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UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

Nos. 96-5330 & 96-5348

MAUREEN McGURL; DEWEY CANNELLA; RICHARD E. McFEELEY; ROBERT B. DAVIDSON; JOSEPH RIZZO; HARVEY WHILLE; MICHAEL KINSORA; LOUIS MARCUCCI, AS TRUSTEES OF THE UFCW LOCAL 1262
AND EMPLOYERS WELFARE FUND; JOSEPH RIZZO; HARVEY WHILLE; MICHAEL KINSORA; GILBERT C. VUOLO; JOHN POLDING; ROBERT F. ENNIS,

AS TRUSTEES OF THE UFCW LOCAL 1262 AND
EMPLOYERS HEALTH AND WELFARE FUND, Appellants in No. 96-5330

v.

*TRUCKING EMPLOYEES OF NORTH JERSEY WELFARE FUND, INC., Appellant in No. 96-5348

*(Amended as per the Clerk's 6/28/96 Order)

On Appeal from the United States District Court for the District of New Jersey (D.C. No. 94-cv-05176)

Argued March 25, 1997

Before: SLOVITER, Chief Judge , STAPLETON and ALDISERT, Circuit Judges

(Opinion Filed August 22, 1997)Myron D. Rumeld (Argued)

Deidre A. Grossman Proskauer, Rose, Goetz &

Mendelsohn New York, N.Y. 10036

Attorneys for Appellants/CrossAppellees

Herbert New (Argued)

David W. New

New & New Clifton, N.J. 07013

Attorneys for Appellee/CrossAppellant

Kenneth I. Nowak

Andrew F. Zazzali Zazzali, Zazzali, Fagella & Nowak Newark, N.J. 07102

Attorneys for Amici

Board of Trustees of Local Union No. 863 IBT Welfare Fund; Board

of Trustees of Laborers Locals 472/172 of N.J. Welfare Fund

OPINION OF THE COURT

SLOVITER, Chief Judge

.

In this case raising a question of first impression in the federal courts, we are faced with an apparent confl ict between "other insurance" provisions in two self-fu nded ERISA plans, each of which purports to provide at m ost secondary coverage to the same claimants.

To resolve the conflict, the district court crafted a federal

common law order of benefits determination rule tha t would impose primary liability on the fund whose participants are the employers of the claimants, in this case the Appellants. Appellants argue that the district court

2erred by concluding that the two plans are not reco ncilable

on their terms, that the court should have adopted New Jersey state law as the appropriate rule of decisio n for resolving any apparent conflict between the plans, and that the federal common law rule settled upon is a poor choice.

I.

BACKGROUND

A.

The Parties and Their Plans

Appellants are the trustees of two self-funded welf are benefit plans of the United Food and Commercial Wor kers Local 1262 and Employers Welfare Fund and the U.F.C .W. Local 1262 and Employers Health and Welfare Fund (collectively "Local 1262 Funds"), which cover empl oyees of several contributing employers in the supermarket industry. Appellee Teamsters Local 560 Trucking Employees of North Jersey Welfare Fund (the "TENJ F und") is also a self-funded welfare benefit plan that cov ers employees of participating supermarkets. The respec tive plans contain "other insurance" clauses, more parti cularly

referred to as "coordination of benefits" clauses i n the group health insurance industry, that set forth circumstances under which the plans will assume pri mary coverage liability for a claimant who is also cover ed by another plan.

Group health care insurance plans have increasingly

included coordination of benefits clauses because t he enlarged number of two-employee families has increa sed the possibility that a claimant could be covered un der more than one plan. By conditioning coverage on specifie d circumstances, the clauses seek to limit their cost s and prevent a claimant from acquiring coverage from mul tiple plans in excess of the claimant's covered medical e xpenses.
See Jack B. Helitzer, Coordination of Benefits: How an d Why it Works , 4 Benefits L. J. 411, 412 (1991).

3This dispute concerns the obligation of the plans t o

certain part-time supermarket employees who are cov ered under both plans. The Local 1262 Funds describe the ir coverage obligations to part-time employees under t he heading, "Coordination of Benefits":

If a Part-time Member who is a Covered Member . . . is also covered under one or more Other Plans, the Benefits payable under this Plan will be coordinate d with Benefits payable under all Other Plans. When

there is a basis for a claim under this Plan and th e Other Plan, this Plan is a Reimbursement Plan which

has its Benefits determined after those of such Oth er Plan.

As this is a Reimbursement Plan for Part-time Members who are Covered Members . . . payments will be made after all other sources of coverage have be en exhausted.

App. at 89.

The Local 1262 Funds' Summary Plan Description also states with respect to coverage for part-time emplo yees:

[T]his Plan is always a reimbursement plan; if you are covered under another medical plan, this Plan w ill only take effect when the limits of your other Plan have been exceeded. This means that, you can receive benefits from this Plan (in the form of reimburseme nt payments) only after the other plan pays benefits t o the

full extent of the terms of that Plan.

App. at 143 (emphasis in original). Thus, the Local 1262 Funds attempt to defer any medical payments for the ir part-time employees until after the employee has ex hausted all other possible sources of coverage, and the Fun ds refer to this proviso alternatively as a "reimbursement c lause," an "excess clause," or an "always secondary clause. "

The TENJ Fund, in an effort to avoid always being l eft with a claimant's bill, has a coordination of benef its provision that disclaims liability altogether for e mployees who are participants in a plan such as that of the Local 1262 Funds. The TENJ Fund plan provides:

4In determining whether this plan is primary for a

spouse [or dependent] the following will apply:

"The Plan covering the patient as an employee or in which the employee is a participant . . . will be t he primary plan. If the primary plan denies coverage because of the application of a Rule which is uniqu e to that Plan and which is not a rule of this Fund, the n this Fund will provide only that coverage which it would have provided if the primary plan had granted primary coverage.

This Fund does not afford coverage to a participant's dependent who herself/himself is a participant in a Reimbursement or similar plan that affords coverage only if there is no other health/welfare coverage."

App. at 217 (emphasis in original).

In an effort to further clarify the limits of its c overage, the TENJ Fund describes the following hypothetical:

Mr. ABC is a participant under our Welfare Fund. Hi s spouse works for the XYZ company. Under normal coordination of benefits, Mrs. ABC's medical claims are submitted to her company first. After they pay the claim, in accordance with their Plan, she submits t he claim with a copy of the explanation of benefits fr om her Plan to our Fund showing the amount paid. Our Fund then pays our portion of the claim under the coordination of benefits rule as the secondary payo r and pays the difference up to the Fund's allowable amount. However, if Mrs. ABC's XYZ Plan rejects her claim because XYZ says its Plan is a Reimbursement Plan and will not pay claims if there is any other coverage, such as her being covered as a dependent under her husband's plan, then our Fund will not pa y any portion of Mrs. ABC's claim

.

