1

The previous decision by this Court is found at Health Cost Controls, Inc. v. Gifford, No. W1999-02598-

COA-R3-CV, 2001 Tenn. App. LEXIS 294 (Tenn. Ct. App. April 24, 2001).

IN THE COURT OF APPEALS OF TENNESSEE

AT JACKSON

September 17, 2001 Session

HEALTH COST CONTROLS, INC. v. RONALD GIFFORD

An Appeal from the Chancery Court for Weakley County

No. 15726 W. Michael Maloan, Chancellor

No. W2001-02267-COA-RM-CV - Filed June 3, 2002

This is an insurance case on remand from the Tennessee Supreme Court. The Court has directed

us “to reconsider the case on its merits in accordance with . . . York v. Sevier County Ambulance

Auth., 8 S.W.3d 616 (Tenn. 1999),” which was decided after the appellate briefs were filed in the

initial appeal. In York, the Supreme Court established that the “made whole” doctrine, applicable

in cases involving an insurer’s subrogation rights, is also applicable in cases involving an insurer’s

right to reimbursement for amounts paid to the insured from another source. After careful

consideration, we find that York does not affect our original disposition of this case, and, therefore,

on remand, we affirm the decision of the trial court.

Tenn. R. App. P. 3; Judgment of the Chancery Court is Affirmed

HOLLY K.LILLARD,J., delivered the opinion of the court, in which ALAN E. HIGHERS,J., and DAVID

R. FARMER, J., joined.

H. Max Speight, Dresden, Tennessee, for the appellant, Ronald Gifford.

Thomas H. Lawrence and John M. Russell, of Memphis, Tennessee, for the appellee, Health Cost

Controls, Inc.

OPINION

This is an insurance case on remand from the Tennessee Supreme Court.1 In March 1997,

Defendant/Appellant Ronald Gifford (“Gifford”) was injured in an automobile accident while

riding as a passenger in a car driven by his brother and owned by his mother. Gifford had medical

insurance coverage provided by Prudential Insurance Company (“Prudential”). Gifford’s insurance
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policy with Prudential contained a provision limiting recovery for injuries when a third party is

involved:

BENEFIT MODIFICATION FOR THIRD PARTY LIABILITY

This modifies any Coverage of the Group Contract that:

(1) is a health care expense Coverage; or 

(2) provides weekly disability benefits.

A. This Modification applies when a person, other than the person for whom a claim

is made, is considered responsible for a Sickness or Injury. To the extent payment

for the Sickness or Injury is made, or may be made in the future, by or for that

responsible person (as a settlement, judgment or in any other way):

(1) charges arising from that Sickness or Injury are not covered; and

(2) benefits for any period of Total Disability resulting (in whole or in part)

from that Sickness or Injury are not payable.

B. But when claim is received by Prudential, benefits which would be payable

except for A above will be paid if:

(1) payment by or for the responsible person has not yet been made; and

(2) the Covered Person(s) involved (or if incapable, that person’s legal

representative) agrees in writing to pay back promptly the benefits paid as a result

of the Sickness or Injury to the extent of any future payments made by or for the

responsible person for the Sickness or Injury. The agreement is to apply whether or

not: (a) liability for the payments is admitted by the responsible person; and (b) such

payments are itemized. A reasonable share of fees and costs incurred to obtain such

payments may be deducted from amounts to be repaid to Prudential.

C. Amounts due Prudential to repay benefits, agreed to as described in B. above,

may be deducted from other benefits payable by Prudential after payments by or for

the responsible person are made. 

Thus, although the provision generally denies coverage for medical expenses when a third party is

responsible for the injury, it permits payment for such injuries if the responsible third party had not

yet paid and the insured agrees in writing to reimburse Prudential when the insured recovers from

the third party or from someone on the third party’s behalf. 
2

HCC’s amended complaint and memorandum in support of summary judgment state that Gifford recovered

$105,000 from State Farm. However, in an affidavit filed in support of HCC’s motion for summary judgment, State Farm

claim specialist Nancy Thomas stated that State Farm paid Gifford the policy limit of $100,000. In addition, the trial

court, in its findings of facts, also listed the sum as $100,000. 

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Prudential paid $37,795.08 in medical expenses on behalf of Gifford in connection with his

injuries. Subsequently, Gifford recovered $100,0002fromhis mother’s insurance carrier, State Farm

Insurance Company (“State Farm”), for the injuries he sustained in the accident. Of the $100,000

Gifford recovered from State Farm, $44,000 was for the medical expenses incurred by Gifford in

connection with the accident; the remaining $56,000 was for his pain and suffering. Gifford signed

a full release with State Farm, discharging all claims, including medical expenses, that he may have

had against his mother and brother. 

