Opinions of the United
2001 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


4-26-2001

Bill Gray Entr Inc v. Gourley
Precedential or Non-Precedential:

Docket 00-3412




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Filed April 26, 2001

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

Nos. 00-3412 & 00-1400

BILL GRAY ENTERPRISES, INCORPORATED EMPLOYEE
HEALTH AND WELFARE PLAN, by Bill Gray Enterprises,
Inc., in its fiduciary capacity as plan administrator

v.

RONALD L. GOURLEY;
JUDITH L. GOURLEY;
ERIE INSURANCE EXCHANGE

       Ronald L. Gourley,
       Appellant at No. 00-3412

       Bill Gray Enterprises,
       Incorporated Employee Health
       and Welfare Plan, by Bill Gray
       Enterprises, Inc., in its fiduciary
       capacity as plan administrator,
       Appellant at No. 00-1400

On Appeal from the United States District Court
for the Western District of Pennsylvania
D.C. Civil Action No. 97-cv-00317
(Honorable Donald J. Lee)

Argued October 24, 2000

Before: BECKER, Chief Judge,
SCIRICA and FUENTES, Circuit Judges

(Filed: April 26, 2001)
       ROGER L. WISE, ESQUIRE
        (ARGUED)
       Heintzman, Warren, Weis & For nella
       Gulf Tower, 35th Floor
       707 Grant Street
       Pittsburgh, Pennsylvania 15219

        Attorney for Ronald L. Gourley
       and Judith L. Gourley

       RICHARD B. TUCKER, III, ESQUIRE
        (ARGUED)
       Tucker Arensberg
       1500 One PPG Place
       Pittsburgh, Pennsylvania 15222

        Attorney for Bill Gray Enterprises,
       Incorporated Employee Health and
       Welfare Plan, by Bill Gray
       Enterprises, Inc., in its fiduciary
       capacity as plan administrator

       SUSAN H. MALONE, ESQUIRE
        (ARGUED)
       RICHARD DiSALLE, ESQUIRE
       Rose, Schmidt, Hasley & DiSalle
       900 Oliver Building
       Pittsburgh, Pennsylvania 15222

        Attorneys for Erie Insurance
       Exchange

OPINION OF THE COURT

SCIRICA, Circuit Judge.

The principal issue on appeal is whether a self-funded
employee benefit plan which purchases stop-loss insurance
from a third party insurance provider is subject to
Pennsylvania laws governing the enforcement of anti-
subrogation clauses in insurance contracts. W e join our
sister circuits in holding a self-funded employee benefit
plan with stop-loss insurance is not deemed an insurance
provider under the Employee Retirement Income Security

                               2
Act. Therefore, the plan is not subject to state laws
regulating insurance contracts.

I.

A.

Bill Gray Enterprises, Incorporated Employee Health and
Welfare Plan, a self-funded welfar e plan operated and
administered by plaintiff Bill Gray Enterprises, Inc., is a
welfare benefit plan within the meaning of the Employee
Retirement Income Security Act of 1974, 29 U.S.C. S 1001
("ERISA"). Funded by contributions from employers and
covered employees, the Plan is designed, in part, to provide
medical benefits for catastrophic health car e expenses for
covered persons and their dependants. The Plan engaged
Diversified Group Administrator, Inc. to process certain
claims. It also purchased stop-loss insurance 1 from the
Insurance Company of North America to cover benefit
payments exceeding $40,000. Through a subr ogation and
reimbursement clause in the Plan document, the Plan
retained rights of subrogation and r eimbursement against
all Plan participants and third parties for medical benefits
paid by the Plan. The Plan document's subrogation clause
provides in part:

       RIGHT OF SUBROGATION AND REIMBURSEMENT

       When this provision applies. The Cover ed Person may
       incur medical or other charges due to Injuries for
       which benefits are paid by the Plan. The Injuries may
       be caused by the act or omission of another person. If
       so, the Covered Person may have a claim against that
       other person or third party for payment of the medical
       or other charges. The Plan will be subr ogated to all
       rights the Covered Person may have against that other
       person or third party and will be entitled to
       reimbursement.
_________________________________________________________________

1. The Insurance Company of North America policy calls this "excess-loss
insurance." For our purposes here, the ter ms are interchangeable.
Because most courts describing this type of insurance have called it
"stop-loss insurance," we will employ that ter m.

                               3
The Covered Person must:

(1) assign or subrogate to the Plan his or her rights
to recovery when this provision applies;

(2) authorize the Plan to sue, compromise and settle
in the Covered Person's name to the extent of the
amount of medical or other benefits paid for the
Injuries under the Plan and its expenses incurr ed by
the Plan in collecting this amount;

(3) reimburse the Plan out of the Recovery made
from the other person, the other person's insur er or
the third party the amount of medical or other
benefits paid for the Injuries under the Plan and the
expenses incurred by the Plan in collecting this
amount; and

(4) notify the Plan in writing of any proposed
settlement and obtain the Plan's written consent
before signing any release or agreeing to any
settlement.

Amount subject to subrogation or r eimbursement.
All amounts recovered will be subject to subrogation
or reimbursement. In no case will the amount
subject to subrogation or reimbursement exceed the
amount of medical or other benefits paid for the
Injuries under the Plan and the expenses incurr ed
by the Plan in collecting this amount.

When a right of recovery exists, the Cover ed Person
will execute and deliver all required instruments and
papers, including a subrogation agreement provided
by the Plan, as well as doing whatever else is needed,
to secure the Plan's rights of subrogation and
reimbursement, before any medical or other benefits
will be paid by the Plan for the Injuries. If the Plan
pays any medical or other benefits for the Injuries
before these papers are signed and things are done,
the Plan will still be entitled to subrogation and
reimbursement. In addition, the Covered Person will
do nothing else to prejudice the right of the Plan to
subrogate and be reimbursed.

                           4
       Defined Terms:

       "Recovery" means monies paid to the Cover ed Person
       by way of judgment, settlement, or otherwise to
       compensate for all losses caused by, or in connection
       with, the Injuries.

