Unified School Dist. No. 259 v. Sloan

• Decision Date: 01 April 1994
• Docket Number: No. 69620,69620
• Citation: 19 Kan.App.2d 445,871 P.2d 861
• Parties: , 90 Ed. Law Rep. 822 UNIFIED SCHOOL DISTRICT NO. 259, Sedgwick County, Kansas, Appellee, v. Sharon K. SLOAN, Appellant.
• Court: Kansas Court of Appeals

Page 861

871 P.2d 861

19 Kan.App.2d 445, 90 Ed. Law Rep. 822

UNIFIED SCHOOL DISTRICT NO. 259, Sedgwick County, Kansas, Appellee, v. Sharon K. SLOAN, Appellant.

No. 69620.

Court of Appeals of Kansas.

April 1, 1994.

Review Denied June 8, 1994.

Syllabus by the Court

1. As the settlement proceeds in the present case were in bulk and did not specify what amounts were attributable to what expenses, the district court did not err in concluding that the medical expenses at issue 2. Where the right of subrogation is by an express agreement between an insurer and its insured, the insurer may proceed against the insured to recover medical benefits it has paid even though the insured has not been compensated in the full amount prayed for by the insured.

were fully included in the settlement amount received by the plaintiff.

3. K.S.A. 40-202, which exempts the insurance plan in the present case from the state insurance code, does not violate public policy. The legislature purposefully chose to exempt certain insurance organizations from the type of regulation found in K.A.R. 40-1-20, which prohibits subrogation clauses providing for reimbursement of medical, surgical, hospital, or funeral expenses.

Jack Scott McInteer and Randall K. Rathbun, of Depew, Gillen & Rathbun, Wichita, for appellant.

John Terry Moore, Thomas R. Powell, and Douglas P. Witteman, of Hinkle, Eberhart & Elkouri, L.L.C., Wichita, for appellee.

Before GERNON, P.J., LEWIS, J., and JOHN W. WHITE, District Judge, assigned.

GERNON, Presiding Judge.

Sharon Sloan appeals the district court's granting of summary judgment to Unified School District No. 259 (U.S.D. No. 259). The district court found that Sloan was liable under her health insurance plan to reimburse her insurer for health care benefits paid on behalf of her deceased husband out of a settlement received from third parties. The settlement was silent as to allocation of the elements of damage.

Sloan, as an employee of U.S.D. No. 259, participated in its group health plan (Plan). Paragraph XIV.B. of the Plan states:

"This Plan is allowed to recover from the employee any benefits paid for injury or sickness where a third-party has caused the injury or sickness as a result of his/her negligence or wrong and the employee or eligible dependent recovers a judgment or settlement from the third-party for charges allowed by the Plan."

Sloan's husband became ill and eventually died. While he was ill, his health plan paid $32,570 in benefits. Sloan received $427,500 as settlement in a suit against various chemical manufacturers. The suit asked for $1.95 million as damages. U.S.D. No. 259 was not a party to the lawsuit, nor did it intervene. U.S.D. No. 259 did not receive notice of or participate in settlement negotiations.

U.S.D. No. 259 brought suit against Sloan for breach of the insurance contract. The district court granted U.S.D. No. 259 summary judgment, finding as a matter of law that the Plan at issue was not subject to regulation by the Kansas Insurance Department. The court also found:

"With respect to defendant's argument in interpreting paragraph XIV.B. that the amount of the medical expenses was not in fact recovered because of some limiting process of applying percentage of the amount claimed in the pretrial order in the underlying case as an outside limit as compared with the amount settled for, the Court states that all counsel are well aware, as is the Court, that the common practice in settlement cases such as in the underlying case, is that where there is a settlement, unless there is some serious dispute about the amount of the medical payments, those are the first items that are agreed upon between the parties; and the argument goes to the balance. There is no indication in this case in any way, shape or form that there was ever any such disagreement as to the amount of medical expenses. The Court doesn't believe that there was ever any such disagreement; and the Court therefore finds that the full amount of defendant's medical expenses were recovered by defendant's settlement in the underlying case, and that this is the type of recovery that is contemplated by the contractual language in the reimbursement provision entered into between the parties."

The district court also found that Sloan's husband's "injury or sickness was also 'caused' as a result of a third party's 'negligence or wrong' as those words are used in Sloan appeals.

the reimbursement provision of [Sloan's] Plan."

