasonably interpret the statute are accorded Chevron
deference when determining the statute’s preemptive effect.
See Reid v. Johnson & Johnson, 780 F.3d 952, 964 (9th Cir.
2015) (citing Chevron, U.S.A., Inc. v. Nat. Res. Def. Council,
Inc., 467 U.S. 837, 843–44 (1984)).
When determining the meaning of a particular term,
courts “look to the ordinary meaning.” Ass’n des Éleveurs
de Canards et d’Oies du Quebec v. Becerra, 870 F.3d 1140,
1147 (9th Cir. 2017), cert. denied, 139 S. Ct. 862 (2019). In
both express and conflict preemption, “when the text of a
pre-emption clause is susceptible of more than one plausible
reading, courts ordinarily ‘accept the reading that disfavors
pre-emption.’” McClellan v. I-Flow Corp., 776 F.3d 1035,
1039 (9th Cir. 2015) (quoting Altria Grp., Inc. v. Good,
555 U.S. 70, 77 (2008)).
B. Medicare’s Secondary Payer Provisions do not Apply
to CIGA
The district court ruled that the Medicare Act’s
secondary payer provisions applied to CIGA because they
preempted the Guarantee Act both expressly and through an
implied conflict. Both preemption analyses turned on the
district court’s conclusion that CIGA is a “primary plan,”
making it impossible for CIGA to comply with both
CAL. INS. GUARANTEE ASS’N V. AZAR 13
Medicare’s demand for reimbursement and the Guarantee
Act’s prohibition of paying a government agency. 6
Medicare regulations define “primary plan” to mean, “in
the context in which Medicare is the secondary payer, a
group health plan or large group health plan, a workers’
compensation law or plan, an automobile or liability
insurance policy or plan (including a self-insured plan), or
no-fault insurance.” 42 C.F.R. § 411.21 (emphasis added);
accord 42 U.S.C. § 1395y(b)(2)(A). CIGA does not fall
within the plain meaning of this definition because it is not a
workers’ compensation law or plan.
California categorizes insurance into various “classes,”
see Cal. Ins. Code § 100, such as workers’ compensation
insurance, id. § 109, automobile insurance, id. § 116, and
liability insurance, id. § 108. While the Guarantee Act
protects against defaults by insurers of these three classes, 7
see CD Inv. Co. v. CIGA, 101 Cal. Rptr. 2d 806, 810 (Ct.
App. 2000) (citing Cal. Ins. Code § 1063(a)), CIGA itself is
not one of them. Rather, it falls within the class of
insolvency insurance. See Cal. Ins. Code § 119.5; Isaacson,
750 P.2d at 303.
6
Though the Medicare Act’s secondary payer provisions do not
contain a preemption clause, the agency’s regulations do: “Medicare
benefits are secondary to benefits payable by a primary payer even if
State law or the primary payer states that its benefits are secondary to
Medicare benefits or otherwise limits its payments to Medicare
beneficiaries.” 42 C.F.R. § 411.32(a)(1).
7
A similar statutory scheme governs life and health insurance. See
Cal. Ins. Code §§ 1067–1067.19; Penn. Health & Life Ins. Guar. Ass’n
v. Superior Court, 27 Cal. Rptr. 2d 507, 510 n.5 (Ct. App. 1994).
14 CAL. INS. GUARANTEE ASS’N V. AZAR
This distinction is reflected in California’s two separate
statutory schemes for workers’ compensation and insurer
insolvencies. See Cal. Labor Code §§ 3200–6149 (workers’
compensation); Cal. Ins. Code §§ 1063–1063.18 (Guarantee
Act); see also Richards D. Barger, California Insurance
Guarantee Association, 45 State Bar J. 475, 476 (1971)
(pointing out that “Article 14.2 creating [CIGA] is
physically adjacent to those relevant sections relating to
proceedings in cases of insolvencies and delinquencies”). It
is also reflected in state court decisions distinguishing CIGA
from a workers’ compensation carrier.
