1997 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

8-22-1997

McGurl v. Trkng Empl N Jersey

Precedential or Non-Precedential:

Docket 96-5330,96-5348

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Recommended Citation

"McGurl v. Trkng Empl N Jersey" (1997). 1997 Decisions. Paper 203.

http://digitalcommons.law.villanova.edu/thirdcircuit_1997/203
iled August 22, 1997 

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 conflict 

between "other insurance" provisions in two self-funded 

ERISA plans, each of which purports to provide at most 

secondary coverage to the same claimants. 

To resolve the conflict, the district court crafted a federal 

common law order of benefits determination rule that 

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 

 2 
erred by concluding that the two plans are not reconcilable 

on their terms, that the court should have adopted New 

Jersey state law as the appropriate rule of decision 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 welfare 

benefit plans of the United Food and Commercial Workers 

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 employees of 

several contributing employers in the supermarket 

industry. Appellee Teamsters Local 560 Trucking 

Employees of North Jersey Welfare Fund (the "TENJ Fund") 

is also a self-funded welfare benefit plan that covers 

employees of participating supermarkets. The respective 

plans contain "other insurance" clauses, more particularly 

referred to as "coordination of benefits" clauses in the 

group health insurance industry, that set forth 

circumstances under which the plans will assume primary 

coverage liability for a claimant who is also covered by 

another plan. 

Group health care insurance plans have increasingly

included coordination of benefits clauses because the 

enlarged number of two-employee families has increased 

the possibility that a claimant could be covered under more 

than one plan. By conditioning coverage on specified 

circumstances, the clauses seek to limit their costs and 

prevent a claimant from acquiring coverage from multiple 

plans in excess of the claimant's covered medical expenses. 

See Jack B. Helitzer, Coordination of Benefits: How and

Why it Works, 4 Benefits L. J. 411, 412 (1991). 

 3 
This dispute concerns the obligation of the plans to 

certain part-time supermarket employees who are covered 

under both plans. The Local 1262 Funds describe their 

coverage obligations to part-time employees under the 

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 coordinated 

with Benefits payable under all Other Plans. When 

there is a basis for a claim under this Plan and the 

Other Plan, this Plan is a Reimbursement Plan which

has its Benefits determined after those of such Other 

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 been 

exhausted. 

App. at 89. 

The Local 1262 Funds' Summary Plan Description also

states with respect to coverage for part-time employees: 

[T]his Plan is always a reimbursement plan; if you 

are covered under another medical plan, this Plan will 

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 reimbursement 

payments) only after the other plan pays benefits to 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 their 

part-time employees until after the employee has exhausted 

all other possible sources of coverage, and the Funds refer 

to this proviso alternatively as a "reimbursement clause," 

an "excess clause," or an "always secondary clause." 

The TENJ Fund, in an effort to avoid always being left 

with a claimant's bill, has a coordination of benefits 

provision that disclaims liability altogether for employees 

who are participants in a plan such as that of the Local 

1262 Funds. The TENJ Fund plan provides: 

 4 
In 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 the 

primary plan. If the primary plan denies coverage 

because of the application of a Rule which is unique to 

that Plan and which is not a rule of this Fund, then 

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 coverage, the 

TENJ Fund describes the following hypothetical: 

Mr. ABC is a participant under our Welfare Fund. His 

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 the 

claim with a copy of the explanation of benefits from 

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 payor 

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 pay

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 

 5 
Fund, she would ordinarily have also been eligible for 

secondary coverage as a dependent under the TENJ Fund 

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 notified 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 part-time 

employees of contributing employers to the Local 1262 

Funds as well as dependents of participants of the TENJ 

Fund. The Local 1262 Funds similarly denied these claims 

and sent notification that the TENJ Fund bore primary 

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 Funds 

provided only a reimbursement plan for the part-time 

employees, it was relieved from any liability by the express 

terms of the TENJ Fund. In a letter dated June 4, 1993, 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 funds 

debated their respective liabilities, the Local 1262 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 the 

time being, but also "without prejudice to the rights 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 Fund to 

reimburse them for money paid to claimants in their

 6 
assumed role as the primary provider. The Local 1262 

Funds argued that the provision of the TENJ Fund plan 

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 clause 

is read out of the TENJ Fund plan, the remaining terms of 

both plans assign primary liability to the TENJ Fund 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 claims 

at issue according to its own coordination of benefits 

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 Jersey

Welfare Fund, 925 F. Supp. 280 (D.N.J. 1996). The court 

agreed that the provision of the TENJ Fund purporting to 

deny any liability if a beneficiary is separately covered 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 Funds 

plan were "mutually repugnant" because both attempted to 

deny primary coverage to these claimants, and would

provide secondary coverage only if the other accepted 

primary liability. Id. at 289. In rejecting the Local 1262 

Funds' suggestion that the remainder of the plans were still 

reconcilable in favor of the Local 1262 Funds, the court 

declined to apply the decision in Starks v. Hospital 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 was 

