Bales v. Warren County, 90-1067

• Decision Date: 18 September 1991
• Docket Number: No. 90-1067,90-1067
• Parties: Patrick Scott BALES and Rhonda Bales, Individually and as Next Friend of Dina Marie Bales, a Minor, Plaintiffs, v. WARREN COUNTY, Iowa; Bob Sandy; Ruth Hardin; Bill Anders; and Don Berry, Appellees, v. STATE of Iowa, ex rel. DEPARTMENT OF HUMAN SERVICES, Appellant.
• Court: Iowa Supreme Court

Page 398

478 N.W.2d 398

Patrick Scott BALES and Rhonda Bales, Individually and as Next Friend of Dina Marie Bales, a Minor, Plaintiffs, v. WARREN COUNTY, Iowa; Bob Sandy; Ruth Hardin; Bill Anders; and Don Berry, Appellees, v. STATE of Iowa, ex rel. DEPARTMENT OF HUMAN SERVICES, Appellant.

No. 90-1067.

Supreme Court of Iowa.

Sept. 18, 1991.

As Amended on Denial of Rehearing Dec. 3, 1991.

Thomas J. Miller, Atty. Gen., Gordon E. Allen, Deputy Atty. Gen., and Stephen C. Robinson, Asst. Atty. Gen., for appellant.

Carlton G. Salmons of Austin, Gaudineer, Austin, Salmons & Swanson, Des Moines, for appellees.

Considered by McGIVERIN, C.J., and HARRIS, SCHULTZ, LAVORATO, and NEUMAN, JJ.

LAVORATO, Justice.

Patrick Scott Bales was injured in a motorcycle accident. Thereafter, the Iowa department of human services provided medical assistance benefits for Patrick's care and treatment because of his injuries. A later tort action brought by Patrick, his wife, and on behalf of his child, was settled except for the department's subrogation claim for the medical assistance benefits. See Iowa Code §§ 249A.3, 249A.6(1) (1987).

The present declaratory judgment action concerns the department's right to recoup from the settlement proceeds. The department contends it is entitled to recover the full amount of its claim. The district court ruled that the department's claim should be reduced by any comparative fault assigned to Patrick in the pending tort suit. The court also ruled that the claim should be reduced by any attorney fees and court costs Patrick incurred in collecting it.

We agree that the department's claim should be reduced by any comparative fault assigned to Patrick. But we do not agree that the department's claim should be reduced by any attorney fees or court costs. So we affirm in part and reverse in part.

On March 22, 1987, Patrick sustained serious injuries in a motorcycle accident. While driving his motorcycle on a Warren County secondary road, Patrick failed to make a curve. He went off the opposite side of the road and into a ditch. His motorcycle flipped on top of him. In the accident Patrick's fifth thoracic vertebra was crushed and he was rendered a paraplegic.

A Life-Flight helicopter from Iowa Methodist Medical Center in Des Moines transported Patrick to the Center. A blood sample was taken from Patrick and tested. The test showed that his blood alcohol level was .170. This is above the legal limit for operating a motor vehicle. See Iowa Code § 321J.2.

Patrick underwent treatment at the Center. From there he was transferred to the University of Iowa Hospitals and Clinics. Later Patrick was transferred to Knoxville.

Patrick was unable to return to work as a carpenter. Pursuant to Iowa Code section 249A.3, the department paid Patrick's medical expenses which eventually totaled $48,981.13.

In January 1989 Patrick, his wife, and child filed a negligence action against Warren County, the individual members of the board of supervisors, and the county engineer. A month later the defendants answered, asserting comparative fault of Patrick as a defense.

Eventually the defendants settled with Patrick. During settlement negotiations the defendants' attorney tried--unsuccessfully--to negotiate an amount due the State. The State was adamant that it was entitled to every dollar it had paid Patrick. The defendants, of course, were seeking a lesser amount.

The defendants' attorney prepared a settlement and release agreement. The agreement was ultimately executed by Patrick and the defendants, and expressly excluded settlement of the department's claim.

