Taylor Brown v. Jerry Nowlin ( 2001 )

IN THE COURT OF APPEALS OF TENNESSEE
AT JACKSON
October 16, 2001 Session
TAYLOR BROWN, ET AL. v. JERRY NOWLIN, ET AL.
Direct Appeal from the Circuit Court for Shelby County
No. 300756 T.D. Robert L. Childers, Judge
No. W2001-01455-COA-R3-CV - Filed November 30, 2001
This dispute addresses the applicability of the “made whole” doctrine to the subrogation rights of
TennCare, Tennessee’s medicaid waiver program, where the insured and the tortfeasor reached a
settlement agreement without the participation or consent of TennCare. We hold that the made
whole doctrine did apply to TennCare at the time this case was settled and the order entered.
Affirmed.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court Affirmed; and
Remanded
DAVID R. FARMER , J., delivered the opinion of the court, in which ALAN E. HIGHERS and HOLLY K.
LILLARD, J.J., joined.
Rhonda M. Whitted, Nashville, Tennessee, for the appellant, Tennessee Coordinated Care Network,
d/b/a Access . . . MedPLUS.
Shannon D. Elsea, Memphis, Tennessee, for the appellees, Taylor Brown, individually, By Mother
and Next Friend Toya Brown, and Toya Brown, individually.
OPINION
On October 17, 1998, five year-old Taylor Brown (Brown) sustained severe injuries after
being ejected from a vehicle which was struck by a vehicle driven by Mr. Jerry Nowlin.(Nowlin) She
received care for her extensive injuries at LeBonheur Children’s Medical Center in Memphis.
Medical bills for the first 30 days of treatment at LeBonheur were over $134,000. TennCare,
Tennessee’s Medicaid waiver project, paid $81,887.98 for Taylor’s treatment. Taylor is now a
quadriplegic and dependent upon a ventilator.
On March 3, 1999, Brown’s attorney contacted the Tennessee Coordinated Care Network
(TCCN), the contractor for the State under TennCare, advising them of the collision and requesting
the amount of its subrogation interest. On March 5, 1999, TCCN’s agent, Innovative Recovery
Services, Inc. (IRSI), responded, advising Brown’s attorney of TCCN’s subrogation claims and
informing him that “TCCN’s interest is being protected by Innovative Recovery Services, Inc.
(IRSI). IRSI is entitled to receive the full amount of proceeds paid by TCCN on behalf of Ms.
Brown.” On March 17, 1999, Brown again contacted TCCN and requested that TCCN waive its
subrogation interest. On May 17, 1999, TCCN agreed to reduce its subrogation interest by 50%.
In her letter of May 27, 1999, the attorney for IRSI requested that she be advised of the status of any
action and informed Brown that IRSI intended to participate in all proceedings. The attorney and
IRSI contacted Brown’s attorney on September 27 and 29, 1999, respectively, again requesting
information on the status of any action and advising him of IRSI’s intention to intervene.
Aware that a decision in Blankenship v. Estate of Bain, 5 S.W.3d 647 (Tenn. 1999)1
regarding the application of the “made whole” doctrine2 to TennCare was forthcoming from the
Tennessee Supreme Court, Brown filed a claim against Nowlin, intending to hold the matter before
the trial court pending the Supreme Court’s decision. In the meantime, Brown was made aware that
Nowlin was not cooperating in the defense of the claim, and that his insurance company was likely
to request a declaratory judgment in order to refuse coverage of Nowlin per the contract of insurance.
Brown determined that Nowlin had no executable assets with which to satisfy a verdict, and
determined that the action was best settled in order to avoid loss of all monies which may have been
available.
The parties agreed to settle for $100,0003 and an order approving the minor’s settlement was
entered by the trial court on August 3, 1999. In his order, the trial judge specifically found that the
minor child, Taylor Brown, was not made whole. The August 3 order stated that the proceeds were
to be held by the court “until such time as the subrogation interest of Access MedPlus (TennCare)
is determined . . .”
The Supreme Court held in Blankenship that TennCare was subject to the made whole
doctrine and therefore could not enforce its subrogation interest if an insured was not first fully
compensated. See id. at 649. Following the decision in Blankenship, on April 26, 2001, the trial
court granted Brown’s motion to dismiss TCCN’s December 12, 2000, motion to intervene and
intervenor complaint for lack of standing, finding that at the time the action was settled,
compromised and the order entered TennCare was subject to the made whole doctrine. This appeal
by TCCN followed.
