Valora v. Pa Employees Benefit Trust Fund

• Decision Date: 27 December 2007
• Docket Number: No. 119 MAP 2005.,119 MAP 2005.
• Citation: 939 A.2d 312
• Parties: William VALORA, Jr., as Parent and Natural Guardian of Benjamin Valora and William Valora, Jr., In his own Right, Appellees, v. PENNSYLVANIA EMPLOYEES BENEFIT TRUST FUND, Appellant.
• Court: Pennsylvania Supreme Court

939 A.2d 312

William VALORA, Jr., as Parent and Natural Guardian of Benjamin Valora and William Valora, Jr., In his own Right, Appellees, v. PENNSYLVANIA EMPLOYEES BENEFIT TRUST FUND, Appellant.

No. 119 MAP 2005.

Supreme Court of Pennsylvania.

Argued May 8, 2006.

Decided December 27, 2007.

Richard Kirschner, Esq., for Pennsylvania Employees Benefit Trust Fund (PEBTF).

James DeCinti, Esq., Richard C. Angino, Esq., Daryl Edwin Christopher, Harrisburg, for William Valora, Jr.

BEFORE: CAPPY, C.J., and CASTILLE, NEWMAN, SAYLOR, EAKIN, BAER and BALDWIN, JJ.

OPINION

Justice CASTILLE.

We granted review in this healthcare subrogation matter to determine whether its resolution should be guided exclusively by the contractual provisions of the Pennsylvania State Police Handbook, which conferred upon appellant Pennsylvania Employees Benefit Trust Fund ("PEBTF") a right of subrogation against a subscriber's recovery from a third party of healthcare expenses paid by appellant, or whether principles of equitable subrogation also play a role in the analysis. The Superior Court, in its dealing with the matter below, applied principles of equitable subrogation in the face of a contractual obligation. We agree that equitable subrogation principles are applicable, and therefore, we affirm.

Appellee, William Valora, retired from the Pennsylvania State Police on April 12, 1991. Following retirement, pursuant to the terms of the collective bargaining agreement between the Commonwealth of Pennsylvania and the Fraternal Order of Police, appellee continued to receive health care benefits. Appellant, PEBTF, administered the health care plan for retired Pennsylvania State Troopers, and Capital Blue Cross and Pennsylvania Blue Shield provided the health benefits.

On April 2, 1993, Benjamin Valora, appellee's son, was born with severe congenital hydrocephalus, as a result of which he is severely and profoundly mentally retarded and physically disabled. Upon his birth, Benjamin became a dependent under appellee's health plan. In March of 1995, appellee and his wife filed a medical malpractice action on Benjamin's behalf against Hershey Medical Center and several physicians involved in his birth. The matter proceeded to trial on August 18, 1997. Following a verdict, each party filed motions for post-trial relief. In October of 1997, the trial court granted a new trial, and the parties subsequently settled the action in December of 1997 for an undisclosed sum to be paid in the form of a structured settlement. Because Benjamin was a minor at the time of the settlement, appellee and his wife filed a petition in the trial court for approval of the settlement, which the trial court granted on April 17, 1998. The settlement agreement required the establishment of a special needs trust for Benjamin's benefit. The agreement also provided for monthly as well as various lump sum payments over the course of Benjamin's life, but did not specify an amount for past or future medical expenses.¹

Six months later, on October 2, 1998, appellant contacted appellee's counsel by letter, asserting a potential subrogation claim against the proceeds of the medical malpractice action for medical expenses paid by appellant on behalf of Benjamin. The parties corresponded between November 27, 1998 and September 21, 2000 regarding the subrogation claim, which was valued allegedly at $210,633. Initially, appellee was unresponsive and uncooperative, with the result that appellant first threatened to and then did terminate appellee's health care coverage on October 15, 2000.² In December of 2000, appellee filed a complaint in equity seeking to enjoin termination of his healthcare benefits. Appellant filed an answer, new matter and counterclaims against appellee, asserting its subrogation claim. The parties submitted stipulated facts to the trial court, and the court heard argument on the subrogation issue.

On January 17, 2002, the trial court issued its decision finding that appellant had a right of subrogation against the proceeds of the medical malpractice action. The court noted that appellee is a subscriber within the meaning of his healthcare plan, and that the State Police Handbook contained the following subrogation clause applicable in this instance:

Subrogation is a means of containing the costs of health care by requiring those responsible for injuring Subscribers to pay for their medical expenses.

