Hershey v. Physicians Health Plan of Minnesota, Inc.
498 N.W.2d 519, 1993 WL 118563, 1993 Minn. App. LEXIS 399 (1993)
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Rule of Law:
The common law 'full recovery rule,' which normally prevents an insurer from exercising subrogation rights until its insured has been fully compensated for their losses, can be overridden by an express and unambiguous provision in the insurance contract to the contrary.
Facts:
- In 1990, Danny Darrell Hershey was injured in a motorcycle accident caused by another driver.
- Hershey's health insurer, Physicians Health Plan of Minnesota, Inc. (PHP), paid $22,250.13 for his medical expenses.
- Hershey later settled his claim against the at-fault driver for $104,000.
- Both PHP and Hershey agree that the $104,000 settlement did not fully compensate Hershey for all of his injuries.
- PHP's representative agreed to accept $18,000 from the settlement to satisfy its claim for medical expenses paid.
- A settlement check was made jointly payable to Hershey and PHP's representative, but Hershey refused to tender the check to PHP.
- The health insurance contract between PHP and Hershey stated that PHP could be reimbursed from any recovery 'regardless of whether you have been fully compensated.'
Procedural Posture:
- Physicians Health Plan of Minnesota, Inc. (PHP) initiated a declaratory judgment action against Danny Darrell Hershey in a state trial court to enforce the subrogation provisions of its health contract.
- The parties filed cross-motions for summary judgment on the subrogation issue.
- The trial court granted Hershey's motion for summary judgment.
- The trial court held that the contract's subrogation provision could not be enforced because Hershey had not been fully compensated for his injuries.
- PHP, as the appellant, appealed the trial court's grant of summary judgment to the Minnesota Court of Appeals, with Hershey as the respondent.
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Issue:
Does a health insurance contract's explicit subrogation clause, which allows for reimbursement 'regardless of whether [the insured has] been fully compensated,' override the common law 'full recovery' rule?
Opinions:
Majority - Harten, J.
No. A health insurance contract's explicit subrogation clause allowing reimbursement regardless of full compensation for the insured is enforceable and overrides the common law 'full recovery' rule. The general rule in Minnesota, established in Westendorf v. Stasson, is that an insurer's subrogation rights do not arise until the insured is fully recovered. However, the Westendorf court explicitly qualified this rule, stating it applies 'absent express contract terms to the contrary.' The language in the contract between PHP and Hershey is plain and unambiguous, providing that PHP may collect from a settlement 'regardless of whether you have been fully compensated.' Because the Minnesota Supreme Court in Westendorf explicitly stated that the full recovery rule can be modified by contract, this court is obliged to enforce the clear and express terms of the agreement as written.
Analysis:
This decision solidifies the principle of freedom of contract in the insurance subrogation context, clarifying that the 'full recovery' rule is a default, equitable principle rather than an absolute public policy mandate. It establishes that insurers can draft specific, unambiguous language to secure their reimbursement rights even when an insured is not made whole by a third-party recovery. This shifts the risk of under-compensation from the insurer to the insured and incentivizes insurers to write highly specific subrogation clauses, while placing a greater burden on insureds to understand the precise terms of their policies.
