Bill Gray Enterprises, Incorporated Employee Health and Welfare Plan, by Bill Gray Enterprises, Inc., in Its Fiduciary Capacity As Plan Administrator v. Ronald L. Gourley; Judith L. Gourley; Erie Insurance Exchange;ronald L. Gourley, Appellant at No. 00-3412;bill Gray Enterprises, Incorporated Employee Health and Welfare Plan, by Bill Gray Enterprises, Inc., in Its Fiduciary Capacity As Plan Administrator, Appellant at No. 00-1400, 248 F.3d 206 (3d Cir. 2001)

The principal issue on appeal is whether a self-funded employee benefit plan which purchases stop-loss insurance from a third party insurance provider is subject to Pennsylvania laws governing the enforcement of anti-subrogation clauses in insurance contracts. We join our sister circuits in holding a self-funded employee benefit plan with stop-loss insurance is not deemed an insurance provider under the Employee Retirement Income Security Act. Therefore, the plan is not subject to state laws regulating insurance contracts.

Bill Gray Enterprises, Incorporated Employee Health and Welfare Plan, a self-funded welfare plan operated and administered by plaintiff Bill Gray Enterprises, Inc., is a welfare benefit plan within the meaning of the Employee Retirement Income Security Act of 1974, 29 U.S.C. 1001 ("ERISA"). Funded by contributions from employers and covered employees, the Plan is designed, in part, to provide medical benefits for catastrophic health care expenses for covered persons and their dependants. The Plan engaged Diversified Group Administrator, Inc. to process certain claims. It also purchased stop-loss insurance¹  from the Insurance Company of North America to cover benefit payments exceeding $ 40,000. Through a subrogation and reimbursement clause in the Plan document, the Plan retained rights of subrogation and reimbursement against all Plan participants and third parties for medical benefits paid by the Plan. The Plan document's subrogation clause provides in part:

RIGHT OF SUBROGATION AND REIMBURSEMENT

When this provision applies. The Covered Person may incur medical or other charges due to Injuries for which benefits are paid by the Plan. The Injuries may be caused by the act or omission of another person. If so, the Covered Person may have a claim against that other person or third party for payment of the medical or other charges. The Plan will be subrogated to all rights the Covered Person may have against that other person or third party and will be entitled to reimbursement.

The Covered Person must:

(1) assign or subrogate to the Plan his or her rights to recovery when this provision applies;

(2) authorize the Plan to sue, compromise and settle in the Covered Person's name to the extent of the amount of medical or other benefits paid for the Injuries under the Plan and its expenses incurred by the Plan in collecting this amount;

(3) reimburse the Plan out of the Recovery made from the other person, the other person's insurer or the third party the amount of medical or other benefits paid for the Injuries under the Plan and the expenses incurred by the Plan in collecting this amount; and

(4) notify the Plan in writing of any proposed settlement and obtain the Plan's written consent before signing any release or agreeing to any settlement.

Amount subject to subrogation or reimbursement. All amounts recovered will be subject to subrogation or reimbursement. In no case will the amount subject to subrogation or reimbursement exceed the amount of medical or other benefits paid for the Injuries under the Plan and the expenses incurred by the Plan in collecting this amount.

When a right of recovery exists, the Covered Person will execute and deliver all required instruments and papers, including a subrogation agreement provided by the Plan, as well as doing whatever else is needed, to secure the Plan's rights of subrogation and reimbursement, before any medical or other benefits will be paid by the Plan for the Injuries. If the Plan pays any medical or other benefits for the Injuries before these papers are signed and things are done, the Plan will still be entitled to subrogation and reimbursement. In addition, the Covered Person will do nothing else to prejudice the right of the Plan to subrogate and be reimbursed.

Defined Terms:

"Recovery" means monies paid to the Covered Person by way of judgment, settlement, or otherwise to compensate for all losses caused by, or in connection with, the Injuries.

"Subrogation" means the Plan's right to pursue the Covered Person's claims for medical or other charges paid by the Plan against the other person, the other person's insurer and the third party.

"Reimbursement" means repayment to the Plan for medical or other benefits that it has paid toward care and treatment of the Injury and for the expenses incurred by the Plan in collecting this benefit amount.

Recovery from another plan under which the Covered Person is covered. This right of reimbursement also applies when a Covered Person recovers under an uninsured or underinsured motorist plan, homeowner's plan, renter's plan or any liability plan.

