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Texas Farmers Insurance Company v. Fruge3/9/2000
OPINION ON MOTION FOR REHEARING
In response to the motion for rehearing filed by Texas Farmers Insurance Company, we withdraw our opinion of January 27, 2000, and substitute the following in its place.
This case raises questions related to personal injury protection coverage (PIP) provided in an automobile liability insurance policy as required by Tex. Ins. Code. Ann. art. 5.06-3 (Vernon 1981). The underlying issue in this case is whether or not an insurance company breached its contract by placing the names of medical providers and Medicare as co-payees on checks paying PIP benefits to Carabell Fruge. We hold that the company did breach its contract but that it was entitled to name Medicare as a co-payee to part of the PIP benefits.
Jackie Ryan had purchased an automobile liability insurance policy from Texas Farmers Insurance Company that provided her with $2,500 in PIP coverage. Fruge was a passenger in Ryan's vehicle and was injured in a car wreck. After her injury , Fruge's attorney filed on her behalf a PIP claim with Farmers supported by documents reflecting medical expenses of $3,490. Some of the supporting documents contained some reference to Medicare. At least one document was stamped "Benefits Assigned." Farmers responded to Fruge's claim by mailing her six checks totaling $2,500.30. Four of the checks, totaling $1,854.30, named medical providers, Medicare, or both as co-payees with Fruge. All six checks named the law firm representing Fruge as a co-payee. Fruge's attorney returned all six checks with a letter advising Farmers that "some or all" of the medical bills related to the checks naming co-payees had been paid, complaining that it would take six months to get all of the necessary endorsements, and demanding payment naming Fruge as the sole payee.
Fruge brought an action in contract under art. 5.06-3 against Farmers to recover $2,500.00 in benefits, as well as penalty and attorneys fees. The trial court found that Farmers had wrongfully put the names of health care providers on the checks and granted an instructed verdict submitting only the question of attorneys fees to the jury. Farmers complains of the instructed verdict, asserting that it was obligated to honor assignments to providers and that Medicare had a primary subrogation interest.
We reject Farmers' assertion that it was obligated to honor assignments to Fruge's medical providers because we conclude that according to the terms of the policy the stamped notations "Benefits Assigned" was not an assignment. According to the terms of its policy, Farmers would honor assignments for medical expenses if it received a written assignment signed by the covered person to whom such benefits were payable. And Farmers offers no authority to support any obligation on its part to go beyond the terms of its policy. Absent a valid assignment conforming to the language of Farmers' policy, Fruge was right to expect that PIP benefits would be made payable to her alone.
Naming Medicare as a co-payee is another matter. Federal law provides that any payment of medical costs by Medicare for which private insurance is the primary payer is conditioned upon reimbursement from the insurer. 42 U.S.C. § 1395y(2)(B)(i). Medicare is a secondary payer for services covered under no-fault insurance. 42 U.S.C. § 1395y(2)(A)(B)(ii); 42 C.F.R. § 411.50(c). And "no-fault insurance" includes "personal injury protection" coverage. 42 C.F.R. § 411.50(b). This is an instance where federal law preempts state law. See U.S. v. Geier, 816 F.Supp. 1332, 1337 (W.D.Wis. 1993). State law can be preempted by federal rules as well as federal statutes. See Hillsborough County v. Automated Med. Lab, Inc., 471 U.S.
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