Court Of Appeals Addresses Coordination Between No-Fault and ERISA Plan Coverages

Robert L. Goldenbogen

In two opinions this year (so far), the Michigan Court of Appeals addressed coordination of benefits disputes between no-fault automobile insurance and self-funded health coverage sponsored by an employer under the federal Employee Retirement Income Security Act (ERISA).[1]  The Court’s unpublished decision in Abed v Masalko [2] dealt with priority between an ERISA plan and a no-fault policy providing excess – or coordinated – medical expense coverage under MCL 500.3109a, while its published decision in George v Allstate [3] addressed priority between an ERISA plan and assigned claims coverage provided under MCL 500.3171.  Both decisions illustrate the importance of careful analysis of ERISA plan provisions to determine if the ERISA plan is primary to no-fault insurance or if it “expressly disavows” primary coverage, as permitted under federal law applicable to disputes between self-funded ERISA plans and no-fault coverage.[4]

 Abed v Masalko

The Abed case applies all the correct analysis necessary to resolve a priority determination between an ERISA plan and no-fault coverage. But, the Court probably reached the wrong conclusion, albeit one possibly more favorable to Allstate than the proper analysis may have led to.

Abed was insured under a coordinated no-fault policy issued by Allstate. She also had health coverage through her employer’s self-funded ERISA plan administered by Aetna.  (The opinion does not identify the employer sponsoring the plan, referring to “the plan” simply as “the Aetna plan”.).  When Abed suffered injuries in a motor vehicle accident, priority between the two coverages became an issue.[5]  Generally, other health and accident benefits – like those supplied under an employer sponsored health plan – must pay primary to a coordinated no-fault policy as a matter of Michigan insurance law.[6]  However, self-funded ERISA plans are exempt from that rule because ERISA preempts state law that would impose such obligations on self-funded ERISA plans that “expressly disavow” priority.[7]  With a self-funded ERISA plan, priority must be determined under the terms of the controlling plan documents.[8]

Abed’s health plan defined no-fault insurance as a coverage source with which the plan coordinated benefits.  There was no rule expressly making no-fault insurance primary in all instances. Rather, no-fault coverage was treated like any other coverage and was subject to the plan’s order of benefit determination rules, which assigned priority based on the facts of the case. Under those circumstances, the terms of the plan and the facts of the case drive the priority determination.[9]  The plan’s coordination clause required use of the “first of the following rules” to determine priority.

The circuit court presumably determined – and correctly so – that the first several order of benefit determination rules (the “non-dependent/dependent,” “child,” “active/inactive employee,” and “continuation coverage” rules) did not apply under the facts of the case.  That left two “default rules” used to assign priority when the fact specific rules did not lead to a conclusion:

5.  Longer or Shorter Length of Coverage. The plan that covered the person as an employee, member, subscriber longer is primary.

6. If the preceding rules do not determine the primary plan, the allowable expenses shall be shared equally between the plans meeting the definition of plan under this provision . . . . [emphasis added.]

The Court of Appeals opinion followed the correct procedure of examining the health plan and its coordination of benefits clause to determine priority, and affirmed the circuit court’s determination that the “shared equally” rule applied to divide liabilities between the competing coverages.  Allstate thus obtained partial summary disposition as to 50% of the claims at issue.[10]

However, it appears the Court may have applied the incorrect rule to determine priority in the case. The Court of Appeals opinion does not explain why the “length of coverage” rule did not resolve priority before resort to the “shared equally” rule.  And, since the plan directed that the “first” of the rules to apply would be used, it appears that the coverage in effect the longest should have been determined to be primary.[11]  It is only in rare cases that a “length of coverage” default rule will not resolve a priority question.  Therefore, if the rule did not apply in this case, the reason should have been given.

The significant take-away from Abed is that a careful reading of the self-funded ERISA plan is always critical – every time, without exception – and that the outcome of a priority dispute with an ERISA plan can be very fact determinative, in each case, depending, of course, upon the express terms of the ERISA plan. 

