Guardian Flight LLC v. Godfread et al
ORDER by Chief Judge Daniel L. Hovland granting in part and denying in part 10 Motion for Judgment on the Pleadings; granting in part and denying in part 14 Motion for Judgment on the Pleadings; denying 17 Motion for Summary Judgment. (MM)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NORTH DAKOTA
Guardian Flight, LLC,
Jon Godfread, in his capacity as North
Dakota Insurance Commissioner; Wayne
Stenehjem in his capacity as North Dakota )
ORDER ON MOTIONS
Case No. 1:18-cv-007
Before the Court is the Plaintiff’s Motion for Judgment on the Pleadings filed on March 2,
2018. See Doc. No. 10. The Defendants filed a brief in opposition to the motion and a cross-motion
for judgment on the pleading or alternatively for summary judgment on March 23, 2018. See Doc.
No. 14. On April 6, 2018, the Plaintiff filed a reply brief. See Doc. No. 19. The Plaintiffs also filed
three notices of supplemental authority to which the Defendants filed one response. See Doc. Nos.
20, 24, 26, and 27. For the reasons set forth below, both motions are granted in part and denied in
The Plaintiff Guardian Flight LLC (“Guardian Flight”) provides air ambulance services in
North Dakota and many other states around the country. It is organized under the laws of Delaware
and has its headquarters and principal place of business in Salt Lake City, Utah. Guardian Flight
is the successor in interest to Valley Med Flight, Inc. (“Valley Med Flight”). On July 19, 2017,
Valley Med Flight and several affiliated air ambulance companies were purchased by Air Medical
Group Holdings, Inc. (“AMGH”). As of November 22, 2017, Valley Med Flight’s North Dakota
emergency air ambulance operations were transferred to Guardian Flight, and as of December 29,
2017, all related FAA Part 135 air ambulance operations were transferred to Guardian Flight.
Guardian Flight is registered with the North Dakota Secretary of State to do business as Valley Med
Defendant Jon Godfread is the North Dakota Insurance Commissioner. North Dakota law
empowers the Insurance Commissioner to issue cease and desist orders respecting violations of Title
26.1, and to bring an action in state court to enjoin any acts or practices which are prohibited by Title
26.l. See N.D.C.C. §§ 26.1-01-03.1 and 26.1-01-03.2. The Insurance Commissioner may also seek
administrative penalties for violations of Title 26.1. N.D.C.C. § 26.1-01-03.3.
Defendant Wayne Stenehjem is the North Dakota Attorney General. He investigates and
prosecutes any violations of state law, and is authorized by law ‘to institute and prosecute all cases
in which the state is a party, whenever in their judgment it would be for the best interests of the state
so to do.” N.D.C.C.. § 54-12-02.
GUARDIAN FLIGHT AIR AMBULANCE SERVICES
Guardian Flight is a federally regulated air carrier which provides air ambulance services in
North Dakota and around the country. It maintains a fleet of air ambulances ready to promptly
respond to medical emergencies, often in rural or remote locations that lack sophisticated medical
services. Guardian Flight’s air ambulances transport patients facing serious or life-threatening
emergencies, while providing medical care during the flight.
As an emergent care provider, Guardian Flight may be dispatched by first responders, the
emergency department of a hospital, or by an attending physician. Guardian Flight does not
self-dispatch. Where a covered hospital or attending physician orders a transport, the regulations and
procedures set out by the Emergency Medical Treatment and Active Labor Act (“EMTALA”), 42
U.S.C. § 1395dd, generally apply. North Dakota regulations require air ambulances to provide
adequate care when called in emergency situations. See N.D. Admin. Code§ 33-36-01-05(8), (12),
(16). Under state law, air ambulance providers may only refuse care in specified non-emergent
situations. See N.D.C.C. § 23-27-04.
In keeping with federal and state law, Guardian Flight transports patients regardless of their
insurance status or ability to pay. Air ambulance services are extremely expensive. The median
price charged by air ambulance service providers nearly doubled between 2010 and 2014. The
amount Guardian Flight is reimbursed for its services depends in part on the patient’s insurance
coverage and whether Guardian Flight is an in-network or out-of-network provider with a particular
insurance company. Due to the nature of the need for an air ambulance, patients have little or no
control over which air ambulance service provider is used. Medicaid and Medicare reimbursement
rates are limited and substantially below Guardian Flight’s billed charges. Similarly, Guardian Flight
generally recovers very little from patients who are uninsured. The cost of undercompensated care
is shifted to and borne by other payors such as commercial insurers and patients. The portion of the
billed charges which are not covered by insurance, which can run into the tens of thousands of
dollars, is ultimately the responsibility of the patient.
These large and unexpected bills lead many patients to complain to the North Dakota
Insurance Department. North Dakota has twice passed legislation in an attempt to remedy the
problem. The first attempt was found to be preempted by the Airline Deregulation Act (“ADA”).
See Valley Med Flight, Inc. v. Dwelle, 171 F. Supp. 3d 930 (D.N.D. 2016). It is the second attempt,
SB 2231, which is the subject of this declaratory judgment action.