On January 23, 1995, defendant Ronald. L. Gourley was severely injured when his automobile was struck by an uninsured drunk driver operating a stolen vehicle. Employed by Massey Buick, GMC, Inc. in Pittsburgh, Mr. Gourley was a participant in the Bill Gray Plan. The Plan, through its claims processor Diversified Group Administrator, Inc., paid $ 141, 401.35 to medical providers for Mr. Gourley's entire medical expenses. Through its own funds, the Plan paid the first $ 40,000; under the Plan's stop-loss policy, the Insurance Company of North America provided the Plan the remainder of the funds.

Mr. Gourley sued the tavern that served alcoholic beverages to the drunk driver. A jury awarded him $ 1,182,500 for his injuries and his wife, Judith Gourley, $67,500 for loss of consortium. But the tavern did not have Dram Shop insurance and filed for bankruptcy after the verdict. It is uncontested that the Gourleys have been unable to collect this judgment.

The Gourleys submitted a claim for uninsured motorist benefits to their personal automobile insurance carrier, Erie Insurance Exchange. After executing a release representing that none of the payment was for accident incurred medical expenses, the Gourleys received $ 300,000 in uninsured motorist benefits, the maximum under their joint policy. But prior to payment, the Plan notified the Gourleys and Erie Insurance Exchange of its claim for subrogation and reimbursement. Neither the Gourleys nor Erie Insurance Exchange reimbursed the Plan by any amount.

Through its fiduciary, Bill Gray Enterprises, the Plan filed suit under its subrogation/reimbursement clause to recoup the $ 141, 401.35 in medical benefits it paid Mr. Gourley. The Gourleys maintained the Plan was ineligible for reimbursement because the Pennsylvania Motor Vehicle Financial Responsibility Law bars insurance carriers from obtaining reimbursement or subrogation payments in suits arising from motor vehicle accidents.²  Contending it was not an insurance carrier but a self-funded employee benefit plan, the Plan maintained the Pennsylvania Motor Vehicle Financial Responsibility Law was preempted by ERISA. Furthermore, it argued that under the Plan document's unambiguous language, as interpreted by the administrator, it was entitled to reimbursement from all recoveries obtained from third parties.

To the extent the Plan had a right to subrogation, Erie Insurance Exchange argued the right was subject to the defenses it could raise against the subrogors (the Gourleys). Because Erie Insurance Exchange had paid the maximum contractual benefits to the Gourleys, it maintained it had a complete defense to the Plan's suit. In addition, Mrs. Gourley maintained she was not required to reimburse the Plan for the uninsured motorist benefits she received under her Erie Insurance Exchange policy which jointly covered both her and her husband.

The District Court held the Plan was an uninsured employee benefit plan and under ERISA was not subject to the Pennsylvania insurance anti-subrogation law. Because the Plan document, as interpreted by the Plan administrator, was unambiguous and reasonable, the District Court held the Plan was entitled to reimbursement from payments received from third parties.³  The District Court also held Mrs. Gourley was not covered under the Plan document's reimbursement clause and therefore was not personally liable to reimburse the Plan from the joint benefits received under the Erie Insurance Exchange policy. Finally, it held the Plan could not seek payments under its subrogation clause from Erie Insurance Exchange because Erie had already paid its contractually obligated claims directly to Mr. Gourley. This appeal followed.

The District Court had subject matter jurisdiction under 28 U.S.C. 1331, and 29 U.S.C. 1132 (e) (1). We have appellate jurisdiction under 28 U.S.C. 1291. We exercise plenary review over the District Court's grant of summary judgment. Olson v. General Elec. Astrospace, 101 F.3d 947, 951 (3d Cir. 1996).

The ERISA preemption clause, 29 U.S.C. 1144(a), provides:

Except as provided in subsection (b) of this section [the saving clause], the provisions of this subchapter and subchapter III of this chapter shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan . . . .

Courts have interpreted ERISA's preemption clause broadly, noting Congress' intention to make ERISA "an area of exclusive federal concern." FMC Corp. v. Holliday, 498 U.S. 52, 58, 112 L. Ed. 2d 356, 111 S. Ct. 403 (1990). While ERISA broadly preempts state regulations of employee benefit plans, it does not preempt state laws governing insurance. The ERISA savings clause, 29 U.S.C. 1144(b) (2) (A), provides:

Except as provided in subparagraph (B) [the deemer clause], nothing in this subchapter shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking, or securities.

