                        United States Court of Appeals
                          FOR THE EIGHTH CIRCUIT
                                 ___________

                                 No. 96-2080
                                 No. 96-2231
                                 ___________

Thomas Waller; Judith Waller,       *
                                    *
      Plaintiffs - Appellants/      *
      Cross-Appellees,              *
                                    * Appeals from the United States
      v.                            * District Court for the
                                    * District of Minnesota.
Hormel Foods Corporation; Hormel    *
Foods Corporation Medical Plan,     *
                                    *
      Defendants - Appellees/       *
      Cross-Appellants.             *
                               ___________

                              Submitted: February 10, 1997
                                  Filed:   July 17, 1997
                                 ___________

Before MAGILL, HEANEY, and LOKEN, Circuit Judges.
                               ___________

LOKEN, Circuit Judge.


     Thomas and Judith Waller received medical benefits from the Hormel
Foods Corporation Medical Plan (the “Plan”), a plan governed by the
Employee Retirement Income Security Act, 29 U.S.C. §§ 1001 et seq.
(“ERISA”).   They appeal the district
court’s1 decision that the Plan’s subrogation clause grants it a first
priority claim to the proceeds of the Wallers’ settlement with a third-
party insurer.   The Plan cross appeals the award of attorney’s fees to the
Wallers   for generating the settlement fund.       We remand for further
consideration of the attorney’s fee issue but otherwise affirm.


                                     I.


     The Wallers were injured in a head-on collision with an automobile
being driven on the wrong side of Interstate 35 in southern Minnesota.   The
Plan is funded by Hormel Foods Corporation, Thomas Waller’s employer, to
provide specified health care benefits to Hormel employees and their
dependents.   The Plan has paid over $157,000 of Judith Waller’s accident-
related medical expenses.


     Following the accident, the Wallers asserted claims against American
Family Insurance Group (“American Family”) under two insurance policies.
One provided liability insurance to the driver of the other car, and the
other provided underinsured motorist coverage to the Wallers.   Each policy
had a limit of $100,000 per person per accident.   The Wallers and American
Family agreed to settle Mrs. Waller’s claims for $200,000, the aggregate
policy limits, but American Family required a release from the Plan.     The
Plan demanded full reimbursement from the settlement proceeds of the
medical benefits provided to Mrs. Waller, citing the following Plan
provision:




     1
       The HONORABLE MICHAEL J. DAVIS, United States District Judge for
the District of Minnesota.

                                    -2-
     In the event of any payment by the company for health care
     expenses, the company shall be subrogated to all rights of
     recovery which you or your dependent, receiving such payment,
     may have against any person or organization.

The Wallers responded by commencing this action for a declaratory judgment
“that the Plan’s claimed subrogation interest is enforceable only if and
after plaintiffs are fully compensated for their damages.”   Hormel and the
Plan counterclaimed for a declaratory judgment that the Plan’s claim to any
monies recovered from third parties “is prior to the rights of Plaintiffs.”
The Wallers then amended their complaint to add a claim that the Plan, if
entitled to priority, must “pay its fair share of attorney’s fees and costs
incurred in securing recovery of the insurance proceeds.”


     The District Court held that the Plan’s subrogation clause grants it
first priority to the proceeds of the tentative $200,000 settlement with
American Family.   However, the court reduced the Plan’s claim to the
settlement proceeds by $50,000 as an award of attorney’s fees to the
Wallers for creating the settlement fund, commenting that “it would be
unjust to permit the Plan to reap where it has not sown.”      The Wallers
appeal, arguing that the Plan is not entitled to be reimbursed until Mrs.
Waller has been made whole.   Hormel and the Plan cross-appeal the award of
attorney’s fees.


                                    II.


     The insurance laws of many (but by no means all) States preclude an
insurer that has made payments to an injured insured from enforcing its
subrogation rights until the insured is fully compensated for her injury.
See Fields v. Farmers Ins. Co., 18 F.3d




                                     -3-
831, 835-36 (10th Cir. 1994); Cutting v. Jerome Foods, Inc., 993 F.2d 1293,
1296-98 (7th Cir. 1993), cert. denied, 510 U.S. 916 (1993).          The Wallers
argue for application of this “make whole” principle but concede, as they
must, that ERISA preempts any state law that would otherwise override the
subrogation provision in a self-insured plan such as Hormel’s.            See FMC
Corp. v. Holliday, 498 U.S. 52 (1990).       A subrogation provision affects the
level of benefits conferred by the plan, and ERISA leaves that issue to the
private parties creating the plan.           See Alessi v. Raybestos-Manhattan,
Inc., 451 U.S. 504, 511 (1981); John Morrell & Co. v. United Food &
Commercial Workers Int’l Union, 37 F.3d 1302, 1303-04 (8th Cir. 1994),
cert. denied, 115 S. Ct. 2251 (1995).        Thus, this issue turns solely upon
the proper interpretation of the Plan’s subrogation provision.               Other
circuits   that   have   considered   subrogation    priority   issues   involving
similarly worded ERISA plans have reached conflicting conclusions.2