GUARDIAN FLIGHT SUBSCRIPTION MEMBERSHIP PROGRAM
In most states in which it operates, Guardian Flight offers a subscription membership
program. In exchange for a membership fee of less than $100 per year, Guardian Flight considers
any air ambulance charges beyond the amount paid by a member’s insurance or other third parties
to be prepaid by the member. Guardian Flight offers this membership program as part of an alliance
of air ambulance providers affiliated under the name “AirMedCare Network.” The same parent
company, AMGH, owns each of the AirMedCare Network companies. Persons who purchase an
AirMedCare Network subscription are automatically enrolled in the membership program for each
of the air ambulance companies in the AirMedCare Network.
The program allows members to partially prepay Guardian Flight for the services it provides.
The membership program does not guarantee service. Members cannot contact Guardian Flight or
any other AirMedCare Network provider to provide transport when services are needed, and
Guardian Flight is not required to indemnify or pay any specified amount to members or to
third-party providers if the member is ultimately transported by an air ambulance service that is not
part of the AirMedCare Network. If the patient is a member, the portion of the billing which is the
responsibility of the patient is considered prepaid by the membership fee.
Until the passage of SB 2231 in 2017, Guardian Flight’s predecessor (Valley Med Flight)
offered this membership program in North Dakota and had hundreds of members. SB 2231 prohibits
subscription agreements. Guardian Flight would like to offer a subscription membership program
in North Dakota but is prohibited from doing so by SB 2231.
In 2015, in an attempt to protect patients from enormous bills for air ambulance services, the
North Dakota Legislature passed HB 1255 which created air ambulance call lists, required air
ambulance providers to provide fee schedules upon request, and created a fee schedule for workers’
compensation cases. Dwelle, 171 F. Supp. 3d at 934. The Court determined that HB 1255 was
preempted by the ADA and the McCarran-Ferguson Act did not provide reverse preemption
protection because the law did not regulate the business of insurance. Id. at 942-45. The State did
In 2017, the North Dakota Legislature again tried to remedy the situation by passing SB
2231. SB 2231 is codified at N.D.C.C. §§ 26.1-47-08 and 26.1-47-09. Section 26.1-47-09(3)
provides a payment by an insurer to a provider for air ambulance services to be a full and final
payment with no option for the provider to seek the balance form the patient. Section 26.1-47-08
prohibits air ambulance subscription agreements. The two provisions provide as follows:
An air ambulance provider, or an agent of an air ambulance provider, may not sell,
solicit, or negotiate a subscription agreement or contract relating to services or the
billing of services provided by an air ambulance provider. An air ambulance
provider, or agent of an air ambulance provider, which violates this section is subject
to a civil fine in an amount not to exceed ten thousand dollars for each violation. The
fine may be collected and recovered in an action brought in the name of the state.
N.D.C.C. § 26.1-47-08.
1. A health benefit plan may not be issued in this state unless the plan provides the
reimbursement rate for out-of-network air ambulance provider services is equal to the
average of the insurer’s in-network rates for air ambulance providers in the state.
2. An insurer may not use the average of an insurer’s in-network rates for air
ambulance providers in the state in order to decrease current or future contractual
rates between an insurer and an air ambulance provider.
3. For purposes of settling a claim made by the insured for air ambulance
services, a payment made by an insurer under the plan in compliance with this
section is deemed to be the same as an in-network payment and is considered a
full and final payment by the insured for out-of-network air ambulance services
billed to the insured.
4. This section does not apply to a policy or certificate of insurance, whether written
on a group or individual basis, which provides coverage limited to:
a. A specified disease, a specified accident, or accident-only coverage;
f. Long-term care insurance as defined by chapter 26.1-45;
g. Vision care or any other limited supplemental benefit;
h. A Medicare supplement policy of insurance, as defined by the
commissioner by rule or coverage under a plan through Medicare;
j. The federal employees health benefits program and any coverage issued as
a supplement to that coverage;
k. Coverage issued as supplemental to liability insurance, workers’
compensation, or similar insurance; or
l. Automobile medical payment insurance.
N.D.C.C. § 26.1-47-09 (emphasis added).
Guardian Flight filed this declaratory judgment action on January 12, 2018, contending
Sections 26.1-47-08 (“Subscription Provision”) and 26.1-47-09(3) (“Payment Provision”) are
preempted by the ADA. Defendants Godfread and Stenehjem (collectively “State”) maintain the
the challenged provisions regulate insurance and thus are not preempted. In addition, the State
contends the McCarran-Ferguson Act reverse preemption provision acts to protect the provisions
STANDARD OF REVIEW
Rule 12(c) of the Federal Rules of Civil Procedure establishes that “[a]fter the pleadings are
closed – but early enough not to delay trial – a party may move for judgment on the pleadings.”
