(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the
convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in
the interests of brevity, portions of any opinion may not have been summarized).
Argued February 14, 2001 -- Decided June 26, 2001
LONG, J., writing for a unanimous Court.
The issue presented in these consolidated appeals is whether the collateral source rule embodied in N.J.S.A.
2A:97-15 allows a health insurer, who expends funds on behalf of an insured, to recoup those payments through
subrogation or contract reimbursement when the insured recovers a judgment against a wrongdoer.
The first of the consolidated cases, the Beninato case, arose when Takako Beninato, a professional dog
groomer, was seriously injured by a dog owned by Lenore and Leonard Achor. Beninato's health insurer, Oxford
Health Plans, Inc. (Oxford), paid $7,357 for Beninato's medical expenses. Beninato then sued the Achors, whose
homeowner's insurance carrier, Preferred Mutual Insurance Company (Preferred), defended the suit.
While the underlying case was pending, the Achors and Preferred filed a declaratory action against Oxford,
seeking a judgment that Oxford was barred by the collateral source statute from asserting a subrogation or
reimbursement remedy. That action was consolidated with the Beninato's negligence action that had settled for
$95,000. The settlement release expressly stated that payment for medical bills and expenses incurred were not
included in the settlement amount.
Oxford moved for judgment as a matter of law on the declaratory action, contending that if medical
expenses were included in the settlement, it had a right to be reimbursed for what it had expended on behalf of
Beninato. If those expenses were not included in the settlement, then Oxford claimed a right to bring a subrogation
action against the Achors for repayment. The Achors and Preferred argued that the collateral source statute and the
subrogation language in the Oxford contract were in conflict with each other. The trial court entered judgment for
the Achors and Preferred, concluding that Oxford's claim was barred by the collateral source statute.
The Perreira case arose when Maria Perreira fell on the premises of Columbia Savings Bank (Columbia).
Perreira sued Columbia along with its liability carrier Atlantic Mutual Insurance Company (Atlantic), Michael
Rediger, the bank's snow removal contractor, and Rediger's liability carrier, the Preserver Insurance Company
(Preserver). In that case, Oxford Perreira's health insurer, had paid about $13,000 for her medical expenses.
While the negligence suit was pending, the Perreiras filed a declaratory action against Oxford, Rediger,
Atlantic, and Preserver, seeking a judgment that Oxford was barred by the collateral source rule from either
reimbursement or subrogation. That action was consolidated with Perreira's negligence action.
The Perreiras moved for summary judgment, arguing that under the collateral source rule, Oxford could
not assert a lien on their recovery in the tort action. The trial court agreed, granting the motion. Oxford appealed to
the Appellate Division, which reversed, holding that the collateral source rule does not bar the health insurer of an
insured plaintiff in a non-PIP personal injury negligence action from asserting a claim for reimbursement from the
injured party or subrogation from the wrongdoer. The Appellate Division based its decision on the Oxford contract
that contained a provision permitting reimbursement for the reasonable value of medical expenses when the insured
obtains money from a third-party action. The court also held that Oxford had a common-law equitable right of
subrogation against the Achors and Rediger for the amount of money it spent due to the tortious conduct and that
the collateral source statute's silence on the subject of subrogation demonstrated a desire not to alter or affect the
well-established common-law right.
The Supreme Court granted certification.
HELD: The collateral source rule, N.J.S.A. 2A:15-97, does not allow health insurers who pay medical expenses on
behalf a an injured party to recoup those payments through subrogation or contract reimbursement when
the insured recovers a judgment against the culpable party.
1. The common-law collateral source rule allows an injured party to recover the value of medical treatment from a
culpable party, regardless of payment of actual medical expenses by the injured party's insurance carrier. The
wrongdoer could not reduce payment of a tort judgment by the amount of money received by an injured party from
other sources and evidence that the injured party received payment from such other sources was inadmissible. (Pp.
7-9)
2. In the early to mid-1980's, state legislatures began to revisit the collateral source rule. In order to contain
insurance costs, it was suggested that a tort judgment be reduced by collateral sources of compensation for the same
injury, thereby eliminating double recovery. N.J.S.A. 2A:15-97 was adopted in 1987. That statute eliminates
double recovery by directing the court to deduct from any tort judgment the amount received by the injured party
from collateral sources (other than workers' compensation and life insurance) less any insurance premiums the
injured party has paid. The statute is silent regarding any right to subrogation or reimbursement on the part of
health insurers; however, the legislative history is instructive. That history reaffirms the plain language of the
statute and underscores that it has more than one purpose. The primary purpose is to eliminate double recovery to
plaintiffs. The secondary goal is containment of spiraling insurance costs. The legislative history further reveals
that the Legislature chose to benefit liability carriers, rather than health insurance carriers, by reducing the tort
judgment by the amount of health care received. Health insurers were left in the same position they had been before
the enactment of the statute--with no right to recover paid benefits from the insured or the wrongdoer. (Pp. 9-16)
3. Because the Court has found no evidence of a common-law equitable right of health insurers to subrogation that
pre-dated the statute, it need not answer the question of the statutory silence on the subject of subrogation.