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 uniform 

federal common law rule in order to resolve the issue of 

how to prioritize the payment of benefits between two selffunded ERISA plans which have mutually repugnant 

coordination of benefits provisions. Id. at 243. The court 

adopted an "employer first" rule, recommended by the 

 7 
Model Regulations of the National Association of Insurance 

Commissioners ("NAIC"), which would impose primary 

liability for coverage on the plan which covers claimants 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 liability 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, crossappeals 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 selffunded employee benefit plans, meaning that they do not 

purchase insurance policies in order to satisfy their 

obligations to pay for medical and disability benefits of their 

participants and they are, therefore, covered by the federal 

Employee Retirement Income Security Act of 1974 

("ERISA"), 29 U.S.C. §§ 1001-1461, § 1002(1). ERISA

provides comprehensive regulation of employee benefit 

plans, §§ 1021-1031, §§ 1101-1114, and broadly preempts 

state laws that "relate to" such plans, § 1144(a). However, 

ERISA does not regulate the substantive terms of plans, see

Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 91 (1983), and 

makes no express mention about how to resolve conflicts 

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 Local

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 district court's 

 8 
grant 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 provision in the 

TENJ Fund plan. Under that provision, "[t]he Plan covering 

the patient as employee . . . will be the primary plan," but 

if that dependent is an employee of a plan that attempts 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, which, 

as we have previously explained, is one which "provides 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 escape 

clauses in benefits plans because they undermine the 

reasonable expectations of a beneficiary who may have his 

or her coverage shifted to another insurer with less 

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 plan for 

the difference. As a result, a participant of a plan 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, automatically 

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 favorable 

than those of his own. 

 9 
Id. 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 employee 

beneficiary of the Local 1262 Funds, and who would 

anticipate receiving secondary benefits from the TENJ 

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 liability 

provision once a competing plan abandons its 

reimbursement provision and assumes primary 

responsibility. That argument is unpersuasive. First, it is 

clear from the record that the TENJ Fund has expressed 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 the 

TENJ Fund did, in fact, pay secondarily in this case was 

merely a litigation convenience undertaken expressly 

"without prejudice to the rights of either party," app. at 413; 

it was not done as a modification or amendment of the 

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 similar 

categorical/as-applied distinction in Northeast, we expressly 

chose a remedy of "total invalidation of escape clauses" and 

"put the onus on trustees of plans with escape clauses to 

rewrite the plans." 764 F.2d at 164 n.17. Thus, only by 

express revision can the TENJ Fund transform the escape 

clause into a secondary liability clause, should it so choose. 

 10 
IV. 

CONFLICT BETWEEN THE TERMS OF THE PLANS 

Once the district court found the TENJ Fund plan's 

escape clause unenforceable, it proceeded to examine 

whether, if the escape clause were read out of the TENJ 

Fund plan, the two plans were reconcilable or, in other 

words, if the plans themselves could still provide a coherent 

order of benefits scheme. The TENJ Fund plan, as redacted, 

would read: "The Plan covering the patient as an employee 

or in which the employee is a participant . . . will 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 to 

their participants' part-time employees when those 

employees are in any way covered by another plan. The 

district court held the plans to be "mutually repugnant" 

because "[b]oth deny primary coverage and are willing to 

provide benefits in a secondary capacity only after the other 

accepts the responsibility of primary coverage." McGurl, 925 

F. Supp. at 287. 

The Local 1262 Funds urged the district court to apply 

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 of 

beneficiaries. The Amalgamated Fund plan was similar to 

that of the Local 1262 Funds in that it would only provide 

reimbursement or "always excess" benefits after a claimant 

exhausted coverage from another plan. The Blue Cross/ 

Blue Shield plan contained a coordination of benefits 

provision under which it would be secondary to a plan 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 Blue Cross/ 

Blue Shield plan contemplated being primarily liable in 

some instances, i.e., where the claimant is an employee, 

but the Amalgamated Fund plan never contemplated being 

primarily liable vis-a-vis another plan. Therefore, the two 

plans could be ranked hierarchically. Id. at 350. 

