fact-finder could determine that the Plan denied the Hartenbower claims because of the need to make N.R.O.'s balance sheet attractive to its new buyer. Consequently, even without applying the make-whole doctrine, the court would deny the Plan's motion for summary judgment because of the existence of genuine issues of material facts.
C. Excess Insurance Clause: Common Fund Doctrine
Even if the make-whole doctrine does not apply and the Plan did not operate in an arbitrary and capricious manner, the Plan is still not entitled to summary judgment because the Illinois common fund doctrine applies. "The common fund doctrine permits a party who creates, preserves, or increases the value of a fund in which others have an ownership interest to be reimbursed from that fund for litigation expenses incurred, including counsel fees." Scholtens v. Schneider, 173 Ill. 2d 375, 671 N.E.2d 657, 662, 219 Ill. Dec. 490 (Ill. 1996). Hartenbower argues that they should subtract his costs to litigate against the third party tortfeasor from the recovery before determining if the Plan is in an excess insurer position. (Pl. Resp. to Plan's Mot. At 5.) Hartenbower has incurred at least $ 33,000 in attorney fees. (Id. Ex. A.) Therefore, under the common-fund doctrine, the proposed $ 100,000 settlement from the third-party tortfeasors will first be allocated to attorney fees. This will leave less than $ 67,000 to cover medical bills that are now more than $ 89,000. (Id. at 4.) Consequently, as an excess insurer, the Plan will be liable for the difference.
Although ERISA "supersede[s] any and all State laws insofar as they . . . relate to any employee benefit plan" outlined in the statute, 28 U.S.C. § 1144(a) (1994), the Illinois common fund doctrine still applies; see also Travelers, 514 U.S. at 651. The Seventh Circuit recently determined that Illinois' common fund doctrine does not "relate" to employee welfare plans. Blackburn, 115 F.3d at 495. "The common-fund doctrine long predates not only ERISA but also employer-sponsored health plans. Most applications have nothing to do with health insurance in general, or employer-sponsored plans in particular." Id.
As discussed in Section I-B, the Plan did not participate in the claims against the third parties yet they want the benefit of all funds that accrue from that settlement. The Illinois Supreme Court faced the same situation in Scholtens, 671 N.E.2d at 659, and stated that spreading the cost of litigation to all beneficiaries of a settlement avoids having one party being unjustly enriched by the efforts of another, id. at 663. Furthermore, the Seventh Circuit determined that "if preemption of [Illinois'] common-fund doctrine [by ERISA] meant that injured persons could not charge legal costs against recoveries, [plaintiffs] would in the future have every reason to disclaim any demand for medical expenses in tort suits, throwing on plans the burden and expense of collection." Blackburn, 115 F.3d at 496.
Illinois' common-fund doctrine applies, and Hartenbower is entitled to pay his attorney fees out of the settlement from the third-party tortfeasor before allocating any funds for medical bills. Therefore, the court denies the Plan's motion for summary judgment because it is liable for at least any medical bills that the third-party settlement would not pay after the attorney fees are removed.
D. Subrogation Clause
The Plan argues that it is entitled to summary judgment because Hartenbower has not executed the subrogation agreements that the plan document requires. Hartenbower argues that he does not have to execute the subrogation agreement until the Plan has initiated payments. The court finds Hartenbower's argument more persuasive.
Subrogation agreements give insurers the right to recover monies, which insurers initially paid, from third parties who are legally liable for injuries. Barnes, 64 F.3d at 1392. Generally, "no right of subrogation arises until the claim has been paid. Thus, before subrogation can be had, the insurer must have paid the insured his loss according to the contract . . . . And the insurer is only subrogated to the extent of its payment." 16 Couch on Insurance 2d § 61:49 at 133-34. In Barnes, the plan's subrogation agreement stated that "if this plan makes payment which the employee, dependent or any other party is or may be entitled to recover against any person or organization responsible for an accident or illness, this Plan is subrogated to all rights of recovery to the extent of its payment." 64 F.3d at 1393 (emphasis added). Consequently, the court held that "the Plan's right to subrogation arises only after the Plan makes payment to the insured." Id. In Cagle, where the plan made an initial payment but the beneficiary refused to sign the subrogation agreement, the court ruled that further payments by the plan could be withheld. Cagle, 112 F.3d at 1520.
Employee welfare plans governed by ERISA escape this requirement if they contain explicit language that precludes benefit payments before the beneficiary signs a subrogation agreement. See, e.g., Preze v. Board of Trustees Welfare Fund Local 597, 5 F.3d 272, 274-75 (7th Cir. 1993). In Preze the plan document stated that "no benefits will be paid on [claims for which a third party may be legally responsible] unless the eligible Employee . . . executes a written subrogation agreement." Id. at 273 (emphasis added).
The N.R.O. plan does not explicitly state that the participant or beneficiary must sign the subrogation agreement before the payment of benefits. The Plan would have the court follow the unpublished decision of the district court in Mahrt. No. 93-1389 (C.D. Ill. Oct. 14, 1994). In subrogation language identical to the Plan's, the court found that the "provision provides that benefits may be withheld if a Covered Person or Covered Dependent fails to comply with a request by the Plan to execute a subrogation agreement." Id. at 12 n.7. This court finds this reasoning unpersuasive and respectfully declines to follow it. In fact, the Plan is subrogated "in the event any benefits or services of any kind are furnished . . . or payment made . . . for a physical condition or injury caused by a third party." (Plan's 12(M) Ex. 2 at 33.) Although the Plan has the discretion to interpret the plan language, interpreting it any other way is not reasonable. The purpose of a subrogation clause is to allow the plan to recover funds that it has expended from third-party tortfeasors. Until it has paid some benefits to its beneficiaries, a signed subrogation agreement is unnecessary. Furthermore, the Plan's decision may be arbitrary; it has not introduced any evidence to suggest that it always insists upon a signed subrogation agreement before making any payments.