Although policies covering property damage such as fire insurance have regularly been held to include an implied
right of subrogation, the same has not been true in the area of personal insurance, which includes health and medical
insurance. The weight of authority concludes that no such right of subrogation exists in the health insurance area.
Most significant is the fact that if health insurers had a common-law equitable right to be repaid out of a tort
judgment for health care costs they advanced to the injured plaintiff, the entire notion of double recovery would not
have existed. (Pp. 16-21)
4. The contract provision in Oxford's policies providing for reimbursement was not authorized by law at the time
that the collateral source rule was amended in 1987. However, sometime later, the Commissioner of Insurance
permitted such provisions in large group heath insurance policies and, it is pursuant to that authority, that the Oxford
reimbursement provision was included in the contract. Although great deference is usually afforded agency
determinations, an administrative code provision must give way if it is inconsistent with a state statute. The
amended collateral source statute eliminated double recovery to plaintiffs and allocated the benefit of that
amendment to the liability insurance industry. The Commissioner of Insurance cannot alter that scheme.
Accordingly, the regulations authorizing the inclusion of subrogation and reimbursement provisions in health
insurance contracts must be interpreted narrowly as limited to cases in which the collateral source rule does not
apply. Thus, Oxford cannot invoke the contract provision as a basis for reimbursement here. (Pp. 21-24)
Judgment of the Appellate Division is REVERSED. The judgments of the trial court are REINSTATED.
CHIEF JUSTICE PORITZ and JUSTICES STEIN, COLEMAN, VERNIERO, LAVECCHIA and
ZAZZALI join in JUSTICE LONG'S opinion.
SUPREME COURT OF NEW JERSEY
A-
145 September Term 1999
MARIA PERREIRA and LUCIANO
PERREIRA,
Plaintiffs,
v.
MICHAEL C. REDIGER t/a, MCR
HORTICULTURAL ENTERPRISES and
THE PRESERVER INSURANCE
COMPANY, as insurer for
Michael C. Rediger t/a
Horticultural Enterprises,
Defendants-Appellants,
and
OXFORD HEALTH PLANS (NJ),
INC.,
Defendant-Respondent,
and
COLUMBIA SAVINGS BANK and/or
COLUMBIA SAVINGS BANK OR ITS
INSURER, ATLANTIC MUTUAL
INSURANCE COMPANY a/k/a
CENTENNIAL INSURANCE COMPANY,
Defendants.
LEONARD ACHOR, LENORE ACHOR
and PREFERRED MUTUAL
INSURANCE COMPANY, as insurer
for the Achors,
Plaintiffs-Appellants,
v.
OXFORD HEALTH PLANS, INC.,
TAKAKO BENINATO and MICHAEL
BENINATO,
Defendants-Respondents.
Argued February 14, 2001 -- Decided June 26, 2001
On certification to the Superior Court,
Appellate Division, whose opinion is reported
at
330 N.J. Super. 455 (2000).
Fredric Paul Gallin argued the cause for
appellants (Methfessel & Werbel, attorneys).
Scott S. Levinson argued the cause for
respondents Oxford Health Plans (NJ), Inc.
and Oxford Health Plans, Inc.
Frank P. Beninato, Jr., submitted a letter in
lieu of brief on behalf of respondents Takako
Beninato and Michael Beninato.
Michael J. Cernigliaro and Stephen J.
Foley,Jr., submitted briefs on behalf of
amicus curiae New Jersey Defense Association
(Campbell, Foley, Lee, Murphy & Cernigliaro,
attorneys).
Franklin P. Solomon submitted a brief on
behalf of amicus curiae Association of Trial
Lawyers of America-New Jersey (Weitz &
Luxenberg, attorneys).
The opinion of the court was delivered by
LONG, J.
The question presented in these consolidated appeals is
whether the collateral source rule embodied in N.J.S.A. 2A:97-15
allows a health insurer, who expends funds on behalf of an
insured, to recoup those payments through subrogation or contract
reimbursement when the insured recovers a judgment against a
tortfeasor. The answer is no.
The purpose underlying N.J.S.A. 2A:15-97 is twofold: to
eliminate the double recovery to plaintiffs that flowed from the
common-law collateral source rule and to allocate the benefit of
that change to liability carriers. Allowing health insurers to
recover funds expended pursuant to an insurance contract either
by way of subrogation or contract reimbursement would reallocate
the benefit accorded by N.J.S.A. 2A:15-97 in contravention of the
underlying legislative intent Accordingly, we hold such
recovery to be interdicted by the statutory scheme.