“Judgment on the pleadings is appropriate where no material issue of fact remains to be resolved and
the movant is entitled to judgment as a matter of law.” Faibisch v. Univ. of Minn., 304 F.3d 797,
803 (8th Cir. 2002) (citing United States v. Any & All Radio Station Transmission Equip., 207 F.3d
458, 462 (8th Cir. 2000)). When presented with a motion for judgment on the pleadings, a district
court must “accept as true all factual allegations set out in the complaint” and “construe the
complaint in the light most favorable to the plaintiff, drawing all inferences in his favor.”
Wishnatsky v. Rovner, 433 F.3d 608, 610 (8th Cir. 2006). The standard for judgment on the
pleadings is the same as that for failure to state a claim under Rule 12(b)(6) of the Federal Rules of
Civil Procedure. Ashley County, Ark. v. Pfizer, Inc., 552 F.3d 659, 665 (8th Cir. 2009).
When considering a motion for judgment on the pleadings (or a motion to dismiss
under Fed. R. Civ. P. 12(b)(6)), the court generally must ignore materials outside the
pleadings, but it may consider “some materials that are part of the public record or
do not contradict the complaint,” as well as materials that are “necessarily embraced
by the pleadings.”
Porous Media Corp. v. Pall Corp., 186 F.3d 1077, 1079 (8th Cir. 1999) (internal citations omitted).
ADA (AIRLINE DEREGULATION ACT OF 1978) PREEMPTION
“It is a familiar and well-established principle that the Supremacy Clause, U.S. Const., Art.
VI, cl. 2, invalidates state laws that ‘interfere with, or are contrary to,’ federal law.” Hillsborough
Cty., Fla. v. Automated Med. Labs., Inc., 471 U.S. 707, 712 (1985) (internal citations omitted). This
invalidation is accomplished by way of federal preemption, which “is invoked under the directive
of the Supremacy Clause.” Brown v. Hotel and Rest. Emps. and Bartenders Int’l Union Local 54,
468 U.S. 491, 500 (1984); see also Kurns v. R.R. Friction Prods. Corp., 565 U.S. 625, 630 (2012)
(stating preemption of state law occurs through the direct operation of the Supremacy Clause).
Under the Supremacy Clause, federal law may supersede, or preempt, state law in several
different ways: (1) Congress may expressly state that federal law preempts state law (express
preemption); (2) Congress’ intent to preempt state law may be inferred from its comprehensive
regulation of an area of law (field preemption); or (3) state law may actually conflict with the federal
law (conflict preemption) – i.e., where compliance with both federal law and state law is impossible,
or where the state law stands in the way of the accomplishment and execution of the purposes and
objectives of Congress. Hillsborough, 471 U.S. at 713; see also Gunter v. Farmers Ins. Co., Inc., 736
F.3d 768, 771 (8th Cir. 2013). Congress may evince its intent to pre-empt state law either implicitly
or explicitly. Cipollone v. Liggett Grp., Inc., 505 U.S. 504, 516 (1992). Federal regulations can
have the same preemptive effect as federal law. Gunter, 736 F.3d at 771-72.
The ADA contains an express preemption clause which provides as follows:
(b) Preemption.--(1) Except as provided in this subsection, a State, political
subdivision of a State, or political authority of at least 2 States may not enact or
enforce a law, regulation, or other provision having the force and effect of law
related to a price, route, or service of an air carrier that may provide air
transportation under this subpart.
49 U.S.C. § 41713(b)(1) (emphasis added). It is undisputed that Guardian Flight is an “air carrier”
and the challenged laws have the “force and effect of law.”
The United States Supreme Court has on three occasions offered important guidance as to
how the ADA’s express preemption clause is to be construed. Morales v. Trans World Airlines, Inc,
504 U.S. 374 (1992); Am. Airlines, Inc. v. Wolens, 513 U.S. 219 (1995); Northwest, Inc., v.
Ginsberg, 572 U.S. 273 (2014) The ADA was enacted in 1978 after Congress determined that
deregulation of the airline industry would lead to greater reliance on market forces resulting in
greater efficiency, innovation, lower prices, and enhanced quality and variety of air transportation
services. Morales v. Trans World Airlines, Inc, 504 U.S. 374, 378 (1992). In order to prevent the
states from circumventing federal deregulation by enacting their own regulation of the airline
industry, Congress included a broad preemption clause in the ADA prohibiting the states from
enforcing any law or regulation related to an air carrier’s rates, routes, or services. Id. at 383-84.
In Morales, the United States Supreme Court held that the ADA expressly preempted the application
of state deceptive business practice laws to airline fare advertisements because such regulation
related to the content and format of air carrier fare advertising and had a significant impact thereon.
Id. at 388-91. The Supreme Court explained the ADA’s broad preemption clause meant state laws
and regulations “having a connection with or reference to airline rates, routes, or services, are preempted” by the ADA. Id. at 384. More important, even an indirect effect occasioned by laws of
general applicability is sufficient to meet the “relating to” language in the preemption clause. Id. at
386-87. Laws which are consistent with the ADA’s purpose are preempted nevertheless. Id.
However, the Supreme Court noted that in some cases the regulations might have too tenuous or
remote an impact to be preempted. Id. at 387, 390.
