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Where a patchwork scheme of regulation would introduce considerable inefficiencies in benefit program operation, the court applies the preemption clause to ensure that benefit plans will be governed by only a single set of regulations.
Section 514(a) of the Employee Retirement Income Security Act of 1974 (ERISA) (29 USCS 1144(a)), states that except as provided by 514(b), ERISA supersedes all state laws insofar as they may relate to any employee benefit plan. Section 514(b) contains a "saving clause" (29 USCS 1144(b)(2)(A)), which reserves to the states the power to enforce state laws regulating insurance, and a "deemer clause" (29 USCS 1144(b)(2)(B)), which provides that an employee benefit plan governed by ERISA shall not be deemed an insurance company, an insurer, or engaged in the business of insurance for the purposes of any state law purporting to regulate insurance companies or insurance contracts. A Pennsylvania statute provides that in actions arising out of the maintenance or use of a motor vehicle, there shall be no right of subrogation or reimbursement from a claimant's tort recovery with respect to benefits payable under any program, group contract, or other arrangement for the payment of benefits.
Respondent Cynthia Ann Holliday is the daughter of Gerard Holliday, an employee covered by FMC’s employee welfare benefit plan. She was seriously injured in an automobile accident, and the plan paid a portion of her medical expenses. The plan was self-funded and did not purchase any insurance policy to satisfy its obligations. The provisions of the plan included a subrogation clause under which a plan member agreed to reimburse the plan for benefits paid if the member recovered on a liability claim against a third party. Gerard brought a negligence action in Pennsylvania state court against the driver of the automobile in which his daughter was injured. The claim was settled. While the action was pending, FMC notified Gerard that it would seek reimbursement for the amounts the plan had paid for his daughter's medical expenses. Gerard and his daughter contended that the Pennsylvania statute precluded such reimbursement. Cynthia filed a diversity action in the United States District Court for the Western District of Pennsylvania and obtained a declaratory judgment that the Pennsylvania statute prohibited FMC’s exercise of subrogation rights. On appeal, the United States Court of Appeals for the Third Circuit affirmed, holding that (1) the Pennsylvania statute, unless pre-empted, barred FMC from enforcing the plan's subrogation provision; and (2) ERISA did not pre-empt the Pennsylvania statute, inasmuch as ERISA's deemer clause (a) was meant mainly to reach back-door attempts by states to regulate core ERISA concerns in the guise of insurance regulation, and (b) did not exempt the employer's plan from state subrogation laws (885 F2d 79).
Does the ERISA preempt the Pennsylvania statute?
Pennsylvania's antisubrogation law "relate[s] to" an employee benefit plan. The court made clear in Shaw v. Delta Air Lines, supra, that a law relates to an employee welfare plan if it has "a connection with or reference to such a plan." The court based its reading in part on the plain language of the statute. Congress used the words "'relate to' in § 514(a) [the pre-emption clause] in their broad sense." It did not mean to pre-empt only state laws specifically designed to affect employee benefit plans. That interpretation would have made it unnecessary for Congress to enact ERISA § 514(b)(4), which exempts from pre-emption "generally" applicable criminal laws of a State. The court also emphasized that to interpret the pre-emption clause to apply only to state laws dealing with the subject matters covered by ERISA, such as reporting, disclosure, and fiduciary duties, would be incompatible with the provision's legislative history because the House and Senate versions of the bill that became ERISA contained limited pre-emption clauses, applicable only to state laws relating to specific subjects covered by ERISA. These were rejected in favor of the present language in the Act, "indicating that the section's pre-emptive scope was as broad as its language."
Here, Pennsylvania's antisubrogation law has a "reference" to benefit plans governed by ERISA. The statute states that "in actions arising out of the maintenance or use of a motor vehicle, there shall be no right of subrogation or reimbursement from a claimant's tort recovery with respect to . . . benefits . . . paid or payable under section 1719." Section 1719 refers to "any program, group contract or other arrangement for payment of benefits." These terms "include, but [are] not limited to, benefits payable by a hospital plan corporation or a professional health service corporation." The Pennsylvania statute also has a "connection" to ERISA benefit plans. In the past, the court has not hesitated to apply ERISA's pre-emption clause to state laws that risk subjecting plan administrators to conflicting state regulations. To require plan providers to design their programs in an environment of differing state regulations would complicate the administration of nationwide plans, producing inefficiencies that employers might offset with decreased benefits. Pennsylvania's antisubrogation law prohibits plans from being structured in a manner requiring reimbursement in the event of recovery from a third party. It requires plan providers to calculate benefit levels in Pennsylvania based on expected liability conditions that differ from those in States that have not enacted similar antisubrogation legislation. Application of differing state subrogation laws to plans would therefore frustrate plan administrators' continuing obligation to calculate uniform benefit levels nationwide. As previously held, "the most efficient way to meet these [administrative] responsibilities is to establish a uniform administrative scheme, which provides a set of standard procedures to guide processing of claims and disbursement of benefits."