AUTO OWNERS INS CO V AMOCO PRODUCTION CO
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Michigan Supreme Court
Lansing, Michigan 48909
____________________________________________________________________________________________
Chie f Justice
Justices
Maura D. Corrigan
Michael F. Cavanagh
Elizabeth A. Weaver
Marilyn Kelly
Clifford W. Taylor
Robert P. Young, Jr.
Stephen J. Markman
Opinion
____________________________________________________________________________________________________________________________
FILED APRIL 1, 2003
AUTO-OWNERS INSURANCE COMPANY,
Plaintiff-Appellant,
v
No.
119403
No.
119410
AMOCO PRODUCTION COMPANY,
Defendant-Appellee.
AUTO-OWNERS INSURANCE COMPANY,
Plaintiff-Appellee,
v
AMOCO PRODUCTION COMPANY,
Defendant-Appellant.
BEFORE THE ENTIRE BENCH
MARKMAN, J.
We granted leave to appeal to consider whether plaintiff,
a no-fault insurer, is entitled to invoke the doctrine of
equitable subrogation in order to receive full reimbursement
from defendant, an employer that is self-insured for worker’s
compensation, for medical expenses that plaintiff paid on
behalf of its insured, an employee of defendant who was
injured during the course of his employment.
The Court of
Appeals affirmed the finding of the Worker’s Compensation
Appellate Commission (WCAC ) that plaintiff’s reimbursement was
limited
by
the
cost
containment
Disability Compensation Act (WDCA ).
affirmed
the
pursuant
to
magistrate’s
MCL
award
418.801(6).
rules
in
the
Worker’s
The Court of Appeals also
of
ten
Because
percent
we
interest
conclude
that
plaintiff is entitled to full reimbursement from defendant on
the basis of the doctrine of equitable subrogation, we reverse
the judgment of the Court of Appeals on this issue.
Because
the interest issue was not properly preserved, we decline to
rule on this issue.
We remand to the
WCAC
for a finding
regarding the amount of medical expenses paid and the amount
of reimbursement owed to plaintiff.
I.
FACTS
AND
PROCEDURAL HISTORY
After he arrived at work on January 30, 1994, Leroy
Smithingell, an employee of defendant, was injured in an
accident involving his motor vehicle.
Defendant denied his
application for worker’s compensation insurance benefits on
2
the basis that the injury was not work related.
Smithingell
filed a claim with plaintiff, his no-fault automobile insurer,
which paid no-fault benefits, including wage-loss and medical
expenses.
Plaintiff filed a petition to determine reimbursement and
future rights, arguing that Smithingell was injured during the
course of his employment and therefore defendant was liable
for all past and future benefits.
The worker’s compensation
magistrate ruled that the accident was, in fact, work related
and
that
plaintiff
was
entitled
to
reimbursement
from
defendant for medical expenses paid.1 However, the magistrate
determined that the amount of reimbursement was subject to the
worker’s compensation administrative cost containment rules,
promulgated pursuant to MCL 418.315(2), which cap the fees
that health care providers may charge employers or worker’s
compensation carriers for treatment of work-related injuries.
The
WCAC
affirmed the magistrate’s decision.
After two remands to the
WCAC ,2
the Court of Appeals
1
The magistrate also ruled that plaintiff was not
entitled to recover from defendant for the wage-loss benefits
it paid. Plaintiff has not appealed this ruling, and thus, it
is not before this Court at this time.
2
On November 6, 1998, the Court of Appeals remanded the
case to the WCAC for reconsideration in light of Perez v State
Farm Mut Automobile Ins Co, 418 Mich 634, 650; 344 NW2d 773
(1984), Luth v Detroit Automobile Inter-Ins Exchange, 113 Mich
App 289, 294; 317 NW2d 867 (1982), and MCL 418.852(1). On
remand, the WCAC again affirmed the magistrate’s decision.
(continued...)
3
granted
plaintiff’s
application
affirmed the decision of the
51
(2001).
The
418.315(1),
which
Court
for
WCAC .
of
requires
to
appeal
and
245 Mich App 171; 628 NW2d
Appeals
an
leave
concluded
employer
to
that
MCL
reimburse
an
employee for reasonable medical expenses paid by the employee
for
a
work-related
injury,
does
not
authorize
full
reimbursement to the no-fault insurer because the payments
being reimbursed were not made by the employee.
