Teichman by Teichman v. Community Hosp. of Western Suffolk

• Decision Date: 11 October 1994
• Citation: 205 A.D.2d 16,617 N.Y.S.2d 338
• Parties: Michelle TEICHMAN, an Infant, by Her Mother and Natural Guardian, Camille TEICHMAN, et al., Appellants, v. COMMUNITY HOSPITAL OF WESTERN SUFFOLK, et al., Defendants, Metropolitan Life Insurance Company, Respondent.
• Court: New York Supreme Court — Appellate Division

Page 338

617 N.Y.S.2d 338

205 A.D.2d 16

Michelle TEICHMAN, an Infant, by Her Mother and Natural Guardian, Camille TEICHMAN, et al., Appellants, v. COMMUNITY HOSPITAL OF WESTERN SUFFOLK, et al., Defendants, Metropolitan Life Insurance Company, Respondent.

Supreme Court, Appellate Division,

Second Department.

Oct. 11, 1994.

Pegalis & Wachsman, P.C., Great Neck (Steven E. Pegalis, of counsel), for appellants.

David J. Larkin, Jr., and Peter J. Flanagan, New York City, for respondent.

Before O'BRIEN, J.P., and SANTUCCI, ALTMAN and KRAUSMAN, JJ.

SANTUCCI, Justice.

On this appeal, we are asked to decide the novel question of whether or not an insurance carrier which has paid out medical benefits on behalf of an insured's infant child may seek reimbursement for those benefits from the proceeds of an infant's compromise, where the compromise does not indicate that it includes compensation for medical expenses and where the carrier has not timely intervened in the underlying medical malpractice action. On the facts of this case, we find that the carrier cannot recover the cost of these benefits from the infant's compromise.

This is a medical malpractice action based on the events and circumstances surrounding the birth of the infant plaintiff, Michelle Teichman, on March 20, 1986. She suffered severe central nervous system damage as a result of perinatal complications. Medical expenses incurred as a result of the infant's condition were paid by Metropolitan Life Insurance Company (hereinafter Met Life) pursuant to the health insurance coverage policy (hereinafter the Empire Plan) provided by the employer of the infant's mother, the plaintiff Camille Teichman.

In 1987 the infant plaintiff, by her mother, Camille Teichman, and Camille Teichman individually, commenced the instant action against the doctor and hospital involved in the birth. The case was placed on the trial calendar by the filing of a note of issue on or about on May 17, 1990. Subsequent to the filing of the note of issue, the case appeared on the trial calendar and settlement negotiations ensued.

In 1991 a compromise of the case was proposed whereby the defendants would pay $4,500,000 to settle the entire case, and the mother's claim would be withdrawn. Met Life was not a party to the action and was not a party to the settlement negotiations. Prior to the point of the proposed settlement, Met Life's only "participation" in the lawsuit was its release of the infant plaintiff's medical records, and a letter sent to Camille Teichman in which Met Life indicated that it maintained a lien of over $100,000, and which requested that the plaintiff Camille Teichman execute a document known as a "Third Party Reimbursement Agreement". There is no indication in the record that Camille Teichman either responded to the letter or signed the Third Party Reimbursement Agreement.

On November 22, 1991, the settlement was placed on the record in open court. At that time the plaintiffs' counsel stated:

"There is a claimed lien for Metropolitan Life of over $100,000. However * * * there appears to be no legal basis for that".

The plaintiffs' counsel also indicated that he anticipated that Met Life would withdraw its claim, as it had done so in a similar case. The attorney for the hospital stated that the settlement was inclusive of all "interest, costs, liens and disbursements".

On November 25, 1991, the plaintiffs' counsel wrote to Met Life, advising it that the case was being settled, and if it wished to assert any rights, it should do so within 10 days. On November 26, 1991, Met Life wrote to the plaintiffs' counsel, stating that it maintained a lien for medical expenses paid on behalf of the infant and that under the Empire Plan, "coverage is not provided for expenses for which payment or reimbursement is received * * * as a result of a legal action or settlement". On December 3, 1991, the plaintiffs' counsel responded that Met Life had neither a lien nor a right of subrogation either by operation of law or under the contract.

On December 16, 1991, the plaintiffs moved to vacate all claims of Met Life and for a declaration that Met Life was without any right to the settlement proceeds. Met Life cross-moved for permission to intervene in the action, and for a declaration that it was entitled to past medical expenses which it had paid on the infant's behalf, plus all medical expenses which the child would incur in the future.

