Smith v. Physicians Health Plan, Inc

514 N.W.2d 150, 444 Mich. 743

• Court: Michigan Supreme Court
• Decided: March 29, 1994
• Docket: 95960, (Calendar No. 14)
• Status: Published

Opinions

Brickley, J.

This case presents the question whether MCL 500.3109a; MSA 24.13109a)¹ requires health insurers whose policies contain coordination of benefits clauses to reimburse an insured for medical expenses paid by an automobile no-fault insurer under a policy in which the insured elected uncoordinated medical coverage. We find no intent by the Legislature when it mandated that no-fault carriers make available coordinated coverage at a reduced cost to correspondingly prohibit health insurers from including coordination of benefits clauses in the coverage provided by the health insurance policy. We therefore hold, as a matter of contract interpretation, that a no-fault insured is not entitled to receive duplicate payment for medical expense where the insured had elected uncoordinated benefits under his no-fault policy, but his health insurance policy contained a coordination of benefits clause.²_

I

Plaintiff’s minor daughter, Michelle Smith, was seriously injured on January 31, 1987, when her sixteen-year-old sister lost control of the automobile she was operating. No-fault automobile insurance policies, issued by State Farm Mutual Automobile Insurance Company, covered the vehicle and the driver. Both policies were uncoordinated, meaning the no-fault automobile insurance would pay benefits regardless of whatever other insurance the insured may have. Plaintiff paid a higher premium for the uncoordinated policies than he would have paid had he selected coordinated no-fault automobile insurance.

At the time of the accident, John Smith had health insurance issued by Physicians Health Plan, a health maintenance organization. This group health insurance was provided by Mr. Smith’s employer, Meijer, Inc. Michelle was entitled to benefits under the php coverage by virtue of her father’s employment. The certificate of coverage for the health care plan contained a coordination of benefits clause.³

For the most part, Michelle was treated by hospitals and doctors who participated with the Physicians Health Plan. Those hospitals and physicians were reimbursed by the no-fault insurance carrier.⁴ Mr. Smith sought payment from php in the same amount. Relying on the coordination of benefits clause, php denied the claim.

ii

Following php’s rejection of plaintiff’s claim, plaintiff brought suit against the plan for the cash value of the medical expenses incurred by Michelle. The trial court granted plaintiff partial summary disposition pursuant to MCR 2.116(0(10), no genuine issue of material fact, regarding the issue of liability. The trial court held that where the no-fault automobile coverage was uncoordinated, the health insurer was required to make a cash payment to the insured. Otherwise, the court reasoned, the purchase of uncoordinated no-fault coverage would be meaningless. A trial was held on the issue of damages, and the plaintiff was awarded $155,897.72.

The Court of Appeals affirmed the decision of the trial court. It held that unless a health insurer can demonstrate it lowered the premium charged to reflect the insured’s uncoordinated no-fault automobile insurance, then the health insurer cannot rely on the coordination of benefits clause included in the policy. 196 Mich App 617; 493 NW2d 480 (1992) . We granted leave to appeal. 443 Mich 869 (1993) .

iii

The Court of Appeals decision is premised on an incorrect interpretation of the legislative purpose in enacting MCL 500.3109a; MSA 24.13109(1). The legislative intent was to provide individuals with an opportunity to reduce premiums if they already had health insurance that covered automobile accidents. The purpose was not to provide a guarantee of double recovery regardless of whatever provisions might be contained in other insurance contracts.

Ascertaining the collective intent motivating the Legislature when a statute is enacted is by its very nature inexact. We have noted on past occasions that § 3109a was written to contain insurance and health care costs and to eliminate duplicate recovery. Federal Kemper Ins Co, Inc v Health Ins Administration, Inc, 424 Mich 537, 551; 383 NW2d 590 (1986), overruled in part Auto Club Ins Ass’n v Frederick & Herrud, Inc, 443 Mich 358; 505 NW2d 820 (1993); LeBlanc v State Farm Mutual Automobile Ins Co, 410 Mich 173, 206; 301 NW2d 775 (1981), overruled on other grounds Jarosz v Detroit Automobile Inter-Ins Exchange, 418 Mich 565; 345 NW2d 563 (1984).

