Michigan Hospital Service v. Sharpe

• Decision Date: 05 April 1954
• Docket Number: No. 47,47
• Citation: 339 Mich. 357,63 N.W.2d 638
• Parties: , 43 A.L.R.2d 1167 MICHIGAN HOSPITAL SERVICE v. SHARPE et al.
• Court: Michigan Supreme Court

Page 638

63 N.W.2d 638

339 Mich. 357, 43 A.L.R.2d 1167

MICHIGAN HOSPITAL SERVICE v. SHARPE et al.

No. 47.

Supreme Court of Michigan.

April 5, 1954.

Dykema, Jones & Wheat, Detroit, for plaintiff and appellant.

Wilcox, Lacy, Lawson, Kirkby & Hunt, Detroit, Eugene D. Kirkby, Detroit, of counsel, for defendants and appellees, John Sharpe, Leona Sharpe, John Sharpe, Jr., and Natalie Sharpe.

Alexander, Cholette, Buchanan, Perkins & Conklin, Detroit, Richard A. Harvey, Detroit, of counsel, for defendant and appellee, richard E. Manning.

Before the Entire Bench.

BUSHNELL, Justice.

The conclusion reached by Mr. Justice Reid, that plaintiff is entitled to the equitable remedy of subrogation, is not in accord with my view of the applicable law. The facts involved are adequately stated in my brother's opinion and repetition is unnecessary.

Recovery in the instant case is sought primarily upon analogy of hospital service and care to insurance and workmen's compensation law and the law relating thereto. The application of these doctrines to this case is somewhat persuasive, but lacks the compelling authority to decide this issue. It is conceded that the question herein raised is one of first impression in this State and that there are no Michigan cases or decisions which are authoritative on this question.

The comprehensive hospital service and care certificate issued by plaintiff 'Blue Cross' to defendants Sharpe contains no subrogation clause nor is any condition recited therin which would except the defendants from the benefits conferred by the contract. Ineligibility for such services is specifically enumerated in clause 6(b) of the certificate, among which is workmen's compensation. However, no exception covering the situation here involved is stated, nor can any logical inference in this regard, if permitted, be drawn from the reading of the entire certificate. It is conclusive that by the very language of the contract not one iota of intent on the part of plaintiff to recover for hospital services rendered upon accidental injury may be adduced.

Plaintiff cites Washtenaw Mutual Fire Insurance Company v. Budd, 208 Mich. 483, 175 N.W. 231, and claims that it is engaged in activities analogous to the field of insurance. This contention is erroneous. The requisite for insurance is wholly lacking and its closest relationship thereto is that the enabling statute, C.L.1948, § 550.501 et seq., Stat.Ann.1943 Rev. § 24.621 et seq., under which the plaintiff corporation is organized, provides for supervision by the State commissioner of insurance.

'If there is no hazard or peril, as contemplated by a statute defining insurance, but a mere contract entitling certificate holders to medical services or supplies at free or reduced rates, the contract is not one of insurance.' 29 Am.Jur. 54, citing State ex rel. Fishback v. Universal Service Agency, 87 Wash. 413, 151 P. 768, Ann.Cas.1916C, 1017.

In 29 American Jurisprudence (1953 Supp.) at pages 4 and 5 it is said:

'A majority of cases dealing with the subject hold that a corporation, whether or not organized for profit the object of which is to provide the members of a group with medical services and hospitalization, is not engaged in the insurance business and hence not subject to the insurance laws.' Citing therein California Physicians' Service v. Garrison, 28 Cal.2d 790, 172 P.2d 4, 167 A.L.R. 306; Butterworth v. Boyd, 12 Cal.2d 140, 82 P.2d 434, 126 A.L.R. 838; and State ex rel. Fishback v. Universal Service Agency, 87 Wash. 413, 151 P. 768.

See, also, annotations and authorities cited in 63 A.L.R. 731, 100 A.L.R. 1456 and 119 A.L.R. 1245.

It is evident from the foregoing that insurance law affords us no cure-all in resolving this problem. It is conceded by plaintiff that since it is not an insurance company it cannot claim the benefit of C.L.1948, § 612.2, Stat.Ann. § 27.654, that permits insurers to join in actions against tort-feasors at law.