The United States Supreme Court reaffirmed in Am. Airlines, Inc. v. Wolens, 513 U.S. 219,
224 (1995) the breadth of the ADA’s preemption clause. In Wolens, the plaintiffs were participants
in American Airlines frequent flyer program who claimed to be injured by modifications to the
program and brought suit claiming breach of contract and violation of the Illinois Consumer Fraud
Act. Id. at 224-25. The Supreme Court held the Illinois Consumer Fraud Act claims were
preempted by the ADA while the breach of contract claims were not preempted. Id. at 226. The
Supreme Court explained that the frequent flyer program in question related to rates because the
airline gave mileage credits for free tickets and upgrades and services and because the program
provided access to flights and service class upgrades regardless of capacity controls and blackout
dates. Id. The Supreme Court noted the Illinois Consumer Fraud Act was prescriptive, controlled
conduct, and served as a means of policing the marketing practices of airlines. Id. at 227-28. Given
the text and purpose of the Illinois Consumer Fraud Act, it was preempted by the ADA. Id. at 228.
The breach of contract claims on the other hand were not preempted because a breach of contract
claim does not allege a violation of a state-imposed obligation but rather alleges violation of a selfimposed obligation. Id. The terms and conditions of a frequent flyer program are privately ordered
obligations. Id. ADA preemption only applies to state laws and regulations. Id. at 229. The
Supreme Court stressed that the purpose of the ADA was to promote market efficiency and the
ability to enforce private contracts through a breach of contract action was fundamental to a stable
and efficient market. Id. at 230. Any sensible construction of the ADA required that agreements
freely made not be preempted.
In Northwest, Inc., v. Ginsberg, 572 U.S. 273, 276 (2014), the Supreme Court held that a
airline customer’s claim for breach of the implied covenant of good faith and fair dealing was
preempted by the ADA. The airline had terminated the customer’s membership in the airline’s
frequent flyer program based on alleged abuse of the program. The customer sued alleging, among
other things, the termination of his membership violated the implied covenant of good faith and fair
dealing. Id. at 278. The Supreme Court explained that even state common law rules like the implied
covenant of good faith and fair dealing are preempted by the ADA because the ADA preemption
provision was very broadly worded, and exempting common law claims would be contrary to the
central purpose of the ADA. Id. at 281-82. The Supreme Court stressed that what was important
was the effect of the state law, provision, or regulation and not its form and state common law rules
can undermine the purpose of the ADA just as surely as statutes and regulations. Id. at 283. The
Supreme Court further explained that the claim in question was clearly related to “rates, routes, or
services” because the plaintiff sought reinstatement in the airline’s frequent flyer program so that he
could accrue mileage credits which could be redeemed for tickets and upgrades. Id. at 283-84. In
addition, the implied covenant claim was a state-imposed obligation rather than one the parties
voluntarily undertook because the parties cannot contract out of the covenant. Id. at 285-86.
With this background in mind, the Court will turn to the question of whether the ADA
preempts Sections 26.1-47-08 and 26.1-47-09(3) of the North Dakota Century Code. In addition,
the Court will address the applicability of the McCarran-Ferguson Act’s reverse preemption
N.D.C.C § 26.1-47-09(3)
Guardian Flight contends Section 26.1-47-09(3) of the North Dakota Century Code is a clear
attempt to regulate air ambulance service providers. Guardian Flight further contends that because
the law affects the reimbursement rates for air ambulance service providers, the law is preempted
by the ADA. The State contends application of the ADA’s preemption provision would be bad
public policy because market forces are not at work when an air ambulance is needed and the
Payment Provision only regulates the insurance relationship between patient and insurer. A careful
reading of Section 26.1-47-09(3) in light of Morales, Wolens, and Ginsberg, reveals the State’s
position to be untenable.
State laws and regulations “having a connection with or reference to airline rates, routes, or
services, are pre-empted” by the ADA. Morales, 504 U.S. at 384. The phrase “relating to” in the
ADA preemption clause has been construed very broadly. Morales, 504 U.S. at 384. For instance,
the ADA has been found to preempt a New York law which required airlines to provide fresh air,
restroom, water, and food to passengers subject to lengthy ground delays. Air Transport Ass’n of
Am. v. Cuomo, 520 F.3d 218, 222 (2nd Cir. 2008) (finding the required accommodations related to
the service of an air carrier).
Insofar as the State contends the ADA does not preempt state laws regulating air ambulances
because it makes poor public policy and market forces are not at play, the Court finds the argument
unpersuasive, unsupported by case law, and contrary to Morales, Wolens, and Ginsberg which
broadly construed the ADA’s preemption provision. See Watson v. Air Methods Corp., 870 F.3d
812, 817 (8th Cir. 2017) (noting there is no presumption against preemption and ADA preemption
applies to both generally applicable state law and state laws which specifically apply to air carriers);
EagleMed LLC v. Cox, 868 F.3d 893, 904 (10th Cir. 2017) (rejecting a policy based argument for
excluding air ambulances from ADA preemption). The plain language of the ADA preemption
provision which preempts state laws “related to a price, route, or service” forecloses the State’s
policy argument. 49 U.S.C. § 41713(b)(1). In addition, and perhaps more importantly, this Court
found in Dwelle that the ADA applies to air ambulance service providers. Dwelle, 171 F. Supp. 3d
at 941. State laws which significantly impact air carrier rates are clearly preempted by the ADA.