The Court of Appeals extends the reach of § 3109a beyond a reasonable interpretation of the purposes of the Legislature. The statute expressly regulates the availability of coordinated no-fault coverage. Such coverage must be made available at a reduced rate to individuals who have other health insurance that covers automobile accidents. The statute explicitly controls no-fault insurance. With the exception of our limited holding in Federal Kemper, supra, it is a misconstruction of the statute to sweep regulation of "other health and accident insurance” that the insured may have into the no-fault act.⁵

A

At the time it was originally enacted, there was no provision for coordinated coverage in the no-fault act. An individual with health insurance from another source that covered injuries caused by automobile accidents had to buy the same uncoordinated no-fault policy and pay the same premium as the individual with no other insurance. The aim of the no-fault act was to make minimum insurance mandatory. Section 3109a amended the act to provide a mechanism that offered lower premiums to those individuals who were already covered for medical expenses arising out of automobile accidents.

The legislative history of § 3109a was explored in Federal Kemper, supra, pp 546-549. In addition to considering a report on HB 5724 (enacted as § 3109a), which was prepared by the Analysis Section of the House Insurance Committee, the Court relied on a letter to Governor William G. Milliken from Daniel J. Demlow, the Commissioner of Insurance, that urged support for the bill, stating individuals would have the ability to select deductibles on the basis of their existing health and accident insurance if the new law were adopted. Id., p 548.

The option of choosing between uncoordinated or coordinated no-fault automobile insurance does not exist for an individual who does not have underlying health or accident insurance that applies to automobiles. That individual must pay the higher premium for uncoordinated no-fault insurance. Therefore, the individual who is unemployed or does not have employment that provides health insurance must purchase uncoordinated no-fault insurance. Coordination of no-fault benefits, with its concomitant reduction in premiums, is only available to an insured who has health insurance in place.

While this is not the first case to require an interpretation of the effect of § 3109a on health insurance, it is the first opportunity this Court has had to determine the outcome when a no-fault insurance policy is uncoordinated and a health plan is coordinated.

It is when both the no-fault automobile insurance and the health insurance are uncoordinated policies that multiple recovery is possible for the insured. Haefele v Meijer, Inc, 165 Mich App 485; 418 NW2d 900 (1987), remanded on different issues 431 Mich 853; 425 NW2d 691 (1988).

In the situation where health insurance is uncoordinated and the insured has elected to coordinate the no-fault insurance, the Court of Appeals has held that health insurance is primary and there cannot be duplicate recovery. Wiltzius v Prudential Property & Casualty Co, 139 Mich App 306; 361 NW2d 797 (1984). This is a reasonable result. That result is consistent with the scheme the Legislature set forth in making coordinated no-fault coverage available. The insured receives the coverage the premiums were based upon.

Another possible combination of coverage occurs when both the health insurance and the no-fault policies purport to coordinate coverage. It is likely that the majority of consumers with other health insurance find themselves in this category. In Federal Kemper Ins Co, Inc, supra, we held that when an insured opts to coordinate no-fault coverage with health insurance pursuant to MCL 500.3109a; MSA 24.13109(1), the health insurer is primarily liable for the payment of medical expenses.

In deciding Federal Kemper, we found implicit in § 3109a a legislative intent to hold health insurers primarily liable despite coordinated benefits clauses when the insured has selected coordinated no-fault insurance. A contrary holding would have nullified the legislative option of having no-fault available at a reduced rate. Health insurers would have been able to unilaterally shift the risk of medical expenses as a result of automobile accidents to the no-fault system even though the insured elected coordinated coverage. Rates for coordinated coverage would have been identical to uncoordinated rates. Because the. intent of the Legislature was to provide a way to reduce premiums for those individuals who already had medical coverage, the coordination of benefits clause in the no-fault insurance policy is given effect.

