Present: All the Justices
STATE FARM MUTUAL AUTOMOBILE
INSURANCE COMPANY
v. Record No. 971257 OPINION BY JUSTICE CYNTHIA D. KINSER
April 17, 1998
KEITH BOWERS
FROM THE CIRCUIT COURT OF HENRICO COUNTY
George F. Tidey, Judge
This appeal involves the amount of reasonable medical
expenses incurred by an insured under a medical payments
provision of an automobile insurance policy. Because we
find that the term “incurred” includes only those amounts
that the insured would be legally obligated to pay, we will
reverse the judgment of the circuit court.
I.
On April 17, 1995, Carroll Keith Bowers was involved
in a motor vehicle accident in which he sustained injuries
requiring medical treatment. At the time of the accident,
Bowers was insured under an automobile insurance policy
issued by State Farm Mutual Automobile Insurance Company
(State Farm). Under the medical payments provision of the
policy, State Farm agreed to pay “on behalf of each injured
person, medical expense benefits as a result of bodily
injury caused by accident.” The policy defines medical
expense as “all reasonable and necessary expenses for
medical . . . services . . . incurred within three years
after the date of the accident.”
Bowers was also insured under a health insurance plan
through Blue Cross/Blue Shield of Virginia (Blue Cross).
All the health-care providers that rendered services to
Bowers as a result of the accident had signed contracts
with Blue Cross agreeing to accept fees based upon a fee
schedule setting forth the reasonable value of the services
provided. According to a representative of Blue Cross, the
fee schedule was based on a governmental study performed by
the Health Care Financing Administration to determine the
reasonableness of fees for various medical services. Under
the agreement with Blue Cross, a participating health-care
provider could collect only the amount established by the
fee schedule plus any co-payment that the insured was
required to pay. In other words, the agreements with Blue
Cross prohibited providers from collecting as full payment
for their services any more than the scheduled fee and
required co-payment.
Following his accident, Bowers sought medical
treatment from various health-care providers and then
submitted claims to State Farm under the policy’s medical
payments provision. One such claim was for $1,586 for
treatment received from a rehabilitation and therapy
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services company. However, due to an administrative error,
the check that State Farm issued to Bowers was for $31,586
instead of $1,586. Upon realizing its mistake, State Farm
contacted Bowers and requested that he return the $30,000
overpayment. Bowers informed State Farm that he had spent
the entire overpayment and refused to repay the balance.
As a basis for his refusal to repay State Farm, Bowers
asserted that, subsequent to the overpayment, he had
incurred additional medical expenses that should be offset
against the amount allegedly owed to State Farm. 1 A dispute
arose between Bowers and State Farm in regard to the amount
that he was entitled to offset. Specifically, Bowers
sought to offset the amounts that the health-care
providers, absent agreements with Blue Cross, would have
charged Bowers rather than the amounts that the providers
accepted as full payment for their services under the Blue
Cross fee schedule. 2
1
Following the $30,000 overpayment, Bowers submitted
additional claims for medical expenses totaling $2,428 to
State Farm for payment. State Farm gave Bowers credit
against the $30,000 overpayment, reducing his obligation to
$27,572.
2
For example, an orthopedic clinic billed $3,770.50
for the services provided to Bowers. However, since the
orthopedic clinic was a participating provider under the
Blue Cross plan, it agreed to accept $1,157.25 as full
payment for its services in accord with the Blue Cross fee
schedule. Of that amount, Blue Cross paid the orthopedic
3
Because of the dispute and Bowers’ refusal to repay,
State Farm filed an action for unjust enrichment against
Bowers, seeking to recover the money it mistakenly paid to
him. On October 25, 1996, the circuit court granted State
Farm’s motion for partial summary judgment. Because
Bowers’ claimed offset would reduce only a portion of the
overpayment, the court awarded State Farm the sum of
$17,703.51, plus interest. Following a bench trial on
January 29, 1997, the circuit court, in an order dated
March 18, 1997, entered judgment against Bowers in “the
total amount of $19,894.90 plus interest . . . , this
amount representing the amount of the Partial Summary
Judgment ($17,703.50) plus the sum of $2,191.40.” In a
letter opinion, the court reasoned that State Farm cannot
benefit from the agreement between Blue Cross and the
health-care providers and, thus, allowed Bowers to offset
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clinic $861.70, and Bowers was to pay $295.55. (At the
time of trial, Bowers had paid only $35 of the $295.55.)
In other words, the orthopedic clinic wrote off $2,613.25
of its original bill. Bowers, nevertheless, claims that he
should be able to offset the amount the orthopedic clinic
billed rather than the amount that it accepted as full
payment. Thus, Bowers wants to offset the full $3,770.50
rather than the reduced fee of $1,157.25.
Six health-care providers issued total bills of
$10,677.10 but accepted lesser payments totaling $3,007.50,
thereby collectively writing off $7,669.60 of the amounts
originally billed.
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the full amount of the medical bills rather than the
amounts accepted by the health-care providers as full
payment. In other words, the court allowed Bowers to
include in the offset the amounts that his health-care
providers wrote off. The court also stated that “[t]he
fact that the medical provider and [Blue Cross] have
negotiated a figure acceptable to both of them for services
performed does not set the standard of what is reasonable.”
State Farm appeals.
II.
