Case Title: N. Buckeye Edn. Council Group Health Benefits Plan v. Lawson

Citation: 2004-Ohio-4886

Docket Number: 20031880

State: ohio

Court: Ohio Supreme Court

Date: 2004-09-29T00:00:00Z

Document:
[Cite as N. Buckeye Edn. Council Group Health Benefits Plan v. Lawson, 103 Ohio St.3d 188, 2004-
Ohio-4886.] 
 
 
NORTHERN BUCKEYE EDUCATION COUNCIL GROUP HEALTH BENEFITS PLAN, 
APPELLEE, v. LAWSON, APPELLANT. 
[Cite as N. Buckeye Edn. Council Group Health Benefits Plan v. Lawson, 103 
Ohio St.3d 188, 2004-Ohio-4886.] 
Health insurance — Contract provision for subrogation before insured is fully 
compensated for losses is enforceable. 
(No. 2003-1880 — Submitted June 8, 2004 — Decided September 29, 2004.) 
CERTIFIED by the Court of Appeals for Lucas County, No. L-02-1298, 154 
Ohio App.3d 659, 2003-Ohio-5196, 798 N.E.2d 667. 
__________________ 
SYLLABUS OF THE COURT 
1.  A provider of health-insurance benefits and an insured who has been injured 
by an act of a third party may agree prior to payment of medical benefits 
that the insured will reimburse the insurer for any amounts later recovered 
from that third party, third party’s insurer, or any other person through 
settlement or satisfaction of judgment upon any claims arising from the 
third party’s act.  A clear and unambiguous agreement so providing is not 
unenforceable as against public policy, irrespective of whether the 
settlement or judgment provides full compensation for the insured’s total 
damages. 
2.  A reimbursement agreement between an insured and a health-benefits provider 
clearly and unambiguously avoids the make-whole doctrine if the 
agreement establishes both (1) that the insurer has a right to a full or 
partial recovery of amounts paid by it on the insured’s behalf and (2) that 
the insurer will be accorded priority over the insured as to any funds 
recovered. 
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__________________ 
 
MOYER, C.J. 
{¶1} 
The Northern Buckeye Education Council Group Health Benefits 
Plan (“Plan”), appellee, is a self-funded governmental1 group health-care plan 
sponsored by the Northern Buckeye Education Council.  The Plan provided Karen 
W. Lawson, appellant, and certain of her dependents with health insurance by 
virtue of her employment. 
{¶2} 
The health-benefits contract negotiated between Lawson’s 
employer and the Plan included a reimbursement and subrogation provision as 
Section 3.7 of the contract: 
{¶3} 
“Any payments made by this Plan for injury or illness caused by 
the negligent or wrongful act of any third party are made with the agreement and 
understanding that the covered person will reimburse the Plan for any amounts 
which are later recovered from the third party by way of settlement or in 
satisfaction of any judgement [sic].  The amount which must be reimbursed to the 
Plan will be the lesser of the payments actually made by the Plan, or the amount 
received by the covered person from the third party.  As security for the Plan’s 
rights to reimbursement, the Plan will be subrogated to all of the covered person’s 
rights of recovery against a third party (or the party’s insurers) to the extent of any 
payments made by the Plan.  The Claims Administrator will withhold payments 
of claims made under this Plan, to the extent that the Claims Administrator has 
actual knowledge of a negligent or wrongful act of a third party, until the covered 
person or the covered person’s legal representative executes a subrogation 
reimbursement agreement.” 
                                                 