Id. (emphasis added).

In May 1993, Susan Armstrong, a part-time employee of Shop-Rite Supermarkets, a contributing employer to the Local 1262 Funds, submitted medical expense claims to the Local 1262 Funds in an aggregate amount of $243,993

. Because Armstrong's father was a participant in the TENJ

5Fund, she would ordinarily have also been eligible for

secondary coverage as a dependent under the TENJ Fu nd plan. The Local 1262 Funds denied primary liability for Armstrong's claims on the ground that it was a reimbursement or excess plan only, and instead noti fied the TENJ Fund that it was primarily liable for paying Armstrong's expenses. In the following months, the Local 1262 Funds received similar claims from Karen Iler, Esther Owens, and Patricia Kelly, all of whom were also pa rt-time employees of contributing employers to the Local 12 62 Funds as well as dependents of participants of the TENJ Fund. The Local 1262 Funds similarly denied these c laims and sent notification that the TENJ Fund bore prima ry responsibility.

In response, the TENJ Fund likewise denied primary coverage liability for the four part-time employees ' claims. It took the position that, because the Local 1262 Fund s provided only a reimbursement plan for the part-tim e employees, it was relieved from any liability by th e express terms of the TENJ Fund. In a letter dated June 4, 1 993, the

TENJ Fund informed the Local 1262 Funds that "Since

TENJ does not cover Susan Armstrong, your fund provides sole coverage." App. at 154.

In order to avoid undue hardship to the claimants throughout the period of time in which the two fund s debated their respective liabilities, the Local 126 2 Funds paid the claimants' benefits, without prejudice to their right to proceed against and seek reimbursement from the TENJ Fund. The TENJ Fund agreed to pay secondarily for t he time being, but also "without prejudice to the righ ts of either party." App. at 413.

B.

District Court Proceedings

On October 26, 1994, the Local 1262 Funds filed an action in the district court in New Jersey seeking a declaration that the TENJ Fund was primarily liable on the contested claims and an order directing the TENJ Fu nd to reimburse them for money paid to claimants in their

6assumed role as the primary provider. The Local 126 2

Funds argued that the provision of the TENJ Fund pl an which disclaims liability entirely if a beneficiary is covered by an alternate reimbursement plan was an invalid " escape clause." They then contended that once the escape c lause is read out of the TENJ Fund plan, the remaining te rms of both plans assign primary liability to the TENJ Fun d plan. In response, the TENJ Fund argued that its plan did not contain an escape clause and that, regardless, the Local 1262 Funds plan was primarily responsible for the c laims at issue according to its own coordination of benef its provision because the claimants are employees of participants of that plan.

In a thoughtful opinion, the district court granted the TENJ Fund's motion for summary judgment. See McGurl v. Teamsters Local 560 Trucking Employees of New Jerse y Welfare Fund , 925 F. Supp. 280 (D.N.J. 1996). The court agreed that the provision of the TENJ Fund purporti ng to deny any liability if a beneficiary is separately c overed by a reimbursement plan is an escape clause and thus

unenforceable. Id. at 286. The court then concluded that the TENJ Fund's remaining coordination of benefits provision and the excess clause in the Local 1262 F unds plan were "mutually repugnant" because both attempt ed to deny primary coverage to these claimants, and would provide secondary coverage only if the other accept ed primary liability. Id. at 289. In rejecting the Local 1262 Funds' suggestion that the remainder of the plans w ere still reconcilable in favor of the Local 1262 Funds, the court declined to apply the decision in Starks v. Hospita l Serv. Plan of N.J., Inc. , 182 N.J. Super. 342, 350 (1981), aff'd , 91 N.J. 433 (1982), which held that an excess clause w as secondary to an ordinary other insurance provision in an

insurance contract. See McGurl , 925 F. Supp. at 288.

The district court in this case found the two plans at
issue to be irreconcilable and chose to create a un iform

federal common law rule in order to resolve the iss ue of how to prioritize the payment of benefits between t wo selffunded ERISA plans which have mutually repugnant coordination of benefits provisions. Id. at 243. The court adopted an "employer first" rule, recommended by th e

7Model Regulations of the National Association of In surance

Commissioners ("NAIC"), which would impose primary liability for coverage on the plan which covers cla imants as employees rather than as dependents. Id. The court also rejected the Local 1262 Funds' suggestion that the better federal common law rule would be to apportion liabi lity on a pro-rata basis, reasoning that such a rule would provide an undesirable incentive for ERISA-regulated plans to include excess provisions. Id. at 292.

The Local 1262 Funds appeal from the district court 's order, and the TENJ Fund, although successful, cros sappeals to preserve its argument that the district court erred in determining that its plan contains an unenforceable escape clause.

II.

JURISDICTION AND STANDARD OF REVIEW

Both the Local 1262 Funds and the TENJ Fund are sel ffunded employee benefit plans, meaning that they do not purchase insurance policies in order to satisfy the ir obligations to pay for medical and disability benef its of their participants and they are, therefore, covered by th e federal Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001-1461, § 1002(1). ERISA provides comprehensive regulation of employee benef it plans, §§ 1021-1031, §§ 1101-1114, and broadly pree mpts state laws that "relate to" such plans, § 1144(a). However, ERISA does not regulate the substantive terms of pl ans, see Shaw v. Delta Air Lines, Inc. , 463 U.S. 85, 91 (1983), and makes no express mention about how to resolve confl icts

between coordination of benefits clauses.

The district court had jurisdiction pursuant to 28 U.S.C. § 1331 because the case involved a dispute over the disbursement of payments under ERISA. See Northeast Dep't ILGWU Health and Welfare Fund v. Teamsters Lo cal

Union No. 229 Welfare Fund , 764 F.2d 147, 159, 166 (3d Cir. 1985). We have jurisdiction pursuant to 28 U.S .C. § 1291 and exercise plenary review over the distric t court's

8grant of summary judgment. United States v. Capital Blue

Cross , 992 F.2d 1270, 1271-72 (3d Cir. 1993).

III.

