Hospital Service Corp. of R. I. v. Pennsylvania Ins. Co., 33

• Decision Date: 03 March 1967
• Docket Number: No. 33,33
• Citation: Hospital Service Corp. of R. I. v. Pennsylvania Ins. Co., 101 R.I. 708, 227 A.2d 105 (R.I. 1967)
• Parties: HOSPITAL SERVICE CORPORATION OF RHODE ISLAND v. The PENNSYLVANIA INSURANCE COMPANY et al.
• Court: Rhode Island Supreme Court

Page 105

227 A.2d 105

101 R.I. 708

HOSPITAL SERVICE CORPORATION OF RHODE ISLAND v. The PENNSYLVANIA INSURANCE COMPANY et al.

No. 33.

Supreme Court of Rhode Island.

March 3, 1967.

Tillinghast, Collins & Tanner, Nathaniel S. Thayer, Providence, for plaintiff.

Henry M. Swan and Edward Bromage, Jr., Providence, for The Pennsylvania Ins. Co.

Aisenberg, Decof & Dworkin, Leonard Decof, Alan T. Dworkin, Providence, for Mary Cherlin.

OPINION

KELLEHER, Justice.

This action has been certified to us by the superior court pursuant to the provisions of G.L. 1956, § 9-24-27, as amended, after it had concluded that a question of 'doubt and importance' existed which so affected the merits of the controversy that it ought to be determined by this court before any further proceedings were taken. At issue is the validity of a certain portion of an agreement entered into by the plaintiff Hospital Service Corporation of Rhode Island, better known and hereinafter referred to as Blue Cross, and the defendant Mary Cherlin, hereinafter referred to as the subscriber.

Blue Cross is a nonprofit corporation organized under the pertinent provisions of G.L. 1956, chap. 19 of title 27. By statute its purpose is to provide to its subscribers a plan of specific hospital care which has been formulated between Blue Cross and certain hospitals. The subscriber to this plan entered into an agreement with Blue Cross. Part VI(h) thereof reads as follows:

'In the event any hospital service or benefit is provided for, or any payment is made or credit extended to, a subscriber under this agreement, the Corporation shall be subrogated and shall succeed to the subscriber's right of recovery therefor against any person or organization, except insurers on policies of insurance issued to and in the name of the subscriber. The subscriber shall pay over to the Corporation all sums recovered by suit, settlement or otherwise, on account of such hospital service or benefit. The subscriber shall take such action, furnish such information and assistance, and execute such assignments and other instruments as the Corporation may require to facilitate enforcement of its rights hereunder, and shall take no action prejudicing the rights and interests of the Corporation hereunder.'

In 1963 the subscriber was injured as the result of the negligence of one Mary McCormick and was hospitalized for some time whereby she incurred a hospital bill in the amount of $605. Blue Cross, thereupon in compliance with its contract, paid the hospital the sum of $521.50 and then notified the alleged tort-feasor and her insurer of this payment and of its subrogation right under the subscription contract. Thereafter the tort-feasor and her insurer entered into a settlement with the subscriber of all her claims whereby the subscriber received a sum of money in excess of the entire hospital bill. Its demand for the reimbursement of money it paid to the hospital not being honored by its subscriber, the tort-feasor or her insurer, Blue Cross commenced this action joining all three as defendants.

Based upon these facts the superior court certified the following questions for our determination:

'1. Is the Hospital Service Corporation of Rhode Island to the extent it has paid out funds in payment of a claim made under its hospitalization contract and arising out of the action of a tortfeasor subrogated in equity or at law to the right of recovery of a subscriber of its hospitalization contract against said tortfeasor?

'2. Must a tortfeasor and his insurance company, after notice of the provisions of the Hospital Service Corporation of Rhode Island contract concerning subrogation and payments made thereunder, recognize said right of subrogation and will either or both of them be liable to the Hospital Service Corporation of Rhode Island if payment in settlement of the tort claim is made by either of them after such notice to the injured party without a release of said subrogation rights?

'39 Does the Hospital Service Corporation of Rhode Island have a right of action in contract or otherwise against its subscriber for sums paid out under its hospitalization contract on subscriber's behalf as set forth in the Bill of Complaint and, if so, to what proportion of the settlement amount?'

In urging an affirmative reply to the questions, plaintiff contends that provisions of Part VI(h) of the subscription agreement entitle it to subrogation rights against defendant tort-feasor and her insurer. All the defendants, however, argue emphatically that this portion of the agreement is unenforceable because it not only permits a purported assignment of a claim for personal injuries but, if approved, would allow a cause in action to be split. The defendant insurer further alleges that even if this provision of the agreement is upheld as the creation of a right of subrogation it cannot be bound as it is not a party to the agreement which gives this right.

