PCA Health Plan of Texas, Inc. v. Jessie J. Trujillo

• Court: Court of Appeals of Texas
• Decided: August 16, 1995
• Docket: 03-94-00038-CV
• Status: Published

Opinion

PCA v. Trujillo

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03-94-00038-CV

PCA Health Plans of Texas, Inc., Appellant

v.

Jessie J. Trujillo, Appellee

FROM THE COUNTY COURT AT LAW NO. 1 OF TRAVIS COUNTY

NO. 217,397, HONORABLE J. DAVID PHILLIPS, JUDGE PRESIDING

Appellant PCA Health Plans of Texas, Inc. ("PCA") appeals from a declaratory judgment construing its subrogation right of recovery under its health insurance policy with appellee Jessie J. Trujillo. The question presented is whether the policy permits the insurer's subrogation interest to be reduced by its proportionate share of the insured's costs of recovering damages from the third party. The trial court determined that it did. We will affirm the trial court's judgment.

BACKGROUND

A drunk driver struck Trujillo's car from the rear. Trujillo suffered injuries requiring medical treatment costing $270.00. PCA, Trujillo's health insurance company, paid Trujillo's medical bills. Trujillo's attorney, Judy Kostura, subsequently began negotiating Trujillo's damage claims with the driver. She notified PCA that she had been retained for this purpose and that Trujillo would remit PCA's subrogation interest out of any proceeds recovered "less a pro-rata reduction considering the attorney fee paid by [Trujillo]." Trujillo settled his third party claim with the driver and paid his attorney one-third of the settlement amount as her fee.

Kostura tendered to PCA a check from the driver in the amount of $270 made payable to both Trujillo and PCA. By letter, Kostura requested that PCA endorse the draft and return it to her so she could deposit the check to her trust account and then send PCA a check from that account in the amount of $180, being two-thirds of PCA's $270 subrogation interest. In this manner, PCA would bear a pro-rata share of the attorney's fees Trujillo incurred in recovering from the third party. PCA did not return the draft to Kostura.

Trujillo filed a petition for declaratory judgment seeking construction of the subrogation rights afforded under his health insurance contract with PCA. He asked the court to construe the insurance contract in accordance with Texas caselaw providing that an insurer that does not aid in the collection of damages from a third party must pay its share of the attorney's fees and costs incurred by its insured in collecting the insurer's subrogation interest. See Ortiz v. Great S. Fire & Casualty Ins. Co., 597 S.W.2d 342, 344 (Tex. 1980). He sought a ruling that under the contract the insurer's subrogation interest could be reduced by its proportionate share of the insured's collection costs when the insured alone pursues recovery from the third-party tortfeasor. The trial court declared that PCA must bear its pro-rata share of the cost, including attorney's fees, incurred by Trujillo in recovering from the drunk driver. The judgment reduced PCA's subrogation interest from $270 to $167.01, with the balance to Trujillo. Thus, the parties' disagreement involves a dispute over $102.99. PCA appeals.

DISCUSSION

We note first that our consideration of this appeal is rendered more difficult due to PCA's failure to make specific references to the record in its brief, its incorrect representations as to the state of the record, and its assertions of facts not in the record. Nevertheless, we will attempt to consider the merits of PCA's complaints.

The record does not contain findings of fact or conclusions of law. PCA's ninth point of error complains of this failure, claiming PCA made a timely request. We overrule the point of error, however, because the record does not reveal that PCA made a timely request. See Tex. R. Civ. P. 296. In the absence of findings of fact and conclusions of law, we assume all facts in favor of the judgment and must affirm on any legal theory the evidence supports. Point Lookout West, Inc. v. Whorton, 742 S.W.2d 277, 278 (Tex. 1987); Lassiter v. Bliss, 559 S.W.2d 353, 358 (Tex. 1977).

PCA's other eight points of error all complain that, for various reasons, the trial court erred in ruling that Trujillo was entitled to a pro-rata reduction of PCA's subrogation interest and in not awarding PCA its full subrogation interest. PCA primarily contends that its health insurance contract is clear and unambiguous, providing for its full subrogation recovery out of the amount Trujillo recovered from the driver without bearing any cost for the fees and costs Trujillo incurred for collection.

The contract provision at issue reads:

J. Subrogation/Injuries Caused by Third Parties. Subrogation seeks to shift the expense for injuries suffered by Members to those responsible for causing them. In return for [PCA] providing benefits under this Contract, each Member agrees to assign to [PCA] the right of recovery against any third party to the extent of benefits received from or through [PCA] plus costs of suit and attorney's fees. . . . [T]he member agrees to:

1. Execute a formal written Injury report and assignments to [PCA] of right to recover the reasonable value as determined by [PCA] of any benefits provided directly by [PCA] under this Contract, together with costs of suit and attorneys' fees.

