Teichman by Teichman v. Community Hosp. of Western Suffolk

• Decision Date: 15 February 1996
• Citation: 663 N.E.2d 628,640 N.Y.S.2d 472,87 N.Y.2d 514
• Parties: , 663 N.E.2d 628, 20 Employee Benefits Cas. 1532 Michelle TEICHMAN, an Infant, by Her Mother and Natural Guardian, Camille TEICHMAN, et al., Respondents, v. COMMUNITY HOSPITAL OF WESTERN SUFFOLK, et al., Defendants, and Metropolitan Life Insurance Company, Intervenor-Appellant.
• Court: New York Court of Appeals Court of Appeals

Page 472

640 N.Y.S.2d 472

87 N.Y.2d 514, 663 N.E.2d 628, 20

Employee Benefits Cas. 1532

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

Court of Appeals of New York.

Feb. 15, 1996.

Edward Baer, New York City, Alan E. Lazarescu, Michelle D'Arcambal and Lawrence Wolff, for intervenor-appellant.

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

Dennis C. Vacco, Attorney General, Albany (Victoria A. Graffeo, Peter H. Schiff and Michael S. Buskus, of counsel), for State of New York, amicus curiae.

OPINION OF THE COURT

KAYE, Chief Judge.

This medical malpractice action on behalf of an infant severely injured during birth was settled before trial between plaintiffs and defendant hospital and doctors, with no mention in the infant's compromise that it included any compensation for medical expenses. At issue is the claim of plaintiffs' insurer to recoup, out of the settlement proceeds, medical expenses it paid and will yet pay on behalf of its insured. The trial court allowed intervention for that purpose, the Appellate Division reversed. We conclude that, while the insurer had no lien on the funds, intervention was proper to permit the insurer to establish its contractual right to reimbursement of any medical expenses actually included in the settlement.

The infant plaintiff, Michelle Teichman, has cerebral palsy as a result of perinatal complications. Her mother, plaintiff Camille Teichman, was provided health insurance coverage by her employer under the Empire Plan (the Plan), which is administered by appellant Metropolitan Life Insurance Company (MetLife). Starting in June 1986, pursuant to the Plan, MetLife paid covered medical expenses for Michelle, and as of January 1992 had allegedly paid $169,302.27.

In April 1987, Camille Teichman, individually and on behalf of her daughter, commenced this action against the Community Hospital of Western Suffolk and the doctors involved in the birth. MetLife learned of this action no later than February 1989, when it received subpoenas for medical records from defendants' attorneys as well as a request for records from plaintiffs' counsel. On March 1, MetLife wrote to Camille Teichman notifying her of a reimbursement provision in the Plan if she is "repaid" for medical expenses from another source.

Nearly three years later, in November 1991, the parties to the malpractice action entered into a stipulation settling the case for $4,500,000, inclusive of all interest, costs, liens and claims of insurance carriers (including MetLife)--in the words of plaintiffs' counsel at that time, defendants "are buying their peace." MetLife, however, was not a party to the action, nor was it a part of the settlement negotiations. Its only involvement in the lawsuit was release of the child's medical records, as well as a letter to Camille Teichman indicating that it maintained a lien in the amount of $105,232.82 and requesting that she sign a "Third Party Reimbursement Agreement." No response appears in the record.

Days after the stipulation, plaintiffs' attorney wrote MetLife that the action was being settled, that MetLife had no lien, and that if it wished to assert any rights it should do so within 10 days. MetLife responded that it maintained a lien for medical expenses paid as well as a "subrogation right." Plaintiffs' attorney denied both, asserting that in the action his clients had sought no recovery for past medical expenses.

On December 16, 1991, after the stipulation was placed on the record but before the infant compromise order was signed, plaintiffs moved to "vacate" MetLife's claims for reimbursement and for a declaration, based in part on CPLR 4545, that MetLife was without "any rights to settlement proceeds." MetLife cross-moved for permission to intervene and a declaration that it was entitled to $169,302.27 already expended plus all future payments for medical expenses. The trial court found CPLR 4545 inapplicable to a settlement, granted intervention, and held that by virtue of a lien created under the Plan, MetLife was entitled to be fully reimbursed out of the settlement fund. While agreeing with the trial court that CPLR 4545 was inapplicable to a settlement, the Appellate Division reversed. The Court concluded that nothing in the Plan created a lien or contractual subrogation right in favor of MetLife, and that any contractual right to a refund from the insured was lost by MetLife's failure to intervene earlier.

