Opinion handed down February 4, 2014
Jodie Nevils, a federal government employee, was injured in an automobile accident. Group Health Plan (“GHP”), under contract with the federal Office of Personnel Management (“OPM”), was Nevils’ insurer. After Nevils recovered a personal injury settlement from the individual responsible for the accident, GHP asserted a lien against the recovery because its contract with OPM directed it to do so. Section 5 of the Federal Employee Health Benefits Act (“FEHBA” or ‘the Act”) provides that the terms of any insurance contract made under the act supersede or preempt contrary state or local law. The Supreme Court of Missouri held that the term in GHP’s contract with Nevils providing GHP with a right to subrogation did not overcome Missouri law prohibiting such subrogation.
I. Facts and Holding
After Jodie Nevils, a federal government employee, was injured in an automobile accident, GHP, Nevils’ insurer, paid his resulting medical bills.[ii] GHP was under contract with the federal OPM to provide health insurance to some federal employees.[iii] When Nevils later recovered a personal injury settlement from the individual responsible for the accident, GHP asserted a subrogation lien against the recovery to the extent that Nevils’ medical bills were paid by the insurer.[iv] While Missouri law prohibits subrogation of tort claims, GHP successfully argued at the trial court level that Section 5 of the FEHBA preempts state law and allows GHP to enforce the subrogation lien pursuant to the terms of the insurance contract.[v] The lower court granted summary judgment in favor of GHP.[vi] The Supreme Court of Missouri disagreed and held that FEHBA does not preempt Missouri law prohibiting subrogation of personal injury claims.
The court began its analysis with the text of the Act itself, which provides in relevant part: “The terms of any contract under this chapter which relate to the nature, provision, or extent of coverage or benefits (including with respect to benefits) shall supersede any State or local law, or any regulation issued thereunder, which relates to health insurance or plans.”[vii] Therefore, the court reasoned, it was necessary to determine if GHP’s claimed right of subrogation “relate[d] to the nature, provision, or extent of coverage or benefits.”[viii] The Supreme Court of Missouri concluded that it did not.
Because the relevant section of FEHBA purports to preempt state law, the court began its statutory analysis by noting two presumptions about preemption.[ix] First, Congress must clearly intend to preempt state law in areas that are traditionally within the powers of the states.[x] Second, a plausible reading of the statute that disfavors preemption should be adopted if the statute is ambiguous.[xi] The Supreme Court of Missouri next turned to Empire Healthchoice Assurance Co. v. McVeigh,[xii] where the Supreme Court of the United States considered FEHBA’s preemption provision.[xiii] Empire noted that the statute at issue “was open to more than one construction” and “warrants [a] cautious interpretation.”[xiv] Thus, the Supreme Court of Missouri concluded that the presumption against preemption was implicated.[xv]
Turning squarely to the task of statutory interpretation, with the presumption against preemption in mind, the Supreme Court of Missouri had to determine whether GHP’s claimed right to subrogation “relate[d] to” Nevils’ “coverage” or “benefits.”[xvi] The court held that, given Empire’s warning that FEHBA should be interpreted cautiously with regard to preemption and the presumption, the phrase “relate to” in the statute “must be construed as requiring a direct and immediate relationship to the insurance coverage and benefits at issue.”[xvii] The Supreme Court of Missouri next concluded that “coverage” “consists of the various risks GHP agreed to insure.”[xviii] Therefore, subrogation – which occurs after benefits have already been paid out – has nothing to do with coverage.[xix] Finally, the Supreme Court of Missouri concluded that an insurer’s right to subrogation is distinct from an insured’s benefits, noting that the Supreme Court of the United States recognized this distinction in Empire.[xx] The Supreme Court of Missouri held that “benefits” are payments by the insurer on the insured’s behalf. Subrogation does not relate to an insured’s benefits because the payments by the insurer on the insured’s behalf would have been made whether the insured filed suit to recover damages or not.[xxi]
Because GHP’s claimed right to subrogation did not “relate to the nature, provision, or extent of coverage or benefits,” the preemption provision of FEHBA did not apply. Therefore, nothing in the federal law of the insurance contract preempted Missouri law. Because Missouri law prohibits subrogation of personal injury claims, GHP was not entitled to summary judgment.
