Rule 206 ELECTRONIC CITATION: 2000 FED App. 0125P (6th Cir.) File Name: 00a0125p.06… v. JEFFREY A. HAUPT and BROOKE A. HAUPT

8 Copeland Oaks, et al. v. Haupt, et al. No. 99-3471
2We note that our sister circuits are in agreement on this question.
Confronted with similar facts, the Eleventh Circuit concluded that
although a plan’s subrogation right is not enforceable until after benefits
have been paid, it was not an abuse of discretion to require signing of an
agreement as a precondition to payment. Cagle at 1520. The court noted
that “[o]nce benefits are paid, participants and beneficiaries have little
incentive (other than the fear of a lawsuit) to sign a subrogation
agreement,” and that “[c]ost concerns weigh in favor of the Fund’s
policy.” Id. The Ninth Circuit, after considering the plain language of a
plan in light of background principles of insurance law, also concluded
that “the Plan’s right to subrogation arises only after the Plan makes
payment to the insured.” Barnes at 1393.
The plain language of this provision clearly establishes that
the Plan may require the formal assignment of recovery rights
as a precondition to payment of benefits, but it is equally clear
that the Plan’s subrogation and refund right does not vest until
a covered person has accepted benefits. Hence, we find that
the plan administrator abused her discretion in concluding
that the Plan has a right to demand any payment of funds
subject to subrogation or refund as a condition to receiving
benefits, including payment of the $5,000 Hartford settlement.
The Plan may require the Haupts to execute assignment
documents in advance of receiving benefits, but may not
require payment of funds until the Haupts accept benefits.2
We therefore AFFIRM the district court’s conclusion that
because the opt-out provision of the Copeland Oaks plan fails
to establish both a priority over recovered funds and a right to
any full or partial recovery, the make-whole rule will apply.
However, we REVERSE the district court’s finding that
Brooke was made whole by her total recovery, and REMAND
the case for a final resolution consistent with this opinion.
*The Honorable Frank J. Magill, Circuit Judge of the United States
Court of Appeals for the Eighth Circuit, sitting by designation.
1
RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
ELECTRONIC CITATION: 2000 FED App. 0125P (6th Cir.)
File Name: 00a0125p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
C OPELAND OAKS and
C OPELAND OAKS EMPLOYEE
BENEFIT P LAN ,
Plaintiffs-Appellants,
v.
J EFFREY A. HAUPT and
BROOKE A. HAUPT ,
Defendants-Appellees.
;>

1
No. 99-3471
Appeal from the United States District Court
for the Northern District of Ohio at Akron.
No. 98-00780—James S. Gwin, District Judge.
Argued: March 15, 2000
Decided and Filed: April 7, 2000
Before: MERRITT, DAUGHTREY, and MAGILL,*
Circuit Judges.

-- 1 of 4 --

2 Copeland Oaks, et al. v. Haupt, et al. No. 99-3471
_________________
COUNSEL
ARGUED: Earl M. Leiken, BAKER & HOSTETLER,
Cleveland, Ohio, for Appellants. David Brian Spalding,
SHETLER & SPALDING, Alliance, Ohio, for Appellees.
ON BRIEF: Earl M. Leiken, Chris Bator, BAKER &
HOSTETLER, Cleveland, Ohio, for Appellants. David Brian
Spalding, SHETLER & SPALDING, Alliance, Ohio, for
Appellees.
_________________
OPINION
_________________
MARTHA CRAIG DAUGHTREY, Circuit Judge. In this
ERISA action, the plaintiffs, Copeland Oaks and its employee
benefits plan, appeal the district court’s grant of summary
judgment to the defendants, Copeland Oaks employee Jeffrey
Haupt and his daughter, Brooke. Copeland Oaks brought this
suit seeking a declaratory judgment regarding the terms of its
medical benefits plan, and the Haupts filed a counterclaim
seeking payment. On cross-motions for summary judgment,
the district court held that in light of federal common law
adopted by this circuit in a recent unpublished opinion,
Marshall v. Employers Health Ins. Co., 1997 WL 809997 (6th
Cir. 1997) (per curiam), Copeland Oaks was precluded from
exercising its right to subrogation or refund and that the
Haupts’ counterclaim was therefore moot. Only Copeland
Oaks appeals the district court opinion and order, which is
reported at 41 F.Supp.2d 747 (N.D. Ohio 1999). We find that
the district court correctly identified the appropriate legal
standard, but that there is insufficient information in the
record to determine whether Copeland Oaks has a right to
subrogation. We therefore reverse the district court’s
judgment and remand for further fact-finding.
No. 99-3471 Copeland Oaks, et al. v. Haupt, et al. 7
including the Plan, will more than make her whole, and the
Plan will be entitled to subrogation or refund of the excess
recovery of medical expenses. Therefore, we REVERSE the
district court’s decision to the contrary and REMAND this
case for a finding of Brooke’s damages, the Plan’s coverage,
and whether Brooke will be made whole by her total recovery.
Finally, a word is required regarding the specific relief
sought by the Plan. In its complaint, the Plan requests a
declaration “that the Plan need not pay any of the medical
expenses incurred in connection with the treatment of
Defendant Brooke A. Haupt’s accident-related injuries unless
and until Defendants Haupt fully satisfy the requirements of
the Plan’s subrogation and reimbursement provision and any
other conditions.” The demand continues: “Among these
requirements is paying to Plaintiffs the $5,000 already
received from Hartford under the medical payments coverage
of the Policy and the delivery of all required instruments and
papers, including but not limited to an executed release
satisfactory to Hartford.” The question raised by this demand
is whether the Plan, once its right of subrogation is
acknowledged, can require signing of a subrogation
agreement or actual payment of subrogated funds as a
precondition to its payment of benefits. This is a question of
plan interpretation which is committed to the administrator’s
sound discretion.
The relevant language in the Copeland Oaks Plan provides
as follows:
Accepting benefits under this Plan for those incurred
medical or dental expenses automatically assigns to the
Plan any rights the Covered Person may have to recover
payments from any third party or insurer... As a condition
to the Plan making payments for any medical or dental
charges, the Covered Person must assign to the Plan his
or her rights to any recovery arising out of or related to
any act or omission that caused or contributed to the
Injury or Sickness for which such benefits are to be paid.

