United States Court of Appeals
For the First Circuit
No. 99-1390
MICHAEL HARRIS AND WENDY HARRIS,
Plaintiffs, Appellees,
v.
HARVARD PILGRIM HEALTH CARE, INC.,
Defendant, Appellant,
No. 99-1557
MICHAEL HARRIS AND WENDY HARRIS,
Plaintiffs-Appellants,
v.
HARVARD PILGRIM HEALTH CARE, INC.,
Defendant-Appellee.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Patti B. Saris, U.S. District Judge]
Before
Stahl, Circuit Judge,
Cyr, Senior Circuit Judge,
and Lipez, Circuit Judge.
2
Kenneth W. Salinger, with whom Steven L. Schreckinger and Palmer &
Dodge LLP were on brief for Plaintiffs.
Paul R. Collier, III, with whom Collier, Shapiro & McCutcheon was on
brief for Defendant.
March 31, 2000
3
CYR, Senior Circuit Judge. Harvard Pilgrim Health Care, Inc.
(“HPHC”), an ERISA plan administrator, appeals from a district court
judgment directing it to defray its pro rata share of the legal fees
expended by plan members Michael and Wendy Harris (“the Harrises”) in
obtaining an earlier tort action settlement, part of which settlement
the Harrises were contractually obligated to remit to the plan. For
their part, the Harrises cross-appeal from district court orders (i)
directing them to reimburse the plan for medical benefits previously
received, and (ii) dismissing their state-law action for unfair or
deceptive trade practices.
I
BACKGROUND
After Michael Harris sustained personal injuries in a 1991
motorcycle accident, HPHC remitted $102,874.29 toward his medical costs
pursuant to the ERISA plan. Thereafter, the Harrises sued the party
allegedly responsible for the accident. HPHC in turn filed a
$102,874.291 state-law lien against any award the Harrises might obtain
in their legal action. The HPHC lien was predicated principally on the
subrogation provision in the ERISA plan:
H.4. SUBROGATION. If another person or entity is,
or may be, responsible to pay for expenses or
services related to the Member's illness and/or
1HPHC initially filed its lien for $136,384.80, but later revised
the amount upon notification that $102,874.29 was the entire amount
attributable to injuries sustained in the motorcycle accident.
4
injury which [HPHC] paid or provided, then [HPHC]
is entitled to subrogation rights against such
person or entity. [HPHC] shall have the right to
proceed in the name of the Member, with or
without his or her consent, to secure right of
recovery of its cost, expenses, or the value of
services rendered under this Agreement. [HPHC] is
also entitled to recover from a Member the value
of services provided, arranged, or paid for, when
the Member was reimbursed for the cost of care by
another party.
H.5. MEMBER COOPERATION. The Member agrees to
cooperate with [HPHC], and to provide all
requested information, and to assign to [HPHC]
any monies received for services provided or
arranged by [HPHC]. The Member will do nothing to
prejudice or interfere with the rights of [HPHC].
(Emphasis added.); see also Mass. Gen. Laws Ann. ch. 111, § 70A.2
The Harrises eventually settled their lawsuit for $737,500,
$264,727.31 of which was for their attorney fees and costs. Their
attorney purportedly settled the suit at two-thirds its estimated value
after assessing the risks of litigation, particularly allegations that
Harris had been intoxicated and exceeding the speed limit at the time
2Section 70A provides, in pertinent part:
[A]ny health maintenance organization which has
furnished health services . . . to a person
injured in . . . an accident shall, subject to
the provisions of [§ 70B], have a lien for such
benefits, upon the net amount payable to such
injured person, his heirs or legal representative
out of the total amount of any recovery or sum
had or collected or to be collected, whether by
judgment or by settlement or compromise, from
another person as damages on account of such
injuries.
5
of the accident. HPHC took no part in the settlement.
