Michigan Supreme Court; Docket No. 112891; Published
Opinion by Justice Cavanagh; 4-1 (with Justice Kelly dissenting)
Official Michigan Reporter Citation: 461 Mich 732; Link to Opinion
In this 4-1 Opinion (Justices Markman and Young not participating), the Supreme Court reversed the Court of Appeals and held that an ERISA self-funded health plan was not entitled to be reimbursed out of plaintiffs noneconomic loss tort recovery for medical expenses the plan paid to plaintiff.
In reaching this conclusion, the court made two (2) significant holdings. First, the court held that the language contained in the plan document did not confer upon the plan the right to be reimbursed out of a noneconomic loss tort recovery because the specific plan language allegedly conferring such a right, was actually subrogation language. Thus, the plan acquired no rights greater than the plaintiff, vis-a-vis, a noneconomic tort recovery. Where the plaintiffs tort recovery does not include medical expenses, but is rather limited only to noneconomic loss, the plan "steps in the shoes" of the plaintiff and acquires rights no greater than those of the plaintiff. With regard to this ruling, the court stated:
"The fund provided plaintiff with a plan booklet that laid out the rights, benefits and duties of the parties. Under the 'general provisions' section, the plan provided a subsection entitled 'Third Party Subrogation."... Traditional subrogation is defined by Black's Law Dictionary (4,h Ed); p. 1595, as 'the substitution of one person in the place of another with reference to a lawful claim, demand or right, so that he who is substituted succeeds to the rights of the other in relation to the debt or claim, and its rights, remedies, or securities.' As a subrogee, one stands in the shoes of the subrogor and acquires no greater rights than those possessed by the subrogor....
Plaintiff did not sue the tortfeasor for medical expenses or any economic damages. Instead, plaintiff recovered from the tortfeasor purely noneconomic damages for pain and suffering. The fund does not claim that it has paid noneconomic damages. It does not claim that it had a right of subrogation for noneconomic damages, only for benefits it paid. It paid only medical expenses. Nor does the plan agreement provide that it may seek reimbursement from plaintiff for medical expenses from plaintiff's noneconomic damage recovery. Under the language of the plan agreement, the fund's right of reimbursement is triggered only if the plaintiff impairs or negates the fund's right of subrogation. This was not triggered....
Moreover, the fund might have, but did not, place language in the plan agreement requiring reimbursement of medical expenses from plaintiff. Instead, it sought only subrogation as defined in the second paragraph. Therefore, it has no right to reimbursement from plaintiff for medical expenses.... The fund had the opportunity to write into its agreement repayment or reimbursement rights. It did not."
In the second part of the court's holding, the court rejected the plan's argument that it was entitled to reimbursement out of plaintiff s tort recovery because the plaintiff had executed a separate document entitled "Subrogation Agreement and Assignment" which allegedly conferred upon the plan, the right to be reimbursed out of plaintiff s tort recovery. The plaintiff signed this agreement because the plan refused to pay medical expenses unless plaintiff signed the document. The court refused to enforce the written subrogation agreement signed by plaintiff because the court found it to be void for lack of consideration.
In this regard, the court held that the fund was under a "preexisting duty" to pay plaintiffs medical expenses and could not require plaintiff to take on additional duties absent additional consideration. The court stated:
"An essential element of a contract is legal consideration.... Under the preexisting duty rule, it is well settled that doing what one is legally bound to do is not consideration for a new promise. This rule bars the modification of an existing contractual relationship when the purported consideration for the modification consists of the performance or promise to perform that which one party was already required to do under the terms of the existing agreement.... In this case, the plan agreement provided that the fund had a preexisting duty to pay plaintiff's medical expenses. This promise was conditioned upon the fund's right of subrogation being protected. As stated, these rights were protected. Although the parties focus on the second agreement, we find it is void/or lack of consideration.... The result is that plaintiff took on additional obligations, without consideration, in order to be paid that which she was already owed. All such additional obligations are unenforceable.... We hold that the preexisting duty rule barred the fund from requiring plaintiff to take on additional burdens, without consideration, in order to get paid that which she was owed. Because the second contract was invalid for lack of consideration, we hold that the fund was not entitled to a reimbursement for plaintiff."
Justice Kelly dissented and would have affirmed the Court of Appeals decision which required AAA to reimburse the plaintiff for medical expenses that plaintiff was obligated to repay to the ERISA plan. Justice Kelly would defer to the fund's interpretation of its own agreement, which required that plaintiff sign any documents needed to protect the fund's subrogation rights. In such a case where an ERISA plan requires reimbursement of medical expenses it has paid, Justice Kelly would hold that the no-fault insurer, even under a coordinated policy, must reimburse the plaintiff for those expenses.