                                                                                         RECOMMENDED FOR FULL-TEXT PUBLICATION
8       Copeland Oaks, et al. v. Haupt, et al.             No. 99-3471                        Pursuant to Sixth Circuit Rule 206
                                                                                      ELECTRONIC CITATION: 2000 FED App. 0125P (6th Cir.)
                                                                                                  File Name: 00a0125p.06
  The plain language of this provision clearly establishes that
the Plan may require the formal assignment of recovery rights
as a precondition to payment of benefits, but it is equally clear
that the Plan’s subrogation and refund right does not vest until              UNITED STATES COURT OF APPEALS
a covered person has accepted benefits. Hence, we find that                                     FOR THE SIXTH CIRCUIT
the plan administrator abused her discretion in concluding                                        _________________
that the Plan has a right to demand any payment of funds
subject to subrogation or refund as a condition to receiving
                                                                                                                 ;
benefits, including payment of the $5,000 Hartford settlement.
                                                                                                                  
The Plan may require the Haupts to execute assignment                          COPELAND OAKS and
                                                                                                                  
documents in advance of receiving benefits, but may not                        COPELAND OAKS EMPLOYEE
                                                                                                                  
require payment of funds until the Haupts accept benefits.2                    BENEFIT PLAN,
                                                                                                                  
                                                                                                                     No. 99-3471
   We therefore AFFIRM the district court’s conclusion that                            Plaintiffs-Appellants,
                                                                                                                  
because the opt-out provision of the Copeland Oaks plan fails                                                      >
to establish both a priority over recovered funds and a right to                          v.                      
any full or partial recovery, the make-whole rule will apply.                                                     
However, we REVERSE the district court’s finding that                                                             
                                                                                                                  
                                                                               JEFFREY A. HAUPT and
Brooke was made whole by her total recovery, and REMAND
                                                                                       Defendants-Appellees. 
the case for a final resolution consistent with this opinion.                  BROOKE A. HAUPT,
                                                                                                                  
                                                                                                                1
                                                                                     Appeal from the United States District Court
                                                                                      for the Northern District of Ohio at Akron.
                                                                                    No. 98-00780—James S. Gwin, District Judge.
                                                                                                  Argued: March 15, 2000
                                                                                              Decided and Filed: April 7, 2000
    2
      We note that our sister circuits are in agreement on this question.         Before: MERRITT, DAUGHTREY, and MAGILL,*
Confronted with similar facts, the Eleventh Circuit concluded that                              Circuit Judges.
although a plan’s subrogation right is not enforceable until after benefits
have been paid, it was not an abuse of discretion to require signing of an
agreement as a precondition to payment. Cagle at 1520. The court noted
that “[o]nce benefits are paid, participants and beneficiaries have little
incentive (other than the fear of a lawsuit) to sign a subrogation
agreement,” and that “[c]ost concerns weigh in favor of the Fund’s
policy.” Id. The Ninth Circuit, after considering the plain language of a
plan in light of background principles of insurance law, also concluded           *
that “the Plan’s right to subrogation arises only after the Plan makes            The Honorable Frank J. Magill, Circuit Judge of the United States
payment to the insured.” Barnes at 1393.                                      Court of Appeals for the Eighth Circuit, sitting by designation.

                                                                                                               1
2    Copeland Oaks, et al. v. Haupt, et al.     No. 99-3471      No. 99-3471      Copeland Oaks, et al. v. Haupt, et al.        7

