Filed Washington State Court of Appeals Division Two
August 30, 2022
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION II KAISER FOUNDATION HEALTH PLAN, No. 55585-9-II INC., d/b/a KAISER FOUNDATION HEALTH PLAN, f/n/a GROUP HEALTH COOPERATIVE,
Respondent,
v. UNPUBLISHED OPINION
KENNETH MAYLONE and JANE DOE MAYLONE, and the marital community comprised thereof,
Appellants.
PRICE, J. — Kaiser Foundation Health Plan filed a claim for declaratory relief, arguing that
it was entitled under its policy to reimbursement of the proceeds its insured, Kenneth Maylone,
was to receive from his underinsured motorist (UIM) policy carrier, Hartford Casualty Insurance
Company.
Maylone was severely injured in an accident with a hit-and-run driver. Kaiser paid
Maylone’s extensive medical expenses resulting from the accident. When Maylone settled with
the Hartford for his UIM policy limits, Kaiser argued it was entitled to reimbursement from the
settlement. According to Kaiser, this right to reimbursement was provided under its policy
language as required by the Federal Employees’ Health Benefits Act (FEHBA), 5 U.S.C. §§ 8901
to 8917. Because federal law requires the right to reimbursement, Kaiser asserted that Washington No. 55585-9-II
law that would otherwise prevent reimbursement unless and until Maylone was made whole for
his injuries was preempted. Accordingly, Kaiser instructed the Hartford to make the settlement
check jointly payable to Maylone and Kaiser. Maylone objected to Kaiser’s reimbursement and,
thereafter, attempted to return the settlement check to the Hartford and rescind the settlement.
After Kaiser filed its declaratory judgment action seeking the proceeds of the settlement,
Maylone responded by arguing: (1) FEHBA does not preempt Washington law that would operate
to prevent Kaiser from exercising its right to reimbursement, (2) the contract provision giving
Kaiser the right to reimbursement is unconscionable, (3) Kaiser tortuously interfered with his UIM
insurance contract and settlement agreement with the Hartford, and (4) he never effectively
received settlement proceeds from the Hartford, and he rescinded the settlement agreement, which
means Kaiser’s right to reimbursement was never triggered. The superior court granted summary
judgment in favor of Kaiser. Maylone appeals.
We hold that because FEHBA’s right to reimbursement preempts state law, Kaiser has a
right to reimbursement from Maylone for UIM proceeds. We also hold that Kaiser’s policy was
not unconscionable and Kaiser is not liable for tortious interference with a contract. However, we
determine that Maylone never received settlement proceeds from the Hartford and that there is a
genuine issue of material fact as to whether the settlement agreement was effectively rescinded.
Accordingly, we reverse the superior court’s entry of summary judgment for Kaiser and remand
to the superior court for further proceedings consistent with this opinion.
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FACTS
I. BACKGROUND
Maylone sustained severe injuries in a car accident caused by an individual who was never
located. Maylone’s health insurance, provided by Kaiser, paid a total of $157,265.92 in medical
expenses for Maylone related to the car accident.
Kaiser’s health insurance policy provided that it had a right to subrogation and
reimbursement in any proceeds Maylone received:
Our right to pursue and receive subrogation and reimbursement recoveries is a condition of, and a limitation on, the nature of benefits or benefit payments and on the provision of benefits under our coverage.
If you have received benefits or benefit payments as a result of an injury or illness and you or your representatives, heirs, administrators, successors, or assignees receive payment from any party that may be liable, a third party’s insurance policies, your own insurance policies, or a workers’ compensation program or policy, you must reimburse us out of that payment. Our right of reimbursement extends to any payment received by settlement, judgment, or otherwise.
We are entitled to reimbursement to the extent of the benefits we have paid or provided in connection with your injury or illness. However, we will cover the cost of treatment that exceeds the amount of the payment you received.
Reimbursement to us out of the payment shall take first priority (before any of the rights of any other parties are honored) and is not impacted by how the judgment, settlement, or other recovery is characterized, designated, or apportioned. Our right of reimbursement is not subject to reduction based on attorney fees or costs under the “common fund” doctrine and is fully enforceable regardless of whether you are “made whole” or fully compensated for the full amount of damages claimed.
Clerk’s Papers (CP) at 24 (emphasis added).
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Maylone made a claim with Hartford for UIM benefits.1 The policy provided coverage to
Maylone in the event of injury or damage from an uninsured motorist, but it also stated that “[the
Hartford] will not make a duplicate payment under this coverage for any element of loss for which
payment has been made by or on behalf of persons or organizations who may be legally
responsible.” CP at 203. The UIM policy limits were $100,000.
As an employee of the United States Department of Veterans Affairs, the health insurance
Maylone received from Kaiser was subject to FEHBA. FEHBA provides for, and administers,
health insurance for federal employees and is intended to ensure that federal employees enjoy
consistent benefits across the country. Accordingly, FEHBA expressly preempts state laws that
“relate[] to health insurance or plans.” 5 U.S.C. § 8902(m)(1). The purpose of this provision is to
ensure uniformity in the administration of FEHBA benefits regardless of different state provisions
that may otherwise be applicable. See Coventry Health Care of Mo., Inc. v. Nevils, 581 U.S. 87,
137 S. Ct. 1190, 1197, 197 L. Ed. 2d 572 (2017).
Congress has given the Office of Personnel Management (OPM), the governmental agency
responsible for administering FEHBA, broad rulemaking authority, and the agency has adopted
regulations governing reimbursement provisions in FEHBA contracts. Certain regulations require
that specific provisions be included in health insurance plans offered to federal employees.
