Estate of Shackelford

[Cite as Estate of Shackelford, 2016-Ohio-1431.]

IN THE COURT OF APPEALS

TWELFTH APPELLATE DISTRICT OF OHIO

CLERMONT COUNTY

ESTATE OF JERRY SHACKELFORD :
CASE NO. CA2015-06-044
:
OPINION
: 4/4/2016

:

APPEAL FROM CLERMONT COUNTY COURT OF COMMON PLEAS
PROBATE DIVISION
Case No. 13ES10077

Carl W. Zugelter, 1285 West Ohio Pike, Amelia, Ohio 45102, for appellants

Ulmer & Berne LLP, Jennifer Hageman, 600 Vine Street, Suite 2800, Cincinnati, Ohio 45202,
for appellee

Ulmer & Berne LLP, Alyson Terrell, 65 East State Street, Suite 1100, Columbus, Ohio 43215,
for appellee

M. POWELL, P.J.

{¶ 1} Appellant, Jennifer Shackelford, appeals a decision of the Clermont County

Probate Court ordering that appellee, Aetna Life Insurance Company ("Aetna"), be fully

reimbursed, on a first-priority basis, from the settlement proceeds for wrongful death and

survival claims for the medical expenses it paid on behalf of Jerry Shackelford. Appellant is

Shackelford's surviving spouse and the executor of his estate.

{¶ 2} On April 18, 2013, at approximately 4:40 p.m., Shackelford was driving his
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motorcycle through an intersection when Douglas Beverly ran a red light and struck

Shackelford. Following emergency medical treatment at the scene, Shackelford was air-

cared to a hospital where he received additional medical treatment. Shackelford died at the

hospital at 5:50 p.m. without ever regaining consciousness after the traffic crash. In addition

to appellant, Shackelford is also survived by an adult son.

{¶ 3} At the time of the accident, Shackelford was a participant in the PNC Financial

Services Group, Inc. Welfare Benefit Plan ("the Plan"), an ERISA-qualified, self-funded plan

administered by Aetna. Aetna paid $32,917.06 in medical expenses on Shackelford's behalf

for the medical treatment he received between the accident and his death.

{¶ 4} The Plan includes a subrogation and reimbursement clause which provides, in

relevant part:

Subrogation
Immediately upon paying any benefits under this Plan, the Plan
shall be subrogated to (stand in the place of) all rights of
recovery a Covered Person has against any Responsible Party
with respect to any payment made by the Responsible Party to a
Covered Person due to [the latter's] injury to the full extent of
benefits provided by the Plan.

Reimbursement
In addition, if a Covered Person receives any payment from any
Responsible Party or Insurance Coverage as a result of an injury,
the Plan has the right to recover from, and be reimbursed by, the
Covered Person for all amounts the Plan has paid as a result of
that injury, up to and including the full amount the Covered
Person receives from any Responsible Party.

Lien Rights
Further, the Plan will automatically have a lien to the extent of
benefits paid by the Plan for treatment of injury for which the
Responsible Party is liable. The lien shall be imposed upon any
recovery whether by settlement, judgment, or otherwise related
to treatment for any injury for which the Plan paid benefits.

First-Priority Claim
By accepting benefits (whether the payment of such benefits is
made to the Covered Person or made on behalf of the Covered
Person to any provider) from the Plan, the Covered Person
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acknowledges that this Plan's recovery rights are a first priority
claim against all Responsible Parties and are to be paid to the
Plan before any other claim for the Covered Person's damages.
This Plan shall be entitled to full reimbursement on a first-dollar
basis from any Responsible Party's payments, even if such
payment to the Plan will result in a recovery to the Covered
Person which is insufficient to make the Covered Person whole
or to compensate the Covered Person in part or in whole for the
damages sustained.

Applicability to All Settlements and Judgments
The terms of this entire subrogation and right of recovery
provision shall apply and the Plan is entitled to full recovery
regardless of whether the settlement or judgment received by the
Covered Person identifies the medical benefits the Plan provided
or purports to allocate any portion of such settlement or judgment
to payment of expenses other than medical expenses. The Plan
is entitled to recover from any and all settlements or judgments,
even those designated as pain and suffering, non-economic
damages, and/or general damages only.

Cooperation
The Covered Person shall do nothing to prejudice the Plan's
subrogation or recovery interest or to prejudice the Plan's ability
to enforce the terms of this Plan provision. This includes, but is
not limited to, refraining from making any settlement or recovery
that attempts to reduce or exclude the full cost of all benefits
provided by the Plan.

