U.S. v. Allstate Ins. Co., 83-5238

• Decision Date: 12 February 1985
• Docket Number: No. 83-5238,83-5238
• Citation: 754 F.2d 662
• Parties: UNITED STATES of America, Plaintiff-Appellant, v. ALLSTATE INSURANCE CO., Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 662

754 F.2d 662

53 USLW 2427

UNITED STATES of America, Plaintiff-Appellant, v. ALLSTATE INSURANCE CO., Defendant-Appellee.

No. 83-5238.

United States Court of Appeals Sixth Circuit.

Argued Feb. 14, 1984.

Decided Feb. 12, 1985.

Ronald E. Meredith, U.S. Atty., Michael F. Spalding, Asst. U.S. Atty., Louisville, Ky., Captain Bruce Kasold, Office of the Staff Judge Advocate, JAGC, Major Chris Whittmayer (argued), H-Q-D-A, Washington, D.C., for plaintiff-appellant.

Wayne J. Carroll, John Crutchfield (argued), Ewen, MacKenzie & Peden, Louisville, Ky., for defendant-appellee.

Before MERRITT and WELLFORD, Circuit Judges and BROWN, Senior Circuit Judge.

MERRITT, Circuit Judge.

In this action involving Kentucky no-fault automobile insurance law, the United States is attempting to recover the cost of medical services it provided to David L. Tangerman, an Army serviceman who was injured when struck by an automobile driven by Charles M. Gee while walking across a street. Tangerman was brought by ambulance to Louisville General Hospital, and was later transferred to Ireland Army Hospital. The United States paid for Tangerman's ambulance services and for his care at Louisville General, and provided treatment at Ireland Army Hospital without charge. It did not obtain an assignment of Tangerman's right to receive indemnification for medical expenses under applicable insurance policies. The total cost to the United States, including the reasonable value of the care provided at Ireland, was $8,620.17.

As an Army Serviceman on active duty status, Tangerman was entitled by 10 U.S.C. Sec. 1074(a) to receive his medical care at government expense. ¹ At the time of the accident, however, both Tangerman and Gee had no-fault automobile insurance policies with Allstate Insurance. Their policies had identical personal injury protection (PIP) endorsements which provided for basic reparation benefits, including medical expense. The United States did not seek an assignment from Tangerman, but filed a claim with Allstate as a third party beneficiary of Gee and Tangerman's insurance contracts. ² When Allstate refused to honor this claim, the government brought the present action, maintaining that it was entitled to payment from Allstate both by the express language of the PIP medical expense provision, and by the language of the Kentucky no-fault statute, K.R.S. Sec. 304.39-010 et seq. (1981). The District Court entered judgment for Allstate on its motion for a new trial, ³ finding that neither the contract nor the no-fault status gave the government the right to recover benefits from Allstate. We affirm for a number of reasons, including the fact that the government did not obtain an assignment of rights under the Kentucky no-fault statute, Sec. 304.39-240, K.R.S., the method contemplated by statute for recovery by a medical provider.

I.

The government argues that because it incurred Tangerman's medical expense, it is entitled to payment under Allstate's promise in the PIP endorsement to pay "personal injury protection benefits for medical expense ... incurred with respect to bodily injury sustained by an eligible insured person." ⁴ It also maintains that as a legal entity or organization which suffered economic loss, it is entitled to receive benefits under K.R.S. Sec. 304.39-030, which states that "every person suffering loss from injury arising out of maintenance or use of a motor vehicle has a right to basic reparation benefits," where basic reparation benefits are defined by sections 304.39-020(2) and 304.39-020(5)(a) to include medical expense. ⁵ Neither of these contentions has yet been decided by the Kentucky courts. ⁶

The District Court held that the government was no more than an incidental beneficiary or optional payee under the PIP endorsement. In order to rise above this status and assert rights as a third party beneficiary under that provision, the United States faces the longstanding rule in Kentucky that for a stranger to recover under a contract to which he is not a party, "it is indispensably essential that he allege and prove that the contract was intended for his benefit in the sense that it embraces the claim asserted by him." Louisville & Nashville Railroad Co. v. Dry Branch Coal Co., 252 Ky. 124, 65 S.W.2d 1008, 1011 (1933), quoted in King v. National Industries, Inc., 512 F.2d 29, 32 (6th Cir.1975). The contract must be "directly or primarily for the benefit of such third person." Long v. Reiss, 290 Ky. 198, 160 S.W.2d 668, 674 (1942). Intent to benefit is determined primarily by looking at the "purpose of the promisee in light of the terms of the promise and the accompanying circumstances." J.D. CALAMARI & J.M. PERILLO, THE LAW OF CONTRACTS, Sec. 17-2, at 608 (2d ed. 1977).