The ERISA deemer clause, 29 U.S.C. 1144(b) (2) (B), provides:

Neither an employee benefit plan . . . nor any trust established under such a plan, shall be deemed to bean insurance company or other insurer, bank, trust company, or investment company or to be engaged in the business of insurance or banking for purposes of any law or any State purporting to regulate insurance companies, insurance contracts, banks, trust companies, or investment companies.

Noting the relationship between these clauses is not a "model of legislative drafting," Metro. Life Ins. Co. v. Massachusetts, 471 U.S. 724, 739, 85 L. Ed. 2d 728, 105 S. Ct. 2380 (1985), the Supreme Court has nonetheless provided guidance in determining how to apply these clauses in a manner consistent with Congressional intent. In FMC Corp., the Court addressed whether 1720 of the Pennsylvania Motor Vehicle Financial Responsibility Law⁴  was applicable to a self-funded ERISA health care plan. Holding the health plan was exempt from the Pennsylvania Anti-Subrogation law, the Court stated:

We read the deemer clause to exempt self-funded ERISA plans from state laws that "regulate insurance" within the meaning of the savings clause. By forbidding States to deem employee benefit plans "to be an insurance company or other insurer . . . or to be engaged in the business of insurance," the deemer clause relieves plans from state laws "purporting to regulate insurance." As a result, self-funded ERISA plans are exempt from state regulation insofar as that regulation "relates to" the plans. State laws directed toward the plans are pre-empted because they relate to an employee benefit plan but are not "saved" because they do not regulate insurance. State laws that directly regulate insurance companies are "saved" but do not reach self-funded employee benefits plans because the plans may not be deemed to be insurance companies . . . .

498 U.S. at 61.

Although the deemer and savings clauses make clear distinctions between employee benefit plans and insurance contracts, the Supreme Court noted,

Employee benefit plans that are insured are subject to indirect state insurance regulation. An insurance company that insures a plan remains an insurer for purposes of state laws "purporting to regulate insurance" after the application of the deemer clause. The insurance company is therefore not relieved from state insurance regulation. The ERISA plan is consequently bound by the state insurance regulations insofar as they apply to the plan's insurer.

Id.

Thus the Court concluded,

Our interpretation of the deemer clause makes clear that if a plan is insured, a State may regulate it indirectly through regulation of its insurer and its insurer's insurance contracts; if the plan is uninsured, the State may not regulate it.

Id. at 64.⁵ 

The precise issue on appeal is whether a self-funded employee benefit plan is "insured" when it purchases stop-loss insurance. If the purchase of stop-loss coverage makes the Plan insured for the purposes of ERISA, the Plan may be "indirectly regulated" by state insurance laws. Although we have not directly addressed this issue, three courts of appeals have held the purchase of stop-loss insurance does not make a self-funded employee benefit plan "insured" for the purposes of ERISA preemption. Am. Med. Sec., Inc. v. Bartlett, 111 F.3d 358 (4th Cir. 1997), cert. denied, 524 U.S. 936 (1998); Thompson v. Talquin Bldg. Prod. Co., 928 F.2d 649 (4th Cir. 1991); Lincoln Mut. Cas. Co. v. Lectron Prod., Inc., Employee Health Benefit Plan, 970 F.2d 206 (6th Cir. 1992); United Food & Commercial Workers & Employers Ariz. Health & Welfare Trust v. Pacyga, 801 F.2d 1157 (9th Cir. 1986); see also Drexelbrook Eng'r Co. v. Travelers Ins. Co., 710 F. Supp. 590 (E.D. Pa.), aff'd., 891 F.2d 280 (3d Cir. 1989); Cuttle v. Fed. Employees Metal Trades Council, 623 F. Supp. 1154 (D. Me. 1985).

We join these courts of appeals and hold the purchase of stop-loss insurance does not make a self-funded employee benefit plan an insurance carrier under ERISA's "savings clause." As other courts have recognized, stop-loss insurance is not designed to insure individual plan participants but to provide reimbursement to a plan after the plan makes benefit payments. Am. Med. Sec., Inc., 111 F.3d at 361 ("Stop-loss insurance is . . . akin to 'reinsurance' in that it provides reimbursement to a plan after the plan makes benefit payments.").

