: Fifth Appellate District Finds that ERISA Benefit Plans Lack State Law Subrogation Rights
The Fifth Appellate District of Ohio just released a decision affirming the Stark County Common Pleas Court in ruling that an employee benefit plan established under ERISA has no state law subrogation rights. See, Shawn Steele vs. Aultcare Corporation, Case No. 2005CA00241. Plaintiff Shawn Steele was a passenger in an auto involved in a collision with a semi tractor trailer. Aultcare, as administrator of an ERISA plan covering Plaintiff at the time of the accident, was named as a defendant in the tort litigation initiated by Steele to assert its subrogation rights for medical benefits paid on his behalf. Aultcare claimed its right of subrogation for over $240,000.00 in benefits paid in cross claims filed against the various tortfeasors in the accident.
After Steele settled his claims with the tortfeasors without addressing the subrogation claims, he motioned the court to dismiss Aultcare's subrogation claims arguing that the contract of insurance was governed by ERISA which pre-empts all state law claims, including tort actions. The trial court agreed and dismissed Aultcare's subrogation claims.
In affirming the trial court, the Fifth District issued a 2-1 decision reasoning that since Aultcare's contractual right of subrogation arose entirely out of an ERISA plan it was pre-empted based upon 29 U.S.C. § 1144(a) and (b). The majority differentiated the within matter from its prior holding that a subrogee's rights against a third party for reimbursement arise out of tort rather than contract on the basis that the contract is implicated because it created the right of subrogation. See, Nationwide Mutual Insurance Co. v. Zimmerman, Adm., Stark App. No. 2004CA00007, 2004-Ohio-7115. The majority also seemingly based its decision on Great West Life & Annuity Insurance Co. v. Knudson, (2002) 534 U.S. 204, even though the U.S. Supreme Court specifically stated that it was not addressing the issue of whether ERISA would pre-empt state law tort claims.
In her dissent, Judge Sheila Farmer correctly distinguished the Steele matter with Knudson because the funds at issue were not in possession of Steele. Judge Farmer also cited the Ohio Supreme Court in stating that “appellant's [Aultcare] claim is a subrogation claim which has been regarded in this state as `the highest equity'.” Citing, Newcomb v. Cincinnati Ins. Co. (1872), 22 Ohio St. 382,387.
This decision puts the Fifth District in direct conflict with various other Ohio Appellate Districts. The Second, Third, Eight, Ninth and Twelfth Appellate Districts have all found state law claims are not preempted by ERISA. See, Beasecker v. State Auto Insurance Co., et al., (2nd App. Dist. Darke County 2001) 2001 Ohio App. LEXIS 341; Immediate Pharmaceutical Services, Inc. v. Superior Metal Products, Inc. Employee Benefit Trust (3rd App. Dist. Allen County 1999), 134 Ohio App. 3d 748; Tri-County Building Trade Fund v. First Benefits Agency, Inc., (9th App. Dist. Summit County 1998) 1998 Ohio App. LEXIS 5271; Leasher v. Legett & Platt, Inc. (1994), 96 Ohio App. 3d 367, reaffirmed in, Bradburn v. Merman (Oct. 29, 1999), 12th District App. No. CA99-02-011.
ERISA was enacted to make regulation of employee benefit plans uniform across the country. However, under the Fifth District's interpretation, all state law causes of action by any ERISA entity, including beneficiaries and participants, should be caught in the preemptive tentacles of ERISA. If this is true, wouldn't a common tort action by two participants in an ERISA plan be pre-empted? Wouldn't an action to enforce a contract for a sale of a home between two ERISA entities be pre-empted? In essence, wouldn't the state law rights of each and every ERISA participant or beneficiary in all fifty states be abolished by ERISA? Clearly, this is not what Congress intended.
It is also uncertain what the federal district courts would do with a case filed by an ERISA plan seeking strictly subrogation rights based upon a tort claim. How will the district courts address such state law based issues as comparative and contributory negligence, traffic laws, insurance coverage if all state laws are pre-empted? Will the federal courts need to look to archaic federal common law to find answers? This case will be appealed to the Ohio State Supreme Court.
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