Fifth Circuit: ERISA Does Not Preempt Louisiana Insurance Directive
In January of 2003, the Louisiana Department of Insurance issued Directive 175 stating that, pursuant to public policy, subrogation provisions in insurance contracts cannot harm the insured, and an insurer invoking a subrogation or reimbursement provision is required to contribute to the attorney’s fees incurred in obtaining recovery from a third party.
Further, the Directive stated that the Department will only consider for approval subrogation provisions which clearly convey to the insured that any right of recovery from third parties of the insurer is subordinate to the insured’s right to be fully compensated for his damages. The Directive makes it clear that the Department will not approve subrogation language in a policy that excludes or reduces coverage for expenses incurred as a result of the treatment of injury or sickness caused by the fault of a third party.
A company providing subrogation services to employer health benefit plans asserted that Directive 175 was preempted by ERISA in an action that reached the United States Fifth Circuit Court of Appeals. Benefit Recovery, Inc. v. Donelon, 521 F.3d 326, 43 Employee Benefits Cas. 1417 (5th Cir. 2008).
Noting that the savings clause of ERISA applies to “any law of any State” that “regulates insurance,” the Fifth Circuit determined that the Directive did, in fact, qualify as a state law, and that it was specifically directed at the transaction of insurance and substantially affects insurance risk-pooling. Therefore, the Fifth Circuit found that the ERISA savings clause excluded Directive 175 from federal preemption.
For more information, please contact Van R. Mayhall, III, 225.381.3169, , or Van R. Mayhall, Jr, 225.381.8009, , at Breazeale, Sachse & Wilson, L.L.P.