Opinion
Civil Action No. 4:98CV-94-M
February 17, 1999.
MEMORANDUM OPINION AND ORDER
This matter is before the Court on Cross-Motions for Summary Judgment filed by the Defendant, Johnny Lee Moore (hereinafter Moore) and the Plaintiff, Alliance Blue Cross/Blue Shield (hereinafter Alliance). [DN 12] [DN 14]. Alliance filed this lawsuit to recover the medical expenses it paid to Moore following an automobile accident caused by a third-party. Having been fully briefed, the matter now stands ripe for decision. For the reasons discussed below, the Plaintiff's Motion for Summary Judgment is GRANTED; accordingly, the Defendant's Cross Motion for Summary Judgment is DENIED.
STATEMENT OF FACTS
On April 5, 1995, Moore was involved in an automobile collision with another vehicle driven by Phillip Stephens (hereinafter Stephens). Following this accident, Moore received various medical treatments. He incurred medical expenses of $22,253.30 as a result of this accident. Moore, however, did not pay these expenses out of pocket. As an employee of Peabody Coal Company (hereinafter Peabody), Moore received certain health insurance benefits under the Benefit Plan for the United Mine Workers Association Represented Employees of Peabody Coal Company (hereinafter the Plan). This is a self-funded welfare benefits plan as defined by the Employee Retirement Income Security Act (hereinafter ERISA), 29 U.S.C. § 1002(1). Alliance, the plan administrator, paid all of Moore's medical expenses.
On August 12, 1996 prior to receiving such payments, Moore signed a subrogation agreement provided by Alliance. That agreement stated:
For myself and on behalf of my dependents, [I] acknowledge that the provision of the plan entitled "subrogation" conveys to my employer any rights to recovery that I and/or my dependents might have against any third party who may be liable for the injury to the extent of any expense paid for hospitalization and treatment of the injury.
[DN 14 Exhibit 2] Furthermore, the Plan contained a subrogation provision which reads as follows:
The Plan does not assume primary responsibility for covered medical expenses which another party is obligated to pay or which another insurance policy or other medical plan covers. Where there is a dispute between the carriers, the Plan shall, subject to provisions 1 and 2 immediately below, pay for such covered expenses but only as a convenience to the Beneficiary eligible for benefits under the Plan and only upon receipt of an appropriate indemnification or subrogation agreement; but the primary and ultimate responsibility for payment shall remain with the other party or carrier.
Obligations to pay benefits on behalf of any Beneficiary shall be conditioned:
1) upon such beneficiary taking all steps necessary or desirable to recover the costs thereof from any third party who may be obligated therefore, and
2) upon such Beneficiary executing such documents as are reasonably required by the Plan Administrator, including, but not limited to, an assignment of rights to receive such third party payments, in order to protect and perfect the Plan's right to reimbursement from any such third party.
[DN 14 Exhibit 1, p 51]
Moore filed suit against Stephens in Hopkins County Circuit Court to recover for the injuries he suffered as a result of the automobile accident. Alliance intervened in that lawsuit to assert its subrogation rights to recover the amount of medical expenses paid. Stephens offered to settle the lawsuit for $50,000, the limit on his liability insurance policy. Moore accepted the offer, but Alliance and Moore disagreed on the amount of the settlement that should be paid to Alliance for reimbursement of the medical expense. The parties executed a release of claims against Stephens and the amount for medical expenses in dispute, $22,255.30, was deposited with the court for later distribution. Subsequently, the circuit judge dismissed the case as the distribution of the amount deposited involved an interpretation of a Qualified Employee Retirement Income Security Act Plan, an issue of federal law governed by ERISA, 29 U.S.C. § 1001 et seq. Following the dismissal, Alliance filed the present lawsuit to recover the amount of medical expenses paid on behalf of Moore.