5 C.F.R. § 890.106. One of these regulations states that health insurance plans must give the
insurers a right to subrogation and reimbursement. 5 C.F.R. § 890.106(a). Reimbursement
1 A UIM policy provides an insured with coverage when an insured is involved in an accident where the liable party has no insurance, is underinsured, or cannot be located.
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requires an insured to make payment of any recovered costs directly to the health insurance
provider. Coventry 137 S. Ct. at 1194.
Given the extent of Maylone’s injuries and medical bills, the Hartford offered to settle with
Maylone for the $100,000 UIM policy limits.
Subsequently, Kaiser sent a letter to Maylone explaining his benefits and Kaiser’s right to
subrogation and reimbursement under the medical coverage agreement. And knowing that
Maylone had also made a UIM claim with the Hartford, Kaiser sent a letter to the Hartford advising
them of Kaiser’s reimbursement rights, asserting a right to reimbursement over the entire proposed
Hartford settlement amount. Kaiser also sent a letter to both the Hartford and Maylone, stating
that any UIM settlement proceeds should be made payable directly to Kaiser.
Maylone, unhappy with Kaiser’s demand for reimbursement, threatened to stop pursuing
his claim with the Hartford if that settlement would leave him with nothing. Maylone also disputed
Kaiser’s right to reimbursement under FEHBA. He maintained that Kaiser’s right to
reimbursement could not be applied unless and until he was “made whole.”2 CP at 66-67.
Maylone warned that there was a “very real possibility . . . that Kaiser [would] collect nothing as
[he had] no incentive to consummate any settlement with his UIM insurer.” CP at 68.
Notwithstanding these discussions, Maylone settled his UIM claim with the Hartford for
the policy limits in March 2019. The settlement stated that, in exchange for Maylone’s release of
his claims against the Hartford, the Hartford would pay $100,000. The settlement did not specify
to whom the proceeds would be payable. After the settlement was reached, the Hartford sent
2 The “made whole” rule, described below, is a creation of Washington common law that Maylone argued was not preempted by FEHBA.
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Maylone a check for $100,000. Notably, however, the Hartford’s check was made payable jointly
to both Maylone and Kaiser.
Maylone did not deposit the check, and contentious discussions continued between the
parties. In June 2019,3 Maylone informed Kaiser that he had received the payment from the
Hartford but if Kaiser did not reduce its claim, he would “frame” the check so that “no one gets a
dime.” CP at 21, 345.
In December 2019, Kaiser brought an action for declaratory relief requesting that Maylone
be ordered to pay the proceeds from the UIM agreement to Kaiser. Maylone filed a counterclaim
for tortious interference with contract.
Three months after the commencement of this action, Maylone returned the check to the
Hartford with a written notice that he was rescinding the settlement agreement due to a failure of
consideration.4 Maylone told the Hartford that it had violated the settlement agreement by making
the settlement check payable to Kaiser.
II. SUMMARY JUDGMENT
Kaiser brought a motion for summary judgment, arguing that it had a right to
reimbursement under FEHBA and that Maylone’s tortious interference with contract claim failed
3 Although the declaration of Pamela Henley on behalf of Kaiser, dated September 23, 2020, says that the information was conveyed in June 2020, the context of the statement in the declaration indicates that it was in fact June 2019, and Kaiser states in its memorandum in support of its motion for summary judgment that it occurred in June 2019. 4 Although Maylone claims in his reply brief that he returned the check before Kaiser brought its claim for declaratory relief, he does not support this contention with citations to the record and his declaration and the attached exhibit indicated otherwise.
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as a matter of law. Maylone filed a cross motion for summary judgment, asking the superior court
to dismiss Kaiser’s declaratory judgment claim and grant judgment in favor of Maylone on his
counterclaim for tortious interference with contract. During the consideration of these motions,
the proceeds of the Hartford settlement were paid into the registry of the superior court.5
The superior court granted Kaiser’s motion for summary judgment, granting declaratory
relief to Kaiser with regard to the payment of the UIM proceeds and dismissing Maylone’s tortious
interference with contract claim. The superior court also denied Maylone’s motion for summary
judgment.
Maylone appeals.
ANALYSIS
I. STANDARD OF REVIEW AND ARGUMENTS
A. SUMMARY JUDGMENT
We review summary judgment motions de novo. M.E. v. City of Tacoma, 15 Wn. App. 2d
21, 31, 471 P.3d 950 (2020), review denied, 196 Wn.2d 1035 (2021). “Summary judgment is
appropriate if the pleadings, affidavits, depositions, and admissions demonstrate the absence of
any genuine issue of material fact and the moving party is entitled to judgment as a matter of law.”
Id. A fact is material if it affects the outcome of the litigation. Id.