To the extent that benefits for Covered Services are provided or paid under this program, the plan will be subrogated and succeed to any rights the Subscriber may have for recovery of expenses against any person or organization. This right of the Plan does not apply to other health insurance policies issued to the Subscriber, and it does not apply where subrogation is prohibited by law. You are required to pay the Plan amounts recovered by suit, settlement or otherwise from any third party or his insurer to the extent of the benefits provided or paid under this program. You are required to take such action, furnish such information and assistance, and execute such papers as the Plan may request to facilitate enforcement of its rights. You will take no action prejudicing the rights and interests of the Plan.

Trial Ct. Op. at 4. Based upon this clause, the trial court found that appellant had a right of subrogation against the malpractice settlement, and that there was no case law barring subrogation claims for medical expenses paid on behalf of minors covered on their parents' medical insurance. The court concluded: "[Appellee] received a benefit from [appellant], a benefit that is easily calculable. Therefore, we find that [appellee] is contractually and ethically obligated to [appellant] through its subrogation rights for the amount of calculated medical benefits." Id. at 5.

The trial court then turned to appellee's argument that appellant had waived its contractual right to subrogation by failing to raise its claim until after the case was settled. The court cited to the Commonwealth Court's decision in Humphrey v. Workmen's Comp. Appeal Bd. (Supermarket Service), 100 Pa.Cmwlth. 33, 514 A.2d 246 (1986), for the proposition that a subrogation claim must be asserted during the pendency of the underlying proceedings. Here, the court noted, appellant provided its first notice of its subrogation rights three and one-half years after the medical malpractice action had commenced, more than a year after trial, ten months after the action settled, and six months after the court approved and sealed the settlement. The court found that appellee had no affirmative duty to give appellant notice of the settlement of the malpractice action, but rather, it was appellant's burden to make inquiries into the settlement or possibility of settlement as the action progressed. Finding that appellant failed to exercise reasonable diligence, the court held that appellant had waived its right to subrogation.

Appellant appealed to the Superior Court, arguing, inter alia, that the trial court had erred in concluding that appellant's lack of reasonable diligence resulted in the waiver of its subrogation claim. Appellant maintained that the trial court also erred in relying on workers' compensation cases for the principle that a claim not asserted during the pendency of the underlying action is waived because, in the area of workers' compensation, employers and their insurers are automatically notified of pending suits. The Superior Court rejected both arguments, finding persuasive the Commonwealth Court's decision in Independence Blue Cross v. Workers' Comp. Appeal Bd. (Frankford Hosp.), 820 A.2d 868 (Pa.Cmwlth.2003). In that case, Independence Blue Cross paid medical bills on the claimant's behalf, but did not raise the question of subrogation until fourteen months after the claimant settled with her employer. The Commonwealth Court held that Independence Blue Cross waived its contractual right to subrogation due to its failure to exercise reasonable diligence, even though Independence Blue Cross had no affirmative notice of the settlement of the underlying action.

The Superior Court determined that appellant here was in the same position as Independence Blue Cross with relation to the settlement agreement:

Appellant herein had been paying not insignificant benefits for the child for more than five years before it exercised what would be considered due diligence and investigated the possibility of a subrogation interest. Appellee did nothing to hide the fact he had filed a law suit or was negotiating a settlement, and nothing in the contract between the parties, drafted by appellant, placed an affirmative duty on appellee to notify appellant of such actions. We do not question whether appellant had a right to subrogation under the terms of the insurance contract[.] [T]he question is whether it acted with reasonable diligence in exploring that right in appellant's case.

Valora ex rel. Valora v. Pa. Employees Benefit Trust Fund, 847 A.2d 681, 684 (Pa.Super.2004). The panel agreed with the trial court that appellant should have known of the likelihood that a third party lawsuit would be filed in this case and, as a result, should have taken some action to explore the matter and assert its subrogation rights, given that appellant, as an administrator of several health plans, routinely deals with subrogation claims. Particularly in this instance, where appellant made inordinately large payments over an extended period of time, the court held that appellant should have and could have, through the exercise of reasonable diligence, discovered the underlying malpractice action and asserted its claim in a timely fashion.

This Court granted review, but specifically limited to two of the six issues upon which appellant sought review: (1) whether the Superior Court erred as a matter of law when it ignored appellant PEBTF's contractual right to subrogation and treated this as a case ...