The language of the PIP endorsement fails to evidence the requisite intent to benefit a provider such as the government. Allstate promised to pay "personal injury protection benefits" which are clearly for the benefit primarily of the injured insured person. Allstate's general promise to pay PIP benefits for medical expense falls far short of establishing a specific right in the government to recover under the policy. The most natural inference regarding the insured's intent is simply that it was to cover his own medical expenses.

Discerning intent with respect to the no-fault PIP provision is, moreover, complicated by the fact that Sec. 304.39-080(5) requires all Kentucky automobile owners to carry insurance (or meet the self-insurance requirements of Sec. 304.39-080(7)) containing a PIP provision, ^6a and the elements of loss covered in that provision are also statutorily defined and not subject to contractual choice. See sections 304.39-020(2) and 304.39-020(5)(a). Against this background, it is impossible to find that the insured intended the PIP endorsement to be for the direct or primary benefit of the government in its role as a legally obligated provider of medical services.

II.

The government's more substantial contention is that the no-fault statute itself entitles it to receive payment for medical expenses under the PIP provision. In evaluating this argument we turn first to the language of the statute, which is decisive, if clear. See Gateway Construction Co. v. Wallbaum, 356 S.W.2d 247, 249 (Ky.1962). In addition to the statutory right to basic reparation benefits of "every person suffering loss from injury arising out of maintenance or use of a motor vehicle," Sec. 304.39-030(1), the government cites Sec. 304.39-040(2), which states that no-fault insurers "shall pay basic reparation benefits ... for loss from injury arising out of maintenance or use of a motor vehicle." Its argument is simply that the United States suffered loss from Tangerman's injury, and is therefore entitled to basic reparation benefits absent statutory language showing the legislature intended a more restrictive reading.

The difficulty with this contention is that under the statutory definition of "injury" in Sec. 304.39-020(4), "loss from injury" means "loss from bodily harm, sickness, disease, or death," whereas the government's expense occurred because it was legally obligated to provide free medical care, and only indirectly from Tangerman's injury. Moreover, while the no-fault statute fails to define "person," the court in Gregory v. Allstate Insurance Co., 618 S.W.2d 582, 582-583 (Ky.Ct.App.1981) held that the word "person" as used in Sec. 304.39-030(1) refers only to "living human beings." The Commissioner's Comment to Sec. 2 of the Uniform Motor Vehicle Reparations Act (which is identical in this respect to Sec. 304.39-030(1)) similarly states that "all persons injured in motor vehicle accidents within this State are entitled to receive basic reparation benefits." (Emphasis supplied.) Uniform Motor Vehicle Reparations Act (U.L.A.) Sec. 2, at 59 (1980). The Kentucky Supreme Court has recognized the commissioner's comments as "persuasive authority" in interpreting Kentucky statutes. Couty v. Kentucky Farm Bureau Mutual Insurance Co., 608 S.W.2d 370, 371 (Ky.1980). See also Note, Kentucky No-Fault: An Analysis and Interpretation, 65 Ky.L.J. 466, 475 (1976) (the basic assumption of the statute is that "everyone sustaining personal injuries in an automobile accident in Kentucky will be entitled to basic reparation benefits"). ^6b

The government also argues that the purpose of the no-fault statute requires allowing any person legally obligated to pay the medical expenses of an insured person to claim benefits directly and on his own behalf from the no-fault insurer. We find this contention inconsistent with the language and policy of the statute. In section 304.39-240, the Kentucky legislature specifically made enforceable an assignment of a right to benefits for "medical expense to the extent the benefits are for the cost of products, services, or accommodations provided or to be provided by the assignee." It thus clearly contemplated that a provider's right to recover should arise only from assignment. In addition, in providing that "medical expense benefits may be paid by the reparation obligor directly to persons supplying products, services, or accommodations to the claimant," section 304.39-210 makes the provider an optional payee or incidental beneficiary of no-fault policies in order to facilitate the insured person's receipt of benefits, and does not make the provider a third party beneficiary with a right to enforce the insurance contract. Accord, Heusle v. National Mutual Insurance Co., 628 F.2d 833, 839 (3rd Cir.1980); United States v. Dairyland Insurance Co., 674 F.2d 750, 752 (8th Cir.1982).

The stated purposes of the Kentucky no-fault statute might be frustrated and are not furthered by granting the government a right to recover. Since the United States is legally obligated to cover the medical expenses of servicemen, its payment of those expenses should not be influenced by its ability to recover from the no-fault...