                   _________________                             including the Plan, will more than make her whole, and the
                                                                 Plan will be entitled to subrogation or refund of the excess
                        COUNSEL                                  recovery of medical expenses. Therefore, we REVERSE the
                                                                 district court’s decision to the contrary and REMAND this
ARGUED: Earl M. Leiken, BAKER & HOSTETLER,                       case for a finding of Brooke’s damages, the Plan’s coverage,
Cleveland, Ohio, for Appellants. David Brian Spalding,           and whether Brooke will be made whole by her total recovery.
SHETLER & SPALDING, Alliance, Ohio, for Appellees.
ON BRIEF: Earl M. Leiken, Chris Bator, BAKER &                     Finally, a word is required regarding the specific relief
HOSTETLER, Cleveland, Ohio, for Appellants. David Brian          sought by the Plan. In its complaint, the Plan requests a
Spalding, SHETLER & SPALDING, Alliance, Ohio, for                declaration “that the Plan need not pay any of the medical
Appellees.                                                       expenses incurred in connection with the treatment of
                                                                 Defendant Brooke A. Haupt’s accident-related injuries unless
                   _________________                             and until Defendants Haupt fully satisfy the requirements of
                                                                 the Plan’s subrogation and reimbursement provision and any
                       OPINION                                   other conditions.” The demand continues: “Among these
                   _________________                             requirements is paying to Plaintiffs the $5,000 already
                                                                 received from Hartford under the medical payments coverage
   MARTHA CRAIG DAUGHTREY, Circuit Judge. In this                of the Policy and the delivery of all required instruments and
ERISA action, the plaintiffs, Copeland Oaks and its employee     papers, including but not limited to an executed release
benefits plan, appeal the district court’s grant of summary      satisfactory to Hartford.” The question raised by this demand
judgment to the defendants, Copeland Oaks employee Jeffrey       is whether the Plan, once its right of subrogation is
Haupt and his daughter, Brooke. Copeland Oaks brought this       acknowledged, can require signing of a subrogation
suit seeking a declaratory judgment regarding the terms of its   agreement or actual payment of subrogated funds as a
medical benefits plan, and the Haupts filed a counterclaim       precondition to its payment of benefits. This is a question of
seeking payment. On cross-motions for summary judgment,          plan interpretation which is committed to the administrator’s
the district court held that in light of federal common law      sound discretion.
adopted by this circuit in a recent unpublished opinion,
Marshall v. Employers Health Ins. Co., 1997 WL 809997 (6th         The relevant language in the Copeland Oaks Plan provides
Cir. 1997) (per curiam), Copeland Oaks was precluded from        as follows:
exercising its right to subrogation or refund and that the
Haupts’ counterclaim was therefore moot. Only Copeland             Accepting benefits under this Plan for those incurred
Oaks appeals the district court opinion and order, which is        medical or dental expenses automatically assigns to the
reported at 41 F.Supp.2d 747 (N.D. Ohio 1999). We find that        Plan any rights the Covered Person may have to recover
the district court correctly identified the appropriate legal      payments from any third party or insurer... As a condition
standard, but that there is insufficient information in the        to the Plan making payments for any medical or dental
record to determine whether Copeland Oaks has a right to           charges, the Covered Person must assign to the Plan his
subrogation. We therefore reverse the district court’s             or her rights to any recovery arising out of or related to
judgment and remand for further fact-finding.                      any act or omission that caused or contributed to the
                                                                   Injury or Sickness for which such benefits are to be paid.
6    Copeland Oaks, et al. v. Haupt, et al.       No. 99-3471      No. 99-3471          Copeland Oaks, et al. v. Haupt, et al.              3

   The make-whole rule provides that an insurer cannot               I. FACTUAL AND PROCEDURAL BACKGROUND
enforce its subrogation rights unless and until the insured has
been made whole by any recovery, including any payments              Jeffrey Haupt, an employee of Copeland Oaks, is the father
from the insurer. See, e.g., 16 Couch on Insurance 2d § 61:64      and custodial parent of Brooke Haupt, a minor. Both Jeffrey
(“[N]o right of subrogation against the insured exists upon the    and Brooke were enrolled in the Copeland Oaks Employee
part of the insurer where the insured’s actual loss exceeds the    Benefit Plan. After Brooke incurred serious and permanent
amount recovered both from the insurer and the                     injuries in an auto accident, the Haupts filed claims with the
wrongdoer”(emphasis added)). As a general rule, an insured         Plan for her medical expenses and also pursued a claim
should not be allowed to retain a double recovery at the           against the negligent driver of the vehicle in state court. The
expense of the insurer. See, e.g., 16 Couch on Insurance 2d        driver’s insurance policy provided coverage for bodily injury
§ 61:18 (“Subrogation has the dual objective of (1) preventing     up to $100,000 and for medical expenses up to $5,000. The
the insured from recovering twice for the one harm, as would       carrier, Hartford Insurance, offered to settle for the policy
be the case if he [sic] could recover from both the insurer and    limits and issued a check to Brooke’s parents in the amount
from a third person who caused the harm, and (2) reimbursing       of $5,000. A state probate court then ordered the company to
the surety for the payment which it has made.”) The district       pay the remaining $100,000, less $30,000 1in attorneys’ fees,
court erred in concluding that because Brooke was not made         into a trust account for Brooke’s benefit. Meanwhile, the
whole by her recovery from Hartford, she was not made              Plan agreed to pay the more than $300,000 in claimed
whole and, hence, that the Plan was obliged to pay all of her      medical expenses, but only on the condition that the Haupts
covered medical costs while she retained the Hartford              comply with the subrogation provision of the Plan. Both
settlement. We agree that the $100,000 bodily injury               Brooke and Jeffrey initially signed subrogation and refund
settlement trust cannot be subject to subrogation under the        agreements, but after settling the claim against the driver,
Plan, as it is not payment for medical expenses. However, it       Brooke disaffirmed any and all contracts with Copeland Oaks
may be the case that the $5,000 settlement for medical             or the Plan on the basis of her non-capacity as a minor.
expenses can be subrogated, if it is determined that Brooke        Jeffrey continues to demand payment for the medical
will be more than made whole by her total recovery from all        expenses he incurred on Brooke’s behalf.
sources, including Copeland Oaks.
                                                                                              II. ANALYSIS
  Unfortunately, review of this question is complicated by the
fact that no court has ever made a specific factual finding          Copeland Oaks is an Ohio non-profit corporation which
regarding Brooke’s total damages. Furthermore, although the        provides residential facilities for senior citizens. It has
Plan has consistently stated that it is willing to compensate      established the Copeland Oaks Employee Benefit Plan, a
Brooke in full for her covered medical expenses once the           health insurance plan for eligible employees and their
subrogation and refund agreement is signed, it is not entirely     beneficiaries. The Plan is an “employee welfare benefit plan”
clear that the Plan’s payments will actually make Brooke           and an “employee benefit plan” as defined in 29 U.S.C.
whole, since there is nothing in the record to indicate what her   § 1002(1) and (3). At all times relevant to these proceedings,
coverage is under the Plan.                                        Copeland Oaks has been the employer, plan sponsor, plan

