United States v. Nationwide Mutual Insurance Company , 499 F.2d 1355 ( 1974 )

OPINION

EUGENE A. WRIGHT, Circuit Judge:

The United States appeals from summary judgment denying its claim for payment under an automobile insurance policy for providing medical care to insured persons. The district court found that the parties to the insurance contract did not intend to benefit the United States as a third-party beneficiary and that coverage was excluded by a specific clause of the policy. We reverse and remand.

John and Margaret Buckner, the insured parties under the policy involved in this dispute, were injured in an automobile accident in Washington State caused solely by the negligence of Mr. Buckner. They were given preliminary medical treatment at a hospital near the accident and were then transferred to Madigan General Hospital, a military hospital at Fort Lewis, Washington. Because Mr. Buckner was a retired serviceman, he and his wife were entitled to free medical care on a space available basis in a military hospital pursuant to 10 U.S.C. §§ 1074(b), 1075, 1076(b). The reasonable value of the free care provided at Madigan General was $4,503.75, and the United States sued to recover $4,000, the monetary limit of the policy, from Nationwide.¹

Nationwide defended on the grounds that the United States could not recover as a third-party beneficiary under the policy and that coverage was excluded by one of the policy’s exclusionary clauses. The district court found both that Nationwide did not contract with the intent to benefit the United States under these circumstances and that the exclusionary clause barred recovery. Summary judgment was granted in favor of Nationwide, and the government appeals.

A threshold question, not considered by the district court, is whether Washington or federal law should be applied. The United States invoked the jurisdiction of the district court under 28 U.S.C. § 1345, giving the district court jurisdiction in all cases where the United States is a party plaintiff. Federal courts that have considered the question have held that suits under § 1345 are not controlled by Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), requiring adherence to appropriate state substantive law. E. g., United States v. Williams, 441 F.2d 637 (5th Cir. 1971); Tri-State Ins. Co. v. United States, 340 F.2d 542 (8th Cir. 1965).² But where there has been no clear federal law to apply, federal courts have referred to state law to provide the appropriate rule. United States v. Williams, supra; United States v. Hedburg, 217 F.Supp. 711 (D.S.D.1963). There is no appropriate federal rule in the situation with which we are faced: the interpretation of an insurance contract and third-party beneficiary recovery. Indeed, two federal courts that have considered the latter problem have referred to state law. United States v. Government Employees Ins. Co., 461 F.2d 58 (4th Cir. 1972); United States v. State Farm Mutual Automobile Ins. Co., 455 F.2d 789 (10th Cir. 1972). Thus, we look to the law of Washington to provide the substantive rules to be applied to the problem before us.³

While Washington substantive law will be applied here, certain issues must nevertheless be decided by reference to federal law. Specifically, the determination whether a question is an issue of fact for the trier of fact or an issue of law for the court is controlled by federal law. Such would be the rule even if state law were applicable under the mandate of Erie. Byrd v. Blue Ridge Rural Electric Cooperative, Inc., 356 U.S. 525, 78 S.Ct. 893, 2 L.Ed.2d 953 (1958); Gillespie v. Travelers Ins. Co., 486 F.2d 281, 283 n. 1 (9th Cir. 1973). On the other hand, the right of a third-party beneficiary to sue on a contract and special rules concerning the resolution of ambiguities against the drafter of an adhesion contract or against the insurer in an insurance contract reflect a substantive state policy and will be analyzed with reference to Washington law. See Gillespie v. Travelers Ins. Co., supra at 283 n. 2.

Having ascertained the governing law, we turn to the United States’ assignments of error. First, it argues that the district court erred in finding that it was not a third-party beneficiary. The policy obligated Nationwide to pay reasonable medical expenses “to or for” the injured party.⁴ The government argues that the word “for” must be given meaning and that its inclusion evidences an intent that payment be made “for” the injured party to the entity providing medical care as an alternative to payments made “to” the injured party directly. The government relies on judicial and commentary analyses reaching similar conclusions. See United States v. Government Employees Ins. Co., supra; United States v. State Farm Mutual Automobile Ins. Co., supra; Long, Government Recovery Beyond the Federal Medical Recovery Act, 14 S.Dak.L.R. 20, 35-37 (1969); see also Franklin Casualty Insurance Co. v. Jones, 362 P.2d 964 (Okl.1961) (dissenting opinion).⁵ We need not, however, determine whether the government’s suggested meaning is correct.

Washington law permits third-party beneficiaries to enforce contracts if the contract was intended to benefit the third party. See Ridder v. Blethen, 24 Wash.2d 552, 166 P.2d 834 (1946). Under the circumstances of this case, the government can qualify, if at all, only as a donee beneficiary, because the insured party was under no obligation to reimburse the government for the medical services rendered. To do so, the contract must have been intended by the promisee to confer a gift upon the government. Id.⁶ Whether it was so intended by the promisee is a question concerning the meaning of the contract and is, under federal law, an issue of fact to be decided by the trier of fact. See Gillespie v. Travelers Ins. Co., supra, and authorities cited therein.