Employee benefit plans that purchase stop-loss insurance are not insuring plan participants, but insuring the plan itself in the event a catastrophic medical event requires the plan to pay out large sums to an individual participant. As the Court of Appeals for the Ninth Circuit stated,

Stop-loss insurance does not pay benefits directly to participants, nor does the insurance company take over administration of the Plan at the point when the aggregate amount is reached. Thus, no insurance is provided to the participants, and the Plan should properly be termed a non-insured plan, protected by the deemer clause . . . .

Pacyga, 801 F.2d at 1161-62.

When an ERISA plan purchases stop-loss insurance, it retains liability to plan participants for the full extent of their injuries. By purchasing stop-loss insurance, the plan does not delegate its fiscal liabilities or administrative responsibilities to the insurance company. In the event the stop-loss insurer or the plan becomes insolvent, the plan retains liability to plan participants even to those amounts covered under the stop-loss coverage. The Court of Appeals for the Fourth Circuit noted the significance of this fact stating, "When a plan buys health insurance for participants and beneficiaries, the plan participants and beneficiaries have a legal claim directly against the insurance company, thereby securing benefits even in the event of the plan's insolvency." Am. Med. Sec., Inc., 111 F.3d at 364.

Merely by purchasing stop-loss insurance and at the same time retaining financial responsibility for plan participants' coverage, self-funded plans may not rely on the assets of an insurance company in the event of insolvency. See id. It follows that reimbursement and subrogation rights are vital to ensuring the financial stability of self-funded plans. Consistent with other courts of appeals, therefore, we hold that when an ERISA plan purchases stop-loss insurance but does not otherwise delegate its financial responsibilities to another third party insurer, it remains an uninsured self-funded welfare plan for ERISA preemption purposes. Because stop-loss insurance is designed to protect self-funded employee benefit plans, rather than individual participants, plans purchasing stop-loss insurance are not deemed "insured" under ERISA. Am. Med. Sec., Inc., 111 F.3d at 358; Pacyga, 801 F.2d at 1162 (self-funded ERISA plan that purchases stop-loss insurance "should properly be termed a non-insured plan, protected by the deemer clause"). But we recognize that a self-funded ERISA plan may purchase such a large amount of stop-loss insurance that it appears as if the plan is no longer operating as a self-funded employee benefit plan but rather effectively operating as an insurance company. In this instance the purchase of large amounts of stop-loss insurance may be evidence that the plan is attempting to retain the financial security provided by insurance coverage while at the same time reap the benefits of ERISA preemption, including the avoidance of state laws regulating reimbursement. Because there is no evidence that the Bill Gray Plan purchased an excessive amount of stop-loss insurance, we do not reach the issue whether the purchase of large amounts of stop-loss insurance effectively makes a self-funded ERISA plan an insurance company for ERISA preemption purposes.

Because the Bill Gray Plan purchased stop-loss insurance to insure the Plan from losses in the event its members suffered catastrophic injury requiring substantial medical payments, it is not an insurance provider under ERISA. Accordingly the Bill Gray Plan, as an uninsured self-funded employee benefit plan,⁶  is exempt from 1720 of the Pennsylvania Motor Vehicle Financial Responsibility Law.

Recognizing the Pennsylvania Motor Vehicle Financial Responsibility Law does not preclude the Plan from enforcing its subrogation and reimbursement provisions, we next turn to whether the Plan document unambiguously and reasonably requires the Gourleys to reimburse the Plan. The Plan document provides, "The Plan Administrator shall have discretionary authority to construe and interpret the terms and provisions of the Plan . . . and to decide disputes which may arise relative to a Plan Participants rights, and to decide questions of Plan interpretation and those of fact relating to the Plan."

The Supreme Court has directed courts to review a self-funded ERISA plan's interpretation of its contracts governing benefit payments under an arbitrary and capricious standard. Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101, 103 L. Ed. 2d 80, 109 S. Ct. 948 (1989) (holding court must review de novo company's denial of benefits unless benefit plan gives administrator or fiduciary discretionary authority to construe terms of plan in which case courts review a benefits denial under an arbitrary and capricious standard).⁷  Applying general principles of trust law, the Court stated, "if a benefit plan gives discretion to an administrator or fiduciary who is operating under a conflict of interest, that conflict must be weighed as a 'factor in determining whether there is an abuse of discretion.'" Id. at 115 (quoting Restatement (Second) of Trusts 187, cmt. d). As recently as last year in Pinto v. Reliance Standard Life Ins. Co., 214 F.3d 377, 383 (3d Cir. 2000), we addressed when a self-funded plan operates under a conflict of interest, stating,

Employers typically structure the relationship of ERISA plan administration, interpretation, and funding in one of three ways. First, the employer may fund a plan and pay an independent third party to interpret the plan and make plan benefits determinations. Second, the employer may establish a plan, ensure its liquidity, and create an internal benefits committee vested with the discretion to interpret the plan's terms and administer benefits. Third, the employer may pay an independent insurance company to fund, interpret, and administer a plan . . . . We have previously held the first two arrangements do not, in themselves, constitute the kind of conflict of interest mentioned in Firestone.