 11 
The Starks court concluded that the Amalgamated Fund's 

trustees contemplated a "tertiary" role when competing 

against any other secondary coverage provider, and stated 

that "[w]here the two coverages are not, however, primary 

and secondary but rather secondary and tertiary, there 

being no primary coverage in the usual sense, the only 

rational result is to require the secondary coverage 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 preemption 

provision to categorically ignore state rules of decision 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 also 

expressed its disagreement with the logic applied by 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 of 

benefits provision on the ground that the TENJ Fund plan 

(like the Blue Cross/Blue Shield plan) recognizes certain 

situations in which it could be primarily liable, whereas the 

Local 1262 Funds plan is always secondary. We do not 

agree. 

First, it is not helpful to speak in terms of secondary 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 liability and 

it was thus forced to rank the payment obligations of a plan 

that it construed as providing some coverage, albeit 

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 1262 

Funds' suggestion that because the TENJ Fund concedes 

primary liability in the situation of another plan's 

beneficiary but who is an employee of its participant, it 

must always be primary vis-a-vis Local 1262 Funds' always 

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

primary coverage when presented with a claim of a 

dependant-beneficiary such as Susan Armstrong's. The 

mere fact that in other circumstances the TENJ Fund

would be primary does not obviate the inescapable fact that 

it is not primary in the circumstances here. However 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 fiscal 

consequences were a court to impose primary coverage on 

a plan, such as that of the TENJ Fund, which intended to 

provide the nominal, secondary coverage for this group of 

claimants merely because the plan provides primary 

coverage for certain other claimants. As the district court 

recognized, "a court cannot deem one plan primary without 

shifting unanticipated costs to that plan and frustrating 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 majority view that 

entitles a plan that describes itself as a pure excess plan to 

pay secondarily because its coverage is not implicated until 

another policy's limits have been exhausted. See Insurance

Co. of N. America v. Continental Cas. Co., 575 F.2d 1070, 

1071 (3d Cir. 1978) ("[s]ince [an excess clause] does not 

provide that supplemental protection until the other policy 

has been exhausted, it is `excess' to the other coverage"); 

Institute for Shipboard Educ. v. CIGNA Worldwide Ins. Co., 

22 F.3d 414, 419 (2d Cir. 1994) (excess plan " `kicks in' to 

provide additional coverage once the policy limits of other 

available insurance are exhausted"). They argue based 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 "umbrella" 

 13 

policies, are contingent on the existence of another, primary 

policy, and are intended to provide a separate, additional 

layer of coverage, never primary coverage. An insured will 

purchase this separate layer typically at a discounted price 

because it "will pick up where primary coverages end in 

order to provide extended protection." Occidental Fire and

Cas. Co. of North Carolina v. Brocious, 772 F.2d 47, 53 (3d 

Cir. 1985). Since such layered policies are "not an attempt 
by a primary insurer to limit a portion of its risk by 

labelling it `excess' nor a device to escape responsibility, 

they are regarded as a `true excess over and above any type 

of primary coverage, excess provisions arising in regular 

policies in any manner, or escape clauses.' " Id. (quoting 8A 

J. Appleman, Insurance Law and Practice § 4909.85 at 

453-54 (1981)). Rates for excess insurance are set"after 

giving due consideration to known existing and underlying 

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 Coordination of 

benefits rules have evolved to cover these circumstances 

and are routinely followed. 

We need not resolve the parties' disagreement as to

whether it is theoretically possible or desirable to have pure 

excess coverage in the group health care context. The 

relevant portions of both plans' terms are in fact 

coordination of benefits clauses because both represent a 

method for determining how and when two plans may be 

responsible for covering a common beneficiary. In this 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 policy in the health care 

context referred to by either party is a Medigap policy, a privately issued 

health insurance contract which supplements Medicare by covering 

expenses not covered by the federal government, such 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). 

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

"excess" or "secondary" and each looks to the other as 

primary. Thus, both plans attempt to coordinate benefits 

with potentially competing plans. 

