FMC Corp. v. Holliday

1990-11-27

Headline: Court pre-empts Pennsylvania subrogation ban, allowing self-funded employer health plans to seek reimbursement from injured claimants while insured plans remain subject to state insurance rules.

Holding: The Court held that ERISA pre-empts Pennsylvania’s antisubrogation law as applied to FMC’s self-funded health plan, allowing the Plan to enforce its contractual reimbursement rights while insured plans remain regulated through insurers.

Real World Impact:

Lets self-funded employer health plans enforce reimbursement rights after an injured person's settlement.
Leaves insured plans regulated indirectly through their insurance companies and state insurance rules.
Reduces state-by-state differences for self-funded plans, easing nationwide plan administration and litigation.

Topics: employer health plans, state insurance rules, subrogation after car accidents, federal preemption

Summary

Background

FMC Corporation runs a self-funded employee health plan that paid medical bills for Cynthia Ann Holliday after a 1987 car accident. The plan’s rules let the plan seek reimbursement (subrogation) from any third-party recovery. The Hollidays sued the driver, settled, and refused to reimburse the plan, citing Pennsylvania’s law, §1720, which bars subrogation from a claimant’s tort recovery in motor vehicle cases. The Third Circuit had ruled for Holliday, and courts of appeals reached conflicting results, so the Supreme Court agreed to resolve the split.

Reasoning

The Court examined ERISA’s broad pre-emption rule together with the saving clause (which preserves state laws that regulate insurance) and the deemer clause (which says ERISA plans cannot be treated as insurance companies for those state rules). The Court concluded that §1720 “relates to” the plan and would be saved if it regulated insurance, but the deemer clause prevents treating self-funded plans as insurers, so ERISA pre-empts §1720 as applied to FMC’s self-funded plan. The opinion relied on prior decisions such as Shaw, Metropolitan Life, and Fort Halifax to interpret the clauses and to avoid a patchwork of state regulation. The Court vacated the Third Circuit’s decision and remanded for further proceedings consistent with this view.

Real world impact

The ruling protects self-funded employer plans from state laws that directly regulate insurance contracts, letting such plans enforce contractual reimbursement terms against claimants in states with similar subrogation bans. Insured plans remain subject to state insurance rules through their insurers, producing different treatment for insured and self-funded plans. The Court emphasized that uniform national rules avoid administrative inefficiencies and costly litigation that would follow from conflicting state laws.

Dissents or concurrances

Justice Stevens dissented, arguing the Court’s distinction between self-funded and insured plans is illogical and that the deemer clause should be read more narrowly so Pennsylvania’s antisubrogation rule could apply to both types of plans.