CIGA is “an insurer of last resort” and thus “assumes
responsibility for claims only when no secondary insurer is
available.” Denny’s Inc. v. Workers’ Comp. Appeals Bd.,
129 Cal. Rptr. 2d 53, 59 (Ct. App. 2003); see also R. J.
Reynolds Co. v. CIGA, 1 Cal. Rptr. 2d 405, 408 (Ct. App.
1991) (“[W]here an insured has overlapping insurance
policies and one insurer becomes insolvent, the other insurer,
even if only a secondary or excess insurer, is responsible for
paying the claim [rather than CIGA].”). Denny’s
distinguished CIGA’s obligation to provide “insolvency
insurance” from a workers’ compensation insurer’s
obligation to provide “insurance against loss from liability
imposed by law upon employers to compensate employees
. . . for injury . . . arising out of and in the course of the
employment.” 129 Cal. Rptr. 2d at 56–58.
In CIGA v. Workers’ Compensation Appeals Board, 39
Cal. Rptr. 3d 721 (Ct. App. 2006), the court confronted a
dispute over CIGA’s responsibility to reimburse another
government agency—California’s Employment
Development Department (“EDD”). After providing
temporary disability benefits to two individuals while their
workers’ compensation claims were pending, EDD filed lien
CAL. INS. GUARANTEE ASS’N V. AZAR 15
claims for reimbursement from the Workers’ Compensation
Appeals Board. Id. at 722–23 & 723 n.1. Because the
workers’ compensation carriers were insolvent, CIGA had
been administering the workers’ compensation claims. Id.
at 723. EDD argued “that CIGA is required to provide
workers’ compensation benefits and, therefore, it is bound to
reimburse EDD.” Id. at 725. The court disagreed. While
EDD was “[u]ndisputedly . . . entitled to reimbursement . . .
when the employer’s insurance company [was] solvent,”
EDD was not entitled to reimbursement from CIGA because
“CIGA’s obligations are not coextensive with those of
solvent insurers.” Id.
It makes little sense to interpret the statutory phrase
“primary plan” to refer to a payer of last resort. The
Medicare statute describes Medicare only as “secondary.”
Under agency regulations, the term “secondary” refers to
benefits that “are payable only to the extent that payment has
not been made and cannot reasonably be expected to be
made under other coverage that is primary to Medicare.”
42 C.F.R. § 411.21 (emphasis added). The qualifying
phrase “that is primary to Medicare” implies the existence of
coverage that is not primary to Medicare. Indeed, the agency
has acknowledged one such example: “Medicare is [the]
primary payer with respect to Medicaid” because Medicaid
is “the payer of last resort.” Final Rule: Medicare as
Secondary Payer and Medicare Recovery Against Third
Parties, 54 Fed. Reg. 41,716, 41,721 (Oct. 11, 1989).
Medicare regulations do not define “a workers’
compensation law or plan.” They do, however, provide
illuminating examples. The term “includes the workers’
compensation plans of the 50 States, the District of
Columbia, American Samoa, Guam, Puerto Rico, and the
Virgin Islands, as well as the systems provided under the
16 CAL. INS. GUARANTEE ASS’N V. AZAR
Federal Employees’ Compensation Act and the
Longshoremen’s and Harbor Workers’ Compensation Act.”
42 C.F.R. § 411.40(a). While these examples are not meant
to be exhaustive, CIGA, an insurer insolvency scheme, is
dissimilar to all of them, suggesting that it is not a workers’
compensation plan. See In re W. States Wholesale Nat. Gas
Antitr. Litig., 715 F.3d 716, 733 n.13 (9th Cir. 2013)
(“Noscitur a sociis means that ‘a word is known by the
company it keeps,’ and this canon is applied ‘where a word
is capable of many meanings in order to avoid the giving of
unintended breadth to the Acts of Congress.’” (quoting
Jarecki v. G.D. Searle & Co., 367 U.S. 303, 307 (1961))).