In their 1997 lawsuit, the Harrises alleged that the HPHC
lien was excessive because the reimbursement requirement in the ERISA
plan ought not take effect unless and until the Harrises were made
whole by the settlement, whereas they had received only two-thirds of
their estimated damages from the settlement. Second, the Harrises
claimed, under the equitable common-fund doctrine HPHC should bear its
proportionate share of the $264,726 attorney fee incurred by the
Harrises in generating the settlement fund from which HPHC demanded
reimbursement. Finally, the Harrises argued that the excessive lien
claim asserted by HPHC constituted a breach of contract and violated
the Massachusetts unfair or deceptive trade practices act. See Mass.
Gen. Laws Ann. ch. 93A. HPHC thereafter counterclaimed for lien
enforcement and the parties submitted cross-motions for summary
judgment.
The district court ruled that: (1) the breach of contract
and chapter 93A claims brought by the Harrises were preempted, see
Harris v. Harvard Pilgrim Health Care, Inc., 20 F. Supp. 2d 143, 147-48
(D. Mass. 1998); (2) as were the lien provisions in Mass. Gen. Laws
Ann. ch. 111, § 70A, see id. at 148-49; (3) HPHC possessed a
contractual right to reimbursement for all its medical payments to
Harris, regardless whether the tort settlement made the Harrises whole,
see id. at 149-51; and (4) HPHC was responsible for a pro rata share of
6
the legal fees incurred by the Harrises since the subrogation clause in
the ERISA plan is silent as to attorney fees, and the common-fund, fee-
shifting doctrine should be adopted as federal common law under ERISA,
see id. at 152-53.
HPHC appeals the second and fourth rulings; the Harrises
cross-appeal the first and third rulings.
II
DISCUSSION
A. The HPHC Appeal
HPHC claims that the district court erred in adopting, as
federal common law, the rule that an ERISA-plan subrogee is liable for
its proportionate share of the attorney fees expended by a plan member
in generating the settlement fund. It argues that ERISA requires
deference to the plain language of the subrogation clause contained in
the ERISA plan, which in this instance neither mentions attorney fees
specifically, nor qualifies its general language that HPHC is entitled
to recover "the value of services provided, arranged, or paid for."3
The issue thus presented is one of first impression in this
circuit. Among the courts of appeals which have considered it, the
majority view is that an ERISA plan need not contribute to attorney
3As the HPHC plan does not vest the administrator with discretion
to interpret its terms, the district court interpretation was plenary,
see Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989), and
we review its interpretation de novo, see Recupero v. New England Tel.
& Tel. Co., 118 F.3d 820, 828 (1st Cir. 1997).
7
fees where its plain language gives it an unqualified right to
reimbursement. See, e.g., Walker v. Wal-Mart Stores, Inc., 159 F.3d
938, 940 (5th Cir. 1998); United McGill Corp. v. Stinnett, 154 F.3d
168, 172-73 (4th Cir. 1998); Health Cost Controls v. Isbell, 139 F.3d
1070, 1072 (6th Cir. 1997); Bollman Hat Co. v. Root, 112 F.3d 113, 116-
17 (3d Cir. 1997); Ryan v. Federal Express Corp., 78 F.3d 123, 127-28
(3d Cir. 1996). Since “one of the primary functions of ERISA is to
ensure the integrity of written, bargained-for benefit plans[,]” United
McGill, 154 F.3d at 172, generally speaking ERISA does not mandate that
a covered plan include particular substantive provisions. Thus, “the
plain language of an ERISA plan must be enforced in accordance with
‘its literal and natural meaning.’” Id. (citation omitted).
The majority of courts construing state laws which regulate
non-ERISA insurance contracts have read the common-fund doctrine into
contractual clauses giving insurers an unqualified right to
reimbursement from their insureds. See, e.g., York Ins. Group of Maine
v. Hall, 704 A.2d 366, 368 n.3 (Me. 1997). Typically, these courts
have read the reimbursement clauses’ silence on the issue of attorney
fees as an ambiguity, then based their holdings on the prevailing
state-law principle that ambiguities in insurance policies must be
construed in the insured’s favor. See id. at 369.
