Grayam v. Dept. of Health & Human Resources

• Decision Date: 21 November 1997
• Docket Number: No. 24129., No. 24036
• Citation: 498 S.E.2d 12,201 W.Va. 444
• Court: West Virginia Supreme Court
• Parties: Amanda GRAYAM, Appellee v. DEPARTMENT OF HEALTH AND HUMAN RESOURCES, a public agency of the State of West Virginia, Appellant. NATIONWIDE MUTUAL INSURANCE COMPANY, Appellee, v. James F. HATFIELD, et al., Appellees, West Virginia Department of Health and Human Resources, Appellant.

498 S.E.2d 12

201 W.Va. 444

Amanda GRAYAM, Appellee v. DEPARTMENT OF HEALTH AND HUMAN RESOURCES, a public agency of the State of West Virginia, Appellant.

NATIONWIDE MUTUAL INSURANCE COMPANY, Appellee, v. James F. HATFIELD, et al., Appellees, West Virginia Department of Health and Human Resources, Appellant.

Nos. 24036, 24129.

Supreme Court of Appeals of West Virginia.

Submitted September 16, 1997.

Decided November 21, 1997.

Darrell V. McGraw, Jr., Attorney General Stephen J. Small, Senior Assistant Attorney General, Barry L. Koerber, Assistant Attorney General, Charleston, for Department of Health and Human Resources, No. 24036.

Scott S. Segal, Mark R. Staun, Lori A. Simpson, Charleston, for Amanda Grayam.

H.F. Salsbery, Madonna C. Estep, Salsbery & Druckman, Charleston, for James F. Hatfield.

Darrell V. McGraw, Jr., Attorney General, Stephen J. Small, Senior Assistant Attorney General, Harold Chambers, Assistant Attorney General, Charleston, for West Virginia Department of Health and Human Resources, No. 24129.

WORKMAN, Chief Justice:

This Court consolidated these two appeals because they involve a common issue regarding the legal effect of statutory amendments made to West Virginia Code § 9-5-11. Appellant in both cases, the Department of Health and Human Resources ("Appellant"), argues that the 1993 and 1995 amendments to West Virginia Code § 9-5-11 alter the traditional meaning of the term "subrogation," as was applied by this Court in Kittle v. Icard, 185 W.Va. 126, 405 S.E.2d 456 (1991). To the contrary, Appellees, Amanda Grayam and James F. Hatfield, by Ricky Kennedy, his guardian and next friend (hereinafter collectively referred to as the Appellees), assert that the amendments to West Virginia Code § 9-5-11 do not abrogate the traditional meaning of subrogation and, therefore, the made-whole rule as expressed in Kittle continues to apply under the statute. Upon careful review of the statutory language and the arguments made by the parties on appeal, we hold that the 1993 and the 1995 amendments manifest an intent by the legislature to change the usual and ordinary meaning of subrogation and thus, the circuit courts erred by applying the made-whole rule.

I. FACTUAL AND PROCEDURAL HISTORY

A. The Grayam Case

On November 12, 1994, Amanda Grayam was riding as a passenger in her husband's truck when her husband failed to negotiate a curve and wrecked the truck into a tree. As a result of the accident, Ms. Grayam sustained serious injuries and spent several weeks in a hospital. Ms. Grayam's nominal medical bills for her care exceeded $72,000, of which approximately $61,000 was discharged when Medicaid paid $42,991.21 of her medical bills.¹ Ms. Grayam remained personally liable for over $11,000 in medical bills; however, Ms. Grayam's attorney was able to settle these claims for slightly over $5,000. Ms. Grayam also authorized her attorney to investigate the accident and the potential of a product liability suit over a possible defect with the truck. The cost of this investigation exceeded $8,000. Ultimately, the suit was not pursued because no experts would testify that the alleged defect caused or contributed to the accident. The Grayam's insurance company agreed to pay them $35,000, the limit under their policy.

In February of 1996, Appellant advised Ms. Grayam of its lien of $42,991.21 for the medical benefits it paid on Ms. Grayam's behalf. In response, on April 15, 1996, Ms. Grayam filed a declaratory judgment action in the Circuit Court of Kanawha County against Appellant to determine the rights and obligations of the parties. After holding a hearing, the circuit court entered an order on October 4, 1996, finding the value of Ms. Grayam's "economic and non-economic damages far exceed the $35,000.00 in available coverage in this case." The circuit court further determined that, despite the amendments to West Virginia Code § 9-5-11, the made-whole doctrine as announced in Kittle still applies and, as a result, Appellant is not entitled to any reimbursement on its subrogation claim. Appellant appeals from this decision.