5 Although Maylone alleged he returned the settlement proceeds to the Harford, Kaiser confirmed during oral argument before this court that the proceeds were deposited in the registry of the superior court. Wash. Court of Appeals oral argument, Kaiser Found. Health Plan v. Maylone, No. 55585-9 (May 3, 2022), at 14 min., 40 sec., 22 min., 15 sec., video recording by TVW, Washington State’s Public Affairs Network, http://www.tvw.org.
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When the moving party files a motion for summary judgment and shows an absence of
evidence to support the nonmoving party’s position, the burden then shifts to the nonmoving party
to demonstrate that a genuine issue of material fact does indeed exist. Berry v. King County,
19 Wn. App. 2d 583, 587, 501 P.3d 150 (2021). “The nonmoving party cannot rely on
‘speculation, argumentative assertions that unresolved factual issues remain, or in having its
affidavits considered at face value.’ ” M.E., 15 Wn. App. 2d at 31-32 (quoting Seven Gables Corp.
v. MGM/UA Entm’t Co., 106 Wn.2d 1, 13, 721 P.2d 1 (1986)). Summary judgment requires the
nonmoving party to present more than “ultimate facts” or conclusory statements. Id. at 32.
Summary judgment is proper where the nonmoving party fails to show evidence sufficient to
establish an essential element of their case and on which they would have the burden of proof at
trial. Young v. Key Pharms., Inc., 112 Wn.2d 216, 225, 770 P.2d 182 (1989).
B. UNIFORM DECLARATORY JUDGMENTS ACT
The Uniform Declaratory Judgments Act (UDJA) governs declaratory judgment actions.
Ch. 7.24 RCW. The UDJA states that “[a] person interested under a . . . written contract . . . may
have determined any question of construction or validity arising under the . . . contract . . . and
obtain a declaration of rights, status or other legal relations thereunder.” RCW 7.24.020. “A
contract may be construed either before or after there has been a breach thereof.” RCW 7.24.030.
The UDJA “is to be liberally construed and administered” “to settle and to afford relief from
uncertainty and insecurity with respect to rights, status and other legal relations.” RCW 7.24.120.
The UDJA permits the court to adjudicate the rights between the parties and to remove future
uncertainties, so long as there is a justiciable controversy. See Bainbridge Citizens United v. Dep’t
of Nat. Res., 147 Wn. App. 365, 374, 198 P.3d 1033 (2008) (“the UDJA grants, trial courts the
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general power to ‘declare rights, status and other legal relations’ if ‘a judgment or decree will
terminate the controversy or remove an uncertainty’ ”) (quoting RCW 7.24.010, .050).
Additionally, the UDJA permits the joinder of parties if necessary for resolution of claims brought
under the Act, providing that “all persons shall be made parties [to an action brought under
the UDJA] who have or claim any interest which would be affected by the declaration . . . .” RCW
7.24.110.
II. KAISER’S RIGHT TO REIMBURSEMENT
A. FEHBA PREEMPTION
1. Legal Principles
The doctrine of preemption finds its roots in the Supremacy Clause of the United States
Constitution. U.S. Const. art. VI. Under the preemption doctrine, where a federal law is in conflict
with a state law, the federal law preempts the state law. Veit v. Burlington N. Santa Fe Corp.,
171 Wn.2d 88, 99, 249 P.3d 607 (2011). However, “ ‘the historic police powers of states to provide
for the health, safety, and welfare of their citizens are not preempted unless that is the clear and
manifest purpose of Congress.’ ” Reece v. Good Samaritan Hosp., 90 Wn. App. 574, 578,
953 P.2d 117 (1998) (quoting Becker v. U.S. Marine Co., 88 Wn. App. 103, 107-08, 943 P.2d 700
(1997)), review denied, 136 Wn.2d 1018 (1998). If Congress has expressly defined the preemptive
scope of a statute, preemption is limited to that scope. Id. “When . . . the reach of a preemptive
federal law is not explicitly defined, it depends on the statutory context surrounding the preemption
clause, and the purpose Congress sought to achieve by the statute.” Id. (quoting Becker, 88 Wn.
App. at 107-108).
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FEHBA “establishes a comprehensive program of health insurance for federal employees.”
Empire Healthchoice Assurance, Inc. v. McVeigh, 547 U.S. 677, 682, 126 S. Ct. 2121, 165 L. Ed.
2d 131 (2006). FEHBA authorizes OPM to contract with private carriers to offer health insurance
plans to federal employees. Id. The statute provides that certain required terms of these health
insurance contracts preempt conflicting state law:
The terms of any contract under this chapter which relate to the nature, provision, or extent of coverage or benefits (including payments with respect to benefits) shall supersede and preempt any State or local law, or any regulation issued thereunder, which relates to health insurance or plans.
5 U.S.C. § 8902(m)(1) (emphasis added). The purpose of this provision is to ensure uniformity in
the administration of FEHBA benefits regardless of different state provisions that may otherwise
be applicable. Burkey v. Gov’t Emps. Hosp. Ass’n, 983 F.2d 656, 660 (5th Cir. 1993). The
patchwork imposition of a whole array of differing state laws to health insurance contracts for
federal employees would undermine the purpose and objectives of the statute of promoting
uniformity in the administration of benefits. Hartenstine v. Superior Ct. of San Bernardino
County, 196 Cal. App. 3d 206, 219-20, 241 Cal. Rptr. 756 (1987), cert. denied, 488 U.S. 899
(1988).
