Court Opinion

ID: 9666939
Source: CourtListenerOpinion
Date Created: 2023-08-24 01:30:31.771054+00
Date Added: 2024-06-11T18:13:08.111583
License: Public Domain

Fahrnbruch, J., dissenting.
I respectfully dissent. In my opinion, subrogation clauses make medical pay coverage illusory. I would hold that *425subrogation clauses are unenforceable for the reason that they are against public policy.
In its opinion, the majority suggests that subrogation clauses are valid “based on contract” reasoning. The majority then upholds a medical pay subrogation clause on the theory that the insured has “bargained” for the clause, and therefore the courts should enforce it.
Realistically, there is no “bargaining” for a contract of insurance. As the U.S. Court of Appeals for the Eighth Circuit has stated:
Insurance contracts are prime examples of “contracts of adhesion” where the customer is required to “adhere” to the standard contract form. Insurers, due to their greater bargaining position, should not be allowed to use this as a wholesale method for controlling applicable law. Consideration should be given all circumstances involved before placing much emphasis on formalistic ritual.
(Citations omitted.) American Service Mutual Insurance Company v. Bottum, 371 F.2d 6, 12 (8th Cir. 1967).
In construing insurance contracts, courts must remember
it is also well settled that insurance contracts, as contracts of adhesion, are subject to careful judicial scrutiny to avoid injury to the public. In the consideration of adhesion contracts, the courts have a heightened responsibility to prevent the marketing of policies that provide unrealistic and inadequate coverage.
Any portion of an insurance contract which is violative of public policy is not enforceable.
(Emphasis supplied.) (Citations omitted.) Brown-Spaulding v. Intern. Surplus Lines, 254 Cal. Rptr. 192, 194 (Cal. App. 3d 1988).
While a majority of jurisdictions permit insurance carriers to subrogate medical expenses, several jurisdictions have found subrogation clauses to be invalid. See, Harleysville Mutual Insurance Company v. Lea, 2 Ariz. App. 538, 410 P.2d 495 (1966); Travelers Indemnity Company v. Chumbley, 394 S.W.2d 418 (Mo. App. 1965); Allstate Ins. Co. v. Druke, 118 Ariz. 301, 576 P.2d 489 (1978); Maxwell v. Allstate Ins. Co., 102 Nev. 502, 728 P.2d 812 (1986); Allstate Ins. Co. v. Reitler, 628 *426P.2d 667 (Mont. 1981); Wrightsman v. Hardware Dealers Mutual Fire Insurance Company, 113 Ga. App. 306, 147 S.E.2d 860 (1966); Feller v. Liberty Mut. Fire Ins. Co., 220 Cal.App.2d 610, 34 Cal. Rptr. 41 (1963).
One reason a person buys insurance is to make certain that he is fully compensated for any injuries he receives. Where a medical pay clause in an automobile insurance policy requires that the insurer be reimbursed first from any money the insured receives by way of settlement or verdict from a tort-feasor, the insured may not be fully compensated for his medical expenses, let alone his injuries, pain, suffering, and loss of wages and earning capacity. This is in spite of the fact that there appears to be sufficient insurance to cover medical expenses and attorney fees.
In Nebraska, Neb. Rev. Stat. §§ 60-501 and 60-534 (Reissue 1988) requires liability insurance of only $25,000 for bodily injury or death of one person in one accident, or $50,000 for bodily injury or death of two or more persons in one accident. Assume, for the purpose of argument, that a nonnegligent injured person’s automobile insurance policy includes medical coverage on the insured of $15,000. The insured incurs $31,675 in medical expenses and receives the $15,000 policy amount from his insurer. This nonnegligent person then obtains a verdict for $25,000 and collects that amount from the tort-feasor’s insurer. The tort-feasor is otherwise judgment-proof. From the $25,000, the injured person must pay his own attorney $8,325 (one-third contingent fee) and must also reimburse his own insurance company $15,000, leaving him with $1,675. Add back the $15,000 the insured received from his own medical pay policy, and the insured nets $16,675. When that amount is deducted from the amount of medical expenses, the insured still owes $15,000 in medical bills. Even if the medical pay insurer paid its share of the attorney fee involved, the insured would still owe $10,000. If we would hold that the reimbursement clause in the insured’s medical pay policy is void, the injured insured would net $31,675 and would at least be fully compensated for his medical expenses. As the law now stands, the injured person gains nothing from his medical pay policy, even though he has paid premiums for what *427could be several years.
Another policy consideration exists for holding a reimbursement clause in a medical pay case invalid. In jury-tried or even bench-tried cases, the trier of fact must determine (1) whether the medical expenses specially pleaded are necessary and (2) if the charges therefore are reasonable. Perhaps the jury decides that some of the medical services provided were not necessary or the cost of them is unreasonable. The jury returns a general verdict. Without an additional lawsuit, how will it be determined what amount the medical pay insurer should be paid from the general verdict? Should the tort-feasor’s insurance carrier have to litigate which portion of the general verdict should be paid to the medical pay carrier? No, the tort-feasor’s insurance carrier simply claims that it is a stakeholder and pays the amount of the verdict into the court. If the tort-feasor settles with the plaintiff, it does so at its own peril if we hold the reimbursement clause to be valid. The medical pay insurer can hold up the settlement, and we still have a lawsuit. See Hamilton v. Farmers Insurance, 107 Wash. 2d 721, 733 P.2d 213 (1987). Hamilton is an underinsured case, but it dramatically reflects how a settlement can be undermined by an injured party’s own insurance company. The Washington court did not permit that to happen in Hamilton.
Subrogation clauses make medical pay clauses illusory. The policy owner receives nothing for paying a separate premium for medical expense coverage when a tort-feasor is liable for his damages.
Under the majority opinion adopted today, insurance companies are given the unbridled right to include subrogation clauses in their adhesion contracts of insurance. I fear that it will not be long before the same types of clauses are placed in other types of medical attendance and hospitalization policies.
Public policy requires that insurance companies deliver what has been paid for by the insured and that the insured receives more than illusory coverage.
White and Grant, J J., join in this dissent.