Winning Arguments Supporting the Made Whole Doctrine
| Jurisdiction | Utah,United States |
| Citation | Vol. 21 No. 4 Pg. 24 |
| Pages | 24 |
| Publication year | 2008 |
Vol. 21, No. 4, 24. Winning Arguments Supporting the Made Whole Doctrine
THE PROBLEM
Your injured client has health insurance. During litigation against the tort-feasor, your client's health insurer pays some of your client's medical expenses arising from the injury. Later, when you settle with the tort-feasor, the health insurer wants 100% reimbursement of those medical expenses.
You believe, however, that the settlement has not made your client "whole." Accordingly, you argue that the insurer has no subrogation rights in the settlement monies. Alternatively, you may want to reimburse the insurer, but argue it needs to take less than a 100% reimbursement, i.e., in fairness, the insurer should pay its share of the client's attorney's fees and costs incurred in prosecuting the client's claim. But the insurer refuses, alleging it has a right of full subrogation under the policy provisions.
In these instances, you have a host of legal and equitable arguments in your favor. A typical insurer that has claimed subrogation for 100% reimbursement is the State of Utah's Public Employees Health Plan (PEHP). I use the PEHP as an example in this article, but most of the arguments you can use against PEHP are substantially operative against most other insurers making such subrogation demands. These arguments can be used both as a sword and as a shield.
The following arguments are best supported when your client has been left with uncompensated damages, even though you managed to settle with the tort-feasor for the policy limits of his insurance - i.e., your client was not made whole. Of course, there are usually good reasons when a client did not get the policy limit, e.g., your client needed the settlement monies quickly due to financial stress, comparative fault issues, or other pressing concerns. So, this point is not determinative. The following arguments stand formidable by themselves.
PETITION LACKS STANDING
Oftentimes, PEHP will bring a petition demanding full reimbursement against your client in a proceeding before the Utah State Retirement Board. In response, you point out that, pursuant to Utah Code section 49-20-105, PEHP's petition is well beyond the "purpose" of the Utah State Retirement and Insurance Benefit Act that created the Board. To wit: "The purpose of this chapter is to provide a mechanism for covered employers to provide covered individuals with group health, dental, medical, disability, life insurance,.and other programs requested by the state,.in the most efficient and economical manner."
Seeking to enforce subrogation rights is not "providing insurance" as encompassed by Title 49.
Additionally, the Board's "Adjudicative Hearing Procedures" states: "The executive director.may file a petition for a declaratory order determining the applicability of a statute, rule or order of the board." The issue in contest, however, is the question of the validity of PEHP's subrogation rights against the client's "made whole" rights. The subrogation rights are found in a provision in the Master Policy. But under the Board's "Hearing Procedures," this dispute does not involve determining the applicability of a statute, rule or order. See utah code ann. §6345b-21(1) for the same direct argument. So you object that the petition addresses an issue completely outside the governing statute and the Board's own procedures.
Another argument is that Utah Code section §49-11-301(3) says the assets of the fund are for the exclusive benefit of the members and "may not be diverted or appropriated for any purpose other than that permitted under this title." Title 49 is silent on subrogation rights, save that a monthly disability payment "shall be reduced" for monies received by way of judgment or settlement from a third party liable for the disability. utah code ann. §49-21-402. The powerful argument is that if the legislature saw fit to incorporate subrogation reimbursement provisions under a disability payment from the monies recovered from a liable third party, it could have inserted a like provision under the member claim's payment procedures but did not do so. Thus, you argue the legislature's failure to incorporate such a provision was intentional, i.e., that each term used in a statute is used "advisedly" and since the legislature "could have added" language but did not, it was intentional. Harmon city v. Nielson & Senior, 907 P.2d 1162, 1167 (Utah 1995); Neel v. State, 889 P.2d 922, 926 (Utah 1995).
OTHER ARGUMENTS
1. Facts Defeating Policy Provision Arguments
A close review of the PEHP, as well as many other "group" insurance plans, will reveal that when the client signed up, he and a group of other new state employees was told, "This is your insurance plan. Just date and sign on the last page." And your client signed as instructed. At no time did anyone from PEHP discuss in any way the plan's benefits, exclusions, subrogation rights, or other provisions. Importantly, you will discover that at no time during the enrollment time or subsequently did anyone from PEHP ever give your client a copy of the plan. See Farmers Ins. exch. v. call, 712 P.2d 131 (Utah 1985) (finding certain exclusions unenforceable because Farmers failed to furnish the policy containing those exclusions to its insured.) These findings can defeat or significantly help defeat the insurer's subrogation demands.
2. No Enforceable Subrogation Rights
Based on the following reasoned arguments, PEHP (or other group insurer) has no enforceable subrogation rights.
Subrogation is an equitable doctrine and is governed by equitable principles. This doctrine can be modified by contract, but in the absence of express terms to the contrary, the insured must be made whole before the insurer is entitled to be reimbursed from a recovery from the third-party tort-feasor.
When the insured settles with the tort-feasor before the amount of damages has been judicially determined, it is more difficult to ascertain whether the insurer is entitled to recover all or any of the amount paid on the policy to the insured.
In equity, what is fair can and should outweigh what is right. PEHP will argue that the insurance contract has provisions equating to "express terms to the contrary" as contemplated in Hill. You reply that "expressed terms" require clear and unequivocal language, a difficult burden that PEHP needs to prove but can only allege.
An insured's surrender of the made whole doctrine in favor of the insurer effectively acts like an "exclusion" of some of your client's rights and benefits as an insured. But recognizing such an exclusion is inconsistent with the fact that benefits were paid and therefore...
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