The Court
also found that the magistrate correctly awarded plaintiff ten
percent interest under MCL 418.801(6) and remanded the case to
the
WCAC
for a finding regarding the amount of medical expenses
paid by plaintiff and the amount of reimbursement owed by
defendant.
We granted plaintiff’s application for leave to appeal
(Docket No. 119403) and defendant’s application for leave to
appeal (Docket No. 119410).
466 Mich 859; 643 NW2d 578
(2002).
II.
STANDARD
OF
REVIEW
This case requires us to construe certain provisions of
Michigan’s Worker’s Disability Compensation Act. Questions of
2
(...continued)
On May 25, 1999, the Court of Appeals remanded the case
to the WCAC a second time for a determination whether the
WDCA ’s
cost containment rules apply and the amount of
reimbursement. On remand, the WCAC concluded that the cost
containment rules applied to limit the reimbursement and
affirmed the magistrate’s ruling again.
4
statutory construction are reviewed de novo as questions of
law.
Cruz v State Farm Mut Automobile Ins Co, 466 Mich 588,
594;
648
NW2d
591
(2002).
We
must
also
consider
the
application of the doctrine of equitable subrogation.
An
inquiry into the nature, scope, and elements of a remedy is a
question of law that is reviewed de novo.
Hartford Accident
& Indemnity Co v Used Car Factory, Inc, 461 Mich 210, 215, n
5; 600 NW2d 630 (1999).
III.
A.
The
WDCA
REIMBURSEMENT
ANALYSIS
AND
EQUITABLE SUBROGATION
provides that if an employer fails to furnish an
employee with reasonable medical services for the treatment of
a
work-related
employee
for
injury,
the
the
employer
employee’s
arising out of the injury.
shall
reasonable
reimburse
medical
the
expenses
The relevant statutory provision,
MCL 418.315(1), provides:
The employer shall furnish, or cause to be
furnished, to an employee who receives a personal
injury arising out of and in the course of
employment, reasonable medical, surgical, and
hospital
services
and
medicines,
or
other
attendance or treatment recognized by the laws of
this state as legal, when they are needed. . . . If
the employer fails, neglects, or refuses so to do,
the employee shall be reimbursed for the reasonable
expense paid by the employee, or payment may be
made in behalf of the employee to persons to whom
the unpaid expenses may be owing, by order of the
worker's compensation magistrate. . . .
Under this provision, if Smithingell, the insured, had
5
paid the medical expenses arising out of his work-related
injury, he would be entitled to reimbursement from defendant
for the reasonable amount of such expenses.3
The question
presented in this case is whether plaintiff may stand in the
place of its insured, Smithingell, and be reimbursed fully by
defendant for the reasonable amounts that it paid on behalf of
Smithingell.4
The resolution of this question involves the
doctrine of equitable subrogation.
This Court has explained that
3
Plaintiff argued alternatively that it was entitled to
reimbursement on the basis of the clause providing that
“payment may be made in behalf of the employee to persons to
whom the unpaid expenses may be owing . . . .”
MCL
418.315(1).
At oral argument and in its brief, plaintiff
suggested that this language was broad enough to provide for
payment to a third party, such as plaintiff here, who paid the
employee’s medical expenses for which the employer was
responsible, and that it did not just apply to “unpaid
expenses” owed directly to the medical provider.
Although
this clause may conceivably be read to allow for such payment
to a third party, the clause does not specify what the rate of
reimbursement is to be, i.e., is it the “reasonable expenses”
to be paid to the employee unlimited by the cost containment
rules, or is it the expenses limited by the cost containment
rules? Because this clause does not provide any answer to the
question immediately before us—whether plaintiff is entitled
to full reimbursement of the expenses—we do not rely on it as
the basis for our decision.
4
The Court of Appeals, although allowing defendant to be
reimbursed, limited the amount of reimbursement to the fees
contained in the cost containment rules promulgated pursuant
to MCL 418.315(2). These rules limit the amount that health
care providers may charge employers or worker’s compensation
carriers for medical treatment of work-related injuries.
Applying the cost containment rules to a reimbursement amount
due a no-fault insurer, such as plaintiff, can result in the
no-fault insurer being reimbursed for less than what it
actually paid.