-- 2 of 4 --

6 Copeland Oaks, et al. v. Haupt, et al. No. 99-3471
The make-whole rule provides that an insurer cannot
enforce its subrogation rights unless and until the insured has
been made whole by any recovery, including any payments
from the insurer. See, e.g., 16 Couch on Insurance 2d § 61:64
(“[N]o right of subrogation against the insured exists upon the
part of the insurer where the insured’s actual loss exceeds the
amount recovered both from the insurer and the
wrongdoer”(emphasis added)). As a general rule, an insured
should not be allowed to retain a double recovery at the
expense of the insurer. See, e.g., 16 Couch on Insurance 2d
§ 61:18 (“Subrogation has the dual objective of (1) preventing
the insured from recovering twice for the one harm, as would
be the case if he [sic] could recover from both the insurer and
from a third person who caused the harm, and (2) reimbursing
the surety for the payment which it has made.”) The district
court erred in concluding that because Brooke was not made
whole by her recovery from Hartford, she was not made
whole and, hence, that the Plan was obliged to pay all of her
covered medical costs while she retained the Hartford
settlement. We agree that the $100,000 bodily injury
settlement trust cannot be subject to subrogation under the
Plan, as it is not payment for medical expenses. However, it
may be the case that the $5,000 settlement for medical
expenses can be subrogated, if it is determined that Brooke
will be more than made whole by her total recovery from all
sources, including Copeland Oaks.
Unfortunately, review of this question is complicated by the
fact that no court has ever made a specific factual finding
regarding Brooke’s total damages. Furthermore, although the
Plan has consistently stated that it is willing to compensate
Brooke in full for her covered medical expenses once the
subrogation and refund agreement is signed, it is not entirely
clear that the Plan’s payments will actually make Brooke
whole, since there is nothing in the record to indicate what her
coverage is under the Plan.
Nevertheless, if it can be established that the Plan will
compensate Brooke for an amount within $5,000 of her total
damages, then Brooke’s total recovery from all sources,
No. 99-3471 Copeland Oaks, et al. v. Haupt, et al. 3
1At the time the appellate briefs were filed, the $5,000 check had not
been negotiated. Hartford Insurance has apparently deferred payment of
the remaining $100,000 pending resolution of this action.
I. FACTUAL AND PROCEDURAL BACKGROUND
Jeffrey Haupt, an employee of Copeland Oaks, is the father
and custodial parent of Brooke Haupt, a minor. Both Jeffrey
and Brooke were enrolled in the Copeland Oaks Employee
Benefit Plan. After Brooke incurred serious and permanent
injuries in an auto accident, the Haupts filed claims with the
Plan for her medical expenses and also pursued a claim
against the negligent driver of the vehicle in state court. The
driver’s insurance policy provided coverage for bodily injury
up to $100,000 and for medical expenses up to $5,000. The
carrier, Hartford Insurance, offered to settle for the policy
limits and issued a check to Brooke’s parents in the amount
of $5,000. A state probate court then ordered the company to
pay the remaining $100,000, less $30,000 in attorneys’ fees,
into a trust account for Brooke’s benefit.1 Meanwhile, the
Plan agreed to pay the more than $300,000 in claimed
medical expenses, but only on the condition that the Haupts
comply with the subrogation provision of the Plan. Both
Brooke and Jeffrey initially signed subrogation and refund
agreements, but after settling the claim against the driver,
Brooke disaffirmed any and all contracts with Copeland Oaks
or the Plan on the basis of her non-capacity as a minor.
Jeffrey continues to demand payment for the medical
expenses he incurred on Brooke’s behalf.
II. ANALYSIS
Copeland Oaks is an Ohio non-profit corporation which
provides residential facilities for senior citizens. It has
established the Copeland Oaks Employee Benefit Plan, a
health insurance plan for eligible employees and their
beneficiaries. The Plan is an “employee welfare benefit plan”
and an “employee benefit plan” as defined in 29 U.S.C.
§ 1002(1) and (3). At all times relevant to these proceedings,
Copeland Oaks has been the employer, plan sponsor, plan

