Farris v. State Farm Ins. Co.

Full title: CAROL FARRIS, Plaintiff, v. STATE FARM INSURANCE COMPANY, Defendant

Court: United States District Court, N.D. Ohio

Date published: Apr 14, 2008

617 F. Supp. 2d 654 (N.D. Ohio 2008)

Opinion

CASE NO. 1:07 CV 2477.

April 14, 2008.

David I. Pomerantz, Pomerantz Crosby, Maple Heights, OH, for Plaintiff.

Gregory H. Collins, Davis Young, Akron, OH, for Defendant.

MEMORANDUM OPINION ORDER

WILLIAM H. BAUGHMAN, JR. United States Magistrate Judge.

I. Introduction

Before me¹ in this case involving a dispute over insurance coverage² are a motion for summary judgment filed by plaintiff Carol Farris³ and a cross-motion for summary judgment filed by defendant State Farm Mutual Automobile Insurance Co., Inc.⁴ The parties have also each filed responsive briefs to the motion and cross-motion,⁵ as well as briefs requested by me⁶ addressing the applicability of various factors that must be considered by a district court before exercising jurisdiction in a declaratory judgment interpreting an insurance contract.⁷

1 The parties here have consented to my exercise of jurisdiction, ECF # 9, and the District Judge has accordingly transferred the matter to me. ECF # 10.

2 ECF # 2.

3 ECF # 3.

4 ECF # 4.

5 ECF # 5 (Farris); ECF # 6 (State Farm).

6 ECF # 12.

7 ECF # 13 (Farris); ECF # 14 (State Farm).

For the reasons that follow, I find that the exercise of jurisdiction here is proper and further grant State Farm's cross-motion for summary judgment.

II. Facts

A. The underlying action

The underlying facts are straightforward and undisputed. Plaintiff Carol Farris, who was insured by defendant State Farm, was involved in an automobile accident in Cleveland on February 1, 2005, in which Farris' vehicle was struck by a vehicle driven by another State Farm policyholder.⁸ Farris suffered injuries as a result of this accident and incurred medical expenses.⁹

8 ECF # 3 (Farris) at 1; ECF # 4 (State Farm) at 1.

9 Id.

The State Farm policy covering Farris at the time¹⁰ provided her with so-called "med-pay" benefits for any medical expenses incurred as a result of an accident.¹¹ Simply put, the policy states that if Farris, after being injured and receiving payment for the injury from State Farm, also subsequently receives payment for that injury "from any liable party," then Farris "shall hold in trust for [State Farm] the proceeds of the recovery [from the other liable party], and reimburse [State Farm] to the extent of [State Farm's prior] payments, costs incurred, and fees of collection."¹²

10 There is no dispute as to what language appears in the applicable policy or whether Farris was covered at the time of her accident.

11 ECF #3 at 1; ECF #4 at 1.

12 ECF #4 at 1.

Here, Farris made a claim under her policy for her injuries and, in October 2006, received a check from State Farm for $2,681.34.¹³ Farris also sued the driver of the other vehicle, alleging negligence, and, in June 2007, settled that case for $7,000 and dismissed her suit.¹⁴ As it happens, State Farm insured the other driver, and so State Farm funded that driver's 2007 settlement with Farris.¹⁵

13 ECF #3 at 1; ECF #4 at 2.

14 Id.

15 Id.

On June 28, 2007, in paying this $7,000 settlement, State Farm sent Farris three separate settlement checks.¹⁶ One check was for $2,681.34, the amount of State Farm's previous payment to Farris under the policy for her injuries.¹⁷ State Farm was listed as one of the payees on that check,¹⁸ thus making it impossible for Farris or her attorneys to cash the check without paying State Farm $2,681.34. Consequently, Farris brought this action.

16 ECF # 3 at 2 n1. In paying the $7,000.00 settlement, State Farm sent Farris three separate checks: one, for $1,960.50, represented the satisfaction of an Ohio Bureau of Workers' Compensation (BWC) lien and was forwarded to the BWC; one was for $2,681.34 and is the subject of this dispute; and the third was for the balance of $2,412.16. The final check was made payable to Farris and her attorneys and was cashed.

17 Id.

18 Id.

B. The present case

On July 11, 2007, Farris initiated the current suit against State Farm in the Cuyahoga County (Ohio) Court of Common Pleas.¹⁹ In the suit, Farris alleged that State Farm breached the terms of the settlement agreement by not issuing a check to her in the full amount of $7,000.00 and further had shown bad faith in claiming a right of subrogation from itself.²⁰ Farris sought a declaratory judgment setting forth her rights under the insurance policy and specifically sought a judgment that State Farm has "no right to any of the $7,000.00 it agreed to pay [her]," whether by right of subrogation or right to reimbursement.²¹ Farris also demanded punitive damages of $500,000.00 and attorney fees.²²

19 ECF # 1 (notice of removal), Ex. A.

20 Id. at ¶¶ 9, 10.

21 Id. at 2.

22 Id. at 3.

State Farmremoved the matter to this Court pursuant to 28 U.S.C. §§ 1441 and 1446, inasmuch as there is diversity of citizenship between the parties, and the amount in controversy exceeds $75,000.00.²³

23 ECF # 1 at 1-2. State Farm is an Illinois corporation; Farris is an Ohio citizen.

After removal, State Farm filed its answer,²⁴ contending that it is not asserting a right of subrogation here,²⁵ but, pursuant to the policy language as interpreted by Ohio courts,²⁶ it has asserted its right to be reimbursed by Farris for amounts previously paid to her for her injuries.

