On appeal from the Superior Court, Chancery Division, Middlesex County.
Matthews, Pressler and Petrella. The opinion of the court was delivered by Pressler, J.A.D.
[182 NJSuper Page 343] This appeal presents a novel "other insurance" type of problem which raises important questions relating to the interpretation of the coordination of benefits provision of Blue Cross and Blue Shield group contracts. These questions arise in the context of an action brought by union members and their welfare
fund seeking to have the union's medical expense reimbursement plan declared exempt from the operation of the Blue Cross/Blue Shield coordination of benefits provision.
Analysis of the issues here involved requires some brief background exposition. The Hospital Service Plan of New Jersey (Blue Cross) and the Medical-Surgical Plan of New Jersey (Blue Shield) are nonprofit corporations organized pursuant to N.J.S.A. 17:48-1 et seq. and 17:48A-1 et seq. , and providing broad-spectrum hospital and medical service benefits. N.J.S.A. 17:48-6.1. See, generally, as to the nature and functioning of Blue Cross and Blue Shield, N.J. Insurance Agents v. Hospital Service Plan N.J. , 68 N.J. 213 (1975).
One of the mechanisms by which benefits are provided is the issuance of employer group contracts which afford the employee-subscribers the opportunity to obtain benefit coverage not only for themselves but for their eligible dependents, including spouses as well. Blue Cross and Blue Shield are not, of course, the only authorized providers of both individual and group health and accident benefit coverage, and as more coverage is made available to more people by the proliferation of both private and governmental service and indemnification plans, the possibility of duplicate coverage for the same risk increases. The duplicate coverage potential is obviously also enhanced by the growing phenomenon of wage-earning by both spouses. Thus, it is a common occurrence for each spouse to be covered as a direct beneficiary or subscriber of his own employer's group contract and as a dependent beneficiary of his spouse's employer's group contract as well. The children of such a couple are also doubly covered as dependents of each of their parents.
In order to avoid duplicate recovery by beneficiaries who are covered for the same benefits by multiple plans and to address with particularity the duplicate coverage potential otherwise resultant from multiple interfamily plans, the health insurance industry has developed in the last several decades a double-recovery prevention technique called the coordination of benefits provision (COB). As explained by one court,
COB has as its primary characteristic a structure of priority of claim payments which enables broad risk accident and health insurance carriers to reduce the amount of premiums paid out by limiting the claimants to a single payment of benefits for a single medical risk. If two or more policies would result in payment of more than 100% of the expenses, then coordination of benefits is applied. [ American Fam. Life Assur. Co., Columbus v. Blue Cross, Fla. , 346 F. Supp. 267, 268-269 (S.D.Fla.1972), aff'd 486 F.2d 225 (5 Cir. 1973), cert. den. 416 U.S. 905, 94 S. Ct. 1609, 40 L. Ed. 2d 109 (1974)]
COB is not, of course, the only industry approach to the duplicate-coverage problem. Contracts covering all types of risks customarily contain some provision specifying or modifying the carrier's responsibility to its insured in the event that the risk insured against is covered by other insurance as well. These provisions, although presenting a wide range of variation and permutation and raising multitudes of constructional conflicts and problems, fall generally, nevertheless, into one of three broad categories. The first is the one in which the carrier undertakes to remain primarily liable on the risk despite other insurance but ordinarily stipulates that it will bear only a pro rata liability with other primary insurers. The second category is the excess insurance clause where the carrier agrees to pay the loss only to the extent it exceeds the coverage afforded by other available insurance. And the third is the escape clause where the carrier disclaims any liability to pay the loss if the loss is otherwise covered. See generally, 8A Appleman, Insurance Law and Practice , §§ 4906 at 341-352 (1981). The essence of the COB technique is to define those other-coverage circumstances which will render the Plan's payment obligation primary and those which will render it secondary -- or, in customary parlance, excess.
The method by which the Blue Cross/Blue Shield COB provision before us seeks to accomplish this accommodation is by first defining the other coverage which will invoke the operation of COB and thereby potentially modify its primary obligation. The COB provision then stipulates that as to such other coverage, which does not also contain a COB provision, the Blue Cross/Blue Shield benefits will be secondary or excess only. Where the other coverage does contain a COB provision and that [182 NJSuper Page 346] COB provision, in the circumstances of the claim, renders the other coverage secondary or excess, Blue Cross/Blue Shield will undertake the primary responsibility but only pursuant to its three stated rules for determining the order of benefit payment. The first rule is that where a claimant is covered by one plan as a direct beneficiary and by another plan as a dependent of a direct beneficiary, the plan covering the claimant as a direct beneficiary pays first. The second is, essentially, that as to children, the father's plan pays before the mother's plan. The third is that where neither of the first two rules are applicable, the plan covering the claimant for the longest period of time pays first.*fn1 Blue Cross/Blue Shield further defines as other programs against which it will coordinate benefits:
. . . [P]rogram providing benefits or services for or by reason of hospital, extended care facility or home health agency care or treatment, which benefits or services are provided by:
(a) group, blanket or franchise insurance coverage, group practice, individual practice, Blue Cross or Blue Shield or other prepayment coverage, coverage under labor-management trusteed plans, union welfare plans , employer organization plans, or employee benefit organization plans, including any federal or state or other governmental plan or law, toward the cost of any of the foregoing to which any employer shall have contributed or with respect to which any employer shall have made payroll deduction, or
(b) coverage under any program solely or largely tax-supported or otherwise provided for by or through action of any government. [Emphasis added]
The synthesis of all of these various provisions, insofar as we can determine from the direct stipulations of the COB provision and the reasonable inferences raised thereby, is that the Blue Cross/Blue Shield obligation is intended always to be secondary to the other defined coverage unless that other coverage has a COB provision making it secondary in the circumstances and the terms of one of the three rules requiring Blue Cross/Blue Shield to pay first have been satisfied.
The individual plaintiffs here are all members of United Food and Commercial Workers International Union, Local 464, AFL-CIO (union). The union's Amalgamated Welfare Fund maintains a group reimbursement plan (Welfare Fund Plan) for all members which is available to all persons covered by a collective bargaining agreement between the union ...