THE TENJ FUND'S ESCAPE CLAUSE

We begin with approval of the district court's construction of the coordination of benefits provis ion in the TENJ Fund plan. Under that provision, "[t]he Plan c overing the patient as employee . . . will be the primary p lan," but if that dependent is an employee of a plan that att empts to provide only reimbursement coverage, the TENJ Fund will not provide any coverage to the dependant at all. App. at 217 ("This Fund does not afford coverage to a participant's dependent who herself/himself is a participant in a Reimbursement or similar plan that affords coverage only if there is no other health/welfare coverage.")

This latter provision is indeed an escape clause, w hich, as we have previously explained, is one which "prov ides for an outright exception to coverage if the insured is covered by another insurance policy." Northeast , 764 F.2d at 160.

In Northeast , we recognized that both a well-developed body of state common law of insurance and the policies underlying ERISA are hostile to the inclusion of es cape clauses in benefits plans because they undermine th e reasonable expectations of a beneficiary who may ha ve his or her coverage shifted to another insurer with les s favorable terms. Id. at 162-63. Such clauses are particularly harsh because,

[A] plan with an escape clause does not provide participants who receive less in benefits from the other plan with the opportunity to return to the first pl an for the difference. As a result, a participant of a pla n with an escape clause, who thinks that he is covered by that plan and who expects to recover medical expenses in accordance with the terms of that plan, automatical ly loses this coverage in the presence of another insurance plan, even if the benefits he is entitled to receive under the other plan are much less favorabl e than those of his own.

9Id. at 163. We concluded that a decision by a plan's

fiduciary to include an escape clause is "arbitrary and capricious" and thus unenforceable under ERISA's regulatory scheme. Id.

As written, under the TENJ Fund plan, a dependentbeneficiary of the TENJ Fund, who is also an employ ee beneficiary of the Local 1262 Funds, and who would anticipate receiving secondary benefits from the TE NJ Fund, will get nothing because the Local 1262 Funds are excess only. According to the analysis in Northeast , therefore, this provision in the TENJ Fund plan is an unenforceable escape clause.

The TENJ Fund nevertheless argues that "in practice " it has not followed the categorical exclusions of the purported escape clause, but has treated it as a secondary li ability provision once a competing plan abandons its reimbursement provision and assumes primary responsibility. That argument is unpersuasive. Firs t, it is clear from the record that the TENJ Fund has expres sed its right to categorically deny any payment obligations based on its escape clause, as it did in its June 4, 1993 letter to the Local 1262 Funds' manager. App. at 154. That th e TENJ Fund did, in fact, pay secondarily in this cas e was merely a litigation convenience undertaken expressl y "without prejudice to the rights of either party," app. at 413;

it was not done as a modification or amendment of t he language of its plan.

Second, interpretation of self-funded plans cannot depend on the unilateral understanding or ad hoc application by the plan, lest the comprehensibility , predictability, and assurance that ERISA intends to provide

be lost. See , e.g. , Coleman v. Nationwide Life Ins. Co. , 969 F.2d 54, 56 (4th Cir. 1992), cert. denied , 506 U.S. 108 (1993). Finally, when we were presented with a simi lar categorical/as-applied distinction in Northeast , we expressly chose a remedy of "total invalidation of escape cla uses" and "put the onus on trustees of plans with escape clau ses to rewrite the plans." 764 F.2d at 164 n.17. Thus, onl y by express revision can the TENJ Fund transform the es cape clause into a secondary liability clause, should it so choose.

10IV.

CONFLICT BETWEEN THE TERMS OF THE PLANS

Once the district court found the TENJ Fund plan's escape clause unenforceable, it proceeded to examin e whether, if the escape clause were read out of the TENJ Fund plan, the two plans were reconcilable or, in o ther words, if the plans themselves could still provide a coherent order of benefits scheme. The TENJ Fund plan, as re dacted, would read: "The Plan covering the patient as an em ployee or in which the employee is a participant . . . wil l be the primary plan," and thus would deny primary coverage if a claimant is an employee of a participant in another plan. The Local 1262 Funds plan denies primary coverage t o their participants' part-time employees when those employees are in any way covered by another plan. T he district court held the plans to be "mutually repug nant" because "[b]oth deny primary coverage and are willi ng to provide benefits in a secondary capacity only after the other accepts the responsibility of primary coverage." Mc Gurl , 925 F. Supp. at 287.

The Local 1262 Funds urged the district court to ap ply the analysis of Starks , 182 N.J. Super. 342 (1981). In

Starks , individual claimants were employee-beneficiaries of the Amalgamated Welfare Fund and were also covered by Blue Cross/Blue Shield, an insurer, as dependents o f beneficiaries. The Amalgamated Fund plan was simila r to that of the Local 1262 Funds in that it would only provide reimbursement or "always excess" benefits after a c laimant exhausted coverage from another plan. The Blue Cros s/ Blue Shield plan contained a coordination of benefi ts provision under which it would be secondary to a pl an that covered one of its member's dependents as a direct beneficiary. Id. The Starks court held that Blue Cross/Blue Shield was primarily liable, reasoning that the Blu e Cross/ Blue Shield plan contemplated being primarily liabl e in some instances, i.e., where the claimant is an empl oyee, but the Amalgamated Fund plan never contemplated be ing primarily liable vis-a-vis another plan. Therefore, the two plans could be ranked hierarchically. Id. at 350.

11The Starks court concluded that the Amalgamated Fund's

trustees contemplated a "tertiary" role when compet ing against any other secondary coverage provider, and stated that "[w]here the two coverages are not, however, p rimary and secondary but rather secondary and tertiary, th ere being no primary coverage in the usual sense, the o nly rational result is to require the secondary coverag e to pay first and the tertiary to pay second." Id. at 353-54. Despite the rather complex reasoning, the essence of Starks ' ultimate holding was that the plans at issue "d[id] not support the predicate of mutual repugnancy." Id. at 353.

The district court declined to follow Starks based on its authority derived from ERISA's broadly worded preem ption provision to categorically ignore state rules of de cision that relate to the regulation of self-funded plans. See PM Group

Life Ins. Co. v. Western Growers Assurance Trust , 953 F.2d 543, 546 (9th Cir. 1992). In so ruling, the court a lso expressed its disagreement with the logic applied b y the

Starks court.

The Local 1262 Funds argue that we should construe the two plans as the Starks court did, and interpret their plan as secondary to the TENJ Fund plan's coordination o f benefits provision on the ground that the TENJ Fund plan (like the Blue Cross/Blue Shield plan) recognizes c ertain situations in which it could be primarily liable, w hereas the Local 1262 Funds plan is always secondary. We do no t

agree.

