FMC Corp. v. Holliday
The Court ruled that a federal pension and benefits law, ERISA, blocks Pennsylvania from stopping a company's self-funded health plan from recovering money it paid out of an employee's later injury settlement.
The decision draws a sharp line between self-funded plans (which get broad protection from state insurance laws) and plans that buy insurance from an outside company (which states can still regulate indirectly), reshaping how companies nationwide can structure reimbursement rules in their benefit plans.
How it got here: FMC sued in federal court for a declaration it could enforce reimbursement; the district court and the Third Circuit ruled for the family, and FMC appealed to the Supreme Court.
The Case in Depth
What happened
FMC Corporation ran a self-funded health plan for its employees that required workers to repay the plan if they later won money from a lawsuit over the same injury. When an employee's daughter was hurt in a car accident and the family settled a lawsuit against the driver, FMC sought repayment for the medical bills it had covered. The family refused, citing a Pennsylvania law banning such repayment claims.
The question before the Court
Could a company's self-funded health plan collect reimbursement from an employee's injury settlement, even though Pennsylvania law bans that kind of reimbursement?
Why it matters
Millions of employees covered by self-funded company health plans may now have to repay the plan out of any injury settlement or lawsuit winnings, even in states like Pennsylvania that tried to ban that practice. Employers gain more freedom to design uniform nationwide benefit plans without worrying about differing state insurance rules, while workers in those plans lose a state-law protection that workers in insured plans still enjoy.
What changes now
The Supreme Court vacated the Third Circuit's ruling and sent the case back for further proceedings consistent with its interpretation of ERISA's preemption, saving, and deemer clauses. On remand, the lower courts would apply this reading to let FMC enforce its reimbursement claim. The ruling is a final merits decision that resolves the legal question nationwide, though it left the specific dollar dispute between FMC and the family to be worked out on remand.
What this does not decide
The Court's ruling applies only to self-funded plans that pay benefits directly rather than through a purchased insurance policy. It does not disturb states' ability to regulate insurance companies that insure employee benefit plans, so employees in insured plans may still get the protection of state laws like Pennsylvania's.
Concurrences and dissents
How the Justices voted
Majority (1). Justice Connor (author).
Dissent (1). Justice Stevens (author).
Dissent — Justice Stevens
“Why should a self-insured plan have a right to enforce a subrogation clause against an injured employee while an insured plan may not?”Stevens objects to the majority's distinction between self-funded and insured benefit plans.
Justice Stevens argued the majority created an illogical and unexplained distinction between self-funded and insured plans, letting self-funded plans withhold reimbursement rights that insured plans cannot invoke against injured beneficiaries. He would have read the deemer clause narrowly, applying it only to laws that expressly regulate entities defined as insurance companies or insurance contracts, not to a broader motor vehicle law like Pennsylvania's that merely has the effect of regulating insurance. Under his reading, Pennsylvania's anti-reimbursement law would be saved from preemption and could be enforced against FMC's plan. Read the full dissent →
How the Court got there
The legal reasoning, step by step
- The Court applied ERISA's pre-emption clause, which wipes out any state law that 'relates to' an employee benefit plan, reading 'relates to' broadly to cover laws that reference such plans or have a meaningful connection to how they operate.
- Pennsylvania's anti-reimbursement law referenced benefit plans and would force plan administrators to calculate benefit levels differently from state to state, so it 'related to' the FMC plan and would ordinarily be wiped out by ERISA.
- The Court then checked ERISA's saving clause, which returns to states the power to enforce laws that 'regulate insurance.' Because Pennsylvania's law directly controlled the terms of insurance contracts by banning certain reimbursement clauses, it counted as an insurance-regulating law and was normally protected from preemption.
- But the Court read ERISA's deemer clause -- which says a benefit plan cannot be treated as an insurance company for purposes of state insurance laws -- to pull self-funded plans back out of that protection entirely, since a self-funded plan can never be deemed an insurer under state law.
- Applying that reading, the Court concluded that state insurance laws reach an employer's plan only indirectly, through regulating any outside insurance company the plan buys coverage from; a plan that funds its own benefits, like FMC's, has no insurer to regulate and so escapes the state law altogether.
- Because FMC's plan was self-funded rather than insured, Pennsylvania's reimbursement ban could not be enforced against it, so the law was pre-empted as applied to FMC's plan.
Doctrinal impact
Cases affected by this decision
Reaffirms Metropolitan Life Ins. Co. v. Massachusetts (471 U.S. 724)
The Court relied on this case's reading of the deemer clause and its insured/uninsured plan distinction.
Reaffirms Shaw v. Delta Air Lines, Inc. (463 U.S. 85)
The Court applied Shaw's broad reading of 'relates to' for ERISA preemption purposes.
Reaffirms Alessi v. Raybestos-Manhattan, Inc. (451 U.S. 504)
The Court relied on Alessi's holding that state laws forcing different benefit calculations are pre-empted.