-- 3 of 4 --

4 Copeland Oaks, et al. v. Haupt, et al. No. 99-3471
administrator and fiduciary of the Plan, as those terms are
defined by ERISA. See 29 U.S.C. § 1002(5), (16), (21). The
Plan is self-insured, which is to say that all benefits are paid
out of the general assets of Copeland Oaks.
Part of the subrogation clause of the Plan provides:
The Covered Person agrees to recognize the Plan’s right
to subrogation and reimbursement. These rights provide
the Plan with a priority over any funds paid by a third
party to a Covered Person relative to the Injury or
Sickness, including a priority over any claim for non-
medical or dental charges, attorney fees, or other costs
and expenses.
(Emphasis in original.)
In Marshall, we adopted the so-called “make whole” rule
of federal common law, which requires that an insured be
made whole before an insurer can enforce its right to
subrogation under ERISA, unless there is a clear contractual
provision to the contrary. As we held in that opinion:
Such a rule is consistent with the equitable principal that
[an] insurer does not have a right of subrogation until the
insured has been fully compensated, unless the
agreement itself provides to the contrary. Also, the
make-whole rule is merely a default rule. If a plan sets
out the extent of the subrogation right or states that the
participant’s right to be made whole is superseded by the
plan’s subrogation right[,] no silence or ambiguity exists.
Marshall, 1997 WL 809997, at *4.
Here, Copeland Oaks argues that because it is subject only
to the “arbitrary and capricious” standard of review, we
should defer to its conclusion that the Plan language expressly
opts out of the default make-whole rule. However, review of
the Marshall decision, as well as rulings of our sister circuits,
leads us to conclude that this position must fail. See Cutting
v. Jerome Foods, Inc., 993 F.2d 1293 (7th Cir. 1993); Barnes
No. 99-3471 Copeland Oaks, et al. v. Haupt, et al. 5
v. Independent Automobile Dealers Ass’n of California
Health and Welfare Benefit Plan, 64 F.3d 1389 (9th Cir.
1995); Cagle v. Bruner, 112 F.3d 1510 (11th Cir. 1997). As
noted by the Eleventh Circuit, were we to accept Copeland
Oaks’ position, “the [Plan] could avoid a default rule of
insurance law applicable in the ERISA context merely by
giving itself discretion to interpret the plan. We do not believe
that ERISA gives the Fund that kind of authority, which is
denied to insurance companies not governed by ERISA.”
Cagle, 112 F.3d at 1522. Furthermore, we are mindful of the
fact, recently reiterated by a panel of this circuit, that even an
arbitrary and capricious standard of review can be tempered
by considering conflicts of interest such as those implicit in
any self-funded plan, and by construing ambiguities against
a plan drafter. See University Hospitals v. Emerson Electric
Co., 202 F.3d 839, 846-7 (6th Cir. 2000).
Hence, we now hold that in order for plan language to
conclusively disavow the default rule, it must be specific and
clear in establishing both a priority to the funds recovered and
a right to any full or partial recovery. In the absence of such
clear and specific language rejecting the make-whole rule --
with clarity and specificity ultimately determined by the
reviewing court -- it is arbitrary and capricious for a plan
administrator not to apply the default. We find in this case
that because the language of the Copeland Oaks Plan fails to
establish its priority right over any partial recovery, the
district court correctly applied the make-whole rule.
However, the district court next found that Brooke Haupt
had not been made whole by the settlement entered in the
state court proceeding. See Copeland Oaks, 41 F.Supp.2d at
754. As a result, the district court entered summary judgment
for the defendants, held that the motion for judgment on the
counterclaim was moot, and dismissed the action. We find
that in reaching this conclusion, the district court was
mistaken in its understanding of law, and so abused its
discretion.

-- 4 of 4 --