Samsel v. Allstate Insurance

SUPREME COURT OF ARIZONA
En Banc

MICHAEL and CYNTHIA SAMSEL, ) Arizona Supreme Court
husband and wife; LISA SAMSEL, a ) No. CV-01-0158-PR
single woman, )
) Court of Appeals
Plaintiffs/Appellees, ) Division Two
) No. 2 CA-CV 98-0226
v. )
) Pima County Superior Court
ALLSTATE INSURANCE COMPANY, ) No. C-310775
)
Defendant/Appellant. )
__________________________________________) OPINION

Appeal from the Superior Court in Pima County
The Honorable John M. Quigley
The Honorable Kenneth Lee
AFFIRMED
________________________________________

Opinion of the Court of Appeals, Division Two
199 Ariz. 480, 19 P.3d 621 (App. 2001)
VACATED

Bruce A. Burke Tucson
- and -
Robert Q. Hoyt Tucson
Attorneys for Plaintiffs/Appellees

Steptoe & Johnson, L.L.P. Phoenix
By: Floyd P. Bienstock
Bennett Evan Cooper
- and -
Sonnenschein, Nath & Rosenthal Chicago
By: Jeffrey Lennard
Mark Hanover
Attorneys for Defendant/Appellant

Arizona Trial Lawyers Association Phoenix
By: Amy G. Langerman
Attorneys for Amicus Curiae
MYERS, Judge

¶1 Defendant/Appellant Allstate Insurance Co. appealed from an adverse summary judgment

on a claim for breach of the medical payments coverage provisions of an automobile policy Allstate

issued to Plaintiffs/Appellees Michael and Cynthia Samsel. The court of appeals affirmed, holding

that reasonable medical expenses paid on behalf of Lisa Samsel, the injured party, by her health mainte-

nance organization (HMO) were expenses actually incurred by Lisa for purposes of Allstate’s medical

payments coverage, notwithstanding the provisions of A.R.S. § 20-1072. Samsel v. Allstate Ins. Co.,

199 Ariz. 480, 19 P.3d 621 (App. 2001). This petition for review followed. We have jurisdiction

pursuant to Arizona Constitution article VI, § 5(3) and Rule 23, Ariz.R.Civ.App.P. We granted review

to consider a question of first impression: are expenses for medical services necessary to treat injuries

actually incurred by the insured within the meaning of the medical payment coverage of an automobile

policy when those expenses are paid by the insured’s HMO and a statute immunized the HMO’s enrollees

from legal liability for covered expenses.

FACTS

¶2 In August 1995, Lisa Samsel was injured in a Tucson automobile accident. She was

taken by ambulance to University Medical Center (UMC) and treated there. The following day, Lisa

signed a UMC “Conditions of Admission” form, agreeing in part to “pay all of [her] Hospital charges

as and when billed.” At the time of the accident, Lisa was an insured under an Allstate automobile

policy issued to her parents in 1993. The Allstate policy included medical payments coverage with

a limit of $10,000, for which her parents paid an additional annual premium of $300. Lisa was also

enrolled, since April 1995, in Partners Health Plan (Partners), an HMO regulated as a health care services

organization pursuant to A.R.S. §§ 20-1051 et seq.

¶3 As a result of her injuries, Lisa’s charges at UMC totaled $16,413 in medical services

and $2,494 in physicians’ services. Upon her discharge, UMC billed Lisa as a guarantor. Partners

ultimately paid all but $313.55 of Lisa’s expenses. She subsequently filed a claim with Allstate under

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the Samsels’ medical payments coverage. Allstate paid only the $315.55 that had not been paid by

Partners and denied coverage on the remaining charges, saying that because Partners was obligated

to and did pay the charges, Lisa had not actually incurred those expenses, as required by the medical

payments provision of its policy.

¶4 The Samsels sued Allstate, alleging among their claims breach of contract and bad faith.

They subsequently amended their complaint to add class action allegations. Both parties moved for

summary judgment on the breach of contract claim before proceeding on the class action issues. The

trial judge granted summary judgment in favor of the Samsels on the breach of contract claim, denied

Allstate’s motion on the same issue, and entered final judgment in favor of the Samsels for $9,686.45,

representing the difference between the coverage limits and the $313.55 Allstate previously paid.

¶5 On Allstate’s appeal, the court of appeals held that when Lisa signed UMC’s admission

form,1 she agreed to accept financial responsibility and liability for her medical expenses. Samsel,

199 Ariz. at 485 ¶ 16, 19 P.3d at 626 ¶ 16. Therefore, Lisa actually incurred those expenses under

the medical payments provision of Allstate’s policy. Id. The court found that notwithstanding the

provisions of subsections (A) to (C) of A.R.S. § 20-1072, subsection (E) of that statute allowed Lisa

to accept financial responsibility for her hospital and medical expenses even though most of the expenses

were paid by Partners. Id. at 484 ¶ 12, 19 P.3d at 625 ¶ 12.

¶6 We granted Allstate’s petition for review on the question of whether the court of appeals

erred in concluding that by signing the boilerplate hospital admissions form, Lisa actually incurred

medical expenses within the meaning of Allstate’s medical payments coverage when, under A.R.S.

