1 The previous d ecision b y this Court is found at Health Cost C ontrols, Inc. v. Gifford , No. W1999-02598-

CO A-R3 -CV , 200 1 T enn . App. L EXIS 2 94 (T enn . Ct. App . April 24 , 200 1).



### IN THE COU

RT OF A PPEALS OF TENNESSEE AT J ACKSON September 17, 20 01 Session
HEALTH COS T CONTROLS , INC. v. RONALD GI FFORD An Ap peal from

the Chancery Court fo r Weakley County No. 1 572 6 W. Mi cha el Ma loa n, C han ce ll or

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

This is an insurance case on remand f rom the Tennes see Supreme Court. The Court ha s dir ected us “to reconsider the case on its merits in accordance with . . . Yor k v. Se vier Coun ty Ambul

ance Auth. , 8 S.W.3d 616 (Tenn. 1999) ,” whi ch was decided after the appellate brie fs were filed in the initi al appeal. In York , the Supreme Court established that the “made whole” doctr ine, applicable incases involving

an insurer’s subrog ation 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 af

fect our ori ginal di sposit

ion of this case, a nd, therefo re, on remand, we affirm the decis ion of the tr ial court.
Tenn . R. A

pp . P. 3; Jud gm ent o f th e Cha ncery Co urt is Aff irm ed
H OLLY K. L

ILL ARD , J., delivered the opinion of the court, in which A LAN E. H IGHERS , J., and D AV ID R. F ARMER , J., joined. H. Max Speig

ht, Dresden, Tennessee, for the appellant, Ronald Gifford.
Thomas H. Lawrence an d John M. Russell, of Memphis, Tennessee, for the appell ee, Healt h Cost Contr ols, Inc

. OPINI ON
This is an insurance case on remand from the Tenness ee SupremeCourt. 1 In March 1997, Defendant/Appellant

Ronald Gifford (“Gifford ”) was injur ed in an automobi le accident while riding as a passenger in a

car driven by

his brother and owned b

y his mother . G iffo rd had

medical insu rancecoverage prov

ided by Prud ential Ins urance Compa ny (“Pr udent ial”). Gif ford ’s in sur

ance-2-

p olicy with Pr udential contained a provision limi

ting r ecovery for injur ies when a th

ird party is involved:
BENEF IT MO DIF

ICA TION F OR THIRDPAR

TY L IA BILITY
This modif

ies any Cover age of the Grou

p Contract that: (1) is a health care expense Coverage; or (2) provides wee kly disability benefi ts.
A. This Modification applies when a person, other than the person f or whom a

claim is made, is considered responsible for a Sickness or Injury . To the extent payment for the Si cknes s or

Inj ury is mad e, or may be made i

n the f uture , 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 To tal Disabil ity resulting (in whole or in part) from that S icknes s or

Inj ury are not pay able.
B. But when claim is received by P ru dentia l, benefits

which wou

ld be pay able except for A above will be paid if: (1) payment by

or for the responsible person has not y et been made; a nd (2) th e C ove re d Pe rso n(s ) in vol ve d ( or if incapab le, tha

t pers on’s

leg al representative) agrees in writing to pay back pr omptly the ben efits pai d as a result of the Sicknes s or I

njury to th e ex tent of any future pay ments made by or for the respons ible person

for the Sickness or Injury . The agreement is to apply whether or not: (a) liability

for the pay

ments is admitted by t

he respons ible pers on; and (b)such pay ments are itemized. A

reasonable s

hare of fees a nd costs incurre d

to obt ain su ch pay ments may

be deducted from amounts to be repaid to Prudential.
C. Amo unts due Pr udent ial to r epay benefi

ts, ag reed to as des cribed

in B . abov

e, may be dedu cted fr om oth er bene fits

pay able by Prud ential after payments by

or for the responsible person are made. Thus, al th ough th e p rovi sio n ge ne ra ll y den ie s co ver age for medical expenses when a third party is respons ible for the injury, it permits pay ment for such injuries if the responsible third party had not yet paid and the ins

ured agr ees in writing to reimburse Prudential when the insured recovers from the third party or from someone on the third party ’s behalf.2 HC C’s amen ded com plaint an d m emo randu m in supp ort of sum mary jud gme nt stat e t hat Gif for d recover ed $105,000 from State Farm. Ho weve r, in a n af fi davi t f ile d in suppor

t of HC C’s m otio n for sum mary jud gme nt, State F arm claim specialist Nancy Th omas stated that State Farm p aid Gifford th e pol icy limit o f $100 ,000 . In additio n, the trial
co urt, in its find ings of facts, also liste d th e su m as $ 10 0,0 00