I
The Beninato case arose when Takako Beninato, a professional
dog groomer, was seriously injured during a grooming session
involving a dog owned by Lenore and Leonard Achor. Beninato's
health insurer, Oxford Health Plans, Inc. (“Oxford”), paid $7,357
for her medical expenses. Beninato then sued the Achors, whose
homeowner's insurance carrier, Preferred Mutual Insurance Company
(“Preferred”), defended the suit.
While the underlying case was pending, the Achors and
Preferred filed an action against Oxford, seeking a declaration
that Oxford was barred by the collateral source statute,
N.J.S.A. 2A:15-97, from asserting a subrogation or reimbursement
remedy. That action was consolidated with the Beninatos'
negligence action that settled for $95,000. The release
expressly stated that “payment for medical bills and expenses
incurred” are not included in that amount.
Oxford moved for summary judgment, arguing that if medical
expenses were included in the settlement, it had a right to be
reimbursed for what it expended on behalf of Beninato. If those
expenses were not included in the settlement, then Oxford claimed
a right to bring a subrogation action against the Achors for
repayment. The Achors and Preferred argued that “the collateral
source rule and the subrogation provision within [Oxford's]
insurance contract conflict with each other.” The trial court
entered judgment for the Achors and Preferred, concluding that
Oxford's claim was barred by the collateral source statute.
Oxford appealed.
The Perreira case arose when Maria Perreira fell on the
premises of the Columbia Savings Bank (“Columbia”). She sued
Columbia along with its liability carrier Atlantic Mutual
Insurance Company (“Atlantic”), Michael Rediger, the bank's snow
removal contractor and Rediger's liability carrier, the Preserver
Insurance Company (“Preserver”). In that case, Oxford,
Perreira's health insurer, had paid about $13,000 for her medical
expenses.
While that suit was pending, the Perreiras filed an action
against Oxford, Columbia, Rediger, Atlantic, and Preserver,
“seeking a declaration that Oxford was barred by the collateral
source statute from either reimbursement or subrogation against
the defendants.” That action was consolidated with the
Perreira's negligence action.
The Perreiras moved for summary judgment, arguing that under
the collateral source rule, Oxford could not assert a lien on
their recovery in the tort action. The trial court granted the
motion and Oxford appealed. After the grant of summary judgment,
the Perreiras entered into a settlement with Columbia and
Rediger, the terms of which have not been disclosed.
The Appellate Division consolidated Oxford's appeals and
reversed, holding that the collateral source rule does not bar
the health insurer of a plaintiff in a non-PIP personal injury
negligence action from asserting a claim for reimbursement from
the plaintiff or subrogation against the tortfeasor. In so
doing, the court observed that its ruling “places the ultimate
burden on the tortfeasor, where in fairness it belongs . . . .”
Perreira v. Rediger,
330 N.J. Super. 455, 466 (2000).
The Appellate Division based its conclusion on two distinct
grounds. One was Oxford's insurance contract that contained the
following provision for reimbursement from the insured:
If a Member is injured or becomes ill through
the act of a third party, Health Plan shall
provide care for such injury or sickness.
Acceptance of such services will constitute
consent to the provisions of this section.
Upon providing care for such injury or
sickness pursuant to the terms of this
agreement, Health Plan shall be permitted to
recover the reasonable value of such care for
injury or sickness, when payment is made
directly to the Member in third party
settlements or satisfied judgments.
The Member shall cooperate fully to assist
Health Plan in protecting its legal rights
under this Part X.
[Emphasis added.]
The court also held that Oxford had a common-law equitable right
of subrogation against the Achors and Rediger for the amount of
money it spent due to their tortious conduct and that the silence
of N.J.S.A. 2A:15-97 “on the subject of subrogation bespeaks its
intention not to alter or affect that well-established common-law
right.” Perreira, supra, 330 N.J. Super. at 461. Thereafter,
the court outlined a methodology to effectuate a health insurer's
subrogation and contract reimbursement rights after trial and
upon settlement. Id. at 465-66.
The Achors and Rediger filed a petition for certification
that we granted. Perreira v. Rediger,
165 N.J. 491 (2000). We
now reverse.
II
The Achors and Rediger argue that the collateral source
rule, N.J.S.A. 2A:15-97, bars any action by Oxford either by way
of contract reimbursement or equitable subrogation to obtain
repayment of its health insurance payments to Beninato and
Perreira and that the methodology adopted by the Appellate
Division to provide for such repayment runs afoul of the statute.
Oxford counters that the collateral source rule was not
meant to affect its pre-existing equitable right of subrogation
against the tortfeasors who injured Beninato and Perreira or to
limit its contract right of reimbursement from its insured and
that the Appellate Division's scheme for effectuating those
rights conforms with the statute.
The New Jersey Defense Association and the Association of
Trial Lawyers, in a rare convergence of views, argue that the
collateral source rule interdicts subrogation and contract
reimbursement by health insurers.