Morales, 504 U.S. at 384. There is no ADA exception for air ambulances, and this Court will not
Numerous federal courts have ruled that state laws limiting or regulating air ambulance prices
and services are preempted by the ADA. See Cox, 868 F.3d at 907 (finding the ADA preempts
worker’s compensation fee schedule for air ambulance services); Air Evac EMS, Inc. v. Cheatham,
No. 2:16-cv-05224, 2017 WL 4765966, at *8 (S.D. W.Va. Oct. 20, 2017) (finding the ADA
preempts state statutory caps on reimbursement for air ambulance services); Schneberger v. Air Evac
EMS, Inc., No. CIV-16-843-R, 2017 WL 1026012, at *2-*6 (W.D. Okla. Mar. 15, 2017) (finding
the ADA preempted a state common law challenge to the reasonableness and fairness of air
ambulance charges); Bailey v. Rocky Mountain Holdings, LLC, 136 F. Supp. 3d 1376, 1379-82
(S.D. Fla. 2015) (holding the ADA preempts state consumer protection claims as applied to air
ambulance prices); PHI Air Med., LLC v. Texas Mut. Ins. Co., 549 S.W.3d 804, 811 (Tex. App.
2018) (finding the ADA preempts state law limits on reimbursement payments to air ambulance
providers). Good intentions do not save state legislation intended to protect patients from exorbitant
air ambulance bills from ADA preemption.
In this case, the impact of Section 26.1-47-09(3) on Guardian Flight’s prices is clear and
significant as it caps air ambulance prices. The law states “a payment made by an insurer . . . is
considered a full and final payment by the insured for out-of-network air ambulance services billed
to the insured.” N.D.C.C. § 26.1-47-09(3). The law mandates that when Guardian Flight is out of
network with the insurer it must accept as payment in full the payment made by the insurer as long
as that payment complies with Section 26.1-47-09(1). In effect, Guardian Flight must accept the
state-mandated rate and no balance billing is permitted. Obviously then, the law relates to air
ambulance rates. There can be no question that such interference with air ambulance rates and prices
is precisely the type of state regulation Congress sought to prevent when it included an express
preemption clause in the ADA. Morales, 504 U.S. at 378. Placing the law in Title 26.1, which
regulates insurance, does not save it from preemption. It is a law’s effect, rather than its form, which
is of critical importance in the preemption analysis. Ginsberg, 134 S. Ct. at 1430.
The Court concludes, as a matter of law, that Section 26.1-47-09(3) of the North Dakota
Century Code is preempted by the Airline Deregulation Act of 1978. While the policy choices the
State is attempting to impose in Section 26.1-47-09(3) are well-intentioned, the enactment once
again misses the mark by focusing on air ambulance charges and limiting the amount which is
considered a full and final payment, rather than focusing on the percentage of the charges the
insurance provider must pay. Congress has assumed the field in the area of air carrier regulation.
Insurance regulation remains the province of the states. If the State wishes to protect patients who
need air ambulance services it would do well to mandate insurance providers pay a larger percentage
of the charges rather than trying to regulate how much the air ambulance bills for its services. If
Congress believes patients are in need of protection from out-of-control air ambulance rates, and they
surely are out of control, it may act to exclude air ambulance service providers from the ADA or
provide some other form of relief.
N.D.C.C § 26.1-47-08
Guardian Flight also contends the ADA preempts North Dakota Century Code § 26.1-47-08,
because the law relates to the prices that air ambulance service providers may charge in North
Dakota. The Subscription Provision prohibits air ambulance service providers from offering or
selling air ambulance subscription agreements. Generally speaking, such subscription agreements
require an annual fee which then exempts the member from any co-pays or balance billing the
member might otherwise be responsible for if the member uses an air ambulance. The only
argument the State offers in opposition to Guardian Flight’s contention is that the State retains the
authority to regulate insurance and the McCarran-Ferguson Act reverse preemption provision saves
it from preemption because the State is regulating insurance. The Court will address that issue
below. Clearly, the Subscription Provision relates to air ambulance rates and services as it prohibits
subscription agreements which directly impacts charges for air ambulance services. The Court finds
ADA preemption applies to the Subscription Provision unless the McCarran-Ferguson Act analysis
alters the conclusion.