Because the Plan did not pay the Insurance Company of North America to fund, interpret or administer the Plan, it does not fall under Pinto's third model. As noted, plans falling under this third model are generally subject to a heightened form of arbitrary and capricious review. But unless specific evidence of bias or bad-faith has been submitted, plans that fall under the other two models are reviewed under the traditional arbitrary and capricious standard.⁸  Id.

Reviewing our jurisprudence in the context of self-funded ERISA plans we stated,

While . . . there might be a risk of opportunism [in permitting a self-funded Plan to interpret the provisions of its coverage] . . . this alone does not constitute evidence of a conflict of interest, in part because the employer "has incentives to avoid the loss of morale and higher wage demands that could result from denials of benefits."

214 F.3d at 386 (quoting Nazay v. Miller, 949 F.2d 1323 (3d Cir. 1991)).

We explained,

The typical employer-funded pension plan is set up to be actuarially grounded, with the company making fixed contributions to the pension fund, and a provision requiring that the money paid into the fund may be used only for maintaining the fund and paying out pension [benefits] . . . . The employer in such a circumstance "incurs no direct expense as a result of the allowance of benefits, nor does it benefit directly from the denial or discontinuation of benefits." In contrast . . . the typical insurance company is structured such that its profits are directly affected by the claims it pays out and those it denies.

Id (internal citation omitted). at 388.

Under the Plan document, Bill Gray, as the Plan fiduciary and administrator,⁹  was given the discretionary authority to interpret the terms of the Plan document. By instituting litigation against the Gourleys, Bill Gray interpreted the Plan document to require reimbursement from payments received under an uninsured motorist benefits policy.¹⁰  Accordingly, we review the Plan's interpretation of the Plan document under an arbitrary and capricious standard. Pinto, 214 F.3d at 378; see also United McGill Co. v. Stinnett, 154 F.3d 168, 171 (4th Cir. 1998).

ERISA health plans must provide participants with a plan document that clearly explains coverage. These plan documents must

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).

Whether terms in an ERISA Plan document are ambiguous is a question of law. A term is "ambiguous if it is subject to reasonable alternative interpretations." Taylor v. Cont'l Group Change in Control Severance Pay Plan, 933 F.2d 1227, 1232 (3d Cir. 1991); Mellon Bank, N.A. v. Aetna Bus. Credit Inc., 619 F.2d 1001, 1011 (3d Cir. 1980). In determining whether a particular clause in a plan document is ambiguous, courts must first look to the plain language of document. In Re UNISYS Corp. Retiree Med. Benefit "ERISA" Litig., 58 F.3d 896, 902 (3d Cir. 1995) ("The written terms of the plan documents control . . . ."). If the plain language of the document is clear, courts must not look to other evidence. In re Unisys Corp. Long-Term Disability Plan ERISA Litig., 97 F.3d 710, 715 (3d Cir. 1996) (quoting Mellon Bank, 619 F.2d at 1013) ("'Our approach does not authorize a trial judge to demote the written word to a reduced status in contract interpretation. Although extrinsic evidence may be considered under proper circumstances, the parties remain bound by the appropriate objective definition of the words they use to express their intent . . . .'")). But if the plain language leads to two reasonable interpretations, courts may look to extrinsic evidence to resolve any ambiguities in the plan document. However, "it is inappropriate to consider such [extrinsic] evidence when no ambiguity exists." Epright v. Envtl. Res. Mgmt, Inc. Health and Welfare Plan; ERM, 81 F.3d 335, 339 (3d Cir. 1996).