III
The collateral source rule, with deep roots in English
common law, is firmly embedded in American common law as well.
It was first cited in an American judicial decision in 1854 and
has had continued currency in the centuries to follow. Michael
F. Flynn, Private Medical Insurance and the Collateral Source
Rule: A Good Bet?,
22 U. Tol. L. Rev. 39, 40 (1990)(citing The
Propeller Monticello v. Mollison, 58 U.S. (16 How.) 152 (1854)).
The common law collateral source rule “allows an injured party to
recover the value of medical treatment from a culpable party,
irrespective of payment of actual medical expenses by the injured
party's insurance carrier. The purpose of the collateral source
rule is to preserve an injured party's right to seek tort
recovery from a tortfeasor without jeopardizing his or her right
to receive insurance payments for medical care.” Ibid. The rule
“prohibits the tortfeasor from reducing payment of a tort
judgment by the amount of money received by an injured party from
other sources” and “bars the submission of evidence that the
injured plaintiff received payment for any part of his damages,
including medical expenses, from other sources.” Id. at 42. It
is thus a rule of damages as well as a rule of evidence. Ibid.
According to the Restatement (Second) of Torts § 920A(2)
(1977), under the collateral source rule, payments made to an
injured party by a source other than the tortfeasor are “not
credited against the tortfeasor's liability, although they cover
all or a part of the harm for which the tortfeasor is liable.”
The policy advanced by the rule is that “a benefit that is
directed to the injured party should not be shifted so as to
become a windfall for the tortfeasor.” Id. § 920A comment b.
Thus, if an injured party has the foresight to provide that his
or her medical expenses will be paid by maintaining an insurance
policy, the common law collateral source rule allows him or her
to benefit from that foresight by recovering not only the
insurance proceeds but also the full tort judgment. Ibid.
However, in the early to mid-1980's, state legislatures
began to revisit the collateral source rule based on the notion,
advanced by insurance industry analysts, that the rule
contributed “to the liability insurance availability and
affordability crisis in this country . . . .” Christian D.
Saine, Note, Preserving the Collateral Source Rule: Modern
Theories of Tort Law and a Proposal for Practical Application, 47
Case W. Res. L. Rev. 1075, 1080 (1997). Indeed, in 1986, a
report commissioned by the Attorney General of the United States
and prepared by a governmental inter-agency working group and the
White House recommended a series of initiatives to address “the
rapidly expanding crisis in liability insurance availability and
affordability.” Report of the Tort Policy Working Group on the
Causes, Extent and Policy Implications of the Current Crisis in
Insurance Availability and Affordability 1 (Feb. 1986). Included
among those initiatives was the suggestion that tort judgments be
reduced by collateral sources of compensation for the same
injury. Id. at 70.
In response, many state legislatures passed comprehensive
tort reform legislation in the latter half of the 1980's.
Statutory modification of the collateral source rule in one form
or another was a common factor among those different legislative
initiatives. Christian D. Saine, supra, 47 Case W. Res. L. Rev.
at 1075. No universal approach was adopted in all jurisdictions.
One common legislative reform to avoid double recovery to
plaintiffs requires a tort judgment to be reduced by the amount
of collateral source payments but specifies that such reduction
will not occur if a subrogation or reimbursement right exists.See footnote 11
Alaska Stat. § 09.17.070(a)(Michie 1998); Colo. Rev. Stat. Ann. §
13-21-111.6 (West 2001); Conn. Gen. Stat. Ann. § 52-225a (West
1991); Fla. Stat. Ann. § 768.76(1) (West Supp. 2000); Haw. Rev.
Stat. § 633-10 (1986), Idaho Code § 6-1606 (1998);
735 Ill. Comp.
Stat. 5/2-1205.1 (West 1992); Me. Rev. Stat. Ann. tit. 24, § 2906
(West 2000); Mich. Comp. Laws Ann. § 600.6303 (West 2000); Minn.
Stat. Ann. § 548.36 (West 2000); Mont. Code Ann. § 27-1-308 (West
2000), Utah Code Ann. § 78-14-4.5 (1953).
A second approach permits a plaintiff to introduce evidence
at trial of collateral source benefits received, presumably to
reduce the amount of the tort judgment and benefit liability
carriers. Cal. Civil Code. Ann. § 3333.1 (West 2001); Ga. Code
Ann. § 51-12-1 (West 2000). Within that category, contractual
reimbursement is allowed and subrogation denied to the health
insurers in some states. Ga. Code. Ann. § 33-24.56.1 (West 2000).
In other states, contract reimbursement and subrogation are
specifically prohibited. Cal. Civil Code. Ann. § 3333.1(b) (West
2001).
A third approach does not purport to tinker with the common-
law collateral source rule at all, but simply creates a statutory
right to subrogation for health insurers, thus eliminating double
recovery to plaintiffs and benefitting the health insurance
industry. S.C. Code Ann. § 38-71-190 (Law. Co-op. 2000).
