Case Title: Maria Perreira and Luciano Perreira v. Michael C. Rediger et als.

Citation: 

Docket Number: a-145-99

State: new-jersey

Court: New Jersey Supreme Court

Date: 2001-06-26T00:00:00Z

Document:
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized). LONG, J., writing for a unanimous Court. The issue presented in these consolidated appeals is whether the collateral source rule embodied in N.J.S.A. 2A:97-15 allows a health insurer, who expends funds on behalf of an insured, to recoup those payments through subrogation or contract reimbursement when the insured recovers a judgment against a wrongdoer. The first of the consolidated cases, the Beninato case, arose when Takako Beninato, a professional dog groomer, was seriously injured by a dog owned by Lenore and Leonard Achor. Beninato's health insurer, Oxford Health Plans, Inc. (Oxford), paid $7,357 for Beninato's medical expenses. Beninato then sued the Achors, whose homeowner's insurance carrier, Preferred Mutual Insurance Company (Preferred), defended the suit. While the underlying case was pending, the Achors and Preferred filed a declaratory action against Oxford, seeking a judgment that Oxford was barred by the collateral source statute from asserting a subrogation or reimbursement remedy. That action was consolidated with the Beninato's negligence action that had settled for $95,000. The settlement release expressly stated that payment for medical bills and expenses incurred were not included in the settlement amount. Oxford moved for judgment as a matter of law on the declaratory action, contending that if medical expenses were included in the settlement, it had a right to be reimbursed for what it had expended on behalf of Beninato. If those expenses were not included in the settlement, then Oxford claimed a right to bring a subrogation action against the Achors for repayment. The Achors and Preferred argued that the collateral source statute and the subrogation language in the Oxford contract were in conflict with each other. The trial court entered judgment for the Achors and Preferred, concluding that Oxford's claim was barred by the collateral source statute. The Perreira case arose when Maria Perreira fell on the premises of Columbia Savings Bank (Columbia). Perreira sued Columbia along with its liability carrier Atlantic Mutual Insurance Company (Atlantic), Michael Rediger, the bank's snow removal contractor, and Rediger's liability carrier, the Preserver Insurance Company (Preserver). In that case, Oxford Perreira's health insurer, had paid about $13,000 for her medical expenses. While the negligence suit was pending, the Perreiras filed a declaratory action against Oxford, Rediger, Atlantic, and Preserver, seeking a judgment that Oxford was barred by the collateral source rule from either reimbursement or subrogation. That action was consolidated with Perreira's negligence action. The Perreiras moved for summary judgment, arguing that under the collateral source rule, Oxford could not assert a lien on their recovery in the tort action. The trial court agreed, granting the motion. Oxford appealed to the Appellate Division, which reversed, holding that the collateral source rule does not bar the health insurer of an insured plaintiff in a non-PIP personal injury negligence action from asserting a claim for reimbursement from the injured party or subrogation from the wrongdoer. The Appellate Division based its decision on the Oxford contract that contained a provision permitting reimbursement for the reasonable value of medical expenses when the insured obtains money from a third-party action. The court also held that Oxford had a common-law equitable right of subrogation against the Achors and Rediger for the amount of money it spent due to the tortious conduct and that the collateral source statute's silence on the subject of subrogation demonstrated a desire not to alter or affect the well-established common-law right. The Supreme Court granted certification. 2. In the early to mid-1980's, state legislatures began to revisit the collateral source rule. In order to contain insurance costs, it was suggested that a tort judgment be reduced by collateral sources of compensation for the same injury, thereby eliminating double recovery. N.J.S.A. 2A:15-97 was adopted in 1987. That statute eliminates double recovery by directing the court to deduct from any tort judgment the amount received by the injured party from collateral sources (other than workers' compensation and life insurance) less any insurance premiums the injured party has paid. The statute is silent regarding any right to subrogation or reimbursement on the part of health insurers; however, the legislative history is instructive. That history reaffirms the