       "Subrogation" means the Plan's right to pursue the
       Covered Person's claims for medical or other charges
       paid by the Plan against the other person, the other
       person's insurer and the third party.

       "Reimbursement" means repayment to the Plan for
       medical or other benefits that it has paid towar d care
       and treatment of the Injury and for the expenses
       incurred by the Plan in collecting this benefit
       amount.

       Recovery from another plan under which the
       Covered Person is covered. This right of
       reimbursement also applies when a Cover ed Person
       recovers under an uninsured or underinsur ed
       motorist plan, homeowner's plan, renter's plan or
       any liability plan.

B.

On January 23, 1995, defendant Ronald. L. Gourley was
severely injured when his automobile was struck by an
uninsured drunk driver operating a stolen vehicle.
Employed by Massey Buick, GMC, Inc. in Pittsbur gh, Mr.
Gourley was a participant in the Bill Gray Plan. The Plan,
through its claims processor Diversified Group
Administrator, Inc., paid $141, 401.35 to medical providers
for Mr. Gourley's entire medical expenses. Through its own
funds, the Plan paid the first $40,000; under the Plan's
stop-loss policy, the Insurance Company of North America
provided the Plan the remainder of the funds.

Mr. Gourley sued the tavern that served alcoholic
beverages to the drunk driver. A jury awar ded him
$1,182,500 for his injuries and his wife, Judith Gourley,
$67,500 for loss of consortium. But the taver n did not have
Dram Shop insurance and filed for bankruptcy after the

                               5
verdict. It is uncontested that the Gourleys have been
unable to collect this judgment.

The Gourleys submitted a claim for uninsured motorist
benefits to their personal automobile insurance carrier, Erie
Insurance Exchange. After executing a release r epresenting
that none of the payment was for accident incurr ed medical
expenses, the Gourleys received $300,000 in uninsured
motorist benefits, the maximum under their joint policy.
But prior to payment, the Plan notified the Gourleys and
Erie Insurance Exchange of its claim for subr ogation and
reimbursement. Neither the Gourleys nor Erie Insurance
Exchange reimbursed the Plan by any amount.

C.

Through its fiduciary, Bill Gray Enterprises, the Plan filed
suit under its subrogation/reimbursement clause to recoup
the $141, 401.35 in medical benefits it paid Mr . Gourley.
The Gourleys maintained the Plan was ineligible for
reimbursement because the Pennsylvania Motor V ehicle
Financial Responsibility Law bars insurance carriers from
obtaining reimbursement or subrogation payments in suits
arising from motor vehicle accidents.2 Contending it was
not an insurance carrier but a self-funded employee benefit
plan, the Plan maintained the Pennsylvania Motor V ehicle
Financial Responsibility Law was preempted by ERISA.
Furthermore, it argued that under the Plan document's
unambiguous language, as interpreted by the
administrator, it was entitled to reimbursement from all
recoveries obtained from third parties.
_________________________________________________________________

2. Section 1720 of the Pennsylvania Motor V ehicle Financial
Responsibility Law provides:

       In actions arising out of the maintenance or use of a motor
vehicle,
       there shall be no right of subrogation or reimbursement from a
       claimant's tort recovery with respect to workers' compensation
       benefits, benefits available under section 1711 (relating to
required
       benefits), 1712 (relating to availability of benefits) or 1715
(relating
       to availability of adequate limits) or benefits paid or payable by
a
       program, group contract or other arrangement whether primary or
       excess under section 1719 (relating to coor dination of benefits).

75 Pa.C.S.A. S 1720 (West 1996).

                               6
To the extent the Plan had a right to subr ogation, Erie
Insurance Exchange argued the right was subject to the
defenses it could raise against the subrogors (the Gourleys).
Because Erie Insurance Exchange had paid the maximum
contractual benefits to the Gourleys, it maintained it had a
complete defense to the Plan's suit. In addition, Mrs.
Gourley maintained she was not required to reimburse the
Plan for the uninsured motorist benefits she received under
her Erie Insurance Exchange policy which jointly covered
both her and her husband.

The District Court held the Plan was an uninsur ed
employee benefit plan and under ERISA was not subject to
the Pennsylvania insurance anti-subrogation law. Because
the Plan document, as interpreted by the Plan
administrator, was unambiguous and reasonable, the
District Court held the Plan was entitled to r eimbursement
from payments received from thir d parties.3 The District
Court also held Mrs. Gourley was not covered under the
Plan document's reimbursement clause and ther efore was
not personally liable to reimburse the Plan fr om the joint
benefits received under the Erie Insurance Exchange policy.
Finally, it held the Plan could not seek payments under its
subrogation clause from Erie Insurance Exchange because
_________________________________________________________________

3. The Plan also sought an award for pr ejudgment interest on the
amounts it was entitled to receive under the subgrogation/
reimbursement clause of the Plan document. The District Court denied
this award stating that it would be "unfair and inequitable to add any
pre-judgment interest to the award of $141, 401.35 already imposed on
Mr. Gourley." Bill Gray Enter., Inc. Employee Health and Welfare Planv.
Gourley, CA. No. 97-317, slip op. at *3 (W .D. Pa. May 19, 1999) (citing
Anthuis v. Colt Indus. Operating Corp., 971 F .2d 999, 1009 (3d Cir. 1992)
("The awarding of prejudgment inter est under ERISA is within the
district court's discretion, `given in r esponse to considerations of
fairness
and denied when its exaction would be inequitable.' "). The District Court
reasoned that Mr. Gourley's refusal to reimburse the Plan was not
motivated by bad faith nor was it unreasonable in the context of the
complicated ERISA scheme. Recognizing Mr. Gourley sustained life
altering injuries, the court held in balancing the equities it would be
unfair to impose prejudgement interest payments on him. 

the District Court did not abuse its discretion and will affirm. See

.

                               7
Erie had already paid its contractually obligated claims
directly to Mr. Gourley. This appeal followed.

II.

The District Court had subject matter jurisdiction under
28 U.S.C. S 1331, and 29 U.S.C. S 1132 (e)(1). We have
appellate jurisdiction under 28 U.S.C. S 1291. We exercise
plenary review over the District Court's grant of summary
judgment. Olson v. General Elec. Astrospace, 

,
951 (3d Cir. 1996).