B

Unlike Federal Kemper, supra, the issue currently before this Court is whether a coordinated health insurance policy requires the insurer to pay the insured the value of medical expenses that have been paid under the uncoordinated no-fault policy. Enforcement of both insurance contracts as written presents no conflict with the dual purposes of § 3109a. Enforcing the policies as written eliminates duplicate coverage and reduces health insurance and medical costs.

Under the no-fault act, the consumer has the choice whether to coordinate coverage on the no-fault side of his insurance. There is not a corresponding guarantee that the selection of an uncoordinated no-fault insurance policy will dictate the terms of whatever other insurance one might have. The purposes of the act would not be furthered by such a rule. The act closely regulates no-fault insurance. The statute is neutral with regard to the availability and regulation of all other types of insurance. If the Legislature had desired to mandate the availability of uncoordinated insurance from group health insurance plans, such a prohibition would be reasonably found in the Coordination of Benefits Act, MCL 550.251 et seq.; MSA 24.13671 et seq.6 Section 3109a does not substantively dictate the terms of health care coverage when the consumer has uncoordinated no-fault coverage.

Plaintiff contends that without a nullification of the coordination of benefits clause, he will not be allowed to receive the insurance coverage he contracted for.⁷ The flaw in that argument is that there was no contracting between the employee, the employer, and the health care provider for uncoordinated coverage. The contract was with the no-fault carrier for uncoordinated coverage, meaning the no-fault carrier agreed to be primary in the event of a claim. The contract between the no-fault carrier and the insured cannot be said to bind php and alter the terms of the agreement it made with Meijer, Inc., to provide health insurance to its employees.

Federal Kemper is distinguishable in that it resolved a conflict between competing coordinated benefit provisions of no-fault automobile insurance policies and health insurance policies.⁸ In a conflict of coordination clauses between the no-fault carrier and the health insurance carrier, in which each has included a coordination clause, it is reasonable for the group health care provider to be primarily liable. This is because the no-fault carrier complied with § 3109a and received a reduced premium in exchange for the coordination of benefits clause. There is no doubt that the Legislature intended § 3109a to give the option of coordinating to the consumer. That option would be rendered meaningless if health care providers are allowed to opt out when the no-fault coverage is coordinated.⁹

In deciding this case, the Court of Appeals reasoned that giving effect to the health insurers coordination clause contravenes § 3109a. A prior Court of Appeals panel in Gibbard v Auto-Owners Ins Co, 179 Mich App 54; 445 NW2d 182 (1989), refused duplicate recovery under facts almost identical to those presented here. In Gibbard, the Court of Appeals enforced the coordination of benefits clause included in a health insurance policy where the insured carried uncoordinated no-fault automobile insurance. The Court presumed that the premiums charged for the health insurance policy would have been adjusted downward to reflect the inclusion of the coordination of benefits clause. With presumably smaller premiums, the cost of insurance is contained and duplicate recovery is eliminated. Gibbard, supra, p 57. In awarding duplicate benefits to the plaintiff in this case, the Court of Appeals was not willing to presume a downward adjustment of premiums.¹⁰

The analysis of the Court of Appeals falters in that it misapprehends the Legislature’s intent. Section 3109a does not require a health insurer to demonstrate a premium rate reduction to validate a coordination of benefits clause in the certificate of coverage. Section 3109a does not apply when the no-fault coverage is uncoordinated.

Federal Kemper, supra, gave effect to the coordination clause in a no-fault insurance policy because the availability of coordinated no-fault insurance was the true option granted in § 3109a. Federal Kemper does not purport to transform all coordination of benefits clauses in health insurance contracts into uncoordinated policies. Section 3109a controls the treatment of the no-fault insurance, not the status of health insurance. The purchase of uncoordinated no-fault insurance that could provide a double recovery is not the "true option” granted in § 3109a.¹¹

While the rationale for today’s holding is a finding of neutrality expressed by the Legislature with regard to the availability of uncoordinated health insurance when no-fault is uncoordinated, we note that there are strong policy reasons to discourage duplicate coverage. There is a growing concern for the availability of insurance at affordable rates. The cost of claims inevitably affects the premiums charged. Of equal concern is cost-effective health care. Health care decisions should be based on health care needs and not influenced by what the matching cash grant might be.

