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A federal court does not have jurisdiction over a claim for breach of a reimbursement provision in a federal employee health insurance plan, the 2nd U.S. Circuit Court of Appeals has ruled. As a result, an insurance company will have to go to state court if it intends to seek reimbursement from the widow of a man who collected both an insurance benefit and a lawsuit settlement. A divided court said the Federal Employees Health Benefits Act does not give district courts the authority to “make federal common law” in analyzing the reimbursement case brought by Empire Blue Cross and Blue Shield in Empire Healthchoice Assurance Inc. v. McVeigh, 03-9098. And because there is “no demonstrated conflict with state law that would require federal common-law rule-making,” the court said, Empire’s contract claims belong in state court. Joseph McVeigh suffered an injury in a 1997 accident and died in 2001. As a former federal employee, he received $157,309 in benefits from a benefit plan administered by Empire Blue Cross Blue Shield. Denise McVeigh, his widow and the administratrix of his estate, filed suit against the parties who were responsible for Mr. McVeigh’s injury and settled for nearly $3.2 million. Empire then filed suit against Ms. McVeigh in the Southern District of New York under a provision in its statement of benefits that anyone who receives benefits under the plan for an injury who is also compensated by a third party must reimburse the plan. Ms. McVeigh moved for dismissal for lack of subject matter jurisdiction. Empire countered that the court had jurisdiction because federal common law governed the claim and, in any event, the plan itself was a form of federal law. Judge Denise Cote granted Ms. McVeigh’s motion to dismiss in 2003. At the 2nd Circuit, a panel upheld the dismissal. Judge Sonia Sotomayor wrote that the Federal Employees Health Benefits Act, 5 U.S.C. ��8901-8914, “does not provide a federal statutory cause of action for insurance carriers to vindicate their rights under FEHBA-authorized contracts” and so federal jurisdiction can only exist if Empire’s claims are governed by federal common law. But the 2nd Circuit and the U.S. Supreme Court have noted, Sotomayor said, that the ability of the federal courts to fashion federal common law is “severely limited.” And unless it is authorized by Congress, “courts may only create federal common law where the operation of state law” would “significantly conflict” with “uniquely federal interests,” as outlined in Boyle v. United Technologies, 487 U.S. 500 (1988). Empire had argued that its dispute with Ms. McVeigh implicates “uniquely federal interests” because reimbursement affects the U.S. Treasury and the costs of federal employee health benefits. Empire said Congress has expressed an interest in maintaining uniformity among states on the administration of health benefits. The court did not have to address those arguments, Sotomayor wrote, because “Empire has failed to demonstrate that the operation of New York state law creates ‘an actual, significant conflict’ with those interests.” In dissent, Judge Reena Raggi said Congress addressed the Boyle factors in a 1998 amendment to the pre-emption provision of FEHBA, 5 U.S.C. �8902(m)(1), which states, “The terms of any contract under this chapter which relate to the nature, provision, or extent of coverage or benefits (including payments with respect to benefits) shall supercede and preempt any State or local law.” “I conclude … that this language requires courts to construe or enforce any term in an FEHBA plan that relates to health insurance coverage or benefits by reference to uniform federal common law, not state law,” Raggi said. Sotomayor and Judge Robert Sack disagreed, saying the provision “by itself” does not authorize the exercise of federal jurisdiction. “In our view, �8902(m)(1), which makes no reference to a federal right of action or to federal jurisdiction, is simply a limited preemption clause that the instant dispute does not trigger,” Sotomayor said. Howard S. Wolfson of Morrison Cohen Singer & Weinstein represented Empire Healthchoice Assurance Inc. Thomas J. Stock of Stock & Carr in Mineola represented Ms. McVeigh.

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