SUMMARY JUDGMENT RULING

Summary judgment is appropriate when "the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." K.S.A.1993 Supp. 60-256(c).

The record reveals that Sloan did not file an answer to U.S.D. No. 259's summary judgment motion to dispute its list of uncontroverted facts. To defeat a properly supported motion for summary judgment, the nonmovant must come forward with specific, material facts showing there is a genuine issue for trial. Mark Twain Kansas City Bank v. Kroh Bros. Dev. Co., 250 Kan. 754, 762, 863 P.2d 355 (1992).

There being no material issues of controverted fact here, summary judgment was proper.

SETTLEMENT AMOUNTS

Sloan argues the district court erred in taking judicial notice of a controverted fact, namely that "the common practice in settlement cases such as in the underlying case, is that where there is a settlement, unless there is some serious dispute about the amount of the medical payments, those are the first items that are agreed upon between the parties." Sloan contends, first, that the amount of money she received as compensation for medical expenses remains unresolved and, second, that she should not be obligated to reimburse the Plan until she is fully compensated for all of her losses.

Sloan argues the district court should not have taken judicial notice of the fact that medical expenses would have been an initial component of the settlement agreements. The Plan itself is silent as to how to prioritize monies received from third parties. Sloan contends the district court improperly granted a priority in favor of the Plan.

Sloan's argument is that in settlement negotiations, medical bills and other items of loss are reduced by a factor related to the risk of litigation before determining the actual amount of the settlement. Therefore, Sloan asserts that whether she was compensated for all of the medical expenses remains a material question of fact, thereby precluding summary judgment.

Sloan's prayer for relief in her lawsuit against the various chemical companies was in the amount of $1.95 million, which included $55,000 for medical and funeral expenses. She settled for a total sum of $427,500. The Plan had paid her $32,570 in benefits. Two of the settlement agreements she signed obligated her to be "responsible for the payment of all expenses, including but not limited to medical and hospital charges ... to any person or entity so entitled by contract."

The sum of these two settlements alone was $157,500. Each of the settlement agreements included specific language releasing the chemical companies from any and all claims for costs, damages, and causes of action related to the allegations in the lawsuit.

The Supreme Court of Minnesota faced a similar question in Westendorf by Westendorf v. Stasson, 330 N.W.2d 699 (Minn.1983). In that case, Westendorf received injuries in an automobile accident, and her insurer paid medical and hospital expenses in the amount of $22,145.01. Westendorf settled with the third-party tortfeasor for $100,000. The settlement agreement stated that Westendorf's damages greatly exceeded the $100,000 payment and that the money was strictly limited to items of noneconomic loss. Westendorf's insurer subsequently sought reimbursement of the medical benefits it had paid under a reimbursement provision similar to the provision in the present case.

Westendorf made the argument that the reimbursement provision did not apply to the settlement proceeds because no part of that recovery was for medical expenses. The court held as follows:

"If the Westendorfs' claim had gone to a jury trial, then limiting Group Health's right of reimbursement to the member's recovery for medical expense would be reasonable and straightforward.... Such an allocation would have been binding on Group Health, which as a result would have been entitled to reimbursement, only 'to the extent of' that allocation, for the reasonable value of the care and services furnished.

"When, however, plaintiffs' claim is settled without a verdict, the application of the reimbursement provision is more problematic. In such a case, any allocation is left to the bargaining of the parties to the tort action, and it is not surprising if the parties give little solicitude to the reimbursement rights of the health care provider. The enrollee, even though entitled to recover medical expenses from a third party, may elect not to do so. Here, Mr. and Mrs. Westendorf were entitled to recover medical expenses against Kevin and Richard Stasson. They did in fact recover $100,000. They could have allocated $22,000 of that amount to medical expense; or they could have made no allocation at all; or they could, as they did, allocate the entire amount to items of damage other than medical expense. Because the parties to the settlement agreement have characterized their settlement as excluding any damages for medical expenses, it does not follow, however, that this characterization is binding on the HMO provider. The effect of the HMO's reimbursement clause should not depend on a settlement bargain to which it was not privy. The settlement agreement should not be determinative of how the proceeds are allocated.

"Since the allocation of the settlement proceeds here is neither binding...