24 ECF # 2.

25 Id. at 3.

26 Id. at 2, citing Gerak v. Dentice, No. 19767, 2000 WL 372316 (Ohio App. 9th Dist., April 12, 2000) (attached as Ex. A).

Farris responded by filing a motion for summary judgment, arguing that, under Ohio law, State Farm is not entitled to "be subrogated to itself on the payment previously made" to Farris.²⁷ In that regard, she contended that, notwithstanding State Farm's contention that it is pursuing a right to reimbursement, not a right of subrogation, the facts here show, according to Farris, that since she never actually took possession of the disputed $2,681.34, State Farm cannot now be seeking to have her reimburse it for that sum.²⁸ Farris also argued that she is entitled to post-settlement interest on the entire $7,000.00 settlement because State Farm has not fully paid the entire settlement amount.²⁹

27 ECF # 3 at 3-5.

28 Id. at 5.

29 Id.

In its cross-motion for summary judgment, State Farm contends that Farris, by this suit, is impermissibly claiming "that she is entitled to a double recovery, and that she is not obligated to reimburse State Farm for medical expenses paid to Farris which Farris subsequently also recovered from [the other driver]."³⁰ State Farm further asserts that Farris "fails to distinguish between subrogation and reimbursement," noting that an Ohio appeals court in Craven v. Nationwide Mutual Insurance Company ³¹ specifically rejected Farris' interpretation of that portion of the policy.³²

30 ECF # 4 at 2 (emphasis in original).

31 Craven v. Nationwide Mut. Ins. Co., Case No. 18490, 1998 WL 158980 (Ohio App. 9th Dist., March 11, 1998).

32 Id.

State Farm then contends that additional Ohio appellate authority directly rejects Farris' notion that reimbursement in these circumstances requires that the party in Farris' position actually take possession of an award payment rather than allowing an administrative offset by the insurer, if, as here, the same insurer paid the first settlement as the injured's insurer and the second as the insurer of the tortfeasor.³³ In view of the case authority, State Farm further maintains that Farris can show no valid reason for post-settlement interest nor support a claim of bad faith against State Farm.³⁴

33 Id. at *3, citing Gerak. See, Gerak, 2000 WL 372316, at *3. State Farm's brief here misstate's the case name as "Jerak."

34 Id. at *4.

In response, Farris, without citing any contrary Ohio cases, argues that State Farm's contention that it is pursuing a right of reimbursement under the policy is a "legal tap dance," since, she maintains, "the policy does not create a right of reimbursement, but only a right of subrogation."³⁵ She argues that any purported right of reimbursement in the policy language, as asserted by State Farm, is either ambiguous or procedural, and further contends that, as an adhesion contract, any ambiguous terms or phrasing in the policy must be construed against State Farm, its author.³⁶

35 ECF # 5 at 1. This phrase was in boldface in the brief.

36 Id. at 2-3.

State Farm, in reply, observes again that Farris' precise argument about this exact language has been rejected by Ohio courts in Craven and Gerak. ³⁷ After quoting from the Gerak court's own quotation of State Farm's policy language,³⁸ State Farm here expressly notes that Gerak found "the insurance policy contains both a reimbursement provision and a subrogation provision," and thus, "the terms of the insurance policy specifically provide for reimbursement."³⁹ Finally, State Farm states that Gerak explicitly held that an insurer in this circumstance has the right to offset the amount it previously paid to an insured under the medical payment provision of the policy from the amount of any judgment received by the insured from the tortfeasor and funded by the same insurer.⁴⁰

37 ECF #6 at 1-2.

38 Gerak involved precisely the same situation as the present case, in which State Farm insured both parties and sought to be reimbursed for amounts it previously paid to its injured insured who then received a settlement from the tortfeasor who was also insured by State Farm. See, Gerak, 2000 WL 372316, at *3. As such, the disputed language on reimbursement in the policy is the same in Gerak as it is here. See, ECF # 6 at 2.

39 ECF # 6 at 2, quoting Gerak, 2000 WL 372316, at *3.

40 Id. at 3, citing Gerak, 2000 WL 372316, at *3.

III. Discussion

A. Jurisdiction

As noted, this matter was removed from Ohio courts to federal court by State Farm pursuant to 28 U.S.C. §§ 1441 and 1446 because it involves parties of different states and an amount in controversy over $75,000. As such, jurisdiction would be proper here.