2. Reimburse [PCA] for the reasonable value of any benefits and services provided by [PCA] and in an amount equal to the charges therefore together with the costs of suit and attorneys' fees . . . immediately upon receipt of any monies paid by or on behalf of a third party in settlement of any claim against such third party. . . . The Member hereby grants and assigns to [PCA] a lien on any recovery from such third party whether by judgment, settlement, compromise, or reimbursement.

3. . . . [P]rovide such reasonable help (including authorizing bringing suit against such third party in Member's name and making court appearances) as may be necessary to enable [PCA] to recover the reasonable value of benefits and services provided by [PCA], together with costs of suit and attorneys' fees.

PCA argues that the contract clause clearly and unambiguously permits it full reimbursement of all benefits and services it provided Trujillo, as well as the reasonable attorney's fees and costs incurred in recovering the amount of such benefits and services from third parties. Trujillo argues, however, that the contract's subrogation clause only addresses circumstances in which PCA, not the policy holder, pursues recovery from the third party.

Each subpart of the contract clause deals with PCA's subrogation right to recover from a responsible third party the value of the benefits it provides the insured, plus attorney's fees and costs of recovery. The insured agrees to assign PCA the right to recover the benefits it pays; to reimburse PCA for the value of those benefits, plus PCA's costs of suit and attorney's fees, upon receiving damage compensation recovery from a third party; and to cooperate with and assist PCA in legally pursuing its right of recovery against a third party. The contract does not expressly address the insured's independent pursuit of recovery from the third-party tortfeasor. The contract is silent as to the distribution of the subrogation interest when the insured, rather than PCA, hires the attorney and advances the funds necessary to obtain the recovery of the subrogation interest from the third-party tortfeasor. The silence of the contract creates an ambiguity when the contract is applied to the facts of the instant case; the contract falls squarely within the realm of the Uniform Declaratory Judgments Act, the purpose of which is "to afford relief from uncertainty and insecurity with respect to rights, status, and other legal relations." Tex. Civ. Prac. & Rem. Code Ann. § 37.002(b) (West 1986); Republic Ins. Co. v. Davis, 856 S.W.2d 158, 164 (Tex. 1993) (stating purpose of declaratory judgment act is to declare existing rights, status, and other legal relations). Although the contract may be silent, the law is clear.

PCA argues that in construing the agreement, the parties' rights are governed by the express terms of their insurance contract, and, therefore, principles of equitable subrogation have no bearing. Texas courts have given more substance to the distinction between legal subrogation, governed by equity, and conventional subrogation, governed by contractual agreement, than most states. Lexington Ins. Co. v. Gray, 775 S.W.2d 679, 683 (Tex. App. --Austin 1989), overruled on other grounds sub nom., Amberboy v. Societe de Banque Privee, 831 S.W.2d 793 (Tex. 1992). In Texas, however, the same principles govern both equitable and contractual subrogation. Oss v. United Servs. Auto. Ass'n, 807 F.2d 457, 460 (5th Cir. 1987). We construe subrogation clauses to confirm, but not expand, the equitable subrogation rights of insurers. Id. The subrogation clause is subordinate to the basic insurance promise. Id. The insurer is not entitled to reimbursement for the benefits it has paid until the insured's compensation from the insurer and the third party make the insured's loss whole. Ortiz, 597 S.W.2d at 343. The insurer may recover only from excess funds but cannot recover until the insured has been fully compensated for any loss, including costs and expenses of collection. Id. When the insurer does not assist in collecting damages from the third party, it must compensate the insured for its share of the expenses of collection, including attorney's fees. Id. at 344.

We recently considered a similar dispute in the case of Esparza v. Scott & White Health Plan, No. 03-94-00730-CV (Tex. App.--Austin July 12, 1995, no writ h.). Scott & White contended that the subrogation clause in its contract with the Esparzas expressly entitled it to full indemnification out of the settlement money the Esparzas recovered from the third-party tortfeasor. Id., slip op. at 5. We rejected that argument and held that even though conventional subrogation was governed by the terms of the contract as far as the insurer's right to recover, the trial court could still apply equitable principles in determining how much recovery the insurer could receive, and when. Id. at 5-6. Despite the contract term purporting to allow the insurer full recovery from the third-party proceeds, we recognized that because the principal purpose of the insurance contract is to protect the insured from risk, any loss must be borne by the insurer. Id. We affirmed that the law of Texas requires an insurer that does not aid in the collection of damages from a third party to pay its share of the attorney's fees and costs incurred by its insured. Id. at 9; see Ortiz, 597 S.W.2d at 344.

We hold that the trial court could construe the parties' contract to require PCA to pay its proportionate share of Trujillo's costs of recovering its subrogation interest, and that the evidence in the record supports the trial court's judgment. PCA was awarded its full subrogation interest, less the cost of recoupment. After considering all of PCA's points of error, we find them without merit and overrule them. The trial court's judgment is affirmed.

Marilyn Aboussie, Justice

Before Justices Powers, Aboussie and Kidd

Affirmed

Filed: August 16, 1995

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