FEHBA’s implementing regulations state that its private carriers are entitled to
“pursue subrogation and reimbursement recoveries, and shall have a policy to pursue such
recoveries . . . .” 5 C.F.R. § 890.106(a).6 This right to reimbursement and subrogation recoveries
is “a condition of and a limitation on the nature of benefits or benefit payments and on the provision
6 “Federal regulations have the same preemptive power as federal statutes.” McCurry v. Chevy Chase Bank, FSB, 169 Wn.2d 96, 100, 233 P.3d 861 (2010).
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of benefits under the plan’s coverage.” 5 C.F.R. § 890.106(b)(1). “Reimbursement requires an
insured employee who receives payment from another source (e.g., the proceeds yielded by a tort
claim) to return healthcare costs earlier paid out by the carrier.” Coventry, 137 S. Ct. at 1194.
The underlying purpose is tied to limiting federal expenditures on health care costs.
“Strong and ‘distinctly federal interests are involved’ in uniform administration of the program,
free from state interference, particularly in regard to coverage, benefits, and payments.” Id. at
1197 (quoting Empire Healthchoice Assurance, 547 U.S. at 696). FEHBA carriers recover a
significant amount through subrogation and reimbursement. Id. at 1197-98. As a result, the
premium costs for the federal government are lower, and it passes this savings on to the insurers,
making the health insurance more affordable. Id. at 1198 (“Such ‘recoveries translate to premium
cost savings for the federal government and [FEHBA] enrollees.’ ”) (quoting 80 Fed. Reg. 29203).
Still, this broad reimbursement right held by insurers under FEHBA conflicts with various
state laws. Some states apparently used arguable ambiguity in the breadth of the FEHBA
preemption provision to impose their own state laws infringing on the right to reimbursement. Id.
at 1195. However, in 2015, OPM made its position clear that the right to reimbursement was to
be enjoyed by insurers regardless of contrary state laws:
Some state courts have interpreted ambiguity in Section 8902(m)(1) to reach a contrary result and thereby to allow state laws to prevent or limit subrogation or reimbursement rights under FEHB contracts. In this final rule, OPM is exercising its rulemaking authority under 5 U.S.C. 8913 to ensure that carriers enjoy the full subrogation and reimbursement rights provided for under their contracts.
80 Fed. Reg. 29203. OPM declared that FEHBA “comports with longstanding Federal policy and
furthers Congress’s goals of reducing health care costs and enabling uniform, nationwide
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application of FEHB contracts.”7 Id. The agency further clarified that this right to subrogation
and reimbursement includes not only claims against a responsible third party but also includes
“first party claims” like settlements from uninsured and underinsured motorist coverage. Id.8
Writing for the Court in Coventry, Justice Ginsburg addressed the federal statute at issue
here and underscored that the phrase “relate to,” a phrase used in two places in 5 U.S.C.
§ 8902(m)(1),9 has been repeatedly recognized as expressing a “ ‘broad pre-emptive purpose’ ”
7 Expanding on the financial impact of the right to subrogation and reimbursement, OPM stated:
The FEHB program insures approximately 8.2 million federal employees, annuitants, and their families, a significant proportion of whom are covered through nationwide fee-for-service plans with uniform rates. The government pays on average approximately 70% of Federal employees’ plan premiums. 5 U.S.C. 8906(b), (f). The government’s share of FEHB premiums in 2014 was approximately $33 billion, a figure that tends to increase each year. OPM estimates that FEHB carriers were reimbursed by approximately $126 million in subrogation recoveries in that year. Subrogation recoveries translate to premium cost savings for the federal government and FEHB enrollees.
80 Fed. Reg. 29203. 8 When describing changes to FEHBA reimbursement rule in 2015, OPM stated:
[C]ommenters expressed concern with the reference to “a responsible third party” in the definitions, indicating that the use of this phrase has been interpreted to foreclose “first party” claims for subrogation and recoveries, such as uninsured and underinsured motorist coverage . . . . OPM agrees that the definitions of subrogation and reimbursement should include first party claims.
Id. 9 “The terms of any contract under this chapter which relate to the nature, provision, or extent of coverage or benefits (including payments with respect to benefits) shall supersede and preempt any State or local law, or any regulation issued thereunder, which relates to health insurance or plans.” 5 U.S.C. § 8902(m)(1) (emphasis added).
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when contained in a preemption clause. Coventry, 137 S. Ct. at 1193, 1196-97 (quoting Morales
v. Trans World Airlines, Inc., 504 U.S. 374, 383, 112 S. Ct. 2031, 119 L. Ed. 2d 157 (1992)).
2. Washington Law
Washington law requires that all new and renewed automobile insurance policies include
UIM insurance, including protections for individuals injured by phantom drivers, unless the
insured explicitly opts out in writing. RCW §§ 48.22.030(2)-(4). The purpose of this statute is to
provide broad protection to innocent victims who have suffered a loss. Pacheco v. Or. Mut. Ins.
