Yerkovich v. AAA , 461 Mich. 732 ( 2000 )

Cavanagh, J.

The issues presented are: (1) whether the subrogation agreement between defendant fund and plaintiff Yerkovich entitled the fund to reimbursement from plaintiff for medical expenses and, if so, (2) whether plaintiffs no-fault insurer, defendant AAA, must refund plaintiff for that reimbursement. We hold that the subrogation clause did not confer upon the fund the right to be reimbursed out of plaintiffs third-party recovery from tortfeasors. Because we hold that the fund was not entitled to reimbursement, we do not reach the second question.

FACTS

Plaintiffs minor daughter was injured in an automobile accident when the driver of the vehicle in which she was riding negligently collided with another vehicle. At the time of the accident, plaintiff was a participant in the Michigan United Food and Commercial Workers Unions and Food Employers Health and Welfare Fund. The fund is a self-funded employee welfare benefit plan created and administered pursuant to the Employee Retirement Income Security Act (erisa), 29 USC 1001 et seq. Plaintiff also had a no-fault policy issued by defendant AAA.

Plaintiff filed this action on behalf of her daughter against both defendants, seeking payment of medical expenses. The fund had initially denied coverage, claiming plaintiff had failed to execute a subrogation agreement. The fund claimed this was required by the plan’s subrogation clause. Plaintiff eventually signed the “Subrogation Agreement and Assignment” form, and the fund paid $6,832 in medical expense benefits. The AAA also denied coverage, claiming that plaintiff’s policy contained a coordination of benefits clause that made the fund primarily responsible for medical expenses from the accident. Plaintiff also filed a negligence claim seeking noneconomic damages against the driver of the vehicle in which her daughter was riding. That case was settled for $20,000.

Plaintiff and the fund each filed motions for summary disposition in the trial court, essentially advancing the same position. The fund argued that, pursuant to the plan, plaintiff was required to reimburse the fund the $6,832 it had paid for medical expenses out of her third-party tort recovery. Plaintiff and the fund agreed that if such reimbursement were required, it would result in plaintiff paying her own medical expenses, contrary to the provisions of the no-fault act. Plaintiff and the fund argued that the AAA should be responsible for paying for the medical expenses. The aaa argued that the language of the subrogation agreement between plaintiff and the fund did not support a right to reimbursement and limited reimbursement to situations where plaintiff recovered medical expenses from a third-party suit. The trial court granted the motions for summary disposition and ordered the AAA to repay plaintiff any sums she paid to reimburse the fund. The Court of Appeals affirmed. 231 Mich App 54; 585 NW2d 318 (1998).

THE SUBROGATION AGREEMENT

At issue in this case is the interpretation of the plan agreement between the fund and plaintiff. Specifically, we must answer whether the fund was entitled to a refund from plaintiff for medical expenses. The fund provided plaintiff with a plan booklet that laid out the rights, benefits, and duties of the parties. Under the “General Provisions” section, the plan provided a subsection entitled “Third Party Subrogation.” The fund argues that, under this section, plaintiff was required to sign further documents ensuring its rights to subrogation, reimbursement, repayment, and assignment. It provides in pertinent part:

This Plan will take advantage of its right to subrogation if you or an eligible dependent are paid benefits by the Plan due to accidental injuries for which someone else may be liable.

Subrogation means that the Plan can recover from the person who caused the injury, or that person’s insurance company, the benefits paid on your behalf by the Plan for that injury, including but not limited to . . . tortious conduct by a third party. . . .

. . . [Y]ou or your dependent will have certain responsibilities to the Plan. When you or your eligible dependent submit a claim to this Plan for injuries, the Fund Office will have you complete a form requesting information as to how the injuries occurred and the identity of any potentially responsible third parties. At the request of the Fund Office, you must also sign any other documents and do whatever else is reasonably necessary to secure this Plan’s right of subrogation. You must not do anything to impair or negate this Plan’s right of subrogation; if any of your acts or omissions to act compromise this Plan’s right of subrogation, this Plan will seek reimbursement of all appropriate benefits paid directly to you ....

If you recover lost wages benefits from another source, e.g. from an individual who caused the injury which resulted in your receiving Time Loss Weekly Benefits, the Plan has the right to seek repayment from you .... [Emphasis added.]

Under this plan, the fund declared “subrogation” rights in order to recover from a third party medical expense benefits it paid. In contrast, it declared the right to “repayment” from plaintiff for lost wage benefits it paid in the event that plaintiff recovered the lost wages “from any other source.”

Traditional subrogation is defined by Black’s Law Dictionary (4th ed), p 1595, as “[t]he substitution of one person in the place of another with reference to a lawful claim, demand or right, ... so that he who is substituted succeeds to the rights of the other in relation to the debt or claim, and its rights, remedies, or securities.” As a subrogee, one stands in the shoes of the subrogor and acquires no greater rights than those possessed by the subrogor. Shermer v Merrill, 33 Mich 284, 287 (1876). In this case, the fund provided its own definition for “subrogation” in the second paragraph of that subsection. It explains that subrogation means the fund may “recover from the person who caused the injury, or that person’s insurance company . . . .” This is consistent with the traditional definition.

Although the agreement provides that the fund may “recover from the person who caused the injury, ” the fund seeks to recover instead from plaintiff. It has done so by arguing that the second agreement signed by plaintiff required plaintiff to repay, reimburse, subrogate, and assign sums and rights to the fund.¹ It is agreed that plaintiff signed the second agreement— that greatly expanded her duties under the plan agreement—only after the fund conditioned the payment of medical expenses on her signing the second agreement.