III.

A.

The ERISA preemption clause, 29 U.S.C. S1144(a),
provides:

       Except as provided in subsection (b) of this section [the
       saving clause], the provisions of this subchapter and
       subchapter III of this chapter shall supersede any and
       all State laws insofar as they may now or her eafter
       relate to any employee benefit plan . . . .

Courts have interpreted ERISA's preemption clause
broadly, noting Congress' intention to make ERISA "an area
of exclusive federal concern." FMC Corp. v. Holliday, 

, 58 (1990). While ERISA broadly pr eempts state
regulations of employee benefit plans, it does not preempt
state laws governing insurance. The ERISA savings clause,
29 U.S.C. S 1144(b)(2)(A), provides:

       Except as provided in subparagraph (B) [the deemer
       clause], nothing in this subchapter shall be construed
       to exempt or relieve any person from any law of any
       State which regulates insurance, banking, or
       securities.

The ERISA deemer clause, 29 U.S.C. S 1144(b)(2)(B),
provides:

       Neither an employee benefit plan . . . nor any trust
       established under such a plan, shall be deemed to be

                                8
       an insurance company or other insurer, bank, trust
       company, or investment company or to be engaged in
       the business of insurance or banking for purposes of
       any law or any State purporting to regulate insurance
       companies, insurance contracts, banks, trust
       companies, or investment companies.

Noting the relationship between these clauses is not a
"model of legislative drafting," Metr o. Life Ins. Co. v.
Massachusetts, 

, 739 (1985), the Supreme
Court has nonetheless provided guidance in determining
how to apply these clauses in a manner consistent with
Congressional intent. In FMC Corp., the Court addressed
whether S 1720 of the Pennsylvania Motor V ehicle Financial
Responsibility Law4 was applicable to a self-funded ERISA
health care plan. Holding the health plan was exempt from
the Pennsylvania Anti-Subrogation law, the Court stated:

       We read the deemer clause to exempt self-funded
       ERISA plans from state laws that "regulat[e] insurance"
       within the meaning of the savings clause. By forbidding
       States to deem employee benefit plans "to be an
       insurance company or other insurer . . . or to be
       engaged in the business of insurance," the deemer
       clause relieves plans from state laws"purporting to
       regulate insurance." As a result, self-funded ERISA
       plans are exempt from state regulation insofar as that
       regulation "relate[s] to" the plans. State laws directed
       toward the plans are pre-empted because they relate to
       an employee benefit plan but are not "saved" because
       they do not regulate insurance. State laws that directly
       regulate insurance companies are "saved" but do not
       reach self-funded employee benefits plans because the
       plans may not be deemed to be insurance companies
       . . . 

.
_________________________________________________________________

4. Section 1720 of the Pennsylvania Motor V ehicle Financial
Responsibility Law is the same provision that is at issue in this case.
This section prohibits insurance providers from obtaining reimbursement
payments from recoveries an insured r eceives from third parties in a
motor vehicle accident.

                               9
Although the deemer and savings clauses make clear
distinctions between employee benefit plans and insurance
contracts, the Supreme Court noted,

       Employee benefit plans that are insur ed are subject to
       indirect state insurance regulation. An insurance
       company that insures a plan remains an insurer for
       purposes of state laws "purporting to regulate
       insurance" after the application of the deemer clause.
       The insurance company is therefore not r elieved from
       state insurance regulation. The ERISA plan is
       consequently bound by the state insurance regulations
       insofar as they apply to the plan's insurer .

Court concluded,

       Our interpretation of the deemer clause makes clear
       that if a plan is insured, a State may r egulate it
       indirectly through regulation of its insurer and its
       insurer's insurance contracts; if the plan is uninsured,
       the State may not regulate it.

B.

The precise issue on appeal is whether a self-funded
employee benefit plan is "insured" when it purchases stop-
_________________________________________________________________

5. Mr. Gourley asserts recent Supr eme Court jurisprudence suggests the
Court has adopted a more restrictive interpretation of ERISA preemption.
See DeBuono v. NYSA-ILA Med. and Clinical Serv. Fund , 

(1997); Boggs v. Boggs, 

, r eh'g denied, 

(1997); Cal. Div. of Labor Standards Enfor cement v. Dillingham Const.,
N.A., Inc., 

(1997). We do not interpret these cases as
signaling a general shift in ERISA preemption, especially in the context
of insurance coverage. As recently as 1995 in N.Y. State Conference of
Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 

(1995), the Supreme Court reiterated that ERISA preempts state
insurance laws as they relate to employee benefit plans. Specifically
addressing preemption in the context of state insurance regulations, the
Supreme Court stated, "ERISA preempt[s] state laws that mandate[ ]
employee benefit structures or their administration." 

(affirming
FMC Corp., 

(1990)).

                               10
loss insurance. If the purchase of stop-loss coverage makes
the Plan insured for the purposes of ERISA, the Plan may
be "indirectly regulated" by state insurance laws. Although
we have not directly addressed this issue, three courts of
appeals have held the purchase of stop-loss insurance does
not make a self-funded employee benefit plan "insured" for
the purposes of ERISA preemption. Am. Med. Sec., Inc. v.
Bartlett, 

(4th Cir. 1997), cert. denied, 

(1998); Thompson v. Talquin Bldg. Pr od. Co., 

(4th Cir. 1991); Lincoln Mut. Cas. Co. v. Lectron Prod.,
Inc., Employee Health Benefit Plan, 970 F .2d 206 (6th Cir.
1992); United Food & Commercial Workers & Employers
Ariz. Health & Welfare Trust v. Pacyga, 

(9th
Cir. 1986); see also Drexelbr ook Eng'r Co. v. Travelers Ins.
Co., 

(E.D. Pa.), af f 'd., 

(3d
Cir. 1989); Cuttle v. Fed. Employees Metal Trades Council,

(D.Me. 1985).