      The Plan provides that it “shall be subrogated to all rights of
recovery which you or your dependent . . . may have against any person or
organization.”     It does not define subrogation.       As the district court
noted, “[o]ne may presume that this term [subrogation] does not have great
currency among laypersons, but this neither defeats reasonable expectations
nor creates ambiguity.” One common definition is “the substitution of one
for another as a creditor so that the new creditor succeeds to the former’s
rights in law and equity.”     WEBSTER’S THIRD NEW INTERNATIONAL




      2
        Compare Sunbeam-Oster Co. v. Whitehurst, 102 F.3d 1368 (5th Cir. 1996),
with Barnes v. Independent Auto. Dealers, 64 F.3d 1389 (9th Cir. 1995), for cases
applying the de novo standard of review. Compare Cagle v. Bruner, 112 F.3d 1510,
1520-21 (11th Cir. 1997), with Cutting, 993 F.2d at 1299, for cases applying the
arbitrary and capricious standard of review.

                                       -4-
DICTIONARY, Subrogation (unabridged ed. 1986).          We agree with the district
court that the audience for which an ERISA plan is written -- the average
plan participant in an employer-funded plan -- would read this provision
as meaning that the Plan has a “first priority” or “first dollar” claim to
any recovery arising out of an injury up to the amount of medical benefits
the Plan has paid on account of that injury.


      The Wallers argue that we should construe the word “subrogated” in
the Plan to include the make-whole principle that has been engrafted onto
the subrogation clauses in insurance policies under state law.              But there
is good reason not to read ERISA plans like insurance policies.             “The very
heart of the bargain when the insured purchases insurance is that if there
is a loss he or she will be made whole.         The cases that originally applied
subrogation to insurance contracts . . . never envisioned the use of
subrogation as a device to fully reimburse the insurer at the expense of
leaving the insured less than fully compensated for his loss.”              Powell v.
Blue Cross & Blue Shield, 581 So. 2d 772, 777 (Ala. 1990).          Employer-funded
medical benefit plans should not be viewed in this fashion.


      Alternatively, the Wallers argue that the absence of express “first
priority” language requires us to construe the Plan in their favor on this
issue.     We disagree.     The Plan’s subrogation provision appears in the
Hormel Employee Benefits handbook, which is subtitled “Summary Plan
Description for Non-Exempt Bargaining Unit Employees of Geo. A . Hormel &
Company” at eight facilities.        Under ERISA, the summary plan description
(“SPD”) is a heavily regulated document.                It must be filed with the
Department of Labor and distributed to plan participants and beneficiaries.
See   29   U.S.C.   §   1021(a),   (b).    Unlike   a   formal   contract   or   trust
instrument, SPDs “shall




                                          -5-
be written in a manner calculated to be understood by the average plan
participant, and shall be sufficiently accurate and comprehensive to
reasonably apprise such participants and beneficiaries of their rights and
obligations under the plan.”       29 U.S.C. § 1022(a)(1); see 29 C.F.R.
§ 2520.102-2(b).     A subrogation clause published in an SPD must be
construed in light of   the essential nature and purpose of that document.
Viewed in this light, we agree with the Fifth Circuit that, “[f]ar from the
kind of silence that would be tantamount to ambiguity, the only silence
here is the understandable absence of separate, specifically articulated
rules for situations of partial recovery and total recovery with variations
depending on the nature of the source of recovery.        This signifies nothing
more than that, regardless of source, the rule is the same for total and
partial recoveries.”    Sunbeam-Oster Co., 102 F.3d at 1376.


                                     III.


     Hormel and the Plan cross appeal the district court’s decision to
reduce the Plan’s share of the American Family settlement proceeds by
$50,000 as a reasonable attorney’s fee to the Wallers for obtaining the
settlement.    The   record   on   this     issue   is   virtually   non-existent.
Apparently, the Wallers agreed to a fee arrangement that would entitle
their attorneys to one-third of any amount recovered in the American Family
settlement.   The district court concluded as a matter of federal common
law that the Plan should be assessed an attorney’s fee for creation of the
settlement fund, and that legal costs to the Wallers, not the value of the
legal services to the Plan, should be the governing factor in determining
the amount of that fee award.      Acknowledging “it is extremely doubtful”
that the Plan would have spent over $65,000 to obtain a $200,000 settlement
“where liability and damages were fairly certain,” the court nonetheless




                                      -6-
reduced the Plan’s claim by $50,000 as an award to the Wallers for their
attorneys’      efforts.     This     equals    one-fourth    of       the   American     Family
settlement and roughly one-third of the Plan’s subrogation interest at the
time the case was submitted.               The question is whether that award is an
appropriate application of the federal common law that must “fill the gaps
left by ERISA’s express provisions.”                Landro v. Glendenning Motorways,
Inc., 625 F.2d 1344, 1351 (8th Cir. 1980).