The agency first adopted this regulation in 1966. See
Rules and Regulations: Exclusions, Recovery of
Overpayment, and Liability of a Certifying Officer, 31 Fed.
Reg. 13,534, 13536 (Oct. 20, 1966). Almost all states
adopted insurance guaranty funds shortly thereafter. See
Lasley et al., supra, at 119. More than half a century later,
the agency has expanded its examples of a “workers
compensation law or plan” to include the workers’
compensation plans of American Samoa, Guam, and the
Virgin Islands, yet the regulation continues to omit any
mention of the state insurer solvency schemes. Given a
state’s “important and vital interest in the liquidation or
reorganization of [insurance companies],” Carpenter,
74 P.2d at 774, the five decades of Congressional and agency
inaction regarding insurer insolvency schemes further
suggests that their omission from the Medicare statute and
regulations was deliberate.
Other parts of the Medicare statute confirm that
Congress did not intend to disrupt state laws governing
insurer solvency. The Medicare Act contains a preemption
provision that Medicare standards “shall supersede any State
CAL. INS. GUARANTEE ASS’N V. AZAR 17
law or regulation” regarding Medicare Advantage plans
under Part C and prescription drug plans under Part D. Do
Sung Uhm v. Humana, Inc., 620 F.3d 1134, 1148 (9th Cir.
2010) (quoting 42 U.S.C. § 1395w-26(b)(3)); see 42 U.S.C.
§ 1395w-112(g). This preemption provision originally
applied broadly to any state law that was inconsistent with
federal requirements. See H.R. Rep. No. 108-391, at 556–
57 (Conf. Rep.). In 2003, after “some confusion in recent
court cases,” id. at 557, Congress clarified that the
preemption provision did not apply to “State laws relating to
plan solvency.” 42 U.S.C. § 1395w-26(b)(3).
Insurance is “[a] contract by which one party . . .
undertakes to indemnify another party . . . against risk of
loss, damage, or liability arising from the occurrence of
some specified contingency.” Insurance, Black’s Law
Dictionary (11th ed. 2019). As the district court correctly
recognized, “in the case of a workers’ compensation
insurance plan,” the “specified contingency . . . is the insured
employee’s work-related injury.” And, as the court
acknowledged, CIGA “is an arrangement through which
other California insurers provide health benefits or medical
care for [the insured’s illness, injury, or loss] when one of its
member insurance companies become insolvent” (emphasis
added). See also Olivier v. Merritt Dredging Co., 979 F.2d
827, 830 (11th Cir. 1992) (explaining that insurance
guarantee funds “aid and benefit numerous citizens who
have suffered losses due to the insolvency of their insurers”
(emphasis added)). Thus, CIGA’s obligations are triggered
by an entirely different contingency—an insurer’s
insolvency—than are those of a workers’ compensation
plan. Because an insured employee’s work-related injury is
insufficient to trigger CIGA’s obligations, CIGA is not a
workers’ compensation insurer.
18 CAL. INS. GUARANTEE ASS’N V. AZAR
By focusing on CIGA’s obligation to pay for medical
care, the district court improperly classified it as a workers’
compensation plan based on the benefits it provides rather
than the loss it protects against. See Mason v. Am. Tobacco
Co., 346 F.3d 36, 40 (2d Cir. 2003) (rejecting argument that
corporations were “primary plans” just “because the
corporate structure through which each conducts its business
has the purpose and legal effect, in part, to assume legal
liability for injury”). This mode of analysis would lead to
strange results.
For example, legal malpractice insurance, which is not a
“primary plan” under the Medicare Act, typically does not
cover physical injuries that an attorney causes. It is distinct
from personal liability insurance, which is a “primary plan.”
Yet if an attorney mishandles a physically injured client’s
case and the attorney’s legal malpractice insurer pays the
client money as damages for the client’s unrecovered
medical expenses, the legal malpractice insurance does, in
some sense, “assume legal liability for injury.” 42 C.F.R.