Each of the aforementioned initiatives has the effect of
avoiding double recovery to plaintiffs and thus altering the
effect of the common-law collateral source rule. However, they
differ dramatically regarding which segment of the insurance
community will benefit from the change. Where subrogation or
contract reimbursement rights are granted to health insurers,
that industry is the beneficiary of the legislative modification.
Where subrogation and reimbursement are prohibited, the liability
carriers benefit.
Like other jurisdictions, New Jersey responded to the call
for modification of the collateral source rule by enacting
N.J.S.A. 2A:15-97 in 1987. Although, like the modifications
enacted in other jurisdictions, its primary effect was to
eliminate double recovery to plaintiffs, it was not modeled
exactly on any of the other statutes. It provides:
In any civil action brought for personal
injury or death, except actions brought
pursuant to the provisions of P.L. 1972, c.
70 (C. 39:6A-1 et. seq.), if a plaintiff
receives or is entitled to receive benefits
for the injuries allegedly incurred from any
other source other than a joint tortfeasor,
the benefits, other than workers'
compensation benefits or the proceeds from a
life insurance policy, shall be disclosed to
the court and the amount thereof which
duplicates any benefit contained in the award
shall be deducted from any award recovered by
the plaintiff, less any premium paid to an
insurer directly by the plaintiff or by any
member of the plaintiff's family on behalf of
the plaintiff of the policy period during
which the benefits are payable. Any party to
the action shall be permitted to introduce
evidence regarding any of the matters
described in this act.
[N.J.S.A. 2A:15-97.]
On its face, N.J.S.A. 2A:15-97 eliminates double recovery by
directing the court to deduct from any tort judgment the amount
received by plaintiff from collateral sources (other than
workers' compensation and life insurance) less any insurance
premiums plaintiff has paid.See footnote 22 Unlike the out-of-state
enactments, the statute is silent regarding any right to
subrogation or reimbursement on the part of the health insurers.
The legislative history of the statute is instructive. The
Senate Judiciary's Committee statement to the bill, then S. 2708,
declared:
The traditional 'collateral source rule'
holds that damages awarded in a suit for
personal injury or wrongful death should not
be reduced because the insured claimant has
received insurance proceeds or other
compensation covering the same injuries. In
effect a claimant is paid twice for the same
injury.
[Statement by Senate Judiciary Committee
(October 30, 1986).]
The Committee's comments made clear that S. 2708 “would eliminate
the collateral source rule and require that awards for personal
injury be reduced by any compensating benefits which the
plaintiff has received from other sources.” Ibid. (emphasis
added).
The Assembly Insurance Committee statement to S. 2708
reiterated the Senate statement and noted a separate goal to be
achieved by the amendment:
Generally, awards in civil suits are intended
to compensate injured persons for such things
as loss of wages, medical costs, and other
costs which are attendant to the injury. To
the extent that the injured party is being
compensated for the same things from
different sources there is double recovery on
the part of the plaintiff. This bill, by
requiring that the benefits received from the
other sources be offset against the award, is
intended to effect cost containment.
[Statement by Assembly Insurance Committee
(Sept. 1, 1987)(emphasis added).]
Significantly, the Passed Bill memo prepared by Governor's
counsel stated:
This bill attempts to reduce the cost of
liability insurance by reducing the
likelihood of a 'double recovery' in a
liability award for items which were already
compensated by insurance or by other
'collateral' sources, other than a
tortfeasor.
[Passed Bill Memo to Governor Thomas H. Kean
(Dec. 7, 1987)(emphasis added.]
That legislative history reaffirms the plain language of
N.J.S.A. 2A:15-97 and underscores that it had more than one
purpose. To be sure, its primary purpose was to disallow double
recovery to plaintiffs, but a secondary goal was clearly the
containment of spiraling insurance costs. The effectuation of
no-double-recovery therefore required a separate legislative
decision regarding which segment of the insurance industry would
be the beneficiary of that disallowance. The Legislature had two
choices: to benefit health insurers by allowing repayment of
costs expended on a tort plaintiff, or to benefit liability
carriers by reducing the tort judgment by the amount of health
care benefits received.
As the legislative history reveals, the choice was made to
favor liability carriers. See Kiss v. Jacob,
138 N.J. 278, 282
(1994) (stating that intent of the legislature was to control
spiraling automobile-insurance costs); Fayer v. Keene Corp.,
311 N.J. Super. 200, 208 (App. Div. 1998) (agreeing that purpose of
statute is to shift burden to health industry); Parker v.