We join these courts of appeals and hold the purchase of
stop-loss insurance does not make a self-funded employee
benefit plan an insurance carrier under ERISA's"savings
clause." As other courts have recognized, stop-loss
insurance is not designed to insure individual plan
participants but to provide reimbursement to a plan after
the plan makes benefit payments. Am. Med. Sec., 

("Stop-loss insurance is . . . akin to
`reinsurance' in that it provides r eimbursement to a plan
after the plan makes benefit payments.").

Employee benefit plans that purchase stop-loss
insurance are not insuring plan participants, but insuring
the plan itself in the event a catastrophic medical event
requires the plan to pay out large sums to an individual
participant. As the Court of Appeals for the Ninth Circuit
stated,

       Stop-loss insurance does not pay benefits dir ectly to
       participants, nor does the insurance company take
       over administration of the Plan at the point when the
       aggregate amount is reached. Thus, no insurance is
       provided to the participants, and the Plan should
       properly be termed a non-insured plan, protected by
       the deemer clause . . . .

                                11


.

When an ERISA plan purchases stop-loss insurance, it
retains liability to plan participants for the full extent of
their injuries. By purchasing stop-loss insurance, the plan
does not delegate its fiscal liabilities or administrative
responsibilities to the insurance company. In the event the
stop-loss insurer or the plan becomes insolvent, the plan
retains liability to plan participants even to those amounts
covered under the stop-loss coverage. The Court of Appeals
for the Fourth Circuit noted the significance of this fact
stating, "When a plan buys health insurance for
participants and beneficiaries, the plan participants and
beneficiaries have a legal claim directly against the
insurance company, thereby securing benefits even in the
event of the plan's insolvency." Am. Med. Sec., 

.

Merely by purchasing stop-loss insurance and at the
same time retaining financial responsibility for plan
participants' coverage, self-funded plans may not r ely on
the assets of an insurance company in the event of
insolvency. See 

that r eimbursement and
subrogation rights are vital to ensuring the financial
stability of self-funded plans. Consistent with other courts
of appeals, therefore, we hold that when an ERISA plan
purchases stop-loss insurance but does not otherwise
delegate its financial responsibilities to another third party
insurer, it remains an uninsur ed self-funded welfare plan
for ERISA preemption purposes. Because stop-loss
insurance is designed to protect self-funded employee
benefit plans, rather than individual participants, plans
purchasing stop-loss insurance are not deemed "insured"
under ERISA. Am. Med. Sec., Inc., 111 F . 3d at 358;

(self-funded ERISA plan that
purchases stop-loss insurance "should pr operly be termed
a non-insured plan, protected by the deemer clause"). But
we recognize that a self-funded ERISA plan may purchase
such a large amount of stop-loss insurance that it appears
as if the plan is no longer operating as a self-funded
employee benefit plan but rather effectively operating as an
insurance company. In this instance the purchase of large
amounts of stop-loss insurance may be evidence that the

                               12
plan is attempting to retain the financial security provided
by insurance coverage while at the same time r eap the
benefits of ERISA preemption, including the avoidance of
state laws regulating reimbursement. Because there is no
evidence that the Bill Gray Plan purchased an excessive
amount of stop-loss insurance, we do not reach the issue
whether the purchase of large amounts of stop-loss
insurance effectively makes a self-funded ERISA plan an
insurance company for ERISA preemption purposes.

Because the Bill Gray Plan purchased stop-loss
insurance to insure the Plan from losses in the event its
members suffered catastrophic injury requiring substantial
medical payments, it is not an insurance provider under
ERISA. Accordingly the Bill Gray Plan, as an uninsured
self-funded employee benefit plan,6 is exempt from S 1720
of the Pennsylvania Motor Vehicle Financial Responsibility
Law.

IV.

A.

Recognizing the Pennsylvania Motor Vehicle Financial
Responsibility Law does not preclude the Plan from
enforcing its subrogation and reimbursement provisions, we
next turn to whether the Plan document unambiguously
and reasonably requires the Gourleys to reimburse the
Plan. The Plan document provides, "The Plan Administrator
shall have discretionary authority to construe and interpret
the terms and provisions of the Plan . . . and to decide
disputes which may arise relative to a Plan Participants
_________________________________________________________________

6. The Gourleys argue the Plan has admitted that it is not a self-funded
ERISA Plan because it identified itself as an"insured welfare plan" in its
1994-1995 federal income tax filings. The District Court found this
argument "disingenuous" because in the same filings the Plan stated it
provided "self-funded stop-loss" insurance benefits. The District Court
stated, "This entire piece of evidence, ther efore, and not just the
selected
excerpt taken out of context, actually supports the Plan's position that
it is a self-funded plan, with stop-loss insurance." Bill Gray Enter.,
Inc.,
slip op. at *30. Having reviewed the tax for ms in question, we agree.

                                13
rights, and to decide questions of Plan interpr etation and
those of fact relating to the Plan."

The Supreme Court has directed courts to r eview a self-
funded ERISA plan's interpretation of its contracts
governing benefit payments under an arbitrary and
capricious standard. Firestone T ire and Rubber Co. v.
Brunch, 

(1989) (holding court must review de
novo company's denial of benefits unless benefit plan gives
administrator or fiduciary discretionary authority to
construe terms of plan in which case courts r eview a
benefits denial under an arbitrary and capricious standard).7
Applying general principles of trust law, the Court stated,
"if a benefit plan gives discretion to an administrator or
fiduciary who is operating under a conflict of interest, that
conflict must be weighed as a `facto[r] in determining
whether there is an abuse of discretion.' " 

(quoting Restatement (Second) of Trusts S 187, cmt. d). As
recently as last year in Pinto v. Reliance Standard Life Ins.
Co., 

, 383 (3d Cir. 2000), we addressed when
a self-funded plan operates under a conflict of interest,
stating,

       Employers typically structure the relationship of ERISA
       plan administration, interpretation, and funding in one
       of three ways. First, the employer may fund a plan and
       pay an independent third party to interpr et the plan
       and make plan benefits determinations. Second, the
_________________________________________________________________

7. In discussing this standard of review, the Court held that it is only
applicable in actions "challenging denial of benefits based on plan
interpretations." 