1
Blan ken ship was decide d on No vember 2 9, 19 99.
2
The “made whole” doctrine in Tennessee is grounded in the belief that the subrogation rights of an insurer are
based on principles of equity and natural justice. Therefore, before an insurer is entitled to assert a right of subrogation,
the insured must first be “mad e who le,” or fully com pensated for their loss. See Wimberly v. American Cas. Co., 584
S.W.2d 200 (Tenn. 1979). An insured is not made whole if the insured’s total recovery from a tortfeasor and insurer is
less than the loss sustained . See Eastwood v. Glens Falls Ins. Co., 646 S.W .2d 156, 158 (Tenn. 1983 ).
3
The original comp laint against Mr. N owlin sought $5 Million in com pensatory d amages.
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Issues
The determinative issues presented in this case, as we perceive them, are:
I. Does the equitable “made whole” doctrine apply to the State’s subrogation
interest in third party recoveries in personal injury actions settled prior to
Blankenship v. Estate of Bain?
II. Does the equitable “made whole” doctrine apply to the State’s subrogation
interest in third party recoveries in personal injury actions prior to Blankenship v.
Estate of Bain when the State does not consent or participate in the settlement
between plaintiff and the tortfeasor?4
Standard of Review
The facts in this case are undisputed and the issues raised on appeal are matters of law. Our
review with respect to the trial court’s legal conclusions is de novo with no presumption of
correctness. Tenn. R. App. P. 13(d). See Bell ex rel. Snyder v. Icard, Merrill, Cullis, Timm, Furen
& Ginsburg, P.A., 986 S.W.2d 550, 544 (Tenn. 1999).
Applicability of the Made Whole Doctrine to TennCare
Counsel for TCCN argues that Blankenship attempted to change the law regarding the
applicability of the made whole doctrine to TennCare, and that Blankenship would not apply to this
case since the accident, settlement and order occurred prior to the November 29, 1999, decision. In
short, she argues that applying the made whole doctrine to this case requires retroactive application
of Blankenship. We disagree.
In Blankenship, the Tennessee Supreme Court found that section § 71-5-117 of the
Tennessee Code, which provides TennCare a right of subrogation, neither embraced nor abandoned
the made whole doctrine.5 Blankenship, 5 S.W.3d at 651. The Court further found that when the
TennCare statute was amended to provide a right of subrogation, the decision in Wimberly had
already established that an insured must be made whole before an insurer could assert a right of
4
Appellant raises as a third issue: “Does the May 24, 2000, amendment to the TennCare statute set forth in
Tenn. Code Ann. Sec. 71-5-117 provide that a personal injury plaintiff’s attorney fees and costs are to be deducted from
the State’s subrogation interest wh en the re cord establishes tha t the State elected to represent its own interest[s] and
expressly rejected representation by the plaintiff’s attorney in the matter?” We find it unnecessary to address this issue
in light of our decision in this case, and because counsel for the App ellee states that he “is not seeking a reduction in
TCCN ’s subrogation for work performed in securing settlement.”
5
Subsequent to the decision in Blan kenship, section 71-5-117 of the Tennessee Code was amended on May
24, 2000, to include section 71-5-117 (g) - (k). Section § 71-5-117 (k) now states: “It is the intention of the general
assem bly that subsections (g) through (j) be used in lieu of application of the ‘made whole’ doctrine for any recovery
authorized under this section.” Tenn. Code Ann. § 71 -5-117(k)(Supp. 2001 ).
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subrogation. Id.; see Wimberly v. American Cas. Co., 584 S.W.2d 200 (Tenn. 1979). The
Wimberly decision was grounded in principles of equity. Wimberly, 584 S.W.2d at 203 The
Wimberly court stated:
The doctrine of subrogation in insurance does not arise from, nor is it dependent
upon, statute or custom or any of the terms of the contract; it has its origin in general
principles of equity and in the nature of the insurance contract as one of indemnity.
The right of subrogation rests not upon a contract, but upon the principles of natural
justice.
Id. (quoting Couch on Insurance 2d § 61:20 (1966)). Once the insured has been fully indemnified,
subrogation prevents unjust enrichment of an insured through double recovery. Id.