1.  The Plan asserted in the trial court that it is not subject to the Employee Retirement Income 
Security Act of 1974 (“ERISA”), because it is a plan established for employees by a political 
subdivision of a state.  Sections 1002(32) and 1003(b)(1), Title 29, U.S.Code.  Lawson does not 
dispute this assertion, and both the trial court and the court of appeals resolved the case based 
solely on state law. 
January Term, 2004 
3 
{¶4} 
Lawson’s minor daughter, Emily, was injured in an auto accident 
and suffered serious injuries.  In accordance with Section 3.7 of the contract, the 
Plan refused to pay Emily’s medical bills until Lawson signed a subrogation 
reimbursement agreement.  Although initially reluctant, Lawson ultimately signed 
a document that provided: 
{¶5} 
“I am a Covered Person under the Northern Buckeye Education 
Council Employee Benefits Plan (‘the Plan’) and have applied or will apply for 
benefits under the Plan.  I acknowledge and agree that my right to have benefits 
paid from the Plan on my behalf is subject to certain terms of the Plan which 
provide that the Plan shall be entitled to reimbursement from third parties, the 
Plan shall have certain subrogation rights, and the Plan shall not pay any benefits 
on my behalf unless and until I execute this Reimbursement and Subrogation 
Agreement. 
{¶6} 
“Accordingly, I agree that if benefit payments are made on my 
behalf under the Plan and such payments are or may have been for treatment 
required due to the act of any third party, I will reimburse the Plan (or Northern 
Buckeye Education Council, as Plan sponsor) for any amounts which are later 
recovered from any third party, third party’s insurer, or any other person, by way 
of settlement or in the satisfaction of any judgment of or upon any claims arising 
from said act, irrespective of whether any such settlement or judgment may or 
may not provide reimbursement to me for all injuries, illnesses, or other damages 
(including, without limitation, pain and suffering, consequential, punitive, 
exemplary or other damages, whether alleged, proven in court of law or otherwise 
substantiated); that the Plan is subrogated to my rights of recovery against any 
third party’s insurer, or any other person to the extent of any of the benefit 
payments made by the Plan or the amount of recovery whichever is less. 
{¶7} 
“I have completed the attached Reimbursement and Subrogation 
Rights Information Request Form to the best of my knowledge and belief.  I also 
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acknowledge and agree that I will not take any action prejudicing or otherwise 
damaging the subrogation rights of the Plan and will be liable to the Plan for any 
losses to the Plan caused by such actions.” 
{¶8} 
After Lawson signed this agreement, the Plan paid medical 
expenses on Emily’s behalf totaling $85,945.37. 
{¶9} 
Lawson recovered insurance benefits of $100,000 from the 
tortfeasor’s liability insurance and $150,000 from her own underinsured motorist 
coverage.  Lawson refused, however, to reimburse the Plan the $85,945.37 it had 
paid for Emily’s medical treatment, asserting that Emily had not been “made 
whole” by the $250,000 she had received.  The Plan then filed the case now 
before us, demanding judgment against Lawson for $85,945.37. 
{¶10} The trial court entered summary judgment in favor of Lawson.  
Citing Newcomb v. Cincinnati Ins. Co. (1872), 22 Ohio St. 382, 1872 WL 17, and 
quoting Barnes v. Indep. Auto. Dealers Assn. of California Health & Welfare 
(C.A.9, 1995), 64 F.3d 1389, 1394, it recognized the “ ‘general equitable principle 
of insurance law that, absent an agreement to the contrary, an insurance company 
may not enforce a right to subrogation until the insured has been fully 
compensated for her injuries, that is, has been made whole.’ ”  In addition, the 
trial court recognized that this court has held that this equitable limit on 
subrogation, commonly denominated the “made whole” or “make whole” 
doctrine, may be overridden by a clear and unambiguous agreement between an 
insured and an insurer that the insurer shall have priority to any recovery from the 
tortfeasor.  Ervin v. Garner (1971), 25 Ohio St.2d 231, 54 O.O.2d 361, 267 
N.E.2d 769. 
{¶11} The trial court nevertheless ruled in favor of Lawson, finding that 
the language employed in the agreement she signed did not specifically state that 
the Plan’s subrogation right would take priority over the participant’s right to be 
made whole.  It contrasted the language of the agreement before it with an 
January Term, 2004 
5 
agreement considered in Stephens v. Emanhiser (Aug. 24, 1999), Seneca App. 
No. 13-99-03, 1999 WL 692408.  That agreement specifically used the words 
“make whole,” stating, “The Plan shall be subrogated * * * whether or not those 
monies are sufficient to make whole the Participant to whom or on whose behalf 
this Plan made its payments.”  The trial court concluded that the clause before it 
was uncertain or ambiguous, and therefore did not override the make-whole 
doctrine.  It held that because “the recovery to the injured did not result in making 
her whole,” the Plan was not entitled to priority pursuant to the subrogation 
agreement signed by Lawson. 
{¶12} The court of appeals reversed.  Citing Ervin, it held that 
subrogation rights would not be enforced before full recovery by the insured 
“unless the terms of a subrogation agreement clearly and unambiguously provide 
otherwise.”  154 Ohio App.3d 659, 2003-Ohio-5196, 798 N.E.2d 667, ¶ 29.  Like 
the trial court, the court of appeals recognized that a health insurer and a recipient 