6
[e]quitable subrogation is a legal fiction through
which a person who pays a debt for which another is
primarily responsible is substituted or subrogated
to all the rights and remedies of the other. It is
well-established that the subrogee acquires no
greater rights than those possessed by the
subrogor, and that the subrogee may not be a "mere
volunteer." [Commercial Union Ins Co v Medical
Protective Co, 426 Mich 109, 117; 393 NW2d 479
(1986) (opinion by WILLIAMS , C.J.) (citations
omitted).]
When an insurance provider pays expenses on behalf of its
insured, it is not doing so as a volunteer.
Auto Club Ins
Ass’n v New York Life Ins Co, 440 Mich 126, 132; 485 NW2d 695
(1992).
The nature of the claim asserted by the subrogee is
determined by the nature of the claim that the subrogor would
have had.
Id. at 135.
Turning to the case before us, it is noteworthy that the
facts of New York Life are similar to those presented here.
In New York Life, the plaintiff no-fault insurance carrier
paid most of the medical expenses of its insured and then sued
the defendant health insurance carrier, whose coverage of the
insured was primary, for reimbursement.
The Court recognized
that when an insurance carrier pays the expenses of its own
insured pursuant to an insurance contract, it is not acting as
a volunteer.
Id. at 132, citing Detroit Automobile Inter-Ins
Exchange v Detroit Mut Auto Ins Co, 337 Mich 50; 59 NW2d 80
(1953).
Because the no-fault insurer was protecting its own
interests and not acting as a volunteer when it paid the
7
insured’s medical expenses, it was entitled to invoke the
doctrine of equitable subrogation.
The Court explained that
the no-fault insurer
as subrogee, is asserting the insured's right to
"maintain a cause of action against a primary
insurer for the latter's bad-faith failure to
[satisfy its policy obligations]." Commercial
Union, 426 Mich 119. It "is equitably subrogated to
the position of the insured and acquires no lesser
or greater rights than those held by the insured."
Id. [New York Life, supra at 136.]
The nature of a lawsuit by a no-fault insurer as subrogee
is to be determined by looking at the nature of the claim that
the insured would have had against the primary insurer.
In
New York Life, the Court found that the no-fault insurer, as
subrogee, was asserting the insured’s right to maintain a
cause of action against the primary insurer on the basis of
the primary insurer’s bad-faith failure to satisfy its policy
obligations.
The
Court
relied
on
precedent
that
had
explained:
“Since the insured would have been able to
recover from the primary carrier for a judgment in
excess of policy limits caused by the carrier's
wrongful refusal to settle, the excess carrier, who
discharged the insured's liability as a result of
this tort, stands in the shoes of the insured and
should be permitted to assert all claims against
the primary carrier which the insured himself could
have asserted.” [Id. quoting Commercial Union,
supra at 118 (citations omitted).]
In this case, the Court of Appeals agreed with the
WCAC
that MCL 418.315(1) was designed to protect only employees,
8
and not an insurer such as plaintiff. Additionally, the Court
rejected
plaintiff’s
argument
that
it
was
entitled
to
equitable subrogation, finding that because Smithingell had
not paid his medical expenses himself, Smithingell had no
right to reimbursement from defendant and therefore plaintiff
did not have a right to full reimbursement for the amounts it
paid on behalf of Smithingell.
Instead, the Court concluded
that plaintiff’s reimbursement was limited by the
WDCA ’s
cost
containment rules.
In light of the decision in New York Life, however, we
disagree with the Court of Appeals conclusion that plaintiff’s
reimbursement is capped by the cost containment rules of the
WDCA .
In New York Life, the no-fault insurer paid most of the
insured’s medical expenses and was permitted to recover from
the primary insurer by maintaining the cause of action that
would have accrued to the insured, had the insured paid his
own medical bills.
The fact that the insured did not pay his
bills was precisely the reason the no-fault insurer, which did
pay the bills, was permitted to recover the same reimbursement
as that to which the insured would have been entitled had he
paid his bills.
We believe that the decision in New York Life
properly explained and applied the doctrine of equitable
subrogation to the facts of that case.
In particular, the
Court in New York Life explained that “the nature of the
9
present suit by [the subrogee] is determined by the nature of
the claim that [the insured] would have had against [the
primary insurer].”
New York Life, supra at 135.
We believe
this reasoning applies with equal force to this case.