George v Allstate

In George, Allstate administered Assigned Claims Plan coverage for George, who had no direct access to no-fault coverage under any insurance policy. She did have health coverage under a self-funded ERISA plan, again, administered by Aetna.[12]  (Once again, the court referred to the plan with reference to Aeta, its third party administrator, rather than with any reference to the employer sponsoring the plan).  The Circuit Court had concluded that Assigned Claims coverage was secondary by statute and ERISA preemption did not apply to the dispute, though it is unclear exactly why the Circuit Court reached that conclusion.  In reversing the lower court decision, the Court of Appeals recited the litany of familiar cases that provide us with the road-map for navigating these priority disputes, noting that, because ERISA preemption did apply, the express terms of the self-funded ERISA plan control in these situations.

The court looked to those plan terms to determine priority.  It noted that the plan generally coordinated its benefits with other coverages, including “Motor vehicle insurance (your own or any other responsible party’s)”, and used fact driven order of benefit determination rules to assign priority, much like the plan examined in the Abed decision.  Unlike the plan in the Abed case, however, George’s health plan conceded that in some states, “the motor vehicle insurance policy allows you to designate your group health plan as primary.”  It appears the health plan would have generally acknowledged priority in those cases.

After making note that the plan would generally permit an insured to elect their no-fault coverage as the secondary payer of coverage, the court concluded, “Thus, benefits under the ERISA Plan are primary, but under certain circumstances the Plan expressly disavows primary coverage.”  This unfortunate statement makes no sense, neither as a general observation nor as a specific observation in that case.  Generally, the plan would only be primary if the participant made the election to coordinate their no-fault insurance with their health plan in that manner. Specific to George’s case, no such election was made – or could have been made – because she had no coverage under a no-fault policy. She was covered under the statutorily created Assigned Claims Plan – which actually was the reason her no-fault coverage was determined to be primary.

Aside from its provisions coordinating benefits with no-fault insurance policies, George’s health plan also had a couple provisions that made the plan secondary to certain coverages in all cases, regardless of other considerations.  One of those provisions made the plan’s coverage secondary to any “program required or provided by law.”  Of course, Assigned Claims Plan coverage is a “program required or provided by law” – it is entirely a creature of statute.  Therefore, the obvious conclusion was that the health plan “expressly disavowed” primary coverage to the Assigned Claims coverage “required or provided by law” and administered by Allstate.  The analysis was actually very simple once the focus of the inquiry was placed on the express terms of the plan.  Again, those express terms are always the key to the priority determination.

One other point worth noting from the George case was its statement in a footnote that, although the case was decided after the 2019 amendments to the Michigan No-Fault Act, it was “controlled by the former provisions” of the no-fault act because suit was commenced before the amendments.[13]

The Abed and George decisions are helpful in that they remind us of the rules that apply in these priority disputes, and illustrate the need to carefully read the terms of the self-funded ERISA plan to determine how those terms apply to the priority question.  An unfortunate aspect of these decisions is the imprecise way the Court identifies “the plan” in each case.  Each plan, coincidentally, was administered by Aetna and the Court of Appeals in each case simply refers to each plan as “Aetna” or “the Aetna plan.”  However, a self-funded ERISA plan is not the same as the entity administering the plan.  A plan is a legal entity established by an employer or employee organization pursuant to a written instrument – also referred to as “the plan.”[14]  The plan sponsor generally designates a plan administrator and/or a third party claims administrator to manage the plan and claims under the plan.  However, these individuals or corporations are separate legal entities with separate roles in the functioning of an ERISA plan.  A third party claims administrator like Aetna may or may not have discretion to interpret the plan it administers, but it will rarely have the final word in plan interpretation.  It is always important to determine if the third party administrator’s application of the plan is consistent with of the plan itself.[15]  Identifying “the plan” with its “third party administrator” places too much focus on the administrator and not enough on the plan itself.

The distinction between an ERISA “plan” and its administrator can also be particularly critical when applying a default length of coverage order of benefit determination rule like the one that probably should have resolved the priority question in the Abed case.   A third party administrator, like Aetna, may only have information on how long a participant was enrolled in its records – which likely does not reflect when the participant enrolled in the plan itself.  It is always a good practice to be precise when analyzing and discussing the terms of an ERISA plan and those playing a role in the interpretation and administration of the plan being administered.