By contrast, however, ERISA creates precisely the opposite
presumption: unqualified plan provisions need not explicitly rule out
8
every possible contingency in order to be deemed unambiguous. ERISA
merely requires that covered plans be “‘sufficiently accurate and
comprehensive to reasonably apprise such [“average plan”] participants
and beneficiaries of their rights and obligations under the plan.’”
Walker, 159 F.3d at 940 (quoting 29 U.S.C. § 1022(a)(1) (summary plan
description)). It therefore follows that an ERISA plan which
unambiguously requires its members to reimburse the plan for all
benefits paid does preclude offsets for attorney fees. See id.4
Notwithstanding the great weight of contrary authority, the
4The Harrises argue that the plan language involved in some of
these cases was more prohibitive than Section H.4 of the HPHC plan in
this case. See, e.g., Ryan, 78 F.3d at 124 ("[T]he Plan shall have the
right to recover, against any source which makes payments or to be
reimbursed by the Covered Participant who receives such benefits, 100%
of the amount of covered benefits paid . . . ."). However, given the
policy objectives underlying ERISA, supra, the courts have found no
meaningful distinction between such provisions and one like the
present, which gives the plan an unqualified right to reimbursement of
“any monies received for services provided or arranged by [HPHC].”
See, e.g., United McGill, 154 F.3d at 172 (rejecting distinction); see
also, e.g., Walker, 159 F.3d at 940 ("The PLAN shall have the right to
reduce benefits otherwise payable by the PLAN or recover benefits
previously paid by the PLAN to the extent of any and all of the
following: A. Any payments resulting from a judgement or settlement .
. . ."); United McGill, 154 F.3d at 170 ("Our right of subrogation will
be to the extent of any benefits paid or payable under this plan, and
shall include any compromise settlement . . . ."); Health Cost
Controls, 139 F.3d at 1071 ("[I]n no event will the amount of reim-
bursement to the Insurance Company exceed the lesser of: 1. The
amount actually paid under the Plan . . . ."); Bollman, 112 F.3d at 114
("In the event of any payment under the Plan to any covered person, the
Plan shall, to the extent of such payment, be subrogated, unless
otherwise prohibited by law, to all the rights of recovery of the
covered person arising out of any claim or cause of action which may
accrue because of alleged negligent conduct of a third party.")
(emphasis omitted).
9
district court was persuaded — mistakenly in our view — by the decision
in Waller v. Hormel Foods Corp., 120 F.3d 138 (8th Cir. 1997). Waller
dealt with a plan markedly different from the provisions construed in
the cases we have cited. See supra note 4. The Waller plan merely
provided: “In the event of any payment by the [plan] for health care
expenses, the [plan] shall be subrogated to all rights of recovery
which you or your dependent, receiving such payment, may have against
any person or organization.” Waller, 120 F.3d at 139. Thus, the
Waller plan neither defined the term subrogation, nor vested the plan
with a direct right of reimbursement to all benefits paid in behalf of
the plan member.
Furthermore, reimbursement and subrogation are distinct
remedies. Subrogation empowers the plan to stand in the shoes of its
member, and thus to enforce the plan member’s rights and remedies
against third parties through litigation. By contrast, reimbursement
affords the plan a direct right of recovery against the plan member.
See Provident Life & Accident Ins. Co. v. Williams, 858 F. Supp. 907,
911 (W.D. Ark. 1994). Thus, Waller held simply that a plan member
might interpret the term “subrogation” to mean that “the Plan will pay
reasonable fees and expenses so as to encourage beneficiaries to press
claims to which the Plan will be partially subrogated.” Waller, 120
F.3d at 141. No such inference would be compelled, however, were the
plan to seek recovery, not through subrogation, but independently,
10
based on its own right to direct reimbursement.