However, because Farris' complaint styled this action as one for a declaratory judgment, the parties were instructed⁴¹ to brief⁴² the issue of whether this matter meets the criteria set forth by the Sixth Circuit in Travelers Indemnity Co. v. Bowling Green Professional Associates ⁴³ for the exercise of diversity jurisdiction in a case for declaratory judgment.

41 ECF # 12.

42 ECF # 13 (Farris brief); ECF # 14 (State Farm brief).

43 Travelers Indem. Co. v. Bowling Green Prof'l Assocs., 495 F.3d 266 (6th Cir. 2007).

Essentially, Farris declined to take a position as to whether jurisdiction is properly exercised here under the Travelers Indemnity factors.⁴⁴ State Farm, however, does argue for the exercise of jurisdiction.⁴⁵

44 ECF #13 at 2.

45 ECF #14 at 4.

It notes initially that, since Farris' suit seeks monetary damages for an alleged breach by State Farm of Farris' settlement agreement with the other driver, as well as punitive damages for States Farm's purported bad faith in regards to the breach, this matter is not exclusively a declaratory judgment action.⁴⁶ Accordingly, State Farm contends that where a federal court must properly exercise mandatory diversity jurisdiction over breach of contract claims, it may not decline to resolve a declaratory judgment issue present in the same case.⁴⁷

46 Id. at 2-3.

47 Id. at 3, citing Knowlton Constr. Co. v. Liberty Mutual Ins. Co., No. 2:07-CV-0748, 2007 WL 4365690, at *3 (S.D. Ohio, Dec. 13, 2007).

I find the analysis of the Knowlton Construction opinion sound and persuasive. That court, in considering whether it was required under the Travelers Indemnity factors to decline jurisdiction over declaratory judgment claims in a diversity action and so remand the entire matter back to state court, found remand improper, when those declaratory judgment claims were present in a case also asserting claims for monetary damages, over which the federal court was required to exercise diversity jurisdiction.⁴⁸ Although not here confronting a motion for remand, as in Knowlton Construction, the relevant analysis is similar. Here, Farris' claims for monetary damages arising out of State Farm's alleged breach of her settlement agreement with the other driver, over which this Court must exercise jurisdiction,⁴⁹ cannot be adjudicated without considering the issues raised in the declaratory judgment claim, which form the basis for determining whether State Farm's alleged breach was actually a breach or not. Thus, there is no basis for bifurcating Farris' claims and sending only the declaratory judgment portion back to state court. That conclusion, in turn, renders the Travelers Indemnity criteria wholly distinguishable from the present matter.⁵⁰

48 Knowlton Constr., 2007 WL 4365690, at *3.

49 Id.

50 Id., at **2-3.

Accordingly, I find that jurisdiction over the entire complaint here, grounded in the mandatory jurisdiction over the claims for breach, is properly exercised in light of the analysis set forth in Knowlton Construction, as discussed above.

B. Summary judgment 1. Standard of review — summary judgment

I note initially that, in this diversity action, the applicable substantive law is state law as determined by the process set forth below,⁵¹ while federal procedural law, specifically that of Federal Rule of Civil Procedure 56, applies.⁵²

51 Bank of New York v. Janowick, 470 F.3d 264, 271 (6th Cir. 2006); Kessler v. Visteon Corp., 448 F.3d 326, 329 (6th Cir. 2006).

52 Gafford v. Gen. Elec. Co., 997 F.2d 150, 165-66 (6th Cir. 1993).

Accordingly, the standard for prevailing on a motion for summary judgement is well-known and was re-stated by the Sixth Circuit as follows:

The moving party has the initial burden of proving that no genuine issue of material fact exists and that the moving party is entitled to judgment as a matter of law. The burden then shifts to the nonmoving party to come forward with evidence showing that there is a genuine issue for trial. "Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no `genuine issue for trial.'"⁵³

53 Owens Corning v. Nat'l Union Fire Ins. Co. of Pittsburgh, 257 F.3d 484, 491 (6th Cir. 2001) (citations omitted).

Here, the facts are not disputed, both parties correctly maintain that the matter can be adjudicated by applying the relevant law, and thus the case is well-suited to summary judgment.⁵⁴

54 See, ECF # 3 (Farris) at 2; see also, ECF # 4 (State Farm) at 5.

2. Standard of review — choice of law

Because the insurance policy here does not specify of its own terms which state law is to be applied in construing its provisions,⁵⁵ a federal diversity court must, as noted, look to the law of the forum state (Ohio) to determine which state's substantive law should be applied in interpreting provisions of the policy.⁵⁶

55 The complete text of the policy is at ECF #16.

56 Bank of New York, 470 F.3d at 271 (citations omitted); see also, Miller v. State Farm Mut. Auto. Ins. Co., 87 F.3d 822, 824 (6th Cir. 1996).