. -3- Prud ential paid $37,79 5.08 in medical ex penses on behalf of G

ifford in connection wi

th his injurie s. Subsequently, G ifford recovered $100, 000 2 from his mother’s insurance carrier, State Farm Insurance Company ( “State Farm”), for the injuries he sustained in the acci dent. Of the $100,000 Gifford recov ered f rom S tate F arm, $ 44,00 0 was for t he medi cal expe

nses incurred by

Giff ord in connection with the accident; the remaining $56,000 was for his pain and suf ferin g. G iffo rd s igned a full release with State Farm, discharging all clai ms, i nclud ing medical expens es, that

he ma y have had against his mother and brother.
Meanw hile, Pru de nt ia l’s ass ign ee re gar di ng Gifford ’s claim, for the purpos es of investig ating andprosecutingall of Prudential’s rights and claims of reimbursement or overpay ment of claim s, was Plaintiff/Appellee Health Costs Controls , Inc. (“HCC”). W hen HCC learned of Gifford’s recovery from State F arm, H CC con tacted G iffo rd’s attor ney , see k ing reimbursement of the $37,795.08 Prudential p aid for Gifford’s medi cal ex penses. Gif ford refus ed this

reques t. H CC th en filed this lawsuit against Giff

ord seekingretur

n of the pay

ment. I n the co mplain

t, H CC all eged

that it was e ntitl ed to rei mburs ement o f the p ay

ment be cause P

ruden tialhad been unaware tha

t ther e was a third party respons ible 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 jud gment. In the motion, HCC ass erted t

hat the claims were not cov

ered un der th e terms

of the Prud ential policy and that Prude ntial ov erpaid G

iffo rd bas ed on a m

istak e of fact, nam ely , that i

t was unawa re that payment for G

ifford’s injuries was the responsibility of third party.
The tri al courtfou nd t ha t t he te rms of t he Pru de nt ia l p ol ic y una mb igu ous ly de ni ed co ver age for charges arising from an injury for which a third party is respons ible and payment is made by the respons ible 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, tha t a portion o f his me dica l expens es were paid by

Prudential, and that he “settl ed his pers onal injury claimwith the auto mobile owner’s insu

rance company

, State F arm.” O

n that b asis , the tr

ial cou rt g ranted HCC’s motion for summary judg

ment and ordered Gifford to reimburse Prudential.
Gifford then appealed to this Court. On a ppe al , t hi s Co urt he ld th at und er th e p la in la ngua ge of the po licy, the ex

pens es ar isi ng from the injuries Gifford sustained in the acc ident were not cov ered by the policy . This Court fu rt her determined that Prudential ’s payment of G ifford’s expens es was based on

a mist ake of f act, bec ause i

t was undis puted that Pru de nt ia l wo ul d no t h ave paid for Gifford’s

medical expenses had it known

that a third par

ty was res ponsible f

or pay ment. Therefore , the trial court’s grant of summary judgment in favor of HCC was affirmed. As note d above, the case was

appealed to the Tennes see Supreme C ourt, wh ich remanded to th

is Cour t with instructions to reconsider the appeal in light of York v. Sevi er County Am bulance Aut h. , 8 S.W.3d 616 (Tenn. 1999). Accordingly , we now consider the merits of this case in light of York

.3 The iss ues r ais ed by Gif for d in hi s br ief

f ile d with this Court pe rt aine d to whet her t here were genui ne is sues of mater ial fa ct in dispute and whether t he tri al cour

t had proper

ly inter preted t he insura nce agr eement. Those is sues were addres sed in this Cour t’ s pr ior Op inion. Thu s, th e issue regarding app lication of the mad e who le doctrine would ordinarily be consid ered aband oned on app eal.