The Harrises rely as well on several district court decisions
which have held that the common-fund, fee-sharing doctrine may be read
into otherwise unqualified ERISA subrogation provisions. See, e.g.,
Hartenbower v. Electrical Specialties Co. Health Benefit Plan, 977 F.
Supp. 875, 885 (N.D. Ill. 1997); Carpenter v. Modern Drop Forge Co.,
919 F. Supp. 1198, 1205-06 (N.D. Ind. 1995); Martz v. Kurtz, 907 F.
Supp. 848, 855-56 (M.D. Pa. 1995), rev’d per curiam, 92 F.3d 1172 (3d
Cir. 1996); Provident Life, 858 F. Supp. at 912; Serembus v. Mathwig,
817 F. Supp. 1414, 1423-24 (E.D. Wis. 1992). However, these decisions
were based on the problematic premise that the common-fund doctrine
would serve one of the congressional goals in enacting ERISA: “‘to
ensure that plan funds are administered equitably, and that no one
party, not even the plan beneficiaries, should unjustly profit.’”
Martz, 907 F. Supp. at 856 (citation omitted). Assuming, without
deciding, that the courts may supplement ERISA by formulating federal
common law “when ‘necessary to effectuate the purposes of ERISA,’”
United McGill, 154 F.3d at 171 (citation omitted); see Pilot Life Ins.
Co. v. Dedeaux, 481 U.S. 41, 56 (1987), in our view forefending against
“unjust enrichment” is too amorphous a concept to warrant wholesale
importation of the common-fund doctrine into an otherwise unambiguous
ERISA plan. We explain.
“A primary purpose of ERISA is to ensure the integrity and
11
primacy of the written plans . . . [so that] the plain language of an
ERISA plan should be given its literal and natural meaning.” Health
Cost Controls, 139 F.3d at 1072 (citing Burnham v. Guardian Life Ins.
Co., 873 F.2d 486, 489 (1st Cir. 1989)) (emphasis added). Against this
plain legislative purpose, if the ERISA plan expressly provides that
its members are obligated to reimburse the plan for "the value of
services provided, arranged, or paid for," we do not think it can be
considered “unfair” to require plan members to abide by the agreement.
See Ryan, 78 F.3d at 127 (“‘Enrichment is not “unjust” where it is
allowed by the express terms of the . . . plan.’”) (citation omitted);
cf. Pierce v. Christmas Tree Shops, Inc., 706 N.E.2d 633, 636 n.5
(Mass. 1999) (rejecting same argument, under Massachusetts law); cf.
also Health Cost Controls, 139 F.3d at 1072 (noting that defendant “has
not identified to this Court that application of a set-off under a[n]
equitable common fund doctrine would advance any explicit statutory
purpose of ERISA”).
Nor does the rule we adopt today threaten to undermine any
other ERISA goal. At least in cases like the present, where the
settlement amount exceeds the sum total of the attorney fees incurred
by the plan member and the plan’s reimbursement claim, the member will
have a continuing incentive to pursue settlements to his own net
financial benefit, even assuming the plan will not be contributing to
the attorney fees. See Bollman, 112 F.3d at 117 (refusing to reach
12
“hypothetical” situation “where a plan participant’s third party
recovery is less than the plan’s subrogation claim plus attorney fees,”
since “[this] third party settlement fully financed [] attorney’s fees
and the subrogation claim”).