Before us appellant MetLife seeks full reimbursement of its payments and future payments, or a hearing to determine the amount of covered medical expenses actually included in the settlement, arguing that plaintiffs would otherwise enjoy a double recovery at ratepayers' expense. By contrast, plaintiffs insist that the insurer has no lien or other right to the proceeds both because absolutely no medical expenses were included in the settlement and because it delayed too long in seeking intervention. We agree with the Appellate Division that MetLife has no lien on the settlement proceeds but conclude that intervention was proper to allow the insurer to establish its right to recoup covered medical payments, if any, made to plaintiffs by defendants as part of the settlement.

We begin analysis with the substantive lien issue, and next reach the procedural question of intervention.

As in the construction of contracts generally, including insurance contracts particularly, we give unambiguous terms their plain and ordinary meaning. Courts "may not make or vary the contract of insurance to accomplish [their] notions of abstract justice or moral obligation" (Breed v. Insurance Co., 46 N.Y.2d 351, 355, 413 N.Y.S.2d 352, 385 N.E.2d 1280, rearg. denied 46 N.Y.2d 940, 415 N.Y.S.2d 1027, 388 N.E.2d 372).

MetLife bases its lien claim on the following paragraph of the insurance policy:

"REFUND TO METROPOLITAN FOR OVERPAYMENT OF BENEFITS

"If Metropolitan pays benefits under this Plan for Covered Medical Expenses incurred on your account, and it is found that Metropolitan paid more benefits than should have been paid because all or some of those expenses were not paid by You, or You were repaid for all or some of those expenses by another source, Metropolitan will have the right to a refund from You."

The Plan defines "You" as "the Employee, and you, an eligible Dependent member of the Employee's Family." ¹ The policy thus speaks of a "right to a refund" and says, or suggests, nothing regarding a lien on property. Plainly, this paragraph does not expressly establish a lien, as MetLife readily concedes.

Nor does the paragraph give rise to an "equitable lien" on the settlement proceeds. As we have long recognized, an equitable lien "is dependent upon some agreement express or implied that there shall be a lien on specific property" (James v. Alderton Dock Yards, 256 N.Y. 298, 303, 176 N.E. 401, rearg. denied 256 N.Y. 681, 177 N.E. 191; Di Niscia v. Olsey, 162 App.Div. 154, 147 N.Y.S. 198). The agreement "must deal with some particular property either by identifying it or by so describing it that it can be identified and must indicate with sufficient clearness an intent that the property so described or rendered capable of identification is to be held, given or transferred as security for the obligation" (James, 256 N.Y. at 303, 176 N.E. 401; see also, Scivoletti v. Marsala, 61 N.Y.2d 806, 809, 473 N.Y.S.2d 949, 462 N.E.2d 126).

The unambiguous paragraph of the Plan falls far short of these requirements. ² The refund provision simply states that if the insured is "repaid" for all or some of its medical expenses, appellant "will have the right to a refund." The Plan does not identify property subject to the right of refund; it does not describe the property in such a way as to make identification possible; and it does not state the parties' intention that the property be "held, given or transferred as security for [an] obligation." (James, 256 N.Y. at 303, 176 N.E. 401; see also, Datlof v. Turetsky, 111 A.D.2d 364, 365, 489 N.Y.S.2d 353.)

By the same token, the Plan did not create a lien under a theory of equitable subrogation. MetLife was, as the Appellate Division noted, entitled to subrogation by operation of law once it made payment on behalf of its insured (205 A.D.2d at 21, 617 N.Y.S.2d 338; see also, Federal Ins. Co. v. Arthur Andersen & Co., 75 N.Y.2d 366, 372, 553 N.Y.S.2d 291, 552 N.E.2d 870; 16 Couch, Insurance § 61:4, at 239-240 [rev ed]. This right of subrogation, formulated to prevent unjust enrichment, is based upon "principles of equity and natural justice" (Ocean Acc. & Guar. Corp. v. Hooker Electrochemical Co., 240 N.Y. 37, 47, 147 N.E. 351).

As we observed recently, "subrogation is the principle by which an insurer, having paid losses of its insured, is placed in the position of its insured so that...