Co., 9 Wn. App. 2d 816, 830, 447 P.3d 207 (2019), review denied, 194 Wn.2d 1020 (2020); RCW
§ 48.22.030(12).
Additionally, Washington follows the made whole rule, a common law rule which provides
that an insurer may not exercise a right to reimbursement unless and until an insured has received
total compensation for their loss. Grp. Health Coop. v. Coon, 193 Wn.2d 841, 852, 447 P.3d 139
(2019). An insurer is only entitled to recover “the excess” that an insured has received after the
insured has been fully compensated for their loss. Daniels v. State Farm Mutual Auto. Ins. Co.,
193 Wn.2d 563, 571, 444 P.3d 582 (2019) (quoting Thiringer v. Am. Motors Ins. Co., 91 Wn.2d
215, 219, 588 P.2d 191 (1978)). “ ‘This rule embodies a policy deemed socially desirable in this
state, in that it fosters the adequate indemnification of innocent automobile accident victims.’ ”
Sherry v. Fin. Indem. Co., 160 Wn.2d 611, 621, 160 P.3d 31 (2007) (quoting Thiringer, 91 Wn.2d
at 220). The policy also reduces the potential for conflict between insurers and insureds. Daniels,
193 Wn.2d at 572, 444 P.3d 582 (2019).
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3. Application
Maylone argues that the FEHBA does not preempt Washington’s made whole rule because
the made whole rule is not “related to” health insurance as required by the preemption language of
FEHBA.10 Since it is not preempted, Maylone maintains that the made whole rule prevents Kaiser
from obtaining reimbursement from the Hartford settlement proceeds. We disagree.
Maylone reads FEHBA’s preemption provision too narrowly. He argues that UIM
provisions and policies generally, as well as the made whole rule specifically, are “unrelated” to
his FEHBA-provided health insurance because they were designed to ensure compensation for
innocent victims of irresponsible motorists. But the mere fact that these laws and policies are
broader in scope and general application than just health insurance does not mean that their
application does not “relate to” his health insurance sufficiently for FEHBA preemption to apply.
As the Coventry Court stated, “the phrase ‘relate to’ in a preemption clause ‘express[es] a broad
pre-emptive purpose.’ ” 137 S. Ct. at 1197 (alteration in original) (quoting Morales, 504 U.S. at
383). The phrase is generally interpreted to mean “any subject that has ‘a connection with, or
reference to,’ the topics the statute enumerates.” Id. (quoting Morales, 504 U.S. at 384).
The regulatory interpretation and application of FEHBA further supports the preemption
of Washington law here. It is clear from OPM’s statements that the provision is intended to ensure
that carriers enjoy full reimbursement rights under their contracts notwithstanding various states’
attempts to compromise those rights. The financial impact on the federal government should be
10 Maylone, at times, broadly refers to equitable doctrines that he claims prevent Kaiser from recovering, but he limits his discussion to Washington’s made whole rule. Accordingly, we address only the made whole rule.
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reduced to allow the government to provide more affordable and equivalent health insurance to
federal enrollees across all states. And Coventry endorsed the federal government’s ability to
impose those policies upon the states.
Maylone relies on language from McVeigh, an early FEBHA case, to support his argument
that FEHBA preemption is narrow. He points out that the McVeigh Court expressly said that
although FEHBA contains a preemption clause that displaces state law relating to health insurance
plans, it “contains no provision addressing the subrogation and reimbursement rights of carriers.”
547 U.S. at 683. McVeigh stated that there were two rational readings of the preemption
provision—it could reasonably be read narrowly or broadly. Id. at 697-98. The Court further
stated that FEHBA does not preempt “any and all state laws that in some way bear on federal
employee-benefit plans.” Id. at 698.
Maylone concedes, however, that McVeigh’s discussion of reimbursement was dicta
because the Court ultimately decided the case on jurisdictional grounds. Id. And subsequent to
McVeigh, the Court in Coventry clarified that the preemption clause should be read more broadly
than suggested by McVeigh’s dicta.
Here, the question is whether the made whole rule, if applied here, relates to Maylone’s
health insurance with Kaiser. It clearly does. In fact, the parties in Coventry conceded this issue.
Coventry, 137 S. Ct. at 1196. UIM coverage is available because Maylone was involved in a car
accident with a driver that could not be located. It follows that Maylone’s health insurance would
pay for his medical expenses. As a result, the Washington UIM laws and policies that would
operate to prevent Kaiser from recovering under its right to reimbursement have a clear
“connection with” and, therefore, are “related to” the health insurance plan. Simply put, a state
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law that directly affects a health insurance company’s right to reimbursement, as the made whole
rule does here, plainly “relates to” a health plan.
The made whole rule represents the strong public policy of Washington law of protecting
innocent victims. Nevertheless, we are bound by FEHBA to hold that Washington UIM provisions
and policies, including the made whole rule, that prevent Kaiser from exercising its right to
reimbursement are preempted.
B. DUPLICATE PAYMENT PROVISION IN THE HARTFORD CONTRACT
Maylone next argues that the language of his Hartford UIM policy conflicts with Kaiser’s
request for reimbursement and that these provisions are not preempted by FEHBA. We disagree.