plain language of the statute and underscores that it has more than one purpose. The primary purpose is to eliminate double recovery to plaintiffs. The secondary goal is containment of spiraling insurance costs. The legislative history further reveals that the Legislature chose to benefit liability carriers, rather than health insurance carriers, by reducing the tort judgment by the amount of health care received. Health insurers were left in the same position they had been before the enactment of the statute--with no right to recover paid benefits from the insured or the wrongdoer. (Pp. 9-16) 3. Because the Court has found no evidence of a common-law equitable right of health insurers to subrogation that pre-dated the statute, it need not answer the question of the statutory silence on the subject of subrogation. Although policies covering property damage such as fire insurance have regularly been held to include an implied right of subrogation, the same has not been true in the area of personal insurance, which includes health and medical insurance. The weight of authority concludes that no such right of subrogation exists in the health insurance area. Most significant is the fact that if health insurers had a common-law equitable right to be repaid out of a tort judgment for health care costs they advanced to the injured plaintiff, the entire notion of double recovery would not have existed. (Pp. 16-21) 4. The contract provision in Oxford's policies providing for reimbursement was not authorized by law at the time that the collateral source rule was amended in 1987. However, sometime later, the Commissioner of Insurance permitted such provisions in large group heath insurance policies and, it is pursuant to that authority, that the Oxford reimbursement provision was included in the contract. Although great deference is usually afforded agency determinations, an administrative code provision must give way if it is inconsistent with a state statute. The amended collateral source statute eliminated double recovery to plaintiffs and allocated the benefit of that amendment to the liability insurance industry. The Commissioner of Insurance cannot alter that scheme. Accordingly, the regulations authorizing the inclusion of subrogation and reimbursement provisions in health insurance contracts must be interpreted narrowly as limited to cases in which the collateral source rule does not apply. Thus, Oxford cannot invoke the contract provision as a basis for reimbursement here. (Pp. 21-24) Judgment of the Appellate Division is REVERSED. The judgments of the trial court are REINSTATED. CHIEF JUSTICE PORITZ and JUSTICES STEIN, COLEMAN, VERNIERO, LAVECCHIA and ZAZZALI join in JUSTICE LONG'S opinion. MARIA PERREIRA and LUCIANO PERREIRA, Plaintiffs, v. MICHAEL C. REDIGER t/a, MCR HORTICULTURAL ENTERPRISES and THE PRESERVER INSURANCE COMPANY, as insurer for Michael C. Rediger t/a Horticultural Enterprises, Defendants-Appellants, and OXFORD HEALTH PLANS (NJ), INC., Defendant-Respondent, and COLUMBIA SAVINGS BANK and/or COLUMBIA SAVINGS BANK OR ITS INSURER, ATLANTIC MUTUAL INSURANCE COMPANY a/k/a CENTENNIAL INSURANCE COMPANY, Defendants. LEONARD ACHOR, LENORE ACHOR and PREFERRED MUTUAL INSURANCE COMPANY, as insurer for the Achors, Plaintiffs-Appellants, OXFORD HEALTH PLANS, INC., TAKAKO BENINATO and MICHAEL BENINATO, Defendants-Respondents. Argued February 14, 2001 -- Decided June 26, 2001 On certification to the Superior Court, Appellate Division, whose opinion is reported at 330 N.J. Super. 455 (2000). Fredric Paul Gallin argued the cause for appellants (Methfessel & Werbel, attorneys). Scott S. Levinson argued the cause for respondents Oxford Health Plans (NJ), Inc. and Oxford Health Plans, Inc. Frank P. Beninato, Jr., submitted a letter in lieu of brief on behalf of respondents Takako Beninato and Michael Beninato. Michael J. Cernigliaro and Stephen J. Foley,Jr., submitted briefs on behalf of amicus curiae New Jersey Defense Association (Campbell, Foley, Lee, Murphy & Cernigliaro, attorneys). Franklin P. Solomon submitted a brief on behalf of amicus curiae Association of Trial Lawyers of America-New Jersey (Weitz & Luxenberg, attorneys). The opinion of the court was delivered by LONG, J. The question presented in these consolidated appeals is whether the collateral source rule embodied in N.J.S.A. 2A:97-15 allows a health insurer, who expends funds on behalf of an insured, to recoup those payments through subrogation or contract reimbursement when the insured recovers a judgment against a tortfeasor. The answer is no. The purpose underlying N.J.S.A. 2A:15-97 is twofold: to eliminate the double recovery to plaintiffs that flowed from the common-law collateral source rule and to allocate the benefit of that