United States v. Nationwide Mutual Insurance Co.

• Decision Date: 09 July 1974
• Docket Number: No. 73-1001.,73-1001.
• Citation: 499 F.2d 1355
• Parties: UNITED STATES of America, Plaintiff-Appellant, v. NATIONWIDE MUTUAL INSURANCE COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

499 F.2d 1355 (1974)

UNITED STATES of America, Plaintiff-Appellant, v. NATIONWIDE MUTUAL INSURANCE COMPANY, Defendant-Appellee.

No. 73-1001.

United States Court of Appeals, Ninth Circuit.

July 9, 1974.

Stan Pitkin, U. S. Atty., Seattle, Wash., Charles F. Mansfield, Asst. U. S. Atty., Morton D. Hollander, William D. Appler, Washington, D. C., for plaintiff-appellant.

John P. Braislin, Skeel, McKelvey, Henke, Evenson & Betts, Seattle, Wash., for defendant-appellee.

Before DUNIWAY, WRIGHT and CHOY, Circuit Judges.

OPINION

EUGENE A. WRIGHT, Circuit Judge:

The United States appeals from summary judgment denying its claim for payment under an automobile insurance policy for providing medical care to insured persons. The district court found that the parties to the insurance contract did not intend to benefit the United States as a third-party beneficiary and that coverage was excluded by a specific clause of the policy. We reverse and remand.

John and Margaret Buckner, the insured parties under the policy involved in this dispute, were injured in an automobile accident in Washington State caused solely by the negligence of Mr. Buckner. They were given preliminary medical treatment at a hospital near the accident and were then transferred to Madigan General Hospital, a military hospital at Fort Lewis, Washington. Because Mr. Buckner was a retired serviceman, he and his wife were entitled to free medical care on a space available basis in a military hospital pursuant to 10 U.S.C. §§ 1074(b), 1075, 1076(b). The reasonable value of the free care provided at Madigan General was $4,503.75, and the United States sued to recover $4,000, the monetary limit of the policy, from Nationwide.¹

Nationwide defended on the grounds that the United States could not recover as a third-party beneficiary under the policy and that coverage was excluded by one of the policy's exclusionary clauses. The district court found both that Nationwide did not contract with the intent to benefit the United States under these circumstances and that the exclusionary clause barred recovery. Summary judgment was granted in favor of Nationwide, and the government appeals.

A threshold question, not considered by the district court, is whether Washington or federal law should be applied. The United States invoked the jurisdiction of the district court under 28 U.S.C. § 1345, giving the district court jurisdiction in all cases where the United States is a party plaintiff. Federal courts that have considered the question have held that suits under § 1345 are not controlled by Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), requiring adherence to appropriate state substantive law. E. g., United States v. Williams, 441 F.2d 637 (5th Cir. 1971); Tri-State Ins. Co. v. United States, 340 F.2d 542 (8th Cir. 1965).² But where there has been no clear federal law to apply, federal courts have referred to state law to provide the appropriate rule. United States v. Williams, supra; United States v. Hedburg, 217 F.Supp. 711 (D.S.D.1963). There is no appropriate federal rule in the situation with which we are faced: the interpretation of an insurance contract and third-party beneficiary recovery. Indeed, two federal courts that have considered the latter problem have referred to state law. United States v. Government Employees Ins. Co., 461 F.2d 58 (4th Cir. 1972); United States v. State Farm Mutual Automobile Ins. Co., 455 F.2d 789 (10th Cir. 1972). Thus, we look to the law of Washington to provide the substantive rules to be applied to the problem before us.³

While Washington substantive law will be applied here, certain issues must nevertheless be decided by reference to federal law. Specifically, the determination whether a question is an issue of fact for the trier of fact or an issue of law for the court is controlled by federal law. Such would be the rule even if state law were applicable under the mandate of Erie. Byrd v. Blue Ridge Rural Electric Cooperative, Inc., 356 U.S. 525, 78 S.Ct. 893, 2 L.Ed.2d 953 (1958); Gillespie v. Travelers Ins. Co., 486 F.2d 281, 283 n. 1 (9th Cir. 1973). On the other hand, the right of a third-party beneficiary to sue on a contract and special rules concerning the resolution of ambiguities against the drafter of an adhesion contract or against the insurer in an insurance contract reflect a substantive state policy and will be analyzed with reference to Washington law. See Gillespie v. Travelers Ins. Co., supra at 283 n. 2.