Ohio's choice of laws rules require courts to "apply [the] interest-analysis test set forth in the Restatement (Second) of the Law, Conflicts of Laws to resolve conflict of laws issues."⁵⁷ Essentially, this test involves initially determining whether an action is deemed one in tort or in contract.⁵⁸ If in tort, the law of the state where the injury occurred presumptively controls.⁵⁹ If the matter is based in contract, the law of the state where the contract was made presumptively applies.⁶⁰

57 Miller, 87 F.3d at 824 (citation omitted).

58 Id.

59 Id.

60 Id. (citing Nationwide Mut. Ins. Co. v. Ferrin, 21 Ohio St. 3d 43, 44, 487 N.E.2d 568, 569 (1986) ( per curiam).

Here, although Farris was injured in an accident triggering this suit, the case involves whether or not the policy provides State Farm with the right to be reimbursed for the amount it previously paid Farris under the policy for her injuries, such reimbursement to be effectuated with an administrative set-off against the amount for which Farris settled her personal injury suit. Similar to the Sixth Circuit's reasoning in Miller, I find that this matter, although triggered by an accident, involves the scope and extent of the insurer's contractual rights under the policy, and so is properly analyzed for choice of laws purposes as a contract case.⁶¹

61 Id.

As such, since the contract at issue here was entered into in Ohio, Ohio choice of laws rules dictate that Ohio substantive law applies to its construction and interpretation.⁶²

62 Although both parties did not, in their briefs, supply a choice of law and, so, were ordered to inform this Court as to which state law is applicable here, as well as to offer any legal basis for their choice (ECF # 15), only State Farm responded, asserting that Ohio law applies but offering no legal rationale for that choice. The choice of Ohio law, detailed above, is based on the case sounding in contract but does not change if the case were understood as sounding in tort since the underlying accident occurred in Ohio.

3. Standard of review — Ohio law concerning an insurer's right of reimbursement

I here note first that a federal diversity court applying state law is required to decide an issue the same as it would be if tried in a state court.⁶³ This means looking to decisions of the Ohio Supreme Court, or, if that court has not addressed the exact issue presented, seeking to "predict how [the Ohio Supreme Court] would rule, by looking to `all available data,' including state appellate decisions."⁶⁴

63 Kessler, 448 F.3d at 330 (citations omitted).

64 Owens Corning, 257 F.3d at 491 (citations omitted).

Here, the parties have not cited, nor has my own review revealed, any Ohio Supreme Court decisions construing the policy language at issue here. However, as noted by State Farm, this precise language was interpreted by two different Ohio appellate courts in Craven and Gerak in circumstances analogous to the present case. While Farris vigorously contests these holdings, as well as their applications to this matter, she has also not provided this Court with any contrary decisions by any other Ohio courts, nor even with any contrary case authority from any other jurisdiction construing the same language under similar circumstances.

As such, according to the interpretative rule pronounced by the Sixth Circuit in Owens Corning, I conclude that Craven and Gerak state Ohio law as would be found by the Ohio Supreme Court were it to consider this case. Thus, the principles set forth in these cases are the rules applicable to determining the motions at bar.

4. State Farm is entitled to summary judgment on all claims

A careful reading of these two Ohio cases can leave no doubt that, despite Farris' protestations to the contrary, (1) a right to reimbursement exists in the language of the policy, (2) this right of reimbursement is distinct from any right of subrogation, and (3) this right may be exercised by the insurer as a set-off against a personal injury lawsuit settlement payable to the insured.

As the Gerak court explained, in construing identical policy language from State Farm, the reimbursement provision of this policy requires Farris, once she receives a settlement of her personal injury lawsuit, "to reimburse State Farm for the medical payments (previously) made to her under the medical payments provision of the insurance policy," and further permits State Farm to effectuate that reimbursement by means of a set-off against the lawsuit settlement.⁶⁵

65 Gerak, 2000 WL 372316, at *3.

The plain language of the policy itself states an obligation on the part of the insured to "reimburse us (the insurer)" for payments recovered from liable parties for previously compensated injuries.⁶⁶ In addition, the Gerak court's conclusion that the "terms of the policy specifically provide for reimbursement"⁶⁷ weighs heavily against Farris' argument that the policy language in this respect does not "specifically say that State Farm has a right of reimbursement" and is, therefore, unenforceably vague and must be construed against State Farm.⁶⁸ Moreover, both Gerak and Craven make clear that the insurer's contractual right to reimbursement from the insured may be effectuated as a set-off by the insurer against a later settlement amount payable to the insured.⁶⁹ There is no basis in the policy or law for requiring the insured to permit the insurer to first collect the settlement and then seeking reimbursement.

66 3(b)(3) "[I]f the person for whom we make payment recovers from any party liable for the bodily injury, that person shall hold in trust for us the proceeds of the recovery, and reimburse us to the extent of our payment." (Emphasis added).

67 Gerak, 2000 WL 372316, at *3.

68 ECF # 5 at 2.

69 See, Gerak, 2000 WL 372316, at *3; Craven, 1998 WL 158980, at *5.

Moreover, because State Farm's action in enforcing its contractual right to be reimbursed for previously disbursed payments by means of an administrative set-off against the later settlement of Farris' personal injury suit was fully in accord with its rights under the policy, Farris' subsequent claims here for post-settlement interest and punitive damages fail as a matter of law.