. It stated, "We express no
view as to the appropriate standards of r eview for actions under other
remedial provisions of ERISA." 

does not mandatea
"mechanical application" of the arbitrary and capricious standard in all
cases involving ERISA plan interpretation, the arbitrary and capricious
standard is appropriate in cases that involve analogous principles of
trust law where a fiduciary is given discr etionary authority to interpret
the language of a plan document's provisions. See Moench v. Robertson,

, 566 (3d Cir. 1995)(citing Restatement (Second) of Trusts
S 187 ("Where discretion is conferred upon the trustee with respect to
the exercise of a power, its exercise is not subject to control by the
court,
except to prevent abuse by the trustee of his discretion.")), cert.
denied,

(1996).

                               14
       employer may establish a plan, ensure its liquidity,
       and create an internal benefits committee vested with
       the discretion to interpret the plan's ter ms and
       administer benefits. Third, the employer may pay an
       independent insurance company to fund, interpr et, and
       administer a plan . . . . [W]e have pr eviously held the
       first two arrangements do not, in themselves,
       constitute the kind of conflict of interest mentioned in
       Firestone.

Because the Plan did not pay the Insurance Company of
North America to fund, interpret or administer the Plan, it
does not fall under Pinto's third model. As noted, plans
falling under this third model are generally subject to a
heightened form of arbitrary and capricious r eview. But
unless specific evidence of bias or bad-faith has been
submitted, plans that fall under the other two models are
reviewed under the traditional arbitrary and capricious
standard.8 

jurisprudence in the context of self-funded
ERISA plans we stated,

       While . . . there might be a risk of opportunism [in
       permitting a self-funded Plan to interpr et the
       provisions of its coverage] . . . this alone d[oes] not
       constitute evidence of a conflict of inter est, in part
       because the employer "ha[s] incentives to avoid the loss
       of morale and higher wage demands that could r esult
       from denials of benefits."

(quoting Nazay v. Miller, 

(3d Cir.
1991)).

We explained,
_________________________________________________________________

8. In Pinto, we did not have the opportunity to consider whether other
plan structures, such as those involving stop-loss insurers, may give rise
to an inference of bias. Because Gourley has failed to allege bias on the
part of the plan administrator due to its contractual obligation to the
Insurance Company of North America to pursue subr ogation remedies,
and because he has failed to set forth any other evidence of bias in the
decision making process, we need not consider whether self-interest on
the part of the administrator mandates a heightened standard of review.

                               15
       The typical employer-funded pension plan is set up to
       be actuarially grounded, with the company making
       fixed contributions to the pension fund, and a
       provision requiring that the money paid into the fund
       may be used only for maintaining the fund and paying
       out pension [benefits] . . . . The employer in such a
       circumstance "incurs no direct expense as a result of
       the allowance of benefits, nor does it benefit directly
       from the denial or discontinuation of benefits." In
       contrast . . . the typical insurance company is
       structured such that its profits ar e directly affected by
       the claims it pays out and those it denies.

Id (internal citation omitted). at 388.

Under the Plan document, Bill Gray, as the Planfiduciary
and administrator,9 was given the discretionary authority to
_________________________________________________________________

9. The Plan document describes Bill Gray's fiduciary responsibilities as
Plan Administrator as follows:

         DUTIES OF THE PLAN ADMINISTRATOR

       (1)- To administer the Plan in accor dance with its terms.

       (2)- To decide disputes which may arise r elative to a Plan
       Participant's rights.

       (3)- To keep and maintain the Plan documents and all other
       records pertaining to the Plan.

       (4)- To appoint a Claims Processor to pay claims.

       (5)- To perform all necessary r eporting as required by ERISA.

       (6)- To establish and communicate pr ocedures to determine
       whether a medical child support order is qualified under ERISA Sec.
       609.

The Plan document also states,

       The Plan Administrator shall administer this Plan in accordance
       with its terms and establish its policies, interpretations,
practices,
       and procedures. It is the express intent of this Plan that the Plan
       Administrator shall have discretionary authority to construe and
       interpret the terms and provisions of the Plan, to make
       determinations regarding issues which relate to eligibility for
       benefits, to decide disputes which may arise r elative to a Plan
       Participant's rights, and to decide questions of Plan
interpretation
and those of fact relating to the Plan. The decision of the Plan
Administrator will be final and binding on all interested parties.

                        16
interpret the terms of the Plan document. By instituting
litigation against the Gourleys, Bill Gray interpr eted the
Plan document to require reimbursement from payments
received under an uninsured motorist benefits policy.10
Accordingly, we review the Plan's interpr etation of the Plan
document under an arbitrary and capricious standar d.

; see also United McGill Co. v.
Stinnett, 

, 171 (4th Cir . 1998).

B.

ERISA health plans must provide participants with a
plan document that clearly explains coverage. These plan
documents must

       be written in a manner calculated to be understood by
       the average plan participant, and shall be sufficiently
       accurate and comprehensive to reasonably apprise
       such participants and beneficiaries of their rights and
       obligations under the plan.

29 U.S.C. S 1022(a).

Whether terms in an ERISA Plan document ar e ambiguous
is a question of law. A term is "ambiguous if it is subject to
reasonable alternative interpretations." Taylor v. Cont'l
Group Change in Control Severance Pay Plan, 

, 1232 (3d Cir. 1991); Mellon Bank, N.A. v. Aetna Bus.
_________________________________________________________________

10. Mr. Gourley argues that courts have de novo review of an ERISA plan
fiduciary's interpretation of a plan document if the document gives the
fiduciary the authority to interpret or construe the terms of the plan,
but
the fiduciary fails to exercise this authority. 

(arbitrary and capricious standard is "appr opriate only when the trust
instrument allows the trustee to interpret the instrument and when the
trustee has in fact interpreted the instrument"). He argues that Bill Gray
failed to "deliberate[ ], discuss[ ], or interpret[ ] the Health Plan's
Third
Party Recovery and Subrogation provision in any formal manner prior to
asserting a subrogation/reimbursement claim against Mr. Gourley." But
the District Court found that "by the Gourleys' own admission . . . the
Plan has been intimately involved in negotiations and the exchange of
respective legal positions [regar ding plan document interpretation] . . .
and moreover, the Plan has initiated andfiled its complaint under a
theory which necessarily relies on its interpr etation of the Plan." Bill
Gray Enter., Inc., slip op. at *22. W e agree.

