Auto Club Ins. Ass'n v. New York Life Ins. Co.

• Decision Date: 30 June 1992
• Docket Number: No. 5,No. 90604,M,90604,5
• Citation: 485 N.W.2d 695,440 Mich. 126
• Parties: AUTO CLUB INSURANCE ASSOCIATION, Plaintiff-Appellant, v. NEW YORK LIFE INSURANCE COMPANY, Defendant-Appellee. Calendararch Term 1992.
• Court: Michigan Supreme Court

Page 695

485 N.W.2d 695

440 Mich. 126

AUTO CLUB INSURANCE ASSOCIATION, Plaintiff-Appellant, v. NEW YORK LIFE INSURANCE COMPANY, Defendant-Appellee.

No. 90604.

Calendar No. 5, March Term 1992.

Supreme Court of Michigan.

Argued March 3, 1992.

Decided June 30, 1992.

[440 Mich. 127] Brandt, Hanlon, Becker, Lanctot, McCutcheon, [440 Mich. 128] Schoolmaster & Taylor by Darlene Lynn Petrosky (Gross & Nemeth, by James G. Gross, of counsel), Detroit, for plaintiff-appellant.

Fitzgerald, Peters, Dakmak & Miller, P.C. by Neill T. Peters, Stuart J. Snider, Detroit, and by John R. O'Hanlon, Vice-President and Deputy Gen. Counsel, and P. Michael Madden, Associate Gen. Counsel, New York Life Ins. Co., New York City, for defendant-appellee.

OPINION

ROBERT P. GRIFFIN, Judge.

Although its obligation was only secondary, plaintiff no-fault insurance carrier paid most of the medical expenses of its insured when he was seriously injured in an automobile accident, and then brought this suit for reimbursement against defendant health insurance carrier whose coverage of the same insured was primary. However, the action is time-barred if, as the Court of Appeals held, the one-year limitation of § 3145(1) of the no-fault act ¹ is applicable. Because we conclude that plaintiff's subrogation claim is governed instead by the six-year limitation period ² generally applicable to contract actions, we reverse.

I

Hatim Raja was seriously injured in an automobile accident on August 23, 1983, and died from his injuries on October 10, 1984. The medical expenses he incurred as a result of the accident were covered by two separate contracts of insurance. Raja was insured under a no-fault automobile insurance policy issued by plaintiff Auto Club Insurance Association, and he was also insured under a group major medical plan issued by defendant New York Life Insurance Company. As he was permitted to do under § 3109a of the no-fault act, ³ Raja had elected to coordinate medical expense coverage under the two insurance contracts.

Following the accident, a dispute developed between the two carriers regarding which had the primary obligation to pay the insured's medical expenses. Although ACIA notified NY Life, as well as the insured, that it considered its obligation secondary to that of NY Life, it proceeded to pay all but one of the medical bills. ⁴ Then, in August 1988, approximately four years after ACIA made its final benefit payment, it commenced this action against NY Life, seeking reimbursement for the payments made.

NY Life moved for summary disposition pursuant to MCR 2.116(C)(7), claiming that the suit was barred because it had not been filed within the one-year limitation period provided in § 3145(1):

"An action for recovery of personal protection insurance benefits payable under this chapter for accidental bodily injury may not be commenced later than 1 year after the date of the accident causing the injury unless written notice of injury as provided herein has been given to the insurer within 1 year after the accident or unless the insurer has previously made a payment of personal protection insurance benefits for the injury. If the notice has been given or a payment has been made, the action may be commenced at any time within 1 year after the most recent allowable expense, work loss or survivor's loss has been incurred." (Emphasis added.)

It is undisputed that the action was not commenced within one year after payment by ACIA of the most recent allowable expense.

Denying the motion for summary disposition, the trial court found § 3145(1) inapplicable, reasoning that the suit brought by ACIA is not an action for personal protection insurance benefits, but rather is an action for health and accident benefits under the insurance contract issued by defendant NY Life.

On appeal, however, the Court of Appeals reversed. Citing and quoting Badger State Mut. Casualty Ins. Co. v. Auto-Owners Ins. Co., 128 Mich.App. 120, 127, 339 N.W.2d 713 (1983), the panel concluded that " '[n]o matter how one characterizes the plaintiff's action, it is, in effect, a suit for recovery of no-fault benefits paid.' " 187 Mich.App. 276, 278, 466 N.W.2d 711 (1990).

We granted leave to appeal. 439 Mich. 864 (1991).

II

As this Court explained in Shavers v. Attorney General, 402 Mich. 554, 578-579, 267 N.W.2d 72 (1978), cert. den., 442 U.S. 934, 99 S.Ct. 2869, 61 L.Ed.2d 303 (1979), the no-fault insurance act, MCL 500.3101 et seq.; MSA 24.13101 et seq., enacted in 1972,

"was offered as an innovative social and legal response to the long payment delays, inequitable payment structure, and high legal costs inherent in the tort (or 'fault') liability system. The goal of the no-fault insurance system was to provide victims of motor vehicle accidents assured, adequate, and prompt reparation for certain economic losses."