IV. Conclusion

Accordingly, for the reasons stated above, defendant State Farm's cross-motion for summary judgment is hereby granted as to all claims. Further, plaintiff Carol Farris' motion for partial summary judgment is hereby denied.

IT IS SO ORDERED.

EXHIBIT A

Gerak v. Dentice

Ohio App. 9 Dist., 2000.

Only the Westlaw citation is currently available.

CHECK OHIO SUPREME COURT RULES FOR REPORTING OF OPINIONS AND WEIGHT OF LEGAL AUTHORITY. Court of Appeals of Ohio, Ninth District, Summit County. Mary A. GERAK, Appellant, v. Lisa M. DENTICE, Appellee. No. 19767. April 12, 2000.

Appeal from judgment entered in the Court of Common Pleas, County of Summit, Ohio, Case No. CV 96 09 3833.

A. William Zavarello and Rhonda Gail Davis, Akron, Ohio 44308, for Appellant. David W. Hilkert, Akron, Ohio 44309-1500, for Appellee.

DECISION AND JOURNAL ENTRY

BATCHELDER.

*1 Appellant, Mary A. Gerak, appeals the decision of the Summit County Court of Common Pleas. We affirm.

I.

Ms. Gerak was injured in an automobile accident caused by appellee, Lisa M. Dentice. Subsequently, Ms. Gerak filed a complaint on September 25, 1996, seeking to recover damages arising from Ms. Dentice's negligence. A jury trial was held on April 2, 1998, and in a judgment entry journalized on April 8, 1998, the jury found Ms. Dentice liable and awarded Ms. Gerak $30,000 in damages. Ms. Gerak appealed, and on May 26, 1999, we affirmed the judgment of the Summit County Court of Common Pleas. Gerak v. Dentice (May 26, 1999), Summit App. No. 19098, unreported.

On May 6, 1998, Ms. Dentice filed a motion for a post-judgment credit or set-off, claiming that her insurance carrier, State Farm Mutual Automobile Insurance Company ("State Farm"), had already paid Ms. Gerak $15,073.65^FN1 before the judgment was rendered.^FN2 Both Ms. Dentice and Ms. Gerak's mother (Nancy Gerak) had insurance policies with State Farm. State Farm advanced Ms. Gerak $6,161.68 under Ms. Dentice's policy and paid Ms. Gerak $9,700.24 for her medical expenses under her mother's policy. In a judgment order dated August 11, 1998, the trial court delayed ruling on the motion for a set-off until the judgment was affirmed on appeal. After the judgment was affirmed, in a judgment order journalized on August 13, 1999, the trial court granted Ms. Dentice's motion, finding that $15,073.65 had been advanced to Ms. Gerak and should be credited against the judgment of $30,000. This appeal followed.

FN1. In Ms. Dentice's motion for post-judgment credit, she requested a set-off of $15,073.65; however, in her renewed motion filed on July 15, 1999, she requested a set-off of $15,861.92.

FN2. The subrogation/reimbursement clause of Ms. Gerak's mother's policy reads:

3. Our Right to Recover Our Payments

***

b. Under medical payments coverage:

(1) we are subrogated to the extent of our payments to the right of recovery the injured person has against any party liable for the bodily injury.

***

(3) if the person to or for whom we make payment recovers from any party liable for the bodily injury, that person shall hold in trust for us the proceeds of the recovery, and reimburse us to the extent of our payment.

(Emphasis original.)

II.

Ms. Gerak asserts five assignments of error. We will address each in due course, consolidating appellant's first and second assignments of error and her third and fourth assignments of error to facilitate review.

A. First Assignment of Error

The trial court erred in granting a set-off or post-judgment credit to the Appellee for any medical payments made under the Appellant's mother's insurance policy with State Farm Insurance Company.

Second Assignment of Error

The trial court erred in granting a set-off or post-judgment credit since the Appellant had no duty of subrogation or reimbursement to State Farm Insurance Company since the Appellant and State Farm had no contractual relationship.

In her first assignment of error, Ms. Gerak asserts that appellee had no right to seek a set-off for the money paid from Ms. Gerak's mother's insurance policy. Further, in her second assignment of error, Ms. Gerak argues that she was not a party to the insurance agreement between her mother and State Farm; thus, she contends that she never consented to the reimbursement or subrogation provisions of the insurance policy, and therefore, the reimbursement and subrogation provisions do not apply to her. We disagree.