There is no current state or federal law that imposes a mandatory duty on anyone, including employers, to provide comprehensive health and accident coverage. Section 3109a does not prevent an employer from discontinuing benefits. The statute does not prevent an employer from reducing health benefits from uncoordinated to coordinated.¹²

Regardless of the number of motor vehicles insured or insurers providing security in accordance with this chapter, or the provisions of any other law providing for direct benefits without regard to fault for motor or any other vehicle accidents, a person shall not recover duplicate benefits for the same expenses or losses incurred under this section. [MCL 500.3107(6); MSA 24.13107(6).]

Plaintiff is correct in his statement that the effect of not selecting coordinated no-fault coverage was that he subsidized his health plan. The fact that plaintiff purchased uncoordinated no-fault insurance did not, however, provide a windfall for php. (There may have been at least a theoretical windfall to other Meijer employees who had coordinated no-fault and were able to indirectly share in the savings available for distribution to all employees as a result of plaintiff’s offset claim.) The fact that State Farm was responsible for paying Michelle Smith’s medical expenses arising out of the automobile accident was similar to other variables in the cost of insuring the plaintiff such as whether he was a cigarette smoker or exercised regularly. Group health insurers do not make inquiry into these matters because the nature of group health insurance is pooled risk. It would not be characterized as an unjust windfall if one employee disliked doctors and refused to seek any medical care in a given year, thus reducing the actual expense of providing health care to the entire group, which in turn reduced the next year’s premium.

Whether or not group health care insurers are unilaterally inserting coordination clauses in their coverage without any corresponding reduction in premium is a matter of contract between the concerned parties.

iv

Having decided that there is nothing explicit or implicit in § 3109a to prevent enforcement of the coordination clause in the health care policy, resolution of this case is a matter of simple contract interpretation. There is nothing in the statutory scheme to enable the plaintiff to unilaterally un-coordinate his health insurance.¹³

In Tousignant v Allstate Ins Co, 444 Mich 301; 506 NW2d 844 (1993), this Court recognized the importance of freedom of choice of the contracting parties. The option of coordinating no-fault and health insurance coverage allows individuals to tailor their insurance coverage to their own special needs.

There are valid reasons why an individual with health insurance provided by an hmo plan might want to pay an extra premium to ensure that the no-fault premium is primary. Under most hmo coverage, the ability to seek treatment outside the service area is limited. Purchasers who elect uncoordinated no-fault may have a greater range of choice and control over who their treating physician will be, what type of treatment is possible, and where such treatment can be obtained.

The plaintiff’s claim is for breach of contract. Insurance policies will be treated like other contracts. Group Ins Co of Mich v Czopek, 440 Mich 590; 489 NW2d 444 (1992). Php’s certificate of coverage is clear and unambiguous on its face. It can be given its plain meaning without any conflict with the no-fault contract. We will not create ambiguity where none exists. Edgar’s Warehouse, Inc v United States Fidelity & Guaranty Co, 375 ; 134 NW2d 746 (1965). Absent a conflict with § 3109a, we must enforce the php contract as written. Raska v Farm Bureau Mutual Ins Co of Michigan, 412 Mich 355, 361-362; 314 NW2d 440 (1982). We cannot hold php liable for a risk it did not assume. Illinois Employers Ins of Wausau v Dragovich, 139 Mich App 502, 507-508; 362 NW2d 767 (1984); Kaczmarck v La Perriere, 337 Mich 500; 60 NW2d 327 (1953).

There were two actuarial determinations based on the terms of each contract to determine the premium or other consideration. The plaintiff received what was paid for under each contract. Plaintiff paid an extra premium in order to make the no-fault coverage primary. State Farm has fully performed. Meijer, Inc., the plaintiff’s employer, paid for health care coverage with coordinated benefits. Meijer got what it paid for. Paying extra money to a no-fault carrier for an uncoordinated policy does not transform plaintiff’s other insurance contract. The health insurance premium was based on the inclusion of a coordinated benefits clause.

v

Our decision today places the burden on the consumer to tailor one’s no-fault coverage to the particular health insurance one happens to have. If the health insurance contains a coordinated benefits clause, the insured may be well advised to select the option of coordinated no-fault insurance at a lower premium.

