FMC Corp. v. Holliday
498 U.S. 52 (1990)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
ERISA's 'deemer clause' exempts self-funded employee benefit plans from state laws that 'regulate insurance.' Therefore, ERISA pre-empts the application of state anti-subrogation laws to such plans, allowing them to enforce their own subrogation provisions.
Facts:
- FMC Corporation (FMC) operated a self-funded employee welfare benefit plan governed by ERISA, which provided health benefits to its employees.
- The Plan contained a subrogation clause requiring members to reimburse the Plan for benefits paid if the member recovered damages from a third party.
- Cynthia Ann Holliday, a beneficiary of the Plan, was seriously injured in an automobile accident in 1987.
- The Plan paid a portion of Holliday's medical expenses.
- The Hollidays filed a negligence action against the driver responsible for the accident and reached a settlement.
- FMC notified the Hollidays that it would seek reimbursement from the settlement proceeds pursuant to the Plan's subrogation clause.
- The Hollidays refused to reimburse the Plan, citing a Pennsylvania law (§ 1720) that prohibited subrogation from a claimant's tort recovery in motor vehicle accident cases.
Procedural Posture:
- FMC sought a declaratory judgment against Holliday in the United States District Court.
- The District Court granted summary judgment in favor of Holliday, holding that the Pennsylvania anti-subrogation law barred FMC's claim.
- FMC, as appellant, appealed the decision to the United States Court of Appeals for the Third Circuit.
- The Court of Appeals affirmed the District Court's judgment, concluding that ERISA's deemer clause did not pre-empt the Pennsylvania law.
- The United States Supreme Court granted certiorari to resolve a conflict among the circuit courts.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does the Employee Retirement Income Security Act of 1974 (ERISA) pre-empt a state law that prohibits self-funded employee benefit plans from exercising subrogation rights on a beneficiary's personal injury recovery?
Opinions:
Majority - Justice O’Connor
Yes. ERISA pre-empts Pennsylvania's anti-subrogation law as applied to self-funded employee benefit plans. The Court's analysis proceeds through ERISA's three-part pre-emption framework. First, the state law 'relates to' an ERISA plan under the broad pre-emption clause because it has a connection with such plans by restricting their ability to structure benefits and requiring administrators to deal with a patchwork of state regulations. Second, the law falls within ERISA's 'saving clause' because it is a state law that 'regulates insurance.' However, the third provision, the 'deemer clause,' is dispositive. It provides that an ERISA plan shall not be 'deemed to be an insurance company' for purposes of state laws regulating insurance. This exempts self-funded plans from direct state insurance regulation. While plans that purchase insurance policies (insured plans) are indirectly subject to state regulation through the regulation of their insurer, self-funded plans are not. This interpretation gives effect to Congress's intent to foster uniform, nationwide administration of employee benefit plans.
Dissenting - Justice Stevens
No. ERISA does not pre-empt the Pennsylvania law because the Court's construction creates an illogical distinction between self-funded and insured plans that harms beneficiaries and is not supported by congressional intent. The deemer clause should be read more narrowly than the saving clause. While the saving clause exempts any state law that 'regulates insurance,' the deemer clause should only apply to state laws 'purporting' to regulate the business of insurance itself, such as licensing and capitalization requirements. Pennsylvania's anti-subrogation law is a generally applicable rule of remedy, not a law purporting to regulate insurance companies as a business. Therefore, while the law is saved from pre-emption by the saving clause, it is not brought back into the scope of pre-emption by the narrower deemer clause.
Analysis:
This case established a critical and durable distinction in ERISA pre-emption jurisprudence between self-funded and insured employee benefit plans. By interpreting the deemer clause broadly, the Court created a protected class of self-funded plans that are immune to state insurance regulations, including benefit mandates and anti-subrogation laws. This decision significantly enhanced the ability of employers to create uniform, nationwide benefit plans, free from the complexities and costs of complying with fifty different sets of state laws. Consequently, it created a strong incentive for employers, particularly large ones, to self-fund their health and welfare plans to avoid state-level regulation.