First, it is not helpful to speak in terms of secon dary and tertiary, and indeed it is somewhat misleading. The Starks court ranked the plans in this manner to emphasize that neither of the plans before it accepted primary lia bility and it was thus forced to rank the payment obligations of a plan that it construed as providing some coverage, albei t secondary, and a plan that was always excess, which it denominated as "tertiary". However denominated, the task required in this case is to determine which Fund's plan is primary. It would be arbitrary to adopt the Local 1 262 Funds' suggestion that because the TENJ Fund conced es primary liability in the situation of another plan' s beneficiary but who is an employee of its participa nt, it must always be primary vis-a-vis Local 1262 Funds' always

12excess clause. In fact, the TENJ Fund plan flatly d enies

primary coverage when presented with a claim of a dependant-beneficiary such as Susan Armstrong's. Th e mere fact that in other circumstances the TENJ Fund would be primary does not obviate the inescapable f act that it is not primary in the circumstances here. Howeve r the

Starks court chose to interpret the language of the Blue Cross/Blue Shield plan before it, we cannot fairly ignore the certain, evident conflict from the faces of the two plans.

Second, there would be substantial and adverse fisc al consequences were a court to impose primary coverag e on a plan, such as that of the TENJ Fund, which intend ed to provide the nominal, secondary coverage for this gr oup of claimants merely because the plan provides primary coverage for certain other claimants. As the distri ct court recognized, "a court cannot deem one plan primary w ithout shifting unanticipated costs to that plan and frust rating the

intent of its trustees." McGurl , 925 F.Supp. at 289.

The Local 1262 Funds argue that the district court erred in failing to follow what they claim is the majorit y view that entitles a plan that describes itself as a pure exc ess plan to pay secondarily because its coverage is not implica ted until another policy's limits have been exhausted. See In surance Co. of N. America v. Continental Cas. Co. , 575 F.2d 1070, 1071 (3d Cir. 1978) ("[s]ince [an excess clause] do es not provide that supplemental protection until the othe r policy has been exhausted, it is `excess' to the other cov erage"); Institute for Shipboard Educ. v. CIGNA Worldwide In s. Co. , 22 F.3d 414, 419 (2d Cir. 1994) (excess plan " `kic ks in' to provide additional coverage once the policy limits of other available insurance are exhausted"). They argue bas ed on these cases that their excess clause exempts their plan from any coordination of benefits with other plans, so that their coverage will "kick in" only after any other plan's coverage is depleted.

As the TENJ Fund points out, the concept of "excess insurance" typically applies to casualty insurance policies which cover a single party for a single risk. See , e.g. , Couch on Insurance 2d §§ 62.48-49. The cases cited by the Local 1262 Funds fall within that category. These "pure" excess policies, which are also commonly referred to as "u mbrella"

13 policies, are contingent on the existence of anothe r, primary policy, and are intended to provide a separate, add itional layer of coverage, never primary coverage. An insur ed will purchase this separate layer typically at a discoun ted price because it "will pick up where primary coverages en d in order to provide extended protection." Occidental F ire and

Cas. Co. of North Carolina v. Brocious , 772 F.2d 47, 53 (3d Cir. 1985). Since such layered policies are "not an attemptby a primary insurer to limit a portion of its risk by

labelling it `excess' nor a device to escape respon sibility, they are regarded as a `true excess over and above any type of primary coverage, excess provisions arising in r egular policies in any manner, or escape clauses.' " Id. (quoting 8A J. Appleman, Insurance Law and Practice § 4909.85 a t 453-54 (1981)). Rates for excess insurance are set" after giving due consideration to known existing and unde rlying basic or primary policies". 46 C.J.S. Insurance Law § 1138. Such policies are categorically separate and do not attempt to coordinate with other policies.

The TENJ Fund argues that pure excess coverage as applied in casualty insurance cannot apply to group health plans covering numerous persons where duplicate, overlapping coverage is often likely.1 Coordinatio n of

benefits rules have evolved to cover these circumst ances and are routinely followed.

We need not resolve the parties' disagreement as to whether it is theoretically possible or desirable t o have pure excess coverage in the group health care context. T he relevant portions of both plans' terms are in fact coordination of benefits clauses because both repre sent a method for determining how and when two plans may b e responsible for covering a common beneficiary. In t his case, where the claimants are dependent-beneficiaries of the TENJ Fund plan and part-time employee-participants in the

___________________________________________________ ______________

1. One, if not the only, example of a pure excess p olicy in the health care context referred to by either party is a Medigap po licy, a privately issued health insurance contract which supplements Medicar e by covering expenses not covered by the federal government, suc h as deductibles or

coinsurance amounts. See 42 U.S.C. § 1395ss(g)(1) (1992); United States v. Capital Blue Cross , 992 F.2d 1270 (3d Cir. 1993).

14Local 1262 Funds plan, each of the plans views itse lf as

"excess" or "secondary" and each looks to the other as primary. Thus, both plans attempt to coordinate ben efits with potentially competing plans.

The very terms of the Local 1262 Funds plan manifes t an intent to coordinate benefits with other competing welfare plans. Under the heading "Coordination of Benefits, " the Local 1262 Funds plan states that: "If a Part-time Member

who is a Covered Member . . . is also covered under one or more Other Plans, the Benefits payable under this P lan will be coordinated with Benefits payable under all Othe r Plans ." App. at 89 (emphasis added).

Moreover, unlike the prototypical pure excess or um brella policy, the Local 1262 Funds plan itself contemplat es assuming primary liability in instances where there is no other coverage available, and thus no other plan wi th which to coordinate benefits. The plan's Summary Plan Description states:

This Plan has a coordination of benefits provision for

both Full-time and Part-time members. In most instances, this means that if your covered dependen ts are covered primarily under another medical plan, t hey can also receive benefits . . . from this Plan, up to the amount this Plan would have paid as your primary plan , but only after they receive reimbursement from the other Plan. . . . The benefits you receive from this

Plan cannot exceed the amount this Plan would have paid if it was your primary plan

.

App. at 142-43 (emphasis added).