McCARRAN-FERGUSON ACT REVERSE PREEMPTION
The State contends McCarran-Ferguson Act (“MFA”) saves both the Subscription Provision
and the Payment Provision from preemption as both provisions regulate insurance. Guardian Flight
maintains neither provision regulates the business of insurance or the relationship between insurer
The McCarran-Ferguson Act was enacted to assure states the preeminent role in the
regulation of the insurance industry. U.S. Dep’t of Treasury v. Fabe, 508 U.S. 491, 500 (1993)
(holding an Ohio statute governing priority of claims against an insolvent insurer was enacted for
the purpose of regulating the “business of insurance” and thus the McCarran-Ferguson Act saved the
Ohio statute from preemption by the federal priority statute). The “reverse preemption” clause of
the McCarran-Ferguson Act provides that “[n]o Act of Congress shall be construed to invalidate,
impair, or supersede any law enacted by any State for the purpose of regulating the business of
insurance, or which imposes a fee or tax upon such business, unless such Act specifically relates to
the business of insurance.” 15 U.S.C. § 1012(b) (emphasis added). “The McCarran-Ferguson Act
thus precludes application of a federal statute in face of state law ‘enacted ... for the purpose of
regulating the business of insurance,’ if the federal measure does not ‘specifically relat[e] to the
business of insurance,’ and would ‘invalidate, impair, or supersede’ the State’s law.” Humana Inc.
v. Forsyth, 525 U.S. 299, 307 (1999) (internal citations omitted) (holding McCarran Ferguson Act
did not preclude application of federal RICO laws, which did not specifically relate to the business
of insurance, because the Nevada insurance laws in question were not impaired by RICO). In other
words, under the McCarran-Ferguson Act a state law reverse preempts federal law if (1) the federal
statute does not specifically relate to the business of insurance; (2) the state law was enacted for the
purpose of regulating the business of insurance; and (3) the federal statute operates to invalidate,
impair, or supersede the state law. Id.; Doe v. Norwest Bank Minn. N.A., 107 F.3d 1297, 1305 (8th
Cir. 1997). Only the second prong of this test is at issue in this case.
Laws aimed at protecting or regulating the relationship between the insurer and the insured,
whether directly or indirectly, are considered laws which regulate the “business of insurance.” Fabe,
508 U.S. at 501. The focus of the McCarran-Ferguson Act is the relationship between the insurance
carrier and the policyholder. Id. This relationship includes both the writing and performance of
insurance contracts. Id. at 503. The Supreme Court has identified three criteria relevant in
determining whether a particular enactment regulates the “business of insurance” within the meaning
of the McCarran-Ferguson Act: “first, whether the practice has the effect of transferring or spreading
a policyholder’s risk; second, whether the practice is an integral part of the policy relationship
between the insurer and the insured; and third, whether the practice is limited to entities within the
insurance industry.” Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119, 129 (1982) (holding an
insurance company’s use of a chiropractic professional association’s peer review committee, to
determine whether chiropractic treatments and charges were necessary and reasonable, did not
constitute the “business of insurance” within the meaning of the McCarran-Ferguson Act and thus
the practice was not exempt from scrutiny under federal anti-trust law). In this case we consider not
an insurance industry practice but a state law and whether it regulates the business of insurance.
The State, citing Fabe and Doe, contends the three-part Pireno test only applies in antitrust
cases and thus should not be applied in this case. However, language from Doe which the State
seizes on is dicta contained in a footnote. Doe, 107 F.3d at 1305 n. 8. In a later case, the Eighth
Circuit approved the district court’s application of the Pireno test in a non-antitrust case. Standard
Sec. Life Ins. Co. of N.Y. v. West, 267 F.3d 821, 823 (8th Cir. 2001). Other circuit courts have also
approved the use of the Pireno test in non-antitrust cases. See Autry v. Northwest Premium Servs.,
Inc., 144 F.3d 1037, 1040-41 (7th Cir. 1998) (finding the three-part Pireno inquiry the appropriate
test for non-antitrust cases); Bailey v. Rocky Mountain Holdings, LLC, 889 F.3d 1259, 1273 (11th
Cir. 2018) (applying the three-part Pireno test and finding MFA reverse preemption did not save a
Florida balance billing law affecting air ambulances from the ADA’s preemptive effect). In addition,
this Court applied the Pireno test in Dwelle without any objection from the parties. The Court finds
the Pireno factors relevant and helpful and the appropriate test in both anti-trust and non-antitrust
MFA cases. For this reason, the Court will apply them.
N.D.C.C. § 26.1-47-09(3)
The State contends the Payment Provision was enacted for the purpose of regulating the
“business of insurance” and thus the ADA’s express preemption clause is reverse preempted by the
MFA. Guardian Flight maintains the Payment Provision was not enacted for the purpose of
regulating the “business of insurance” but rather was enacted to regulate the prices charged by air
ambulance service providers.
The State’s position is unpersuasive. The structure and text of Payment Provision clearly
demonstrate it does not regulate the “business of insurance” as that phrase is used in the McCarranFerguson Act. Rather, the clear purpose of Payment Provision is to limit the ability of air ambulance
service providers to collect the portion of the bill not covered by insurance directly from the patient.
The first prong of the Pireno test addresses whether the law has the effect of spreading or
transferring the policyholder’s risk. The transfer of risk is complete when the contract of insurance
is entered. Fabe, 508 U.S. at 503. The actual performance of an insurance contract, including
enforcement of the contract, constitutes the “business of insurance.” Fabe, 508 U.S. at 503. The
regulated practice here is the billing and pricing practices of air ambulance services, not the
performance of an insurance contract. See Bailey, 889 F.3d at 1274. The Payment Provision does
not have any impact on the allocation of risk between the insurance carrier and the policyholder.