The district court found as fact that Nationwide did not intend to benefit the government. As a finding of fact we will overturn the district court’s conclusion only if it is “clearly erroneous.” Fed.R.Civ.P. 52. But even if the finding is not clearly erroneous, it does not support a conclusion that the government is not a third-party beneficiary; as the promisor, Nationwide’s intent is not determinative. Since the intent of the promisee, the insured, is an issue of fact upon which there was no finding, the case must be remanded to the district court for further factual determinations.

Second, we consider whether the district court* correctly found that recovery was barred by the exclusionary clause:

There shall be no protection afforded . (13) under Coverages D(l) and D(2) to that amount of any expense which is paid or payable to or on behalf of the injured person under the provisions of any (1) premises insurance affording benefits for medical expenses, (2) individual, blanket or group accident, disability or hospitalization insurance, (3) medical, surgical, hospital or funeral service, benefit or reimbursement plan or (4) workmen’s compensation or disability benefits law or any similar law. .

The district court found that medical care furnished by law to retired service personnel is a “medical, surgical or hospital benefit or reimbursement plan within the meaning of Exclusion (13) of [the] policy.” Although this is a factual finding that should be reversed only if “clearly erroneous,” there is no indication that the district court applied the proper legal standard.

Under Washington law, insurance contracts are to be interpreted strictly against the insurer by resolving ambiguities in favor of the insured. See, e. g., Metropolitan Mortg. & Security Co. v. Reliable Ins. Co., 64 Wash.2d 98, 390 P.2d 694 (1964); Thompson v. Ezzell, 61 Wash.2d 685, 379 P.2d 983 (1963). The district court does not appear to have applied this rule of interpretation. The case must, therefore, be remanded for a factual finding by the district court applying the proper rule of construction.

The Washington rule requiring ambiguities in an insurance contract to be resolved against the insurer and in favor of the insured raises an interesting problem concerning the third-party beneficiary issue: A finding of intent by the promisee that the third party be benefited is not necessarily a finding in favor of the insured or against the insurer. Thus, it is unclear how the rule of interpretation should be applied, if at all, to the question whether the promisee intended to benefit the third party.⁷ Since the case must be remanded for factual findings, and since the parties have not argued this issue before this court, it is appropriate that the district court consider in the first instance whether the Washington rule of construction should be applied to the question whether the promisee intended to benefit the third party.

The judgment of the district court is reversed, and the case is remanded for further proceedings consistent with this opinion.

1 . In its complaint, the United States asserted a right to recover under the Medical Care Recovery Act [42 U.S.C. §§ 2651-2653]. Because the defendant is neither a tort-feasor nor the insurer of one, the United States now concedes that the Act is inapplicable and asserts only that recovery is available under the terms of the policy.

2 . In certain cases of significant local interest, such as cases involving title to land, state law has been held to apply. See United States v. Buras, 332 F.Supp. 1017 (D.La.1970), rev’d on other grounds 458 F.2d 346, rehearing denied 475 F.2d 1370 (5th Cir. 1972).

3 . Because we conclude that state law will be applied regardless of the applicability of Erie, we need not decide whether other circuits have correctly concluded that Erie is inapplicable to suits under § 1345. Similarly, we need not decide whether reference to state law for convenience rather than under the mandate of Erie is reference to the law of the state in which the district court is located, including that state’s conflict of laws rules, Klaxon Co. v. Stentor Electric Mfg. Co., Inc., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941), or reference directly to “appropriate” state law using a federal choice of law rule. In the present circumstances both methods lead us to adopt Washington law.

4 . D. Medical Payment: To pay all reasonable expenses, incurred within one year following the accident, for necessary medical, dental, surgical, ambulance, hospital, professional nursing and funeral services and prosthetic devices, to or for:

(I) Each person whose bodily injury or death was sustained while in . . . the described automobile ....

5 . Government Employees and State Farm differ from the instant case in one important respect. In both cases there was significant language apart from the “to or for” clause evidencing an intent that the provider of medical care was an intended beneficiary of the contract- Such language is not present in the Nationwide policy.

6 . The Washington Supreme Court is not absolutely clear on the requirement that the promisee’s intent controls. At one point, it states that the intention of the “parties” controls. Ridder v. Blethen, 24 Wash.2d 552, 166 P.2d 834, 835 (1946). But it also cites approvingly the Restatement rule that the intent of the promisee controls. Id. Since the common law rule is that the promisee’s intent is the significant factor, see Corbin on Contracts, § 776, and-since Washington does not indicate a rejection of the common law rule (indeed the Restatement is approvingly cited), we conclude that Washington would look to the promisee’s intent.

7 . This is not a problem regarding the exclusionary clause because it is clear which interpretation would favor the insured and which would favor the insurer.

The dissent argues that ambiguities should be resolved in favor of the government on the issue whether the government is a third-party beneficiary. If the exclusionary clause does not bar recovery, the question is whether the government or the insured may recover. It is difficult to see how a finding in favor of the government is one in favor of the insured. It is rather a finding against the insured. Since the insurer would be required to pay either the government or the insured, such a finding would be neither in favor of nor against the insurer.

If the contract is interpreted to confer a gift upon the government, the retired serviceman will have paid indirectly for the medical care to which he was entitled becausa of his service. Again, it is difficult to see how such a finding would benefit the insured.

But whatever our view, the remand will enable the district court, after the parties have briefed the issue, to decide how Washington would decide this issue.