Opinion ID: 740412
Heading Depth: 3
Heading Rank: 2

Heading: Whether the Fund Acted Arbitrarily and Capriciously

Text: 39 The Fund's right to subrogation arises out of the following language in the SPD: 4 40 Subrogation seeks to conserve the assets of the Benefit Fund by imposing the expense for accidental injuries suffered by members or eligible dependent's [sic] on those responsible for causing them. If you or one of your dependents, for example, should receive benefits from the Fund for injuries caused by someone else (such as an automobile accident,) the Benefit Fund through subrogation has the right to seek repayment from the other party or his insurance company, or in the event you or your dependent recovers the amount of medical expense paid by the Fund by suit, settlement or otherwise from any third person or his insurer, the Fund has the right to be reimbursed therefor through subrogation. 41 The Benefits Fund will provide benefits to you and your dependents at the time of need, but you may be asked to execute documents or take such other action as is necessary to assure the rights of the Fund. 42 The Fund contends that this language enables it to require Bruner to sign its standard subrogation agreement before paying benefits. The subrogation agreement provides in pertinent part: 5 43 I (we) agree to reimburse the Plan in full from the proceeds of any recovery received by me (us) because of such injury or sickness, and 44 (b) The Plan shall be subrogated in full to my (our) rights to such recovery and my (our) interest in the proceeds of such recovery.... 45 Under the arbitrary and capricious standard of review, we are limited to deciding whether the Fund's interpretation of the plan was made rationally and in good faith. Blank v. Bethlehem Steel Corp., 926 F.2d 1090, 1093 (11th Cir.1991) (citing Guy, 877 F.2d at 39). Factors relevant to that determination include: (1) the uniformity of the Fund's construction; (2) the reasonableness of its interpretation; and (3) possible concerns with the way unexpected costs may affect the future financial health of the Fund. 6 See id. 46 Bruner and Genesis challenge both the language of the subrogation agreement and the Fund's requirement that the agreement be signed before benefits are paid. Although the district court conflated the two issues in its analysis, we will analyze the issues separately. 47
48 In deciding whether the Fund has acted arbitrarily and capriciously in choosing the particular language contained in the subrogation agreement, the district court was required to consider the uniformity of the Fund's interpretation. The Fund claims it has consistently interpreted the SPD to provide itself with a right of subrogation to any recovery obtained from an at-fault third party. The Fund's view is set forth in the standard subrogation agreement, and the Fund has never accepted any modified or amended form of that agreement. Bruner and Genesis failed to put forth any evidence that the Fund has ever interpreted the SPD to provide subrogation rights for the Fund that were narrower or in any way different from those set out in the standard subrogation agreement. Consequently, the uniformity factor indicates that the Fund's interpretation was not arbitrary and capricious. 49 Another factor the district court was required to consider in its review was whether the Fund's interpretation of the SPD's relevant language is reasonable. According to Bruner and Genesis, the SPD limits the Fund's subrogation rights to a recovery of medical expenses paid by a third party. By contrast, the Fund interprets the SPD to allow it to recover the medical expenses it has paid to a participant or beneficiary, out of any recovery achieved against the at-fault third party. While Bruner and Genesis' interpretation is plausible, the Fund's interpretation is more persuasive, because the SPD says the plan has a right of reimbursement in the event a participant recovers the amount of medical expenses paid by the Fund (emphasis added). The subrogation agreement is consistent with the SPD insofar as the Fund's right to subrogation out of third-party recoveries is concerned. 7 50 The district court thought that both the Fund's interpretation and the interpretation suggested by Genesis and Bruner were plausible. Faced with competing plausible interpretations, the district court construed all ambiguities in the SPD against the Fund and concluded that the Fund's interpretation was arbitrary. The district court erred in its reasonable interpretation analysis. The reasonable interpretation factor and the arbitrary and capricious standard of review would have little meaning if ambiguous language in an ERISA plan were construed against the Fund. If the Fund's interpretation is reasonable and is consistent with the law, then the reasonableness-of-interpretation factor militates against a conclusion that the Fund has acted arbitrarily and capriciously. 