Consequently, the court denies the Plan's motion for summary judgment. If Hartenbower still refuses to sign the subrogation agreement after the Plan reasonably initiates benefit payments, the Plan may be free to suspend future payments until Hartenbower executes the agreement.
II. THE EMPLOYER
In its Amended Complaint, Hartenbower seeks a declaratory judgment action that N.R.O. Enterprises, Inc. f/k/a Electrical Specialties Co. ("N.R.O.") has an obligation to reimburse Hartenbower for medical expenses incurred because of John Hartenbower's accident. (Am. Compl. PP 16, 20.) N.R.O. argues that it is not a proper party to Hartenbower's suit. (Plan's Mem. Supporting Mot. at 13.) The court agrees with N.R.O. and grants its motion for summary judgment.
ERISA grants participants or beneficiaries the right to bring a civil suit "to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan." 29 U.S.C. § 1132(a)(1(B) (1994). In this kind of action, the defendant is the plan, not the employer. Pecor v. Northwestern Nat'l Ins. Co., 869 F. Supp. 651, 653 (E.D. Wis. 1994). Furthermore, the employer's assets are not subject to seizure under section 1132(a)(1)(B). Id.
A beneficiary can also sue for breach of fiduciary duty. §§ 1132(a)(2), 1109(a). "An action to recover from a breach of fiduciary duty occurred is distinct from an action to recover plan benefits under section 1132(a)(1)(B) of [ERISA]. . . . When a plaintiff's ERISA claim is based upon a breach of fiduciary duty, the plaintiff must bring the action under section 1132(a)(2) and not 1132(a)(1)(B)." Anweiler v. American Elec. Power Serv. Corp., 3 F.3d 986, 992 (7th Cir. 1993) (citations omitted). Congress intended to create a cause of action under 1132(a)(2) to protect plan assets, not the rights of individual plan participants. Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 142, 105 S. Ct. 3085, 87 L. Ed. 2d 96 (1985). Therefore, recovery for a breach of fiduciary duty inures to the plan itself and not to an individual. Id. at 140. Furthermore, because Congress specifically delineated civil actions in section 1132, the Court will not infer them elsewhere. Id. at 146.
Hartenbower brings this action to determine the status of benefits but seeks to include N.R.O. for breach of fiduciary duty. (See Pl. Resp. to Plan's Mot. at 17.) Because Hartenbower brings this action on his son's behalf, he does not have standing to pursue N.R.O. for breach of fiduciary duty. He could sue for breach of fiduciary duty against N.R.O. if he sought a remedy on behalf of the plan itself. The fiduciary duty of N.R.O. does not make it liable to an individual beneficiary for plan benefits; this duty makes it liable to the plan. Consequently, the court grants N.R.O.'s motion for summary judgment.
III. THE STOP-LOSS INSURER
Hartenbower seeks a declaratory judgment against North Atlantic Casualty and Surety Insurance Company, Inc., a/k/a VASA North Atlantic Insurance Company ("VASA") making it liable for all or some John Hartenbower's medical bills. VASA argues that its privity of contract was with N.R.O. and not with Hartenbower or any plan participant. The court agrees with VASA.
N.R.O. purchased a stop-loss insurance policy from VASA on or before March 1, 1992. (VASA Mem. Supporting Mot. Ex. B.) Stop-loss insurance covers the employer not the employee. Thompson v. Talquin Bldg. Prods. Co., 928 F.2d 649, 653 (4th Cir. 1991) (finding that "the purpose of the stop-loss insurance is to protect [the employer] from catastrophic losses, it is not accident and health insurance for employees). Courts should use the clear language of a policy to see who is insured. See Auto Club Ins. Ass'n v. Safeco Life Ins. Co., 833 F. Supp. 637, 640 (W.D. Mich. 1993).
VASA "shall become liable for claims paid by [N.R.O.] for any one participant in excess of [$ 10,000] provided these claims are incurred and paid during the period of this Contract." Id. In other words, VASA provides insurance to N.R.O. in situations where N.R.O. has paid to a Plan participant more than $ 10,000 in a calendar year. VASA is not providing any benefits directly to any Plan participant or beneficiary and has no obligation to them. Consequently, the court grants VASA's motion for summary judgment because Hartenbower and VASA do not have a privity of contract and VASA does not have any legal obligation to Hartenbower.
VASA argues that it is also entitled to summary judgment because (1) N.R.O. never filed a claim with it, (2) N.R.O. canceled its policy with VASA, (3) N.R.O. breached its policy with VASA by failing to notify VASA of the sale of Electrical Specialties, and (4) N.R.O. did not pay any claims while the policy was in force. (VASA Mot. at 1-2). Because the court finds that Hartenbower does not have any legal claims against VASA, the court need not address these other issues.
For reasons set forth above, the motion for summary judgment filed by Defendants N.R.O Enterprises and Electrical Specialties Co. Health Benefit Plan is granted with respect to Defendant N.R.O. Enterprises, Inc. but denied with respect to Electrical Specialties Co. Health Benefit Plan. The motion for summary judgment filed by Defendant North Atlantic Casualty and Surety Insurance Company is granted, and their motion to submit supplemental authority is also granted. The remaining parties should discuss settlement before the next court date.
Ann Claire Williams,
Dated: SEP 16 1997