1
The Conditions of Admission form included a clause that read in part:

3. PATIENT’S CONSENT TO SERVICES BY HOSPITAL
. . . . In exchange for the Hospital providing services to the patient,
the undersigned agrees to make an advance payment or deposit if
requested and to pay all of the patient’s Hospital charges as and when
billed, except to the extent UMC agrees otherwise in a written
financial agreement. UMC may bill the patient periodically before
the patient is discharged . . . .

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§ 20-1072(A) to (C), those expenses were to be paid by Partners and Lisa had no personal liability

to UMC.

DISCUSSION

¶7 In reviewing a grant of summary judgment, we view the evidence and reasonable inferences

in the light most favorable to the party opposing the motion. Wells Fargo Bank v. Arizona Laborers

Local No. 395 Pension Trust Fund, 201 Ariz. 474, 482 ¶ 13, 38 P.3d 12, 20 ¶ 13 (2002). A trial judge

properly grants summary judgment when there is no genuine issue as to any material fact and the moving

party is entitled to a judgment as a matter of law. Rule 56(c), Ariz.R.Civ.P.; Orme School v. Reeves,

166 Ariz. 301, 309, 802 P.2d 1000, 1008 (1990).

¶8 Insurance policy provisions are to be construed in a manner consistent with their plain

and ordinary meaning. Sparks v. Republic Nat’l Life Ins. Co., 132 Ariz. 529, 534, 647 P.2d 1127,

1132 (1982). In determining whether there is an ambiguity that should be construed against the insurer,

the language should be examined from the viewpoint of one not trained in law or the insurance business.

Id. Finally, the policy may not be interpreted so as to defeat the reasonable expectations of the insured.

Darner Motor Sales, Inc. v. Universal Underwriters Ins. Co., 140 Ariz. 383, 389-90, 682 P.2d 388,

394-95 (1984).

A. The meaning of “actually incurred”

¶9 Allstate argues that Lisa did not actually incur the hospital and physician expenses that

Partners eventually paid. The medical payments provision of Allstate’s automobile policy reads in

pertinent part: “Allstate will pay to or on behalf of an insured person all reasonable expenses actually

incurred by an insured person . . . .” (Emphasis added.)

¶10 In Allstate’s medical payments coverage provision, the phrase “actually incurred” is

used in several ways. Medical expenses must have been incurred and thus cannot be speculative or

anticipated future expenses; must have been incurred within one year of the accident; and must have

4
been incurred by an insured person. However, Allstate’s medical payments provision does not define

the words “actually incurred” for these purposes or any other.

¶11 Although conceding that Coconino County v. Fund Administrators Ass’n, Inc., 149

Ariz. 427, 719 P.2d 693 (App.1986), established that Lisa need not have personally paid hospital or

physician charges as a precondition to seeking payment under her medical payments coverage, Allstate

contends that Coconino County does require that she be liable for such payments. It argues that under

the provisions of A.R.S. § 20-1072(A) to (C), Lisa was not liable for medical expenses covered by

Partners and thus could only have actually incurred those expenses not covered by Partners.

¶12 Coconino County involved a student who was eligible for county medical care pursuant

to state and county regulations. The student was also covered under an interscholastic athletics association

group insurance policy. The injured student was treated at Flagstaff Hospital and signed the hospital’s

standard admission agreement, assigning to the hospital the right of reimbursement from any applicable

insurance policy. The administrator for the group policy refused reimbursement of the student’s hospital

expenses, arguing that the policy provided reimbursement only for expenses actually incurred. Because

all charges were payable by Coconino County, the student had incurred no expenses.

¶13 The court of appeals rejected the administrator’s argument, finding that “‘[i]ncur’ is

generally accepted to mean ‘to become liable for,’ not ‘to pay for.’” Id. at 430, 719 P.2d at 696. The

court found that the hospital admission form signed by the student’s legal guardian “expressly provided

that [they] were the ultimate guarantors of the treatment costs” and held that “[w]hether the possibility

was remote or not, the private hospital could have proceeded against [the student], the guarantor, and

sought payment.” Thus, the student “did actually incur expenses during his hospitalization.” Id.

¶14 Allstate argues that under Coconino County, the claimant’s legal obligation to pay is

a sine qua non for its medical payments coverage to apply, given the “actually incurred” provision.

However, both Coconino County and the court of appeals’ decision in this case appear to fit within

a line of cases addressing the question of whether claimants incurred expenses within the scope of

medical payments provisions, notwithstanding that the expenses in question were paid by or even required

5
by law to be paid by other sources. In American Indemnity Co. v. Olesijuk, for instance, the court found

that an insured injured on active military duty, whose hospital expenses were paid by the United States

Navy, as required by statute, incurred expenses for purposes of recovery under his automobile policy’s

medical payments provision. 353 S.W.2d 71, 72 (Tex.Civ.App.1961); see also Hollister v. Government

Employees Ins. Co., 224 N.W.2d 164, 166-167 (Neb.1974), in which the court reached the same result.

In both cases, the court noted that when the serviceman was treated in the hospital, an implied contract

for payment was created, and later payment or reimbursement by the government did not relieve the

insurer. Hollister, 224 N.W.2d at 166.