Subrogation Agreement and Assignment

I agree . . . that if the plan advances benefits ... I will repay the plan in full any sums advanced to cover such expenses from any judgement or settlement I or my dependents receive.

I further agree that this promise to reimburse the fund is a lien against and assignment of any such recovery ....

I agree that the fund shall be subrogated in the amount of any sums paid by the fund to my . . . rights of recovery against the third party. All such sums recovered, by suit, settlement, or otherwise, shall be paid over to the fund.

I hereby assign to the fund all claims that I . . . may have against the third party for payment and/or reimbursement of costs and expenses incurred by the fund for medical and/or hospital and/or disability benefits arising out of said accident ....

I hereby assign my right to sue for, compromise, and to recover and receive all or a part of the amount assigned .... [Emphasis added.]

Under the plan agreement, the fund was entitled to seek recovery from the negligent driver for the medical expenses it paid. Plaintiff, in return, was required to sign documents necessary to secure the fund’s right of subrogation. Plaintiff was also required to provide any information requested regarding the injuries and the identity of the tortfeasor. If plaintiff impaired that right of “subrogation,” the fund could then seek reimbursement. Plaintiff has done nothing to hinder or obstruct the fund’s rights of subrogation. Plaintiff did not sue the tortfeasor for medical expenses or any economic damages. Instead, plaintiff recovered from the tortfeasor purely noneconomic damages for pain and suffering. The fund does not claim that it has paid noneconomic damages. It does not claim that it had a right of subrogation for noneconomic damages, only for benefits it paid. It paid only medical expense benefits. Nor does the plan agreement provide that it may seek reimbursement from plaintiff for medical expenses from plaintiff’s noneconomic damage recovery. Under the language of the plan agreement, the fund’s right of reimbursement is triggered only if the plaintiff impairs or negates the fund’s right of subrogation. This was not triggered. In fact, the fund may step into plaintiff’s shoes and sue the negligent driver for medical expenses incurred, because plaintiff has yet to seek them.²

Moreover, the fund might have, but did not, place language in the plan agreement requiring reimbursement of medical expenses from plaintiff. Instead, it sought only subrogation as defined in the second paragraph. Therefore, it has no right to reimbursement from plaintiff for medical expenses. This view is strengthened by examining the final paragraph quoted from the plan agreement where the fund demanded “repayment” from the plaintiff for lost wage benefits, in contrast to the “subrogation” clause, which allows recovery from the person who caused the injury for medical expense benefits.

The fund argues that subrogation and reimbursement rights are triggered whenever a plan participant recovers monies for the same injury or accident from a third party. It also urges that we should apply an “arbitrary and capricious” standard of review to the fund’s interpretation of the plan agreement, citing Firestone Tire & Rubber Co v Bruch, 489 US 101; 109 S Ct 948; 103 L Ed 2d 80 (1989). Even under such a standard, we cannot read into the plan agreement that which does not exist. The fund had the opportunity to write into its agreement repayment or reimbursement rights. It did not.

Whether the second agreement entitled the fund to reimbursement is irrelevant to our analysis because the fund was under a preexisting duty to pay plaintiff’s medical expenses and could not require her to take on additional duties absent additional consideration.

PREEXISTING DUTY RULE

An essential element of a contract is legal consideration. Detroit Trust Co v Struggles, 289 Mich 595, 599; 286 NW 844 (1939). Under the preexisting duty rule, it is well settled that doing what one is legally bound to do is not consideration for a new promise. Puett v Walker, 332 Mich 117, 122; 50 NW2d 740 (1952). This rule bars the modification of an existing contractual relationship when the purported consideration for the modification consists of the performance or promise to perform that which one party was already required to do under the terms of the existing agreement. Borg-Warner Acceptance Corp v Dep’t of State, 433 Mich 16, 22, n 3; 444 NW2d 786 (1989).

In this case, the plan agreement provided that the fund had a preexisting duty to pay plaintiffs medical expenses. This promise was conditioned upon the fund’s right of subrogation being protected. As stated, these rights were protected.

Although the parties focus on the second agreement, we find it is void for lack of consideration. Plaintiff was required only to sign documents ensuring the fund’s right of subrogation as defined by the fund. The second agreement instead attempted to add to plaintiff’s duties and burdens. The second agreement added an obligation to “repay” sums paid by the fund out of “any judgment or settlement” she received. The next paragraph required her to “reimburse” the fund out of any recovery she received. Although the third paragraph included subrogation rights, we will not interpret the language to allow greater rights or duties than those in the original plan agreement. The final paragraphs added assignments of plaintiff’s claims and rights to the fund. The result is that plaintiff took on additional obligations, without consideration, in order to be paid that which she was already owed. All such additional obligations are unenforceable.

CONCLUSION

The original plan agreement between plaintiff and the fund required the fund to pay plaintiff’s medical expenses as long as its right of subrogation was protected. Absent a breach by plaintiff, the fund had no rights of reimbursement for medical expense benefits from plaintiff. We hold that the preexisting duty rule barred the fund from requiring plaintiff to take on additional burdens, without consideration, in order to get paid that which she was owed. Because the second contract was invalid for lack of consideration, we hold that the fund was not entitled to a reimbursement from plaintiff. We, therefore, reverse the Court of Appeals affirmance of the trial court’s grant of summary disposition and order defendant fund to repay to the plaintiff any sums plaintiff paid to reimburse the fund.

Weaver, C.J., and Taylor and Corrigan, JJ., concurred with Cavanagh, J.

1 The second agreement provides in pertinent part:

2 We make no assertion about the validity or probable success of such a suit.