of health-insurance benefits could contractually avoid application of the make-
whole doctrine.  In contrast to the trial court, however, it held that the language in 
the agreement signed by Lawson did clearly and unambiguously state that the 
Plan would be entitled to reimbursement regardless of whether Emily was made 
whole through recovery from collateral sources.  Hence, it held that the Plan was 
entitled to summary judgment on its claim against Lawson for reimbursement of 
medical bills regardless of whether the Lawsons had been made whole by receipt 
of funds from other insurance companies. 
{¶13} The court of appeals noted, however, that Section 3.7 provided that 
an insured would be required to reimburse the Plan in an amount representing 
“the lesser of the payments actually made by the Plan, or the amount received by 
the covered person from the third party.”  It found this language to be ambiguous 
because it could be interpreted in two ways: “the amount received by the covered 
person” might mean either the full amount paid by the third party or the net 
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amount the insured personally received, i.e., the amount paid by the third party 
less the costs of prosecuting the claim, including attorney fees.  154 Ohio App.3d 
659, 2003-Ohio-5196, 798 N.E.2d 667, ¶ 38-39.  The court of appeals resolved 
this ambiguity in favor of Lawson, and deducted a one-third contingency fee 
claimed by Lawson’s attorney from the $100,000 received from the tortfeasor’s 
liability insurer, thereby reducing the figure Lawson owed the Plan to $66,666.  
The court held that the Plan had no subrogation rights against the $150,000 from 
Lawson’s underinsured motorist coverage because Lawson had struck from the 
agreement form language granting that right.  Id. at ¶ 36. 
{¶14} The court of appeals found that its judgment conflicted with that of 
the 5th District Court of Appeals in Cent. Res. Life Ins. Co. v. Hartzell (Nov. 30, 
1995), Tuscarawas App. No. 94AP120094, 1995 WL 768553.  It certified the 
following issue to us pursuant to Section 3(B)(4), Article IV, Ohio Constitution 
for review and final determination:  “Is a subrogation and reimbursement clause 
which attempts to give an insurer claim priority over the insured’s claim against a 
third party or other insurer, regardless of whether the insured has received full 
compensation for her injuries, against public policy and unenforceable?” 
{¶15} We answer the certified issue in the negative.  We hold that a 
provider of health insurance and an insured who has been injured by an act of a 
third party may agree prior to payment of medical benefits that the insured will 
reimburse the insurer for any amounts later recovered from that third party, third 
party’s insurer, or any other person through settlement or satisfaction of judgment 
upon any claims arising from the third party’s act.  A clear and unambiguous 
agreement so providing is not unenforceable as against public policy, irrespective 
of whether the settlement or judgment provides full compensation for the 
insured’s total damages. 
{¶16} We have long held that principles of equitable subrogation, 
including the make-whole doctrine, do not override clear and unambiguous 
January Term, 2004 
7 
contractual provisions.  Our holding therefore does not constitute a change in our 
precedent but rather a reaffirmance of it.  See Ervin, 25 Ohio St.2d 231, 54 
O.O.2d 361, 267 N.E.2d 769; Peterson v. Ohio Farmers Ins. Co. (1963), 175 
Ohio St. 34, 23 O.O.2d 311, 191 N.E.2d 157; and Newcomb v. Cincinnati Ins. Co. 
(1872), 22 Ohio St. 382. 
{¶17} More recently, in Blue Cross & Blue Shield Mut. of Ohio v. 
Hrenko (1995), 72 Ohio St.3d 120, 647 N.E.2d 1358, we recognized that “a 
contractual subrogation agreement [is] controlled by contract principles.”  Id. at 
122, 647 N.E.2d 1358.  We observed: 
{¶18} “In Ohio, there are three distinct kinds of subrogation: legal, 
statutory, and conventional.  Legal subrogation arises by operation of law and 
applies when one person is subrogated to certain rights of another so that the 
person is substituted in the place of the other and succeeds to the rights of the 
other person.  State v. Jones (1980), 61 Ohio St.2d 99, 100-101, 15 O.O.3d 132, 
133, 399 N.E.2d 1215, 1216-1217.  Statutory subrogation is a right that exists 
only against a wrongdoer.  Conventional subrogation is premised on the 
contractual obligations of the parties, either express or implied.  The focus of 
conventional subrogation is the agreement of the parties.  Id. at 101, 15 O.O.3d at 
133, 399 N.E.2d at 1217.”  Id. at 121, 647 N.E.2d 1358.  In Hrenko we enforced a 
contractual subrogation provision whose language was “clear, relatively concise 
and not limited.”  Id. at 122, 647 N.E.2d 1358. 
{¶19} It is true that the syllabus to Hrenko referred to circumstances in 
which full compensation had been received: “Pursuant to the terms of an 
insurance contract, a health insurer that has paid medical benefits to its insured 
and has been subrogated to the rights of its insured may recover from the insured 
after the insured receives full compensation by way of a settlement with the 
insured’s uninsured motorist carrier.” (Emphasis added.)  We reject the 
proposition that this syllabus language should be construed as modifying our prior 
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holdings.  In Hrenko the insured had, in fact, been fully compensated, and 
reference in the syllabus to the insured receiving full compensation merely 
reflected that fact.  That a contractual subrogation provision was enforced in 