¶15 In Kopp v. Home Mutual Insurance Co., the court held that an insured whose hospital

expenses were paid by a Blue Cross hospitalization plan incurred expenses and therefore was able

to recover under his automobile policy’s medical payments provision. 94 N.W.2d 224 (Wis. 1959).

This holding has been followed by many other courts. See, e.g., Feit v. St. Paul Fire & Marine Ins.

Co., 27 Cal.Rptr. 870, 871 (Cal.App. Dep’t Super. Ct. 1962) (medical payment clause in automobile

policy obliging insurer to pay expenses incurred for medical services did not limit recovery to expenses

incurred by insured himself and did not preclude insured’s recovery of sum medical services would

have cost him but for membership in prepaid health plan); Masaki v. Columbia Cas. Co., 395 P.2d

927, 931 (Haw. 1964) (insured whose treatment was covered and paid by health plan had expenses

incurred on his behalf for purposes of medical payments provision of his automobile policy ); see also

Heis v. Allstate Ins. Co., 436 P.2d 550 (Ore. 1968) (same). Similarly, in Shanafelt v. Allstate Insurance

Co., the court found:

The primary definition of the word “incur” is “to become liable for”
. . . . Obviously, plaintiff became liable for her medical expenses when
she accepted medical treatment. The fact that plaintiff had contracted
with a health insurance company to compensate her for her medical
expenses, or to pay directly the health care provider on her behalf, does
not alter the fact that she was obligated to pay those expenses.

552 N.W.2d 671, 676 (Mich.App. 1996) (citation omitted).

6
¶16 In Holmes v. California State Automobile Ass'n, the California Court of Appeal held

that an insured whose hospital costs were covered by Medicare benefits assigned to the hospital incurred

expenses for the purpose of recovering under her automobile policy’s medical payments provision.

185 Cal.Rptr. 521, 524 (Cal.App.1982); see also Niles v. American Bankers Ins. Co., 229 So.2d 435,

439 (La.App. 1969); Black v. American Bankers Ins. Co., 478 S.W.2d 434, 438 (Tex. 1972).

¶17 In Dutta v. State Farm Insurance Co., an insured whose HMO paid her accident-related

medical expenses was permitted to recover on her automobile policy’s personal injury protection provision.

769 A.2d 948 (Md.App. 2001). The court stated:

Clearly, an expense was incurred on petitioner's behalf. We hold that
in order to fall under the scope of . . . State Farm's policy, the expense
need merely be incurred — regardless of whether it is the insured, the
insured's health insurer, the insured's health maintenance organization,
or any other collateral source of benefits, who ultimately pays the bill.

Id. at 961.

¶18 In all of these cases, of course, the court noted that the insured had become legally liable

for the treatments provided and that the expenses were therefore incurred. The concept of requiring

the insured to become legally liable was (and is) an appropriate method by which to determine if the

insured actually incurred expenses for medical treatment. But none of those cases involved situations

in which the insured received services necessary for treatment and would have become legally liable

but for a statutory immunity. The cited cases examine the issue in slightly different fashions. Some

courts deemed the medical payments provision vague in its use of the word “incurred.” Feit, 27 Cal.Rptr.

at 871-72. Others found the policy ambiguous in failing to specify who must incur the expenses. Id.

at 872; Dutta, 769 A.2d at 960-61. Feit and Black noted the absence of other insurance or coordinated

coverage provisions. Feit, 27 Cal.Rptr. at 872; Black, 478 S.W.2d at 435. The Kopp court found the

insured’s payment of hospitalization plan premiums evidence of costs or expenses incurred by the

insured. 94 N.W.2d at 225. In Holmes, Shanafelt, and Black, the courts found the injured insured

incurred a legal obligation to pay for hospital expenses at the time the services were rendered. Holmes,

185 Cal.Rptr. at 524; Shanafelt, 552 N.W.2d at 676; Black, 478 S.W.2d at 437.

7
¶19 The narrow rule to be extracted from all of these cases is that “incurred” or “actually

incurred” language does not bar an insured who became liable for expenses from recovery simply because

“of the availability of collateral means of discharging his liability therefor so as to have relieved him

of the need to pay the charges personally.” Hollister, 224 N.W.2d at 166 (quoting Dillione v. Deborah

Hospital, 274 A.2d 597, 600 (N.J. Super. (1971)). But in the present case, we must go a step further

and decide what none of these cases had to consider — whether this rule also applies when the insured

is immunized from legal liability by a statute that transfers liability for covered expenses to the collateral

source of payment.

B. A.R.S. § 20-1072

¶20 In the present case, Allstate argues that Partners — a health care services organization

(HCSO) under A.R.S. § 20-1072 — was responsible for payment of Lisa’s expenses; under subsections

(A) and (C), Lisa had no personal liability for the medical services covered under her HMO plan and

therefore no debt was actually incurred for such services. Indeed, our court of appeals has held that

A.R.S. § 20-1072(A) to (C) protects an enrollee from personal liability for services covered by an HCSO.

