McIlheran v. Lincoln National Life Insurance

WOLLMAN, Circuit Judge.

In this diversity action involving the enforceability of an insurance policy under Nebraska law, John Mcllheran, as conservator for Shirley Parke, appeals from the district court’s1 order granting summary judgment to Lincoln National Life Insurance Company (“Lincoln National”). We affirm.

I.

In December 1990 Parke became disabled as a result of a head-on collision near Fremont, Nebraska. On behalf of Parke, Mcll-heran filed a negligence action in Nebraska state court against the other driver and his employers. In September 1991 Mcllheran settled with the defendants and their insurance companies for $1,720,000, and the Dodge County Court approved the settlement. After Mcllheran had paid the expenses incurred in obtaining the settlement, the net recovery totaled $1,147,240. The settlement did not fully compensate Parke for her losses, as the settlement fund will be exhausted by her future medical costs.

As an employee of the Fremont public schools, Parke was insured under a group health insurance policy issued by Lincoln National, an Indiana company. Following the settlement, Lincoln National requested reimbursement of $444,245.05 it had paid in medical claims submitted on Parke’s behalf. Additionally, Lincoln National refused to pay $47,467.10 in claims for expenses incurred after the settlement but prior to the policy’s September 1, 1992, termination date.

Mcllheran filed a declaratory judgment action against Lincoln National in Nebraska state court, seeking a declaration that he need not reimburse Lincoln National for the $444,245.05 and that Parke is entitled to $47,-467.10 for the unpaid claims. Lincoln National counterclaimed for the disputed $444,-245.05 and then removed the action to federal court. The district court granted summary judgment in favor of Lincoln National, awarding it $444,245.05, less $148,081.68 for attorney fees.

II.

We will affirm the grant of a summary judgment motion if the evidence, viewed in the light most favorable to the nonmoving party, demonstrates that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. See, e.g., Cole v. Bone, 993 F.2d 1328, 1331 (8th Cir.1993).

Lincoln National’s policy, which is governed by Nebraska law, contains a provision entitled Third Party Reimbursement and Subrogation:

This provision applies when a third party or its insurer is liable as a result of the negligence ... of the third party for a loss for which medical benefits ... are payable under this policy. If a third party or its insurer is liable for past, present, or future medical ... charges, the following rules will apply.
Reimbursement
1. If the third party makes payment before Lincoln National pays, no benefits will be paid under this policy to the extent of the third party’s payment.
2. If the third party does not make payment before Lincoln National pays:
a. Lincoln National will pay any benefits due under this policy;
b. when payment is later made by the third party, Lincoln National in entitled to be repaid first; the Insured Individual or legal representative is obligated to return the payment to Lincoln National less reasonable prorated expenses, such as lawyer’s fees and court costs, the Insured Individual incurs in seeking the third party payment;
e. the Insured Individual’s obligation to repay Lincoln National will be binding upon the Insured Individual or legal representative regardless of whether:
*7114) the Insured Individual has been paid by the third party for all losses sustained or alleged.
Subrogation
... Lincoln National’s recovery from the third party will be limited to the lesser of:
1. the amount Lincoln National paid in benefits under this policy ..., or
2. the amount recovered from the third party.
Lincoln National’s recovery will apply whether or not payment has been made by the third party for all of the Insured Individual’s losses.

(emphasis added).

Relying on Shelter Insurance Cos. v. Frohlich, 243 Neb. 111, 498 N.W.2d 74 (1993), Mellheran argues that under Nebraska law an insurance company may not enforce its right of subrogation unless the insured has been completely compensated for her injuries. He therefore contends that Lincoln N ational’s reimbur sement-and-subr ogation provision violates the law and public policy of Nebraska and consequently is void. We reject his argument, for we disagree with his reading of Frohlich.

Frohlich was injured in an automobile accident, and Shelter Insurance Companies (“Shelter”) paid her $10,000 in medical benefits. Frohlich then settled with the driver of the other vehicle for $212,500, whereupon Shelter sought to recover from Frohlich the $10,000 pursuant to its policy’s subrogation clause. Shelter’s policy stated that “[i]n the event of any payment under [the medical-payments coverage] of this policy, the Company shall be subrogated to all the rights of recovery therefor which the injured person or anyone receiving such payment may have against any person or organization.” Id. at 113, 498 N.W.2d at 76.

Addressing the question whether Nebraska law required that an insured be fully compensated before an insurer may exercise its right of subrogation, the Nebraska Supreme Court first stated that “[gjenerally, subrogation is unavailable until the debt owed to a subrogor has been paid in full.” Id. at 117, 498 N.W.2d at 78. The court went on to state, however, that “if a contract provides for subrogation on payment of less than the full amount of a debt or loss, partial payment of a debt or loss may be the basis for subrogation.” Id. at 117-18, 498 N.W.2d at 78-79. The court noted that almost every appellate court that has considered this issue “has recognized that unless an insurance policy contains a provision to the contrary, an insurer’s right to recover under a subrogation clause of an insurance policy requires that the insured must have been fully compensated for the loss covered by the policy.” Id. at 121, 498 N.W.2d at 80. The court concluded that “in the absence of a valid contractual provision or statute to the contrary, an insurer may exercise its right of subrogation only when the insured has obtained an amount that exceeds the insured’s loss.” Id. at 111, 498 N.W.2d at 81. Because the policy in Frohlich contained no contrary provision, the court found that Frohlich was required to be fully compensated before Shelter could exercise its subrogation right.

Had the Frohlich court believed that language such as that found in Lincoln National’s policy contravenes Nebraska law or its public policy, it would have held that in no ease may an insurer subrogate if the insured has not been fully compensated. In the absence of such a holding, we are constrained to conclude that Lincoln National is entitled, as a matter of law, to be reimbursed in the amount of $444,245.05 and is not required to pay the $47,467.10 in unpaid claims.

Mellheran argues that the' district court should not have granted summary judgment because there is a factual dispute concerning whether Lincoln National waived its right of subrogation. Mellheran asserts that Lincoln National knew that Mellheran was involved in settlement proceedings with the third-party defendants and that any settlement had to be approved by the Dodge County Court. Mellheran contends that Lincoln National waived its subrogation right because it failed, in light of this knowledge, to file a request for notice of the settlement with the court. We disagree. To “establish a waiver of a legal right, there must be clear, unequivocal, and decisive action” showing such a purpose. Jones v. Burr, 223 Neb. *712291, 389 N.W.2d 289, 294 (1986). Lincoln National’s failure to file a request for notice in no way evidenced an intent to abandon its right of subrogation.

The judgment is affirmed.

. The Honorable Richard G. Kopf, United States District Judge for the District of Nebraska.