The Hartford’s UIM policy states that it covers not only medical expenses but also other
economic damages and noneconomic damages. The automobile insurance policy also expressly
said it would not make a “duplicate payment” for any element of loss for which payment has been
made by an organization that may be legally responsible. CP at 203. Maylone argues that these
provisions—contained in the medical coverage portion of his Hartford policy—prevent Kaiser
from exercising its right to subrogation and reimbursement. If Kaiser has already paid for medical
expenses, Maylone argues, then the Hartford had no obligation to pay medical expenses because
such payments would be “duplicate payments.” Therefore, the Hartford’s $100,000 settlement
offer must have related only to noneconomic damages.
However, the term “legally responsible” in the duplicate payments clause refers to entities
that are legally responsible in tort for the insured’s injuries—i.e., the tortfeasor who caused the
accident and any entity vicariously liable. See Fischer v. Midwest Sec. Ins. Co., 2003 WI App
246, ¶¶ 23-25, 268 Wis. 2d 519, 532, 673 N.W.2d 297 (2003) (duplicate payment provision in
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UIM policy intended to prevent tortfeasor and insurer from compensating insured for same element
of loss); Berrey v. Travelers Indem. Co. of Am., 770 F.3d 591, 594-95 (7th Cir. 2014) (permitting
double recovery under UIM policy would flout purpose of UIM policies to place insured in same
position they would have been had the tortfeasor carried adequate insurance). There is no
indication that the duplicate payments clause refers to payments made by health insurers.
In addition, Maylone’s agreement with Kaiser explicitly states that Kaiser has a right to
reimbursement that extends to all settlement proceeds and “is not impacted by how the . . .
settlement, or other recovery is characterized, designated, or apportioned.” CP at 24. Therefore,
it does not matter whether the Hartford characterized its $100,000 settlement offer as a payment
for medical expenses or for noneconomic damages.
Maylone’s duplicate payment argument fails to establish a question of fact here that would
prevent summary judgment in favor of Kaiser.
III. UNCONSCIONABILITY
Maylone next argues that the reimbursement provision in his Kaiser policy is substantively
and procedurally unconscionable and, therefore, unenforceable. We determine that the provision
is neither substantively nor procedurally unconscionable.
A. LEGAL PRINCIPLES
A contract may be either substantively unconscionable or procedurally unconscionable.
Schroeder v. Fageol Motors, Inc., 86 Wn.2d 256, 259-60, 544 P.2d 20 (1975), abrogated on other
grounds by Nelson v. McGoldrick, 127 Wn.2d 124, 896 P.2d 1258 (1995). If a provision in a
contract is found to be unconscionable, “[a] court may refuse to enforce the contract, or it may
enforce the remainder of the contract without the unconscionable clause, or it may so limit the
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application of any unconscionable clause as to avoid any unconscionable result.” RCW 62A.2-
302(1).
Substantive unconscionability occurs when a term in a contract is one-sided or overly
harsh. Adler v. Fred Lind Manor, 153 Wn.2d 331, 344, 103 P.2d 773 (2004). “ ‘Shocking to the
conscience[,]’ ‘monstrously harsh[,]’ and ‘exceedingly calloused’ are terms sometimes used to
define substantive unconscionability.” Nelson, 127 Wn.2d at 131 (quoting Montgomery Ward &
Co. v. Annuity Bd. of S. Baptist Convention, 16 Wn. App. 439, 444, 556 P.2d 552 (1976)).
Procedural unconscionability relates to impropriety during the process of forming a
contract—a lack of a “meaningful choice.” Schroeder, 86 Wn.2d at 260. Determining procedural
unconscionability requires consideration of “ ‘all the circumstances surrounding the transaction,’
including ‘[t]he manner in which the contract was entered,’ whether each party had ‘a reasonable
opportunity to understand the terms of the contract,’ and whether ‘the important terms [were]
hidden in a maze of fine print . . . .’ ” Id. (alterations in original) (quoting Williams v. Walker-
Thomas Furniture Co., 350 F.2d 445, 449 (D.C. 1965)).
An adhesion contract may be, but is not necessarily, procedurally unconscionable. Zuver
v. Airtouch Commc’ns, Inc., 153 Wn.2d 293, 304, 103 P.3d 753 (2004). Three factors are used to
determine whether an adhesion contract exists: “ ‘(1) whether the contract is a standard form
printed contract, (2) whether it was prepared by one party and submitted to the other on a ‘take it
or leave it’ basis, and (3) whether there was no true equality of bargaining power between the
parties.’ ” Id. (internal quotation marks omitted) (quoting Yakima County (W. Valley) Fire Prot.
Dist. No. 12 v. City of Yakima, 122 Wn.2d 371, 393, 858 P.2d 245 (1993)). Merely showing that
a contract is an adhesion contract is insufficient to establish procedural unconscionability. Id.
18 No. 55585-9-II
Instead, “the key inquiry for finding procedural unconscionability is whether [the party bringing
the claim] lacked meaningful choice.” Adler, 153 Wn.2d at 348-49.
B. APPLICATION
First, Maylone argues that the reimbursement provision is substantively unconscionable
because when it operates to prevent him from receiving any recovery in this case, it prevents him
from benefiting from both his UIM policy and health insurance policy. Such a result, Maylone
contends, is one-sided and harsh. We disagree.