"A third party beneficiary is one for whose benefit a promise has been made in a contract but who is not a party to the contract." Chitlik v. Allstate Ins. Co. (1973), 34 Ohio App.2d 193, 196, 299 N.E.2d 295. "The third party need not be named in the contract, as long as [she] is contemplated by the parties to the contract and sufficiently identified." Id. Moreover, the "promisee must intend that a third party benefit from the contract in order for that third party to have enforceable rights under the contract[.]" Laverick v. Children's Hosp. Med. Ctr. of Akron (1988), 43 Ohio App.3d 201, 204, 540 N.E.2d 305. A third party beneficiary is free to accept or reject the benefits of the contract; however, by accepting the benefits of the contract, the third party beneficiary also assumes the attendant burdens. Fawn v. Heritage Mut. Ins. Co. (June 30, 1997), Franklin App. No. 96APE12-1678, unreported, 1997 WL 359322, at *1 (holding that the "arbitration provision of an insurance policy between a named insured and insurer can be en forced against a third-party who seeks underinsurance benefits under the policy").^FN3

FN3. In Ohio, courts have held that an injured party is not a third party beneficiary to a tortfeasor's insurance contract. See Chitlik v. Allstate Ins. Co. (1973), 34 Ohio App.2d 193, 299 N.E.2d 295. In Chitlik, the appellant, who suffered personal injuries in an automobile accident, chose to bring an action directly against the tortfeasor's insurer, Allstate, claiming that appellant was a third party beneficiary of the tortfeasor's insurance contract. Id. at 195, 299 N.E.2d 295. The court rejected this argument and held that "in the absence of statute or special provision in the policy, a standard liability insurance policy is not a contract for the benefit of a third person. The contract is made with the intention of benefiting the insured, not someone whom he injures." Id. at 197, 299 N.E.2d 295. The court further held that "personal injury actions must first be brought by the injured party against the alleged tortfeasor. * * * The injured party may, of course, proceed against the insurer after obtaining judgment against the insured, under R.C. 3929.06." Id. at 197-98,299 N.E.2d 295. The present case, however, is distinguishable in that the injured party (Ms. Gerak) is not trying to directly recover from the tortfeasor's insurer, as Ms. Gerak has already obtained a judgment against the tortfeasor; rather, Ms. Gerak is arguing that the reimbursement/subrogation provisions of her mother's insurance policy do not apply to her, as there was no mutual consent to the terms.

*2 In the present case, we find that Ms. Gerak was a third party beneficiary of her mother's insurance policy with State Farm. Under the medical payments provision of the State Farm insurance policy, State Farm "will pay medical expenses for bodily injury sustained by [the named insured, his or her spouse, and their relatives]. These persons have to sustain the bodily injury * * * while they operate or occupy a vehicle covered under the liability section[.]" (Emphasis original.) Ms. Gerak's mother, Nancy Gerak, was the policyholder of the State Farm policy. Here, Nancy Gerak's insurance policy covered the automobile that Ms. Gerak was driving when the accident occurred.^FN4 By including relatives that were driving a covered vehicle in her policy, Nancy Gerak sufficiently identified and contemplated medical payments coverage for her daughter. Thus, we conclude that Ms. Gerak was a third party beneficiary of her mother's insurance policy with State Farm. Furthermore, by accepting the approximately $9,000 benefit from State Farm under her mother's insurance policy, Ms. Gerak also accepted the burdens. See Fawn, supra.

FN4. In her affidavit dated August 12, 1999, Ms. Gerak states: "My mother is Nancy Dora Gerak, the policy holder of the State Farm Insurance Policy covering my automobile damaged in the July 2, 1995 collision with the Lisa Dentice automobile."

Now, we turn to discuss whether Ms. Gerak must reimburse State Farm for its payment of her medical expenses. This court, in Craven v. Nationwide Mutual Insurance Company (Mar. 11, 1998), Summit App. No. 18490, unreported, has previously addressed the issue of whether an insurance company, which insures both the injured party and the tortfeasor, may offset the medical payments made under the injured party's insurance contract against the amount the injured party receives in a judgment against the tortfeasor. In Craven, Nationwide Mutual Insurance Company ("Nationwide") insured both the plaintiff (Marlene Craven) and the tortfeasor (James Cummings). Id. at 1. Ms. Craven filed a claim with Nationwide for $6,567.09 in accident-related medical bills pursuant to the medical payments provision of her insurance policy. Id. at 2. However, Nationwide refused to pay Ms. Craven's medical payment claim, and instead offered to pay her $15,000 to settle both Ms. Craven's medical payment claim under her insurance policy with Nationwide and her personal injury claim against Mr. Cummings. Id. Ms. Craven refused and the personal injury claim went to arbitration; Ms. Craven was awarded $15,000 and did not appeal this decision. Id. at 2-3.

Subsequently, Ms. Craven filed suit against Nationwide seeking declaratory relief and specific performance, requiring Nationwide to pay her accident-related medical bills under her policy. Id. at 3. Nationwide moved for summary judgment claiming that the subrogation clause in Ms. Craven's policy entitled Nationwide to reimbursement for any medical expenses it paid to her. Id. The trial court granted summary judgment in favor of Nationwide. Id. at 4. In affirming the trial court, this court distinguished between subrogation and reimbursement, finding that Nationwide was seeking reimbursement and not subrogation, as Nationwide was not intending "to substitute itself for Craven or otherwise attempt to recover any portion of Craven's losses directly from Cummings. Instead, Nationwide [was] merely seek [ing] to be reimbursed by Craven from the proceeds that Craven ha[d] already received from the personal injury award. This [did] not require Nationwide to pursue a claim against Cummings and thereby sue itself." Id. at 8. Consequently, we found that Ms. Craven was "not entitled to double recovery of her medical expenses" and affirmed the trial court's decision granting summary judgment to Nationwide with respect to the offsetting and reimbursement issues. Id. at 10.