To recapitulate, in reviewing a plan administrator's interpretation of an ERISA plan we must first examine whether the terms of the plan document are ambiguous. See generally In re Unisys Corp. Long-Term Disability Plan ERISA Litig., 97 F.3d at 715-16. If the terms are unambiguous, then any actions taken by the plan administrator inconsistent with the terms of the document are arbitrary. But actions reasonably consistent with unambiguous plan language are not arbitrary. If the reviewing court determines the terms of a plan document are ambiguous, it must take the additional step and analyze whether the plan administrator's interpretation of the document is reasonable. Spacek v. Maritime Ass'n ILA Pension Plan, 134 F.3d 283, 292 (5th Cir. 1998). In making this determination, the level of deference the reviewing court will accord the plan administrator's interpretation is guided by our prior discussion of Pinto. 214 F.3d at 383.

Mr. Gourley asserts the language of the Plan document is ambiguous in describing which funds are subject to reimbursement and subrogation; specifically, whether reimbursement is required when a covered person receives payments that are unrelated to medical costs. Mr. Gourley contends the Plan document only requires reimbursement for payments received from a third party for medical benefits. He cites the Plan document's definition of the term "reimbursement" which provides: "Reimbursement means repayment to the Plan for medical or other benefits that it has paid toward care and treatment for the Injury and for the expenses incurred by the Plan in collecting this benefit amount." Because the $ 300,000 he received from Erie Insurance Exchange was unrelated to his medical bills, he contends it is not subject to reimbursement.

Mr. Gourley also argues the Plan document's designation of the term "third party" throughout the document is ambiguous. Because the Plan does not define "third party," he maintains it is unclear whether the term includes his own insurance company, in this case Erie Insurance Exchange. See Standish v. Am. Mfr. Mut. Ins. Co., 698 A.2d 599 (Pa. Super. Ct. 1997) (holding term "third party" did not include an uninsured motorist carrier). He contends the Plan could have clarified the "ambiguity" by using the terms "covered person's own insurance company" rather than "third party" in order to put Plan participants on notice that recoveries from private insurance companies were subject to subrogation and reimbursement.

The District Court held the Plan document's language was not ambiguous. We agree.¹¹  The Plan document explicitly requires Mr. Gourley to reimburse the Plan for any recovery received from a third party in relation to the accident, stating, "All amounts received will be subject to subrogation and reimbursement." A plain reading of this provision sets forth the Plan's broad right to subrogation and reimbursement.

The term "third party" is not ambiguous because the term clearly refers to any person or entity other than the Plan and the covered individual. "Third party" broadly refers to a variety of individuals and entities who are not "a party to a lawsuit, agreement, or other transaction." Black's Law Dictionary 1489 (7th ed. 1999). As the District Court noted, the term third party "in common parlance refers to a person or entity not an initial party to a suit or transaction who may have rights or obligations therein." Bill Gray Enter., Inc., slip op. at *15. While this provision contemplates broad rights to reimbursement, we do not believe this translates into ambiguity.

Most convincing, however, is the provision in the Plan document which provides:

Recovery from another plan under which the Covered Person is covered. This right of reimbursement also applies when a Covered Person recovers under an uninsured or underinsured motorist plan, homeowner's plan, renter's plan or any liability plan.

A reasonable plan participant reading this language, we believe, would understand the Plan document clearly mandates any recoveries from an uninsured motorist plan are subject to reimbursement.¹²  The Plan's interpretation therefore was not arbitrary and capricious and the District Court properly found the Plan was entitled to reimbursement from the uninsured motorist benefits Mr. Gourley received from Erie Insurance Exchange.¹³ 

The District Court held Mrs. Gourley was not personally liable to reimburse the Plan for the $ 141,401.35 in medical benefits the Plan paid to Mr. Gourley from the $ 300,000 of uninsured motorist benefits jointly received under the Erie Insurance Exchange policy. Although it found Mrs. Gourley was a "covered person" under the Plan, the Court noted she did not sustain injuries nor receive payments from the Plan for personal medical expenses. Under the terms of the Plan document, the Plan was not entitled to reimbursement for payments Mrs. Gourley received from third parties since the Plan expended no payments on her behalf.¹⁴  The Plan counters that Mrs. Gourley, as a plan participant, is "obligated to do nothing . . . to prejudice the right of the Plan to subrogate and be reimbursed," and therefore the Plan is entitled to receive the uninsured motorist benefits Mrs. Gourley received in relation to her husband's accident. See Heasley v. Belden & Blake Corp., 2 F.3d 1249, 1255 (3d Cir. Pa. 1993). But a plain reading of the Plan document does not permit the Plan to seek reimbursement from a party for whom it never expended funds under its medical coverage. Mrs. Gourley received no payments from the Plan for personal injuries. Therefore, we find the District Court properly exercised its discretion in finding the Plan's interpretation was arbitrary and capricious because the Plan document unambiguously limits recovery to individuals for whom the Plan has expended funds.

