Med-Pay And Subrogation

Fort Worth lawyers who handle car wreck cases need to be aware of the subrogation rights an insurance company has when a Med-Pay claim is made. The Dallas Court of Appeals dealt with this issue in 1970, in the case styled, Foundation Reserve Insurance Company v. Cody. Here is what happened.
Cody brought this action against Foundation seeking to recover the sum of $500, together with interest, penalty and attorney’s fees, alleged to be due him pursuant to the terms of ‘Medical Pay’ coverage of a family automobile policy issued to John D. McKee.
The facts were stipulated. On January 21, 1969 William Don Cody was riding in an automobile driven by John D. McKee in Dallas County, Texas when the car was involved in an accidental collision with another vehicle resulting in bodily injury to Cody. As a result of the accident Cody incurred reasonable medical expenses in excess of $500 within one year following the date of the accident. In due time Cody furnished proof of loss to Foundation in which he made demand for payment of the sum of $500, being the maximum amount of recovery provided for medical payments in the family automobile policy issued to McKee. In the meantime Cody made a claim against a third party for bodily injury and medical expenses arising from the collision and has heretofore settled his claim with such third party for a sum in excess of $500 by giving a general release to such third party. Foundation is a foreign insurance company and not qualified to write insurance in the State of Texas, such policy having been issued within the State of New Mexico to McKee who was then a resident of the State of New Mexico. The policy afforded various coverages including public liability, physical damage, uninsured motorist coverage, and expenses for medical services.
Part II–‘Expenses for Medical Services’ of the policy provided that the company would pay all reasonable expenses (with maximum of $500) incurred one year from the date of accident for necessary medical, surgical, x-ray and dental services, etc.:
‘Division 1. To or for the named insured and each relative who sustains bodily injury, sickness or disease, including death resulting therefrom, hereinafter called ‘bodily injury’, caused by accident, * * *;
‘Division 2. To or for any other person who sustains bodily injury, caused by accident, while occupying (a) the owned automobile, while being operated by any Person Insured as defined in Part I; * * *.’

Cody was in the category of persons specified in Part II, Division 2(a) above quoted.
Paragraph 13 of ‘Conditions’ of the policy provided:
‘SUBROGATION Parts I, II, and III In the event of any payment under this policy, the company shall be subrogated to all the insured’s rights of recovery therefor against any person or organization and the insured shall execute and deliver instruments and papers and do whatever else is necessary to secure such rights. The insured shall do nothing after loss to prejudice such rights.’

The parties stipulated that the only issues to be determined by the court were: (1) Does Condition 13 in the policy prohibit Cody from recovering the $500 medical pay benefits, and (2) if he is entitled to recover the same, may he also recover penalty, interest and attorney’s fees?
The trial court, based upon the stipulation, rendered judgment for Cody.
Foundation attacked this judgment in three principal points of error wherein it contends that since Cody was an ‘insured’ within the meaning of the contract of insurance in question, and since Cody had admittedly recovered medical benefits from a third party and had given such party a general release, such action clearly violated the subrogation provision of the policy so as to bar Cody from recovery.
It is the law of Texas, as well as of New Mexico, that where a person insured under a contract which contains a right of subrogation on behalf of the insurance company settles with or releases a wrongdoer from liability for a loss before payment has been made by the the insurance company, the latter’s right of subrogation is thereby destroyed. Having done this, the insured forfeits any claim for indemnity under the policy.
The principal difference between Foundation and Cody is whether Cody, who is admittedly a ‘person’ entitled to indemnity under the provision of Division 2 of Part II of the insurance contract in question, is also an ‘insured’ as that term is used in connection with Condition 13, ‘SUBROGATION’. A resolution of this question requireed that the entire contract of insurance be studied. The contract in this case affords insured’s coverage to McKee for public liability and property damage losses under Part I and Part III of the policy. Part IV insures McKee and ‘any other person while occupying an insured automobile’ against loss caused by an uninsured motorist. These insurance coverages are the typical ones generally found in a standard automobile insurance policy.
However, Part II, entitled ‘Expenses for Medical Services’, is a different type of insurance coverage. This coverage possesses separate and distinct legal characteristics. Texas has acknowledged the rule, followed generally, that a provision for recovery of medical payments in an automobile policy constitutes a separate accident insurance coverage .
Clauses of this type have been said to constitute, in effect, separate accident insurance coverage and the obligation runs to the injured person, rather than to the person insured against liability, the contract being one of insurance for the benefit of a third person.
In the various provisions of the policy a definite distinction is made between ‘named insured’ and ‘persons insured’. It is quite clear from the terms of the contract, considered as a whole, that ‘persons insured’ includes ‘any other persons’. By the very nature of things a person qualified to receive benefits under the terms and provisions of Part II, and thereby becoming a beneficiary under the policy dealing with medical payments, certainly falls within the meaning of the word ‘insured’ as used in Condition 13, ‘SUBROGATION’ . The word ‘insured’ as used in the subrogation condition, quoted above, is not shown to be limited to McKee but to ‘any other person’ as defined in Division 2 of Part II, including Cody. When all of the terms and conditions of the contract are viewed as a whole the court found no ambiguity as to the meaning of the term ‘insured’ as used in the subrogation condition. Cody, being admittedly entitled to recover under Part II for medical benefits, is an ‘insured’ within the subrogation condition so that his acts and conduct in admittedly receiving compensation from a third party and signing a general release certainly acted to defeat the rights of Foundation and thereby bar Cody from recovery against Foundation.
The judgment of the trial court was reversed and judgment rendered that Cody take nothing.