Providing for “coordination of benefits” means including a provision in an insurance policy that address what should happen if more than one insurer covers the same claim. Virtually every primary insurance policy will say that, if other insurance exists, the other policy will pay first. Of course, when there are two policies providing coverage, each one typically says the other pays first. Coordination-of-benefits disputes involving deciding whether the provisions conflict, and, if so, how to resolve the conflict. Ordinarily, when policies have conflicting coordination-of-benefits provisions, courts rule that the provisions cancel each other out, and both policies share liability pro rata.
Recent decisions from the Fifth and Sixth Circuits, both involving the same plan, address this issue with mostly consistent outcomes. The two decisions are Central States, SE and SW Areas Health & Welfare Fund v. Health Special Risk, Inc., 756 F.3d 356 (5th Cir. 2014) and Central States SE and SW Areas Health & Welfare Fund v. First Agency, Inc., 756 F.3d 954 (6th Cir. 2014). The plaintiff Fund in both cases provided health benefits to Teamsters and their families. In both cases, the Fund sought to recover from other insurers health benefits it paid, and health benefits it might pay in the future.
The Sixth Circuit held that, unlike a coordination-of-benefits dispute between non-ERISA policies, where conflicting provisions cancel each other out, an ERISA plan trumps non-ERISA plan. First Agency held that “as a matter of federal common law the terms of the ERISA plan, including its coordination of benefits clause, must be given full effect [quotes and brackets omitted].” Thus, [the non-ERISA policy] had the primary responsibility for the medical expenses of the student athletes, and the Fund was entitled to a declaratory judgment to that effect. The court cautioned that, while an ERISA plan could coordinate benefits with a non-ERISA policy, “it may not redefine the coverage of another policy.” The question is whether, in the absence of the ERISA plan, the non-ERISA policy would provide coverage for the loss at issue. If yes, then coordination is appropriate; if no, then coordination is not allowed.
While that would seem to be a boon for ERISA plans, the remedies that plans can pursue under these decisions are narrow, if they exist at all.
Both Health Special Risk and First Agency held that a the Fund could not assert an equitable claim against a non-ERISA insurer to recover health benefits that the ERISA plan paid, but for which the non-ERISA insurer is primarily responsible under the coordination-of-benefits provision. In Health Special Risk, the Fifth Circuit held that none of the Fund’s claims sought appropriate equitable relief, though they were couched in the language of equity, Specifically, the Fund’s plan document did not create a constructive trust or equitable lien against insurers who might be subject to the plan’s coordination of benefits provision. The Fifth Circuit also rejected the argument that it should rely on federal common law to fill a gap in ERISA’s enforcement scheme; the court found that there was no gap, because ERISA specifically addressed the issue by stating that only appropriate equitable relief was available.
In First Agency, the Sixth Circuit reached the same conclusion, finding that the Fund could not state a claim for appropriate equitable relief for reimbursement of benefits it had paid. The relief the Fund sought was a legal money judgment, no matter what equitable cloak it sought to wrap it in.
The Fifth Circuit also found that the Fund was not entitled to a declaratory judgment, either as to past or future benefits. Regarding past benefits, the court held that the Fund “did not request a declaratory judgment, but rather asks this court to ‘requir[e] defendants to pay any unpaid present and future covered medical expenses.’” To the extent the Fund sought a declaration regarding future benefits, “the issue is not ripe for review. The complaint contains no allegation that any of the eleven insureds have sustained new injuries creating a dispute over who must pay their claims.”
In the Sixth Circuit, the district court had granted declaratory relief to the Fund (presumably declaring that the non-ERISA plan provided primary coverage and the Fund provided excess coverage). The Sixth Circuit noted that the defendant did not appeal the declaratory judgment, and therefore let that judgment stand.