                               17
Credit Inc., 

, 1011 (3d Cir. 1980). In
determining whether a particular clause in a plan
document is ambiguous, courts must first look to the plain
language of document. In Re UNISYS Corp. Retir ee Med.
Benefit "ERISA" Litig., 

, 902 (3d Cir. 1995) ("The
written terms of the plan documents contr ol . . . ."). If the
plain language of the document is clear, courts must not
look to other evidence. In re Unisys Corp. Long-Term
Disability Plan ERISA Litig., 

, 715 (3d Cir. 1996)
(quoting Mellon 

) (" `Our approach
does not authorize a trial judge to demote the written word
to a reduced status in contract interpr etation. Although
extrinsic evidence may be considered under pr oper
circumstances, the parties remain bound by the
appropriate objective definition of the wor ds they use to
express their intent . . . .' ")). But if the plain language leads
to two reasonable interpretations, courts may look to
extrinsic evidence to resolve any ambiguities in the plan
document. However, "it is inappropriate to consider such
[extrinsic] evidence when no ambiguity exists." Epright v.
Envtl. Res. Mgmt, Inc. Health and Welfar e Plan; ERM, 

, 339 (3d Cir. 1996).

To recapitulate, in reviewing a plan administrator's
interpretation of an ERISA plan we must first examine
whether the terms of the plan document ar e ambiguous.
See generally In re Unisys Corp. Long-T erm Disability Plan
ERISA 

. If the terms are
unambiguous, then any actions taken by the plan
administrator inconsistent with the terms of the document
are arbitrary. But actions reasonably consistent with
unambiguous plan language are not arbitrary. If the
reviewing court determines the ter ms of a plan document
are ambiguous, it must take the additional step and
analyze whether the plan administrator's interpr etation of
the document is reasonable. Spacek v. Maritime Ass'n ILA
Pension Plan, 

, 292 (5th Cir . 1998). In making
this determination, the level of defer ence the reviewing
court will accord the plan administrator's interpretation is
guided by our prior discussion of 

.

Mr. Gourley asserts the language of the Plan document is
ambiguous in describing which funds are subject to

                               18
reimbursement and subrogation; specifically, whether
reimbursement is required when a covered person receives
payments that are unrelated to medical costs. Mr. Gourley
contends the Plan document only requires r eimbursement
for payments received from a third party for medical
benefits. He cites the Plan document's definition of the term
"reimbursement" which provides:"Reimbursement means
repayment to the Plan for medical or other benefits that it
has paid toward care and treatment for the Injury and for
the expenses incurred by the Plan in collecting this benefit
amount." Because the $300,000 he received fr om Erie
Insurance Exchange was unrelated to his medical bills, he
contends it is not subject to reimbursement.

Mr. Gourley also argues the Plan document's designation
of the term "third party" thr oughout the document is
ambiguous. Because the Plan does not define "third party,"
he maintains it is unclear whether the term includes his
own insurance company, in this case Erie Insurance
Exchange. See Standish v. Am. Mfr. Mut. Ins. Co., 

(Pa. Super. Ct. 1997) (holding ter m "third party" did
not include an uninsured motorist carrier). He contends the
Plan could have clarified the "ambiguity" by using the terms
"covered person's own insurance company" rather than
"third party" in order to put Plan participants on notice that
recoveries from private insurance companies were subject
to subrogation and reimbursement.

The District Court held the Plan document's language
was not ambiguous. We agree.1 1 The Plan document
_________________________________________________________________

11. As noted, the Plan provides:

       When this provision applies. The Cover ed Person may incur
       medical or other charges due to Injuries for which benefits are
paid
       by the Plan. The Injuries may be caused by the act or omission of
       another person . . . . The Plan will be subr ogated to all rights
the
       Covered Person may have against that other person or third party
       and will be entitled to reimbursement.

       The Covered Person must:

       *   *   *

       (3) reimburse the Plan out of the Recovery made from the other
       person, the other person's insurer or the thir d party the amount

                                  19
explicitly requires Mr. Gourley to reimburse the Plan for
any recovery received from a thir d party in relation to the
accident, stating, "All amounts received will be subject to
subrogation and reimbursement." A plain reading of this
provision sets forth the Plan's broad right to subrogation
and reimbursement.

The term "third party" is not ambiguous because the
term clearly refers to any person or entity other than the
Plan and the covered individual. "Thir d party" broadly
refers to a variety of individuals and entities who are not "a
party to a lawsuit, agreement, or other transaction." Black's
Law Dictionary 1489 (7th ed. 1999). As the District Court
_________________________________________________________________

       of medical or other benefits paid for the Injuries under the Plan
       and the expenses incurred by the Plan in collecting this amount.

       *   *   *

       Amount subject to subrogation or reimbursement. All amounts
       recovered will be subject to subrogation or reimbursement. In no
       case will the amount subject to subrogation or reimbursement
       exceed the amount of medical or other benefits paid for the
       Injuries under the Plan and the expenses incurr ed by the Plan in
       collecting this amount.

       *   *   *

       Defined Terms:

       "Recovery" means monies paid to the Cover ed Person by way of
       judgment, settlement, or otherwise to compensate for all losses
       caused by, or in connection with, the Injuries.

       "Subrogation" means the Plan's right to pursue the Covered
       Person's claims for medical or other charges paid by the Plan
       against the other person, the other person's insur er and the third
       party.

       "Reimbursement" means repayment to the Plan for medical or
       other benefits that it has paid toward car e and treatment of the
       Injury and for the expenses incurred by the Plan in collecting this
       benefit amount.

       Recovery from another plan under which the Covered Person
       is covered. This right of reimbursement also applies when a
       Covered Person recovers under an uninsur ed or underinsured
       motorist plan, homeowner's plan, renter's plan or any liability
       plan.