Hrenko against a fully compensated plaintiff does not mean that the converse of 
the proposition is true.  That is, it does not logically follow that because a fully 
compensated plaintiff is bound to his contractual obligations, a plaintiff who is 
not fully compensated is not also bound to his or her contractual obligations.  No 
discussion in the Hrenko opinion supports the latter conclusion. 
{¶20} Although some may view a subrogation provision granting priority 
to the insurer as unfair, courts should not rewrite contracts.  As stated in Ervin, 
“Cases of contractual interpretation should not be decided on the basis of what is 
‘just’ or equitable.  This concept is applicable even where a party has made a bad 
bargain, contracted away all his rights, and has been left in the position of doing 
the work while another may benefit from the work.  Where various written 
documents exist, it is the court’s duty to interpret their meaning, and reach a 
decision by using the usual tools of contractual interpretation (e.g., the written 
documents, the intent of the parties, and the acts of the parties) and not by a 
determination of what is fair, equitable, or just.”  25 Ohio St.2d at 239-240, 54 
O.O.2d 361, 267 N.E.2d 769. 
{¶21} We have, however, applied the make-whole doctrine in cases 
where an insurer’s subrogation is based in contract but the contract does not 
specify whether the insurer or the insured has priority to the recovered funds.  In 
James v. Michigan Mut. Ins. Co. (1985), 18 Ohio St.3d 386, 388, 18 OBR 440, 
481 N.E.2d 272, a contractual subrogation clause provided: 
{¶22} “B. If we make a payment under this policy and the person to or 
for whom payment is made recovers damages from another, that person shall: 
{¶23} “1. Hold in trust for us the proceeds of the recovery: and 
{¶24} “2. Reimburse us to the extent of our payment.” 
January Term, 2004 
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{¶25} This contractual provision clearly established a right on the part of 
the insurer to funds recovered by the insured.  It did not, however, address the 
issue whether the insured was entitled to retain the recovered funds until fully 
compensated.  Although the clause expressly gave the insurer a right of 
subrogation, we nevertheless recognized the “general rule of subrogation * * * 
that where an insured has not interfered with an insurer’s subrogation rights, the 
insurer may neither be reimbursed for payments made to the insured nor seek 
setoff from the limits of its coverage until the insured has been fully compensated 
for his injuries.” (Emphasis sic.)  Id. at 388, 18 OBR 440, 481 N.E.2d 272.  
Consistent with our holding in James, we therefore recognize that the make-whole 
doctrine applies by default where a reimbursement or subrogation contract does 
not contain language providing otherwise. 
{¶26} The Sixth Circuit has held that the make-whole doctrine applies by 
default to a subrogation or reimbursement clause in an ERISA plan.  It has 
determined that a plan may avoid the application of the rule only by including 
language that is “clear in establishing both a priority to the funds recovered and a 
right to any full or partial recovery.”  (Emphasis sic.)  Copeland Oaks v. Haupt 
(C.A.6, 2000), 209 F.3d 811, 813; accord Hiney Printing Co. v. Brantner  (C.A.6, 
2001), 243 F.3d 956. 
{¶27} We adopt the Copeland Oaks standard applied by the Sixth Circuit.  
We hold that a reimbursement agreement between an insured and a health-
benefits provider clearly and unambiguously avoids the make-whole doctrine if 
the agreement establishes both (1) that the insurer has a right to a full or partial 
recovery of amounts paid by it on the insured’s behalf and (2) that the insurer will 
be accorded priority over the insured as to any funds recovered. 
{¶28} The question remains whether the language in the Plan adopted by 
Lawson’s employer and the language found in the reimbursement agreement 
signed by Lawson clearly and unambiguously provides both that the Plan has a 
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right to reimbursement and that the Plan’s interest has priority over Lawson’s 
right to keep settlement amounts until she is fully compensated. 
{¶29} The reimbursement agreement in the case at bar satisfies both 
prongs of the standard we establish today.  In consideration of the Plan’s payment 
of Emily’s medical bills, Lawson agreed that if she received funds in settlement or 
satisfaction of judgment, the Plan would have a right to a full or partial recovery 
of the amounts paid by it on the insured’s behalf (“I acknowledge and agree that 
my right to have benefits paid from the Plan on my behalf is subject to certain 
terms of the Plan which provide that the Plan shall be entitled to reimbursement * 
* *”).  It further clearly established that the Plan’s right to reimbursement would 
take priority over Lawson’s right to the funds (“I will reimburse the Plan * * * for 
any amounts which are later recovered * * * irrespective of whether any such 
settlement or judgment may or may not provide reimbursement to me for all [my 
damages]”). 
{¶30} The court of appeals correctly held that the Plan is entitled to 
summary judgment on its claims for reimbursement of medical bills it paid on 
Emily’s behalf.  We express no opinion regarding the court of appeals’ insulation 
of the underinsured motorist benefits from subrogation or its deduction of the 
contingency fee claimed by Lawson’s attorney in connection with recovery of 
funds from other sources, as the Plan did not cross-appeal on those issues. 
Judgment affirmed. 
 