Thus, we agree with the TENJ Fund that the Local 12 62 Funds plan's "so called `always excess' provision i s no more than a subtle attempt to impose coordination of ben efits using a biased order of benefits determination rule ." Brief of Appellee at 27. In sum, the disputed reimbursement provision in the Local 1262 Funds plan is essential ly a coordination of benefits provision, and, therefore, does not have a categorically secondary status to every plan with which it comes in conflict. In this case, the coord ination of benefits provisions are "mutually repugnant," forci ng the

15court to look outside the plans to resolve the appa rent

conflict.

V.

ESTABLISHMENT OF ORDER OF BENEFITS

DETERMINATION RULE

A.

Federal Common Law

Because the plain terms of the individual plans wou ld not resolve the conflict, the district court exerci sed its authority to devise federal common law, and settled on the "employer first" rule suggested by the National Ass ociation of Insurance Carriers ("NAIC"). See McGurl , 925 F. Supp. at 293. Before examining the merits of the district co urt's selection, we consider the Local 1262 Funds' object ions to the courts' federal common law-making authority to impose a rule of decision independent of state law.

Federal common law refers to the development of leg ally binding federal rules articulated by a federal cour t which cannot be easily found on the face of a constitutio nal or statutory provision. See Larry Kramer, The Lawmaking

Power of the Federal Courts , 12 Pace L. Rev. 263, 267 (1992); see also Thomas W. Merrill, The Common Law

Powers of Federal Courts , 52 U. Chi. L. Rev. 1, 5 (1985) (" `Federal common law' . . . means any federal rul e of

decision that is not mandated on the face of some

authoritative federal text -- whether or not that r ule can be described as the product of `interpretation' in eit her a conventional or unconventional sense."). Notwithsta nding the decision in Erie Railroad Co. v. Tompkins , 304 U.S. 64 (1938), which curtailed development of general fede ral common law, the power of federal courts to craft fe deral

rules of decision is established in cases in which a federal common law rule is "necessary to protect uniquely f ederal interests," Banco Nacional de Cuba v. Sabbatino , 376 U.S. 398, 426 (1964), such as federal proprietary intere sts,

16federal interests in international law and to resol ve conflicts

among the states, or where "Congress has given the courts the power to develop substantive law," Texas Indus. , Inc. v. Radcliff Materials, Inc. , 451 U.S. 630, 640 (1981).

The Court has recognized that while at times state law would be appropriate, "[t]he desirability of a unif orm rule is plain" where "identical transactions subject to the vagaries of the laws of the several states" would lead to gr eat diversity in results. Clearfield Trust Co. v. Unit ed States , 318 U.S. 363, 367 (1943). This would be true not on ly when the issue involves the rights and duties of th e United States, as it did in Clearfield Trust , but also when a federal statute encompasses a broad mandate that requires uniform rules to effectuate the congressional purpo se. See , e.g. , Textile Workers Union of America v. Lincoln Mills of

Alabama , 353 U.S. 448, 456-57 (1957) (upholding federal jurisdiction for labor-management disputes because of congressional authorization to develop federal comm on law pursuant to the LMRA); National Soc'y of Prof'l Eng 'rs v.

United States , 435 U.S. 679, 688 (1978) (in enacting Sherman Antitrust Act, Congress made "perfectly cle ar that it expected the courts to give shape to the statute 's broad mandate by drawing on common-law tradition").

Justice Jackson, in his famous concurrence in D'Oen ch, Duhme & Co., Inc. v. FDIC , 315 U.S. 447, 470 (1942), noted

that the need to make common law stems from the ina bility of legislators to anticipate every possible conting ency and the impracticability of judges returning all unansw ered questions to the legislature. He stated, "Were we b ereft of the common law, our federal system would be impoten t. This follows from the recognized futility of attemp ting allcomplete statutory codes, and is apparent from the terms of

the Constitution itself." Id. Justice Jackson explained further that, "Federal common law implements the fe deral Constitution and statutes, and is conditioned by th em. Within these limits, federal courts are free to app ly the traditional common-law technique of decision and to draw upon all the sources of the common law." Id. at 472 (citing

Board of Comm'rs v. United States , 308 U.S. 343, 350 (1939)).

17Relevant to the determination whether to adopt a fe deral

rule in this case is the scope of the ERISA preempt ion provision which states that the provisions of ERISA "shall supersede any and all State laws insofar as they ma y now or hereafter relate to any employee benefit plan."2 29 U.S.C. § 1144(a). That provision, "conspicuous for its bre adth," FMC Corp. v. Holliday , 498 U.S. 52, 58 (1990), was drafted expansively in order to establish pension and welfa re benefits "as exclusively a federal concern," Alessi v. Raybestos-Manhattan, Inc. , 451 U.S. 504, 523 (1981), and to relieve plans of the burden of adhering to diver se state regulations.

Thus, by preempting any law that even relates to ER ISA plans Congress anticipated the development of a "fe deralcommon law of rights and obligations under ERISAregulated plans." Pilot Life Ins. Co. v. Dedeaux , 481 U.S. 41, 56 (1987). As one court aptly stated, "[w]here stat e law is preempted and no specific federal provision governs , a court is forced to make law or leave a void where n either state nor federal law applies. In such a situation it is a reasonable inference that Congress intended some la w, and therefore federal law, to apply." Wayne Chemical In c. v. Columbia Agency Serv. Corp. , 436 F. Supp. 316, 322 (N.D. Ill.) (internal quotations omitted), aff'd on other grounds , 567 F.2d 697 (7th Cir. 1977); see also Fox Valley & Vicinity

Constr. Workers Pension Fund v. Brown , 897 F.2d 275, 281 (7th Cir.) (en banc)("When ERISA is silent on an is sue, a federal court must fashion federal common law to go vern ERISA suits."), cert. denied , 471 U.S. 820 (1990).

Therefore, although a federal court has the discret ion to adopt state law as part of a federal rule of decisi on in order to resolve ERISA-related disputes, see Clearfield T rust , 318 U.S. at 367, a federal court certainly has the powe r

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2. The "savings clause," as set forth in 29 U.S.C. § 1144(b)(2)(A), exempts from ERISA's preemption provision state laws regula ting insurance, except for those regulations covered by the "deemer clause." The deemer clause, in turn, forbids states from deeming employ ee benefit plans "to be an insurance company or other insurer . . . or t o be engaged in the business of insurance," and thereby relieves the pl an from state laws "purporting to regulate insurance." 29 U.S.C.§ 1144 (b)(2)(B). See FMC Corp. , 498 U.S. at 58.