change to liability carriers. Allowing health insurers to recover funds expended pursuant to an insurance contract either by way of subrogation or contract reimbursement would reallocate the benefit accorded by N.J.S.A. 2A:15-97 in contravention of the underlying legislative intent Accordingly, we hold such recovery to be interdicted by the statutory scheme. I The Beninato case arose when Takako Beninato, a professional dog groomer, was seriously injured during a grooming session involving a dog owned by Lenore and Leonard Achor. Beninato's health insurer, Oxford Health Plans, Inc. ( Oxford ), paid $7,357 for her medical expenses. Beninato then sued the Achors, whose homeowner's insurance carrier, Preferred Mutual Insurance Company ( Preferred ), defended the suit. While the underlying case was pending, the Achors and Preferred filed an action against Oxford, seeking a declaration that Oxford was barred by the collateral source statute, N.J.S.A. 2A:15-97, from asserting a subrogation or reimbursement remedy. That action was consolidated with the Beninatos' negligence action that settled for $95,000. The release expressly stated that payment for medical bills and expenses incurred are not included in that amount. Oxford moved for summary judgment, arguing that if medical expenses were included in the settlement, it had a right to be reimbursed for what it expended on behalf of Beninato. If those expenses were not included in the settlement, then Oxford claimed a right to bring a subrogation action against the Achors for repayment. The Achors and Preferred argued that the collateral source rule and the subrogation provision within [Oxford's] insurance contract conflict with each other. The trial court entered judgment for the Achors and Preferred, concluding that Oxford's claim was barred by the collateral source statute. Oxford appealed. The Perreira case arose when Maria Perreira fell on the premises of the Columbia Savings Bank ( Columbia ). She sued Columbia along with its liability carrier Atlantic Mutual Insurance Company ( Atlantic ), Michael Rediger, the bank's snow removal contractor and Rediger's liability carrier, the Preserver Insurance Company ( Preserver ). In that case, Oxford, Perreira's health insurer, had paid about $13,000 for her medical expenses. While that suit was pending, the Perreiras filed an action against Oxford, Columbia, Rediger, Atlantic, and Preserver, seeking a declaration that Oxford was barred by the collateral source statute from either reimbursement or subrogation against the defendants. That action was consolidated with the Perreira's negligence action. The Perreiras moved for summary judgment, arguing that under the collateral source rule, Oxford could not assert a lien on their recovery in the tort action. The trial court granted the motion and Oxford appealed. After the grant of summary judgment, the Perreiras entered into a settlement with Columbia and Rediger, the terms of which have not been disclosed. The Appellate Division consolidated Oxford's appeals and reversed, holding that the collateral source rule does not bar the health insurer of a plaintiff in a non-PIP personal injury negligence action from asserting a claim for reimbursement from the plaintiff or subrogation against the tortfeasor. In so doing, the court observed that its ruling places the ultimate burden on the tortfeasor, where in fairness it belongs . . . . Perreira v. Rediger, 330 N.J. Super. 455, 466 (2000). The Appellate Division based its conclusion on two distinct grounds. One was Oxford's insurance contract that contained the following provision for reimbursement from the insured: If a Member is injured or becomes ill through the act of a third party, Health Plan shall provide care for such injury or sickness. Acceptance of such services will constitute consent to the provisions of this section. Upon providing care for such injury or sickness pursuant to the terms of this agreement, Health Plan shall be permitted to recover the reasonable value of such care for injury or sickness, when payment is made directly to the Member in third party settlements or satisfied judgments. The Member shall cooperate fully to assist Health Plan in protecting its legal rights under this Part X. [Emphasis added.] The court also held that Oxford had a common-law equitable right of subrogation against the Achors and Rediger for the amount of money it spent due to their tortious conduct and that the silence of N.J.S.A. 2A:15-97 on the subject of subrogation bespeaks its intention not to alter or affect that well-established common-law right. Perreira, supra, 330 N.J. Super. at 461. Thereafter, the court outlined a methodology to effectuate a health insurer's subrogation and contract reimbursement rights