Claimant/Named Insured Limited to $30K Statutory Minimum when Houston First Court Declines to Find a “Separation of Insureds” Implied in Auto Policy
A closer look at Texas Farm Bureau Mutual Ins. Co. v. Minchew.
by Judith Ann Kostura
Central States v Health Special Risk 5th Circuit, June 22, 2014
Central States, an ERISA plan, sued some non-ERISA plans alleging that the non-ERISA plans were primary, as defined by the Central States’ ERISA plan’s Coordination of Benefits language, even though the non-ERISA plans had no contractual relationship to the ERISA plan. Central States alleged that its COB provision obligated the non-ERISA plans to pay the medical bills instead of the ERISA plan, and therefore non-ERISA plans should also reimburse the Central States’ ERISA plan under equitable subrogation and COB theories.
The 5th circuit held: “In its attempt to carry this burden, Central States offers three arguments: (1) under Supreme Court and Fifth Circuit precedent, Defendants’ “have become constructive trustees” or “fiduciaries” of Central States’ assets; (2) it should be allowed to exercise its subrogation rights under the plan; and (3) other circuits have found an ERISA plan’s COB provisions enforceable against private insurers. Defendants argue that all six counts should be dismissed for requesting impermissible legal relief. We agree with Defendants.”
Because Central States had no contractual relationship with the other plans, there were no McCutchen-like “mutual promises” to equitably enforce:
“ERISA-plan provisions do not create constructive trusts and equitable liens by the mere fact of their existence; the liens and trusts are created by the agreement between the parties to deliver assets. And McCutchen-rather than establishing the primacy of ERISA plan provisions over the requirements of equity-only enforced the plan provisions in order to ‘hold the parties to their mutual promises.’ 133 S. Ct. at 1546; see also id. (finding that the court must ‘declin[e] to apply rules-even if they would be “equitable” in a contract’s absence-[that are] at odds with the parties’ expressed commitments’). McCutchen was about the enforcement of contracts, and cannot be read as eliminating the ‘appropriate equitable relief’ requirement of § 502(a)(3).”
The Court held that the non-ERISA plans were not constructive trustees over any money that equitably belonged to Central States, nor did the plans have any fiduciary obligations to Central States. The Court clarified when tracing of funds is not required (equitable liens by agreement) and when it is required (equitable liens by restitution): “Sereboff did not move away from any tracing requirement; it distinguished between equitable liens by agreement-which do not require tracing-and equitable liens by restitution-which do. Since Central States admits that it is ‘not suing to enforce a lien by agreement,’ the requirement that the res be traceable is still very much intact (to the extent it seeks a lien by restitution). Central States cannot trace its claim to a particular fund. Unlike Sereboff, Great-West, and McCutchen, there is no ‘specifically identified . . . particular fund distinct from [Defendants’] general assets.’ Sereboff, 547 U.S. at 364.”
Central States argued that the Court should remedy the “gap” created by ERISA if the Court found no other right to equitable restitution. The Fifth Circuit ruled that “No gap exists.” And: “Central States’ objection that it will be left without a remedy is unavailing. It has whatever ‘appropriate equitable relief’ it can bring to enforce the provisions of the Plan; the only limitation is that they have to be equitable, which is Congress’s intent, not a gap.”
The Court determined that the complaint was not a claim for equitable relief even though it was alternatively styled as a suit for declaratory relief, because it sought money damages.