That Maylone may not be entitled to full recovery here does not make Kaiser’s right to
reimbursement unconscionable. The key is whether the agreement is so one-sided that only one
party benefits. For example, in Zuver, the court considered whether a provision requiring that a
party who brings a judicial action pay the fees and costs of an opposing party who successfully
stays the action or compels arbitration was unconscionable. 153 Wn.2d at 319. The plaintiff
argued that the provision was substantively unconscionable because it discouraged her from
bringing a discrimination claim against her employer. Id. The court determined that awarding
fees and costs was not substantively unconscionable because either party could recover, making it
not “so one-sided and harsh.” Id.
Similarly, here, both Kaiser and Maylone benefit from the agreement. While the agreement
gives Kaiser the right to reimbursement, in return, Kaiser must initially pay for medical costs in
full, regardless of whether its reimbursement rights are realized. Both parties have rights under
this term, and both parties benefit. And Kaiser remains liable for medical coverage payments
beyond the amount that it can recover under the UIM policy. Maylone fails to show how these
provisions are one-sided or overly harsh, especially since a right to reimbursement is actually
19 No. 55585-9-II
required to be included in policies administered by FEBHA. Even construing the facts in favor of
Maylone, there is no question of fact as to whether the provision was substantively unconscionable.
Therefore, we affirm the superior court’s summary judgment decision as it relates to substantive
unconscionability.
Second, Maylone argues that the provision is procedurally unconscionable because the
contract was a contract of adhesion. Maylone, however, presents no argument beyond his bare
assertion that the contract is one of adhesion to support a finding of unconscionability. This alone
is insufficient to support his claim of procedural unconscionability. See id. at 304.
In Zuver, the court determined that a contract is not procedurally unconscionable merely
because it is a contract of adhesion. 153 Wn.2d at 306-07. A plaintiff must also establish a lack
of meaningful choice. Id. at 305. Although in Zuver, the plaintiff employee argued she lacked
meaningful choice because of her unequal bargaining power, the court stated,
At minimum, an employee who asserts an . . . agreement is procedurally unconscionable must show some evidence that the employer refused to respond to her questions or concerns, placed undue pressure on her to sign the agreement without providing her with a reasonable opportunity to consider its terms, and/or that the terms of the agreement were set forth in such a way that an average person could not understand them.
Id. at 306-07. Since the employee had failed to make any of the required showings, the contract
was not procedurally unconscionable. Id.
Similar to the plaintiff in Zuver, Maylone argues that because he has shown that this is a
contract of adhesion, he has shown a lack of a meaningful choice because of his unequal bargaining
power. But he has failed to present any additional evidence of the dynamics of the contract
formation discussed by Zuver. This is inadequate to establish procedural unconscionability. See
id. at 306-07.
20 No. 55585-9-II
Even when the facts are construed in a light most favorable to Maylone, he has failed to
establish a question of material fact as to the procedural unconscionability of the provision.
Therefore, we affirm the superior court’s decision as it relates to procedural unconscionability.
IV. TORTIOUS INTERFERENCE WITH CONTRACT
Kaiser and Maylone both filed motions for summary judgment on Maylone’s claim for
tortious interference with contract. The superior court granted Kaiser’s motion, and Maylone
argues that the superior court erred in doing so. We disagree.
A party claiming tortious interference with a contract must establish five elements:
(1) the existence of a valid contractual relationship or business expectancy; (2) that defendants had knowledge of that relationship; (3) an intentional interference inducing or causing a breach or termination of the relationship or expectancy; (4) that defendants interfered for an improper purpose or used improper means; and (5) resultant damage.
Leingang v. Pierce County Med. Bureau, Inc., 131 Wn.2d 133, 157, 930 P.2d 288 (1997).
For a tortious interference with contract claim, “[i]ntentional interference requires an
improper objective or the use of wrongful means that in fact cause injury to the person’s contractual
relationship.” Id. It is not improper interference to exercise one’s legal interests in good faith. Id.
Maylone maintains that the superior court erred in granting Kaiser’s motion for summary
judgment on his tortious interference with contract claim. He argues that he established all of the
required elements of a claim because: (1) Kaiser had no right to contact the Hartford regarding its
request for reimbursement, and its communication caused the Hartford to breach its contract with
Maylone, (2) Kaiser’s interference was intentional and substantially certain to cause the Hartford
21 No. 55585-9-II
to breach its contracts, and (3) Kaiser’s interference was with an improper purpose and by an
improper means because Kaiser had no authority to instruct the Hartford to pay them directly. We
disagree with Maylone and affirm the superior court’s summary judgment dismissal of this claim.
Maylone argues that Kaiser’s interference was improper because it was not authorized
under his medical coverage agreement and that Kaiser “misrepresented both the nature of the
alleged claim and also any role whatsoever to have been played by [t]he Hartford.” Br. of
Appellant at 48. However, Maylone fails to explain these conclusory statements. There is no
evidence in the record of an improper purpose for Kaiser’s action or that it employed improper
means; there is no evidence of bad faith. Kaiser paid Maylone’s medical bills resulting from
Maylone’s car accident. Kaiser merely informed Maylone and the Hartford of its right to
reimbursement and requested that proceeds from a UIM settlement be made out to Kaiser.