after trial and upon settlement. Id. at 465-66. The Achors and Rediger filed a petition for certification that we granted. Perreira v. Rediger, 165 N.J. 491 (2000). We now reverse. The Committee's comments made clear that S. 2708 would eliminate the collateral source rule and require that awards for personal injury be reduced by any compensating benefits which the plaintiff has received from other sources. Ibid. (emphasis added). The Assembly Insurance Committee statement to S. 2708 reiterated the Senate statement and noted a separate goal to be achieved by the amendment: Significantly, the Passed Bill memo prepared by Governor's counsel stated: This bill attempts to reduce the cost of liability insurance by reducing the likelihood of a 'double recovery' in a liability award for items which were already compensated by insurance or by other 'collateral' sources, other than a tortfeasor. [Passed Bill Memo to Governor Thomas H. Kean (Dec. 7, 1987)(emphasis added.] That legislative history reaffirms the plain language of N.J.S.A. 2A:15-97 and underscores that it had more than one purpose. To be sure, its primary purpose was to disallow double recovery to plaintiffs, but a secondary goal was clearly the containment of spiraling insurance costs. The effectuation of no-double-recovery therefore required a separate legislative decision regarding which segment of the insurance industry would be the beneficiary of that disallowance. The Legislature had two choices: to benefit health insurers by allowing repayment of costs expended on a tort plaintiff, or to benefit liability carriers by reducing the tort judgment by the amount of health care benefits received. As the legislative history reveals, the choice was made to favor liability carriers. See Kiss v. Jacob, 138 N.J. 278, 282 (1994) (stating that intent of the legislature was to control spiraling automobile-insurance costs); Fayer v. Keene Corp., 311 N.J. Super. 200, 208 (App. Div. 1998) (agreeing that purpose of statute is to shift burden to health industry); Parker v. Esposito, 291 N.J. Super. 560, 565 (1996)(stating that purpose of collateral source statute is to prevent double recovery thereby giving relief from increasing costs of liability insurance); Lusby v. Hitchner, 273 N.J. Super. 578, 591 (App. Div. 1994)(stating that legislative determination was apparently not only to prevent plaintiffs from obtaining a double recovery but also, except where PIP payments are involved, to shift the burden, at least to some extent, from the liability and casualty insurance industry to health and disability third-party payers ). That legislative determination took the form of a reduction from the tort judgment of the amount received from collateral sources. By that action, the Legislature eliminated double recovery to plaintiffs, reduced the burden on the tortfeasors' liability carriers and left health insurers in the same position as they were prior to the enactment of N.J.S.A. 2A:15-97. Thus, courts typically have not implied a non-contractual or non- statutory right to subrogation in health insurance. We are satisfied that no equitable remedy of subrogation was available to health insurers in 1987, at the time N.J.S.A. 2A:15- 97 was enacted. We reach that conclusion based on learned treatises and the weight of cited out-of-state authority to that effect, and on the complete lack of evidence that such a right was ever exercised. See William A. Krais & Michael C. Weiss, Exploring the Ruins of the Collateral Source Rule After Perreira v. Rediger, 160 N.J.L.J. 29, 33 (June 19, 2000)(indicating that attorneys and health insurers have never asserted any alleged equitable right to subrogation in personal injury litigation). Most significant to us, however, is that one of the core purposes of N.J.S.A. 2A:15-97, as conceded by all parties, was to avoid double recovery by plaintiffs. If, under the law existing prior to 1987 when the collateral source rule was amended, health insurers could equitably obtain repayment from tortfeasors for the health care costs they advanced to plaintiffs, then plaintiffs, in fact, would not have experienced double recovery and there would have been no point to N.J.S.A. 2A:15-97. In a word, double recovery occurs only when a plaintiff recovers not only the health insurance proceeds but also the full tort judgment. If health insurers had a common-law equitable right to be repaid out of a tort judgment for the health care costs they advanced to plaintiff, the entire notion of double recovery would not have existed. Report of the Tort Policy Working Group on the Causes, Extent and Policy Implications of the Current Crisis in Insurance Availability and Affordability, supra at 70. Thus, we have found no support for the proposition that health insurers had an equitable right of subrogation available under the common law. V We turn next to contract reimbursement. Oxford's policies contained a reimbursement provision allowing it to recover expended health care costs when payment is made directly to the member in third-party settlements or satisfied judgments. That contract provision was not authorized by law at the time the collateral source rule was amended in 1987. The Commissioner of Insurance refused to allow such provisions in health insurance contracts pursuant to his regulatory authority. 