Andrews v. Samaritan Health Sys., 201 Ariz. 379, 384 ¶ 21, 36 P.3d 57, 62 ¶ 21 (App. 2001). Neverthe-

less, Andrews holds than an actual “non-recourse debt” exists and is subject to the medical lien. Id.

at 383 ¶ 14, 36 P.3d at 61 ¶ 14. Thus, the “hospitals are not . . . bringing legal action against the HCSO

enrollees, as prohibited by A.R.S. § 20-1072 . . . they are [only] asserting a statutory lien against the

enrollee’s tort claim.”2 Id.; see also LaBombard v. Samaritan Health Sys., 195 Ariz. 543, 991 P.2d

246 (App. 1998) (AHCCCS liens enforceable against enrollee’s tort recovery even though enrollee

not personally liable).

2
One assumes, of course, that the existence of a statutory lien against a claimant’s tort recovery for
the full charges made by a provider enables that claimant to claim those charges as items of special
damages. Andrews also holds that the lien arises and attaches automatically on treatment, without
any assertion by the provider. 201 Ariz. at 383 ¶ 13, 36 P.3d at 61 ¶ 13. We note, however, that no
question of laches was considered by the Andrews court. Nor did the court consider the adverse
effect of that holding on settlement efforts. We address neither of these issues in this opinion.

8
¶21 Of course, Andrews is also based in part on the provisions of law that permit the filing

of medical liens. See A.R.S. § 33-931. But we think Andrews’ basic principle is applicable to the

present case. A debt to the provider is incurred when covered services are provided to the enrollee.

The insured’s property interest in his or her tort claim and eventual recovery is affected when and if

the debt is eventually satisfied from the insured’s property. Also, it is important to realize that A.R.S.

§ 20-1072 does not confer complete immunity from the enrollee’s personal liability to the provider.

The statute reads as follows:

A. Every written contract between a health care services
organization and a provider or hospital shall set forth that if the organiza-
tion fails to pay for covered health care services as set forth in the en-
rollee's evidence of coverage or contract the enrollee is not liable to the
provider or hospital for any amounts owed by the organization and the
provider or hospital shall not bill or otherwise attempt to collect from
the enrollee the amount owed by the organization.

B. If the written contract between the contracting provider
or hospital and the organization fails to contain the required prohibition
stated in subsection A, the enrollee is not liable to the contracting pro-
vider or hospital for any amounts owed by the organization.

C. No contracting provider or agent, trustee or assignee of
the contracting provider or hospital may maintain an action at law against
an enrollee to collect any amounts owed by the organization for which
the enrollee is not liable to the contracting provider under subsection A.

D. Nothing in this section impairs the right of a provider
or hospital to charge, collect from, attempt to collect from or maintain
an action at law against an enrollee for any of the following:

1. Copayment or coinsurance amounts.

2. Health care services not covered by the organization,
including out of area claims that are not paid by an organization on behalf
of an enrollee.

3. Health care services rendered after the termination of
the contract between the health care services organization and the pro-
vider or hospital, unless the health care services were rendered during
confinement in an inpatient facility and the confinement began prior
to the date of termination, or unless the provider has assumed post-termi-
nation treatment obligations under the contract.

E. Nothing in this section prohibits an enrollee from seeking
health care services from a contracting or noncontracting provider or

9
 hospital and accepting financial responsibility for these services.

F. No provider or hospital may charge an enrollee of a health
care services organization more than the amount the provider or hospital
contracted to charge the enrollee pursuant to the provider's contract or
hospital's contract with the health care services organization.

¶22 Thus, if Andrews is correct, despite the provisions of A.R.S. § 20-1072(A) to (C), an

enrollee’s property is or may be liable for repayment of the charges covered by the HCSO provider

plus the remaining portion or the provider’s usual fee or charge, plus the items covered in subsection (D).

C. The admissions form

¶23 Lisa signed — and does not challenge her signing of — a UMC admission form in which

she accepted financial responsibility for the services UMC provided her. She argues, and the court

of appeals held, that in accepting financial responsibility for those services, she actually incurred expenses

within the meaning of the Allstate medical payments provision and was authorized to do so by the

plain language of A.R.S. § 20-1072(E). But Allstate contends that for HMO enrollees, A.R.S. § 20-

1072(A) to (C) amount to a statutory immunity from payment for HMO-covered medical expenses,

and that taken solely on its face, subsection (E) would eviscerate that immunity, a result the legislature

could not have intended. Allstate also argues that A.R.S. § 20-1072 was enacted without indication

of legislative intent to allow enrollee acceptance of financial responsibility in the manner for which

the Samsels argue and the court of appeals permitted. Allstate further argues that A.R.S. § 20-1072(E)

must instead be read to relate back to subsection (D)’s provisions permitting health care providers

to bill enrollees for such expenses as copayment or coinsurance amounts, health care services not covered

by the HMO, out-of-area claims, and health care services rendered after termination of the HMO-provider

contract. Since subsections (A) to (C) provide immunity from liability for HMO-covered expenses,

Allstate says Lisa could never have actually incurred them.

¶24 The court of appeals found no authority for Allstate’s interpretation and held that subsection

(E)’s express language allows an HMO enrollee to accept financial responsibility for services provided

10
by either contracting or non-contracting providers. It further held that to “ignore this explicit language

would violate the rule that requires us to give words ‘their natural, obvious, and ordinary meaning.’”

Samsel, 199 Ariz. at 483 ¶ 10, 19 P.3d at 624 ¶ 10.

