Medcenters Health Care, Inc. v. Ochs

• Decision Date: 14 June 1993
• Docket Number: No. 3-92 CIV 244.,3-92 CIV 244.
• Citation: 854 F. Supp. 589
• Parties: MEDCENTERS HEALTH CARE, INC., d/b/a Medcenters Health Plan, Plaintiff, v. Lezlie OCHS and Gary Ochs, parents and legal guardians of Michael A. Ochs, a minor, Defendants.
• Court: U.S. District Court — District of Minnesota

854 F. Supp. 589

MEDCENTERS HEALTH CARE, INC., d/b/a Medcenters Health Plan, Plaintiff, v. Lezlie OCHS and Gary Ochs, parents and legal guardians of Michael A. Ochs, a minor, Defendants.

No. 3-92 CIV 244.

United States District Court, D. Minnesota, Third Division.

June 14, 1993.

Richard L. Jasperson, St. Paul, MN, for plaintiff.

Courey, Albers, Gilbert & Riley, P.A. by Thomas O. Albers, Minneapolis, MN, for defendants.

ORDER

ALSOP, Senior District Judge.

The above-entitled matter came before the Court on Thursday, June 10, 1993, on cross-motions for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. For the reasons stated herein, the Court will grant plaintiff's motion for summary judgment and deny defendants' motion.

BACKGROUND

On February 18, 1987, Michael Ochs was severely burned when he was exposed to hot water while bathing. At the time Michael Ochs was injured, he was a participant in a Health Maintenance Organization plan with MedCenters Health Care, Inc. ("MedCenters") through his mother's coverage with her employer, the United States Postal Office. This coverage is provided to Lezlie Ochs under the Federal Employees Health Benefit Program ("FEHBP"), 5 U.S.C. § 8901.

Under the terms of the contract, MedCenters asserts the Plan was required to provide medical care in an alleged amount of $114,301.91 to Michael Ochs for the care and treatment of his injuries from the scalding. The contract provides the following subrogation and reimbursement clause:

If a covered person is injured through the act or omission of another, the Plan requires that it be reimbursed for the benefits provided, in an amount not to exceed the amount of the recovery, or that it be subrogated to the person's rights to the extent of the benefits received under this Plan, including the right to bring suit in the person's name.

In June 1987, Michael Ochs, by his parents and legal guardians, commenced a lawsuit entitled Michael Ochs, a minor, by his parents and legal guardians, Lezlie Ochs and Gary Ochs v. Stratford Wood Apartments, limited partnership, Robert S. Bisanz and Terrance E. Troy, individually and as general partners and as Real Estate Equities, Inc. The action was venued in Hennepin County District Court. MedCenters Health Care, Inc. ("MedCenters") attempted to intervene in this action twice, and the state court granted MedCenters second complaint in intervention filed on April 2, 1990 to the extent MedCenters could pursue a subrogation claim against the state court defendants. On May 4, 1990, an order was entered in the state court action approving the settlement of the action. In the settlement, the tortfeasors' insurance company agreed to hold harmless and indemnify the Ochs from any subrogation claims.

MedCenters has demanded payment of its interest from the Ochs, and they have refused to pay. On April 22, 1992, MedCenters commenced the present action. Count One of MedCenters' complaint alleges breach of contract. Count Two brings a claim for equitable subrogation and unjust enrichment. Both parties have made motions for summary judgment.

STANDARD OF REVIEW

The Supreme Court has held that summary judgment is to be used as a tool to isolate and dispose of claims or defenses that are either factually unsupported or based on undisputed facts. Celotex Corp. v. Catrett, 477 U.S. 317, 323-324, 106 S.Ct. 2548, 2552-2554, 91 L.Ed.2d 265 (1986); Hegg v. United States, 817 F.2d 1328, 1331 (8th Cir.1987). Summary judgment is proper, however, only if examination of the evidence in a light most favorable to the non-moving party reveals no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In the present action, both parties agree that this matter is ripe for summary judgment and that there are no genuine issues of material fact, except for the exact amount MedCenters would be entitled to should it prevail.

ANALYSIS

In the present action, MedCenters claims that the Ochs have breached their contract with it by not complying with the subrogation and reimbursement clause of the Plan. The contract at issue is governed by the provisions under the Federal Employees Health Benefit Act, 5 U.S.C. §§ 8901-8914. Under the FEHBP, the United States government is empowered to contract with health coverage plans to provide health insurance benefits for federal employees. As to which law should be applied in interpreting an FEHB contract, 5 U.S.C. § 8902(m)(1) provides:

The provisions of any contract under this chapter which relate to the nature or extent of coverage or benefits (including payments with respect to benefits) shall supersede and preempt any state or local law, or any regulation issued thereunder, which relates to health insurance or plans to the extent that such law or regulation is inconsistent with such contractual provisions.