The Shavers Court also said:

"The Legislature believed this goal could be most effectively achieved through a system of compulsory insurance, whereby every Michigan motorist would be required to purchase no-fault insurance or be unable to operate a motor vehicle legally in this state. Under this system, victims of motor vehicle accidents would receive insurance benefits for their injuries as a substitute for their common-law remedy in tort." Id. at 579, 267 N.W.2d 72. (Emphasis in original.)

In keeping with the system's goal, the no-fault act encourages coordination of personal protection insurance benefits with overlapping health and accident coverage that protects the same insured under a separate insurance contract. Section 3109a provides:

"An insurer providing personal protection insurance benefits shall offer, at appropriately reduced premium rates, deductibles and exclusions reasonably related to other health and accident coverage on the insured. The deductibles and exclusions required to be offered by this section shall be subject to prior approval by the commissioner and shall apply only to benefits payable to the person named in the policy, the spouse of the insured and any relative of either domiciled in the same household."

As the Court of Appeals has explained, when overlapping benefits are coordinated, the insured obtains the "required coverage at a lower rate, while the insurer's reduced profit is offset by the reduction in its potential liability." Auto-Owners Ins. Co. v. Farm Bureau Ins. Co., 171 Mich.App. 46, 52, 429 N.W.2d 637 (1988).

Although Raja, the insured, had elected coordination in accordance with § 3109a, as earlier noted, each of his two insurers initially claimed that the other was primarily liable for his medical expenses. However, before the commencement of this action, our Court decided Federal Kemper Ins. Co. v. Health Ins. Administration, Inc. 424 Mich. 537, 383 N.W.2d 590 (1986). There, considering analogous circumstances, we held that the no-fault insurer's obligation is secondary to that of the health and accident insurance carrier. Thus, it was clear when this action was filed, and it is clear now that, absent a time-bar, NY Life bears the primary obligation for Raja's medical expenses.

III

Despite its status as a no-fault insurer, ACIA maintains that its claim against NY Life is not based on the no-fault act. Rather, ACIA's position is that it has filed a common-law contract action as subrogee of Raja to recover benefits due him under the insurance contract issued by NY Life. As this Court has explained:

" 'The doctrine of subrogation rests upon the equitable principle that one who, in order to protect a security held by him, is compelled to pay a debt for which another is primarily liable, is entitled to be substituted in the place of and to be vested with the rights of the person to whom such payment is made, without agreement to that effect.' " Machined Parts Corp. v. Schneider, 289 Mich. 567, 574, 286 N.W. 831 (1939), citing French v. Grand Beach Co., 239 Mich. 575, 580, 215 N.W. 13 (1927).

While subrogation is not available to a "mere volunteer," Smith v. Sprague, 244 Mich. 577, 580, 222 N.W. 207 (1928), this Court has determined that where an insurance carrier pays the expenses of its own insured pursuant to an insurance contract, it is not a volunteer. DAIIE v. Detroit Mut. Automobile Ins. Co., 337 Mich. 50, 59 N.W.2d 80 (1953). In addition to its contractual obligations, ACIA was subject to a variety of incentives imposed by the no-fault act that encourage the prompt payment of claims. For example, § 3142 requires a no-fault insurer to pay penalty interest of twelve percent on covered benefits that are not paid within thirty days of receipt of reasonable proof of loss. ⁵ This penalty is in addition to statutory interest payable under M.C.L. 600.6013; M.S.A. § 27A.6013. See Wood v. DAIIE, 413 Mich. 573, 589, 321 N.W.2d 653 (1982). Further, § 3148 provides for assessment of attorney fees if the court finds that a no-fault insurer has unreasonably delayed in making benefit payments. ⁶ Particularly in the light of such incentives, it is clear that ACIA was protecting its own interests and did not act as a volunteer when it paid the medical expenses of its insured. Persuaded that ACIA is entitled to invoke the doctrine of subrogation, we turn next to consider whether its claim for reimbursement is barred by § 3145(1).

IV

NY Life concedes that, ordinarily, a subrogee has the same cause of action as the subrogor, and that if Raja or his estate had sued to recover health and accident benefits under the NY Life contract, the action would not be governed by § 3145(1). ⁷ However, NY Life advances two arguments to support its position that this action by ACIA is time-barred.

First, NY Life contends that such a result is required because ACIA seeks reimbursement for personal protection insurance benefits and § 3145(1) applies to all actions for the recovery of personal protection insurance benefits payable under the no-fault act. Second, NY Life argues that § 3145(1) should apply...