                               20
noted, the term third party "in common parlance refers to
a person or entity not an initial party to a suit or
transaction who may have rights or obligations ther ein." Bill
Gray Enter., Inc., slip op. at *15. While this provision
contemplates broad rights to reimbursement, we do not
believe this translates into ambiguity.

Most convincing, however, is the provision in the Plan
document which provides:

       Recovery from another plan under which the
       Covered Person is covered. This right of
       reimbursement also applies when a Cover ed Person
       recovers under an uninsured or underinsur ed motorist
       plan, homeowner's plan, renter's plan or any liability
       plan.

A reasonable plan participant reading this language, we
believe, would understand the Plan document clearly
mandates any recoveries from an uninsur ed motorist plan
are subject to reimbursement.12 The Plan's interpretation
_________________________________________________________________

12. Mr. Gourley contends the District Court erred in denying his
discovery request to compel the Plan to pr oduce documentation of
previous claims the Plan administrator may have brought under the
subrogation/reimbursement clause to r ecover amounts paid by third
parties to other Plan participants. He contends that prior cases in which
the Plan interpreted the subrogation/r eimbursement clause to require
reimbursement from uninsured motorist benefits are relevant to
examining our standard of review since prior inconsistent interpretations
may evidence that the Plan failed to exercise its authority to construe
the
Plan document in a uniform manner. Mr . Gourley argues that evidence
of inconsistent interpretations is relevant to determining the
reasonableness of the Plan's current interpretation. See 

("whether the [Plan] interpr eted the provision at issue
consistently" is a factor in determining whether the interpretation is
reasonable under the arbitrary and capricious standard). The Plan
argues that previous subrogation/r eimbursement claims the Plan may
have pursued against other Plan participants ar e irrelevant here because
the Plan has a fiduciary responsibility to pursue repayment claims. Even
if in the past the Plan failed to pursue subr ogation/reimbursement
claims, the Plan contends this does not relieve it of its fiduciary
responsibility to pursue its current claim against the Gourleys.

In certain cases, the discovery sought here may well be relevant. But
the Plan's past interpretations have little r elevance to the current
dispute

                               21
therefore was not arbitrary and capricious and the District
Court properly found the Plan was entitled to
reimbursement from the uninsured motorist benefits Mr.
Gourley received from Erie Insurance Exchange.13
_________________________________________________________________

since the Plan document unambiguously requir es reimbursement from
uninsured motorist benefits. In r e UNISYS Corp. Retiree Med. Benefit
"ERISA" 

(citing Hozier v. Midwest Fasteners Inc.,

, 116 (3d Cir. 1990) (the unambiguous written provisions of
a plan must control, and extrinsic evidence may not be introduced to
vary the express terms of a plan)); Stewart v. KHD Deutz of Am., Corp.,

, 702 (11th Cir.) ("Extrinsic evidence is not admissible to
contradict the terms of an unambiguous contract."), reh'g denied, 

(1993), cert. denied, 

(1996). Under these facts,
we see no abuse of discretion. Because the Plan document
unambiguously requires reimbursement, the Plan's interpretation is not
arbitrary or capricious. See Epright, 81 F .3d at 339 ("Extrinsic evidence
may be used to determine an ambiguous ter m, however, . . . past
practice is of no significance where the plan document is clear.").

13. Mr. Gourley has asked us to for mulate a rule as a matter of federal
common law that a plan participant has no duty to r eimburse a plan
until that person has been "made whole," i.e. been fully compensated for
all injuries sustained. He contends other courts of appeals have adopted
this policy in construing ambiguous provisions in benefit plan
documents. See Sunbeam-Oster Co., Inc., Gr oup Benefits Plan for Salaried
& Non-Bargaining Hourly Employees v. Whitehurst, 

(5th
Cir. 1996); Barnes v. Indep. Auto. Dealers Assoc. of Cal. Health and
Welfare Benefit Plan, 

, 1394 (9th Cir. 1995). But courts
have held that importing federal common law doctrines to ERISA plan
interpretation is generally inappropriate, particularly when the terms of
an ERISA plan are clear and unambiguous. Bollman Hat Co. v. Root, 

, 117 n.3 (3d Cir.) (citing authorities), cert. denied, 

(1997); see also Ryan by Capria-Ryan v. Fed. Express Corp., 

(3d Cir. 1996); Cagle v. Bruner, 

, 1521 (11th Cir.)
("Because the make whole doctrine is a default rule, the parties can
contract out of the doctrine."), reh'g denied en banc, 

(1997); Cutting v. Jerome Foods, Inc., 

, 1297 (7th Cir.)
("Because . . . the make whole rule is just a principle of interpretation,
it can be overridden by clear language in the plan."), cert. denied, 

(1993); Walker v. Rose, 22 F . Supp.2d 343, 352 (D.N.J. 1998)
("This Court finds that the Plan's reimbursement language is
unambiguous, and . . . overrides the make whole rule."). As the Supreme
Court stated in Mertens v. Hewitt Assocs., 

, 260 (1993),
"The authority of courts to develop a `federal common law' under ERISA
. . . is not the authority to revise the text of the statute." In Ryan, 78

                               22
C.

The District Court held Mrs. Gourley was not personally
liable to reimburse the Plan for the $141,401.35 in medical
benefits the Plan paid to Mr. Gourley fr om the $300,000 of
uninsured motorist benefits jointly r eceived under the Erie
Insurance Exchange policy. Although it found Mrs. Gourley
was a "covered person" under the Plan, the Court noted she
did not sustain injuries nor receive payments from the Plan
for personal medical expenses. Under the ter ms of the Plan
document, the Plan was not entitled to reimbursement for
payments Mrs. Gourley received from thir d parties since
the Plan expended no payments on her behalf.14 The Plan
counters that Mrs. Gourley, as a plan participant, is
"obligated to do nothing . . . to prejudice the right of the
Plan to subrogate and be reimbursed," and therefore the
Plan is entitled to receive the uninsur ed motorist benefits
Mrs. Gourley received in relation to her husband's accident.
See 

. But a plain reading of the
Plan document does not permit the Plan to seek
reimbursement from a party for whom it never expended
funds under its medical coverage. Mrs. Gourley r eceived no
payments from the Plan for personal injuries. Therefore, we
find the District Court properly exer cised its discretion in
finding the Plan's interpretation was arbitrary and
capricious because the Plan document unambiguously
limits recovery to individuals for whom the Plan has
expended funds.
_________________________________________________________________

F.3d at 126, we therefore stated,"straightforward language . . . [in an
ERISA plan document] should be given its natural meaning."