*3 Similarly, in the case at bar, we find that the trial court did not err by allowing appellee to offset the amount of medical payments that State Farm paid to Ms. Gerak under the medical payments provision of the insurance policy from her recovery in the personal injury suit. As previously noted, Ms. Gerak is a third party beneficiary under her mother's insurance contract, and thus, by accepting the benefits of her mother's insurance contract, she also accepted the legal obligations or burdens as well. The terms of the insurance policy specifically provide for reimbursement. The insurance policy states that "if the person to or for whom we make payment recovers from any party liable for the bodily injury, that person shall hold in trust for us the proceeds of the recovery, and reimburse [State Farm] to the extent of our payment."^FN5 Thus, we find that Ms. Gerak has a duty to reimburse State Farm for the medical payments it made to her under the medical payments provision of the insurance policy. Furthermore, State Farm will not be in the position of suing itself, as State Farm does not intend to substitute itself for Ms. Gerak and recover a portion of the losses directly from Ms. Dentice, to whom State Farm owes a duty to indemnify. See Craven, supra, at 8. Therefore, we conclude that limited to the narrow facts of this case, the trial court did not err by permitting State Farm to offset the approximately $9,000 in medical payments that it paid to Ms. Gerak under the medical payments provision of the insurance policy from the $30,000 judgment which she received from her personal injury suit against Ms. Dentice. Appellant's first and second assignments of error are overruled.

FN5. The insurance policy contains both a reimbursement provision and a subrogation provision.

B. Third Assignment of Error

*4 The trial court erred in granting a set-off or post-judgment credit where the subrogation/reimbursement clauses under which medical payments to be recovered from the Appellee-tortfeasor are void as against public policy.

Fourth Assignment of Error

The trial court violated the equal protection guarantees when it treats [ sic] the Appellant differently with respect to medical payments subrogation and/or reimbursement under different policies.

In her third assignment of error, Ms. Gerak avers that the trial court erred in granting a set-off, as the reimbursement and subrogation clauses of Ms. Gerak's mother's insurance policy are void as against public policy. In her fourth assignment of error, appellant further contends that by permitting a set-off in the present case, the trial court violated her right to equal protection under the law, as a set-off for the medical payments would be prohibited if appellee had been an uninsured or underinsured motorist. We disagree.

To support her contention that the insurance provision is void as against public policy, Ms. Gerak cites a myriad of cases, which hold in part that an insurance policy subrogation clause, which allows medical payments to be offset against uninsured or underinsured motorist coverage (U.M./U.I.M.) is void as against public policy. See, e.g., Grange Mut. Cas. Co. v. Lindsey (1986), 22 Ohio St.3d 153, 489 N.E.2d 281. However, in the present case, State Farm is not seeking to offset the medical payments it made to Ms. Gerak against U.M./U.I.M. insurance coverage, but rather is seeking to enforce the provisions in the policy. The evidence shows that Ms. Gerak received only medical payments under the policy and not U.M./U.I.M., as Ms. Dentice was fully insured against the judgment rendered. Rather, State Farm is seeking to offset the medical payments it advanced to Ms. Gerak from the $30,000 judgment rendered in the trial court, pursuant to the reimbursement/subrogation provisions in the insurance policy. Hence, we decline to hold that the reimbursement/subrogation provision in appellant's mother's insurance contract with State Farm is void as against public policy, as "[a]greements voluntarily and fairly made between competent persons are usually valid and enforceable[.]" Gugle v. Loeser (1944), 143 Ohio St. 362, 55 N.E.2d 580, paragraph one of the syllabus.

Similarly, we find Ms. Gerak's equal protection argument unpersuasive. In determining whether an equal protection violation has occurred, the standard is essentially the same under state and federal law. Beagle v. Waldon (1997), 78 Ohio St.3d 59, 63, 676 N.E.2d 506.

The preliminary step in analyzing an equal protection challenge involves scrutiny of classifications created by the legislation. "[W]here there is no classification, there is no discrimination which would offend the Equal Protection Clauses of either the United States or Ohio Constitutions." Moreover, "[o]nly when it is shown that the legislation has a substantial disparate impact on classes defined in a different fashion may analysis continue on the impact of those classes."

"`[W]henever the law operates alike on all persons and property, similarly situated, equal protection cannot be said to be denied.'"

*5 (Citations omitted.) Id. In the present case, Ms. Gerak does not base her equal protection argument on a specific state or federal law; therefore, we conclude that Ms. Gerak's equal protection argument must fail.^FN6 See Id. at 63, 676 N.E.2d 506. Accordingly, Ms. Gerak's third and fourth assignments of error are overruled.