18pursuant to ERISA to reject any state rules, partic ularly a

non-legislative rule such as that promulgated in St arks , which do not complement ERISA's policy goals. As we

stated in Northeast , "judge-made rules regarding interpretation of insurance contracts are not the k ind of state insurance regulations that the Congress inten ded to preserve." 764 F.2d at 158 n.8.

The Local 1262 Funds argue that a uniform coordinat ion of benefits rule sacrifices an important pursuit of intra state uniformity for an overstated goal of inter state uniformity. Specifically, they contend that because state law g overns coordination of benefits disputes for non-ERISA reg ulated plans, the plans will face the risk of different ou tcomes depending upon whether the competing plan is regula ted by ERISA or not. By way of example they cite the unpublished opinion in Zalkin v. Teamsters Local 46 9

Welfare Fund , No. 92-477 (D.N.J. 1993), which held that under New Jersey order of benefits determination ru les the Local 1262 Funds plan, which was an excess plan, wo uld not be primarily liable for an employee-participant of its plan vis-a-vis a non-ERISA regulated plan.

ERISA's statutory mandate is to impose uniformity a nd predictability for the administration of self-insur ed plans so that beneficiaries can be guaranteed their expected benefits and so that administrators are not subject to " `co nflicting or inconsistent State and local regulation of emplo yee benefit plans.' " Shaw v. Delta Air Lines, Inc. , 463 U.S. 85, 99 (1983) (quoting remarks of Senator Williams, 120 Cong. Rec. 29933 (1974)); see also FMC Corp. , 498 U.S. at 60;

Pilot Life , 481 U.S. at 56.

It is not difficult to foresee the complications an d

"considerable inefficiencies" that would arise from having a "patchwork scheme" of differing state coordination of benefits rules. See Fort Halifax Packing Co., Inc. v. Coyne , 482 U.S. 1, 11 (1987); Keystone Chapter, Associated Builders and Contractors, Inc. v. Foley , 37 F.3d 945, 954 (3d Cir. 1994), cert. denied , 514 U.S. 1032 (1995). See generally Helitzer, Coordination of Benefits at 411-15. For example, an ERISA-regulated plan may cover thousand s of participants, some of them residing in jurisdiction s that

follow NAIC order of benefits determination rules a nd some

19residing in jurisdictions that do not. That plan's obligation

to assume primary liability for a claimant would de pend on the fortuity of a claimant's place of residence and application of that state's coordination of benefit s law, a consequence clearly disfavored by ERISA. See Alessi , 451 U.S. at 523-26 (ERISA preempts state statute that w ould force employer to adopt different payment formulae for employees inside and outside state). As stated by t he Ninth Circuit in PM Group , such indeterminacy and conflict "would almost certainly lead to litigation, thereby burdening the insured employees, the providers of covered ser vices, and the plans themselves as well as the federal cou rts. Adoption of a uniform federal rule avoids such conf usion and expense, and thus best serves the purposes of E RISA." 953 F.2d at 547; see also FMC Corp. , 498 U.S. at 59 ("To require plan providers to design their programs in an environment of differing state regulations would co mplicate the administration of nationwide plans, producing inefficiencies that employers might offset with dec reased benefits").

Contrary to the Local 1262 Funds' suggestion, there are very few instances in which the federal common law is concerned with promoting uniformity within a state. This is not a situation analogous to those where the Court has approved adoption of a state's law when the federal statute incorporates a matter which is one primarily of sta te concern. See De Sylva v. Ballentine , 351 U.S. 570, 580 (1956)(instructing federal courts to defer to state law for meaning of terms like "children" and "widower" in t he relevant portions of the federal Copyright Act rath er than formulate a federal law of domestic relations); Reconstruction Fin. Corp. v. Beaver County , 328 U.S. 204, 209-10 (1946) (definition of "real property" which Congress authorized to be taxed should be defined by settled state rules, because Congress obviously contemplated vari ous results among the states).

There is no evidence that state commercial or other domestic interests would be upset by imposition of uniform

federal order of benefits determination rules. In f act, New Jersey law regulating "other insurance" provisions is similar to the NAIC Model Regulation in all major respects except

20that it does not provide the complying plan with th e right

to sue the noncomplying plan for subrogation. See N.J. Admin. Code tit. 11, § 4-28.9. Nevertheless, becaus e of preemption the possibility that the Local 1262 Fund s plan will face a different rule, and thus disuniformity within the state, when it conflicts with a non-ERISA insured p lan, is

of little concern under ERISA. Cf . Keystone , 37 F.3d at 959 n. 19 ("While state regulations may affect the cost of doing business in a state, they may not, consistent with ERISA, place administrative burdens and costs on ERISA pla ns that make it impractical for an employer to provide a nationwide plan.").

We thus conclude that Congress envisioned establishment by the federal courts of a uniform se t of federal rules rather than subjecting to diverse sta te laws ERISA-regulated plans involving competing benefits clauses. See PM Group , 953 F.2d at 547; Northeast , 764

F.2d at 158.

B.

Selection of the "Employer First" Rule

As we have stated, the district court exercised its common law-making authority to select the "employer first" rule advocated by NAIC as the method for determinin g which competing ERISA plan should pay the claimed benefits. In 1970, in order to deal with the increa sing problem of duplicate coverage, NAIC, an independent group of state insurance regulatory commissioners, promul gated a set of rules under the heading of Group Coordinatio n of Benefits Model Regulation ("Model Regulation"), bas ed in large part on rules that had been established and f ollowed by the group insurance industry in the previous dec ade.

See Helitzer, Coordination of Benefits , at 413-14. The Model Regulation contains a recommended order of benefits scheme covering potential conflicts among health be nefit plans or policies. NAIC recommendations do not have the force of law, but many states have incorporated par t or all of particular recommendations into their insurance

statutes.

21Jack Helitzer, who was the former chairman of the

Industry Advisory Committee to the NAIC Task Force on Coordination of Benefits, attributes the widespread acceptance of the recommended regulation to the participants' need for absolute uniformity in this area. "The validity of the [coordination of benefits] rules is established not by law or regulation, but rather by the fact th at there

will be chaos without uniform rules to determine th e order of benefit payment." Id. at 412.

The sequential system for determining the order of payment by benefit plans in the comprehensive Model Regulation provides, as relevant here, that the"ben efits of the plan which covers the person as an employee, me mber or subscriber (that is, other than as a dependent) are determined before those of the plan which covers th e person as a dependent." Model Regulation § 5B(1) (q uoted in Helitzer, Coordination of Benefits , at 414). As Helitzer explains, "[t]he plan covering the person as an emp loyee pays benefits first. The plan covering the same per son as a dependent pays benefits second." Helitzer, Coordina tion of

Benefits , at 415.