STANDARD OF REVIEW
When deciding a motion for summary judgment, this Court must determine whether there is a genuine issue as to any material fact and if the moving party is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56(c); see also Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986); Street v. J.C. Bradford Co., 886 F.2d 1472 (6th Cir. 1989). Summary judgment is appropriate here because there are no material facts in dispute. The parties have stipulated to the facts of the case, [DN 10], therefore, the only remaining issues involve questions of law which this Court must decide.
DISCUSSION
Moore argues that the terms of the Plan and subrogation agreement are ambiguous as to the priority of payment for distribution of the settlement. Because of this ambiguity, Moore asserts that the Court should apply the "make whole" doctrine which entitles him to receive complete compensation for all the injuries he suffered before Alliance is reimbursed for the medical expenses it paid. Alliance contends that, when read together, the terms of the Plan and the subrogation agreement are not ambiguous and according to the plain terms of the Plan, it is entitled to recover first the medical expenses it paid.
The "make whole" doctrine adopted in most states applies to bar an insurer from enforcing its right to recover expenses paid where the insured has not been fully compensated for his or her injury. The parties agree that ERISA preempts Kentucky's "make whole" doctrine, however, federal common law applies to situations like these. The federal common law provides that the terms of the Plan control the division of settlement proceeds. If the terms of the Plan are ambiguous as to who gets paid first, then the "make whole" doctrine applies to preclude reimbursement to the insurer before the injured party is made whole. Marshall v. Employers Health Ins. Co., 927 F. Supp. 1068, 1073-74 (M.D. Tenn. 1996), aff'd 1997 WL 809997 (6th Cir. 1997). Therefore, the first issue to decide is whether the terms of the Plan are ambiguous.
The Court finds that the language of the Plan and the subrogation agreement is unambiguous and concludes that Alliance is entitled to first priority over any monies recovered from a third-party tort-feasor to the extent of the medical expenses paid. The subrogation agreement clearly states that Alliance has "any rights to recovery . . . to the extent of any expenses paid for hospitalization and treatment of the injury." A reasonable interpretation of this clause leads to only one conclusion.
In Waller v. Hormel Foods Corp., 120 F.3d 138 (8th Cir. 1997), the Eight Circuit addressed this issue with respect to a similar subrogation provision. The plaintiffs recovered $200,000 from the settlement of a lawsuit brought against the driver of an automobile that collided with them head-on. The defendant, who paid the plaintiffs' medical expenses resulting from injuries sustained in the accident, asserted its right of subrogation. The subrogation provision in the plan stated "[i]n the event of any payment by the company for health care expenses, the company shall be subrogated to all rights of recovery which you or your dependent . . . may have against any person or organization." Id. at 139. The court held this language unambiguously conferred a first priority right to the insurer for any recovery obtained from a responsible third-party. The court opined that
the audience for which an ERISA plan is written — the average plan participant in an employer-funded plan — would read this provision as meaning that the Plan has a `first priority' or `first-dollar' claim to any recovery arising out of an injury up to the mount of medical benefits the Plan has paid on account of that injury.Id. at 140. The Court believes the same can be said about this case.
Moore relies upon Marshall v. Employers Health Ins., 927 F. Supp. 1068 (M.D. Tenn. 1996), aff'd 1997 WL 809997 (6th Cir. 1997), in arguing that Alliance's Subrogation Agreement is ambiguous with regard to the priority of payment and, therefore, this Court should apply the "make whole" doctrine to prevent Alliance from recouping the medical expenses paid. In Marshall, the plaintiff, who was injured in an automobile accident, sued to prevent her insurer from recovering the medical expense paid to her. The plaintiff previously sued the estate of the third party who caused the accident and received a judgment of $300,000. She, however, only recovered $95,000 because the estate possessed too few assets to satisfy the judgment. The insurer sought to recover the medical expenses paid to the plaintiff as a result of injuries suffered in the accident under the Subrogation and Reimbursement provisions contained in the benefits plan. The Subrogation provision read as follows:
If, after payments have been made under the Policy, You or Your covered Dependent has a right to recover damages from a responsible third party, We will be subrogated to Your rights to recover. You or Your covered Dependent will do whatever is necessary to enable Us to exercise Our right and will do nothing after loss to prejudice it. If We are precluded from exercising Our Right of Subrogation, We may exercise Our Right of Reimbursement.Marshall, 927 F. Supp. at 1070.