¶25 We do not agree with the court of appeals on this issue. A.R.S. § 20-1072 was enacted

in 1988 as part of a bill addressing HMO insolvency, capitation, and regulatory issues. There is no

doubt that subsections (A) to (C) are important components of Arizona’s HMO regulatory scheme.

They are substantially similar to the “hold harmless” provisions of the Health Maintenance Organization

Model Act, promulgated by the National Association of Insurance Commissioners (NAIC) following

a 1988 NAIC advisory report on HMO regulation and insolvency issues. The relevant section of the

HMO Model Act reads as follows:

13. Protection Against Insolvency

D. Hold Harmless

(1) Every contract between a health maintenance organization
and a participating provider of health care services shall be in writing
and shall set forth that in the event the health maintenance organization
fails to pay for health care services as set forth in the contract, the sub-
scriber or enrollee shall not be liable to the provider for any sums owed
by the health maintenance organization.

(2) In the event that the participating provider contract has
not been reduced to writing as required by this subsection or that the
contract fails to contain the required prohibition, the participating pro-
vider shall not collect or attempt to collect from the subscriber or enrollee
sums owed by the health maintenance organization.

(3) No participating provider, or the provider's agent, trustee
or assignee, may maintain an action at law against a subscriber or enrollee
to collect sums owed by the health maintenance organization.

National Association of Insurance Commissioners, Health Maintenance Organization Model Act (NAIC

430-1).

¶26 At least forty-seven states (and the District of Columbia) have adopted legislation on

HMO capitation and insolvency. Over half adopted the NAIC Model Act; other states adopted portions

or substantially modified the Model Act. See Jay M. Howard, The Aftermath of HMO Insolvency:

11
Considerations for Providers, 4 ANNALS HEALTH L. 87, 95-96 (1995); Craig P. Druehl, HMO and

Insurance Insolvency: The Benefits and Detriments of a Federal System, 23 AM. J. L. & MED. 487,

498-99 (1997). At least thirty-five of these states appear to have some type of hold-harmless provision.

None appears to have a provision such as Arizona’s subsection (E).

¶27 In light of all of the foregoing and the text of A.R.S. § 20-1072(A) to (C), we believe

the proper interpretation of the statute is that the enrollee is immunized from actions by the provider

for recovery of charges for services provided and covered by the enrollee’s agreement with the HMO.

By the remaining subsections, however, especially subsection (E), the enrollee remains liable for co-

insurance, co-payments, non-covered services, services of a non-contracting provider, and similar costs.

And, as noted, the insured’s property remains subject to a lien for recovery of the provider’s full charges.

But we believe the legislature clearly intended that the provider, not the enrollee, would run the risk

of HMO non-payment for covered services and also that the enrollee was immunized from direct action

for the difference between the provider’s usual fees or charges and the lesser amount payable pursuant

to the contract between the provider and the HMO. Thus, we disagree with the court of appeals’ view

that when Lisa signed UMC’s form, she became directly liable for the HMO-covered services she later

received. See Samsel, 199 Ariz. at 482-83 ¶¶ 10-11, 19 P.3d at 623-24 ¶¶ 10-11. We conclude, however,

that A.R.S. § 20-1072(E) permits the provider to obtain the enrollee’s enforceable promise to pay for

all amounts and services not covered, including co-payments, services different from or in excess of

those permitted by the HMO contract, and similar types of liabilities. And under Andrews, the insured’s

property and property interest in a tort recovery remain subject to a lien for the provider’s full additional

charges. Thus, as the court of appeals stated, subsection (E) “encourages providers to furnish” services

by giving them “assurance” they will be paid, even though, at the time, the existence or extent of coverage

may be doubtful or disputed. Id.

D. By an insured person

¶28 Given this interpretation of the statute, it is apparent that the enrollee who receives

12
necessary treatment from the provider incurs expenses and is or may be legally liable for some of them

but not others. Some of the charges are, in fact, those for which only the provider may be liable. Thus,

expenses were actually incurred and a debt, albeit non-recourse, according to Andrews, was created

for Lisa’s treatment. But Allstate’s policy requires that expenses not only be actually incurred but

that they be actually incurred by an insured person. Does this mean actually incurred for treatment

of an insured person or does it mean expenses for which the insured person is directly and legally liable?

¶29 The policy does not explain and does not define the terms. The case law cited above

has uniformly held that expenses are actually incurred by an insured when he or she has become legally

liable for them, even when those expenses have been paid by others. Id. at 625-26 ¶¶ 15-18, 19 P.3d

at 484-85 ¶¶ 15-18. This rule has even been applied in cases in which the entity that paid the expenses

was required by law to provide the services or pay the charges and when, as a pragmatic matter, the

insured would not be held legally responsible. See Coconino County, 149 Ariz. 427, 719 P.2d 693;

Hollister, 224 N.W.2d 164.

¶30 The difference, of course, is that in the present case not only were the bills paid by someone

else, but the insured was immunized from direct action by a provider seeking payment. But if it makes

no difference who pays the bills, why should it make a difference who can be sued? Neither Allstate

nor any case cited to or found by us provides an answer. In fact, no case has addressed the precise

issue arising from the provisions of A.R.S. § 20-1072(A) to (C), A.R.S. § 33-931 (the medical lien

statute), and policy provisions such as those before us. We are thus left to our own analysis.

E. Resolution

¶31 Several factors should be considered in the final analysis.