It is well settled and conceded by all the parties hereto that the common law forbids the assignment of one's cause of action to recover for personal injuries. In 1909 this court set forth this precept in Tyler v. Superior Court, 30 R.I. 107, 73 A. 467, 23 L.R.A.,N.S., 1045. The court's action was primarily based on the grounds of public policy so that evils of champerty and maintenance would be avoided. It was pointed out that to hold otherwise would permit the pernicious and somewhat profitable practice of allowing a person to purchase these claims with the consequent harassment and annoyance of others. What we said then is equally applicable today. However, we believe that Part VI(h) of the contract is a provision calling for subrogation. It differs from an assignment of a tort claim in several respects and should be given effect for the purposes for which it was included in this agreement.

Subrogation is either 'legal' or 'conventional.' Legal subrogation has its source in equity and arises by operation of the law. 83 C.J.S. Subrogation § 3, p. 583. Conventional subrogation arises by acts of the parties and rests on contract. 83 C.J.S. Subrogation § 4, p. 586. The plaintiff relies upon both species of this doctrine. It points to Part VI(h) of the subscription agreement as being an example of conventional subrogation and further states as a matter of law it is entitled to invoke the doctrine of legal subrogation. We, however, will go no further than to declare that plaintiff can be granted relief based on the specific provision of the contract.

In their contention that the disputed portion of the instant agreement is an assignment of a personal injury claim, defendants fail to distinguish the differences which exist between assignment and 'conventional' subrogation. Though both are voluntary transfers, an assignment is a transfer of a much more specific nature than is subrogation. Assignment involves dangers of champerty and maintenance. Subrogation does not. Assignment generally involves some consideration moving from the assignee to the assignor. In subrogation the consideration (here being the charge made to the subscriber) moves in the opposite direction. It goes from the subrogor to the subrogee. An assignment is made after a loss to a volunteer who was under no obligation to the assignor. Here Blue Cross assumed a liability which matured into a cause of action against it whenever the loss occurs and is not asserting a right derived from an attempted assignment after the mishap. City of New York Ins. Co. v. Tice, 159 Kan. 176, 152 P.2d 836, 157 A.L.R. 1233; Kimball and Davis, The Extension of Insurance Subrogation, 60 Mich.L.Rev. 841.

A similar provision has been held to be valid by other courts. In Michigan Medical Service v. Sharpe, 339 Mich. 574, 577, 64 N.W.2d 713, the contract contained an express stipulation for subrogation. There the court stated: 'Enrichment of plaintiff is not unjust if pursuant to the express agreement of the parties, fairly and honestly arrived at before hand. It is neither unjust, unfair nor inequitable to give effect to an agreement which was not induced by mistake, overreaching, fraud or misrepresentation.' The court upheld the validity of this provision and allowed the plaintiff to maintain an action at law against the subscriber on the basis of this clause.

Wisconsin has recently approved a subrogation provision of the Blue Cross contract being offered in that state. Associated Hospital Service, Inc. v. Milwaukee Automobile Mut. Ins. Co., 33 Wis.2d 170, 147 N.W.2d 225. Whether such a provision is to be enforced has given rise to extensive litigation throughout the land. Some courts have approved its use while others have given it no effect. ¹ The courts in New York and Illinois in approving this type of clause pointed either to the contracts involved or to certain other instruments executed by an insured which they said created a trust and thereby produced subrogation. In Fifield Manor v. Finston, 54 Cal.2d 632, 7 Cal.Rptr. 377, 354 P.2d 1073, 78 A.L.R.2d 813, the California supreme court acknowledged that there were certain differences between an assignment and subrogation but in effect held they were differences without a distinction and refused to give effect to an express subrogation clause. The court pointed out, however, that in California the legislature has enacted an express prohibition against an assignment of claim for personal injuries.

In another California case, Peller v. Liberty Mutual Fire Insurance Co., 220 Cal.App.2d 610, 34 Cal.Rptr. 41, the court said that if it were not for this statute, it might be appropriate in the light of present-day conditions to re-evaluate this common law prohibition.

We in Rhode Island unlike the California court are not confronted with any legislative barrier in this particular area. All of us whether we are at the beginning, in the middle or near the end of this life's journey are apprehensive that an extended period of hospitalization could...