Brooks v. AMF, INC., 48532

• Decision Date: 04 May 1979
• Docket Number: No. 48532,48547 and 48631.,48532
• Citation: 278 NW 2d 310
• Parties: Myles BROOKS, Respondent, v. A. M. F., INC., et al., Respondents, Lynn Gieseke, d.b.a. St. Paul Seamless Surfacing Co., et al., Respondents, Child's Construction Company, et al., Respondents, Saxon Bowling Lanes, et al., Respondents, and Blue Cross and Blue Shield of Minnesota, intervenor, Relator, Prudential Insurance Company, intervenor, Relator. and Elmer A. HENDRICKSON, Respondent, v. CENTRAL STATES INSULATION, INC., et al., Respondents, and General American Life Insurance Company, intervenor, Relator.
• Court: Minnesota Supreme Court

278 N.W.2d 310 (1979)

Myles BROOKS, Respondent, v. A. M. F., INC., et al., Respondents, Lynn Gieseke, d.b.a. St. Paul Seamless Surfacing Co., et al., Respondents, Child's Construction Company, et al., Respondents,

Saxon Bowling Lanes, et al., Respondents, and Blue Cross and Blue Shield of Minnesota, intervenor, Relator, Prudential Insurance Company, intervenor, Relator. and Elmer A. HENDRICKSON, Respondent, v. CENTRAL STATES INSULATION, INC., et al., Respondents, and General American Life Insurance Company, intervenor, Relator.

Nos. 48532, 48547 and 48631.

Supreme Court of Minnesota.

March 30, 1979.

Rehearing Denied May 4, 1979.

Robins Davis & Lyons, Arnold M. Bellis and John G. Brian III, St. Paul, for Blue Cross/Blue Shield of Minnesota.

Van Evera, Mundt, Koskinen, Clure & Andrew and Thomas F. Andrew, Duluth, for Prudential Ins. Co.

Richards, Montgomery, Cobb & Bassford and John M. Degnan, Minneapolis, for General American Life Ins. Co.

Nilva & Frisch and Paul J. Gatto, St. Paul, for Brooks.

Cragg & Bailly and Gary J. Gordon, Minneapolis, for A. M. F., Inc.

Ronald O. W. Ylitalo, St. Paul, for Gieseke.

Johnson Goetteman Anderson & Laverdiere, Edina, for Child's Const. Co.

Jardine, Logan & O'Brien, St. Paul, for Saxon Bowling Lanes.

Oberg & Robbins, Wayzata, for Hendrickson.

Fitch & Johnson, Minneapolis, for Central States Insulation, Inc.

Warren Spannaus, Atty. Gen., Paul G. Zerby, Asst. Atty. Gen., P. Kenneth Kohnstamm, Sp. Asst. Atty. Gen., St. Paul, for Dept. of Public Welfare.

Heard before ROGOSHESKE, KELLY, and YETKA, JJ., and considered and decided by the court en banc.

ROGOSHESKE, Justice.

These consolidated certiorari appeals by Blue Cross and Blue Shield of Minnesota, Prudential Insurance Company, and General American Life Insurance Company, health insurance intervenors, require our review of decisions by the Workers' Compensation Court of Appeals denying intervenors' requests for reimbursement of medical expenses paid for employees who settled their workers' compensation claims without intervenors' agreement prior to trial on the merits. At issue is the adequacy of procedures employed by the Workers' Compensation Division and the court of appeals, by which an intervenor who has not been included as a participant in settlement negotiation between the employee and employer-insurer is awarded reimbursement only after it proves that the employee's injuries are work related. For reasons which follow, we hold that the procedures are not adequate and in the cases under review order full reimbursement to intervenors.

In November 1976, employee Myles Brooks filed a claim petition alleging that he had sustained a permanent injury to his wrist in the course of his employment with three named employers. Brooks also filed claims with the Prudential Insurance Company of America and with Blue Cross and Blue Shield of Minnesota to receive benefits under group health insurance policies that expressly excluded coverage of occupational injuries covered by workers' compensation laws. Both Prudential and Blue Cross made payments on the claims: Prudential, after assurance from Brooks' attorney that it would be reimbursed if the Workers' Compensation Division ruled in Brooks' favor, paid medical bills totaling $2,605.90; Blue Cross paid hospital bills totaling $1,425.70.

In February 1977, Blue Cross and Prudential were notified that they had a right to intervene in Brooks' proceeding before the Workers' Compensation Division in order to obtain reimbursement of the medical expenses they had incurred on Brooks' behalf. Blue Cross intervened; Prudential did not intervene at that time, relying on Brooks' assurances that he would protect Prudential's interests. Before the employee's claim (which was calendared for hearing) was tried on the merits, Brooks entered into a written stipulation of settlement with the employers and insurers.