§ 411.21 (defining “plan”). 8 But the legal malpractice
insurance “does not have primary responsibility to pay for
the claimant’s medical injuries. That primary responsibility
falls on the insurers who insure the parties involved in the
incident.” Or. State Bar Prof’l Liab. Fund v. U.S. Dep’t of
Health & Human Servs., No. 3:10-cv-01392-HZ, 2012 WL
1071127, at *5 (D. Or. Mar. 29, 2012) (emphasis added); cf.
Thompson v. Goetzmann, 337 F.3d 489, 499 (5th Cir. 2003)
(rejecting “unreasonably broad interpretation” that tortfeasor
who settled with beneficiary was self-insured and thus liable
8
The parties dispute whether CIGA is a “plan” under this regulation.
We need not decide the issue, however, because the Medicare Act covers
only certain specified plans, and CIGA is not among them.
CAL. INS. GUARANTEE ASS’N V. AZAR 19
to Medicare because the statute “explicitly speaks in terms
of insurance plans that provide primary medical
coverage”). 9 The legal malpractice insurer does not become
obligated for medical expenses without the occurrence of
some intervening event—the attorney’s negligence—that
has nothing to do with the medical injuries.
CMS cites to the First Circuit’s decision in RIIIF, in
which Rhode Island’s analogue to CIGA argued that it is
neither a “plan,” “because an insurance insolvency-
guarantor statute . . . is not an insurance ‘policy,’” nor a
primary plan, “because it is not the Medicare beneficiaries’
private insurance carrier, but rather a non-profit
governmental agency.” 80 F.3d at 623. The First Circuit
summarily rejected both arguments: “The [Rhode Island
statute] itself provides that, upon a declaration of insolvency,
the Fund is ‘deemed the insurer to the extent of the
obligations [under the policy] on the covered claims,’
subject solely to specified limitations on the amount of
coverage. Thus, the Fund is deemed the private insurer, and
hence a ‘primary plan’ . . . .” Id. (alteration in original)
(citation omitted) (quoting R.I. Gen. Laws § 27-34-8(a)(2)).
We agree with RIIIF that an insurer insolvency fund’s
status as a statutorily created nonprofit government entity is
irrelevant to whether it is a primary plan. If a state agency
functions like an insurance company, then it is treated like
one. See, e.g., 42 C.F.R. § 411.40(a). Unlike the scheme at
issue in RIIIF, however, “CIGA is not, and was not created
to act as, an ordinary insurance company.” Isaacson,
750 P.2d at 304. Because CIGA’s authority to disperse
9
The statute was amended at the end of 2003 to make tortfeasors
liable. See Bio-Med. Applications of Tenn., Inc. v. Cent. States Se. & Sw.
Areas Health & Welfare Fund, 656 F.3d 277, 289–90 (6th Cir. 2011).
20 CAL. INS. GUARANTEE ASS’N V. AZAR
funds to the insured is limited to “covered claims,” see Cal.
Ins. Code § 1063.2, it “does not ‘stand in the shoes’ of the
insolvent insurer for all purposes.” Isaacson, 750 P.2d
at 304–05 (quoting Biggs v. CIGA, 179 Cal. Rptr. 16, 18
(Ct. App. 1981)). For example, unlike a private carrier,
CIGA is not liable to an insured for tortiously mishandling a
covered claim. See id. at 306.
Finally, even if CIGA could be construed as a workers’
compensation law or plan, and hence a primary payer, a
contrary interpretation is more than plausible. Well-
established preemption principles favor upholding state law
if it can plausibly coexist with the federal statute. See Altria
Grp., 555 U.S. at 77.
IV. Conclusion
Because CIGA is not a primary plan under the Medicare
Act’s secondary payer provisions, it has no obligation to
reimburse CMS for conditional payments made on behalf of
workers’ compensation insureds. Therefore, we reverse and
remand for further proceedings consistent with this opinion.
REVERSED and REMANDED.