WESTENDORF BY WESTENDORF v. Stasson
| Decision Date | 04 March 1983 |
| Docket Number | No. CX-82-530.,CX-82-530. |
| Citation | 330 NW 2d 699 |
| Parties | Mary Annette WESTENDORF by her Conservator, David J. WESTENDORF, and David J. Westendorf, Appellants, v. Kevin Michael STASSON and Richard James Stasson, Respondents. Group Health, Inc., Respondent. |
| Court | Minnesota Supreme Court |
Briggs & Morgan, John R. Kenefick, St. Paul, for appellants.
Lasley, Gaughan, Reid, Stich & Angell, Minneapolis, for respondents Stasson.
Hansen, Dordell, Bradt & Odlaug, J. Mark Catron and John H. Guthmann, St. Paul, for respondent Group Health, Inc.
Considered and decided by the court en banc without oral argument.
After paying the medical expenses of its enrolled member injured in an auto accident, is a Health Maintenance Organization (HMO) entitled to reimbursement for those expenses out of the member's tort recovery when the total recovery from all sources has not fully compensated the injured party? We conclude that while the reimbursement clause in question applies to the settlement proceeds, the HMO nonetheless is not entitled to reimbursement in the absence of full recovery. Accordingly, we reverse.
Plaintiff-appellant Mary Annette Westendorf sustained quadraplegic injuries in an auto accident on June 3, 1978. She and her husband David, David also acting as his wife's guardian ad litem and conservator of her estate, sued defendants Kevin and Richard Stasson, driver and owner of the other car involved in the accident, and settled for $100,000, the policy limits on the Stasson car. Mr. and Mrs. Westendorf were enrolled as members of respondent Group Health, Inc., a health maintenance organization, organized and operating under Minn.Stat. ch. 62D (1982). Group Health, Inc., has paid medical and hospital expenses for Mrs. Westendorf's care in the amount of $22,145.01.
In settling with the third-party tortfeasor for $100,000, plaintiffs executed a covenant not to sue in which plaintiffs released the Stassons "from any and all claims." After stating that plaintiff's damages greatly exceeded the $100,000 payment, the parties to the release agreed further:
The payments to be made hereunder are solely attributable to the pain and suffering and permanent injury suffered by plaintiff Mary Annette Westendorf, to the loss of support and consortium suffered by plaintiff David J. Westendorf, and to other items of non-economic loss. None of the settlement proceeds hereto are attributable to medical expenses paid by either or both of the plaintiffs on account of the injuries sustained by plaintiff Mary Annette Westendorf.
David Westendorf, as guardian, then petitioned the district court for a distribution of the $100,000 settlement proceeds, at which time Group Health asserted a right to be reimbursed, relying on a clause in the membership agreement which reads:
In the event an Enrollee is entitled to payment for care rendered on account of Illness or Injury * * * (1) arising out of and in the course of employment, (2) arising from the act or omission of a third person, or (3) arising from an accident covered by "No-Fault" automobile insurance, the Plan is entitled to reimbursement for the reasonable value of the care and services furnished to the extent of compensation benefits or damages recoverable.
The trial court ruled that this clause clearly gives Group Health a right of reimbursement and that Group Health is entitled to reimbursement out of the settlement recovery notwithstanding that Mr. and Mrs. Westendorf have not been fully compensated for their injuries. Mr. and Mrs. Westendorf appeal.
1. The first issue is whether Group Health's reimbursement clause purports to apply to the settlement proceeds of $100,000. Plaintiff-appellants claim that the clause is not applicable both because of the wording of the clause and the wording of the settlement agreement. We disagree.
The reimbursement clause is not entirely clear. It might be construed to mean that Group Health is entitled to reimbursement only where the enrollee recovers a payment specifically for medical expenses, or it might be construed reimbursement applies whenever the enrollee is entitled to recover payment for medical expenses. Here, of course, Mr. and Mrs. Westendorf were entitled to recover their medical expenses from the tortfeasor. We think this ambiguity is resolved by reference to the Minnesota Department of Health regulation which governs the type of subrogation clause permissible in an HMO contract. The regulation provides that the HMO may require reimbursement from the enrollee "to the extent the enrollee collects damages or workman's compensation benefits for the diagnosis, care, and treatment of her injury." See 7 MCAR § 1.369 C.4 (1982) (emphasis added). So, construing the Group Health reimbursement clause in light of the health department regulation, it is clear, and we so hold, that Group Health's right of reimbursement for medical expenses applies by its terms only to payments specifically collected by the enrollee for those medical expenses.
This brings us to the second part of appellants' argument. If the reimbursement clause applies only to a payment collected for medical expense, then, argue appellants, the clause does not apply to their settlement recovery because no part of that recovery was for medical expense. We do not agree with this contention.
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. Plaintiffs in that instance would have had to assert and protect the health provider's interest. Hayward v. State Farm Mutual Automobile Insurance Co., 212 Minn. 500, 4 N.W.2d 316 (1942). A special verdict form might have been used so that the jury could make a separate allocation for medical expense. See Dockendorf v. Lakie, 240 Minn. 441, 61 N.W.2d 752 (1953). 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 nor determinative, we will disregard the allocation in implementing Group Health's reimbursement clause. We also think that it is more appropriate to view a settlement for less than full compensation of plaintiffs' injuries as an undifferentiated recovery than to make a perhaps fruitless attempt to allocate the settlement proceeds in some other fashion. We conclude, therefore, that Group Health's reimbursement clause is by its terms applicable to the settlement proceeds.
2. Our inquiry does not, however, end here. Given that the parties do not dispute that Mrs. Westendorf's recovery from all sources is insufficient to compensate her fully, a question remains as to which party is to have priority to the proceeds. Appellants argue that settled principles of insurance law regarding subrogation govern and that, therefore, reimbursement will not lie.
In this case, Group Health drafted its clause in terms of "reimbursement" rather than "subrogation." Although this means that Group Health cannot "stand in the shoes" of its members, in all other respects this clause serves as a subrogation clause and, therefore, we will apply the same principles which govern subrogation.
Although subrogation can arise based on the equities of the situation alone, we are dealing here with "conventional subrogation" which is the product of an agreement between the parties. See 16 Couch on Insurance 2d § 61.2 (1966). However, subrogation remains an...
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