STATE OF MINNESOTA
IN COURT OF APPEALS
Illinois Farmers Insurance Co.,
Filed February 9, 1999
Concurring specially, Short, Judge
McLeod County District Court
File No. C795263
Doreen Agnes Mohs, Rider, Bennett, Egan & Arundel, LLP, 2000 Metropolitan Centre, 333 South Seventh Street, Minneapolis, MN 55402 (for respondent)
Considered and decided by Short, Presiding Judge, Toussaint, Judge, and Crippen, Judge.
Appellant disputes the trial court's collateral source deduction from his recovery, contending that he was entitled to an exemption for a prior recovery "from which a subrogation right has been asserted." Minn. Stat. § 548.36, subd. 2(1) (1998) (collateral source statute). The trial court determined that the administrator of a qualified self-funded employee benefits plan, which was regulated by the Employee Retirement Income Security Act (ERISA) and provided benefits to appellant, abused his discretion when he determined that the plan had a lawful subrogation claim.
Because we previously held in this case that ERISA preempted the operation of the collateral source statute, we did not reach the issue addressed here. See Gilhousen v. Ill. Farmers Ins. Co., No. C2-97-414 (Minn. App. Oct. 28, 1997). After reversing this preemption decision, the supreme court remanded the case for the review that is concluded with this opinion. Gilhousen v. Ill. Farmers Ins. Co., 582 N.W.2d 571 (1998). We affirm the trial court's application of the collateral source statute.
Minnesota law provides for a reduction of a damages award when it includes losses the plaintiff can recover from collateral sources. Minn. Stat. § 548.36, subd. 2 (1998). Exempted from such losses are "those for which a subrogation right has been asserted." Id., subd. 2(1).
HTI's plan provides that "[t]he Claims Administrator has discretionary authority to determine eligibility for benefits and to construe the provisions of the Plan." It also states the plan's reimbursement rights from a subsequent recovery "from a third party or its insurer" for those instances where covered expenses are incurred "as a result of any act of a third party for which the third party is or may be liable." Similarly, the plan provides for subrogation to rights of recovery from "any third party that is alleged to be legally responsible to you."
If the plan grants the administrator discretionary authority to construe its provisions, we review whether the interpretation is arbitrary and capricious. See id. (quoting Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S. Ct. 948, 956-57 (1989) (administrator's interpretation that a plan denies benefits is reviewed under an arbitrary and capricious standard)). The distinction between "arbitrary and capricious" and "abuse of discretion" in this context is "virtually `a distinction without a difference.'" Lutheran Med. Ctr. v. Contractors, Laborers, Teamsters & Eng'rs Health & Welfare Plan, 25 F.3d 616, 620 n.2 (8th Cir. 1994) (quoting Cox. v. Mid-America Dairymen, Inc., 965 F.2d 569, 572 n.3 (8th Cir. 1992) and recognizing that the Eighth Circuit has applied an abuse-of-discretion standard).
A plan administrator's interpretation constitutes an abuse of discretion if it is "extremely unreasonable." Kennedy v. Georgia-Pacific Corp., 31 F.3d 606, 609 (8th Cir. 1994) (citation omitted). A key factor to consider in determining whether the administrator's interpretation is extremely unreasonable is whether it "renders any plan language internally inconsistent or meaningless." Id. (citations omitted).
Appellant asserts that HTI's subrogation claim is valid and therefore the collateral source deduction is inappropriate. He relies on Medica, Inc. v. Atlantic Mut. Ins. Co., which recognized the broad scope of a subrogation claim in the medical benefits context, holding that the policy language at issue there did not preclude a claim brought against an entity other than the tortfeasor. 566 N.W.2d 74, 77-78 (1997). But the HTI plan is more specific than the expansive language in Medica that allowed for subrogation against "any party, individual or other entity who may be legally responsible for your injuries." Id. at 77.
The HTI plan ties the reimbursement right to the circumstance where expenses are incurred because of "act of a third party." No "act" of respondent is alleged to have resulted in appellant's covered expenses. Instead, the reference is to a third-party tortfeasor. In this case, the third-party tortfeasor is the unidentified motorist, but this person is by definition unknown and not privy to the action.
The reimbursement clause also provides that the right regards a recovery from "a third party or its insurer." This language corroborates the understanding that the "third party" is the tortfeasor, from whom a recovery is apt to be from its insurer. Incidental to this reading of the language, it is evident that respondent is appellant's insurer, not the insurer for the tortfeasor.
Finally, appellant suggests that respondent is included within the broader subrogation clause that deals with a recovery from "any third party that is legally responsible to you." This interpretation requires a reading of this language that is inconsistent with the like clause on the plan's right of reimbursement, which addresses recoveries from a third party tortfeasor or its insurer. See Kennedy, 31 F.3d 606 at 609 (citing any consequence of internal inconsistency as a key factor in determining whether an interpretation is extremely unreasonable). The clauses employ nearly common language. More importantly, the plan treats the two rights synonymously. In the provisions of the plan, the subrogation clause is added to a statement of the plan's right for reimbursement; in addition to reimbursement rights, the plan "also" calls for subrogation. Moreover, the section of the plan that states these rights repeatedly speaks of its provisions collectively as "subrogation provisions" and of the rights as "subrogation rights." As the trial court concluded:
In the first passages [stating the plan's right of reimbursement], "third party" can only mean the driver, but not a first party UIM insurer. Therefore, to include a UIM insurer in the later definition of "third party" would create an internal inconsistency in the document. Consequently, the Court finds that the plan administrator's interpretation that the plan is subrogated to the rights of the [appellant] against a first party UIM insurer, is an unreasonable interpretation. Because the plan administrator's interpretation is unreasonable, it is an abuse of discretion to allow the plan reimbursement or subrogation rights against [appellant's] recovery from [respondent].
SHORT, Judge (concurring specially).
I concur insofar as the majority concludes the plan administrator's interpretation of subrogation provisions constituted an abuse of discretion. See Kennedy v. Georgia-Pacific Corp., 31 F.3d 606, 609-10 (8th Cir. 1994) (determining term "third party" in ERISA plan could not reasonably be interpreted to include injured employee's underinsured motorist carrier). The trial court properly deducted plan payments made to Gilhousen for past medical expenses from the amount of the award.