United States v. Government Employees Insurance Co., 71-2036.

• Decision Date: 07 June 1972
• Docket Number: No. 71-2036.,71-2036.
• Citation: 461 F.2d 58
• Parties: UNITED STATES of America, Appellee, v. GOVERNMENT EMPLOYEES INSURANCE COMPANY, Appellant.
• Court: U.S. Court of Appeals — Fourth Circuit

461 F.2d 58 (1972)

UNITED STATES of America, Appellee, v. GOVERNMENT EMPLOYEES INSURANCE COMPANY, Appellant.

No. 71-2036.

United States Court of Appeals, Fourth Circuit.

Argued March 7, 1972.

Decided June 7, 1972.

Daniel Lee Brawley, Wilmington, N.C. (Lonnie B. Williams and Marshall, Williams, Gorham & Brawley, Wilmington, N.C., on brief), for appellant.

Samuel Huntington, Atty., Dept. of Justice (L. Patrick Gray, III, Asst. Atty. Gen., Morton Hollander, Atty., Dept. of Justice, and Warren H. Collidge, U.S. Atty., on brief), for appellee.

Before WINTER, CRAVEN and RUSSELL, Circuit Judges.

DONALD RUSSELL, Circuit Judge:

The only issue involved in this case is the right of the United States to recover under the "Expenses for Medical Services" provisions of a Family Automobile Policy issued to one Elmer Riley Strickland, a retired member of the United States Army, for medical services rendered insured under obligation imposed upon the United States by Section 1074(b), 10 U.S.C.

There is no dispute that the insured sustained injuries in an accident and was entitled under the policy in question to recover all medical and hospital expenses he himself incurred, within certain monetary limits not relevant to this action. Since he was a retired member of the Army, he was, however, provided medical and hospital services at a Government institution and at Government expense. There is no controversy over the value of the services rendered. The United States sued to recover the value of such services, to the extent of the coverage, from the insurer. The District Court allowed recovery, 330 F.Supp. 1097. We affirm.

The insurer argues at the outset that the United States was without a right to recover herein under the Medical Care Recovery Act.¹ To this extent the United States agrees with the appellant insurer. It asserts that its right of recovery does not rest on the Medical Care Recovery Act but is based upon the insurance contract issued to Strickland by the insurer and it sues as a third-party beneficiary, entitled as such to recover under the "Expenses for Medical Services" provision of that contract. The policy obligates the insurer to pay, within certain limits not pertinent to this case, "all expenses incurred by or on behalf of" (italics added) the insured in connection with an accident. It specifically provides in the "Conditions" provision of the policy, that the insurer "may pay the injured person or any person or organization rendering the services * * *". (Italics added.) These provisions were construed in United States v. United Services Automobile Association (5th Cir., 1970) 431 F.2d 735, cert. denied 400 U.S. 992, 91 S.Ct. 459, 27 L.Ed.2d 440, reh. den. 401 U.S. 984, 91 S.Ct. 1188, 28 L.Ed.2d 338,² to authorize the United States to recover as a third-party beneficiary for medical services rendered by the United States to an insured's dependent pursuant to Section 1076, 10 U.S.C.³ This result appears sound⁴ and accords with what must have been the intent and understanding of the parties. It must be assumed that the insurer knew that its insured in this case was entitled to obtain medical services at the expense of the United States, as provided under Section 1074(b), 10 U.S.C. It had included as a separate part of its contract of insurance, for which it unquestionably charged a portion of its premium, this provision obligating itself to pay the medical expenses incurred as a result of an accident on behalf of the insured. To allow it to eliminate from its obligation, under this provision, any expenses incurred by the United States under the latter's statutory obligation to the insured would mean that the insurer actually would have been incurring no liability, or at least a most limited one, under this part of its policy, for which it had charged a portion of its premium. Certainly, the insurer had not intended — it undoubtedly had not adjusted its premium to take into account — any such "windfall" as would result in its favor by limiting its obligation under the "Expenses for Medical Services" portion of its policy as it now asks of the Court. It would be unconscionable so to limit it. See Government Employees Insurance Company v. United States (10th Cir. 1965) 349 F.2d 83, 85-86, cert. den. 382 U.S. 1026, 86 S.Ct. 646, 15 L.Ed.2d 539, reh. den. 385 U.S. 939, 86 S.Ct. 1064, 15 L.Ed.2d 857.

The insurer, however, asserts that the insurance policy is a North Carolina contract, to be construed in accordance with the laws of that State, and that Lenoir Memorial Hospital, Inc. v. Stancil (1965) 263 N.C. 630, 139 S.E.2d 901, is conclusive that the United States may not recover as a third-party beneficiary thereunder. Lenoir Memorial is an unusual case. A draft for the hospital expenses of the insured was issued jointly to the insured and the hospital where he had been treated. The insured indorsed it, and, without securing the indorsement of his co-payee or making payment of his hospital bill, cashed it. The insurer paid the check, without apparently noting that the hospital had not joined in the indorsement. Unable to collect from the insured, the hospital sued...