LUNDBERG STRATTON, O’CONNOR and O’DONNELL, JJ., concur. 
 
RESNICK, F.E. SWEENEY and PFEIFER, JJ., dissent. 
__________________ 
 
PFEIFER, J., dissenting. 
{¶31} I would answer the certified question in the affirmative, relying on 
James v. Michigan Mut. Ins. Co. (1985), 18 Ohio St.3d 386, 18 OBR 440, 481 
N.E.2d 272.  In James, this court stated, “Generally, where an insured has not 
January Term, 2004 
11 
interfered with an insurer’s subrogation rights, the insurer may neither be 
reimbursed for payments made to the insured nor seek setoff from the limits of its 
coverage until the insured has been fully compensated for his injuries.  (Newcomb 
v. Cincinnati Ins. Co. [1872], 22 Ohio St. 382, followed.)”  Id. at paragraph one of 
the syllabus.  I would reaffirm the “make whole” doctrine; I see no reason to 
abandon or limit a legal precedent that has been protecting injured Ohioans for 
over 125 years. 
{¶32} I am also concerned that the majority leaves open the question of 
whether an insurance company can be subrogated for the gross amount of a 
recovery.  For example, if medical expenses were $40,000 and a $51,000 
settlement netted $34,000 for the injured person, allowing subrogation of the 
gross amount would enable the insurance company to collect $6,000 more than 
the injured party received in settlement.  I would answer that question now:  an 
insurance company should not be able to exact more in subrogation than its 
insured receives net of costs associated with a lawsuit or settlement. To rule 
otherwise would enable insurance companies to reach into their insureds’ pockets.  
I dissent. 
 
RESNICK and F.E. SWEENEY, JJ., concur in the foregoing dissenting 
opinion. 
__________________ 
 
Arthur, O’Neil, Mertz & Michel Co., L.P.A., Joseph W. O’Neil, 
Daniel R. Michel and Jennifer N. Brown, for appellant. 
 
Marshall & Melhorn, L.L.C., Jennifer J. Dawson and Michael A. 
Gonzalez, for appellee. 
 
Clark, Perdue, Roberts & Scott and Douglas S. Roberts, urging 
reversal for amicus curiae Ohio Academy of Trial Lawyers. 
SUPREME COURT OF OHIO 
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Cloppert, Latanick, Sauter & Washburn, Robert L. Washburn and 
Rory P. Callahan, urging reversal for amicus curiae Ohio Education 
Association. 
 
Kreiner & Peters Co., L.P.A., Daran P. Kiefer, Helen A. Thompson 
and Ted M. Traut, urging affirmance for amici curiae Golden Rule Insurance 
Company, US Humana Health Plan of Ohio, Inc., Medical Mutual of Ohio, 
QualChoice Health Plan, Inc., and the National Association of Subrogation 
Professionals. 
_____________________