B. The Hatfield Case

On February 3, 1994, Jeannie Kennedy was involved in a single-vehicle accident when the car she was driving struck a tree stump. As a result of the accident, Mrs. Kennedy, along with six children who were guest passengers in the car, suffered injuries. Mrs. Kennedy's son, six-year-old James Hatfield, was the most seriously injured. To help pay James' medical expenses, which are in excess of $19,000, Mrs. Kennedy applied for medical benefits with Appellant. Appellant contributed $6,661.59 towards James' medical costs.²

Unfortunately, the auto insurance policy limit was $50,000. In order to settle all claims arising out of the accident, the auto insurer, Nationwide Mutual Insurance Company ("Nationwide"), filed an original interpleader action in the Circuit Court of McDowell County, requesting the circuit court to distribute the $50,000 in proceeds among the various injured claimants. By "corrected order" entered on April 22, 1996, the circuit court disbursed the money, awarding one-half of the proceeds, $25,000, to James. In the order, the circuit court specifically found the $25,000 award to be inadequate to compensate James for his injuries.

Thereafter, Appellant sought to enforce a lien in the amount of $4,443.28 against the insurance proceeds paid to James.³ After holding a hearing to determine if Appellant could collect this amount, the circuit court entered an order on November 19, 1996, finding "as a matter of law and of equity" that Appellant was not entitled to subrogation. The circuit court further confirmed and ratified the findings in its prior order entered on April 22, 1996, and ordered the insurance proceeds to be distributed as previously directed by the court. Appellant maintains it has a right to subrogation and appeals the circuit court's decision.

II. DISCUSSION

A. Standard of Review

In both the Grayam and Hatfield cases, Appellant disputes the legal and factual determinations made by the circuit courts. As previously mentioned, the Grayam case was brought as a declaratory judgment action. This Court has recognized that the purpose of bringing a declaratory judgment action

"is to avoid the expense and delay which might otherwise result, and in securing in advance a determination of legal questions which, if pursued, can be given the force and effect of a judgment or decree without the long and tedious delay which might accompany other types of litigation."

Harrison v. Town of Eleanor, 191 W.Va. 611, 615, 447 S.E.2d 546, 550 (1994) (quoting Crank v. McLaughlin, 125 W.Va. 126, 133, 23 S.E.2d 56, 60 (1942).) Given that the underlying purpose of a declaratory judgment action is to resolve legal issues, we concluded in syllabus point three of Cox v. Amick, 195 W.Va. 608, 466 S.E.2d 459 (1995), that "[a] circuit court's entry of a declaratory judgment action is reviewed de novo." Id. at 610, 466 S.E.2d at 461. However, we also stated in Cox that this Court will apply the clearly erroneous standard when reviewing any factual findings made by the circuit court in reaching its ultimate resolution of a declaratory judgment action. Id. at 612, 466 S.E.2d at 463. Although the Hatfield case was filed by Nationwide as an interpleader action,⁴ the judgment in that case was a final order as to all the parties and, thus, we likewise review the circuit court's resolution of questions of law de novo and review the circuit court's findings of fact under the clearly erroneous standard.

B. Analysis

To understand the parties' dispute with regard to the 1993 and 1995 amendments to West Virginia Code § 9-5-11, it is necessary to first examine the original version of that statute and this Court's interpretation of that statute in Kittle. In Kittle, the Department of Human Services (DHS)⁵ paid approximately $10,000 in medical expenses for a child who received serious injuries when he was struck by an automobile. 185 W.Va. at 128, 405 S.E.2d at 458.⁶ The driver of the automobile was found to be judgment proof, and the driver's automobile insurer offered to settle the claim for $100,000, the full amount of available liability coverage. Id. DHS sought to recover the $10,000 it paid in medical expenses from the insurance proceeds. However, the guardian ad litem testified that the claim's actual value was between $200,000 and $250,000. Therefore, the child's mother filed an action,⁷ requesting that the circuit court approve the settlement, find the child was not made whole by the settlement, and, as a result, declare that DHS was not entitled to subrogation. Id.⁸ In its order and memorandum opinion, the circuit court granted the mother's requests for relief and prohibited DHS from collecting any of the medical expenses it paid on behalf of the child. DHS appealed this decision. Id. at 128-29, 405 S.E.2d at 459.

On appeal, DHS argued, inter alia, that it was "directly and exclusively" entitled to subrogation pursuant to West Virginia Code § 9-5-11 (1990) and that the circuit court erred by applying the made-whole rule. Id. at 129-30, 405 S.E.2d at 460. This Court began its analysis in Kittle by recognizing that the Medicaid program is a joint endeavor between federal and state governments. In order to receive federal assistance, states are required pursuant to 42 U.S.C. § 1396a(a)(25) to seek reimbursement from legally-liable third parties in appropriate circumstances. In Kittle, we recognized that 42 U.S.C. § 1396a(a)(25), in relevant part, provided that a state's medical assistance plan must:

(25) provide (A) that the State or local agency administering such plan will take all reasonable measures to ascertain the legal liability of third parties to pay for care and services (available under the plan) arising out of injury, disease, or disability, (B) that where the State or local agency knows that a third party has such a legal liability such

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