But critically, Maylone has failed to show any damages resulting from Kaiser’s alleged
interference. Under Maylone’s medical coverage agreement with Kaiser, he was required to pay
the entire settlement amount to Kaiser upon receipt from the Hartford. The Hartford’s decision to
make the proceeds payable to both Maylone and Kaiser did not result in any loss to Maylone
because he would not have been permitted to keep the proceeds in any event.
Because Maylone has failed to show intentional interference with an improper objective or
the use of a wrongful means and because Maylone cannot show any damages, we determine there
was no question of material fact and the superior court did not err in granting summary judgment
on Kaiser’s behalf in regard to the tortious interference with contract claim.
22 No. 55585-9-II
V. RECEIPT OF SETTLEMENT PROCEEDS AND RESCISSION
Maylone finally argues that he never effectively received settlement proceeds because the
check he received was not able to be deposited due to it being payable jointly to both Kaiser and
him. He contends that because he never received the proceeds, no settlement was completed and,
therefore, Kaiser’s right to reimbursement had not been triggered. Maylone further contends that
he subsequently rescinded the settlement agreement because of the Hartford’s failure to send him
an appropriate check. We agree that Maylone did not receive the settlement proceeds.
Rescission of a contract results in restoration of parties, as much as practical, to their
positions prior to entering into a contract. Ten Bridges, LLC v. Guandai, 15 Wn. App. 2d 223,
243, 474 P.3d 1060 (2020), review denied, 197 Wn.2d 1011 (2021). “Rescission can only occur
when there is a mutual consent to rescind the contract, or a demand to rescind by one side with
acquiescence by the other, a material breach by one party with a claim of rescission by the other
or other circumstances not material here.” Woodruff v. McClellan, 95 Wn.2d 394, 397, 622 P.2d
1268 (1980). Rescission of a contract requires the party wishing to rescind act with reasonable
promptness, and delay may result in a waiver of a right to rescind. Bunting v. State, 87 Wn. App.
647, 653-54, 943 P.2d 347 (1997).
23 No. 55585-9-II
Here, the Hartford sent Maylone a check for $100,000, as provided for in the settlement
agreement. However, the check was made out to both Kaiser and Maylone.11 As a result, Maylone
could not deposit or cash the check without Kaiser’s assent. Accordingly, receipt of the Hartford
check did not constitute receipt of the settlement proceeds by Maylone. Although these proceeds
were subsequently deposited in the court registry, the superior court erred when it prematurely
ordered these proceeds to be distributed.
Whether these proceeds will be eventually distributed to Kaiser depends on whether
Maylone effectively rescinded the Hartford settlement agreement. If there was no rescission, the
settlement is binding. If binding, it follows from our conclusions above that the settlement
proceeds in the court registry must be paid to Maylone, who, in turn, must then pay the proceeds
to Kaiser consistent with Kaiser’s contractual right to reimbursement. However, if the settlement
was successfully rescinded, the funds must be returned to the Hartford.
On this critical question of whether the settlement agreement was rescinded, we determine
there is an issue of material fact. Effective rescission requires a factual evaluation of the Hartford
and Maylone’s conduct, including resolving questions like whether there was a material breach,
whether there was acquiescence, or whether parties acted with reasonable promptness. On remand,
the superior court shall conduct proceedings to determine whether or not the Hartford settlement
was in fact rescinded by Maylone. The UDJA provides both the broad authority and flexibility to
11 As explained above, we have concluded that Kaiser’s communication with the Hartford was not tortious interference. We take no position on whether the Hartford, a nonparty to this case, breached any duty to Maylone by issuing the settlement check jointly to Maylone and Kaiser.
24 No. 55585-9-II
the superior court to resolve these issues on remand, including the possibility of joining the
Hartford to this action and directing Maylone to turn over to Kaiser any proceeds he receives from
this or future Hartford settlements. See RCW 7.24.110, .030.
CONCLUSION
Kaiser has a FEHBA-authorized right to reimbursement over the settlement proceeds from
the Hartford. Therefore, despite its importance to Washington’s common law protection of injured
individuals, the made whole rule is preempted in this context because it relates to, and affects, this
health insurance coverage. Additionally, Maylone has failed to show the following: the “duplicate
payments” provision in his Hartford policy affects Kaiser’s right to reimbursement, the medical
coverage agreement was either substantively or procedurally unconscionable, and Kaiser
intentionally interfered with an improper motive or the use of improper means with his contracts
with the Hartford.
However, we hold that Maylone never received the settlement proceeds and there is a
genuine issue of material fact as to whether the settlement agreement was effectively rescinded.
For this reason, we reverse the superior court’s summary judgment order and remand for a
determination as to whether the settlement agreement was rescinded and, following resolution of
that question, further proceedings in accordance with this opinion.
25 No. 55585-9-II
A majority of the panel having determined that this opinion will not be printed in the
Washington Appellate Reports, but will be filed for public record in accordance with RCW 2.06.040,
it is so ordered.
PRICE, J. We concur:
GLASGOW, C.J.
MAXA, J.