The agreement provided that the defendants would hold Patrick and his attorneys harmless from any claim by the department for the medical payments. In the agreement Patrick and his attorneys assigned "all rights, claims, causes, credits or deductions for such attorney fees as they had, may have had, have or may have in the future against" the department arising from the lawsuit or by settlement of the suit under the agreement. The agreement obligated the defendants to pay those fees. By the express terms of the agreement the defendants were put in the same position as Patrick with respect to any settlement with the department.

The agreement also expressly provided that no past wrongdoing on the part of any party was to be implied by any payments. The agreement merely stated that disputed issues were being settled.

Later the Bales partially dismissed their action with prejudice in accordance with the settlement agreement. The only thing preserved was Patrick's claim for medical care and expenses totaling $48,981.13.

The same day the dismissal was filed, the defendants filed a "third-party petition in equity for declaratory judgment" action against the department. At the same time the defendants deposited the $48,981.13 with the clerk of court pursuant to Iowa Rule of Civil Procedure 37.

The third-party petition acknowledged that the department had paid Patrick's medical expenses of $48,981.13, to which the department was subrogated under Iowa Code section 249A.6(1). The petition recited that Patrick and the third-party plaintiffs (defendants in the original tort action) had reached a full and final settlement of all claims arising from the accident. The petition also recited that Patrick had assigned to such plaintiffs "any and all rights, claims or causes for attorney fees and costs" which Patrick might make against the department under Iowa Code section 249A.6(4).

Finally, the petition made two legal assertions. First, because the department is subrogated to Patrick's legal position, the department's recovery must be reduced or barred entirely by Patrick's comparative fault. See generally Iowa Code ch. 668 (comparative fault statute). Second, pursuant to Iowa Code section 249A.6(4), the department is responsible for attorney fees and court costs incurred by Patrick.

The parties submitted this suit to the district court on stipulated facts. The district court concluded that section 249A.6 is a subrogation statute placing the department in Patrick's shoes as to the department's subrogation claim for $48,981.13. The court also concluded that the department's subrogation claim was subject to reduction for any comparative fault attributable to Patrick in the pending tort suit. Finally, the court concluded that the department was liable for the attorney fees and court costs Patrick incurred in recovering the subrogation claim. Later the district court entered a decree incorporating these conclusions. It is from this decree that the State appeals.

Our scope of review here is de novo. Iowa R.App. P. 4. There is no dispute as to the facts. The dispute is about the meaning of the law. Our task then is to interpret statutory and case law.

I. Reduction for Comparative Fault.

The amount that the department is entitled to recover is governed by Iowa Code section 249A.6(1). The statute provides in part:

When payment is made by the department for medical care or expenses through the medical assistance program on behalf of a recipient, the department is subrogated, to the extent of those payments, to all monetary claims which the recipient may have against third parties as a result of the medical care or expenses received or incurred.

(Emphasis added.) The statute expressly provides that the department's right to reimbursement depends on subrogation principles. We said so in two cases. See Scott v. Department of Human Servs., 438 N.W.2d 834, 835 (Iowa 1989); Department of Human Servs. v. Brooks, 412 N.W.2d 613, 614-16 (Iowa 1987).

Subrogation has been described as

contemplat[ing] full substitution and plac[ing] the party subrogated in the shoes of the creditor. Generally speaking, the party subrogated acquires all the rights, securities, and remedies the creditor has against the debtor who is primarily liable.... His right of subrogation, although not superior to the rights of the original creditor, extends to the latter's rights, both direct and incidental.

The rights to which the subrogee succeeds are the same as, but no greater than, those of the person for whom he is substituted. He cannot acquire any claim, security, or remedy the subrogor did not have. Moreover, the rights, claims, and securities to which he succeeds are taken subject to the limitations, burdens, and disqualifications incident to them in the hands of the party to whom he is subrogated, and subject to any defenses that might have been urged against the latter. Beyond this he has no right and no valid claim for protection.

73 Am.Jur.2d Subrogation § 106, at 665-66 (1974). This court has taken a similar view of subrogation. See Kent v. Bailey, 181 Iowa 489, 493-94, 164 N.W. 852, 853 (1917).

In Kent v. Bailey, this court discussed the origins of subrogation:

The books agree that subrogation is not founded on contract or privity or strict suretyship, but is born of equity, and results from the natural justice of placing the burden where it ought to rest. The remedy depends upon the principles of justice, equity and benevolence to be applied to the...