      Courts     in   the   Seventh    Circuit      have   debated      this    issue     rather
inconclusively.3        Hormel argues that we should follow Ryan v. Federal
Express Corp., 78 F.3d 123 (3d Cir. 1996), and fully reimburse the Plan for
medical benefits paid, with no attorney’s fee reduction.                     The plan at issue
in Ryan required beneficiaries to reimburse “100% of the amount of covered
benefits paid” and specifically addressed the question of attorney’s fees
incurred   by    a    beneficiary     in    recovering     from    a    third    party.      The
beneficiary in Ryan argued that the plan should nonetheless pay its pro
rata share of the fees incurred in obtaining a very large settlement, one
that greatly exceeded the plan benefits paid.                     The court rejected that
contention and enforced the plan as written, concluding “it would be
inequitable to permit the Ryans to partake of the benefits of the Plan and
then . . . invoke common law principles to establish a legal justification
for their refusal to satisfy their end of the bargain.                   78 F.3d at 127-28.




      3
       Compare Land v. Chicago Truck Drivers, Helpers & Warehouse Union
Health & Welfare Fund, 25 F.3d 509, 511 (7th Cir. 1994), Estate of Lake v. Marten,
946 F. Supp. 605, 610-11 (N.D. Ill. 1996), and Blackburn v. Becker, 933 F. Supp.
724, 729 (N.D. Ill. 1996), vacated, 1997 WL 290965 (7th Cir. 1997), with
Carpenter v. Modern Drop Forge Co., 919 F. Supp. 1198, 1203-06 (N.D. Ind.
1995), Serembus v. Mathwig, 817 F. Supp. 1414, 1423 (E.D. Wis. 1992), and
Dugan v. Nickla, 763 F. Supp. 981, 984 (N.D. Ill. 1991).

                                              -7-
        We agree with the decision in Ryan because it properly bases the
federal common law under ERISA on the terms of the particular plan at
issue.     Cf. Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 56 (1987);
Anderson v. John Morrell & Co., 830 F.2d 872, 877 (8th Cir. 1987).                    But
Ryan does not end the inquiry in this case because the Plan’s subrogation
clause contains no provision regarding attorney’s fees.               Silence on this
issue is not easily construed.         It may mean that the Plan should always
receive 100% of its claim for reimbursement, even if that produces unfair
results in a particular case, so that the Plan retains maximum control over
efforts to recover from third parties.         But it may also mean that the Plan
will pay reasonable fees and expenses so as to encourage beneficiaries to
press claims to which the Plan will be partially subrogated.                 Since the
Plan does not clothe its administrators with discretion to decide such
issues, it is left to the courts to construe the subrogation clause de
novo.    In these circumstances, we agree with the district court’s decision
to reduce Hormel’s subrogation recovery by the amount of a reasonable
attorney’s fee.


        However, we disagree with the court’s decision not to base the amount
of fee awarded on the value of the Wallers’ legal services to the Plan.
Focusing on that factor, the Plan contends that it would have made a claim
under the American Family policies once the extent of medical benefits to
be provided was better known, that the Wallers “jumped the gun” primarily
to litigate the priority issue with Hormel, and that they obtained a policy
limits settlement with little effort.          If true, that is certainly relevant
to the question of the value of their legal services to the Plan.                 Compare
Pena v. Thorington, 595 P.2d 61, 64 (Wash. Ct. App. 1979); Barreca v. Cobb,
668   So.2d   1129,   1132   (La.   1996).      In   this   case,   where   the    Plan’s
subrogation interest is a very large percentage of the American Family
policy limits, reducing the Plan’s claim by




                                         -8-
more than the amount it would have expended to create the settlement fund
distorts the subrogation clause and expands this employee medical benefit
beyond the confines of the Plan.   Therefore, a contingent fee award would
not be appropriate absent evidence that the Plan would have hired counsel
on this basis, and an award based on counsel’s actual time devoted to the
matter must exclude time devoted to the Wallers’ dispute with the Plan.
The record on appeal is inadequate to determine a reasonable attorney’s
fee based upon value of legal services to the Plan, and in any event this
is an issue committed in the first instance to the district court’s
discretion.


     For the foregoing reasons, we must remand this case for further
consideration of the attorney’s fee issue.     In all other respects, the
decision of the district court is affirmed, including its decision to deny
an attorney’s fee award under 29 U.S.C. § 1132(g).


     A true copy.


              Attest:


                   CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.




                                     -9-