Rather, it caps payments for air ambulances and prohibits balance billing. This is not the spreading
of risk between the insured and insurer that the first Perino factor speaks to. A law which spreads
the policyholders risk to the provider does not regulate “the business of insurance.” Bailey, 889 F.3d
The second prong of the Pireno test asks whether the law regulates an important part of the
relationship between the insurer and insured. The relationship between the insurer and the insured
lies at the core of the “business of insurance.” Fabe, 508 U.S. at 501. The focus in the second prong
of the Pireno test is the contract between the insurer and the insured. Pireno, 458 U.S. at 128.
Prescribing the terms of an insurance contract is a direct regulation of the “business of insurance”.
Fabe, 508 U.S. at 502-03. While the Payment Provision does mandate some language to be included
in all health insurance policies, the effect of the language is directed at a third-party service
provider’s ability to receive payment once the insurer has discharged any obligations it has to pay
for an air ambulance under the insurance policy. Thus, the Payment Provision does not regulate the
relationship between insurer and insured. Bailey, 889 F.3d at 1274.
The third prong of the Pireno test asks whether the law is limited to entities in the insurance
industry. The Payment Provision is clearly aimed at the billing activities of air ambulances. A
service providers is a third-party to the contract between the insurer and the insured. As the Supreme
Court has explained, an insurer’s arrangements with third-party providers are merely cost-saving
measures that reduces the insurer’s cost of covering a loss that it was already obligated to cover.
Group Life & Health Ins. Co. v. Royal Drug Co., 440 U.S. 205, 214 (1979) (holding an insurer’s
agreement with participating pharmacies to provide low cost prescription drugs to policyholders was
not the “business of insurance” so as to exempt the pharmacy agreements from scrutiny under the
The MFA’s focus is on the relationship between the insurance carrier and the policyholder.
Fabe, 508 U.S. at 501. All three Pireno factors indicate the Payment Provision does not regulate the
“business of insurance.” An individual has a relationship with the provider as a patient and a
relationship with the insurance carrier as a policyholder. As is often the case, the air ambulance
service provider charges too much and the insurance carrier pays too little. The individual is caught
in the middle and one of the three parties involved is going to lose the struggle to see who must pay
or absorb the loss. In the final analysis, the Payment Provision is aimed at protecting the patient
from the air ambulance service provider by capping the amount the provider may collect from the
patient. In effect, prohibiting balance billing. If the provider’s billings are capped the provider must
absorb the loss. The Payment Provision does not require the insurer to pay more of the charged
billing. Since the Payment Provision alters the relationship between the provider and the patient
rather than the insured and the insurer, its focus is not on the “business of insurance” or “adjusting,
managing, or controlling the business of insurance.” Fabe, 508 U.S. at 505; Bailey, 889 F.3d at
1274. The Court concludes as a matter of law that the Payment Provision was not enacted for the
purpose of regulating the “business of insurance” and thus is not saved from ADA preemption by
N.D.C.C. § 26.1-47-08
The State contends subscription agreements are a form of insurance and the Subscription
Provision was enacted for the purpose of regulating them. The law provides that “[a]n air ambulance
provider, or an agent of an air ambulance provider, may not sell, solicit, or negotiate a subscription
agreement or contract relating to services or the billing of services provided by an air ambulance
provider.” N.D.C.C. § 26.1-47-08. Guardian Flight contends subscription agreements it offers are
not insurance. See doc. No. 1-1. Thus, the only question the Court need resolve is whether the
subscription agreements banned by Section 26.1-47-08 are a form of insurance. By any reasonable
definition, the subscription agreements banned by Section 26.1-47-08 are a form of insurance.
Insurance is “[a] contract by which one party (the insurer) undertakes to indemnify another
party (the insured) against risk of loss, damage, or liability arising from the occurrence of some
specified contingency. Insurance, Black’s Law Dictionary (10th ed. 2014). Put another way,
[I]nsurance is a contract by which one party (the insurer), for a consideration that
usually is paid in money, either in a lump sum or at different times during the
continuance of the risk, promises to make a certain payment, usually of money, upon
the destruction or injury of “something” in which the other party (the insured) has an
1 Steven Plitt et. al., Couch On Insurance § 1:6 (3d ed. 2018). In North Dakota, an insurance
contract is defined as “a contract whereby one undertakes to indemnify another against loss, damage,
or liability arising from an unknown or contingent event.” N.D.C.C. § 26.1-29-01. An accident and
health insurance policy is “any contract policy insuring against loss resulting from sickness or bodily
injury, or death by accident, or both.” N.D.C.C. § 26.1-36-02. “An insurer is a person who
undertakes to indemnify another by an insurance contract and the insured is the person indemnified.”
N.D.C.C. § 26.1-29-02. “Anyone who is capable of making a contract, except as restricted by law,
may be an insurer, and anyone except a public enemy may be an insured.” N.D.C.C. § 26.1-29-03.
