Shield Ben. Administrators, Inc. v. University of Michigan, Bd. of Regents

• Decision Date: 23 September 1997
• Docket Number: Docket No. 192416
• Citation: 571 N.W.2d 556,225 Mich.App. 467
• Parties: SHIELD BENEFIT ADMINISTRATORS, INC. and Oven-Fresh Bakeries, Inc., Plaintiffs-Appellees, v. UNIVERSITY OF MICHIGAN, BOARD OF REGENTS, Defendant-Appellant.
• Court: Court of Appeal of Michigan — District of US

Page 556

571 N.W.2d 556

225 Mich.App. 467

SHIELD BENEFIT ADMINISTRATORS, INC. and Oven-Fresh Bakeries, Inc., Plaintiffs-Appellees, v. UNIVERSITY OF MICHIGAN, BOARD OF REGENTS, Defendant-Appellant.

Docket No. 192416.

Court of Appeals of Michigan.

Submitted May 7, 1997, at Grand Rapids.

Decided Sept. 23, 1997, at 9:00 a.m.

Released for Publication Dec. 23, 1997.

Miller, Johnson, Snell & Cummiskey, P.L.C. by Stephen R. Ryan, Grand Rapids, for Plaintiffs-Appellees.

Stein, Moran, Raimi & Goethel, P.C. by Diana Raimi, Ann Arbor, for Defendant-Appellant.

Before YOUNG, P.J., and DOCTOROFF and MARK J. CAVANAGH, JJ.

DOCTOROFF, Judge.

The parties to this case filed cross-motions for summary disposition on the basis of stipulated facts. Upon plaintiffs' motion, the trial court entered judgment for plaintiffs Shield Benefit Administrators, Inc., and Oven-Fresh Bakeries, Inc. Defendant University of Michigan Board of Regents appeals as of right. We reverse.

According to the stipulated facts, the husband of Claudette Hodge was an employee of plaintiff Oven-Fresh Bakeries, Inc., through which he and his dependents were insured under a group health plan. Plaintiff Shield Benefit Administrators, Inc. (Shield) is a third-party administrator that administers Oven-Fresh's health plan. Hodge was insured under the Oven-Fresh health plan and received treatment at the University of Michigan Medical Center. The medical care was delivered during the first five months of 1994 and cost $4,260. Before each provision of service to Hodge, the Medical Center obtained preauthorization from a Shield agent. The Medical Center obtained an assignment from Hodge and directly billed Shield for the services rendered to Hodge. Shield submitted full payment to the Medical Center for Hodge's treatments.

After making the payment to the Medical Center, Shield discovered that benefits had been paid in excess of Hodge's maximum plan benefit for the applicable period. Accordingly, in November 1994, Shield notified the Medical Center that Shield should not have paid for Hodge's services, and Shield requested that the payment be refunded. The Medical Center refused to return the $4,260 paid by Shield for the services rendered to Hodge. Shield then filed this action.

The trial court determined that Shield made payment under a mistake of fact and found that, in Michigan, payment made under a mistake of fact must be refunded, even if the mistake was due to a lack of investigation. An exception to this rule exists if repayment would be inequitable in view of the payee's detrimental reliance on the payment. The trial court found no detrimental reliance of this case and thus denied defendant's motion for summary disposition and ordered restitution of the full amount paid, plus interest and costs.

The trial court analyzed this case as a "mistake of fact" situation. It is a well-settled rule that payment made under a mistake of fact can be recovered even if the mistake could have been avoided by the payor. Couper v. Metropolitan Life Ins. Co., 250 Mich. 540, 544, 230 N.W. 929 (1930); Madden v. Employers Ins. of Wausau, 168 Mich.App. 33, 40, 424 N.W.2d 21 (1988). However, neither Couper nor Madden dealt with a third-party creditor such as the hospital in this case. ¹ Thus, this Court, for the first time, is faced with the question whether a medical provider, as a third-party creditor accepting payment to discharge a debt owed by an insured patient, is required to make restitution for a mistaken payment by the insurer. It is undisputed that defendant, as the medical provider, had no notice of the mistake at the time payment was made.

On appeal, plaintiffs contend that, in a case of a third-party creditor, the rule should not change: absent detrimental reliance, payment made under a "mistake of fact" should be refunded. However, defendant urges this Court to adopt the rule expressed in Restatement, Restitution, § 14(1), which would create an exception to the general rule of a "mistake of fact" when a third-party creditor was involved. The Restatement provides:

A creditor of another or one having a lien on another's property who has received from a third person any benefit in discharge of the debt or lien, is under no duty to make restitution therefor, although the discharge was given by mistake of the transferor as to his interests and duties, if the transferee made no misrepresentation and did not have notice of the transferor's mistake. [Restatement, Restitution, § 14(1), p. 55.]