1. Double recovery — windfall

¶32 Allstate argues that permitting the Samsels to recover under their medical payments

provision the amount of medical expenses covered by their HMO would constitute a duplicate, windfall

13
recovery. We are unable to see any greater windfall to the insured when he or she recovers expenses

paid by the insured’s HMO as compared to recovery permitted from any other collateral source. Allstate

has offered no evidence that its premiums for medical payments coverage were reduced by reason

of the expectation that it would be relieved of coverage for expenses paid by HMOs for their enrollees.

Thus, we see no windfall when insureds who paid for a separate coverage collect just what they have

paid for. Recovery of expenses from both medical payments coverage and other sources has long been

both recognized and accepted in Arizona and elsewhere. As one commentator has written:

[T]he tendency has been to allow double recovery where collection of
the first benefits has been from a completely different source, such as
a hospitalization policy or Medicare . . . it might be borne in mind that
it is unlikely that one would undergo serious injury merely for the purpose
of recouping duplicate expenses. In addition, there are so many costs
not recouped under any type of policy, but which do represent losses
to the injured person, that he is unlikely to emerge with a profit in any
event. If this were considered against public policy, then insurers would
be forbidden to sell contracts guaranteeing payment of a fixed sum per
day while one is hospitalized when it is known that the hospital expense
will be paid by Blue Cross or Medicare.

8A APPLEMAN ON INSURANCE LAW & PRACTICE § 4902.7 (1997).

¶33 Arizona adopted this view long ago. See Aetna Cas. & Surety Co. v. Scott, 107 Ariz.

609, 611, 491 P.2d 463, 465 (App. 1971) (notwithstanding “other insurance” clause, insured was entitled

to medical payment reimbursement despite duplicate recovery from second source); Schultz v. Farmers

Ins. Group, 167 Ariz. 148, 150-51, 805 P.2d 381, 383-84 (1991).

2. Coordination of benefits

¶34 Unlike some other policy forms, Allstate’s policy contains no clause restricting medical

payment coverage to or for expenses actually paid by and not reimbursed to the insured. Allstate could

have, but did not, specifically provide for reduction of medical payments benefits by a coordination

of benefits or other clause limiting medical payments coverage to expenses actually paid by an insured.

Allstate argues that in light of A.R.S. § 20-1072, there was no need to provide for coordination of its

medical payments benefits to exclude HMO-covered expenses from its coverage.

14
¶35 In Feit, the court noted that:

The existence of pre-paid medical, hospitalization and funeral plans
is a matter of common knowledge and is certainly known to the insurance
industry. If an insurer does not wish to honor claims of the type involved
here it should exclude them specifically so that an insured with additional
medical or hospital coverage would know that he is receiving less cover-
age for his premium dollar than some other insured who is without out-
side benefits.

27 Cal.Rptr. at 872. We agree. We note that other insurers have, in fact, coordinated their medical

payments coverage and thus eliminated coverage for expenses paid by an HMO or other collateral

source:

Safeco further argues that . . . the policy it issued to Allen expressly
provides that the first-party medical payments coverage is excess cover-
age. The “Medical Expenses Section” of the policy contains the follow-
ing provision:

“Other Insurance. If there is other medical, hospital benefits insurance
(other than Medicare), Health Maintenance Organization or Preferred
Provider Organization benefits available from any source against a loss
covered by the Medical Expenses Section of this policy, this insurance
shall be excess insurance over any other valid and collectible medical,
hospital benefits insurance, Health Maintenance Organization or Pre-
ferred Provider Organization benefits.”

Safeco Ins. Co. v. Allen, 941 P.2d 1365, 1368-69 (Kan. 1997) (emphasis in original). We also note

that Allstate’s policy has included such a coordination clause with respect to workers’ compensation

benefits but not for medical payments coverage. The medical payments coverage issue we are presented

with here is certainly better resolved by specific exclusion, other insurance, or a coordination of benefits

clause than by reliance on litigating the meaning of the term, undefined in the policy, “actually incurred

by the insured.”

3. Premium differential, underwriting considerations, and reasonable expectations

¶36 This brings us to a final factor. One might truly inquire what the parties intended or

expected with respect to the policy’s application to this set of facts. The average consumer, of course,

would have no inkling of the problem and no intent other than to get what he or she bought. Darner

15
Motor Sales, 140 Ariz. 383, 682 P.2d 388. As noted, Allstate did not include any language indicating

its intent to exclude coverage in situations in which expenses were paid by an insured’s HCSO. It

presented no evidence that the limitation was in any way called to the Samsels’ attention. In view

of the great number of cases addressing that issue, many of them involving Allstate, it is not unreasonable

to assume that had Allstate intended to exclude coverage in such a situation, it would have so stated

in the policy. Nor did Allstate present any evidence from its underwriting department that given the

premium charged, such was its intention. Nor did Allstate show that like some insurers, it presented

its insureds with a choice for restricted coverage for a lesser premium.

¶37 Given the pervasiveness of coverage through HCSOs of one type or another, a reasonable

consumer would expect that absent any indication to the contrary, medical payments coverage would

apply to all expenses incurred for treatment of his or her injuries, regardless of what collateral benefits

the insured may have purchased or paid for. HMO enrollees who are offered medical payments coverage

limited by Allstate’s interpretation are entitled to be informed that to a great extent the coverage is

useless. HMO coverage, of course, is not some gift handed to an enrollee but protection an enrollee

has earned and paid for by his or her labor, payroll deductions, and employer contributions.