Thus Blankenship did not change the law. Rather, in Blankenship, the court re-affirmed the
law as set forth in Wimberly, and noted that the legislature had not exempted TennCare from the
equitable made whole doctrine adopted in Wimberly. Blankenship, 5 S.W.3d at 651. Presuming
that the legislature is aware of existing law, the court in Blankenship concluded that if the legislature
had intended to except TennCare from the made whole doctrine, it would have done so expressly.
Id. Therefore, since Blankenship was decided pursuant to the law as determined in 1979 in
Wimberly, no retroactive application of Blankenship is required for application of the made whole
doctrine to this case.
TCCN further argues that section 71-5-117 of the Tennessee Code, as amended in May,
2000, should be applied retroactively in order to reflect the legislative intent of the section. We
reject this contention. When construing a statute, the court should give effect to the legislative intent
without restricting or expanding its scope. Id. The court must examine the statutory language and
apply its plain and ordinary meaning. Id. The court must also presume that the legislature is aware
of existing state law when it enacts new legislation. Id. In general, statutes are presumed to operate
prospectively unless retroactive application is expressly stated or is necessarily implied. Henderson
v. Ford, 488 S.W.2d 720, 721 (Tenn. 1972). The intention of the legislature that a statute be
retroactively applied must be clear and unequivocal. Id. Nothing in the language of section 71-5-
117 of the Tennessee Code, as amended in May of 2000, expressly declares or necessarily implies
that it be given retroactive effect.
The trial court specifically found that Taylor Brown was not made whole by her recovery
from Nowlin. TCCN does not suggest that this finding was in error. We therefore hold that since
section 71-5-117 of the Tennessee Code has no retroactive application, under the reasoning of
Wimberly as affirmed by Blankenship, the made whole doctrine was applicable to TennCare in this
action. Since Taylor Brown was not made whole, TCCN had no right to subrogation in this case.
Applicability of the Made Whole Doctrine
in the Absence of Consent or Participation by TennCare
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TCCN argues that even if the made whole doctrine is applicable to this case, it should not
be applied here since TCCN did not consent to Brown’s settlement agreement and release of
Nowlin. It contends that since TCCN was excluded from participation, it was denied the right to
protect its subrogation interest. TCCN quotes Tennessee Farmers Mutual Insurance Co. v.
Farmer, No. 03A01-9610-CH-00327, 1998 WL 695637, *1 (Tenn. Ct. App. Aug. 20, 1998) (no
perm. app. filed), as stating: “It is well settled that if the insurer claiming subrogation did not
participate in the settlement negotiations between its insured and the third-party tortfeasors, and
waived no rights, its subrogation claim must be honored and the made-whole doctrine has no
application.” Id. at *3. We note, however, that in Tennessee Farmers, this Court specifically
stated that its facts were “totally different” from the facts of Wimberly. Id. In Tennessee
Farmers, the insured attempted to assert the made whole doctrine to deny the insurer’s
subrogation rights when the trial court had not determined that she was not made whole. We
stated: “Significantly, there was never a specific determination in the tort action or the
settlement agreement as to whether or not Debra J. Farmer had been made whole.” Id. We
further stated:
The cases subsequent to Wimberly have not applied the doctrine to defeat the
subrogation claim of the insurer unless the parties have either agreed that the
insured has not been made whole by the tort recover[y], or the underlying facts
are clear that the recovery did not make the insured whole.
Id. at *2 (emphasis added). In the case at bar, the underlying facts are clear that Taylor Brown
was not made whole by her recovery.
TCCN also calls our attention to Aetna Casualty & Surety Co. v. Tennessee Farmers
Mutual Insurance Co., 867 S.W.2d 321 (Tenn. Ct. App. 1993), for the proposition that Brown is
liable to TCCN for payments made in her behalf. In Aetna, this Court held that where Aetna
Insurance sought contribution from Tennessee Farmers after Aetna had released the tortfeasor,
Tennessee Farmers was released from liability to Aetna. See id. at 322. We likewise note this
case did not address the relationship between the made whole doctrine and the effect of failing to
obtain an insurer’s consent to settlement in a fact situation like the case at bar.