Meanwhile, Prudential’s assignee regarding Gifford’s claim,forthe purposes of investigating

and prosecuting all of Prudential’s rights and claims of reimbursement or overpayment of claims,

was Plaintiff/Appellee Health Costs Controls, Inc. (“HCC”). When HCC learned of Gifford’s

recovery from State Farm, HCC contacted Gifford’s attorney, seeking reimbursement of the

$37,795.08 Prudential paid for Gifford’s medical expenses. Gifford refused this request. HCC then

filed this lawsuit against Gifford seeking return of the payment. In the complaint, HCC alleged that

it was entitled to reimbursement of the payment because Prudential had been unaware that there was

a third party responsible for Gifford’s injuries and, as a result, mistakenly overpaid Gifford for

claims not covered under the policy. HCC later filed a motion for summary judgment. In the

motion, HCC asserted that the claims were not covered under the terms of the Prudential policy and

that Prudential overpaid Gifford based on a mistake of fact, namely, that it was unaware that

payment for Gifford’s injuries was the responsibility of third party. 

 The trial court found that the terms of the Prudential policy unambiguously denied coverage

for charges arising from an injury for which a third party is responsible and payment is made by the

responsible party by “settlement, judgment, or in any other way.” The trial court also found that it

was undisputed that Gifford was injured in an automobile accident, that a portion of his medical

expenses were paid by Prudential, and that he “settled his personal injury claim with the automobile

owner’s insurance company, State Farm.” On that basis, the trial court granted HCC’s motion for

summary judgment and ordered Gifford to reimburse Prudential. 

Gifford then appealed to this Court. On appeal, this Court held that under the plain language

of the policy, the expenses arising from the injuries Gifford sustained in the accident were not

covered by the policy. This Court further determined that Prudential’s payment of Gifford’s

expenses was based on a mistake of fact, because it was undisputed that Prudential would not have

paid for Gifford’s medical expenses had it known that a third party was responsible for payment.

Therefore, the trial court’s grant of summary judgment in favor of HCC was affirmed. As noted

above, the case was appealed to the Tennessee Supreme Court, which remanded to this Court with

instructions to reconsider the appeal in light of York v. Sevier County Ambulance Auth., 8 S.W.3d

616 (Tenn. 1999). Accordingly, we now consider the merits of this case in light of York.
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The issues raised by Gifford in his brief filed with this Court pertained to whether there were genuine issues of

material fact in dispute and whether the trial court had properly interpreted the insurance agreement. Those issues were

addressed in this Court’s prior Opinion. Thus, the issue regarding application of the made whole doctrine would

ordinarily be considered abandoned on appeal.

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In our initial decision, this Court determined that HCC was entitled to reimbursement because it had paid for

Gifford’s medical expenses based on a mistake of fact, namely, that the loss was covered under the policy. It is arguable

that, had the made whole doctrine been raised in Gifford’s appeal to this Court, it would not apply because Gifford’s

obligation to reimburse his insurance company did not arise out of a “reimbursement” clause. Rather, his obligation arose

out of the fact that the insurance company had made the initial payment in error. Nevertheless, York states that it applies

regardless of the language in the insurance policy. Therefore, on remand, York will be applied to this case as if Gifford’s

duty to reimburse HCC arose out of a typical reimbursement clause.

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Prior to York, it had long been established that an insured must receive full compensation

for losses, i.e., be “made whole,” before the insurer can exercise its right of subrogation against a

third-party tortfeasor. See Wimberly v. American Cas. Co. of Reading, 584 S.W.2d 200, 203

(Tenn. 1979). In York, the Tennessee Supreme Court determined that this made whole doctrine

should be extended to apply to an insurer’s right to reimbursement, i.e., that the insurer had no right

to reimbursement until the insured had been made whole. The Court reasoned that “a right of

reimbursement raises many of the same equitable issues involved in subrogation and warrants the

same conclusion – that the insured must be made whole before the insured is entitled to

reimbursement.” York, 8 S.W.3d at 620. The made whole doctrine applies “regardless of what

language is contained in the contract,” because the right arises out of equity, not from the terms in

the contract. Id. at 621 & n.6; see Nelson v. Innovative Recovery Servs., No. M2000-03109-COAR3-CV, 2001 Tenn. App. LEXIS 859, at *7 (Tenn. Ct. App. Nov. 21, 2001).

Although Gifford argued to the trial court that he was not made whole by the payment from

State Farm, it is undisputed that he did not raise the argument in his appellate brief before this

Court.3 Ordinarily, such an omission would be fatal to his claim. See Jackson v. Allen, No.