There is no dispute subscription agreements are contracts. And it is clear they spread risk.
For a fee, the air ambulance agrees the patient who uses an affiliated air ambulance will incur no outof-pocket expenses. Whether a member will ever need the services of an air ambulance is the
contingent event upon which the contract is based. The air ambulance agrees to seek reimbursement
only from the patient member’s insurer or another third party who may be responsible. This is the
only benefit conferred by the contract. The air ambulance assumes the member’s risk. The vast
majority of members will never need to use an air ambulance. The air ambulance will collect fees
from many members but will only transport a very few. The air ambulance is assured a steady
stream of revenue. The risk of an enormous bill is spread as many will pay a manageable fee so that
no one person is faced with a catastrophic bill and the air ambulance provider will assume the risk
that multiple members will need their services. The Subscription Provision alters the relationship
between the air ambulance and the member by entirely prohibiting air ambulances from selling
subscription agreements and the provision only applies to air ambulance service providers. The
Court concludes such an arrangement is a form of insurance. See Love v. Money Tree, Inc., 614
S.E.2d 47, 49 (Ga. 2005) (finding auto club memberships were insurance and the MFA reverse
preempted the Federal Arbitration Act).
The strenuous denials of Guardian Flight aside, if a bird looks like a duck, swims like a duck,
and quacks like a duck, a reasonable person can only conclude that it is indeed, a duck. Simply and
repeatedly saying a contract is not a contract of insurance does not make it so. A Costco membership
does not shift risk, but rather confers a immediate certain benefit of entry into the member stores and
the privilege of purchasing the goods for sale in the stores. The Court rejects Guardian Flight’s
contention that the contract in question is one for contingent services rather than insurance.
Care must be taken to distinguish mere contracts to render service on the happening
of a contingency from true contracts of insurance. The cases have failed to declare
a satisfactory rule for distinguishing between the two types of agreements, but it
would seem that the contract should not be classed as insurance if the paramount
purpose in its formation was to be the rendition of the services rendered. However,
it should be insurance if the chief purpose of the agreement is the protection against
the risk involved.
Jordan v. Grp. Health Ass’n, 107 F.2d 239, 248 n.26 (D.C. Cir. 1939) (internal quotations and
citations omitted and emphasis added). In this case, the clear purpose of the subscription agreement
is not the provision of a service, but rather to protect against the risk of a catastrophic billing for the
use of an air ambulance. Such balance billings can run as high as $80,000. See Doc. No. 7-1. The
Court has no difficulty concluding air ambulance subscription agreements are a form of insurance.
In the final analysis, we have a contract which, for a small fee, does nothing more than shift
the risk of an unforeseeable contingent event from the member to the air ambulance. If the
contingent event occurs, the air ambulance will indemnify the member against any costs not covered
by the member’s medical insurance. See N.Y. General Counsel Opinion 7-7-2008, 2008 WL
3917516 (July 7, 2008) (opining that air ambulance subscription plans are insurance contracts under
New York law1). This is, by all definitions, insurance, or more specifically, supplemental insurance.
The Subscription Provision, which prohibits air ambulance service providers from selling
subscription agreements,2 was clearly enacted “for the purpose of regulating the business of
insurance.” Thus, the MFA applies to save the Subscription Provision from preemption by the ADA.
For the reasons set forth above, the Plaintiff’s motion for judgment on the pleadings (Doc.
No. 10) is GRANTED in part and DENIED in part as set forth above. The Defendants’ motion
for judgment on the pleadings (Doc. No. 14) is GRANTED in part and DENIED in part as set
forth above. The alternative motion for summary judgment (Doc. No. 17) is DENIED as moot. The
New York defines an insurance contract as “any agreement or other transaction whereby one party, the
“insurer”, is obligated to confer benefit of pecuniary value upon another party, the “insured” or “beneficiary”,
dependent upon the happening of a fortuitous event in which the insured or beneficiary has, or is expected to have at
the time of such happening, a material interest which will be adversely affected by the happening of such event.”
N.Y. Ins. Law § 1101(a). This definition, although lengthier, is very similar to North Dakota’s definition and those
found in Couch on Insurance and Black’s Law Dictionary cited above.
It is unclear why North Dakota has chosen to prohibit the practice when there is a clear need to address the
affordability of air ambulance services. Montana, for instance, has taken the opposite approach. See Mont. Code
Ann. § 50-6-320. Washington has a similar law. Wash. Rev. Code Ann. § 48.01.280. Other states have exempted
the practice from the definition of insurance. See Ariz. Rev. Stat. Ann. § 20-103; Ga. Code Ann. 33-1-21.
Defendants, their employees and agents, are permanently enjoined from enforcing or seeking to
enforce Section 26.1-47-09(3) of the North Dakota Century Code. Let judgment be entered
IT IS SO ORDERED.
Dated this 14th day of January, 2019.
/s/ Daniel L. Hovland
Daniel L. Hovland, Chief Judge
United States District Court
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