The very terms of the Local 1262 Funds plan manifest 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 Plan will

be coordinated with Benefits payable under all Other Plans." 

App. at 89 (emphasis added). 

Moreover, unlike the prototypical pure excess or umbrella 

policy, the Local 1262 Funds plan itself contemplates 

assuming primary liability in instances where there is no 

other coverage available, and thus no other plan with 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 dependents 

are covered primarily under another medical plan, they 

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 1262 

Funds plan's "so called `always excess' provision is no more 

than a subtle attempt to impose coordination of benefits 

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 essentially 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 coordination of 

benefits provisions are "mutually repugnant," forcing the 

 15 
court to look outside the plans to resolve the apparent 

conflict. 

V. 

ESTABLISHMENT OF ORDER OF BENEFITS 

DETERMINATION RULE

A. 

Federal Common Law

Because the plain terms of the individual plans would 

not resolve the conflict, the district court exercised its 

authority to devise federal common law, and settled on the 

"employer first" rule suggested by the National Association 

of Insurance Carriers ("NAIC"). See McGurl, 925 F. Supp. at 

293. Before examining the merits of the district court's 

selection, we consider the Local 1262 Funds' objections 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 legally 

binding federal rules articulated by a federal court which 

cannot be easily found on the face of a constitutional 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 rule of 

decision that is not mandated on the face of some 

authoritative federal text -- whether or not that rule can be 

described as the product of `interpretation' in either a 

conventional or unconventional sense."). Notwithstanding 

the decision in Erie Railroad Co. v. Tompkins, 304 U.S. 64 

(1938), which curtailed development of general federal 

common law, the power of federal courts to craft federal 

rules of decision is established in cases in which a federal 

common law rule is "necessary to protect uniquely federal 

interests," Banco Nacional de Cuba v. Sabbatino, 376 U.S. 

398, 426 (1964), such as federal proprietary interests, 

 16 
federal interests in international law and to resolve 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 uniform rule is 

plain" where "identical transactions subject to the vagaries 

of the laws of the several states" would lead to great 

diversity in results. Clearfield Trust Co. v. United States, 

318 U.S. 363, 367 (1943). This would be true not only 

when the issue involves the rights and duties of the 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 purpose. 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 common 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 clear 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'Oench,

Duhme & Co., Inc. v. FDIC, 315 U.S. 447, 470 (1942), noted 

that the need to make common law stems from the inability 

of legislators to anticipate every possible contingency and 

the impracticability of judges returning all unanswered 

questions to the legislature. He stated, "Were we bereft of 

the common law, our federal system would be impotent. 

This follows from the recognized futility of attempting allcomplete statutory codes, and is apparent from the terms of 

the Constitution itself." Id. Justice Jackson explained 

further that, "Federal common law implements the federal 

Constitution and statutes, and is conditioned by them. 

Within these limits, federal courts are free to apply 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)). 

 17 
Relevant to the determination whether to adopt a federal 

rule in this case is the scope of the ERISA preemption 

provision which states that the provisions of ERISA "shall 

supersede any and all State laws insofar as they may now 

or hereafter relate to any employee benefit plan."2 29 U.S.C. 

§ 1144(a). That provision, "conspicuous for its breadth," 

FMC Corp. v. Holliday, 498 U.S. 52, 58 (1990), was drafted 

expansively in order to establish pension and welfare 

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 diverse state 

regulations. 

Thus, by preempting any law that even relates to ERISA 

plans Congress anticipated the development of a "federal 

common 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 state law is 

preempted and no specific federal provision governs, a 

court is forced to make law or leave a void where neither 

state nor federal law applies. In such a situation it is a 

reasonable inference that Congress intended some law, and 

therefore federal law, to apply." Wayne Chemical Inc. 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 issue, a 

federal court must fashion federal common law to govern 

ERISA suits."), cert. denied, 471 U.S. 820 (1990). 

Therefore, although a federal court has the discretion to 

adopt state law as part of a federal rule of decision in order 

to resolve ERISA-related disputes, see Clearfield Trust, 318 

U.S. at 367, a federal court certainly has the power 

_________________________________________________________________ 

2. The "savings clause," as set forth in 29 U.S.C. § 1144(b)(2)(A), exempts 

from ERISA's preemption provision state laws regulating insurance, 

except for those regulations covered by the "deemer clause." The deemer 

clause, in turn, forbids states from deeming employee benefit plans "to 

be an insurance company or other insurer . . . or to be engaged in the 

business of insurance," and thereby relieves the plan from state laws 

"purporting to regulate insurance." 29 U.S.C.§ 1144(b)(2)(B). See FMC

Corp., 498 U.S. at 58. 