28 N.J. Reg. 2003(a)(April 15, 1996)(stating that prior to 1996 all subrogation and third party liability provisions in [group health, blanket, and group life insurance] policy forms would have been disapproved ). Presumably, that decision mirrored the lack of a statutory or equitable right on the part of a health insurer to recover costs against a tortfeasor by way of subrogation. In 1993, after years of declining to approve such provisions, the Department of Insurance allowed the inclusion of subrogation and reimbursement provisions in health insurance policies provided through the Small Employer Health Benefits Program and the Individual Health Coverage Program. N.J.A.C. 11:20 App. Exhibit F; N.J.A.C. 11:21 App. Exhibit F. Later, the Commissioner promulgated regulations that for the first time permitted such provisions in large group health insurance policies. N.J.A.C. 11:4-42.10. Each of those rules set forth the requirements for contract provisions for subrogation and repayment of benefits. In the case of large group policies, for example, N.J. Admin. Code tit. 11:4-42.10 reads as follows: (a) Group policies and certificates providing health insurance may contain subrogation provisions or provisions that require the return to the insurer by a covered person of benefits paid for illness or injury up to the amount a covered person receives from a third party through settlement, a satisfied judgment or other means, as compensation for the medical costs of such illness or injury . . . [N.J.A.C. 11:4-42.10 (emphasis added).] It is pursuant to that authority that the Oxford reimbursement provision was included in its contract. The question presented is whether, in light of N.J.S.A. 2A:15-97, the Commissioner's regulations exceeded his authority. We generally accord a high degree of deference to administrative agency regulations that are consistent with the statutes and public policy of the state. Parkway Ins. Co. v. New Jersey Neck & Back, 330 N.J. Super. 172, 182 (Law Div. 1998). However, [n]o administrative agency has inherent power, and none may arrogate to itself the authority to accomplish ends not envisioned by the legislative grant or to employ means not fairly within the powers that have been bestowed. Knight v. City of Hoboken Rent Leveling & Stabilization Bd., 332 N.J. Super. 547, 552 (App. Div. 2000). In short, an administrative code provision must give way if it is inconsistent with a state statute. State v. Auringer, 335 N.J. Super. 94, 102 (App. Div. 2000). The Commissioner's authorization of subrogation and reimbursement provisions in health insurance contracts must be tested against N.J.S.A. 2A:15-97. As we have indicated, in that statute the legislature eliminated double recovery to plaintiffs and allocated the benefit of what had previously been double recovery to the liability insurance industry. The Commissioner was not free to alter that scheme. Accordingly, the regulations authorizing the inclusion of subrogation and reimbursement provisions in health insurance contracts must be interpreted narrowly as limited to cases in which the collateral source rule does not apply, for example, a case in which choice of law principles require application of the law of a jurisdiction with a collateral source rule at variance from our own. The health insurance benefits at issue in this case clearly do not fall into that category. Such an interpretation, that narrowly limits the application of the regulations, fairly accords with their very language that earmarks for reimbursement health care sums received by the insured. Where the collateral source rule applies, those amounts are subtracted from the judgment, and the insured has no entitlement to receive them. Oxford therefore cannot invoke the contract provision as a basis for reimbursement. CHIEF JUSTICE PORITZ and JUSTICES STEIN, COLEMAN, VERNIERO, LaVECCHIA, and ZAZZALI join in JUSTICE LONG's opinion. NO. A-145 MARIA PERREIRA and LUCIANO PERREIRA, Plaintiffs, v. MICHAEL C. REDIGER t/a, MCR HORTICULTURAL ENTERPRISES and THE PRESERVER INSURANCE COMPANY, as insurer for Michael C. Rediger t/a Horticultural Enterprises, Defendants-Appellants. DECIDED June 26, 2001 Chief Justice Poritz