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Tomlinson v. Continental Casualty Company9/2/2003
The court in Prettyman concluded that this result is not affected by the amendment to §44. That amendment simply required the compensation insurer to pay a portion of the costs and attorney fees incurred in obtaining the third-party settlement, because the compensation insurer would receive the benefit of its subrogation right out of the third-party settlement amount when there was not a compromise settlement. Id. at 582.
In this case, Tomlinson argued that since the Prettyman decision, the Oklahoma Supreme Court has determined that the so-called "make whole" rule applies to reduce an insurer's subrogation amount, citing Equity Fire and Cas. Co. v. Youngblood, supra. In Youngblood, the defendant was injured in an auto accident and her medical expenses were paid by her father's employee benefits plan. The two auto insurance companies involved deposited the policy limits into the court and were dismissed. The employee benefit plan sought reimbursement of the expenses it paid from the auto insurance funds. The parties were in agreement that the defendant's total damages were more than the amount of the insurance funds available. The trial court therefore awarded the insurance funds to the defendant and the employee benefit plan appealed.
The court in Youngblood noted that the employee benefit plan was covered by ERISA. The court stated the issue to be whether ERISA mandated enforcement of the plan's subrogation and reimbursement provision despite the fact the defendant received less than her total damages. Id. at 574. The court then stated the more specific first impression question: "(i)s a contractual subrogation or reimbursement provision, which contains no priority of payment provision, enforceable under Oklahoma law where the recipient of the benefits sought to be recovered has not been fully compensated by payments from a third party?" Id. The court agreed with a line of cases holding that if a benefit plan subject to ERISA lacks a priority of payment provision, does not give its managers the express right to resolve ambiguities, and the facts do not clearly show that the third-party settlement included payment for medical expenses, then the plan will not be allowed reimbursement. Id. at 575. The court explained that unambiguous policies would include a provision to the effect that the plan will be reimbursed regardless of whether the member had been fully compensated, and noted that a lack of such priority provision gives rise to the "make whole" rule. That rule prohibits a party who seeks subrogation or reimbursement out of recoveries made due to personal injuries from recovering until the injured party has been fully compensated for his injuries. Id. at 575-576. In concluding, the court held:
We adopt the make whole rule in contract subrogation and reimbursement cases where (1) the subrogation or reimbursement contract neither expressly sets priorities for the repayment of benefits, nor otherwise gives a right to subrogation or reimbursement before any funds are paid to the beneficiary, nor vests the plan manager's discretionary authority to interpret ambiguous provisions of the plan; and (2) the compensation received by the beneficiary from the settlement with or judgment against a third party represents less than full compensation. Under such circumstances, the subrogation and reimbursement terms of the contract will be unenforceable.
Id. at 576-577 (emphasis added).
In this case, Tomlinson persuaded the court that the "make whole" rule applied to the §44 statutory subrogation right found in the Workers' Compensation Act. However, we agree with Transcontinental that a contractual subrogation provision is different from a statutory provision.
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