The Marshall court held that the common law make whole doctrine applies in situations where there is no clear contractual provision to the contrary in a plan's language or subrogation agreement. Id. at 1074. Because the subrogation provision failed to state that the insurer had a right of first reimbursement, neglected to establish any priority of payment of funds recovered from a responsible third-party tort-feasor, and omitted language to exclude application of the "make whole" doctrine, the court found the subrogation provision ambiguous with respect to priority of payment. The court then applied the "make whole" doctrine to the subrogation provision. Id.
The Marshall court, however, ultimately held that the insurer had a right to be reimbursed for the medical expenses paid under a separate reimbursement provision in the plan. Marshall, 927 F. Supp. at 1075.
The Marshall case, however, is distinguishable from the present case. In Marshall, the subrogation provision merely stated that the insurer had the right to "be subrogated to Your rights to recover." Id. at 1070. This provision fails to state the parameters of the insurer's subrogation rights. Furthermore, this clause neglects to indicate if the plan is entitled to an amount equal to the expenses paid or if the insured must be made whole before the subrogation rights arise. In the present case, the language of the Subrogation Agreement more specifically describes Alliances rights. It states that Alliance has "any rights to recovery" that Moore may have against a responsible third party "to the extent of expense paid for hospitalization and treatment of the injury." This language implicitly excludes the "make whole" doctrine. The language used here is more analogous to the language of the separate reimbursement provision in Marshall which clearly provided the insurer the right of first recovery. Therefore, the Court finds the Marshall decision distinguishable due to the difference between the subrogation language contained in the two plans.
Next, Moore requests that if the Court determines that Alliance has a subrogation right to the medical expenses paid, then this Court should award him a credit for reasonable attorneys fees and court costs associated with obtaining the settlement with Stephens. Moore cites Carpenter v. Modern Drop Forge Co., 919 F. Supp. 1198 (N.D. Ind. 1995) in arguing that he "is entitled to a credit for [his] attorney's fees and costs because if [he] had not hired an attorney to reach a settlement, [Alliance] would never have recovered on their subrogation interest." [DN 12 p 10].
While the Indiana District Court's decision in Carpenter is persuasive, it is not binding on this Court. The only Sixth Circuit Court of Appeals decision addressing this issue found that the language of the plan expressly precluded the insured from receiving a credit for attorneys fees against the amount owed from a settlement under a subrogation agreement. Health Cost Controls v. Isbell, 139 F.3d 1070, 1072 (6th Cir. 1997). The language in the plan required a beneficiary to agree to reimburse the plan for any benefits paid for which a third party may be liable. The plan provide that the right to reimbursement would not exceed the lesser of the amount paid by the plan or the amount actually recovered from a settlement or judgment less attorneys fees and expenses incurred. The court held that the "Plan expressly requires full reimbursement of the Plan for medical benefits when a beneficiary recovers sufficient damages from a their party tortfeasor." Id. at 1072. Furthermore, the Court opined that no provisions in the plan entitled the insured to offset any reimbursement amount by the legal costs associated with obtaining the settlement. See also Walker v. Wal-Mart Stores, Inc., 159 F.3d 938 (5th Cir. 1998) (holding administrator did not abuse discretion in denying credit for attorneys fees); United McGill Corp. v. Stinnett, 154 F.3d 168 (4th Cir. 1998) (holding insured must reimburse plan for benefits paid without pro rata deductions for expenses); Bollman Hat Co. v. Root, 112 F.3d 113 (3rd Cir.), cert. denied 118 S.Ct. 373 (1997) (holding no right to credit); Ryan by Capria-Ryan v. Federal Express Corp, 78 F.3d 123 (3rd Cir. 1996) (holding no right to credit for attorneys fees); but see Waller v. Hormel Foods Corp., 120 F.3d 138 (8th Cir. 1997) (holding right to setoff for attorneys fees and costs because of silence of the plan on the issue); Ward v. Wal-Mart Stores, Inc. Assocs. Health Welfare Plan, 7 F. Supp.2d 927 (W.D. Mich. 1998) (holding equities favor proportioning attorneys fees between plan and insured because of plan's silence on the issue).
