Kelly Health Care v. The Prudential Insurance Co. of America
309 S.E.2d 305 (1983)
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Rule of Law:
For a valid assignment of a contractual right to exist, the assignor must intend to divest themself of all control over the right and vest indefeasible title in the assignee. A mere authorization for an obligor to make payments to a third party is not an assignment because it is revocable and does not transfer ownership.
Facts:
- William Green was insured under a group health insurance policy issued by Prudential Insurance Company of America.
- Green's wife, a covered dependent, received nursing services from Kelly Health Care, Inc.
- Green signed a 'PAYMENT AGREEMENT' drafted by Kelly, stating that nursing services 'may be paid directly' to Kelly by Prudential, and that Green accepted 'full responsibility' for any unpaid balance.
- Green also signed an 'AUTHORIZATION OF BENEFITS' form, also drafted by Kelly, which stated, 'I hereby authorize payment directly to Kelly Health Care... of the nursing service benefits, if any, otherwise payable to me.'
- Kelly submitted bills for its services to Prudential.
- Prudential refused to pay the bills submitted by Kelly.
Procedural Posture:
- Kelly Health Care, Inc. sued both Prudential Insurance Company of America and William Green in a Virginia trial court.
- The trial court entered a default judgment against Green in favor of Kelly.
- In the action against Prudential, the parties proceeded on stipulated facts, and Prudential moved for summary judgment.
- The trial court granted Prudential's motion for summary judgment, ruling that the documents constituted an authorization rather than an assignment, and dismissed Kelly's action against Prudential.
- Kelly, as appellant, appealed the trial court's judgment to the Supreme Court of Virginia.
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Issue:
Do documents that authorize an insurer to make direct payments to a healthcare provider, without manifesting an intent by the insured to relinquish all control and ownership of the benefits, constitute a valid legal assignment entitling the provider to sue the insurer for non-payment?
Opinions:
Majority - Poff, J.
No. Documents that merely authorize direct payment to a third party do not constitute a valid assignment because they do not demonstrate the necessary intent by the assignor to divest himself of all control over the benefit and transfer indefeasible title. An assignment must be an absolute transfer, not a revocable authorization. The court reasoned that the controlling consideration is the assignor's intent. A valid assignment requires the assignor to dispossess himself of the interest and retain no control over the fund, no authority to collect, and no power of revocation. The documents signed by Green only appointed Kelly as a special agent to collect payments and granted Prudential a power of attorney to make such payments; these actions are revocable and do not transfer ownership. The court also rejected Kelly's claim as a third-party beneficiary, finding no evidence that Prudential and Green clearly and definitely intended to confer a direct benefit upon Kelly, making Kelly, at best, an incidental beneficiary with no standing to sue.
Dissenting - Gordon, R.J.
Yes. The court should have found the documents constituted an assignment by focusing on the parties' intent rather than legal formalities. Green admitted in a pleading that he signed an 'assignment,' and a letter from Prudential also referred to the instrument as an 'assignment of benefits.' The dissent argued that the court should carry out this clear intent rather than sticking to a 'legal nicety.' Furthermore, under Virginia Code § 8.01-13, a 'beneficial owner' can maintain an action. Because Kelly had the sole and undisputed right to receive the payment Prudential owed, Kelly should be considered the beneficial owner and therefore entitled to maintain the suit.
Analysis:
This decision reinforces the strict requirements for a valid assignment of benefits in Virginia, drawing a clear line between a mere authorization to pay and a true assignment. It establishes that for a healthcare provider to have standing to sue an insurer directly, the patient must execute a document that unequivocally transfers ownership and relinquishes all control over the benefits. The ruling protects insurers from direct liability to a multitude of providers and places the burden on providers to draft legally sufficient assignment documents. This precedent clarifies that intent to transfer must be absolute and irrevocable, making it harder for parties to claim assignment status based on ambiguous 'authorization' forms.
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