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FMC Corp. v. Holliday

filed: September 11, 1989.


On Appeal from the United States District Court for the Western District of Pennsylvania, Civil No. 88-1098.

Gibbons, Chief Judge, Hutchinson, Circuit Judge and Alfred M. Wolin, District Judge.*fn*

Author: Gibbons


GIBBONS, Chief Judge

FMC Corporation appeals from a summary judgment in favor of the defendant Cynthia Ann Holliday, in FMC's action seeking a declaratory judgment that it is entitled to subrogation against Ms. Holliday's recovery for personal injuries received in an automobile accident. FMC is an employer operating a health plan and employs Ms. Holliday's father. She was permanently injured, and FMC has paid and will in the future pay her medical expenses pursuant to that plan. The district court held that under Pennsylvania law FMC had no subrogation rights, and that Pennsylvania law was not preempted by section 514 of the Employee Retirement Income Security Act of 1974 (ERISA). 29 U.S.C. § 1144. FMC contends the district court erred in both respects. We will affirm.


On January 16, 1987, Ms. Holliday, then age 15, was seriously and permanently injured while riding as an automobile passenger in Indiana County, Pennsylvania. Her medical expenses to date exceed $178,000 and the cost of future care is unknown. At the time of the accident her father owned an automobile policy issued by State Farm Mutual Automobile Insurance Company, which paid the first $10,000 of his daughter's medical bills. Mr. Holliday also commenced a negligence action on behalf of his daughter in the Court of Common Pleas of Indiana County against Robert Lyons, the driver of the car in which she was a passenger at the time of the accident. That case proceeded to an eventual settlement on September 3, 1987, under which Lyons interpleaded his $100,000 automobile liability policy in favor of Ms. Holliday and three other claimants injured in the accident. Ms. Holliday's recovery was limited to $49,875.50 plus accrued interest.

At the time of the accident Mr. Holliday was also a covered employee under FMC's Salaried Health Plan, which provided benefits for dependents. That plan contains coordination of benefits clauses as follow:

If you or a covered member of your family are eligible to receive benefits under another group medical plan, Health Maintenance Organization (HMO), government plan, or by "no-fault" automobile insurance which provides medical coverage, you may be eligible for benefits from those Plans and your FMC plan. In the case of coverage by "no-fault" automobile insurance, FMC will pay covered expenses not paid for by no-fault insurance.


In some states with no-fault motor vehicle coverage, the carrier is the primary insurer in these jurisdictions. All medical expenses related to an accident must be submitted to the carrier and not the FMC Health Care Plan. Eligible expenses not paid for by no-fault insurance will be paid by the FMC Plan.

Relying on these clauses FMC commenced paying Ms. Holliday's medical expenses only when the $10,000 no-fault coverage under her father's State Farm automobile policy was exhausted. That $10,000 is not in dispute.

The FMC Salaried Health Plan also contains a subrogation clause as follows:

The FMC self insured benefit program is automatically assigned the right of action against third parties in any situation in which benefits are paid to employees or their dependents. If you bring a liability claim against any third party, benefits payable under this Plan must be included in the claim, and when the claim is settled you must reimburse the Plan for the benefits provided. You are obligated to avoid doing anything which would prejudice the Plan's rights of reimbursement, and you are required to sign and deliver documents to evidence or secure those rights. Unless you sign the Company's "third party reimbursement form," the Claims Administrator will not process any claim where there is possible liability on behalf of a third party.

(emphasis supplied). In order to obtain reimbursement of medical expenses in excess of $10,000, Mr. Holliday signed a third-party reimbursement form, and the Salaried Health Plan thereafter paid his daughter's medical expenses.

When FMC learned of the negligence action in Indiana County it notified the Hollidays that it intended to exercise its subrogation rights with respect to that liability claim. The Hollidays responded that 75 Pa.Cons.Stat. Ann. § 1720 of the Pennsylvania Motor Vehicle Law prohibits such subrogation. This declaratory judgment action followed.


FMC contends that the court erred in holding that the exercise of its subrogation rights is barred by the relevant Pennsylvania law. The governing statute is the Pennsylvania Motor Vehicle Financial Responsibility Law, Act of Feb. 12, 1984, No. 11, § 3, 1984 Pa.Laws 28, as amended by Act of Feb. 12, 1984, No. 12, § 3, 1984 Pa.Laws 53, 75 Pa.Cons.Stat.Ann. §§ 1701-1798 (Purdon 1988), which is a comprehensive effort to establish a uniform system for the prompt payment of economic losses suffered by victims of vehicular collisions, including coverage for medical expenses arising out of the maintenance or use of a motor vehicle. See Pennsylvania Legislative Journal, 167th Sess., Oct. 4, 1983, at 1147 (comments of Sen. Holl); id., 167th Sess., Dec. 14, 1983, at 2241 (comments of Rep. Manderino). Two provisions of the Motor Vehicle Law bear directly on this case: section 1720, which bars the assertion of subrogation rights; and section 1719, which helps define the scope of section 1720.

Section 1720 precludes subrogation with reference to a broad range of insurance arrangements:

In actions arising out of the maintenance or use of a motor vehicle, there shall be no right of subrogation or reimbursement from a claimant's tort recovery with respect to workers' compensation benefits, benefits available under section 1711 (relating to required benefits), 1712 (relating to availability of benefits) or 1715 (relating to availability of adequate limits) or benefits in lieu thereof paid or payable under section 1719 (relation to coordination of benefits).

75 Pa.Cons.Stat.Ann. § 1720 (emphasis added). The coordination of benefits provision reads:

(a) General rule. -- Except for workers' compensation, a policy of insurance issued or delivered pursuant to this subchapter shall be primary. Any program, group contract or other arrangement for payment of benefits such as described in section 1711 (relating to required benefits) 1712(1) and (2) (relating to availability of benefits) or 1715 (relating to availability of adequate limits) shall be construed to contain a provision that all benefits provided therein shall be in excess of and not in duplication of any valid and collectible first party benefits provided in section 1711, 1712 or 1715 or workers' compensation.

(b) Definition. -- As used in this section the term "program, group contract or other arrangement" includes, but is not limited to, benefits payable by a hospital plan corporation or a professional health service corporation subject to 40 Pa.C.S. Ch. 61 (relating to hospital plan ...

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