Applying the reasoning of New York Life regarding the
subrogation issue to the facts of this case, we conclude that
plaintiff is entitled to full reimbursement from defendant on
the basis of the doctrine of equitable subrogation.
plaintiff,
the
no-fault
insurer,
paid
for
Here,
Smithingell’s
medical expenses. In doing so, plaintiff, because it is a no
fault insurer, was not entitled to limit its payment pursuant
to the cost containment provisions of the
WDCA .
Munson Medical
Center v Auto Club Ins Ass’n, 218 Mich App 375, 390; 554 NW2d
49 (1996).
However, defendant, which was liable for the
medical expenses, would have been able to limit its payment to
the
WDCA
cost containment provisions because of its status as
self-insured for worker’s compensation,
Smithingell’s medical expenses.
had it actually paid
The worker’s compensation
magistrate found that defendant was liable for Smithingell’s
medical expenses as the worker’s compensation insurer because
the injury was work related.
If Smithingell had paid his
expenses, he would, under the statute, be entitled to full
reimbursement
from
defendant
for
his
reasonable
expenses because the injury was work related.
10
medical
The principle
of equitable subrogation allows plaintiff to assert the right
of Smithingell, its insured, to receive full reimbursement
from defendant.5
own
expenses,
The fact that Smithingell did not pay his
and
plaintiff
did,
is
exactly
the
reason
plaintiff is entitled to assert this right.6
Defendant argues that MCL 418.315(1), which sets forth
when an employer will reimburse an employee for reasonable
5
We note that the application of the doctrine of
equitable subrogation under these circumstances is consistent
with, and indeed, is supportive of, the general purpose of
subsection 315(1) to provide employees with full reimbursement
for their reasonable medical expenses. When, as here, the
worker’s compensation insurer is found to be responsible for
the employee’s medical expenses, which it previously refused
to pay, and the no-fault insurer honors its contract by making
payment on behalf of the insured at rates that are not capped
by the reduced worker’s compensation cost containment rules,
we see no reason to deny the no-fault insurer full
reimbursement for the reasonable expenses that it paid when
the employee would be entitled to such reimbursement.
Obviously, to deny the no-fault insurer full reimbursement
would provide disincentive to prompt payments on behalf of the
employee.
Further,
to
cap
the
no-fault
insurer’s
reimbursement at the cost containment levels, which benefit
only worker’s compensation insurers, would afford no incentive
for the worker’s compensation insurer to pay the medical
expenses in the first place because it would never have to pay
more than the reduced amounts of the cost containment
schedule, even when later ordered to reimburse the no-fault
insurer.
Thus, a limitation on reimbursement effectively
penalizes the no-fault insurer for abiding by its contract
with the insured and paying promptly the greater rates to
which it is subject, while providing no incentive to the
worker’s compensation insurer to pay promptly the medical
bills for which it is responsible.
6
Because we conclude that plaintiff is entitled to
recover pursuant to the doctrine of equitable subrogation, we
need not address plaintiff’s alternative arguments for full
reimbursement.
11
expenses, applies only to the employee and not to a no-fault
insurer like plaintiff.
Further, defendant argues that this
is the employee’s exclusive remedy, citing MCL 418.131(1),
which provides that “[t]he right to the recovery of benefits
as provided in this act shall be the employee's exclusive
remedy
against
the
employer
occupational disease.”
for
a
personal
injury
or
While we recognize that the WDCA
contains an “exclusive remedy” provision applicable to the
employee,
we
note
that
its
existence
does
not
prevent
plaintiff from seeking to recover under a theory of equitable
subrogation, which is separate and independent of the remedies
contained in the
WDCA .
The Court in New York Life addressed
the interplay between the no-fault act and the doctrine of
equitable
subrogation
and
concluded
that
the
statute
of
limitations contained in the no-fault act, which by its terms
applied to an action to recover personal protection insurance
benefits, did not apply to bar a no-fault carrier’s equitable
subrogation claim, which was based on the claim that the
insured would have had against the primary insurer.
In light
of this, the common-law equitable subrogation claim fell
outside the scope of the no-fault act.
at 135-138.
New York Life, supra
Similarly, plaintiff’s recovery here, which is
predicated on the doctrine of equitable subrogation, is not
limited by the
WDCA .
12
For these reasons, we reverse the judgment of the Court
of Appeals limiting the amount of reimbursement to the
WDCA ’s
cost containment provisions.