Esposito,
291 N.J. Super. 560, 565 (1996)(stating that purpose of
collateral source statute is to prevent double recovery thereby
giving relief from increasing costs of liability insurance);
Lusby v. Hitchner,
273 N.J. Super. 578, 591 (App. Div.
1994)(stating that legislative determination “was apparently not
only to prevent plaintiffs from obtaining a double recovery but
also, except where PIP payments are involved, to shift the
burden, at least to some extent, from the liability and casualty
insurance industry to health and disability third-party payers”).
That legislative determination took the form of a reduction from
the tort judgment of the amount received from collateral sources.
By that action, the Legislature eliminated double recovery to
plaintiffs, reduced the burden on the tortfeasors' liability
carriers and left health insurers in the same position as they
were prior to the enactment of N.J.S.A. 2A:15-97.
Although courts have identified an implied right of subrogation under certain contracts of insurance, such an implied equitable right has not been recognized with respect to all forms of insurance. Thus, for example, policies covering property damage such as fire insurance have regularly been held to include an implied right of subrogation. Couch on Insurance 3d § 222:25; Feaster v. Old Sec. Life Ins. Co., 87 N.J. Super. 339, 349-50 (Law. Div. 1965), aff'd, 91 N.J.Super 120 (1966); Williams v. Erie Ins. Group, 621 N.E.2d 770, 773 (Ohio App. 1993); Gatzweiler v. Milwaukee Elec. Ry. & Light Co., 116 N.W. 633, 635-36 (Wis. 1908). But the same has not been true in the area of personal insurance, a category that includes health and medical insurance. Couch on Insurance 3d § 222:25; Feaster, supra, 87 N.J. Super. at 349-50.
Among the courts that have addressed the question of the existence of a common-law equitable right of subrogation, the weight of authority concludes that no such right exists in the health insurance field. Couch on Insurance 3d § 222:25, § 222:26; American Pioneer Life Ins. v. Rogers, 753 S.W.2d 530, 532-33 (Ark. 1988)(stating that absent specific subrogation clause medical insurer has no right to share in proceeds of insured's settlement or recover from tortfeasor); Schultz v. Gotlund, 561 N.E.2d 652, 653-54 (Ill. 1990)(holding that because no common law or equitable right to subrogation is recognized in group health policies, absent express subrogation clause in policy, group health insurer had no right to share in proceeds of personal injury settlement between insured and tortfeasor); Frost v. Porter Leasing Corp., 436 N.E.2d 387, 389-90 (Mass. 1982)(stating that insurer providing medical and hospital expense benefits had no right of subrogation in insured's recovery against tortfeasor or personal injuries when group policy contained no express provision entitling insurer to subrogation rights); Michigan Hosp. Serv. v. Sharpe, 63 N.W.2d 638, 641-42 (Mich. 1954)(holding that equitable subrogation not allowed for health insurance contract); Ridge Tool Co. v. Silva, 515 N.E.2d 945, 946-47 (Ohio Ct. App. 1986)(denying reimbursement because health insurer's contract did not expressly provide for reimbursement in event of insured's recovery from tortfeasor); Shumpert v. Time Ins. Co., 496 S.E.2d 653, 656-58 (S.C. Ct. App. 1998)(holding that health insurance provider cannot obtain equitable subrogation of insured's recovery against third-party tortfeasor when it fails to include subrogation provision in health insurance policy); Cunningham v. Met Life Ins. Co., 360 N.W.2d 33, 38 (Wis. 1985)(stating that group hospitalization and physician's services coverage contained in same contract with indemnity coverage is in nature of investment insurance and, absent subrogation clause, insurer who paid benefits under such policy was not equitably subrogated to insured's claims). Compare Nossoughi v. Federated Dep't Stores, Inc., 175 Misc.2d 585, 669 N.Y.S.2d 479 (N.Y. County 1998)(collateral source rule did not prevent insured's health insurer from asserting equitable right to subrogation) with Vincent C. Alexander, New York Civil Practice Law and Rules, supplementary practice commentary on N.Y.C.P.L.R. 4545 (1999)(stating that “[t]he effect of CPLR 4545 on the subrogation rights of a health insurer who has reimbursed its insured remains unsettled”).
The rationale behind the rule against finding equitable subrogation in personal insurance contracts is set forth in one treatise as follows:
Subrogation rights are common under policies of property or casualty insurance, wherein the insured sustains a fixed financial loss, and the purpose is to place that loss ultimately on the wrongdoer. To permit the insured in such instances to recover from both the insurer and the wrongdoer would permit him to profit unduly thereby.
In personal insurance contracts, however, the exact loss is never capable of ascertainment. Life and death, health, physical well being, and such matters are incapable of exact financial estimation. There are, accordingly, not the same reasons militating against a double recovery. The general rule is, therefore, that the insurer is not subrogated to the insured's rights or to the beneficiary's rights under contracts of personal insurance, at least in the absence of a policy provision so providing. Nor would a settlement by the insured with the wrongdoer bar his cause of action against the insurer. However, if a subrogation provision were expressly contained in such contracts, it probably would be enforced quite uniformly. Such a provision cannot be read into a policy by calling it an indemnity contract, however.