 18 
pursuant to ERISA to reject any state rules, particularly a 

non-legislative rule such as that promulgated in Starks, 

which do not complement ERISA's policy goals. As we

stated in Northeast, "judge-made rules regarding 

interpretation of insurance contracts are not the kind of 

state insurance regulations that the Congress intended to 

preserve." 764 F.2d at 158 n.8. 

The Local 1262 Funds argue that a uniform coordination 

of benefits rule sacrifices an important pursuit of intrastate 

uniformity for an overstated goal of interstate uniformity. 

Specifically, they contend that because state law governs 

coordination of benefits disputes for non-ERISA regulated 

plans, the plans will face the risk of different outcomes 

depending upon whether the competing plan is regulated 

by ERISA or not. By way of example they cite the 

unpublished opinion in Zalkin v. Teamsters Local 469

Welfare Fund, No. 92-477 (D.N.J. 1993), which held that 

under New Jersey order of benefits determination rules the 

Local 1262 Funds plan, which was an excess plan, would 

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 and 

predictability for the administration of self-insured plans so 

that beneficiaries can be guaranteed their expected benefits 

and so that administrators are not subject to " `conflicting 

or inconsistent State and local regulation of employee 

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 and 

"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 thousands of 

participants, some of them residing in jurisdictions that 

follow NAIC order of benefits determination rules and some 

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

to assume primary liability for a claimant would depend on 

the fortuity of a claimant's place of residence and

application of that state's coordination of benefits law, a 

consequence clearly disfavored by ERISA. See Alessi, 451 

U.S. at 523-26 (ERISA preempts state statute that would 

force employer to adopt different payment formulae for 

employees inside and outside state). As stated by the Ninth 

Circuit in PM Group, such indeterminacy and conflict 

"would almost certainly lead to litigation, thereby burdening 

the insured employees, the providers of covered services, 

and the plans themselves as well as the federal courts. 

Adoption of a uniform federal rule avoids such confusion 

and expense, and thus best serves the purposes of ERISA." 

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 complicate 

the administration of nationwide plans, producing 

inefficiencies that employers might offset with decreased 

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 state 

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 the 

relevant portions of the federal Copyright Act rather 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 various 

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 fact, New 

Jersey law regulating "other insurance" provisions is similar 

to the NAIC Model Regulation in all major respects except 

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

to sue the noncomplying plan for subrogation. See N.J. 

Admin. Code tit. 11, § 4-28.9. Nevertheless, because of 

preemption the possibility that the Local 1262 Funds plan 

will face a different rule, and thus disuniformity within the 

state, when it conflicts with a non-ERISA insured plan, 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 plans 

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 set of 

federal rules rather than subjecting to diverse state 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 determining 

which competing ERISA plan should pay the claimed 

benefits. In 1970, in order to deal with the increasing 

problem of duplicate coverage, NAIC, an independent group 

of state insurance regulatory commissioners, promulgated a 

set of rules under the heading of Group Coordination of 

Benefits Model Regulation ("Model Regulation"), based in 

large part on rules that had been established and followed 

by the group insurance industry in the previous decade. 

See Helitzer, Coordination of Benefits, at 413-14. The Model 

Regulation contains a recommended order of benefits

scheme covering potential conflicts among health benefit 

plans or policies. NAIC recommendations do not have the 

force of law, but many states have incorporated part or all 

of particular recommendations into their insurance 

statutes. 

 21 
Jack 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 that there 

will be chaos without uniform rules to determine the 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"benefits of 

the plan which covers the person as an employee, member 

or subscriber (that is, other than as a dependent) are 

determined before those of the plan which covers the 

person as a dependent." Model Regulation § 5B(1) (quoted 

in Helitzer, Coordination of Benefits, at 414). As Helitzer 

explains, "[t]he plan covering the person as an employee 

pays benefits first. The plan covering the same person as a 

dependent pays benefits second." Helitzer, Coordination 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 situation, in 

which the individual has double coverage and neither 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 benefits 

determination rule, and not with the one who follows 

accepted practices." Id. at 421-22. 

