Guardian Flight LLC v. Jon Godfread
986 F.3d 1032 (2021)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
The Airlines Deregulation Act (ADA) broadly preempts state laws that are related to the price or services of an air carrier, including provisions prohibiting balance billing or air ambulance subscription agreements. Such state laws are not saved from preemption by the McCarran-Ferguson Act (MFA) unless they are enacted for the purpose of regulating the business of insurance, which primarily means regulating the relationship between the insurer and the insured, not merely the relationship between a service provider and a patient/subscriber.
Facts:
- Guardian Flight LLC is a federally licensed air carrier providing air ambulance services in North Dakota, transporting critically ill or injured patients to hospitals.
- Air ambulance services are expensive, and providers often balance bill privately insured out-of-network patients for the difference between the charged amount and the insurer’s payment, which can amount to tens of thousands of dollars.
- Between 2014 and early 2018, the North Dakota Insurance Department received over 40 complaints from privately insured individuals regarding unexpected balance bills from air ambulance providers.
- Before the 2017 enactment of North Dakota Senate Bill 2231 (SB 2231), Guardian Flight offered a subscription membership program for less than $100 per year, guaranteeing that if an affiliated air ambulance provided transportation, the enrollee would incur “no out-of-pocket flight expenses.”
- SB 2231’s payment provision prohibited air ambulance providers from balance billing and deemed insurer payment as full and final for out-of-network services.
- SB 2231’s subscription provision prohibited air ambulance providers or their agents from selling subscription agreements or contracts related to services or billing.
- The subscription agreements did not guarantee that Guardian Flight or an affiliated provider would be dispatched, nor did they require Guardian Flight to pay for services provided by an unaffiliated air ambulance.
Procedural Posture:
- Guardian Flight LLC filed a declaratory judgment action in the United States District Court for the District of North Dakota, seeking a permanent injunction against Jon Godfread (North Dakota Insurance Commissioner) and Wayne Stenehjem (North Dakota Attorney General) to prevent enforcement of SB 2231's payment and subscription provisions.
- Godfread and Stenehjem answered the complaint.
- Both parties filed cross-motions for judgment on the pleadings.
- The district court granted and denied the motions in part, concluding that the ADA preempted both provisions but the McCarran-Ferguson Act saved the subscription provision from preemption.
- The district court permanently enjoined Godfread and Stenehjem from enforcing the payment provision but allowed the subscription provision to remain in effect.
- Guardian Flight LLC appealed the part of the district court's decision allowing the subscription provision to remain (Plaintiff Appellant in No. 19-1343).
- Jon Godfread and Wayne Stenehjem appealed the part of the district court's decision enjoining the payment provision (Defendants Appellants in No. 19-1381).
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 Airlines Deregulation Act (ADA) preempt North Dakota's statutory provisions prohibiting air ambulance providers from balance billing out-of-network patients and from selling subscription agreements? If so, does the McCarran-Ferguson Act (MFA) save these provisions from preemption?
Opinions:
Majority - Wollman, Circuit Judge
Yes, the Airlines Deregulation Act (ADA) preempts North Dakota's payment and subscription provisions. No, the McCarran-Ferguson Act (MFA) does not save either of these provisions from preemption. The court determined that both the payment and subscription provisions are preempted by the ADA because they are “related to” and “hav[e] a connection with” the price that air ambulance providers charge for their services. The payment provision effectively caps air ambulance prices by mandating acceptance of insurer payments and prohibiting balance billing. The subscription provision prohibits price-establishing agreements. The Supreme Court's interpretation of 'related to' in Morales v. Trans World Airlines, Inc. (1992) gives the ADA a broad preemptive purpose, which these provisions clearly infringe upon, as confirmed by similar rulings in Air Evac EMS, Inc. v. Cheatham (4th Cir. 2018), Bailey v. Rocky Mountain Holdings, LLC (11th Cir. 2018), and EagleMed LLC v. Cox (10th Cir. 2017). Regarding the McCarran-Ferguson Act, the court concluded that neither provision was enacted “for the purpose of regulating the business of insurance.” Citing United States Department of Treasury v. Fabe (1993), the court reiterated that laws regulating the 'business of insurance' must aim to adjust, manage, or control that business, focusing on the relationship between the insurer and the insured. The payment provision regulates the relationship between the insured and the service provider, not the insurer and the insured, aiming to reduce prices and prohibit balance billing. It does not transfer or spread a policyholder's risk, nor is it an integral part of the policy relationship once the insurer has completed its obligations. Therefore, the MFA does not save it from preemption, aligning with Bailey (2018). Similarly, the subscription provision was not enacted for the purpose of regulating the business of insurance. Drawing on First National Bank of Eastern Arkansas v. Taylor (8th Cir. 1990), the court stated that the MFA was designed to preserve traditional state regulation and taxation of insurance companies, not other industries. While subscription agreements transfer some risk, they are not insurance contracts because they do not guarantee service, indemnify subscribers, or involve an insurance company’s investment risk. They regulate the relationship between a consumer and an air ambulance company, a practice not limited to the insurance industry. Thus, the MFA does not apply to save the subscription provision from ADA preemption.
Analysis:
This case significantly clarifies the broad preemptive scope of the Airlines Deregulation Act (ADA) over state attempts to regulate the economic aspects of air ambulance services. It reinforces that state laws impacting air carrier prices, routes, or services will likely be preempted, even when those laws address consumer protection concerns like balance billing. The ruling also narrows the applicability of the McCarran-Ferguson Act (MFA) to state laws, emphasizing that the MFA's saving clause applies only when the state law genuinely targets the 'business of insurance'—primarily the insurer-insured relationship—rather than merely affecting a service provider's billing practices or offerings. Consequently, states face substantial limitations in addressing the issue of high air ambulance costs and surprise billing through direct regulation of air carriers, pushing such issues into the federal domain or requiring alternative regulatory approaches that do not conflict with ADA preemption.