51 The third and final factor that the district court was required to consider was whether the Fund's interpretation was arbitrary and capricious in light of concerns about unexpected costs and the future financial stability of the Fund. The Fund believes that trust assets will be endangered if the Fund's subrogation rights do not extend to any recovery obtained by plan participants and beneficiaries from third parties. If the Fund is limited to subrogation of medical expenses recovered from the tortfeasor, plan participants and beneficiaries could destroy the Fund's subrogation rights by negotiating with the tortfeasor to label all or most of the damages received from the tortfeasor as pain and suffering, even when they actually are intended to compensate for medical expenses. The district court recognized that the Fund's concern was a genuine one, but it concluded that cost concerns were insufficient to overcome what the court perceived to be the unreasonableness of the Fund's interpretation, when all ambiguities were construed against the Fund. 52 Whether or not cost concerns can trump an unreasonable interpretation of plan language, the Fund's subrogation agreement advances a reasonable interpretation of the subrogation rights provided in the SPD. Given the reasonableness of the Fund's interpretation, the uniformity of that interpretation, and the genuine cost concerns that underlie it, we hold that the Fund did not act arbitrarily and capriciously in requiring Nancy Bruner to sign its subrogation agreement. 53
54 Next, we consider whether it was arbitrary and capricious for the Fund to require that Nancy Bruner sign its standard subrogation agreement before paying benefits, instead of later. We turn again to the Blank factors (uniformity of interpretation, reasonableness of interpretation, and cost concerns) to determine whether the Fund's decision survives review under the arbitrary and capricious standard. 55 Nancy Bruner argues that the uniform interpretation factor weighs in her favor, because the Fund has been inconsistent about requiring a signed subrogation agreement prior to the payment of benefits. The Fund admits that it requires such an agreement before it pays benefits only when a large sum is at stake and the participant's or beneficiary's lawyers indicate that they may challenge the plan's subrogation rights. If only small sums are at issue, or if a large sum is at issue but the Fund is convinced that the participant's or beneficiary's lawyers will not object to the Fund's subrogation rights, no agreement is required. 56 According to Nancy Bruner, the fact that the Fund does not always require a signed subrogation agreement before paying benefits demonstrates that the Fund has inconsistently interpreted its right to insist upon the agreement being signed up-front. We disagree. The Fund's policy fully recognizes its right to insist upon a signed subrogation agreement as a prerequisite to receiving benefits, but also withholds the exercise of that right in circumstances where it does not appear to be necessary to protect the Fund's assets. Here it did appear to be necessary, and the accuracy of that appearance was confirmed by Nancy Bruner's position in this litigation. Based on the evidence in the record, we conclude that the Fund has uniformly interpreted the plan to allow it to require a signed subrogation agreement before paying benefits, and the Fund has done so in circumstances like those in this case. 57 On the reasonable interpretation factor, the district court determined that the Fund unreasonably interpreted the plan to allow it to require a signed subrogation agreement prior to paying benefits. According to Bruner, the district court correctly found the Fund's position to be unreasonable, because the Fund has no right of subrogation until benefits are paid. We believe that Bruner is confusing the issues. It is true that because the Fund has no right of subrogation until the plan pays benefits, it cannot enforce the subrogation agreement until it pays benefits. Nevertheless, nothing in the plan forbids the Fund from requiring the agreement to be signed before it pays any claims. The SPD states that [the participant or beneficiary] may be asked to execute documents or take such other action as is necessary to assure the rights of the Fund. That language can be read to require execution of the subrogation agreement before payment as easily as it can be read to require execution of the agreement after payment. Thus, the Fund's interpretation is not unreasonable, given the language of the plan. 58 When we consider the practical reasons for requiring the subrogation agreement to be signed before paying any benefits, the reasonableness of that policy becomes abundantly clear. The Fund uses the subrogation agreements in negotiations with at-fault third parties. Once benefits are paid, participants and beneficiaries have little incentive (other than the fear of a lawsuit) to sign a subrogation agreement. If the Fund cannot require the agreement beforehand, it often will have to resort to lawsuits or at least the threat of lawsuits to obtain the agreements. Lawsuits cost money, sometimes a lot of it. In addition, delay becomes inevitable, and while the Fund is attempting to obtain the agreements from participants and beneficiaries, the Fund is hampered in its negotiations with at-fault third parties. In short, having the agreement in hand before paying benefits provides significant protection to trust assets. Cost concerns weigh in favor of the Fund's policy. 59 The Blank factors all weigh in the Fund's favor. Accordingly, we conclude that the Fund has not acted arbitrarily or capriciously by requiring Nancy Bruner to sign its standard subrogation agreement as a condition to the processing and payment of claims for Cobbie Jr.