CONCLUSION

¶38 Thus, we see no compelling reason why expenses paid by the HMO coverage Lisa bought

and paid for should be treated differently than expenses paid by a hospital or medical expense policy

Lisa might have purchased or any other collateral source Lisa might have acquired by her own efforts.

If Allstate had intended to limit Lisa’s coverage to expenses for which she had actually become directly

legally liable or even those she had actually paid, it could have so stated in the policy and made it clear

to the Samsels. It has not even provided evidence that such was its own intention. We therefore conclude

that the benefits Lisa received from her HMO coverage should be treated the same as benefits received

from any other collateral source acquired by an insured. The undefined phrase “actually incurred by

the insured” is interpreted to mean actually incurred for treatment of the insured rather than actually

16
incurred for treatment for which the insured is directly legally liable.

¶39 The court of appeals’ opinion is therefore vacated, and the trial court’s judgment is

affirmed.

____________________________________
ROBERT D. MYERS, Judge*

CONCURRING:

__________________________________________
STANLEY G. FELDMAN, Justice

__________________________________________
THOMAS A. ZLAKET, Justice (retired)

*Due to a vacancy on the court, pursuant to article VI, § 3, of the Arizona Constitution, the Honorable
Robert D. Myers, Judge of the Superior Court in Maricopa County, was designated to sit on this case.

M c G R E G O R, Vice Chief Justice, dissenting:

¶40 The majority holds today that Lisa Samsel, an enrollee in a health care service organization

(HCSO) who signed a boilerplate hospital admission form, actually incurred medical expenses, even

though she can never be legally responsible for those expenses because Arizona Revised Statutes (A.R.S.)

section 20-1072 guarantees her immunity. The majority reaches its conclusion only by following a

convoluted path that ignores the clear language of the contract that this action calls upon us to interpret.

Because I conclude that the contract language does not permit the result reached, I respectfully dissent.

¶41 This action presents a straightforward issue. Our decision turns on whether plaintiff

Lisa Samsel, Allstate’s insured, “incurred” medical expenses when she received treatment at the University

Medical Center Hospital (UMC), a health care provider for Lisa’s HCSO. Allstate’s medical payment

17
provision obligated it to pay “all reasonable expenses actually incurred by an insured person” for medical

care. Hence, if Lisa incurred expenses, then Allstate’s medical pay provision applies.3

¶42 Determining whether Lisa incurred expenses does not involve a difficult legal analysis.

First, as the majority agrees, one incurs expenses if she becomes legally responsible for those expenses.4

Supra ¶ 29 (“The case law cited above has uniformly held that expenses are actually incurred by an

insured when he or she has become legally liable for them, even when those expenses have been paid

by others.”). Second, by enacting section 20-1072, the Arizona Legislature acted clearly and decisively

to ensure that HCSO enrollees cannot be liable to a provider for the cost of medical services. The

majority also agrees with this premise. Supra ¶ 27 (“[W]e believe the proper interpretation of [A.R.S.

section 20-1072.A to C] is that the enrollee is immunized from actions by the provider for recovery

of charges for services provided and covered by the enrollee’s agreement with the HMO.”). Because

of the statutory immunity granted her, Lisa cannot be legally liable for the cost of care provided by

UMC. Therefore, under the accepted definition of “incur,” no “reasonable expenses actually incurred

by the insured” exist to be paid. As a result, Allstate’s insurance policy did not provide coverage.

¶43 Our analysis should end at this point. The contract of insurance means what it says.

Allstate paid Lisa for expenses she actually incurred. No more is due under the terms of the policy.

¶44 Rather than enforce the clear language of the insurance contract, the majority approaches

the issue presented as one of general public policy and concludes that the insurance policy provides

3
Allstate paid Lisa $315.55, the amount she incurred for expenses not covered under her
HSCO agreement, as authorized by A.R.S. section 20-1072.D. This action involves only Lisa’s
demand that Allstate also pay the amount subject to the terms of her HSCO and for which Lisa is not
liable.
4
Arizona, as well as most jurisdictions, defines “incur expenses” as being equivalent to
becoming liable for those expenses. See, e.g., Coconino County v. Fund Adm’rs Ass’n, 149 Ariz.
427, 430, 719 P.2d 693, 696 (App. 1986); see also Haisch v. Allstate Ins. Co., 197 Ariz. 606, 5 P.3d
940 (App. 2000); 12 Couch on Insurance § 180:5 (3d ed. 1998).

18
coverage for medical expenses for which Lisa cannot be held legally liable. The majority reaches that

result not because the contract language requires it but rather because the court thinks the policy should

provide coverage. I cannot concur with that approach.