If the excess plan refuses to pay for primary coverage, 

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 subrogation 

against the noncomplying plan. Model Regulation § 7(B). 

The NAIC approach to conflicts involving always excess 

coordination of benefits provisions has garnered widespread 

acceptance among the states. Twenty-four states have 

 22 
adopted the NAIC order of benefits determination rules in 

full, providing a right to subrogation against noncomplying 

plans. Jack B. Helitzer, State Developments in Employee

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, they do 

not incorporate the subrogation rule as a vehicle whereby 

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 scheme 

and thereby would best further the statutory objectives 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 coverage on 

an equal basis. They contend the pro-rata rule is more 

equitable and is the rule applied in the majority of federal 

and state courts. They cite our opinion in Northeast, where 

we noted that other courts faced with incompatible other 

insurance clauses have chosen the pro-rata formulation. 

764 F.2d at 161 n. 13. In fact, the majority of states have 

not adopted the pro-rata rule for health benefit plans, such 

as those covered by ERISA. And in Northeast we did not 

consider the merits of the pro-rata rule and thus the 

statement on which the Local 1262 Funds rely was merely 

dictum which is not binding upon our consideration here. 

The two courts of appeals that have considered whether 

to apply the pro-rata rule, albeit under somewhat different 

circumstances than those presented here, have divided on 

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

_________________________________________________________________ 

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

If the complying plan is the secondary plan, it shall attempt to 

coordinate in the secondary position with benefits available through 

the noncomplying plan. The complying plan shall attempt to secure 

the necessary information from the noncomplying plan. If the 

noncomplying plan is unwilling to act as primary plan . . .the 

complying plan shall assume the primary position and pay its 

benefits as the primary plan. 

 23 
432 (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 ERISAregulated health and welfare fund and an applicable nofault automobile insurance policy regulated by Michigan 

law. After finding the plan and the policy to be 

irreconcilable, the court affirmed the district court'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 Apple

Valley, Inc., 31 F.3d 371, 375 (6th Cir. 1994), cert. denied, 

513 U.S. 1184 (1995), the Sixth Circuit rejected the 

application of a pro-rata liability rule between an ERISA 

plan and an insurance policy nearly identical to those 

considered in Winstead. The court concluded that in light 

of ERISA's broad preemption provision, the ERISAregulated plan's diversion of liability should be given 

priority over the state plan's attempt to do the same. Id. at 

374. The court reasoned that although the pro-rata rule 

may be equitable in the context of two non-regulated, 

private plans, the equal apportionment formula would not 

"comply with a primary goal of ERISA, which is to 

safeguard the financial integrity of qualified plans by 

shielding them from unanticipated claims." Id. at 375. 

Of course, neither case is apposite here because those 

courts were not presented with conflicts in "other 

insurance" clauses in which both plans are regulated 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 consideration 

in the district court's selection here. 

In PM Group, 953 F.2d at 547-48, the Ninth Circuit, 

faced with incompatible "other insurance" provisions in two 

self-funded ERISA plans, relied in part on NAIC regulations 

to create a uniform federal common law solution. In that 

case, a husband and wife were each covered primarily by 

their respective plans for hospital expenses related to the 

premature birth of their daughter. The father's plan 

provided that, in all cases, the father's plan would be the 

primary insurer (the "gender rule") while the mother's plan 

provided that the plan covering the parent whose birthday 

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

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

The court recognized that ERISA was silent on the issue 

of conflicting "other insurance" provisions and decided that 

it must craft a common law rule that would take account 

of ERISA's stated goal of uniformity. Id. at 547 ("uniformity 

enables employers `to predict the legality of proposed 

actions without the necessity of reference to varying state 

laws' " (quoting Pilot Life, 481 U.S. at 56)). The court then 

looked for guidance to the NAIC Model Regulation, which 

provided an order of benefits rule for such a scenario, 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 plans to 

adopt excess clauses in order to avoid the disadvantage, 

vis-a-vis a plan with excess or always secondary 

reimbursement provisions, of having to assume primary 

liability if the claimant is an employee of a plan participant, 

and 50% liability if the claimant were not an employee. 

McGurl, 925 F. Supp. at 293. By contrast, the excess or 

always secondary plans would never have to assume more 

than 50% liability. An excess or always secondary plan will 

invariably save money by reducing the plan sponsor's cost 

of providing health care coverage to their employees. 