Therefore, the decision of the Court of Appeals is reversed, and the trial court’s summary judgment for the plaintiff is vacated. The matter is remanded to the trial court for entry of summary disposition for the defendant on the issue whether plaintiff is entitled to payment in the amount of the medical expenses incurred by Michelle Smith.

Cavanagh, C.J., and Boyle, Riley, Griffin, and Mallett, JJ., concurred with Brickley, J.

1 MCL 500.3109a; MSA 24.13109(1) provides in pertinent part:

An insurer providing personal protection insurance benefits shall offer, at appropriately reduced premium rates, deductibles and exclusions, reasonably related to other health and accident coverage on the insured.

2 In not finding a legislative intention to prohibit health insurers from including clauses to coordinate benefits with uncoordinated no-fault automobile insurance, it is unnecessary to determine the following: 1) whether such a state legislative policy is preempted by the federal Employee Retirement Insurance Security Act, 29 USC 1001 et seq., and the federal Health Maintenance Organization Act, 42 USC 300e, et seq., as was recently addressed by this Court in Auto Club Ins Ass’n v Frederick & Herrud, Inc, 443 Mich 358; 505 NW2d 820 (1993); 2) whether the Physician’s Health Plan coverage qualifies as an erisa plan; 3) whether defendant Physician’s Health Plan failed to preserve the preemption issue by raising it for the first time at the motion for rehearing in the Court of Appeals; 4) whether php’s certificate of coverage provides by its terms that the minimum requirements of the statutes of the jurisdiction in which it is delivered will be given effect, thus contracting to preclude preemption; 5) whether the trial court and the Court of Appeals premised their decision on an erroneous factual assumption regarding php’s method of determining premiums; and 6) whether requiring an hmo to make a cash payment to an insured would violate 42 USC 300e-9(d) and MCL 333.21077; MSA 14.15(21077).

3 If any Covered Person is eligible for services or benefits under two or more Plans, the coverage under those Plans will be coordinated so that up to, but no more than, 100% of any Eligible Expenses will be paid for, or provided by, all such Plans combined. Primary Responsibility for providing these services or benefits will be determined in the following order:

(1) Any Plan providing benefits or services under:

(a) Any Workers’ Compensation Act or similar law;

(b) Any No-Fault Automobile Insurance Act or similar laws. Benefits are not provided for services for treatment of any automobile-related injury to the extent to which the member is covered under any automobile-related policy.

4 The certificate of coverage provided:

Php shall be entitled to:

(1) Determine whether and to what extent a Covered Person has indemnity or other coverage for the Health Services covered under the Contract;

(2) Establish in accordance with (1) through (6) above priorities for determining Primary Responsibility, among the Plans obligated to provide health care services or indemnity benefits;

(3) Release to or obtain from any other Plan any information needed to implement this provision; and

(4) Recover the value of Health Services rendered to the Covered Person under the Contract to the extent that such Health Services are actually provided or indemnified by any other Plan.

5 Although we agree that the factual situation in Albright v Butterworth HMO, 196 Mich App 283; 492 NW2d 457 (1992), is virtually indistinguishable from that presently before us, we reject defendant’s contention that the Court of Appeals should have been bound by Albright when deciding this case.

In Albright, the plaintiffs were attempting to recover duplicate recovery for medical expenses where there was uncoordinated no-fault automobile insurance and coordinated health insurance which attempted to coordinate with the no-fault coverage. Unlike the present case, however, the plaintiffs contended that the Coordination of Benefits Act, MCL 550.251 et seq.; MSA 24.13671 et seq., rather than the no-fault act, mandated duplicate recovery.

MCL 550.253(2); MSA 24.13673(2) provides:

Any such policy or certificate which contains a coordination of benefits provision shall provide that benefits under the policy or certificate shall not be reduced or otherwise limited because of the existence of another nongroup contract which is issued as a hospital indemnity, surgical indemnity, specified disease, or other policy of disability insurance as defined in section 3400 of the insurance code of 1956, Act No. 218 of the Public Acts of 1956, being section 500.3400 of the Michigan Compiled Laws.