Under the Plan's definitions, Shackelford is the Covered Person and Beverly is the

Responsible Party.

{¶ 5} State Farm Insurance, Beverly's insurer, offered its policy limits of $102,000 in

exchange for a settlement of all claims against Beverly. Appellant accepted the settlement.

Beverly subsequently died without any assets to be applied to a wrongful death or survival

claim. In addition, there was no available underinsured or uninsured motorist coverage.

{¶ 6} In October 2014, appellant filed an Application to Approve Settlement and

Distribution of Wrongful Death and Survival Claims in the probate court. The application

requested the probate court to allocate the $102,000 settlement proceeds as follows:

$19,361.91 for the funeral and burial expenses paid by appellant; $33,333 and $295.88 for

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attorney fees and expenses, respectively; $48,128.78 to the wrongful death claim; and

$880.43 to the survival claim. The proposed allocation was based upon an anticipated jury

verdict of $1.8 million on a wrongful death claim, and the fact that the only amount

attributable to a survivor claim were the medical expenses paid by Aetna. Appellant's

counsel reasoned that because the medical expenses equaled 1.8 percent of the anticipated

jury verdict, the "net" settlement proceeds should be allocated as follows: 1.8 percent to the

survival claim, or $880.43, and 98.2 percent to the wrongful death claim, or $48,128.78.

{¶ 7} Aetna filed objections to the application, arguing that under federal law and the

Plan's subrogation and reimbursement clause, the Plan was entitled, on a first-priority basis,

to the full reimbursement of the medical expenses paid on Shackelford's behalf. Accordingly,

Aetna asked the probate court to allocate $32,917.06 of the entire settlement proceeds to the

Plan.

{¶ 8} The probate court conducted a hearing on the application. The sole survival

claim asserted at the hearing concerned Shackelford's medical expenses incurred as a result

of the accident and paid by Aetna. On May 8, 2015, the probate court "allocate[d]

$32,917.06 of the settlement proceeds to the survival claim for reimbursement to the Plan."

The probate court found that the medical expenses paid by Aetna were attributable to the

survival claim and that "[u]nder the specific terms and provisions of the Plan, and in

accordance with [the] law, the Plan is entitled to full reimbursement for these expenses in the

sum of $32,917.06."

{¶ 9} Appellant appeals, raising one assignment of error:

{¶ 10} THE TRIAL COURT ERRED TO THE PREJUDICE OF THE BENEFICIARIES

OF THE DECEDENT'S ESTATE IN RULING THAT THE DECEDENT'S HEALTH PLAN

WAS ENTITLED TO FULL REIMBURSEMENT OF ALL MEDICAL EXPENSES THE PLAN

PAID ON THE DECEDENT'S BEHALF FOR MEDICAL TREATMENT FOLLOWING THE
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ACCIDENT THAT WAS THE SUBJECT OF A WRONGFUL DEATH AND SURVIVAL

ACTION AND ALLOCATING THAT ENTIRE AMOUNT TO THE DECEDENT'S SURVIVAL

CLAIM WITHOUT REGARD TO THE AMOUNT OF DAMAGES ATTRIBUTABLE TO THE

BENEFICIARIES'S WRONGFUL DEATH CLAIM.

{¶ 11} Appellant argues the probate court erred in awarding $32,917.06 of the

settlement proceeds to Aetna for reimbursement of the medical expenses it paid on behalf of

Shackelford. Appellant asserts that Aetna was entitled to obtain reimbursement of the

medical expenses solely from the amount of the settlement proceeds allocable to the survival

claim. Accordingly, appellant asserts the probate court should have first apportioned the

settlement proceeds between the wrongful death and survival claims, and then allowed Aetna

to obtain reimbursement of the medical expenses from the amount of the settlement

proceeds allocated to the survival claim.

{¶ 12} A probate court's distribution of wrongful death proceeds is generally reviewed

for an abuse of discretion. In re Molitor, 12th Dist. Brown No. CA2012-06-013, 2013-Ohio-

525, ¶ 16. However, the issue of whether the probate court applied the correct legal

standard in distributing the wrongful death proceeds raises a question of law (i.e.,

construction of the Plan's subrogation and reimbursement clause), which we review de novo.

Id.

