Blue Cross/Blue Shield of Rhode Island v. Flam by Strauss

• Decision Date: 07 December 1993
• Docket Number: No. C5-93-799,C5-93-799
• Citation: 509 N.W.2d 393
• Parties: BLUE CROSS/BLUE SHIELD OF RHODE ISLAND, Appellant, v. Evan FLAM, a minor, by his Guardian Ad Litem, Jerry Strauss, Respondent, ROWLAND POINTE PARTNERSHIP, et al., Defendants, Rowland Pointe Partnership, Defendant and Third-Party Plaintiff, v. Darryl FLAM, et al., Third-Party Defendants, Respondents.
• Court: Minnesota Court of Appeals

Page 393

509 N.W.2d 393

BLUE CROSS/BLUE SHIELD OF RHODE ISLAND, Appellant, v. Evan FLAM, a minor, by his Guardian Ad Litem, Jerry Strauss, Respondent, ROWLAND POINTE PARTNERSHIP, et al., Defendants, Rowland Pointe Partnership, Defendant and Third-Party Plaintiff, v. Darryl FLAM, et al., Third-Party Defendants, Respondents.

No. C5-93-799.

Court of Appeals of Minnesota.

Dec. 7, 1993.

Review Denied Feb. 24, 1994.

Syllabus by the Court

1. The district court should have granted appellant's formal motion to intervene after it allowed appellant to participate as though it were a party to the action, and where it ruled on the merits of appellant's claim.

2. The Employee Retirement Income Security Act (ERISA), 29 U.S.C. Sec. 1144 3. Where the terms of an ERISA plan fail to grant the insurer a priority to payment received from a third party, the subrogation right cannot be asserted until the insured party is fully compensated for his or her injuries.

(1976), preempts the application of state subrogation law to an insurer's benefit plan.

Kay Nord Hunt, Lommen, Nelson, Cole & Stageberg, P.A., Minneapolis, for appellant.

Tyrone P. Bujold, Susan Richard Nelson, Paul J. Harmon, Robins, Kaplan, Miller & Ciresi, Minneapolis, for Evan Flam.

Mitchell R. Spector, Abrams & Spector, P.A., Minneapolis, for Jerry Strauss.

William Lubov, Minneapolis, for Darryl Flam.

Considered and decided by HUSPENI, P.J., and CRIPPEN and SHORT, JJ.

OPINION

HUSPENI, Judge.

Appellant Blue Cross/Blue Shield of Rhode Island challenges the district court's order denying its petition to intervene in an action between respondent Evan Flam, a minor, by his guardian ad litem, Jerry Strauss, and defendant Rowland Pointe Partnership. Appellant also challenges the district court's order denying its right to subrogation as a matter of law. We affirm in part and reverse in part.

FACTS

In 1990, seven-year-old Evan Flam was severely injured when thousands of pounds of dirt caved in upon him on undeveloped land located next to his apartment complex. The land was owned by Rowland Pointe Partnership. Blue Cross/Blue Shield of Rhode Island (BCBS) paid a portion of Evan's medical expenses pursuant to an insurance policy issued to Evan's father, Darryl Flam.

In late summer 1992, BCBS received a letter from Evan Flam's attorney, informing it that respondent was attempting to settle his lawsuit against the defendants. The letter requested that BCBS waive its right to subrogation and suggested, in the event they could not resolve the matter, that the parties stipulate to BCBS becoming an intervening party. BCBS neither waived its subrogation claim nor filed a formal petition to intervene. A settlement hearing was scheduled, and BCBS received notice that any alleged right to subrogation that it planned to claim against the settlement would be considered at the hearing. BCBS appeared by counsel at the settlement hearing.

The district court approved the $2,000,000 settlement and denied BCBS's subrogation claim. BCBS then filed a formal petition to intervene and brought a motion to vacate the judgment. The district court denied both motions.

ISSUES

1. Did the district court err by denying BCBS's motion to intervene as of right?

2. Does ERISA preempt the application of state subrogation law to BCBS's benefit plan?

3. Is BCBS entitled to subrogation as a matter of law?

ANALYSIS

I. Intervention

On appeal, this court may independently assess the appropriateness of the district court's denial of intervention as of right. Norman v. Refsland, 383 N.W.2d 673, 676 (Minn.1986). In order to intervene as of right, a nonparty must demonstrate the following:

(1) timely application for intervention;

(2) an interest relating to the property or transaction which is the subject of the action;

(3) circumstances demonstrating that the disposition of the action may as a practical matter impair or impede the party's ability to protect that interest; and

(4) a showing that the party is not adequately represented by the existing parties.

Minn.R.Civ.P. 24.01; Minneapolis Star & Tribune Co. v. Schumacher, 392 N.W.2d 197, 207 (Minn.1986). The district court concluded BCBS's motion to intervene was untimely.