[3 J.A. Applebaum & J.Appelbaum, Insurance Law & Practice, § 1675 at 495-97.]
Thus, courts typically have not implied a non-contractual or non-
statutory right to subrogation in health insurance.
We are satisfied that no equitable remedy of subrogation was
available to health insurers in 1987, at the time N.J.S.A. 2A:15-
97 was enacted. We reach that conclusion based on learned
treatises and the weight of cited out-of-state authority to that
effect, and on the complete lack of evidence that such a right
was ever exercised. See William A. Krais & Michael C. Weiss,
Exploring the Ruins of the Collateral Source Rule After Perreira
v. Rediger,
160 N.J.L.J. 29, 33 (June 19, 2000)(indicating that
attorneys and health insurers have never asserted any alleged
equitable right to subrogation in personal injury litigation).
Most significant to us, however, is that one of the core purposes
of N.J.S.A. 2A:15-97, as conceded by all parties, was to avoid
“double recovery” by plaintiffs. If, under the law existing
prior to 1987 when the collateral source rule was amended, health
insurers could equitably obtain repayment from tortfeasors for
the health care costs they advanced to plaintiffs, then
plaintiffs, in fact, would not have experienced double recovery
and there would have been no point to N.J.S.A. 2A:15-97. In a
word, double recovery occurs only when a plaintiff recovers not
only the health insurance proceeds but also the full tort
judgment. If health insurers had a common-law equitable right to
be repaid out of a tort judgment for the health care costs they
advanced to plaintiff, the entire notion of double recovery would
not have existed. Report of the Tort Policy Working Group on the
Causes, Extent and Policy Implications of the Current Crisis in
Insurance Availability and Affordability, supra at 70. Thus, we
have found no support for the proposition that health insurers
had an equitable right of subrogation available under the common
law.
V
We turn next to contract reimbursement. Oxford's policies
contained a reimbursement provision allowing it to recover
expended health care costs “when payment is made directly to the
member in third-party settlements or satisfied judgments.” That
contract provision was not authorized by law at the time the
collateral source rule was amended in 1987. The Commissioner of
Insurance refused to allow such provisions in health insurance
contracts pursuant to his regulatory authority.
28 N.J. Reg. 2003(a)(April 15, 1996)(stating that prior to 1996 “all
subrogation and third party liability provisions in [group
health, blanket, and group life insurance] policy forms would
have been disapproved”). Presumably, that decision mirrored the
lack of a statutory or equitable right on the part of a health
insurer to recover costs against a tortfeasor by way of
subrogation.
In 1993, after years of declining to approve such
provisions, the Department of Insurance allowed the inclusion of
subrogation and reimbursement provisions in health insurance
policies provided through the Small Employer Health Benefits
Program and the Individual Health Coverage Program. N.J.A.C.
11:20 App. Exhibit F; N.J.A.C. 11:21 App. Exhibit F. Later, the
Commissioner promulgated regulations that for the first time
permitted such provisions in large group health insurance
policies. N.J.A.C. 11:4-42.10.
Each of those rules set forth the requirements for contract
provisions for subrogation and repayment of benefits. In the
case of large group policies, for example, N.J. Admin. Code tit.
11:4-42.10 reads as follows:
(a) Group policies and certificates providing
health insurance may contain subrogation
provisions or provisions that require the
return to the insurer by a covered person of
benefits paid for illness or injury up to the
amount a covered person receives from a third
party through settlement, a satisfied
judgment or other means, as compensation for
the medical costs of such illness or injury .
. .
[N.J.A.C. 11:4-42.10 (emphasis added).]
It is pursuant to that authority that the Oxford reimbursement
provision was included in its contract. The question presented
is whether, in light of N.J.S.A. 2A:15-97, the Commissioner's
regulations exceeded his authority.