4 In our in itial dec ision , this C ourt d eterm ined that HC C w as entitled to reim bursem ent bec ause it had pa id f or Gifford’s medic al expenses b ased on a m istake of f act, namely, that the loss was covered u nder the policy. It i s arguable that, had the m ade who le doctrine been raised in Giff ord’s appeal to this Court, it wou ld no t apply be cause Gifford’s oblig ati on to rei mburse his insura nce company di d not a

ri se out of a “reimburseme nt” clause. Rath er, his obligation arose out of the fact that the insurance co mpan y had made the initial payment in error. Nevertheless, York states t hat i t appli es regardless of the langu age in the insu ranc e po licy. T he refore , on rem and , York will be applied to this case as if Giff ord’s duty t o reimburs e HCC arose out of a ty pical reimburs ement claus e.

-4- Prior to York , it had

long been establis

hed th at an in sur ed mu st r ec ei ve full compensation for losses, i.e., be “made whole,” b efore the ins urer can exercis e its rig

ht of subrogati on agains

t a third- party tortfeasor. See Wim berly v. Ameri can Cas. Co. o f Reading , 584 S.W.2d 200, 203 (Tenn. 1979). In York , the Tenness ee Supreme Cou rt determined t

hat th is made whole doctrine should be extended to apply to an insurer’s right to reimbursement, i.e., that the insurer had no right to reimburs ement u

ntil t he i ns ured had been made whole. T he Court reasoned that “a right of reimburs ement r

aises many of the same eq uitabl e iss

ues involved in subrog

ation and warrants the same conclusion – that the insured must be made whole be fore th e insured is entitled to reimbursement.” York , 8 S. W.3 d at 62 0. The made whole d octrine app lies “reg ardles s of what la ngua ge is contained in the contrac t,” because the right arises o ut of equity

, not from the terms in the contract. Id. at 621 & n.6; see Nelson v. Innov ative R ecove ry Servs. , No . M2 000 -03 109 -COAR3-CV, 2001 Tenn. App. L EXIS 859, at *7 ( Tenn. Ct. App. Nov. 21, 2001)

. Alt hou gh Gif

ford arg ued tothe tr

ial court that he was not made whole by the payment from State Fa rm, it is undispu ted that he did no t raise the arg ument in his

appellate brief b efore this Court. 3 Ordinarily, s

uch an omission would be fatal to his claim. See Ja ck son v . Allen , No. M2000-01673-COA-R3-CV, 2002 Tenn. App. L EXIS 281, at *5 n.1 ( Tenn. Ct. App

. Ap ril 2 3, 2002). However, in ligh

t of the Supreme Court’ s remand, we will apply the York decision to the merits of Gifford’s claims. See Ten ness

ee Far mers M ut. I ns. Co. v. Farmer

, No. 03A01- 9610-CH -00327, 1998 Tenn. A

pp. L EXI S 581 , at

*5 & n.2 (Tenn. Ct. App. A ug. 20, 1998). At the outset, it must be noted that, in order to avoid reimbursing H CC for the payment from Prudential, the burden of proof restson Gifford to show

that he was not made whole by the $100,00 0 paid to him by State F arm. See Nelson , 2001 Tenn. A

pp. L EXIS 859, at * 10; Tennessee Farme rs , 1998 Tenn. App. L EXIS 581, at *4 & n.2. In addition, the trial court made no findi ng w ith re spect

to wh ether G

iffo rd wa s made whole by the pay ment from S tate F arm. The facts in thi s cas e must be comp ared

to those in Tennessee Farme rs
. 4 In that case, the insureds were injured in a car accident. Their medical expenses were approximate ly $16,000, and $14,000 of that amount