  Nevertheless, if it can be established that the Plan will
compensate Brooke for an amount within $5,000 of her total             1
                                                                         At the time the appellate briefs were filed, the $5,000 check had not
damages, then Brooke’s total recovery from all sources,            been negotiated. Hartford Insurance has apparently deferred payment of
                                                                   the remaining $100,000 pending resolution of this action.
4      Copeland Oaks, et al. v. Haupt, et al.      No. 99-3471      No. 99-3471       Copeland Oaks, et al. v. Haupt, et al.        5

administrator and fiduciary of the Plan, as those terms are         v. Independent Automobile Dealers Ass’n of California
defined by ERISA. See 29 U.S.C. § 1002(5), (16), (21). The          Health and Welfare Benefit Plan, 64 F.3d 1389 (9th Cir.
Plan is self-insured, which is to say that all benefits are paid    1995); Cagle v. Bruner, 112 F.3d 1510 (11th Cir. 1997). As
out of the general assets of Copeland Oaks.                         noted by the Eleventh Circuit, were we to accept Copeland
                                                                    Oaks’ position, “the [Plan] could avoid a default rule of
    Part of the subrogation clause of the Plan provides:            insurance law applicable in the ERISA context merely by
                                                                    giving itself discretion to interpret the plan. We do not believe
    The Covered Person agrees to recognize the Plan’s right         that ERISA gives the Fund that kind of authority, which is
    to subrogation and reimbursement. These rights provide          denied to insurance companies not governed by ERISA.”
    the Plan with a priority over any funds paid by a third         Cagle, 112 F.3d at 1522. Furthermore, we are mindful of the
    party to a Covered Person relative to the Injury or             fact, recently reiterated by a panel of this circuit, that even an
    Sickness, including a priority over any claim for non-          arbitrary and capricious standard of review can be tempered
    medical or dental charges, attorney fees, or other costs        by considering conflicts of interest such as those implicit in
    and expenses.                                                   any self-funded plan, and by construing ambiguities against
                                                                    a plan drafter. See University Hospitals v. Emerson Electric
(Emphasis in original.)                                             Co., 202 F.3d 839, 846-7 (6th Cir. 2000).
  In Marshall, we adopted the so-called “make whole” rule              Hence, we now hold that in order for plan language to
of federal common law, which requires that an insured be            conclusively disavow the default rule, it must be specific and
made whole before an insurer can enforce its right to               clear in establishing both a priority to the funds recovered and
subrogation under ERISA, unless there is a clear contractual        a right to any full or partial recovery. In the absence of such
provision to the contrary. As we held in that opinion:              clear and specific language rejecting the make-whole rule --
                                                                    with clarity and specificity ultimately determined by the
    Such a rule is consistent with the equitable principal that     reviewing court -- it is arbitrary and capricious for a plan
    [an] insurer does not have a right of subrogation until the     administrator not to apply the default. We find in this case
    insured has been fully compensated, unless the                  that because the language of the Copeland Oaks Plan fails to
    agreement itself provides to the contrary. Also, the            establish its priority right over any partial recovery, the
    make-whole rule is merely a default rule. If a plan sets        district court correctly applied the make-whole rule.
    out the extent of the subrogation right or states that the
    participant’s right to be made whole is superseded by the          However, the district court next found that Brooke Haupt
    plan’s subrogation right[,] no silence or ambiguity exists.     had not been made whole by the settlement entered in the
                                                                    state court proceeding. See Copeland Oaks, 41 F.Supp.2d at
Marshall, 1997 WL 809997, at *4.                                    754. As a result, the district court entered summary judgment
   Here, Copeland Oaks argues that because it is subject only       for the defendants, held that the motion for judgment on the
to the “arbitrary and capricious” standard of review, we            counterclaim was moot, and dismissed the action. We find
should defer to its conclusion that the Plan language expressly     that in reaching this conclusion, the district court was
opts out of the default make-whole rule. However, review of         mistaken in its understanding of law, and so abused its
the Marshall decision, as well as rulings of our sister circuits,   discretion.
leads us to conclude that this position must fail. See Cutting
v. Jerome Foods, Inc., 993 F.2d 1293 (7th Cir. 1993); Barnes