The Model Regulation does not recognize excess or always secondary plans or incorporate them into the order

of benefits scheme because such clauses "will doom at least some of their employees to a double-secondary situa tion, in which the individual has double coverage and neithe r plan has the obligation to pay anything substantial. Responsibility for the resulting problem lies with the employer or plan that adopts a unique order of bene fits determination rule, and not with the one who follow s accepted practices." Id. at 421-22.

If the excess plan refuses to pay for primary cover age, when it would be obligated to pay as primary under the Model Regulation, the plan that would be secondary is

instructed to advance to the claimant the amount it would have paid as primary and execute a right of subroga tion against the noncomplying plan. Model Regulation § 7 (B).

The NAIC approach to conflicts involving always exc ess coordination of benefits provisions has garnered wi despread acceptance among the states. Twenty-four states hav e

22adopted the NAIC order of benefits determination ru les in

full, providing a right to subrogation against nonc omplying plans. Jack B. Helitzer, State Developments in Empl oyee Benefits : State Adoption of Coordination of Benefits Rules ,4 Benefits L. J. 435, 442-43 (1991). Fifteen states, including New Jersey, have adopted the NAIC order of benefits scheme but, unlike the other twenty-four states, th ey do not incorporate the subrogation rule as a vehicle w hereby a complying plan can compel payment from a noncomplying plan.3 Id. at 443.

In deciding to adopt the NAIC recommended "employer first" rule, the district court explained that the NAIC rule would provide a uniform coordination of benefits sc heme and thereby would best further the statutory object ives of

ERISA. McGurl , 925 F. Supp. at 293. The Local 1262 Funds urge us to overturn that decision in favor of a pro -rata rule pursuant to which the two plans would divide covera ge on an equal basis. They contend the pro-rata rule is m ore equitable and is the rule applied in the majority o f federal and state courts. They cite our opinion in Northeas t , where we noted that other courts faced with incompatible other insurance clauses have chosen the pro-rata formulat ion. 764 F.2d at 161 n. 13. In fact, the majority of sta tes have not adopted the pro-rata rule for health benefit pl ans, such as those covered by ERISA. And in Northeast we did not consider the merits of the pro-rata rule and thus t he statement on which the Local 1262 Funds rely was me rely dictum which is not binding upon our consideration here.

The two courts of appeals that have considered whet her to apply the pro-rata rule, albeit under somewhat d ifferent circumstances than those presented here, have divid ed on

its merits. In Winstead v. Indiana Ins. Co. , 855 F.2d 430,

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3. See N.J. Admin. Code tit. 11, § 4-28.9(a)(1)(ii) (1995).

If the complying plan is the secondary plan, it sha ll attempt to coordinate in the secondary position with benefits available through the noncomplying plan. The complying plan shall att empt to secure the necessary information from the noncomplying pla n. If the noncomplying plan is unwilling to act as primary pl an . . .the complying plan shall assume the primary position an d pay its benefits as the primary plan.

23432 (7th Cir. 1988), cert. denied , 488 U.S. 1030 (1989), the

Seventh Circuit considered a conflict between the

coordination of benefits clauses in a claimant's ER ISAregulated health and welfare fund and an applicable nofault automobile insurance policy regulated by Mich igan law. After finding the plan and the policy to be irreconcilable, the court affirmed the district cou rt's decision to hold both insurers liable on a pro-rata basis, citing our dictum in Northeast . Id. at 434.

More recently, in Auto Owners Ins. Co. v. Thorn App le Valley, Inc. , 31 F.3d 371, 375 (6th Cir. 1994), cert. denied , 513 U.S. 1184 (1995), the Sixth Circuit rejected th e application of a pro-rata liability rule between an ERISA plan and an insurance policy nearly identical to th ose considered in Winstead . The court concluded that in lightof ERISA's broad preemption provision, the ERISAregulated plan's diversion of liability should be g iven priority over the state plan's attempt to do the sa me. Id. at 374. The court reasoned that although the pro-rata rule may be equitable in the context of two non-regulate d, private plans, the equal apportionment formula woul d not "comply with a primary goal of ERISA, which is to safeguard the financial integrity of qualified plan s by shielding them from unanticipated claims." Id. at 375.

Of course, neither case is apposite here because th ose courts were not presented with conflicts in "other insurance" clauses in which both plans are regulate d by ERISA. However, in rejecting the pro-rata rule, the court in

Auto Owners gave dispositive weight to the policy considerations underlying ERISA, a principal consid eration

in the district court's selection here.

In PM Group , 953 F.2d at 547-48, the Ninth Circuit, faced with incompatible "other insurance" provision s in two self-funded ERISA plans, relied in part on NAIC reg ulations

to create a uniform federal common law solution. In that case, a husband and wife were each covered primaril y by their respective plans for hospital expenses relate d to the premature birth of their daughter. The father's pla n provided that, in all cases, the father's plan woul d be the primary insurer (the "gender rule") while the mothe r's plan provided that the plan covering the parent whose bi rthday

24fell earlier in the year -- in this case, the mothe r's -- was

the primary plan (the "birthday rule"). Id. at 548.

The court recognized that ERISA was silent on the i ssue of conflicting "other insurance" provisions and dec ided that

it must craft a common law rule that would take acc ount of ERISA's stated goal of uniformity. Id. at 547 ("uniformity enables employers `to predict the legality of propo sed actions without the necessity of reference to varyi ng state laws' " (quoting Pilot Life , 481 U.S. at 56)). The court then looked for guidance to the NAIC Model Regulation, w hich provided an order of benefits rule for such a scena rio, and adopted the "birthday rule" for resolving all such conflicts in ERISA-regulated plans.4 Id.

The district court reasoned that adoption of a pro- rata rule would have the effect of encouraging welfare p lans to adopt excess clauses in order to avoid the disadvan tage, vis-a-vis a plan with excess or always secondary reimbursement provisions, of having to assume prima ry liability if the claimant is an employee of a plan participant, and 50% liability if the claimant were not an emplo yee. McGurl , 925 F. Supp. at 293. By contrast, the excess or always secondary plans would never have to assume m ore than 50% liability. An excess or always secondary p lan will invariably save money by reducing the plan sponsor' s cost of providing health care coverage to their employee s.