The Court of Appeals panel in Albright held that an hmo is authorized to include coordination of benefits clauses relating to no-fault automobile insurance pursuant to MCL 500.3610a; MSA 24.13610(1), and that such a clause is not invalid under the Coordination of Benefits Act.

MCL 500.3610a; MSA 24.13610(1) provides:

(1) A group disability insurance policy may contain provisions for the coordination of benefits otherwise payable under the policy with benefits payable for the same loss under other group insurance; automobile medical payments insurance; or coverage provided on a group basis by hospital, medical, or dental service organizations, by union welfare plans, or employee or employer benefit organizations.

(2) If a group disability insurance policy contains a coordination of benefits provision, the benefits shall be payable pursuant to the coordination of benefits act.

The Albright decision did not address whether MCL 500.3109a; MSA 24.13109(1) prohibits the coordination of benefits clause contained in the health insurers certificate of coverage, therefore it cannot be said to be binding precedent on the Court of Appeals panel in this case pursuant to Administrative Order No. 1990-6.

6 On the contrary, the Legislature has expressly provided that health care corporations may issue certificates which coordinate benefits. MCL 550.1401(5); MSA 24.660(401X5).

7 Plaintiff presented in the trial court evidence of premium rates obtained from three different insurance companies. Although irrelevant to our analysis, we note that the difference in annual premiums between the less expensive coordinated coverage and uncoordinated coverage averaged approximately $35.

8 The Court in Federal Kemper cautioned that the ruling addressed the situation in which only the no-fault policy was coordinated:

Our decision today is made in the factual context in which the no-fault insured chose coordinated coverage and the no-fault insurer, accordingly, charged a lower premium rate. We express no view as to what the result would be when the insured does not so elect and the no-fault premium is not correspondingly reduced. We note, however, that at oral argument, plaintiff’s counsel admitted that in that situation the no-fault insurer would not be secondary, nor entitled to reimbursement from the health insurer. [424 Mich 552, n 10.]

9 That option is not rendered meaningless when the no-fault coverage is uncoordinated.

10 Discovery established that defendant did not make any specific inquiry into the status of the no-fault automobile insurance coverage for individual employees and then set rates accordingly with regard to each individual. However, there was testimony by Glen Meinecke, manager of provider reimbursement with php, that the capitation rates used by php were based on actual claims made during the prior year. The presence of the coordination clause resulted in less actual expense and necessarily reduced annual premiums to be charged in the next year.

11 Today’s decision is consistent with recent legislation eliminating duplicative benefits. 1993 PA 143 (HB 4156, effective 1994):

12 Relying on Transamerica Ins Co of North America v Peerless Industries, 698 F Supp 1350 (WD Mich, 1988), exclusions written into health insurance polices that deny coverage for all automobile accident related claims have been upheld by the Court of Appeals. Wolverine Mutual Ins Co v Rospatch Corp Employee Benefit Plan, 195 Mich App 302; 489 NW2d 204 (1992); Transamerica Ins Co of America v IBA Health & Life Assurance Co, 190 Mich App 190; 475 NW2d 431 (1991); Auto-Owners Ins Co v Autodie Corp Employee Benefit Plan, 185 Mich App 472; 463 NW2d 149 (1990).

13 In response to Justice Levin’s dissent, post, pp 772-773, in which it is asserted that the majority has not provided a reason that an insured would purchase uncoordinated no-fault insurance other than double recovery, we observe that even if double recovery is the aim of the insured, it is not the responsibility of the health insurer to provide the benefit the insured seeks from the no-fault carrier. While it may be obvious that the insured wanted double recovery, the fact remains that he only contracted with one of the two necessary parties. He contracted for uncoordinated benefits from his no-fault insurer, which he received, and for coordinated coverage from his health insurer, which he received. That the insured did not get more than his bargain is not a problem to be rectified by either the health insurer or this Court.