If an action would have been instituted by the Sharpes in order to recover against Manning for the tort, plaintiff could not have joined in that action and asserted its alleged claim of subrogation. Defendant Manning conversely would not have been permitted to introduce testimony showing that the element of damages covering hospital expenses had been paid by the Michigan Hospital Service, Motts v. Michigan Cab Company, 274 Mich. 437, 264 N.W. 855, thereby reducing the extent of his liability. Hence, plaintiff invokes the aid of a court of equity in order to enforce an alleged right of subrogation existing in its favor and to accomplish indirectly that which it could not do directly. My brother's opinion candidly approves such a subterfuge and claims that equities exist in favor of the plaintiff, Michigan Hospital Service. I cannot agree to such a novel and unprecedented holding which completely overlooks the equitable nature of the dectine of subrogation.

In Wolverine Insurance Company v. Klomparens, 273 Mich. 493, 263 N.W. 724, a case involving recovery by an insurer under an automobile collision insurance policy, this Court allowed subrogation. That case is not authority for permitting subrogation here and is clearly distinguishable from the case at bar.

In the Klomparens case, plaintiff Wolverine had issued an automobile collision insurance policy to one John J. Lanting, containing the usual subrogation clause. On February 12, 1934, a collision occurred in which Lanting, as a result of defendant's negligent operation of his automobile, sustained both personal and property damage. Plaintiff on March 7, 1934, paid its insured an adjusted sum for property damage and took an assignment of his claim against defendants. In negotiations and adjustments arising out of the matter, defendants were represented by their own insurer and both insurance companies were represented by attorneys and their agents but no formal or written notice of assignment was given defendants until July 13, 1934.

Lanting put his claim in the hands of an attorney and on June 2nd a settlement agreement was executed releasing defendants from all claims arising out of the collision. In an action by plaintiff as assignee of Lanting, defendants contended that the settlement with Lanting was a bar to this action by the insurer because they had no notice of the assignment to plaintiff prior to the settlement agreement. The Court in overruling this contention said:

'The facts are that defendants, through their investigators and attorneys, were fully informed before the settlement that plaintiff had made payment of property damage on its policy; and, on Mr. Lanting's claim that plaintiff had not paid his full loss therefor, an additional amount for property damage was allowed by defendants in the settlement with him. The rule is applicable:

"It is too well settled to render the citation of authorities necessary that, as between an insurer and a tortfeasor who has caused a loss of the insured property, the latter is ultimately liable for the loss, and that upon payment to the insured by the insurer the latter is entitled to be subrogatedpro tanto to the insured's right against the tortfeasor. With this right in view the authorities are agreed that where, with knowledge of a previous settlement by the insurer with the insured, a tortfeasor who is responsible for the loss procures a release by making a settlement with the insured, the release amounts to a fraud upon the insurer's right, and therefore constitutes no defense as against the insurer in an action to enforce its right of subrogation against the tortfeasor.

"And the conclusion is the same whether there is an express provision for subrogation of the insurer, or whether no such provision exists and the insurer's right arises alone from its equitable right." L.R.A.1916A, 1282, note.

The cases cited by Mr. Justice Reid to sustain the right of subrogation involve either indemnification contracts or some form of employer liability insurance. No such contract is involved here. The agreement entered into by defendants Sharpe provide that upon payment of a fee the Michigan Hospital Service will provide hospital service for a stipulated period. There is no question that this service was purchased with the understanding that hospital care would be furnished the purchaser 'whenever needed.' There are no exceptions other than those contained in the clause heretofore cited.

Plaintiff thus had a primary obligation to provide service in accordance with the terms of the contract. This it fulfilled but it does not follow that it is now entitled to be subrogated to the amount it has expended under its contract.

In Machined Parts Corp. v. Schneider, 289 Mich. 567, 286 N.W. 831, 834, the doctrine of subrogation was discussed at length. The Court there said:

"The doctrine of subrogation arises only in favor of one who pays the debt of another, and not in favor of one who pays the debt in performance of his own covenants. This right never follows a primary liability. 37 Cyc. p. 374 and the cases there cited. Spire v. Spire, 104 Kan. 501, 180 P. 209. The doctrine is so well understood that we forbear to cite further authorities.'

'In Luikart v. Buck, 131 Neb. 866, 270 N.W. 495, 497, the court said: 'The right of subrogation never follows an actual primary liability, and one who discharges a primary liability has no right of subrogation against another. In such cases payment is an extinguishment of the liability.'

'In St. Louis & S. F. R. Co. v. Excello Feed Milling Co., Mo.App., 215 S.W. 755, 757, the court said: 'We are unable to see where the doctrine of subrogation enters into the case for the reasons: First. That 'subrogation is allowed only in favor of one who under some duty or compulsion, legal or moral, pays the debt of another; and not in favor of him who pays a debt in performance of his own covenants, for the right of subrogation never follows an actual primary liability.' 37 Cyc. [p.] 37...