Because we find the terms at issue in this case unambiguously require
Mr. Gourley to reimburse the Plan with the proceeds of his uninsured
motorist benefits, we decline to extend the make whole remedy to his
claim.

14. The specific Plan provision in question provides:

       When this provision applies. The Cover ed Person may incur
       medical or other charges due to Injuries for which benefits are
paid
       for by the Plan. . . . The Plan will be subr ogated to all rights
the
       Covered Person may have against . . . other person[s] or third
       part[ies] and will be entitled to reimbursement.

                               23
D.

The Plan contends Erie Insurance Exchange is liable
under the subrogation/reimbursement clause to reimburse
the Plan for the medical benefits the Plan paid to medical
providers from the proceeds of the Gourleys' uninsured
motorist policy. Because Erie Insurance Exchange was on
notice of the Plan's right to subrogation, the Plan maintains
it should have paid the uninsured motorist pr oceeds
directly to them. The District Court held Erie Insurance
Exchange was not obligated to reimburse the Plan for the
uninsured motorist benefits it paid to the Gourleys. We
agree.

Erie Insurance Exchange was under contract with the
Gourleys to pay up to $300,000 in uninsured motorist
benefits. But Erie Insurance Exchange was not a party to
the contract between the Plan and the Gourleys. Erie
Insurance Exchange argues that its lack of a contractual
relationship with the Plan defeats any dir ect claim by the
Plan against it. See Cent. States, SE & SW Ar eas Health &
Welfare Fund v. State Farm Mut. Auto. Insur. Co., 

(7th Cir. 1994). But the lack of a contractual
obligation between a third party insurer to an ERISA plan
does not bar suit by an ERISA plan when subr ogation
rights are at issue.

Erie Insurance Exchange also contends that under
equitable principles of subrogation, it may pr operly assert
payment in full as a defense to the Plan's suit, since it paid
the entire amount of the uninsured motorist policy to the
Gourleys. We agree. Subrogation is an equitable remedy.
Greater N.Y. Mut. Ins. Co. v. N. River Ins. Co., 

(3d Cir. 1996). When a subrogee [the Plan] sues a third
party [Erie Insurance Exchange], it [the Plan] steps into the
shoes of the subrogor [the Gourleys] and the third party
[Erie Insurance Exchange] may properly assert any
defenses against the subrogee [the Plan] that it would
normally have against the subrogor [the Gourleys].
Steamfitters Local Union No. 420 Welfar e Fund v. Phillip
Morris, Inc., 

(3d Cir . 1999), cert. denied, 

(2000); Puritan Ins. Co. v. Canadian Universal
Ins. Co., Ltd., 

(3d Cir . 1985).

                               24
Under subrogation law, if a tortfeasor or a tortfeasor's
insurer settles with an injured party with knowledge of an
insurer's subrogation rights, the subr ogation rights remain.
16 Couch on Insurance 2d (Rev. ed.) S 61:201; see also
generally Gibbs v. Hawaiian Eugenia Corp., 966 F .2d 101,
106 (2d Cir. 1992). Although a third party may generally
assert any defense it has against the subrogor to the
subrogee, this right does not exist when ther e is evidence of
fraud between the subrogor and the thir d party that is
intended to defeat the subrogee's rights.15 Wendy's Int'l, Inc.
v. Karsko, 

, 1014 (6th Cir . 1996) ("The
[subrogation] doctrine was created to prevent wrongdoers
from shirking their liability by settling with a subrogor,
thereby successfully avoiding obligations to a subrogee.").
When there is evidence of fraud between the subrogor and
the third party that is intended to defeat subr ogation
rights, it is inequitable to permit the thir d party to assert
payment in full as a defense to the subrogee's suit. Wendy's

.

Here, there is no evidence of fraud. Erie Insurance
Exchange settled with the Gourleys for the full amount of
the uninsured motorist benefits coverage. There is no
evidence to support the claim that this payment was made
for the fraudulent purpose of interfering with or prejudicing
the Plan's right to subrogation.16 The payment of the
_________________________________________________________________

15. Although previous applications of this doctrine have generally been
limited to situations involving a tortfeasor or a tortfeasor's insurance
company, we believe similar equitable principles apply to Erie as the
Gourleys' uninsured motorist insurer. See generally Wendy's Int'l,94
F.3d at 1014. Therefore, we believe it is appropriate to extend this
doctrine to the facts of this case. See generally Dome Petroleum Ltd. v.
Employers Mut. Liab. Ins. Co., 

, 45 (3d Cir. 1985) ("The
general rule in the United States is that a subr ogee is not limited to
asserting claims against third party wr ongdoers, but may assert a claim
against the subrogor's contractual obligor as well.").

16. If an insurance company pays reduced benefits to an insured
knowing the proceeds will be applied to r eimbursing an ERISA plan for
benefit payments (i.e. if Erie Insurance Exchange paid less than the
$141,401.35 the Plan expended for Mr. Gourley's medical expenses even
though it was required to pay $300,000 under the terms of the
uninsured motorist plan), the reduced payment may be sufficient to
support a finding of fraud on the subrogee.

                               25
$300,000 to the Gourleys does not prevent the Plan from
recovery since the Plan may still assert its right to the
proceeds of the Erie Insurance Exchange policy. Because of
the absence of fraud in the payment of the uninsur ed
motorist benefits, it is not inequitable to per mit Erie
Insurance Exchange to assert payment in full in r esponse
to the Plan's suit.

The District Court properly held Erie Insurance Exchange
was not liable to reimburse the Plan with the proceeds of
the Gourleys' uninsured motorist benefit's policy.

V.

For the foregoing reasons, we will affir m the judgment of
the District Court.

A True Copy:
Teste:

       Clerk of the United States Court of Appeals
       for the Third Circuit

                                26