{¶ 13} Even though usually litigated in a single proceeding and brought by the same

nominal party, wrongful death and survival claims are independent, distinct claims that

belong to separate individuals. Peters v. Columbus Steel Castings Co., 115 Ohio St.3d 134,

2007-Ohio-4787, ¶ 17; In re Estate of Craig, 89 Ohio App.3d 80, 84, (12th Dist.1993). A

wrongful death claim belongs exclusively to the decedent's beneficiaries and is meant to

cover pecuniary and emotional loss suffered by those beneficiaries as a result of the death.

Peters at ¶ 10; Craig at 84. By contrast, a survival claim is simply the action the decedent
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could have brought for the injuries he suffered prior to his death and is generally for the

benefit of the estate. Peters at id; Craig at id. Settlement funds recovered in a wrongful

death action are for the exclusive benefit of the statutory beneficiaries and are not an asset

of the decedent's estate. Craig at 84-85.

{¶ 14} R.C. 2125.03(A) directs a probate court to distribute wrongful death settlement

proceeds "in such manner as is equitable, having due regard for the injury and loss to each

beneficiary resulting from the death and for the age and condition of the beneficiaries." In

applying R.C. 2125.03(A)(1), the probate court should distribute wrongful death settlement

proceeds in an equitable manner "without regard to the statute of dissent and distribution,

and without regard to any precise mathematical formulae." In re Molitor at ¶ 17. Sup.R. 70

governs the process by which a settlement of wrongful death and survival claims must be

handled in the probate court. The probate court's approval of a settlement agreement is

necessary because the probate court is charged with determining whether a settlement is

"fair and equitable." In re Kenington, 12th Dist. Clermont No. CA2002-01-005, 2003-Ohio-

2549, ¶ 8.

{¶ 15} We find that the probate court erred in allocating, on a first-priority basis,

$32,917.06 of the entire settlement proceeds to the survival claim, and that in doing so, the

court applied the wrong legal standard.

{¶ 16} We note at the outset that although the probate court was required under R.C.

2125.03 to distribute the wrongful death proceeds of the settlement agreement to the

statutory beneficiaries of Shackelford, it did not do so and in fact, gave no consideration to

the value of the wrongful death claim. See In re Dezso, 8th Dist. Cuyahoga Nos. 73207 and

74357, 1998 WL 774966 (Nov. 5, 1998) (where settlement funds recovered in a wrongful

death and survival action consisted of money received in wrongful death action, settlement

and distribution of these funds must be approved by probate court).
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{¶ 17} In support of its decision, the probate court relied on the United States

Supreme Court's decision in U.S. Airways, Inc. v. McCutchen, U.S. , 133 S.Ct. 1537

(2013), and its holding that unjust enrichment and other equitable principles cannot be

applied to defeat a plan's ability to enforce its right of recovery, even where recovery is

insufficient to both adequately compensate the plan participant and satisfy the plan's lien.

{¶ 18} Aetna similarly cites McCutchen, as well as Longaberger Co. v. Kolt, 586 F.3d

459 (6th Cir.2009), for the proposition that the subrogation provisions of an ERISA-qualified,

self-funded plan, such as the Plan here, must be enforced to the full extent of the medical

benefits paid by such a plan. Significantly, neither McCutchen nor Longaberger involved the

death of the plan participant. McCutchen and Longaberger are therefore factually

distinguishable and their holdings are inapplicable to the issue of how an unallocated gross

settlement, inadequate in amount to fully compensate for the value of wrongful death and

survival claims, may be divided between those respective claims.

{¶ 19} In support of its decision, the probate court also and primarily relied on the

Plan's subrogation and reimbursement clause. However, a close reading of the clause

shows that its provisions only relate to (1) payment, settlement, or judgment received by a

covered person for injury to the covered person, (2) the covered person's damages, and (3)

the covered person's conduct in abstaining from prejudicing the Plan's subrogation or

recovery interest. The clause does not relate to any payment, settlement, or judgment

received by statutory wrongful death beneficiaries for injury they sustained as a result of the

wrongful death of the covered person; nor does it relate to damages of the statutory wrongful

death beneficiaries. Other provisions of the clause such as the Plan's lien rights must

necessarily be read in conjunction with the overall clause which is restricted to medical

expenses paid for the treatment of the covered person and settlements or judgments

received by the covered person.
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{¶ 20} Appellant accepted State Farm Insurance's settlement agreement in exchange

for a settlement of all claims against Beverly. Although the settlement agreement is not in

the record, it is apparent the settlement included an amount to compensate for Shackelford's

wrongful death as the gross settlement of $102,000 exceeds the amount of the sole survival

claim (i.e., the medical benefits paid by Aetna under the Plan).