The district court concluded that this incentive wo uld produce a "race to the bottom" in the context of reimbursement provisions. Id. ; see also Helitzer,

Coordination of Benefits , at 421 ("If any plan can be free to

set its own rules to determine the order of benefit s, every other similarly situated plan should also be free t o do the same. When other plans are affected by such a cost shift, they would have to be encouraged to adopt similar, alwayssecondary approaches causing large scale chaos"). I n a regime where all plans have always excess provision s but no governing uniform coordination of benefits rule, resolution of a particular conflict between two suc h plans would depend on an ad hoc judicial determination. T his

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4. The competing "gender rule" had been dropped by most states and NAIC as discriminatory.

25would jeopardize the predictability and certainty f or plan

sponsors and beneficiaries that was central to ERIS A's

enactment. See Auto Owners , 31 F.3d at 375; Northeast , 764 F.2d at 163.

As we acknowledged in Northeast ,

even a qualified endorsement of escape clauses migh t encourage benefit plans with excess or coordination of benefits clauses to replace such clauses with those of the escape variety in order to "fight fire with fir e." A war between plans would cause uncertainty in the industry and could potentially catch participants a nd

beneficiaries in the crossfire.

764 F.2d at 164 n.17. It is also of some interest t hat health care insurance contracts subject to New Jersey regu lation are not permitted to include always secondary provi sions. N.J. Admin. Code tit. 11, § 4-28.5(b).

We are concerned that adoption of the pro-rata rule which the Local 1262 Funds propose would present so me serious difficulties when two self-insured ERISA pl ans cover a family member as an employee-participant and depe ndent respectively. In the first place, it is unclear how the rule would operate in practice. Although a pro-rata rule may technically encompass proportional payment rather t han the 50-50 payment the Local 1262 Funds suggested he re, the Funds were unable to explain precisely how proportional payment would be fixed. Benefit plans are unlike casualty insurance, which is the field in wh ich prorata payments primarily operate. There has been no satisfactory explanation of its feasibility in the medical benefits field, where different plans have differen t deductibles and coverages. Its operation under mana ged care programs is also uncertain. Counsel conceded a t oral argument that calculation of the final benefit allo cation pursuant to a pro-rata formula, which counsel presu med would be based on each plans' proportional primary liability coverage, is considerably more complicated than und er the more traditional primary versus secondary scale. It may be

that it was these difficulties that led the vast ma jority of states to adopt the NAIC recommended "employer-firs t"

rule.

26The district court also noted that the "employer-fi rst" rule

has been "incorporated into most self-insured emplo yee benefit plans," McGurl , 925 F. Supp. at 292, and, in fact,

the brief of the amici welfare funds confirms that their plans include such a provision. See infra note 5. Significantly, the Local 1262 Funds and the TENJ Fu nd themselves have adopted the Model Regulation "emplo yer first" rule to govern employee/dependent conflicts with regard to coverage for their full-time employees, a nd thus the Local 1262 Funds only resist its applicability to their part-time employees.

Moreover, the "employer first" rule validates the n atural disposition of an employee to look to his or her ow n employer for health care benefits as a reward for h is or her own labor. Most important, the rule also allows emp loyers to predict with more accuracy the extent of their o wn potential liability because it is easier to calcula te the number of a plan's own employee-participants for wh ich it is responsible than the uncertain but likely greate r number of those employees' dependents who will look to the plan for their primary coverage.

The final objection by the Local 1262 Funds to the imposition of an "employer first" order of benefits determination rule is that the prospect of having t o provide primary coverage to part-time plan participants mig ht force them to discontinue providing welfare benefits alto gether. They argue that this would undermine ERISA's goal o f not deterring the creation of employee benefit plans. T hey cite Hozier v. Midwest Fasteners, Inc. , 908 F.2d 1155, 1160 (3d Cir. 1990), where we stated that "[h]aving made a fundamental decision not to require employers to pr ovide any benefit plans, Congress was forced to balance i ts desire to regulate extant plans more extensively against t he danger that increased regulation would deter employ ers from creating such plans."

It is true, as we explained in Nazay v. Miller , 949 F.2d 1323, 1329 (3d Cir. 1991), that "[i]n enacting ERIS A, Congress did not impose a duty on employers to prov ide health care and other benefits to their employees. Rather, the clear emphasis of the statute is to ensure the proper execution of the plans once established." See also Hlinka v.

27Bethlehem Steel Corp ., 863 F.2d 279, 283 (3d Cir. 1988).

But it is merely speculation that if the Local 1262 Funds are obliged to provide primary coverage for part-ti me employees they will be unable to afford any coverag e whatsoever. Nor is there a sound reason for giving the financial interests of the Local 1262 Funds priorit y over those of the TENJ Fund, which naturally faces simil ar concerns about managing the escalating health care costs for part-time employees.5 Moreover, these plans hav e been established by collective bargaining, and it is in that process that inclusion, vel non, will be decided.

Thus, in weighing the interests served by ERISA aga inst the negative effects generated by a rule that favor s"always secondary" plans and thereby induces all plans to s tructure their benefits similarly, to the ultimate detriment of participants, we conclude that the balance is heavi ly in favor of the "employer first" rule. Over the long-r un, a uniform "employer first" rule is actually more equi table since, assuming a generally even distribution of em ployees and dependents among various plans, plans such as t hose at issue here will tend to be primary half of the t ime and secondary half of the time. The "employer first" ru le advances the goals of preserving "the financial int egrity of qualified plans by shielding them from unanticipate d claims," Auto Owners , 31 F.2d at 375, and preventing participants from being "deprived of compensation t hat they reasonably anticipate under the plan's purported co verage,"

Northeast , 764 F.2d at 163.

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5. Indeed, the Amicus parties in this case, the Loc al 863 I.B.T. Welfare Fund and Laborers Locals 472/172 of the New Jersey Welfare Fund, ERISA-regulated plans with "employer first" coordin ation of benefits provisions, have come into conflict with the same L ocal 1262 Funds' always secondary clause and have had to pay several hundred thousand dollars in expenses for dependent-beneficiaries of their plans as a result of the Local 1262 Funds' refusal to accept primary responsibility.

28VI.

CONCLUSION

We thus conclude that in those instances where the plans have competing provisions with respect to per sons covered by both plans, the "employer first" rule pr ovides the most appropriate basis for apportioning liability u nder federal common law for self-insured benefit plans r egulated by ERISA. We will affirm the district court's grant of summary judgment.

A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit

29