FN6.R.C. 3937.18 requires insurance companies to offer uninsured and underinsured motorist coverage. In Beagle v. Waldon (1997), 78 Ohio St.3d 59, 63, 676 N.E.2d 506, the Ohio Supreme Court held that R.C. 3937.18(A)(2) did not violate the Equal Protection Clause of the Ohio Constitution, as "[t]he only classifications of insureds treated differently under R.C. 3937.18(A)(2) are those who, by contract, have chosen different policy limits."

C. Fifth Assignment of Error

The trial court erred by not reducing the subrogation/reimbursement amount by the Appellant's attorney's fees and expenses.

Ms. Gerak argues that the trial court erred by not reducing the subrogation/reimbursement amount by her attorney's fees and expenses. We disagree.

An insurance policy is essentially a contractual relationship between the insurer and the insured. Nationwide Mut. Ins. Co. v. Marsh (1984), 15 Ohio St.3d 107, 109, 472 N.E.2d 1061. When the provisions of an insurance policy are clear and unambiguous, the language of the insurance policy controls. Longpre v. Midwest Optical Supply, Inc. (1990), 68 Ohio App.3d 198, 200, 587 N.E.2d 948. Moreover, there is no need to apply equitable principles when the relationship between the parties is clearly established and defined by the insurance policy. Martin v. Dillow (1994), 93 Ohio App.3d 108, 110, 637 N.E.2d 961; see, also, Ervin v. Garner (1971), 25 Ohio St.2d 231, 239-40, 267 N.E.2d 769.

In Martin, Ms. Martin was injured in an automobile accident and was paid $5,000 in medical payments pursuant to her insurance coverage with Cincinnati Insurance Company ("CIC"). Martin, 93 Ohio App.3d at 109, 637 N.E.2d 961. Ms. Martin sued the tortfeasor and was awarded $20,000 by a Id. Ms. Martin's insurance policy contained a subrogation/reimbursement provision (which is similar to Ms. Gerak's mother's policy in the case at bar). Id. After Ms. Martin refused to reimburse CIC, CIC moved the court to order reimbursement. Id. The trial court ruled against CIC, finding that Ms. Martin's "loss, including her costs of collection, exceeded the combined amounts of her tort award and insurance benefit." Id. On appeal, this court reversed, holding, in part, that the terms of the medical subrogation provision of the insurance policy were clear and unambiguous and conveyed to CIC the right to be reimbursed from Ms. Martin's recovery from the tortfeasor, " limited only by the amount of the benefits [the insurer] paid to Martin." (Emphasis added.) Id. at 110, 637 N.E.2d 961; see, also, Risner v. Erie Ins. Co. (1993), 91 Ohio App.3d 695, 699-700, 633 N.E.2d 588.^FN7

FN7. In Risner v. Erie Ins. Co. (1993), 91 Ohio App.3d 695, 697, 633 N.E.2d 588, Ms. Risner was advanced approximately $12,000 in medical payments pursuant to her insurance policy with Erie Insurance Company ("Erie"). Her insurance policy withEriecontainedareimbursement/subrogation provision, which had similar language to that of Ms. Gerak's State Farm policy. Id. at 700, 633 N.E.2d 588. Ms. Risner refused to reimburse Erie from her settlement proceeds against the tortfeasor for the full $12,000, claiming that she was entitled to retain a portion of the $12,000 as reimbursement for her attorney fees and litigation expenses paid by her in securing the settlement. Id. at 697, 633 N.E.2d 588. The trial court granted summary judgment in favor of Ms. Risner finding that she had not been fully compensated for her injuries and thus was entitled to keep the entire $12,000. Id. In reversing the trial court, the appellate court held in part that the clear and unambiguous language of the subrogation agreement controlled and "grant[ed] Erie the unqualified right of subrogation to the entire amount paid to Risner under their contract of insurance." Id. at 700, 633 N.E.2d 588.

In the case at bar, the terms of the insurance policy are clear and unambiguous. They convey to State Farm the right to be reimbursed for any medical payments made to Ms. Gerak under the medical payments provision of the insurance policy from any recovery from the tortfeasor, limited only by the amount that State Farm actually paid out to Ms. Gerak in medical payments. Therefore, we conclude that the trial court did not err by refusing to reduce the reimbursement amount by Ms. Gerak's attorney's fees and expenses. Appellant's fifth assignment of error is overruled.

III.

*6 Appellant's assignments of error are hereby overruled. The judgment of the Summit County Court of Common Pleas is affirmed.

Judgment affirmed.

The Court finds that there were reasonable grounds for this appeal.

We order that a special mandate issue out of this Court, directing the Court of Common Pleas, County of Summit, to carry this judgment into execution. A certified copy of this journal entry shall constitute the mandate, pursuant to App.R. 27.

Immediately upon the filing hereof, this document shall constitute the journal entry of judgment, and it shall be file stamped by the Clerk of the Court of Appeals at which time the period for review shall begin to run. App.R. 22(E).

Costs taxed to Appellant. Exceptions.

BAIRD, J., and WHITMORE, J., concur.

Ohio App. 9 Dist., 2000.

Gerak v. Dentice

Not Reported in N.E.2d, 2000 WL 372316 (Ohio App. 9 Dist.)