The Plan contends Erie Insurance Exchange is liable under the subrogation/reimbursement clause to reimburse the Plan for the medical benefits the Plan paid to medical providers from the proceeds of the Gourleys' uninsured motorist policy. Because Erie Insurance Exchange was on notice of the Plan's right to subrogation, the Plan maintains it should have paid the uninsured motorist proceeds directly to them. The District Court held Erie Insurance Exchange was not obligated to reimburse the Plan for the uninsured motorist benefits it paid to the Gourleys. We agree.

Erie Insurance Exchange was under contract with the Gourleys to pay up to $ 300,000 in uninsured motorist benefits. But Erie Insurance Exchange was not a party to the contract between the Plan and the Gourleys. Erie Insurance Exchange argues that its lack of a contractual relationship with the Plan defeats any direct claim by the Plan against it. See Cent. States, SE & SW Areas Health & Welfare Fund v. State Farm Mut. Auto. Insur. Co., 17 F.3d 1081 (7th Cir. 1994). But the lack of a contractual obligation between a third party insurer to an ERISA plan does not bar suit by an ERISA plan when subrogation rights are at issue.

Erie Insurance Exchange also contends that under equitable principles of subrogation, it may properly assert payment in full as a defense to the Plan's suit, since it paid the entire amount of the uninsured motorist policy to the Gourleys. We agree. Subrogation is an equitable remedy. Greater N.Y. Mut. Ins. Co. v. N. River Ins. Co., 85 F.3d 1088 (3d Cir. 1996). When a subrogee [the Plan] sues a third party [Erie Insurance Exchange], it [the Plan] steps into the shoes of the subrogor [the Gourleys] and the third party [Erie Insurance Exchange] may properly assert any defenses against the subrogee [the Plan] that it would normally have against the subrogor [the Gourleys]. Steamfitters Local Union No. 420 Welfare Fund v. Philip Morris, Inc., 171 F.3d 912 (3d Cir. 1999), cert. denied, 528 U.S. 1105, 145 L. Ed. 2d 713, 120 S. Ct. 844 (2000); Puritan Ins. Co. v. Canadian Universal Ins. Co., Ltd., 775 F.2d 76 (3d Cir. 1985).

Under subrogation law, if a tortfeasor or a tortfeasor's insurer settles with an injured party with knowledge of an insurer's subrogation rights, the subrogation rights remain. 16 Couch on Insurance 2d (Rev. ed.) 61:201; see also generally Gibbs v. Hawaiian Eugenia Corp., 966 F.2d 101, 106 (2d Cir. 1992). Although a third party may generally assert any defense it has against the subrogor to the subrogee, this right does not exist when there is evidence of fraud between the subrogor and the third party that is intended to defeat the subrogee's rights.¹⁵  Wendy's Int'l, Inc. v. Karsko, 94 F.3d 1010, 1014 (6th Cir. 1996) ("The [subrogation] doctrine was created to prevent wrongdoers from shirking their liability by settling with a subrogor, thereby successfully avoiding obligations to a subrogee."). When there is evidence of fraud between the subrogor and the third party that is intended to defeat subrogation rights, it is inequitable to permit the third party to assert payment in full as a defense to the subrogee's suit. Wendy's Int'l, 94 F.3d at 1014.

Here, there is no evidence of fraud. Erie Insurance Exchange settled with the Gourleys for the full amount of the uninsured motorist benefits coverage. There is no evidence to support the claim that this payment was made for the fraudulent purpose of interfering with or prejudicing the Plan's right to subrogation.¹⁶  The payment of the $ 300,000 to the Gourleys does not prevent the Plan from recovery since the Plan may still assert its right to the proceeds of the Erie Insurance Exchange policy. Because of the absence of fraud in the payment of the uninsured motorist benefits, it is not inequitable to permit Erie Insurance Exchange to assert payment in full in response to the Plan's suit.

The District Court properly held Erie Insurance Exchange was not liable to reimburse the Plan with the proceeds of the Gourleys' uninsured motorist benefit's policy.

For the foregoing reasons, we will affirm the judgment of the District Court.