In the stipulation, each of the employers denied primary liability, and Brooks expressly acknowledged that the injury complained of did not arise in the course of his employment. The employers-insurers agreed to pay Brooks $14,750 in full, final, and complete settlement of all claims, separated into $4,000 for his claim for workers' compensation benefits and $10,750 for his third-party tort claim. In addition, the employers-insurers and third-party tortfeasor made express reference to the benefits Brooks had received from Prudential and Blue Cross and agreed to hold Brooks harmless against any claim of intervention by these group health insurers.

Both Prudential and Blue Cross were excluded from participating in the negotiations for settlement and were notified of them only after the "stipulation for an award" was approved, when the Workers' Compensation Division informed them by service of a copy of "award on stipulation," which included notice that they would be allowed 90 days in which to notify the compensation judge in charge of calendaring contested cases that they were prepared to prove that Brooks' injuries were work related. After the "award on stipulation" had been issued by an assistant commissioner of the Workers' Compensation Division, Prudential made application to intervene.¹ Prudential and Blue Cross then appealed to the Workers' Compensation Court of Appeals, claiming that their interests were not adequately protected by being forced to prove their claim for reimbursement after having been excluded from the settlement negotiations and award proceedings. The court of appeals affirmed the division's approval and award.

Hendrickson v. Central States Insulation, Inc., was consolidated on appeal with Brooks. Insofar as relevant here, the facts in Hendrickson and Brooks are substantially the same. General American Life Insurance Company petitioned to intervene to recover $3,394.55 in medical expenses it had incurred on behalf of employee Elmer Hendrickson, who had filed a claim petition seeking compensation benefits for an alleged work-related heart attack. After intervention by General American but before trial of the employee's claim, the employer-insurer negotiated a settlement and filed a stipulation for an award with the Workers' Compensation Division. The division approved a lump-sum final settlement and award of $10,000 without a formal hearing. The assistant commissioner's approval order directed that General American's claim for reimbursement be calendared for trial. At a prehearing conference, the compensation judge denied General American's motion for full reimbursement without a trial and again denied the motion when trial commenced. After hearing on the merits, the judge found the heart attack was not work related. General American appealed both the finding of the compensation judge and his denial of intervenor's motions for full reimbursement to the court of appeals, citing Repo v. Capitol Elev. Co., Minn., 252 N.W.2d 248 (1977). That court, one judge dissenting, affirmed the ruling and findings of the compensation judge. Hendrickson differs from Brooks only in that before approval of the settlement the employer-insurer separately attempted but failed to negotiate a settlement with General American for 25 percent reimbursement.

Intervenors, joined by amicus attorney general on behalf of the Department of Public Welfare, argue that when an intervenor is not a party and does not agree to a settlement of the employee's compensation claim, any award of compensation benefits should provide for full reimbursement of the expenses it has incurred on behalf of the employee. The employers-insurers contend, as the court of appeals held, that the procedures now followed of giving notice of the filing of employee's claim, providing the right to intervene, and affording intervenors the option to promptly litigate their claim for reimbursement upon the merits after approval of the settlement provide ample protection to the secondary and contingent interest of an intervenor. They argue that to allow full reimbursement where the intervenor is not a party to the settlement fails to fully recognize that the employee is the main owner of his claim and must be entitled to unfettered control of its disposition by settlement.² Although it must be acknowledged that the precise issue presented is before this court for the first time, we have previously had occasion to consider the protection to be afforded group health insurers in the context of workers' compensation proceedings. While we have doubts that procedures can be formulated which would be agreeable to all parties in interest, the policies underlying our previous decisions determine the resolution of the issue presented.

One of the earliest cases to deal with this problem was Equitable Life Assur. Soc. v. Bachrach, 265 Minn. 83, 120 N.W.2d 327 (1963). There the employee, who had suffered a heart attack while at work, received payments of compensation benefits and additional payments from Equitable under a policy excluding coverage of disease or injury arising in the course of employment. Equitable brought an action in district court for reimbursement, which was granted. On appeal, this court affirmed summary judgment for the plaintiff, stating (265 Minn. 89, 120 N.W.2d 332):

"It is our opinion, therefore, that the motion for summary judgment was properly granted because the undisputed facts show that defendant was unjustly enriched when he received payment made by the society on the mistaken premise that the claim had a `non-occupational\' basis when it clearly appears that the disability and confinement were in fact occupational."

Bachrach made clear that once it is established that a sickness or injury is occupational, a health insurer is entitled to reimbursement of payments made to its insured under a policy excluding such claims.

In Lemmer v. Batzli Elec. Co., 267 Minn. 8, 125 N.W.2d 434 (1963), under factually similar circumstances, this court recognized the right of the health insurer (1) to...