Lead Opinion
{¶ 1} The Northern Buckeye Education Council Group Health Benefits Plan (“Plan”), appellee, is a self-funded governmental
{¶ 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.”
{¶ 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
{¶ 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 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),
{¶ 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 agreement considered in Stephens v. Emanhiser (Aug. 24,1999), Seneca App. No. 13-99-03,
{¶ 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.”
{¶ 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 amount the insured personally received, i.e., the amount paid by the third party less the costs of prosecuting the claim, including attorney fees.
{¶ 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,
{¶ 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 contractual provisions. Our holding therefore does not constitute a change in our precedent but rather a reaffirmance of it. See Ervin,
{¶ 17} More recently, in Blue Cross & Blue Shield Mut. of Ohio v. Hrenko (1995),
{¶ 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),
{¶ 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 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.”
{¶ 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),
{¶ 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.”
{¶ 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),
{¶ 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 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
{¶ 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.
Notes
. 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 ease based solely on state law.
Dissenting Opinion
dissenting.
{¶ 31} I would answer the certified question in the affirmative, relying on James v. Michigan Mut. Ins. Co. (1985),
{¶ 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.