The Plan read as follows:
No benefits will be paid under any coverage of the Plan with respect to an injury or sickness for which a Third Party may be liable or legally responsible. However, the Insurance Company will pay benefits according to the terms of the policy on the condition that:
1. The Employee or dependent, or
2. The legal representative of the Employee or dependent, agrees in writing to the following immediately after payment:
. . .
2. To reimburse the Insurance Company in accordance with this provision for any benefit paid by the Insurance Company when a recovery is obtained from the Third Party, or the insurer of the Third Party, whether by:
a. Judgment, or
b. Settlement, or
c. In any other manner.
. . .
In no event will the amount of reimbursement to the Insurance Company exceed the lesser of:
1. The amount actually paid under the Plan, or
2. The amount actually recovered from that part of the judgment or settlement in excess of the amount necessary to fully reimburse the Employee or dependent for out-of-pocket expenses incurred, including attorneys fees.Health Cost Controls v. Isbell, No. 1:92CV-11-R, DN 48 (W.D. Ky. 1996).
The decision in Ward did not discuss the Sixth Circuit Health Cost Controls decision probably because that decision was originally an unpublished case that was re-designated as a published decision after entry of the Ward decision. Given these circumstances, the Court questions its precedential value, but nevertheless will briefly discuss the decision. The Ward court opined that the plan before it was silent on the issue of attorneys fees and ambiguous on the extent of reimbursement required. Unlike the Third Circuit decisions of Ryan and Bollman, the court held that the right to recover benefits under the Wal-Mart plan was not preceded by language such as "100%" or "any" or "all" which indicates the right to full reimbursement without a credit for attorneys fees. Therefore, the court concluded that the silence on the issue of attorney fees created an ambiguity which the court resolved by turning to the federal common law principles of unjust enrichment. The Ward case, however, is distinguishable on the fact that the Wal-Mart plan's right to recover benefits was not preceded by words such as "any" or "all." In the present case, the right to recover benefits was preceded by such language, more specifically the word "any." Thus, the present case falls more along the lines of the Third Circuit decisions of Bollman and Ryan which found the plan language unambiguous and denied a credit to the insured for attorneys fees incurred in obtaining a settlement with a third-party tortfeasor.
In the present case, the Plan and the subrogation agreement grant Alliance the right to full reimbursement for any medical expenses paid on behalf of Moore. The subrogation agreement clearly states that Alliance is subrogated to "any right to recovery . . . to the extent of any expense paid for hospitalization and treatment." The Plan does not contain any specific provision allowing Moore a credit against Alliance's subrogation rights for a proportionate share of legal expenses. In fact the language in the subrogation agreement specifically excludes any right to receive a credit for attorneys fees as the amount of subrogation is for the expenses paid for hospitalization and treatment. It makes no statement or reference providing for a reduction of this amount for reasonable attorneys fees. Therefore, based on the Sixth Circuit decision in Health Cost Controls, the Court finds that Moore is not entitled to a credit for the proportionate share of attorneys fees associated with obtaining the settlement with Stephens.
For the foregoing reasons, IT IS HEREBY ORDERED that
1) The Defendant's Motion for Summary Judgment [DN 12] is DENIED,
2) The Plaintiff's Motion for Summary Judgment [DN 14] is GRANTED,
3) The Plaintiff is entitled to receive full reimbursement in the amount of $22,255.30 for medical expenses paid on behalf of the Defendant.
THIS IS A FINAL AND APPEALABLE ORDER AND THERE IS NO JUST CAUSE FOR DELAY.