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Patrick W. Williams v. Blue Cross of Idaho

September 2, 2011


Appeal from the Industrial Commission of the State of Idaho.

The opinion of the court was delivered by: J. Jones, Justice.

2011 Opinion No. 93

Stephen W. Kenyon, Clerk

The decision of the Industrial Commission is affirmed, but the case is remanded.

Patrick Williams appeals the Industrial Commission's determination that I.C. § 72-802 does not prohibit Blue Cross of Idaho from seeking to exercise its contractual right of subrogation against Williams' lump sum settlement proceeds. We affirm.


Factual and Procedural Background

Patrick Williams suffered two injuries to his left shoulder while he was an employee of AAA Plumbing. Williams underwent two surgeries in an effort to repair these injuries. The State Insurance Fund (the SIF) initially provided Williams with workers' compensation benefits to cover a portion of his medical expenses, but later refused to provide additional coverage on the ground that any medical treatment Williams received for his left shoulder was not for work-related injuries but, rather, for a pre-existing shoulder condition.*fn1 As such, the SIF refused to cover the expenses associated with the two shoulder surgeries.

After the SIF refused to provide further workers' compensation benefits, Williams sought payment for his remaining medical expenses in the amount of $31,195.14*fn2 from Blue Cross of Idaho, his personal medical insurance provider. As a benefit of his employment with AAA Plumbing, Williams was insured through a non-occupational group insurance policy with Blue Cross for which AAA Plumbing paid a portion of the premium. Blue Cross accepted responsibility for payment of these medical expenses, and after making contractual adjustments with the medical providers, Blue Cross was able to satisfy Williams' medical bills for $11,181.08.

Williams' insurance contract with Blue Cross contains several subrogation and reimbursement provisions. With regard to Blue Cross' rights of subrogation and reimbursement, the insurance policy provides:

The benefits of this Policy will be available to an Insured when he or she is injured, suffers harm or incurs loss due to any act, omission, or defective or unreasonably hazardous product or service of another person, firm, corporation or entity (hereinafter referred to as "third party"). To the extent that such benefits for Covered Services are provided or paid for by Blue Cross of Idaho under this Policy or any other Blue Cross of Idaho plan, agreement, certificate, contract or policy, Blue Cross of Idaho shall be subrogated and succeed to the rights of the Insured or, in the event of the Insured's death, to the rights of his or her heirs, estate, and/or personal representative.

In addition to seeking payment from Blue Cross, Williams filed a complaint with the Industrial Commission seeking workers' compensation for the medical expenses incurred as a result of the two shoulder surgeries, as well as benefits for temporary and permanent disability as a result of such injuries. On February 20, 2008, Williams entered into a lump sum settlement agreement with the SIF. Pursuant to the settlement agreement, Williams received $70,000 in exchange for releasing the SIF from liability for any and all claims associated with the industrial accidents. The settlement agreement provides:

There are genuine and substantial disputes and differences between the parties as to the degree, if any, of Claimant's impairment and disability, the need for retraining benefits, the need for the surgeries of September 5, 2006 and March 20, 2007 which Defendants assert are due to pre-existing conditions, and the need for future medical benefits. The parties, however, wish to settle their differences on a full and final basis advising the Commission that it is in the best interest of the parties to do so. Therefore, as provided by Idaho Code section 72-404, in an effort to settle this disputed matter, the Surety tenders to the Claimant and the Claimant accepts the sum of $70,000.00 in full and final settlement of any and all claims he has or may have as a result of any of the alleged injuries described herein. Further, the parties agree to waive any underpayment of total temporary disability benefits and temporary partial disability benefits which may exist for any reason, including any underpayments that may exist as a result of the method used to calculate the compensation rate(s).

The portion of the settlement agreement regarding the allocation of the settlement proceeds contains the following provision:



However, the settlement agreement specifically states that the $70,000 is to be paid in settlement of all potential claims by Williams, including claims for "[d]isputed past medical expenses and future medical benefits." Nothing in the agreement resolves the question of whether the medical care that Williams received was causally related to any of the industrial accidents, nor does the agreement establish what portion of the settlement proceeds are allocated for payment of the disputed medical bills. After the Commission approved the settlement agreement, the SIF paid Williams $70,000, thereby discharging its obligations under the agreement.

While Williams was negotiating the settlement with the SIF, counsel for Blue Cross contacted counsel for Williams on several occasions to inform him that Blue Cross intended to exercise its contractual right of subrogation in the event Williams succeeded in obtaining workers' compensation benefits. After the agreement was finalized before the Commission, Blue Cross sent a letter to counsel for Williams demanding that, pursuant to Blue Cross' right of subrogation, he withhold money from the workers' compensation proceeds for payment to Blue Cross.

In response to these communications from Blue Cross, Williams filed a declaratory judgment action with the Commission arguing that pursuant to I.C. ยง 72-802, the lump sum proceeds paid to an injured worker are exempt from the claims of all creditors, including Blue Cross. Williams asked the Commission to enter an order directing Blue Cross to take no ...

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