We agree with defendant and adopt the rule expressed in the Restatement.

Unlike the cited Michigan cases involving a "mistake of fact," this case does not involve a payee who has been unjustly enriched. In this case, the defendant's hospital performed valuable services for Hodge and was reimbursed for such services by plaintiff Shield. Thus, it was Hodge, not the hospital, who unjustly benefited from plaintiff's mistake. We agree with the Nebraska Supreme Court, which stated the following in an opinion dealing with the same issue:

The widespread use of assignments of policy benefits to hospitals by patients is well known and is recognized by the health insurance industry. To subject a hospital to possible refund liability if the insurer later discovers a mistaken overpayment, lasting until all such claims are barred by the statutes of limitation, would be to place an undue burden of contingent liability on such institutions. Hospitals would be safe only by requiring insurers to pay benefits directly to the insured patient, and then by accepting payment directly from the patient. By this ruling, we place the burden for determining the limits of policy liability squarely on the only party (as between the insurer and the assignee hospital) in a position to know the policy provisions and its liability under that contract of insurance. Someone must suffer the loss, and as between plaintiff insurer and defendant hospital, the party making the mistake should bear that loss. [Federated Mut. Ins. Co. v. Good Samaritan Hosp., 191 Neb. 212, 215-217, 214 N.W.2d 493 (1974).] ² In this case, we agree with the reasoning of the Nebraska court that, as between plaintiff insurer and defendant hospital, plaintiff was in the better position to interpret the terms of its own contract, and it should bear the loss of its own mistake.

Plaintiffs contend that, even if this Court adopts the third-party creditor exception of Restatement, Restitution, § 14(1), the rule cannot be applied retroactively. We disagree. Because this issue has not previously been addressed by a Michigan court in the context of a third-party creditor, it does not overrule established precedent and thus can be applied retroactively. See Tebo v. Havlik, 418 Mich. 350, 381, 343 N.W.2d 181 (1984) (dissenting opinion by Levin, J). Furthermore, retroactive application of the Restatement will not affect negatively the administration of justice. See King v. General Motors Corp., 136 Mich.App. 301, 306, 356 N.W.2d 626 (1984). Accordingly, we hold that Restatement, Restitution, § 14(1) will be applied retroactively to the case at bar.

As noted above, it is undisputed that defendant "made no misrepresentation and did not have notice of the transferor's mistake." Restatement, Restitution, § 14(1). Accordingly, under the Restatement provision that we have today adopted, defendant, as a third-party creditor, was not required to repay the funds tendered by Shield. The decision of the trial court is reversed.

Because of our disposition of the above issue, we need not address defendant's argument that Shield did not make a true "mistake of fact."

Reversed. Defendant, being the prevailing party, may tax costs pursuant to MCR 7.219.

MARK J. CAVANAGH, J., concurred.

YOUNG, Presiding Judge (dissenting).

I respectfully dissent.

The parties submitted this dispute to the trial court for resolution on cross-motions for summary disposition on stipulated facts. It appears that the University of Michigan Medical Center (the hospital) provided medical services to a dependent of an employee of plaintiff Oven-Fresh Bakeries, Inc., which dependent was covered under the Oven-Fresh medical insurance plan provided or administered by plaintiff Shield Benefit Administrators, Inc. The hospital billed plaintiffs for these services. In apparent error, Shield Benefit sent payment in excess of that allowed under the terms of the insurance plan. When Shield Benefit sought reimbursement for the overpayment, the hospital declined and this litigation ensued. On the stipulated facts, the circuit court concluded that reimbursement was required in accordance with a line of Michigan cases, including Montgomery Ward & Co. v. Williams, 330 Mich. 275, 47 N.W.2d 607 (1951). ¹

If, in our state's jurisprudence, any legal rule could be said to be "well settled," the equitable principle referenced in Montgomery Ward is such a rule. It has been a part of our jurisprudence since at least 1886. See Lane v. Pere Marquette Boom Co., 62 Mich. 63, 67, 28 N.W. 786 (1886). The rule has been stated as follows:

It is well settled law that a payment, although voluntarily made, if made under a mistake of a material fact, may be recovered, even if the mistake be due to a lack of investigation. [Couper v. Metropolitan Life Ins. Co., 250 Mich. 540, 544, 230 N.W. 929 (1930).]

An exception to this rule has also been...