In its assignments of error, State Farm raises three
issues, all of which concern the circuit court’s
interpretation of the medical payments provision of the
State Farm policy and the amount that the court allowed
Bowers to offset against the overpayment. Specifically,
State Farm asserts that the circuit court erred (1) in
determining the amount of “incurred” medical expenses, (2)
in deciding the “reasonable” value of the medical services
provided, and (3) in failing to reduce the amount of the
offset because Bowers did not mitigate his damages.
The first issue requires us to construe the term
“incurred” as used in the definition of medical expense.
As already noted, the State Farm policy defines medical
expense as “all reasonable and necessary expenses for
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medical . . . services . . . incurred . . . .” State Farm
argues that the “incurred” expenses are those amounts which
the health-care providers accepted as full payment for
their services. Bowers, however, posits that he “incurred”
the full amount of the bills.
“If the language of an insurance policy is
unambiguous, we will give the words their ordinary meaning
and enforce the policy as written.” United Services Auto.
Ass’n v. Webb, 235 Va. 655, 657, 369 S.E.2d 196, 198
(1988). We have previously construed the term “incurred”
in a nearly identical medical payments provision of an
automobile insurance policy as unambiguous and concluded
that “[a]n expense can only be ‘incurred’ . . . when one
has paid it or become legally obligated to pay it.”
Virginia Farm Bureau Mut. Ins. Co. v. Hodges, 238 Va. 692,
696, 385 S.E.2d 612, 614 (1989). 3
The evidence in the instant case was that Bowers would
never be liable for any amount greater than that which the
various health-care providers accepted as full payment for
their services based on the Blue Cross fee schedule.
Stated differently, the health-care providers’ agreements
3
The language at issue in Hodges was “all reasonable
expenses incurred within one year from the date of accident
for necessary medical . . . services.” Id. at 693, 385
S.E.2d at 612.
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with Blue Cross prevented them from collecting more than
the scheduled fee and any required co-payment. Therefore,
we conclude that the medical expenses Bowers “incurred”
were the amounts that the health-care providers accepted as
full payment for their services rendered to him. Bowers
has not paid nor is he “legally obligated to pay” the
amounts written off by the providers. Id.; accord Irby v.
Gov’t Employees Ins. Co., 175 So. 2d 9, 10 (La. Ct. App.
1965); United Services Auto Ass’n v. Schlang, 894 P.2d 967,
969 (Nev. 1995); Lefebvre v. Gov’t Employees Ins. Co., 259
A.2d 133, 135 (N.H. 1969); Sanner v. Gov’t Employees Ins.
Co., 376 A.2d 180, 182 (N.J. Super. Ct. App. Div. 1977);
Atkins v. Great Am. Ins. Co., 189 S.E.2d 501, 504 (N.C. Ct.
App. 1972). 4 To decide otherwise would be to grant Bowers a
4
In 1997, the General Assembly defined “incurred” in
Code § 38.2-2201(A)(3), which addresses medical payments in
liability insurance policies:
An expense . . . shall be deemed to have been
incurred:
a. If the insured is directly responsible for
payment of the expense;
b. If the expense is paid by (i) a health care
insurer pursuant to a negotiated contract with the
health care provider or (ii) Medicaid or Medicare,
where the actual payment with reference to the medical
bill rendered by the provider is less than or equal to
the provider’s usual and customary fee, in the amount
of the actual payment; however, if the insured is
required to make a payment in addition to the actual
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windfall because he would be receiving an amount greater
than that which he would ever be legally obligated to pay.
Turning to the second issue, we agree with the circuit
court that the fact that medical providers and Blue Cross
negotiate a fee schedule that is acceptable to them does
not necessarily set the standard for what is a “reasonable”
medical expense. However, the only evidence in this case
regarding reasonableness was from the Blue Cross
representative. She testified that the Blue Cross fee
schedule was based on a government study that determined
the reasonableness of fees for various medical services.
Thus, absent any evidence to the contrary, we must conclude
in this case that the “reasonable” expenses were those
contained in the Blue Cross fee schedule and accepted as
full payment by the health-care providers.
Finally, State Farm claims that Bowers failed to
mitigate his damages by reducing the amount of medical
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payment by the health care insurer or Medicaid or
Medicare, the amount shall be increased by the payment
made by the insured;
c. If no medical bill is rendered or specific
charge made by a health care provider to the insured,
an insurer, or any other person, in the amount of the
usual and customary fee charged in that community for
the service rendered.
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expenses he “incurred.” State Farm argues that, because
Bowers directed a rehabilitation and therapy clinic not to
submit one of its bills to Blue Cross, the bill was never
reduced in accord with the Blue Cross fee schedule even
though the clinic was a participating provider with Blue
Cross. However, we do not decide this issue because State
Farm presented no evidence regarding the amount that the
rehabilitation and therapy clinic would have accepted as
full payment under the Blue Cross fee schedule.
For these reasons, we conclude that the circuit court
erred by granting an offset for any amount in excess of
that which Bowers’ health-care providers accepted as full
payment for their services. The amount erroneously allowed
by the circuit court is the amount that the health-care
providers wrote off, $7,669.60. Accordingly, we will
reverse the judgment of the circuit court and enter
judgment here for State Farm in the additional amount of
$7,669.60, for a total judgment in the amount of
$27,564.50.
Reversed and final judgment.
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While this statute does not apply to this case, our
decision is consistent with the statutory definition of
“incurred.”
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