Having ascertained the governing law, we turn to the United States' assignments of error. First, it argues that the district court erred in finding that it was not a third-party beneficiary. The policy obligated Nationwide to pay reasonable medical expenses "to or for" the injured party.⁴ The government argues that the word "for" must be given meaning and that its inclusion evidences an intent that payment be made "for" the injured party to the entity providing medical care as an alternative to payments made "to" the injured party directly. The government relies on judicial and commentary analyses reaching similar conclusions. See United States v. Government Employees Ins. Co., supra; United States v. State Farm Mutual Automobile Ins. Co., supra; Long, Government Recovery Beyond the Federal Medical Recovery Act, 14 S.Dak.L.R. 20, 35-37 (1969); see also Franklin Casualty Insurance Co. v. Jones, 362 P.2d 964 (Okl.1961) (dissenting opinion).⁵ We need not, however, determine whether the government's suggested meaning is correct.

Washington law permits third-party beneficiaries to enforce contracts if the contract was intended to benefit the third party. See Ridder v. Blethen, 24 Wash.2d 552, 166 P.2d 834 (1946). Under the circumstances of this case, the government can qualify, if at all, only as a donee beneficiary, because the insured party was under no obligation to reimburse the government for the medical services rendered. To do so, the contract must have been intended by the promisee to confer a gift upon the government. Id.⁶ Whether it was so intended by the promisee is a question concerning the meaning of the contract and is, under federal law, an issue of fact to be decided by the trier of fact. See Gillespie v. Travelers Ins. Co., supra, and authorities cited therein.

The district court found as fact that Nationwide did not intend to benefit the government. As a finding of fact we will overturn the district court's conclusion only if it is "clearly erroneous." Fed.R.Civ.P. 52. But even if the finding is not clearly erroneous, it does not support a conclusion that the government is not a third-party beneficiary; as the promisor, Nationwide's intent is not determinative. Since the intent of the promisee, the insured, is an issue of fact upon which there was no finding, the case must be remanded to the district court for further factual determinations.

Second, we consider whether the district court correctly found that recovery was barred by the exclusionary clause:

There shall be no protection afforded . . . (13) under Coverages D(1) and D(2) to that amount of any expense which is paid or payable to or on behalf of the injured person under the provisions of any (1) premises insurance affording benefits for medical expenses, (2) individual, blanket or group accident, disability or hospitalization insurance, (3) medical, surgical, hospital or funeral service, benefit or reimbursement plan or (4) workmen\'s compensation or disability benefits law or any similar law. . . .

The district court found that medical care furnished by law to retired service personnel is a "medical, surgical or hospital benefit or reimbursement plan within the meaning of Exclusion (13) of the policy." Although this is a factual finding that should be reversed only if "clearly erroneous," there is no indication that the district court applied the proper legal standard.

Under Washington law, insurance contracts are to be interpreted strictly against the insurer by resolving ambiguities in favor of the insured. See, e. g., Metropolitan Mortg. & Security Co. v. Reliable Ins. Co., 64 Wash.2d 98, 390 P.2d 694 (1964); Thompson v. Ezzell, 61 Wash.2d 685, 379 P.2d 983 (1963). The district court does not appear to have applied this rule of interpretation. The case must, therefore, be remanded for a factual finding by the district court applying the proper rule of construction.

The Washington rule requiring ambiguities in an insurance contract to be resolved against the insurer and in favor of the insured raises an interesting problem concerning the third-party beneficiary issue: A finding of intent by the promisee that the third party be benefited is not necessarily a finding in favor of the insured or against the insurer. Thus, it is unclear how the rule of interpretation should be applied, if at all, to the question whether the promisee intended to benefit the third party.⁷ Since the case must be remanded for factual findings, and since the parties have not argued this issue before this court, it is appropriate that the district court consider in the first instance whether the Washington rule of construction should be applied to the question whether the promisee intended to benefit the third party.

The judgment of the district court is reversed, and the case is remanded for further proceedings consistent with this opinion.

DUNIWAY, Circuit Judge (concurring and dissenting):

For the purpose of this opinion, I assume that Judge Wright is correct in holding that the governing law is that of the State of Washington.

No Washington case cited to us is even remotely in point. I therefore look to the general rules applied by courts to the construction of insurance policies, which are followed in Washington. The major rule is well stated in Aschenbrenner v. United States, 1934, 292 U.S. 80, 54 S.Ct. 590, 78 L.Ed. 1137, in which Mr. Justice Stone (as he then was), writing for the Court said:

The

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