Present: All the Justices 

STATE FARM MUTUAL AUTOMOBILE 

INSURANCE COMPANY 

v. Record No. 971257 OPINION BY JUSTICE CYNTHIA D. KINSER 

 April 17, 1998 

KEITH BOWERS 

FROM THE CIRCUIT COURT OF HENRICO COUNTY 

George F. Tidey, Judge 

 This appeal involves the amount of reasonable medical 

expenses incurred by an insured under a medical payments 

provision of an automobile insurance policy. Because we 

find that the term “incurred” includes only those amounts 

that the insured would be legally obligated to pay, we will 

reverse the judgment of the circuit court. 

I. 

 On April 17, 1995, Carroll Keith Bowers was involved 

in a motor vehicle accident in which he sustained injuries 

requiring medical treatment. At the time of the accident, 

Bowers was insured under an automobile insurance policy 

issued by State Farm Mutual Automobile Insurance Company 

(State Farm). Under the medical payments provision of the 

policy, State Farm agreed to pay “on behalf of each injured 

person, medical expense benefits as a result of bodily 

injury caused by accident.” The policy defines medical 

expense as “all reasonable and necessary expenses for 
medical . . . services . . . incurred within three years 

after the date of the accident.” 

 Bowers was also insured under a health insurance plan 

through Blue Cross/Blue Shield of Virginia (Blue Cross). 

All the health-care providers that rendered services to 

Bowers as a result of the accident had signed contracts 

with Blue Cross agreeing to accept fees based upon a fee 

schedule setting forth the reasonable value of the services 

provided. According to a representative of Blue Cross, the 

fee schedule was based on a governmental study performed by 

the Health Care Financing Administration to determine the 

reasonableness of fees for various medical services. Under 

the agreement with Blue Cross, a participating health-care 

provider could collect only the amount established by the 

fee schedule plus any co-payment that the insured was 

required to pay. In other words, the agreements with Blue 

Cross prohibited providers from collecting as full payment 

for their services any more than the scheduled fee and 

required co-payment. 

Following his accident, Bowers sought medical 

treatment from various health-care providers and then 

submitted claims to State Farm under the policy’s medical 

payments provision. One such claim was for $1,586 for 

treatment received from a rehabilitation and therapy 

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services company. However, due to an administrative error, 

the check that State Farm issued to Bowers was for $31,586 

instead of $1,586. Upon realizing its mistake, State Farm 

contacted Bowers and requested that he return the $30,000 

overpayment. Bowers informed State Farm that he had spent 

the entire overpayment and refused to repay the balance. 

 As a basis for his refusal to repay State Farm, Bowers 

asserted that, subsequent to the overpayment, he had 

incurred additional medical expenses that should be offset 

against the amount allegedly owed to State Farm.1 A dispute 

arose between Bowers and State Farm in regard to the amount 

that he was entitled to offset. Specifically, Bowers 

sought to offset the amounts that the health-care 

providers, absent agreements with Blue Cross, would have 

charged Bowers rather than the amounts that the providers 

accepted as full payment for their services under the Blue 

Cross fee schedule.2

 1

 Following the $30,000 overpayment, Bowers submitted 

additional claims for medical expenses totaling $2,428 to 

State Farm for payment. State Farm gave Bowers credit 

against the $30,000 overpayment, reducing his obligation to 

$27,572. 

2

 For example, an orthopedic clinic billed $3,770.50 

for the services provided to Bowers. However, since the 

orthopedic clinic was a participating provider under the 

Blue Cross plan, it agreed to accept $1,157.25 as full 

payment for its services in accord with the Blue Cross fee 

schedule. Of that amount, Blue Cross paid the orthopedic 

3
Because of the dispute and Bowers’ refusal to repay, 

State Farm filed an action for unjust enrichment against 

Bowers, seeking to recover the money it mistakenly paid to 

him. On October 25, 1996, the circuit court granted State 

Farm’s motion for partial summary judgment. Because 

Bowers’ claimed offset would reduce only a portion of the 

overpayment, the court awarded State Farm the sum of 

$17,703.51, plus interest. Following a bench trial on 

January 29, 1997, the circuit court, in an order dated 

March 18, 1997, entered judgment against Bowers in “the 

total amount of $19,894.90 plus interest . . . , this 

amount representing the amount of the Partial Summary 

Judgment ($17,703.50) plus the sum of $2,191.40.” In a 

letter opinion, the court reasoned that State Farm cannot 

benefit from the agreement between Blue Cross and the 

health-care providers and, thus, allowed Bowers to offset 

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clinic $861.70, and Bowers was to pay $295.55. (At the 

time of trial, Bowers had paid only $35 of the $295.55.) 

In other words, the orthopedic clinic wrote off $2,613.25 

of its original bill. Bowers, nevertheless, claims that he 

should be able to offset the amount the orthopedic clinic 

billed rather than the amount that it accepted as full 

payment. Thus, Bowers wants to offset the full $3,770.50 

rather than the reduced fee of $1,157.25. 

Six health-care providers issued total bills of 

$10,677.10 but accepted lesser payments totaling $3,007.50, 

thereby collectively writing off $7,669.60 of the amounts 

originally billed. 

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the full amount of the medical bills rather than the 

amounts accepted by the health-care providers as full 

payment. In other words, the court allowed Bowers to 

include in the offset the amounts that his health-care 

providers wrote off. The court also stated that “[t]he 

fact that the medical provider and [Blue Cross] have 

negotiated a figure acceptable to both of them for services 

performed does not set the standard of what is reasonable.” 

State Farm appeals. 

II. 