was paid by t

heir own insurance company. Tennessee Farme rs , 1998 Tenn. App. L EXIS, at *2 n.1. The insureds later settled with the third- party tort feasor for $45,000; the insureds’ insurance company did not participate in the settleme nt negotiations. Id. at *7. There was no determination in the tort a ction or se ttlemen t ag reemen t as to whether the i

nsur eds h ad been5 Th is differ s from the situation in w hich th e parties agree that the insured was not m ade who le, or where it is

clear from the facts that the insu red was n ot m ade wh ole

. See Doss v. Tennes see Far mers Mut. Ins. Co. , No. M2000- 01971-COA- R3-CV, 2001 T en n. A pp . LE XIS 90 6, at *12 (T en n. C t. Ap p. D ec . 10 , 20 01 ); Brow n v. Now lin , No. W 20 01 -01 45 5-C OA-R 3-R V, 2 00 1 T en n. Ap p. L EX IS 89 5, at *12 (Te nn . Ct. Ap p. N ov. 3 0, 2 00 1).

6 The insureds i n Tenne ssee Fa rme rs were actua lly entitl ed to rei mbursement, r ather than sub rogation, because the insured ha d alr eady rece iv ed the mo ne y from th e to rtfeaso r’s ins uran ce c om pan y. See Yo rk , 8 S. W.3d at 618-19 (con trasting th e right to subro gation and th e right to reimb ursem ent). -5- made whole. Id. at *8. The insureds’ insurance company then soug htto recover from the insureds the amount the insur ance com pany had paid. The insureds argued that their insurance company could not recover from them, because the $45 ,000 pay ment from th e tortfeasor did not mak e them whole

. O n appeal, this Court rejected tha t argument, holding that the made whole doctrine “generally

has no application to a ty pical tort case w

here the pers onal injury

claim is merged with the claim for reimbursement of medica l expenses, andwhere there has been no determinat ion otherwise as to whether or not the insu red has been mad

e whol e by

the tor t recov ery .” Id. at

*6-* 7. The Tennessee Farme rscourt noted that it was settled that “if the insurer claiming subrogationdid notparti cipate i

n the s ettlement negotiati ons b etween its insured and the third-party tortfeasors, and waiv ed no rig hts, its subrog ation claim mus t be honored an d the ma de-who le doctrine has no application.” 5 Id. at *7. To defeat subr

ogation , the insur

ed must “aff

irmativ ely

show . . . that she was notmade w

hole. ” Id. at *9. Cons equent ly , the Tennessee Farme rscourt determined that the insureds’ insurance company had a right to subrogation, despite the insureds’ assertion on app eal that th ey had not bee n made wh ole by the insura nce proc eeds. 6
Inthe instant cas e, Gif

ford recov

ered $100,00 0 from St

ate F arm. A

n affidav it from the S tate Farm agen t attested tha

t $44,0 00 was

attrib utable to medi cal expenses an

d $56,000 w

as attribut able to pain an d suffering; thi s fact was un disputed. As in Tennessee Farme rs , there had been no fin di ngs as to whether the insured, Giff ord, had been made whole. Moreov er, in this case, as in Tenn ess ee Farme rs , Prudential did not participate in the settlement negotiations between Gifford andState F arm. In

fact, Prud

ential was n ot e ve n aware that another party was responsible for payment for Gifford’s injuri es. In s uch a s ituati on, in

which the par ties d ispu te whether

the plaintiff has been made whole and there has been no determ ination that t

he ins ured was not made whole, the made whol e doctr

ine has no application. Tennessee Farme rs , 19 98 T enn . App. LEXIS 581, at *7. Theref ore, the holding in York , that the made whole doctrine can b e applicable to an insurer’s right to reimbursement, has no application here, since Gifford did not carry his b urden of es tablis

hing that he was not mad e whole. For these r easons, w e affirm the decis ion of the tr ial court that H

CC is entitled to reimbursement from Gifford.
The decision of the trial court is affirmed. Costs are to be taxed to t he app ellant, Ro nald Gi ff or d, an d h is su re ty, fo r w hi ch ex ec ut io n m ay i ss ue if ne ce ss ar y.

____________________________ HOL L Y KI RBY L IL L ARD