The Tennessee Supreme Court addressed the relationship between the made whole
doctrine as stated in Wimberly and an insurer’s right to subrogation in Eastwood v. Glens Falls
Insurance Co., 646 S.W.2d 156 (Tenn. 1983). In Eastwood, the court held that an insured and a
tortfeasor could not avoid liability to the insurer if they entered into a settlement without the
consent of the insurer, even if the settlement did not make the insured whole. See id. at 156-57.
In Eastwood, plaintiffs suffered a loss of over $200,000 due to the negligence of two
construction contractors. Id. at 157. Glens Falls Insurance paid Eastwood the insurance policy
limit amount of $83,000. Id. The defendant construction contractors offered to settle for
$120,000, an offer Eastwood was willing to accept if no subrogation payment had to be made to
Glens Falls. Id. Glens Falls refused to agree. Id. The court held that the proposed agreement
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between Eastwood and the contractors could not be consummated without further liability by
either the insured or the tortfeasor to Glens Falls. Id.Our facts in this case present a unique question not raised in Eastwood or its progeny,
however. Here, we are presented with a settlement made on behalf of a minor and approved by
the trial court. In approving a settlement on behalf of a minor, the trial judge must find that the
settlement is in the best interest of the minor. Section 34-11-121(b) of the Tennessee Code
provides:
In any action or suit in which a minor or disabled person is a party or in any case of
personal injury to a minor or disabled person caused by the alleged wrongful act of
another, the court in which the action or suit is pending, or the court supervising the
fiduciary relationship if a fiduciary has been appointed, has the power to approve and
confirm a compromise of the matters in controversy on behalf of the minor or disabled
person. If the court deems the compromise to be in the best interest of the minor or
disabled person, any order or decree approving and confirming the compromise shall be
binding on the minor or disabled person.
Tenn. Code Ann. 34-11-121(b) (1996) (emphasis added).
The order approving the compromise in this case is binding on the minor Taylor Brown.
In approving this binding settlement, the trial judge was bound by statute to act in the best
interest of the child. In his order, Judge Childers made, inter alia, the following specific findings:
5. As a result of the accident, the minor plaintiff sustained personal
injuries including but not limited to spinal cord injury at C1-C2 resulting in
quadriplegia.
6. The minor plaintiff has undergone several surgical procedures and will
require a ventilator to breathe for her for the rest of her life. She is expected to
gain, at best, minimal motor functions. She will be completely disabled for the
rest of her life.
7. The parties propose to settle all claims of the minor and her custodial
parent against the defendant, Jerry C. Nowlin, arising out of the accident for the
total sum on ONE HUNDRED THOUSAND DOLLARS ($100,000.00)
8. The Plaintiff, Defendant, and the Court upon its review of the evidence
in this cause, hereby makes the determination that the Plaintiff, Taylor Brown, is
not made whole by the recovery in this action.
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TCCN does not challenge these finding, nor does it challenge Brown’s assertion that the
limited recovery in this case was all that could be recovered from Nowlin. As noted above,
counsel for Brown agreed to the settlement offer after determining that the tortfeasor had no
other assets against which a judgment could be executed. It is clear from the undisputed facts
that Taylor Brown could not be made whole by the $100,000 settlement, which did not even
cover the costs of her initial treatment at LeBonheur. It is obvious to this Court that in acting in
the best interest of the minor and approving the settlement for such a limited recovery, the trial
judge was satisfied that this amount was, in fact, all that was likely to be recoverable. We
presume the trial court’s findings of fact to be correct. Tenn. R. App. P. 13(d).
We are satisfied that in approving the limited recovery on behalf of the minor, Taylor
Brown, the trial court acted in her best interest. It approved a very limited settlement because it
was all that could be recovered, even while recognizing that Taylor Brown was not made whole.
Given this situation, we think it of little consequence that TCCN did not participate in the
settlement directly. Under these particular facts, and since TennCare was subject to the made
whole doctrine at the time of this case, TCCN’s subrogation interest could not have arisen even if
TCCN had intervened. Therefore, there has been no injury to TCCN’s ability to protect its
rights. We therefore affirm the dismissal of TCCN’s motion to intervene.
Conclusion
In light of the foregoing, we affirm the trial court in all respects. Costs of this appeal are
taxed to the Appellant, Tennessee Coordinated Care Network, d/b/a Access...MedPlus/Innovative
Recovery Systems, Inc., and their surety.
___________________________________
DAVID R. FARMER, JUDGE
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