Sisters of St. Joseph of Peace, Health, and Hospital Services v. Russell
867 P.2d 1377 (1994)
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Rule of Law:
A creditor is an intended third-party beneficiary of a contract if the parties to the contract intended their agreement to satisfy an actual or asserted duty of the promisee to the creditor. When a contract is ambiguous regarding this intent, the issue becomes a question for the trier of fact, who may consider the contract's language and the circumstances surrounding its formation.
Facts:
- On September 13, 1984, Russell was injured in a logging accident.
- Sacred Heart General Hospital provided extensive medical treatment to Russell for his injuries from September 1984 through August 1985.
- Uncertain about his employer's identity, Russell filed workers' compensation claims against four potential employers, one of which was insured by The Aetna Casualty & Surety Company (Aetna).
- While a dispute over which employer was liable was pending on appeal, Russell and Aetna (along with the other purported employers) entered into a Disputed Claim Settlement (DCS) agreement.
- The DCS agreement explicitly listed medical expenses Russell had incurred, including '$98,872.50' owed to 'Sacred Heart Hospital.'
- The agreement stated that Aetna would hold Russell harmless for these medical expenses and would be 'solely responsible for resolving the claims of said creditors.'
Procedural Posture:
- Sacred Heart General Hospital sued Russell and Aetna in an Oregon circuit court (trial court).
- At the conclusion of the jury trial, Aetna moved for a directed verdict on the hospital's claim, arguing the hospital was not a third-party beneficiary and had not proven its services were necessary.
- The trial court denied Aetna's motion for a directed verdict.
- The jury returned a verdict in favor of the hospital against Aetna, and the court entered judgment on that verdict.
- Aetna, as appellant, appealed the judgment to the Court of Appeals of Oregon, the state's intermediate appellate court.
- The Court of Appeals reversed the trial court's judgment, finding in favor of Aetna.
- The hospital, as petitioner, sought review by the Supreme Court of Oregon, the state's highest court, which granted the petition.
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Issue:
Is a medical provider an intended third-party beneficiary of a settlement agreement that lists the provider's specific bill and makes an insurer solely responsible for resolving it, and if so, must the provider still prove the necessity of its services to enforce the agreement?
Opinions:
Majority - Graber, J.
Yes. A medical provider is an intended third-party beneficiary entitled to enforce a settlement agreement under these circumstances without separately proving the necessity of the services. The court held that the contract was ambiguous as to whether the parties intended to benefit the hospital, making it a proper question for the jury. The jury had sufficient evidence to find the hospital was an intended creditor beneficiary based on the contract's language and the surrounding circumstances. The contract specifically listed the hospital's bill as a sum to be paid and made Aetna 'solely responsible' for it, which could be interpreted as a direct promise to pay the debt Russell owed to the hospital. Furthermore, the contract's specific reference to the bill's exact dollar amount could be read as a waiver of any defense Aetna might have had regarding the necessity of the services, obligating Aetna to pay the listed sum.
Analysis:
This decision solidifies the legal status of creditor beneficiaries in Oregon, emphasizing that the contracting parties' intent is the paramount consideration. It affirms that when a contract's terms are ambiguous, extrinsic evidence, including the context and circumstances of the agreement's formation, can be used by a jury to determine intent. The ruling demonstrates that a promisor's obligation to a third-party beneficiary can be absolute if the contract's language is interpreted as assuming a specific debt, thereby precluding defenses the promisor might otherwise assert against the beneficiary's underlying claim.
