Lots of Lessons Learned from Recent Ohio Decision

By a vote of 4 to 3, the Supreme Court of Ohio has decided that a person injured in an automobile accident cannot assign his rights to recovery against the liable party, in whole or in part, to another person prior to reaching a settlement of his claim. Such was court’s decision in the July 23, 2009, case of West Broad Chiropractic v. American Family Insurance.

          The Ohio court was examining the applicable law where a person with no or inadequate insurance, who is injured in an automobile accident, tries to assign her rights of recovery to the medical care provider in order to obtain services. The court in Ohio found that where liability for the accident had not yet been established and a present right to settlement proceeds therefore did not exist, no such assignment was valid if the right does not exist at the time of the assignment, even though the injured party may have that right in the future.

          Kristy Norregard was injured in an automobile accident on July 6, 2002. Three days later, she sought treatment for her injuries at West Broad Chiropractic. At that time the chiropractor’s office required her to sign a document entitled “Assignment of Right to Receive Benefits and/or Proceeds of Settlement or Judgment,” which she did sign as requested. That agreement assigned Ms. Norregard’s right to receive insurance company compensation for her injuries to West Broad Chiropractic in exchange for her treatment. Under the agreement payment was to be made directly to West Broad before any payment was made to Ms. Norregard.

Almost two years later, on April 30, 2004, West Broad gave notice

of the assignment to American Family Insurance (“AFI”), who insured the driver of the automobile involved in the accident with Ms. Norregard.  The notice requested that AFI name West Broad as a co-endorser on any disbursement check issued or to issue a separate check payable to West Broad directly pursuit to the assignment. The notice did not identify the amount due West Broad.

          Substantially later, but before filing suit, Ms. Norregard settled her claim for injuries with AFI. AFI disbursed the settlement proceeds directly to Ms. Norregard, apparently without regard to the assignment. When West Broad found out about it, West Broad filed an action against AFI seeking a declaration that their assignment was valid and enforceable and that AFI was obligated to pay West Broad for the treatment provided to Norregard. Although the trial court found the assignment enforceable, this was reversed on appeal.

          The Ohio Supreme Court found because no settlement proceeds existed at the time of the assignment and because Ms. Norregard had no right to

any funds at that time, she had no rights that she could assign.  The court found that the right to any proceeds from the claim was unresolved and that as a consequence, Ms. Norregard’s right to any settlement proceeds was merely a possibility at the time she executed the assignment to West Broad. That being the case, the court found that under the 1908 case of Pennsylvania Co. v. Thatcher, an equitable assignment in the prospective proceeds of a settlement could not be enforced by the assignee against the liable party in a suit at law. Thatcher also reasoned that giving effect to such an assignment would introduce the interests of a third party who had not been involved in the accident into settlement negotiations and could compromise a settlement between the injured person and the liable party. It is also of note that even the majority found that West Broad had a contract that may be enforceable against Ms. Norregard, even if it was not binding upon AFI, the third party carrier.

          Although the majority found their application of Thatcher persuasive, the dissent strongly disagreed. The dissent actually found that the majority both misapplied and misread the Thatcher decision. The dissent argued rather persuasively that even if Thatcher was applicable, which under their analysis it was not, an accurate reading of that case does not lead to the result the majority found. However, even more importantly under the thinking of the dissent, is the fact that the reasoning of the case of General Excavator Co. v. Judkins is applicable and stands for the proposition that that the assignor need not have a present right to funds, nor do the funds need to be in existence at the time the agreement is made.

The dissent goes on to state that General Excavator situation is analogous to this West Broad case. The dissent stated that there is no meaningful difference between assigning the right to the uncertain proceeds of a future contract and assigning the right to proceeds of a future lawsuit or settlement. In either case, the subject property depends for its existence on the assignor’s successful pursuit of “rights in being.”

There are many lessons to be learned from the West Broad case. One certainly is that in today’s world there can be great disagreement between members of the same judicial court (not unlike the US Supreme Court). The second point is that if you read the West Broad dissent the way I do, you should not put too much reliance upon the precedential value of (at least) certain decisions. Another point is that while the claimant, her health care provider and the insurance carrier for the liable party were all involved in this assignment, none of them handled it very well, and for my perspective, none of them obtained reliable legal guidance as to the use of the agreement.

It is not likely that we would have advised West Broad or a similarly situated health care provider to use this type of an agreement in an attempt to obtain a claim against the liability insurance carrier. Whether it is ultimately enforceable or not, you are just asking for litigation. If the health care provider consulted with us as business counsel, our discussion would likely lead to a far more focused document which ultimately would be less expensive than getting involved in the litigation that ensued here.

Nor would we have advised AFI or a similarly situated insurance carrier to pay out the settlement proceeds to the claimant without resolving the outstanding issues regarding the assignment. Again, it is simply asking for litigation, even if the carrier was able to dodge the bullet here with some dubious legal analysis by the court. We work with insurance carrier clients through every step of the process so that when the claim is closed it does not get reopened due to unsuspected surprises and floating assignments that have not been addressed as part of the settlement process.

 Finally, it is doubtful that Ms. Norregard consulted an attorney before signing the agreement; if she had asked for our opinion we would not have recommended she sign the agreement.  The claimants we represent know we want them to call us for advice as their situation develops. While we understand that claimants need to receive health care in order to properly recover from their injuries, they should always consult with counsel before signing any contract which alters their legal rights regarding the claim. It is just one of the many ways that we assist claimants when we are representing them after they are injured in an accident.