{¶ 21} As stated above, a wrongful death claim belongs exclusively to the decedent's

beneficiaries, and settlement funds recovered in a wrongful death action are for the exclusive

benefit of the statutory beneficiaries and are not an asset of the decedent's estate. Peters,

2007-Ohio-4787 at ¶ 10; Craig, 89 Ohio App.3d at 84-85. By contrast, a survival claim is

simply the action the decedent could have brought for the injuries he suffered prior to his

death and is generally for the benefit of the estate. Peters at id.; Craig at id.

{¶ 22} Notwithstanding the apparent breadth of the Plan's subrogation and

reimbursement clause, we find that the reach of those provisions is limited to compensation

received by Shackelford for injuries he sustained. That is, under the Plan's clause,

Shackelford subrogated to Aetna only his right to recover from third parties compensation for

his medical expenses. The right to recover for wrongful death is not a right that ever

belonged to Shackelford or to his estate. Rather, it solely belongs to Shackelford's statutory

beneficiaries.

{¶ 23} A review of the probate court's judgment entry plainly shows that the court's

allocation of the settlement proceeds was based solely upon the court's determination that

the Plan's subrogation and reimbursement clause applied to the entire settlement proceeds

without any consideration as to the relative values of the wrongful death and survival claims.

Rather than first determining how the gross settlement should be allocated between the

wrongful death and survival claims and then apply the Plan's subrogation and reimbursement

clause to the portion of the settlement allocated to the survival claim, the probate court simply
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applied the Plan's clause to the entire unallocated settlement. However, the Plan's clause

does not circumscribe the probate court's discretion as to how to allocate settlement

proceeds; rather, the clause only relates to the Plan's right of subrogation to settlement

proceeds that are ultimately allocated to a survival claim.

{¶ 24} We find that the probate court did not apply the correct legal standard when it

applied the Plan's subrogation and reimbursement clause to the entire, unallocated

settlement proceeds on a first-priority basis and without any consideration to the relative

values of the wrongful death and survival claims, ordered that Aetna be reimbursed in full for

the medical expenses it paid on behalf of Shackelford, and then ostensibly allocated the

balance to the wrongful death claim. Rather, the probate court should have first allocated the

settlement proceeds between the wrongful death and survival claims, and then applied the

Plan's clause to the amount of the proceeds allocated to the survival claim.

{¶ 25} We reiterate that R.C. 2125.03(A) directs the probate court to distribute

wrongful death damages in an equitable manner. As we have noted, in cases where the

gross settlement is inadequate to fully compensate for all wrongful death and survival claims,

the relative value of the respective wrongful death and survival claims is an important factor.

However, we are not suggesting that an equitable distribution requires strict adherence to a

relative value formulation, such as the one proposed by appellant. Rather, the relative value

of the respective claims is one factor, albeit an important one, in arriving at a distribution that

is equitable. The error we find here is the probate court's apparent failure to give any

consideration to the relative values of the wrongful death and survival claims, instead merely

applying the Plan's subrogation and reimbursement clause to the entire unallocated

settlement.

{¶ 26} We note that Aetna also argues that the Plan's cooperation provision, pursuant

to which a covered person may not prejudice the Plan's subrogation and reimbursement
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interests, is violated by appellant's proposed allocation and distribution of the settlement

proceeds. We reject this argument. Submitting the matter to the probate court as required

under Ohio law does not in any way prejudice the Plan's subrogation rights. Allocation of the

settlement proceeds will be determined by the probate court based upon what is equitable

and without regard to appellant's proposed allocation and distribution.

{¶ 27} We therefore reverse the probate court's decision and remand the matter with

instructions that the probate court first allocate the settlement proceeds between the wrongful

death and survival claims, and then and only then, apply the Plan's subrogation and

reimbursement clause to the amount of the proceeds allocated to the survival claim. We

decline to address whether appellant's proposed allocation as set forth in the Application to

Approve Settlement and Distribution of Wrongful Death and Survival Claims is equitable.

Such determination must be first made by the probate court.

{¶ 28} Appellant's assignment of error is well-taken and sustained.

{¶ 29} Judgment reversed and remanded.

HENDRICKSON and PIPER, JJ., concur.

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