We generally accord a high degree of deference to
administrative agency regulations that are consistent with the
statutes and public policy of the state. Parkway Ins. Co. v. New
Jersey Neck & Back,
330 N.J. Super. 172, 182 (Law Div. 1998).
However, “[n]o administrative agency has inherent power, and none
may arrogate to itself the authority to accomplish ends not
envisioned by the legislative grant or to employ means not fairly
within the powers that have been bestowed.” Knight v. City of
Hoboken Rent Leveling & Stabilization Bd.,
332 N.J. Super. 547,
552 (App. Div. 2000). In short, an administrative code provision
must give way if it is inconsistent with a state statute. State
v. Auringer,
335 N.J. Super. 94, 102 (App. Div. 2000).
The Commissioner's authorization of subrogation and
reimbursement provisions in health insurance contracts must be
tested against N.J.S.A. 2A:15-97. As we have indicated, in that
statute the legislature eliminated double recovery to plaintiffs
and allocated the benefit of what had previously been double
recovery to the liability insurance industry. The Commissioner
was not free to alter that scheme. Accordingly, the regulations
authorizing the inclusion of subrogation and reimbursement
provisions in health insurance contracts must be interpreted
narrowly as limited to cases in which the collateral source rule
does not apply, for example, a case in which choice of law
principles require application of the law of a jurisdiction with
a collateral source rule at variance from our own. The health
insurance benefits at issue in this case clearly do not fall into
that category. Such an interpretation, that narrowly limits the
application of the regulations, fairly accords with their very
language that earmarks for reimbursement health care sums
“received” by the insured. Where the collateral source rule
applies, those amounts are subtracted from the judgment, and the
insured has no entitlement to “receive” them. Oxford therefore
cannot invoke the contract provision as a basis for
reimbursement.
Insurance is a plan of risk management or risk sharing. For a price or premium, an insured is offered an opportunity to share the costs of a defined possible economic loss. The economic loss insured against may include a variety of subjects defined by the contract or policy, such as personal loss associated with loss of life, health or income due to death, illness, disability, unemployment or old age; property loss due to direct or indirect damage to personal or real property as a result of a variety of causes; or liability loss, resulting from negligence that caused bodily harm or property damage to others.
The risk management or risk sharing commonly occurs through an insurer. However, persons may choose to self-insure, or spread or 'pool' the effects of a risk through group plans. The economic loss being shared with the insurer or group is defined by a contract or policy offered by the insurer for a price or premium. The premium includes an assessment of initial and continuing expenses, actual and contingent, creation of a 'pool' from which to pay claims, and contribution to the insurer's investment income from which the insurer pays the cost of operation and development of business. Since the risk or loss covered by the insurance is in the future, the exact risk or loss is not known when the insurance contract or policy is issued. All who are sharing the risk, both insurers and insureds, view the risk as the probable amount of loss, and the amount of coverage and the premium for the insurance actually purchased are calculated on this unknown.
[Joseph DuBray, A Response to the Anti-Subrogation Argument: What Really Emerged From Pandora's Box, 41 S.D. L. Rev. 264, 272 (1996).]
That bargain, struck between an insurer and its insured guarantees payments, in exchange for a premium, regardless of whether an injury was caused by the insured or a third party. Ibid.; see also Roger Baron, Subrogation: A Pandora's Box Awaiting Closure, 41 S.D. L. Rev. 237, 241-43(1996)(stating that insured is not getting double recovery but is simply recovering on contract for which premiums have been paid, and insurer should not benefit from plaintiff's foresight to purchase insurance); Youngblood v. American States Ins. Co., 866 P.2d 203, 208 (Mont.1993)(holding that subrogation provision invalid due to public policy considerations including fact that insured had paid premium for medical payment coverage).
In light of the nature of the insurance gamble, we are unwilling to accept the suggestion that placing the burden of reimbursing the health insurers' rate-payers on the liability carriers' premium-payers is ineluctably the only fair outcome. Although the Legislature could certainly have made such a judgment, where it clearly chose a different course we see no compelling public policy argument requiring us to interpret the statute to achieve a different end. Our judgment is not on the wisdom of the legislative enactment, but only on its meaning. Burt v. West Jersey Health Systems, 339 N.J. Super. 296, 309 (App. Div. 2001).
CHIEF JUSTICE PORITZ and JUSTICES STEIN, COLEMAN, VERNIERO,
LaVECCHIA, and ZAZZALI join in JUSTICE LONG's opinion.
NO. A-145 SEPTEMBER TERM 1999
ON APPEAL FROM
ON CERTIFICATION TO Appellate Division, Superior Court
MARIA PERREIRA and LUCIANO
PERREIRA,
Plaintiffs,
v.
MICHAEL C. REDIGER t/a, MCR
HORTICULTURAL ENTERPRISES and
THE PRESERVER INSURANCE
COMPANY, as insurer for
Michael C. Rediger t/a
Horticultural Enterprises,
Defendants-Appellants.
DECIDED June 26, 2001
Chief Justice Poritz PRESIDING
OPINION BY Justice Long
CONCURRING OPINION BY
DISSENTING OPINION BY
Footnote: 1 1Subrogation substitutes the health insurer in place of the
plaintiff insured “to whose rights he or she succeeds in relation
to the debt and gives to the substitute all the rights,
priorities, remedies, liens, and securities of the person for
whom he or she is substituted.” Lee R. Russ & Thomas F. Segalla,
Couch on Insurance § 222:5 (3d ed. 2000).
Reimbursement, a contractual undertaking, allows the insurer
to recover payments directly from its own insured upon its
insured's recovery of the loss from a third party. Couch on
Insurance 3d § 222:81.
Footnote: 2 2The insurance premium is essentially charged to the
liability carrier because the liability carrier, not the
plaintiff, has received the benefit of the insurance.