1998 -NMCA- 64, Health Plus of New Mexico, Inc. v. Harrell

• Decision Date: 18 March 1998
• Docket Number: No. 17677,17677
• Citation: 125 N.M. 189,1998 NMCA 64,958 P.2d 1239
• Parties: , 1998 -NMCA- 64 HEALTH PLUS OF NEW MEXICO, INC., Plaintiff-Appellee/Cross-Appellant, v. James HARRELL, Defendant-Appellant, and City of Albuquerque, a municipal corporation, Defendant/Cross-Appellee.
• Court: Court of Appeals of New Mexico

Page 1239

958 P.2d 1239

125 N.M. 189, 1998 -NMCA- 64

HEALTH PLUS OF NEW MEXICO, INC., Plaintiff-Appellee/Cross-Appellant, v. James HARRELL, Defendant-Appellant and City of Albuquerque, a municipal corporation Defendant/Cross-Appellee.

No. 17677.

Court of Appeals of New Mexico.

March 18, 1998.

Certiorari Denied May 5, 1998.

Travis R. Collier, Deborah E. Mann, Rodey, Dickason, Sloan, Akin & Robb, P.A., Albuquerque, for Appellee/Cross-Appellant.

Charles G. Berry, Charles G. Berry & Associates, P.A., Albuquerque, for Appellant.

Edwin Macy, City of Albuquerque, Albuquerque, for Cross-Appellee.

OPINION

ALARID, Judge.

¶1 Insured party (Harrell) appeals the trial court's determination that it has a contractual and legal duty to hold settlement funds for the insurer (Health Plus). Health Plus cross-appeals the trial court's determination that its claim of subrogation against the City of Albuquerque (the City) was barred by the two-year Tort Claims Act statute of limitations. NMSA 1978, § 41-4-15(A) (1977). Health Plus appealed against the City; Harrell responded to Health Plus' appeal. Because Harrell's answer brief advocates the City's position, we evaluate this response as the City's. We affirm in part and reverse in part and remand to the trial court for further proceedings consistent with this opinion.

FACTS

¶2 This case involves Health Plus' subrogation claim against the City and a reimbursement claim against Harrell. On July 6, 1990, Harrell and a City bus driver were in an automobile accident. Harrell was injured as a result of this accident. Health Plus insured Harrell and paid Harrell's medical bills totaling $21,141.63. On March 30, 1992, Harrell filed suit against the City asserting that the City was responsible for Harrell's injuries. Health Plus notified both Harrell and the City of its right of subrogation within ninety days of the accident as required by the Tort Claims Act, NMSA 1978, § 41-4-16(A) (1977).

¶3 On December 21, 1992, Harrell settled its case with the City for $150,000. At that time he and the City did not notify Health Plus or include it in the settlement agreement. Health Plus then made demand for payment upon both Harrell and the City; both refused to pay. Health Plus filed this suit to recover upon its right of subrogation.

¶4 The insurance policy issued by Health Plus provides that:

A. The benefits under this Contract will be available to a Member who is injured by the act or omission of another.... If the Member receives benefits under this Contract for treatment of such injuries, HPNM [Health Plus] will be subrogated to the rights of the Member ... to the extent of all such payments made by HPNM for such benefits. By way of illustration only, such subrogated rights include the Member's rights to recover for personal injuries sustained in a car accident. The Member agrees to execute and deliver to HPNM such instruments and papers as may be necessary to secure such rights.

B. Collection by Member or Representative

Any sums collected by or on behalf of the Member ... for benefits provided by HPNM shall be payable to HPNM. When reasonable collection costs and reasonable legal expenses have been incurred in recovering sums which benefit both Member and HPNM, whether incurred in an action for damages or otherwise, there shall be an equitable division of such collection costs and legal expenses.

¶5 When the City and Harrell settled the suit, they agreed to exclude Health Plus from the agreement. The City had wanted to include Health Plus. However, Harrell did not want the amount owed to Health Plus to reduce his award. Harrell and the City determined that the two-year Tort Claims Act statute of limitations barred Health Plus' claim of subrogation. Section 41-4-15(A). Because of the statute of limitations, the City agreed to settle Harrell's claim without Health Plus' involvement, if Harrell agreed to release the City and to indemnify and defend the City if Health Plus later filed suit against it. Harrell agreed to these terms.