¶45 The majority concedes that case law “has uniformly held that expenses are actually incurred

by an insured when he or she has become legally liable for them.” Supra ¶ 29. The majority then devotes

the remainder of the opinion to explaining how, if Lisa is not liable for her expenses by virtue of the

statute, she could “incur” expenses under the terms of the insurance policy. The majority begins by

deciding that the concept of requiring one to become legally liable for expenses before one “incurs”

expenses is but an appropriate method by which to determine whether an insured actually incurred medical

expenses.5 Id. ¶ 18. The majority justifies its decision to seek other ways to define “actually incurred”

by noting that none of the cases that developed the uniform rule involved a situation “in which the insured

received services necessary for treatment and would have become legally liable but for a statutory immu-

nity.” Id. (emphasis added). In other words, none of the cases from which we derive the uniform rule

involved situations in which the insured was not and could not become legally liable. That difference

does more than distinguish this situation from others: the difference should determine that this insured

cannot be regarded as having incurred medical expenses under the language of this policy.

¶46 The majority next embarks upon an analysis notable for its departure from the contractual

language at issue. First, relying upon Andrews v. Samaritan Health System, 201 Ariz. 379, 36 P.3d

57 (App. 2001), the majority concludes that under a situation such as that involving Lisa, “[a] debt to

the provider is incurred when covered services are provided to the enrollee,” supra ¶ 21 (emphasis added),

because the provider can enforce its medical lien. But as Andrews expressly recognizes, an action

5
Even if we could discern various meanings for “actually incur,” it seems inconsistent to
conclude, as does the majority, that “actually incur” can mean both “become legally liable” for
medical expenses and “not become legally liable” for medical expenses.

19
brought pursuant to Arizona’s medical lien statute is not and cannot be an action against the HCSO

enrollee, because the HCSO statutes grant immunity to the enrollee against such a claim. Andrews,

201 Ariz. at 383 ¶ 14, 36 P.3d at 61. Andrews’ holding simply emphasizes that an insured does not

incur liability for the medical expenses of the provider and, therefore, provides no support for the majority’s

approach.

¶47 Still relying upon Andrews,6 the majority seeks to bring Lisa’s situation within the language

of the Allstate policy by pointing out that, if Lisa brings a tort action, if she seeks recovery for medical

expenses for which she was not liable, and if she recovers, her provider may assert a medical lien against

her recovery for the debt the provider incurred. Supra ¶ 21. Because no party made this argument,

nothing in the record tells us the number of HCSO enrollees who obtain medical treatment under their

HCSO plan and later recover in a tort action, but I suspect the number as a percentage of HCSO enrollees

is exceedingly small. If, as the opinion suggests, the policy language applies to Lisa only to the extent

that she some day receives a recovery in a tort action, the majority’s approach leaves significant questions

unanswered. One is left to wonder just what the contract language means for all those enrollees who

do not fit within the small category of successful tort plaintiffs: do they actually incur medical expenses

also? Or does the meaning of the contract language vary according to whether the insured was negligent

or the victim of negligence? And what of those who do pursue a tort remedy? Do they actually incur

medical expenses at the time they receive treatment or only when and if they recover their medical expenses

from a tortfeasor? If they actually incur expenses only upon recovery, can they ask their insurers to

make payment before the tort action ends? If the tort action resolves through settlement, has the insured

incurred medical expenses or not? Or has the insured incurred medical expenses only if the settlement

6
Although the majority relies upon Andrews, it stops short of approving the opinion. Supra
¶ 22 (“If Andrews is correct . . . .”).

20
agreement separately defines and requires payment of such expenses? These questions arise by virtue

of the majority’s interpretation, which unnecessarily contorts the language of the contract. And, in

the end, reality tells us that even if Lisa successfully pursues a tort action, she will not have actually

incurred the medical expenses for which she seeks payment. Allstate’s contract of insurance still will

not provide coverage, for Lisa still has actually incurred no medical expenses.

¶48 The majority finally addresses the issue raised by this action by asking whether the policy’s

reference to medical expenses actually incurred by an insured person means “actually incurred for

treatment of an insured person or . . . expenses for which the insured person is directly and legally liable?”

Supra ¶ 28. Only in the world of the legally arcane could one suggest that contract language referring

to expenses incurred “by an insured person” really means expenses “incurred [by the provider] for the

treatment of an insured person.” Certainly no reasonable policy holder could interpret his or her insurance

contract as meaning that coverage promised for expenses incurred by the insured includes expenses

incurred by the insured’s medical provider.

¶49 The majority’s failure to limit its review to the interpretation of the insurance policy

involved provokes the majority to ask one final question. After noting again that the insured was immu-

nized from liability, the opinion asks, “[b]ut . . . why should it make a difference who can be sued?”

Supra ¶ 30. The simple and inescapable answer is that it makes a difference because the policy obligates

Allstate to pay only those insureds who incurred liability. Lisa cannot be sued by the provider because

she is immune from suit. The fact that Lisa can never be held liable for her medical expenses means

that, under the terms of the policy, she never incurred those expenses. Because we are interpreting a

contractual provision related to the legal liability of the insured, it matters who can be sued.

¶50 I return to my statement that this is a simple case. Lisa did not incur expenses for her

treatment at UMC because she was not liable for those expenses. She received exactly those benefits

21
promised under the contract of insurance when Allstate paid those portions of her expenses for which

she was liable under section 20-1072. I would reverse the decision of the superior court and vacate

the opinion of the Court of Appeals.

___________________________________
Ruth V. McGregor, Vice Chief Justice

Concurring:

________________________________
Charles E. Jones, Chief Justice

22