M2000-01673-COA-R3-CV, 2002 Tenn. App. LEXIS 281, at *5 n.1 (Tenn. Ct. App.April 23, 2002).

However, in light of the Supreme Court’s remand, we will apply the York decision to the merits of

Gifford’s claims. See Tennessee Farmers Mut. Ins. Co. v. Farmer, No. 03A01-9610-CH-00327,

1998 Tenn. App. LEXIS 581, at *5 & n.2 (Tenn. Ct. App. Aug. 20, 1998). At the outset, it must be

noted that, in order to avoid reimbursing HCC for the payment from Prudential, the burden of proof

rests on Gifford to show that he was not made whole by the $100,000 paid to him by State Farm.

See Nelson, 2001 Tenn. App. LEXIS 859, at *10; Tennessee Farmers, 1998 Tenn. App. LEXIS 581,

at *4 & n.2. In addition, the trial court made no finding with respect to whether Gifford was made

whole by the payment from State Farm.

The facts in this case must be compared to those in Tennessee Farmers.

4

 In that case, the

insureds were injured in a car accident. Their medical expenses were approximately $16,000, and

$14,000 of that amount was paid by their own insurance company. Tennessee Farmers, 1998 Tenn.

App. LEXIS, at *2 n.1. The insureds later settled with the third-party tortfeasor for $45,000; the

insureds’ insurance company did not participate in the settlement negotiations. Id. at *7. There was

no determination in the tort action or settlement agreement as to whether the insureds had been
5

This differs from the situation in which the parties agree that the insured was not made whole, or where it is

clear from the facts that the insured was not made whole. See Doss v. Tennessee Farmers Mut. Ins. Co., No. M2000-

01971-COA-R3-CV, 2001 Tenn. App. LEXIS 906, at *12 (Tenn. Ct. App. Dec. 10, 2001); Brown v. Nowlin, No.

W2001-01455-COA-R3-RV, 2001 Tenn. App. LEXIS 895, at *12 (Tenn. Ct. App. Nov. 30, 2001). 

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The insureds in Tennessee Farmers were actually entitled to reimbursement, rather than subrogation, because

the insured had already received the money from the tortfeasor’s insurance company. See York, 8 S.W.3d at 618-19

(contrasting the right to subrogation and the right to reimbursement).

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made whole. Id. at *8. The insureds’ insurance company then sought to recover from the insureds

the amount the insurance company had paid. The insureds argued that their insurance company

could not recover from them, because the $45,000 payment from the tortfeasor did not make them

whole. On appeal, this Court rejected that argument, holding that the made whole doctrine

“generally has no application to a typical tort case where the personal injury claim is merged with

the claim for reimbursement of medical expenses, and where there has been no determination

otherwise as to whether or not the insured has been made whole by the tort recovery.” Id. at *6-*7.

The Tennessee Farmers court noted that it was settled that “if the insurer claiming subrogation did

not participate in the settlement negotiations between its insured and the third-party tortfeasors, and

waived no rights, its subrogation claim must be honored and the made-whole doctrine has no

application.”5 Id. at *7. To defeat subrogation, the insured must “affirmatively show . . . that she

was not made whole.” Id. at *9. Consequently, the Tennessee Farmers court determined that the

insureds’ insurance company had a right to subrogation, despite the insureds’ assertion on appeal

that they had not been made whole by the insurance proceeds.6

In the instant case, Gifford recovered $100,000 from State Farm. An affidavit from the State

Farm agent attested that $44,000 was attributable to medical expenses and $56,000 was attributable

to pain and suffering; this fact was undisputed. As in Tennessee Farmers, there had been no

findings as to whether the insured, Gifford, had been made whole. Moreover, in this case, as in

Tennessee Farmers, Prudential did not participate in the settlement negotiations between Gifford

and State Farm. In fact, Prudential was not even aware that another party was responsible for

payment for Gifford’s injuries. In such a situation, in which the parties dispute whether the plaintiff

has been made whole and there has been no determination that the insured was not made whole, the

made whole doctrine has no application. Tennessee Farmers, 1998 Tenn. App. LEXIS 581, at *7.

Therefore, the holding in York, that the made whole doctrine can be applicable to an insurer’s right

to reimbursement, has no application here, since Gifford did not carry his burden of establishing that

he was not made whole. For these reasons, we affirm the decision of the trial court that HCC is

entitled to reimbursement from Gifford.

The decision of the trial court is affirmed. Costs are to be taxed to the appellant, Ronald

Gifford, and his surety, for which execution may issue if necessary.

____________________________

HOLLY KIRBY LILLARD