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In a significant victory for insurers, a federal appeals court has ruled that New Jersey’s anti-subrogation statute conflicts with ERISA, and that health care insurers are therefore entitled to seek reimbursement of medical expenses from insureds who later win or settle a personal injury suit against a third party. But a dissenting judge in Levine v. United Healthcare Corp. said he believes New Jersey’s statute is a “state regulation of insurance” that qualifies for ERISA’s savings clause, and that his colleagues should have accorded more weight to a New Jersey Supreme Court ruling that explicitly said as much. Writing for the court, 3rd Circuit Judge Richard L. Nygaard found that the New Jersey law fails to satisfy the U.S. Supreme Court’s recently announced test for deciding whether a state law qualifies for ERISA’s savings clause. In the 2003 decision in Kentucky Association of Health Plans Inc. v. Miller, the justices held that for a state law to be deemed one “which regulates insurance” it must be “specifically directed toward entities engaged in insurance” and must “substantially affect the risk pooling arrangement between the insurer and the insured.” Nygaard focused on the first part of the Miller test and concluded that the New Jersey law failed. “Although New Jersey’s statute may have been ‘aimed at’ shifting the burden of tort expenses from the liability insurance industry to the health insurance industry, the statute explicitly regulates both insurance and non-insurance entities,” Nygaard wrote in an opinion joined by visiting Senior U.S. District Judge Louis H. Pollak of the Eastern District of Pennsylvania. “To avoid ERISA pre-emption,” Nygaard said, “a state law must be ‘specifically directed’ toward the insurance industry. The New Jersey statute is not.” Because the New Jersey statute could be applied to any contributor in any civil action, Nygaard found that “it is merely a statute that has a significant impact on the insurance industry.” But in dissent, Senior 3rd Circuit Judge Leonard I. Garth complained that his colleagues were ignoring a strong pronouncement by the New Jersey Supreme Court that, he said, spoke “in a rather definitive way as to the legislative purpose of the collateral source statute.” Garth said his reading of the New Jersey Supreme Court’s 2001 decision in Perreira v. Rediger convinced him that the statute is “specifically directed” toward the insurance industry. “In my view, the majority opinion accords too little weight to [ Perreira] � focusing instead on the admittedly broad statutory language,” Garth wrote. The 4th and 6th circuits have also concluded that state anti-subrogation laws qualify for ERISA’s savings clause, Garth noted. Garth said he would have upheld the decision by U.S. District Judge Jerome B. Simandle because “this case involves a statutory enactment, which, according to the New Jersey Supreme Court, was clearly rooted in legislative concerns about spiraling insurance costs.” In Perreira, Garth said, the New Jersey Supreme Court was “emphatic in emphasizing insurance in its opinion.” The Perreira court wrote: “The effectuation of no-double-recovery therefore required a separate legislative decision regarding which segment of the insurance industry would be the beneficiary of that disallowance. The Legislature had two choices: to benefit health insurers by allowing repayment of costs expended on a tort plaintiff, or to benefit liability carriers by reducing the tort judgment by the amount of health care benefits received. As the legislative history reveals, the choice was made to favor liability carriers.” The 3rd Circuit appeal involved a trio of cases in which insureds filed suit arguing that prior subrogation settlements should be set aside in light of Perreira. Nygaard found that the appeals raised a series of questions of first impression relating to the pre-emptive power of ERISA. All three plaintiffs conceded that they were ERISA plan participants, but argued that their cases nonetheless should not have been removed to federal court. On that point, the federal judges were unanimous in rejecting the plaintiffs, finding that ERISA’s “complete pre-emption” provisions clearly established federal jurisdiction. Simandle refused to remand the cases to state court and all three judges on the 3rd Circuit panel agreed with that conclusion. The judges split on the second question — whether the cases should have been dismissed on the basis of ERISA’s “express pre-emption” clause. On that point, Simandle sided with the plaintiffs and concluded that the New Jersey statute was a statute “regulating insurance,” and thus, was “saved” from ERISA pre-emption. Simandle said he made the “common sense determination” that the law was specifically directed toward the insurance industry because it was intended to directly affect and regulate that industry. He then tested the results of his common sense determination by examining the three factors listed in the McCarran-Ferguson Act and found that these factors supported the conclusion that the law regulated insurance.” Nygaard noted that Simandle’s decision came before the U.S. Supreme Court’s decision in Miller, which abandoned the McCarran-Ferguson test and announced a new test. Under Miller, Nygaard found that Simandle’s conclusions could not be upheld because the statute is not specifically directed at the insurance industry. “An examination of the statute itself indicates that it is more than just an insurance regulation,” Nygaard wrote. “New Jersey did not define [the statute] as an ‘antisubrogation law,’ nor did New Jersey place this statute among the statutes regulating insurance,” Nygaard wrote. Instead, Nygaard said, the law is included in the portion of New Jersey’s statutes dealing with civil actions. “The plain language of the statute reveals that [it] is not limited to regulating either health insurance or liability insurance providers,” Nygaard wrote. Although the New Jersey Supreme Court described the law as one intended to affect the insurance industry, Nygaard found that the law “is a general law of civil procedure.” The statute “governs all civil actions, not merely those involving insurance entities,” Nygaard wrote, and “consequently, in some circumstances the statute will have no effect on health insurers at all.” As a result, Nygaard concluded that the New Jersey statute “is merely one that will usually, although not exclusively, be applied to regulate insurance entities. This is not sufficient to avoid pre-emption under ERISA.”

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