For the foregoing reasons, the district court order directing
HPHC to defray a pro rata share of the Harrises’ attorney fees must be
vacated.5
B. The Harrises’ Cross-Appeal
1. The “Make Whole” Doctrine
The Harrises further contend that the district court erred
in declining to adopt the so-called “make whole” doctrine as federal
common law under ERISA. Under the “make whole” doctrine, an insurer-
subrogee may receive reimbursement for benefits previously paid to the
insured only if the insured has obtained a settlement or judgment that
fully compensates for the total losses sustained by the insured;
otherwise, the insured would not owe the insurer any reimbursement, or
at most would owe a pro rata share of its partial tort recovery. See
Cagle v. Bruner, 112 F.3d 1510, 1520 (11th Cir. 1997) (citing 16 Couch
on Insurance § 61:64 (2d ed. 1983)). The Harrises argue that since the
tort settlement compensated them for only two-thirds of their actual
5
Since we affirm the district court ruling that the plan entitled
HPHC to full reimbursement, we need not reach the “alternative”
argument raised by HPHC: that ERISA does not preempt the Massachusetts
lien statute. See supra note 2.
13
losses in the motorcycle accident, they either owe HPHC nothing or at
most $68,582.86.
Their contention presents yet another issue of first
impression in this circuit. Some courts of appeals have held that an
ERISA plan, which affords the plan administrator an unqualified right
to reimbursement for all ERISA benefits paid to a plan participant,
unambiguously precludes importation of the common-law “make whole”
doctrine. See Waller, 120 F.3d at 140 (ERISA plan need not provide for
“first priority” reimbursement); Sunbeam-Oster Co. v. Whitehurst, 102
F.3d 1368, 1374-76 (5th Cir. 1996) (unconditional plan provision
implies reimbursement “to the full extent” of benefits previously paid,
“regardless of [the] source”); cf. Cutting v. Jerome Foods, Inc., 993
F.2d 1293, 1299 (7th Cir. 1993) (finding no abuse of discretion in plan
administrator’s interpretation of plan provision as precluding “make
whole” doctrine). Other courts of appeals take the opposite position.
See Cagle, 112 F.3d at 1521-22 (requiring that plan provide for “first
reimbursement” to preclude “make whole” doctrine); Barnes v.
Independent Auto. Dealers Ass’n of Cal. Health & Welfare Benefit Plan,
64 F.3d 1389, 1395 (9th Cir. 1995) (same).
Although the “make whole” doctrine could be imported as
federal common law under ERISA, see Pilot Life, 481 U.S. at 56, in our
view it should be done only as necessary to effectuate legitimate ERISA
policy objectives, see United McGill, 154 F.3d at 171. Thus, we
14
decline to adopt the “make whole” doctrine as federal common law in the
present circumstances, for the following reasons.
First, as with the attorney-fee question, see supra Section
II.A, generally speaking ERISA does not superimpose substantive
provisions on covered plans. Where an ERISA plan requires — without
qualification — that plan participants reimburse the plan for benefits
paid, the plan should not be construed to depend upon an implied
contingency such as the “make whole” doctrine, particularly since ERISA
specifically envisions that covered plans be written in straightforward
language comprehensible by the average plan participant. See
Sunbeam-Oster, 102 F.3d at 1374-75. In such circumstances, "the
absence of more particularized and technical legal language addressing
the partial recovery situation cannot be grounds for supplanting the
Plan Priority rule.” Id. at 1376. Similarly, the instant ERISA plan
explicitly “entitled [HPHC] to recover from a Member the value of
services provided, arranged, or paid for, when the Member was
reimbursed for the cost of care by another party.”
Moreover, there are cogent arguments for the view that ERISA
objectives could be disserved if the “make whole” doctrine were to be
adopted as the ERISA default rule. Although plan members like the
Harrises would benefit financially, ultimately the costs would be borne
by all other plan members in the form of higher premiums for coverage.
See id. at 1376 n.23.
15
The “make whole” doctrine entails other undue burdens as
well. For example, though the Harrises settled their tort claims in
order to eliminate the risks and burdens of litigation, the “make
whole” doctrine would necessitate that their claims nonetheless be
litigated in the district court — including the contentious
contributory negligence claim — in order to determine whether the
Harrises were fully or only partially compensated by the $737,500 tort
settlement.