The district court concluded that this incentive would 

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 benefits, every 

other similarly situated plan should also be free to 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"). In a 

regime where all plans have always excess provisions but 

no governing uniform coordination of benefits rule,

resolution of a particular conflict between two such plans 

would depend on an ad hoc judicial determination. This 

_________________________________________________________________ 

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

NAIC as discriminatory. 

 25 
would jeopardize the predictability and certainty for plan 

sponsors and beneficiaries that was central to ERISA'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 might 

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 fire." A 

war between plans would cause uncertainty in the 

industry and could potentially catch participants and 

beneficiaries in the crossfire. 

764 F.2d at 164 n.17. It is also of some interest that health 

care insurance contracts subject to New Jersey regulation 

are not permitted to include always secondary provisions. 

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 some 

serious difficulties when two self-insured ERISA plans cover 

a family member as an employee-participant and dependent 

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 than 

the 50-50 payment the Local 1262 Funds suggested here, 

the Funds were unable to explain precisely how 

proportional payment would be fixed. Benefit plans are 

unlike casualty insurance, which is the field in which prorata payments primarily operate. There has been no 

satisfactory explanation of its feasibility in the medical 

benefits field, where different plans have different 

deductibles and coverages. Its operation under managed 

care programs is also uncertain. Counsel conceded at oral 

argument that calculation of the final benefit allocation 

pursuant to a pro-rata formula, which counsel presumed 

would be based on each plans' proportional primary liability 

coverage, is considerably more complicated than under the 

more traditional primary versus secondary scale. It may be 

that it was these difficulties that led the vast majority of 

states to adopt the NAIC recommended "employer-first" 

rule. 

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

has been "incorporated into most self-insured employee 

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 Fund 

themselves have adopted the Model Regulation "employer 

first" rule to govern employee/dependent conflicts with 

regard to coverage for their full-time employees, and thus 

the Local 1262 Funds only resist its applicability to their 

part-time employees. 

Moreover, the "employer first" rule validates the natural 

disposition of an employee to look to his or her own 

employer for health care benefits as a reward for his or her 

own labor. Most important, the rule also allows employers 

to predict with more accuracy the extent of their own 

potential liability because it is easier to calculate the 

number of a plan's own employee-participants for which it 

is responsible than the uncertain but likely greater 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 to provide 

primary coverage to part-time plan participants might force 

them to discontinue providing welfare benefits altogether. 

They argue that this would undermine ERISA's goal of not 

deterring the creation of employee benefit plans. They 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 provide 

any benefit plans, Congress was forced to balance its desire 

to regulate extant plans more extensively against the 

danger that increased regulation would deter employers 

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 ERISA, 

Congress did not impose a duty on employers to provide 

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.

 27 
Bethlehem 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-time 

employees they will be unable to afford any coverage 

whatsoever. Nor is there a sound reason for giving the 

financial interests of the Local 1262 Funds priority over 

those of the TENJ Fund, which naturally faces similar 

concerns about managing the escalating health care costs 

for part-time employees.5 Moreover, these plans have 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 against 

the negative effects generated by a rule that favors"always 

secondary" plans and thereby induces all plans to structure 

their benefits similarly, to the ultimate detriment of 

participants, we conclude that the balance is heavily in 

favor of the "employer first" rule. Over the long-run, a 

uniform "employer first" rule is actually more equitable 

since, assuming a generally even distribution of employees 

and dependents among various plans, plans such as those 

at issue here will tend to be primary half of the time and 

secondary half of the time. The "employer first" rule 

advances the goals of preserving "the financial integrity of 

qualified plans by shielding them from unanticipated 

claims," Auto Owners, 31 F.2d at 375, and preventing 

participants from being "deprived of compensation that they 

reasonably anticipate under the plan's purported coverage," 

Northeast, 764 F.2d at 163. 

_________________________________________________________________ 

5. Indeed, the Amicus parties in this case, the Local 863 I.B.T. Welfare 

Fund and Laborers Locals 472/172 of the New Jersey Welfare Fund, 

ERISA-regulated plans with "employer first" coordination of benefits 

provisions, have come into conflict with the same Local 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. 

 28 
VI. 

CONCLUSION

We thus conclude that in those instances where the 

plans have competing provisions with respect to persons 

covered by both plans, the "employer first" rule provides the 

most appropriate basis for apportioning liability under 

federal common law for self-insured benefit plans regulated 

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