We affirm the judgment of the
Court
the
of
Appeals
remanding
case
to
the
WCAC
for
a
determination of the amount of medical expenses paid and the
amount of reimbursement due.
B.
INTEREST
The magistrate awarded plaintiff ten percent interest
pursuant to MCL 418.801(6), which provides:
When weekly compensation is paid pursuant to
an award of a worker's compensation magistrate, an
arbitrator, the board, the appellate commission, or
a court, interest on the compensation shall be paid
at the rate of 10% per annum from the date each
payment was due, until paid.
The Court of Appeals found no error in the magistrate’s award
and noted that plaintiff was not entitled to twelve percent
interest pursuant to MCL 418.852.
The Court found § 852,
which provides as follows, to be inapplicable because it does
not, by its own terms, apply under these circumstances:
(1) The liability of a carrier or fund
regarding a claim under this act shall be
determined by the hearing referee or worker's
compensation magistrate, as applicable, at the time
of the award of benefits.
(2) If a carrier or fund originally determined
to be liable pursuant to subsection (1) is
subsequently determined to not be liable or not to
the same extent as originally determined, that
carrier or fund shall be reimbursed by the liable
party or parties with interest at 12% per annum.
Defendant argues that the judgment
13
of the Court of
Appeals affirming the ten percent interest award should be
reversed.
However, neither party requested that the
WCAC
review the interest award, as required by MCL 418.861a(11),
which
states
that,
“The
commission
or
a
panel
of
the
commission shall review only those specific findings of fact
or conclusions of law that the parties have requested be
reviewed.”
In its appeal to the
WCAC ,
plaintiff asserted error
related to two issues: (1) the magistrate’s finding that it
was
not
entitled
to
wage-loss
benefits
and
(2)
the
magistrate’s ruling that the reimbursement was subject to the
cost containment rules.
In its cross-appeal to the
WCAC ,
defendant argued that Smithingell’s injuries did not occur in
the course of his employment.
not
presented
to
the
Because the interest issue was
WCAC ,
the
WCAC
never
specifically
addressed the question whether the magistrate properly awarded
interest.
Rather, the
WCAC ’s
opinions merely affirmed the
magistrate’s decision in its entirety.
In light of the fact that neither party presented the
interest issue to the
WCAC ,
it appears that this issue was not
properly preserved pursuant to MCL 418.861a(11). The question
whether the interest award was appropriate was first raised by
defendant in its brief in response to plaintiff’s brief in the
Court of Appeals. The Court of Appeals briefly addressed this
question and found no error in the magistrate’s award of ten
14
percent interest.7
Defendant then filed its application for
leave to appeal with this Court, asserting that the award of
interest should be reversed.
Accordingly, even though we have concerns about and
question the Court of Appeals’ analysis, because the interest
issue was not properly preserved,
we
decline to address
defendant’s request for relief on this issue.
IV.
CONCLUSION
We conclude that plaintiff, the no-fault insurer, is
entitled to invoke the doctrine of equitable subrogation and
to
stand
in
reimbursement
the
from
place
of
its
defendant
for
insured
the
the
judgment
of
the
Court
recover
reasonable
expenses it paid on behalf of the insured.
reverse
to
of
full
medical
Accordingly, we
Appeals
limiting
plaintiff’s reimbursement to the amounts set forth in the
WDCA ’s
cost containment rules.
Because we conclude that the
interest issue was not properly preserved, we decline to
address it.
We affirm the judgment of the Court of Appeals
remanding the case to the
WCAC
for a finding regarding the
7
The Court of Appeals indicated that plaintiff had made
a “cursory request for twelve percent interest . . . .” 245
Mich App 178. However, a review of plaintiff’s brief in the
Court of Appeals does not indicate that this argument was
raised. Although the brief quotes MCL 418.852(2), including
the language regarding twelve percent interest, it is not
clear that plaintiff actually asserts that it was entitled to
such a rate of interest. In this section, plaintiff merely
sets forth its general equitable subrogation argument.
15
amount
of
medical
expenses
paid
and
the
amount
reimbursement owed to plaintiff.
Stephen J. Markman
Maura D. Corrigan
Michael F. Cavanagh
Elizabeth A. Weaver
Marilyn Kelly
Clifford W. Taylor
Robert P. Young, Jr.
16
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