The first issue then is whether Minnesota state law "is inconsistent with the contractual provision" at issue. If so, then federal law controls interpretation of the contractual provision and the resulting rights and obligations of the parties. The contractual provision at issue provides that MedCenters is required to be reimbursed for benefits provided to a covered person who is injured by the acts or omission of another in an amount not to exceed the amount of the recovery. The contract does not explicitly state the priority of payments received from a third party. Moreover, the contract does not expressly provide that MedCenters should be reimbursed even if the insured has not been fully compensated for his or her loss.

To determine whether Minnesota law is inconsistent with the subrogation clause at issue, this Court must examine Minnesota law and forecast how Minnesota law would treat MedCenters' claim to subrogation under its contract. In Minnesota, the "full recovery rule" provides that "absent express contract terms to the contrary, subrogation will not be allowed where the insured's total recovery is less than the insured's actual loss." Westendorf v. Stasson, 330 N.W.2d 699, 703 (Minn.1983) (no reimbursement to HMO for benefits provided to injured party out of settlement proceeds where injured party was not fully compensated for actual loss); see also Hershey v. Physicians Health Plan, 498 N.W.2d 519, 520 (Minn.App.1993) (discussing general rule); Badger Equip. Co. v. Brennan, 431 N.W.2d 900, 904 (Minn.App. 1988) (applying Minnesota subrogation law as articulated in Westendorf to disallow subrogation where injured party not fully compensated); Allum v. MedCenter Health Care, Inc., 371 N.W.2d 557, 561 (Minn.App.1985) (general first priority language did not overcome the equitable full recovery rule enunciated in Westendorf).

Plaintiff argues, however, that under Hunt v. Sherman, 345 N.W.2d 750 (Minn.1984) and Hershey v. Physicians Health Plan, 498 N.W.2d 519 (Minn.App.1993) its contractual subrogation rights would not be displaced by the full recovery rule enunciated in Westendorf. In Hunt, the Minnesota Supreme Court examined an ERISA plan's subrogation clause, held that state law was preempted by ERISA, and applied the contract terms allowing for subrogation. In Hershey, the Minnesota Appellate Court held that where a health insurance contract expressly provides that the Plan may enforce its subrogation rights even if the insured has not been fully compensated, the full recovery rule will not bar enforcement of that clause. The subrogation clauses at issue in Hunt and Hershey, however, explicitly and unambiguously provided for subrogation even where the injured party had not been fully compensated.¹

In the present case, notwithstanding plaintiff's arguments, the subrogation clause does not explicitly address the priority of payments or whether the Plan may recover even if the injured party is not fully compensated. This Court believes that Minnesota's full recovery rule requires that the subrogation clause must be explicit regarding priority of payments and the plan's recovery regardless of full recovery or the "full recovery rule" will bar subrogation. As such, the Court believes that if Minnesota state law were applied to plaintiff's action regarding its subrogation rights, plaintiff would be barred from recovering its interest from the Ochs because they had not been fully compensated.² Although this Court agrees that section 8902(m)(1) does not "entirely displace state law," see Eidler v. Blue Cross Blue Shield United of Wisconsin, 671 F.Supp. 1213, 1217 (E.D.Wis.1987), a state common law equitable rule that denies the effect of a contractual provision surely is "inconsistent" with that provision. Accordingly, the Court finds that Minnesota state law is inconsistent with the contractual provision at issue and that therefore the contractual provisions preempt and supersede Minnesota state law.³

If the contractual provisions preempt and supersede Minnesota state law, as this Court conclude they do, the next issue is what federal law should this Court apply in determining whether MedCenters has a right to subrogation against the Ochs under the contract. MedCenters urges this Court to look no farther than the terms of the contract and to enforce the contract as written. In response, the Ochs argue that this Court should adopt Minnesota state law as federal common law.

In Wahl v. Northern Telecom Inc., 726 F.Supp. 235, 241 (E.D.Wis.1989), the court concluded that Congress intended in ERISA for the federal courts to establish federal common law to determine the subrogation rights of the employee benefit plan. In making this determination, the court noted that "the only doctrinal guideline, besides Congressional intent, that appears to exist to help a federal court determine which substantive rights federal common law should create or deny appears to be a federal interest in uniformity." Id. The court in Wahl found,...