For the foregoing reasons, we hold that where the terms of
an ERISA plan confer upon it an unqualified entitlement to
reimbursement for the value of the services provided to a member, the
ERISA plan administrator need not demonstrate that the settlement fund,
from which reimbursement is sought, fully compensated the plan member.
16
2. Preemption of State-Law Claim
Finally, the Harrises contend that the district court
incorrectly ruled that ERISA preempts their state-law claims,
particularly their claim that HPHC’s lien recovery policies and
procedures constitute unfair or deceptive trade practices. See Mass.
Gen. Laws Ann. ch. 93A. Specifically, the Harrises argue that HPHC
unfairly files reimbursement liens for “any medical charge that could
be caused by the accident,” without consulting medical authorities to
ensure that the charges were in fact attributable to the accident at
issue. Thus, HPHC originally attempted to assert a lien for
$136,384.80, rather than $102,874.29. See supra note 1. The Harrises
further allege that HPHC knowingly refrains from disclosing to plan
members that it will pursue full reimbursement for all charges under
the plan’s subrogation/reimbursement clause, without any reduction to
reflect (i) that the plan participant has not been made whole by the
settlement, or (ii) the pro rata share of the attorney fees expended by
HPHC in achieving the settlement.
The district court ruling that ERISA preempts state-law
causes of action is reviewed de novo. See Demars v. CIGNA Corp., 173
F.3d 443, 445 (1st Cir. 1999). ERISA will be found to preempt state-
law claims if the trier of fact necessarily would be required to
consult the ERISA plan to resolve the plaintiff’s claims. See, e.g.,
Carlo v. Reed Rolled Thread Die Co., 49 F.3d 790, 793-94 (1st Cir.
17
1995) (citing Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 140
(1990)); McMahon v. Digital Equip. Corp., 944 F. Supp. 70, 72 (D. Mass.
1996).
The Harrises nonetheless insist that since the ERISA plan is
silent as to HPHC’s lien policies, the terms of the ERISA plan are
immaterial to their Chapter 93A claim. As previously noted, however,
supra Sections II.A & II.B.1, the HPHC plan is not silent on these
matters. Rather, its subrogation provision places the average plan
participant on plain notice that HPHC will seek full reimbursement,
i.e., without any offset either for attorney fees or for the “make
whole” doctrine.
Accordingly, the state-law claims for unfair and deceptive
trade practices are preempted by ERISA.6
III
CONCLUSION
As the subrogation clause in the ERISA plan did not require
that HPHC defray any attorney fees incurred by the Harrises, the
6To the extent the Harrises rely on the fact that HPHC originally
valued its lien at $136,384.80 — i.e., $33,510.51 more than its revised
lien of $102,874.29 — they assert no cognizable claim for damages under
Chapter 93A, since they do not contend that the revised lien included
any amounts not attributable to medical services received by Michael
Harris on account of the motorcycle accident. See Warner-Lambert Co. v.
Execuquest Corp., 691 N.E.2d 545, 547 (Mass. 1998) (Chapter 93A
plaintiff must prove damages).
18
portion of the district court order which directs otherwise is vacated.7
In all other respects, the district court judgment is affirmed. The
parties shall bear their own costs.
SO ORDERED.
7Prior to oral argument, HPHC assertedly submitted a motion to
strike the Harrises’ addendum summarizing the holdings in several ERISA
decisions, as an attempt to circumvent the limitations in Fed. R. App.
P. 32(a)(7)(B)(i) (setting 14,000-word limit on party’s “principal
brief”). The Clerk’s office has no record of such a filing, however.
Moreover, the Harrises claim they never received notice of the filing.
Although we grant HPHC’s motion on its merits, we emphasize that
counsel are to take reasonable steps to verify that pertinent motions
are docketed and served on opposing counsel before oral argument. We
note, however, that our decision would have been no different had the
materials in the Harrises’ addendum been entitled to consideration.
19