DISCUSSION

I. Harrell's Appeal

¶6 On appeal, Harrell asserts that Health Plus has neither a contractual nor legal right of subrogation against Harrell and that Harrell has neither a legal nor contractual duty to hold funds in trust for Health Plus. Health Plus argues that these two provisions created a contractual duty by Harrell to reimburse Health Plus for the payment of Harrell's medical expenses and created a contractual right of subrogation against the City. We agree. When a party is challenging a conclusion of law, the standard of review is whether the trial court correctly applied the law to the facts, viewing the facts in a light most favorable to the prevailing party. Texas Nat'l Theatres, Inc. v. City of Albuquerque, 97 N.M. 282, 287, 639 P.2d 569, 574 (1982). Health Plus relies on Amica Mutual Insurance Co. v. Maloney, 120 N.M. 523, 527, 903 P.2d 834, 838 (1995), to support the trial court's determination that Harrell did in fact have a legal duty to safeguard the interests of Health Plus. In Amica, 120 N.M. at 527, 903 P.2d at 838, the New Mexico Supreme Court held that an insured is responsible for protecting the insurance company's interest when pursuing a claim against a third party tortfeasor. "[T]he insured becomes a trustee and holds the amount of the recovery, equal to the indemnity payment [by the insurance company] for the use and benefit of the company." Id. at 528, 903 P.2d at 839 (quoting Bowen v. American Family Ins. Group, 504 N.W.2d 604, 605 (S.D.1993)).

¶7 Harrell attempts to distinguish Amica from the case at hand. Harrell points out the fact that in Amica there was a provision in the insurance contract that required that the insured hold the money in trust for the insurance company. See id. at 526, 903 P.2d at 837. Although the language in Amica is different from the language in the Health Plus contract, the language of the Health Plus contract also imposes a legal duty upon Harrell to reimburse Health Plus. The contract provides that "[i]f the Member [Harrell] receives benefits under this Contract for treatment of such injuries, HPNM [Health Plus] will be subrogated to the rights of the Member ... [and] [a]ny sums collected by or on behalf of the Member ... for benefits provided by HPNM shall be payable to HPNM."

¶8 Harrell relies on Aetna Casuality & Surety Co. v. Saul, 422 So.2d 497, 499 (La.Ct.App.1982), where the court did not allow an insurance company to recover from the insured when the insured had recovered from the third party tortfeasor. We elect not to follow Saul, as it relied on facts distinguishable from the present case. In Saul, there was explicit evidence in the record that settlement of the insured and the tortfeasor did not include money paid by the insurance company under the insurance contract. Saul, 422 So.2d at 499. The Saul tortfeasor paid for the pain and suffering of the insured, not for the damage to the car that the insurance company had already paid. Id. Here, the settlement between Harrell and the City was for all claims and demands and all injuries known and unknown. Health Plus paid Harrell for the medical expenses he incurred as a result of his injuries. The settlement agreement clearly covers all damages, including the amount paid by Health Plus for Harrell's medical expenses.

¶9 Harrell also contends that because Health Plus did not participate or try to intervene in the settlement negotiations, Health Plus is not entitled to recover the indemnity payment. However, when an insurance company chooses not to participate in the suit or settlement, it is assumed that it is relying on the actions of the insured. Amica, 120 N.M. at 528, 903 P.2d at 839. Thus, Health Plus did not have a duty to intervene in the suit or the settlement agreement in order for Harrell to have a duty to safe keep the money that he should have paid to Health Plus.

¶10 Harrell disputes the trial court's determination that he had a contractual duty to hold funds for Health Plus. Generally, courts interpret insurance contracts in the same manner as all contracts. Crow v. Capitol Bankers Life Ins. Co., 119 N.M. 452, 456, 891 P.2d 1206, 1210 (1995). The contracts are "interpreted by their own terms and conditions." Id. When construing the language of an insurance contract, the plaintiff has the burden of showing that the language of the contract is ambiguous. See 14 Tx.Jur.3d, Contracts § 336 (Kevin L. Taylor, ed., 1981 and Supp.1997). If the language is ambiguous, however, the court must construe the contract in favor of the insured. Federal Ins. Co. v. Century Fed. Sav. & Loan Ass'n, 113 N.M. 162, 167, 824 P.2d 302, 307 (1992). The language in the insurance contract between Hattell and Health Plus is unambiguous. Health Plus agreed to pay for Harrell's medical bills and in turn Harrell agreed to repay Health Plus for the amounts paid under the policy. The language of the contract Harrell entered binds him. Harrell clearly has a contractual duty to repay Health Plus for any money he recovered from the City for his medical expenses.

II. Health Plus' Cross-Appeal

¶11 In its cross-appeal, Health Plus asserts that the trial court erred in concluding that the statute of limitations barred its suit against the City and that it erred in concluding that the City is immune from suit based upon a claim of constructive fraud. Health Plus believes that the statute of limitations began to run in December of 1992 when the City and Harrell settled Harrell's claim without providing for Health Plus' subrogation rights.

¶12 Initially, we must determine whether Health Plus had a right of subrogation. When an insurance company pays the claim of its insured, it is considered subrogated to recovery of its money against the person who caused the injury. State v. Brooks, 116 N.M. 309, 315, 862 P.2d 57, 63 (Ct.App.1993), ...