In its assignments of error, State Farm raises three 

issues, all of which concern the circuit court’s 

interpretation of the medical payments provision of the 

State Farm policy and the amount that the court allowed 

Bowers to offset against the overpayment. Specifically, 

State Farm asserts that the circuit court erred (1) in 

determining the amount of “incurred” medical expenses, (2) 

in deciding the “reasonable” value of the medical services 

provided, and (3) in failing to reduce the amount of the 

offset because Bowers did not mitigate his damages. 

The first issue requires us to construe the term 

“incurred” as used in the definition of medical expense. 

As already noted, the State Farm policy defines medical 

expense as “all reasonable and necessary expenses for 

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medical . . . services . . . incurred . . . .” State Farm 

argues that the “incurred” expenses are those amounts which 

the health-care providers accepted as full payment for 

their services. Bowers, however, posits that he “incurred” 

the full amount of the bills. 

“If the language of an insurance policy is 

unambiguous, we will give the words their ordinary meaning 

and enforce the policy as written.” United Services Auto. 

Ass’n v. Webb, 235 Va. 655, 657, 369 S.E.2d 196, 198 

(1988). We have previously construed the term “incurred” 

in a nearly identical medical payments provision of an 

automobile insurance policy as unambiguous and concluded 

that “[a]n expense can only be ‘incurred’ . . . when one 

has paid it or become legally obligated to pay it.” 

Virginia Farm Bureau Mut. Ins. Co. v. Hodges, 238 Va. 692, 

696, 385 S.E.2d 612, 614 (1989).3

The evidence in the instant case was that Bowers would 

never be liable for any amount greater than that which the 

various health-care providers accepted as full payment for 

their services based on the Blue Cross fee schedule. 

Stated differently, the health-care providers’ agreements 

 3

 The language at issue in Hodges was “all reasonable 

expenses incurred within one year from the date of accident 

for necessary medical . . . services.” Id. at 693, 385 

S.E.2d at 612. 

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with Blue Cross prevented them from collecting more than 

the scheduled fee and any required co-payment. Therefore, 

we conclude that the medical expenses Bowers “incurred” 

were the amounts that the health-care providers accepted as 

full payment for their services rendered to him. Bowers 

has not paid nor is he “legally obligated to pay” the 

amounts written off by the providers. Id.; accord Irby v. 

Gov’t Employees Ins. Co., 175 So. 2d 9, 10 (La. Ct. App. 

1965); United Services Auto Ass’n v. Schlang, 894 P.2d 967, 

969 (Nev. 1995); Lefebvre v. Gov’t Employees Ins. Co., 259 

A.2d 133, 135 (N.H. 1969); Sanner v. Gov’t Employees Ins. 

Co., 376 A.2d 180, 182 (N.J. Super. Ct. App. Div. 1977); 

Atkins v. Great Am. Ins. Co., 189 S.E.2d 501, 504 (N.C. Ct. 

App. 1972).4 To decide otherwise would be to grant Bowers a 

 4

 In 1997, the General Assembly defined “incurred” in 

Code § 38.2-2201(A)(3), which addresses medical payments in 

liability insurance policies: 

An expense . . . shall be deemed to have been 

incurred: 

a. If the insured is directly responsible for 

payment of the expense; 

b. If the expense is paid by (i) a health care 

insurer pursuant to a negotiated contract with the 

health care provider or (ii) Medicaid or Medicare, 

where the actual payment with reference to the medical 

bill rendered by the provider is less than or equal to 

the provider’s usual and customary fee, in the amount 

of the actual payment; however, if the insured is 

required to make a payment in addition to the actual 

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windfall because he would be receiving an amount greater 

than that which he would ever be legally obligated to pay. 

Turning to the second issue, we agree with the circuit 

court that the fact that medical providers and Blue Cross 

negotiate a fee schedule that is acceptable to them does 

not necessarily set the standard for what is a “reasonable” 

medical expense. However, the only evidence in this case 

regarding reasonableness was from the Blue Cross 

representative. She testified that the Blue Cross fee 

schedule was based on a government study that determined 

the reasonableness of fees for various medical services. 

Thus, absent any evidence to the contrary, we must conclude 

in this case that the “reasonable” expenses were those 

contained in the Blue Cross fee schedule and accepted as 

full payment by the health-care providers. 

Finally, State Farm claims that Bowers failed to 

mitigate his damages by reducing the amount of medical 

_____________ 

payment by the health care insurer or Medicaid or 

Medicare, the amount shall be increased by the payment 

made by the insured; 

c. If no medical bill is rendered or specific 

charge made by a health care provider to the insured, 

an insurer, or any other person, in the amount of the 

usual and customary fee charged in that community for 

the service rendered. 

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expenses he “incurred.” State Farm argues that, because 

Bowers directed a rehabilitation and therapy clinic not to 

submit one of its bills to Blue Cross, the bill was never 

reduced in accord with the Blue Cross fee schedule even 

though the clinic was a participating provider with Blue 

Cross. However, we do not decide this issue because State 

Farm presented no evidence regarding the amount that the 

rehabilitation and therapy clinic would have accepted as 

full payment under the Blue Cross fee schedule. 

For these reasons, we conclude that the circuit court 

erred by granting an offset for any amount in excess of 

that which Bowers’ health-care providers accepted as full 

payment for their services. The amount erroneously allowed 

by the circuit court is the amount that the health-care 

providers wrote off, $7,669.60. Accordingly, we will 

reverse the judgment of the circuit court and enter 

judgment here for State Farm in the additional amount of 

$7,669.60, for a total judgment in the amount of 

$27,564.50. 

Reversed and final judgment.

_____________ 

While this statute does not apply to this case, our 

decision is consistent with the statutory definition of 

“incurred.” 

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