The determination of whether intervention is timely must be considered on a case-by-case basis. Omegon, Inc. v. City of Minnetonka, 346 N.W.2d 684, 687 (Minn.App.1984), pet. for rev. denied (Minn. June 12, 1984). Timeliness of an application depends on factors such as how far the suit has progressed, the reason for the delay in seeking intervention, and any prejudice to the existing parties because of the delay. SST, Inc. v. City of Minneapolis, 288 N.W.2d 225, 230 (Minn.1979).

The policy of encouraging intervention whenever possible is favored by courts, and the rule should be liberally applied. Engelrup v. Potter, 302 Minn. 157, 166, 224 N.W.2d 484, 489 (1974). Posttrial intervention, however, is not viewed favorably. Brakke v. Beardsley, 279 N.W.2d 798, 801 (Minn.1979). Intervention should not be allowed where circumstances show that the would-be intervenor was aware of the suit and permitted the trial to proceed, waiting to see if the outcome would be favorable to its interests. State Auto. & Casualty Underwriters v. Lee, 257 N.W.2d 573, 576 (Minn.1977).

The procedural history in this case is unusual. In a letter, Evan Flam's attorney asked BCBS to waive its right to subrogation. The attorney suggested that, in the event BCBS refused to waive its claim, all parties would stipulate to BCBS being made an intervening plaintiff. BCBS was not made a party to the lawsuit, however, merely by virtue of this suggestion. A party desiring to intervene must serve a notice of intervention on all parties to the action. Minn.R.Civ.P. 24.03. A party may only intervene without notice upon written consent of all parties to the action. Id. BCBS did not provide proper notice nor did it have written consent from all parties. Instead, it moved to intervene only after the settlement hearing was held and after the district court denied its subrogation claim.

Although BCBS failed to follow the required procedures to intervene, the respondent and the district court were aware that BCBS was not waiving its right to subrogation. Further, BCBS was never made a party to the lawsuit, even though the district court allowed BCBS to participate fully in the settlement hearing. Perhaps most important, the court addressed BCBS's subrogation claim on the merits and entered judgment denying that claim. Thus, we conclude that, in effect, the district court treated BCBS as though it were a party to the lawsuit.

We disagree with the district court that intervention by BCBS would have unduly prejudiced the respondent's rights in this case. To the contrary, permitting BCBS to intervene would have resolved the question of whether BCBS was bound by the district court's denial of the right to subrogation, and would have prohibited BCBS from bringing a separate action against respondent on the issue of subrogation. See Provident Life & Accident Ins. Co. v. Linthicum, 930 F.2d 14, 16 (8th Cir.1991) (insurer was not bound by district court's prior order since it was denied leave to intervene and thus was not a party to the proceedings).

The unique procedural posture and circumstances of this case lead us to conclude that the district court erred in refusing to do formally that which it did informally, to wit, permit BCBS to intervene. See Refsland, 383 N.W.2d at 678 (judicial economy may favor intervention); Erickson v. Bennett, 409 N.W.2d 884, 886 (Minn.App.1987) (justice required that late intervention be permitted). By permitting intervention, the district court would have validated its exercise of jurisdiction in addressing the subrogation issue on the merits. Of most importance to this court on appeal, however, is the fact that BCBS, the disappointed petitioner for intervention in the district court, joins respondent in actively requesting that this court address the subrogation issue on the merits. That joint request satisfies us that both parties consider the matter to have been fully explored in the district court and that BCBS does not view the district court's formal denial of intervention as in any manner prohibiting BCBS from fully expressing its position on the subrogation issue. We shall, therefore, proceed to review the issue of subrogation.

II. ERISA preemption

BCBS alleges that it is entitled to recovery under its subrogation claim and that the district court erred in denying that relief. In effect, BCBS argues that ERISA preempts the antisubrogation rules enunciated in Westendorf by Westendorf v. Stasson, 330 N.W.2d 699 (Minn.1983); that because of that preemption courts must interpret the contract before it based on federal common law; and that application of federal common law in this case results in recovery by BCBS under its subrogation rights. We agree with BCBS that ERISA preempts any state subrogation laws and that federal common law must be applied. We disagree, however, that preemption and application of federal common law leads to recovery. We shall address each of these factors in turn.

ERISA preempts any state law that relates to an employee benefit plan. 29 U.S.C. Sec. 1144(a) (1975). The Minnesota Supreme court has concluded that the state subrogation law embodied in Westendorf relates to an employee benefit plan. Hunt by Hunt v. Sherman, 345 N.W.2d 750, 753 (Minn.1984). There are, however, several exceptions to section 1144(a). We must determine, therefore, whether any of these exceptions apply here to save the state common law from preemption.

ERISA does not preempt any state law that "regulates insurance." 29 U.S.C. Sec. 1144(b)(2)(A). Factors to consider in determining whether a law regulates insurance are: (1) whether a particular practice has the effect of transferring or spreading the policyholder's risk, (2) whether the practice is an integral part of the policy...