The Supreme Court granted Met Life's motion to intervene, and declared that Met Life was entitled to be reimbursed for all past and future medical expenses. The plaintiffs moved to reargue. The court granted reargument, but adhered to its original determination. We now reverse.

The Supreme Court correctly determined that CPLR 4545 was not applicable to the situation at bar, since the case was settled and not tried. CPLR 4545(a), known as the collateral source rule, provides in pertinent part:

"In any action for medical * * * malpractice where the plaintiff seeks to recover for the cost of medical care * * * evidence shall be admissible for consideration by the court to establish that any such past or future cost or expense was or will, with reasonable certainty, be replaced or indemnified * * * from any collateral source such as insurance." * * * [In addition,] "[i]f the court finds that any cost or expense was or will, with reasonable certainty, be replaced or indemnified * * * it shall reduce the amount of the award by such finding."

The utilization of the phrases "evidence shall be admissible" and "the amount of the award", as well as the corresponding non-use of the terms "settlement" or "compromise", make it apparent that the Legislature intended the statute to define an evidentiary rule which is to be applied only where the matter is tried and a judgment in favor of a plaintiff has been "awarded". Indeed, the collateral source rule is contained under CPLR article 45--the article governing rules of evidence--and is entitled "Admissibility of collateral source of payment". Moreover, nowhere in the rules governing the compromise of an infant's claim is there any indication that such a settlement must be reduced by any collateral source payment (see, CPLR 1206, 1207, 1208). It stands to reason that, in the context of an infant's compromise, the issue of whether or not an infant has received collateral source payments may be taken into consideration by the parties during the negotiation process which precedes the settlement offer, without the necessity of resorting to a rule of evidence.

However, although CPLR 4545 may not be invoked to reduce the amount of the infant's compromise, there remains the question of whether or not Met Life may assert any claim to the settlement under either a right of lien or subrogation. Insofar as is relevant to our discussion herein the Empire Plan states as follows:

"If [Met Life] pays benefits under This Plan for Covered Medical Expenses incurred on your account, and it is found that [Met Life] paid more benefits than should have been paid because * * * You were repaid for all or some of those expenses by another source, [Met Life] will have the right to a refund from You" (emphasis added). ¹

Met Life argues that this language creates a lien in its favor for the recovery of the amount it paid on behalf of the infant's medical expenses. In addition, Met Life contends that the lien cannot be extinguished because the settlement, in which Met Life did not participate, does not recite any liens or because the settlement was structured so that only the infant (and not her mother) would receive payment.

The plaintiffs argue that the Empire Plan does not create a lien on Met Life's behalf nor is there any language contained therein which would create a right of subrogation in favor of Met Life. Moreover, the plaintiffs contend that the negotiations leading up to the compromise took into account the fact that past medical expenses had been paid, and thus the settlement proceeds represented only payment for the child's pain and suffering.

The Supreme Court concluded that the language of the Empire Plan creates a lien in Met Life's behalf for the refund of the medical expenses it paid and further that the Plan's "provisions are clear that the right of subrogation extends to medical expenses incurred on the child's behalf". However, although the Empire Plan does speak to Met Life's right to a "refund", there is nothing in the Empire Plan which either expressly creates a lien in favor of Met Life or contractually declares Met Life's subrogation rights to recover from a tortfeasor any moneys it expended on behalf of an injured insured. "In the absence of * * * clarification, ambiguities in [a] policy [of insurance] must be interpreted in favor of the insured" (Scinta v. Kazmierczak, 59 A.D.2d 313, 316, 399 N.Y.S.2d 545). Therefore, we conclude that the Empire Plan did not provide for the creation of a lien in Met Life's favor with respect to the recovery from a tortfeasor for medical expenses paid to the insured by Met Life.

There is, however, authority for the proposition that the principle of subrogation is equitable in nature and that it is not dependent upon any of the terms of the contract (see, Kozlowski v. Briggs Leasing, 96 Misc.2d 337, 341, 408 N.Y.S.2d 1001; Ocean Acc. and Guar. Corp. v. Hooker Electrochemical Co., 240 N.Y. 37, 47, 147 N.E. 351). Indeed, the usual rule is that an insurer, having indemnified its insured, "inherits" the insured's cause of action against the tortfeasor (see, Jaylynn, Inc. v. Star Supermarkets, Inc., 75 Misc.2d 542, 348 N.Y.S.2d 85). As stated by the court in the case of Kozlowski v. Briggs Leasing, supra, at 342, 408 N.Y.S.2d 1001:

"The doctrine of subrogation was formulated by equity to prevent...