In a concurring opinion, Judge Wilson agrees that GHP was not entitled to summary judgment, but does so on the ground that the preemption provision of FEHBA is not a valid application of the Supremacy Clause and therefore cannot supersede Missouri law.[xxii] Specifically, Judge Wilson points out that Congress attempted to make the terms of private contracts supersede state laws. Judge Wilson argued that “[t]he idea that Congress claims the power to authorize the executive branch and private insurance companies to negotiate contract terms that Congress decrees – sight unseen – shall “preempt and supersede” state law is such an unprecedented and unjustified intrusion on state sovereignty that it almost defies analysis.”[xxiii]
II. Legal Background
This case arose from the fact that subrogation of personal injury claims is prohibited in Missouri. This common law rule was adopted by Missouri courts as early as 1909,[xxiv] and has been rigorously enforced.[xxv] However, in Buatte v. Gencare Health Sys., Inc.,[xxvi] the Missouri Court of Appeals for the Eastern District held that FEHBA preempted state law prohibiting subrogation by considering decisions applying FEHBA in other states with subrogation prohibitions similar to Missouri’s.[xxvii]
However, the Nevils court found that a subsequent Supreme Court of the United States case, Empire HealthChoice Assurance Co. v. McVeigh,[xxviii] called the continued validity of Buatte into question.[xxix] In Empire, the Court briefly considered FEHBA’s preemption provision and concluded that it was open to multiple constructions without deciding the extent of any possible preemptive effect.[xxx] Furthermore, the Empire Court drew a distinction between an insurer providing insurance coverage or benefits on the one hand and an insurer’s claimed right to subrogation on the other.[xxxi] This distinction proved to be critical for the decision in Nevils.
While the Supremacy Clause[xxxii] was surely implicated in Nevils – as the constitutional basis for FEHBA’s preemption clause – the Supreme Court of Missouri managed to avoid engaging in a protracted discussion touching on issues of federalism and state powers by deciding the case on purely statutory grounds. However, this may leave deeper issues undecided. On the other hand, Judge Wilson’s approach faces the Supremacy Cause issue directly, but this raises the question of whether it is better to decide a constitutional question when it can be avoided. It is difficult, however, to disagree with Judge Wilson’s admonition that FEHBA’s preemption clause is a starling federal misappropriation of state power. It also seems that the court’s statutory analysis, leading to the conclusion that subrogation does not relate to the provision of insurance coverage or benefits, may provide an escape route for states with common law subrogation prohibitions like Missouri’s when faced with a FEHBA issue.
- Keith Holland
[i] No. SC93134 (Mo. 2014) (en banc), available at http://www.courts.mo.gov/file.jsp?id=69837.
[ii] Id. at 2.
[v] Id. at 1.
[vii] Id. at 4 (quoting 5 U.S.C. § 8902(m)(1)).
[ix] Id. at 4-5.
[x] Id. at 5.
[xi] Id. (citing Bates v. Dow AgroScience, LLC, 544 U.S. 431, 449 (2005)).
[xii] 547 U.S. 677 (2006).
[xiii] Nevils at 5.
[xiv] Id. at 6 (quoting Empire Healthchoice v. McVeigh, 547 U.S. 677, 968 (2006)).
[xvi] Id. at 8.
[xvii] Id. at 9.
[xx] Id. at 10.
[xxii] Id. at 2 (Wilson, J., concurring).
[xxiii] Id. at 11 (Wilson, J., concurring).
[xxiv] See Remmers v. Remmers, 117 S.W. 1117 (Mo. 1909).
[xxv] See, e.g., Freeman v. Berberich, 60 S.W.2d 393 (Mo. 1933).
[xxvi] 939 S.W.2d 440 (Mo.App. E.D. 1996).
[xxvii] Id. at 442.
[xxviii] 547 U.S. 677 (2006).
[xxix] Nevils at 5-6.
[xxx] Empire at 697.
[xxxi] Id. at 683.
[xxxii] U.S. Const. art. VI, cl. 2.