Collins v. Blue Cross of Virginia

• Decision Date: 15 January 1973
• Citation: 193 S.E.2d 782,213 Va. 540
• Parties: , 73 A.L.R.3d 1134 Geraldine Simmons COLLINS v. BLUE CROSS OF VIRGINIA and Blue Shield of Virginia. BLUE CROSS OF VIRGINIA and Blue Shield of Virginia v. Geraldine Simmons COLLINS.
• Court: Virginia Supreme Court

Page 782

193 S.E.2d 782

213 Va. 540, 73 A.L.R.3d 1134

Geraldine Simmons COLLINS v. BLUE CROSS OF VIRGINIA and Blue Shield of Virginia.

BLUE CROSS OF VIRGINIA and Blue Shield of Virginia v. Geraldine Simmons COLLINS.

Supreme Court of Virginia.

Jan. 15, 1973.

E. Brodnax Haskins, Richmond, for Geraldine Simmons Collins.

Henry H. McVey, III, Richmond (McGuire, Woods & Battle, Richmond, on brief), for Blue Cross of Virginia and Blue Shield of Virginia.

Before SNEAD, C.J., and I'ANSON, HARRISON, COCHRAN, HARMAN and POFF, JJ.

COCHRAN, Justice.

The question for determination in these appeals is whether Blue Cross of Virginia and Blue Shield of Virginia may recover from Geraldine Simmons Collins, a participant under a group contract, sums expended by Blue Cross for hospital services and by Blue Shield for medical services for which she has been paid by a third-party tortfeasor.

On May 19, 1969, Mrs. Collins, an employee of E. I. duPont deNemours and Company, Incorporated, was injured in an automobile accident. Pursuant to their contract with duPont covering its employees, Blue Cross-Blue Shield paid in behalf of Mrs. Collins $1,775 for hospitalization expenses and three bills of doctors for $363, $375, and $71, respectively, or a total of $2,584.

Mrs. Collins brought an action in the Law and Equity Court of the City of Richmond against third-party tortfeasors. Blue Cross-Blue Shield notified all counsel that they asserted a claim and lien against any payments made to Mrs. Collins to the extent of their expenditures for her under their contract. Mrs. Collins recovered $7,000 of which $2,584, by agreement, is being held in escrow pending a determination of the Blue Cross-Blue Shield claim.

Relying upon the subrogation provision ¹ in the group contract Blue Cross-Blue Shield initiated this action against Mrs. Collins to recover their payments made for her benefit. The matter was submitted on a stipulation of facts for determination by the trial court, without the intervention of a jury. The trial court held that Blue Cross-Blue Shield could not recover under the subrogation provision but that they were entitled to the liens provided by Code § 32--138, et seq. ² in the aggregate amount of $771, less an attorney fee of $257 payable to counsel for Mrs. Collins. We granted Blue Cross-Blue Shield and Mrs. Collins writs of error to the judgment order entered July 23, 1971.

Blue Cross-Blue Shield have assigned error to the action of the trial court in holding the subrogation provision invalid and in subjecting the amount of their statutory liens to a fee payable to Mrs. Collins's attorney. Mrs. Collins has assigned cross-error to the ruling of the trial court that Blue Cross-Blue Shield had perfected their statutory liens.

Mrs. Collins contends that City of Richmond v. Hanes, 203 Va. 102, 122 S.E.2d 895 (1961), held to be controlling by the trial court, requires affirmance on the question of subrogation. We do not agree.

Subrogation is a device of equity designed to obtain an equitable adjustment between the parties by securing the ultimate discharge of a debt by the person who in equity ought to pay it. Subrogation implies restoration of the amount paid by a surety or one secondarily liable and prevention of unjust enrichment. 16 Couch, Cyclopedia of Ins. Law § 61:18 (2d ed. 1964).

There are two types of subrogation, legal, arising by operation of law, and conventional, arising from contract. Federal Land Bank v. Joynes, 179 Va. 394, 401--402, 18 S.E.2d 917, 920 (1942). Here we are concerned with conventional subrogation.

The nature of the Blue Cross-Blue Shield contract is indemnification. In the event of accident or illness requiring hospitalization, Blue Cross-Blue Shield agreed to make a participant whole on hospital and medical expenses up to the limits of the policy, rather than to deliver a sum certain upon occurrence of an event. See Kimball and Davis, The Extension of Insurance Subrogation, 60 Mich.L.Rev. 841, 851 (1962). By providing for the right of subrogation the parties in effect agreed that the purpose of the contract was indemnity. Id. at 864.

We agree with Blue Cross-Blue Shield that the effect of the subrogation provision was to impress upon any subsequent recovery by the participant, Mrs. Collins, an equitable lien for amounts advanced for her benefit under the contract. See Annot., 19 A.L.R.3d 1054, 1063 (1968); 8 U.C.L.A.L.Rev. 668 (1961).

In City of Richmond v. Hanes, Supra, citing a California case, Fifield Manor v. Finston, 54 Cal.2d 632, 640, 354 P.2d 1073, 1078 (1960), we equated subrogation with assignment. There a policeman, Hanes, was injured on duty by a negligent tortfeasor. The City paid Hanes's wages during his disability and his hospital and medical bills. After Hanes had brought an action and settled with the tortfeasor for $25,000, the City claimed, by assignment or subrogation, the right to reimbursement from the settlement fund. We denied the City's claim on the grounds that Hanes had not agreed to an assignment, that Hanes was not bound by a personnel rule of which he was not aware that purported to give rise to an assignment, and that the City was not subrogated to the extent of its payments either by conventional or legal subrogation. Clearly there was no contractual right of subrogation, and on the issue of legal subrogation we concluded that the City had acted as a volunteer.

Hanes is distinguishable from the present case because here we are concerned with the contractual right to subrogation. Blue Cross-Blue Shield paid, not as volunteers, but as parties fulfilling contractual obligations. Fifield Manor v. Finston, Supra, upon which we relied in proscribing either subrogation or assignment of personal injury claim, may have reached the right result under California law in prohibiting direct action by a subrogee against a third-party tortfeasor. But the broad dictum therein referred to in Hanes, equating subrogation with assignment, has been widely criticized. See 59 Mich.L.Rev. 1256 (1961); 8...