                   IN THE COURT OF APPEALS OF TENNESSEE
                                AT JACKSON
                                     September 17, 2001 Session

            HEALTH COST CONTROLS, INC. v. RONALD GIFFORD

                    An Appeal from the Chancery Court for Weakley County
                         No. 15726 W. Michael Maloan, Chancellor



                       No. W2001-02267-COA-RM-CV - Filed June 3, 2002


This is an insurance case on remand from the Tennessee Supreme Court. The Court has directed
us “to reconsider the case on its merits in accordance with . . . York v. Sevier County Ambulance
Auth., 8 S.W.3d 616 (Tenn. 1999),” which was decided after the appellate briefs were filed in the
initial appeal. In York, the Supreme Court established that the “made whole” doctrine, applicable
in cases involving an insurer’s subrogation rights, is also applicable in cases involving an insurer’s
right to reimbursement for amounts paid to the insured from another source. After careful
consideration, we find that York does not affect our original disposition of this case, and, therefore,
on remand, we affirm the decision of the trial court.

                Tenn. R. App. P. 3; Judgment of the Chancery Court is Affirmed

HOLLY K. LILLARD , J., delivered the opinion of the court, in which ALAN E. HIGHERS, J., and DAVID
R. FARMER , J., joined.

H. Max Speight, Dresden, Tennessee, for the appellant, Ronald Gifford.

Thomas H. Lawrence and John M. Russell, of Memphis, Tennessee, for the appellee, Health Cost
Controls, Inc.

                                                 OPINION

        This is an insurance case on remand from the Tennessee Supreme Court.1 In March 1997,
Defendant/Appellant Ronald Gifford (“Gifford”) was injured in an automobile accident while
riding as a passenger in a car driven by his brother and owned by his mother. Gifford had medical
insurance coverage provided by Prudential Insurance Company (“Prudential”). Gifford’s insurance




        1
       The previous decision by this Court is found at Health Cost C ontrols, Inc. v. Gifford, No. W1999-02598-
COA-R3-CV, 2001 Tenn. App. LEXIS 294 (T enn. Ct. App. April 24, 2001).
policy with Prudential contained a provision limiting recovery for injuries when a third party is
involved:

       BENEFIT MODIFICATION FOR THIRD PARTY LIABILITY

       This modifies any Coverage of the Group Contract that:

       (1) is a health care expense Coverage; or

       (2) provides weekly disability benefits.

       A. This Modification applies when a person, other than the person for whom a claim
       is made, is considered responsible for a Sickness or Injury. To the extent payment
       for the Sickness or Injury is made, or may be made in the future, by or for that
       responsible person (as a settlement, judgment or in any other way):

               (1) charges arising from that Sickness or Injury are not covered; and

              (2) benefits for any period of Total Disability resulting (in whole or in part)
       from that Sickness or Injury are not payable.

       B. But when claim is received by Prudential, benefits which would be payable
       except for A above will be paid if:

               (1) payment by or for the responsible person has not yet been made; and

                (2) the Covered Person(s) involved (or if incapable, that person’s legal
       representative) agrees in writing to pay back promptly the benefits paid as a result
       of the Sickness or Injury to the extent of any future payments made by or for the
       responsible person for the Sickness or Injury. The agreement is to apply whether or
       not: (a) liability for the payments is admitted by the responsible person; and (b) such
       payments are itemized. A reasonable share of fees and costs incurred to obtain such
       payments may be deducted from amounts to be repaid to Prudential.

       C. Amounts due Prudential to repay benefits, agreed to as described in B. above,
       may be deducted from other benefits payable by Prudential after payments by or for
       the responsible person are made.

Thus, although the provision generally denies coverage for medical expenses when a third party is
responsible for the injury, it permits payment for such injuries if the responsible third party had not
yet paid and the insured agrees in writing to reimburse Prudential when the insured recovers from
the third party or from someone on the third party’s behalf.



                                                  -2-
         Prudential paid $37,795.08 in medical expenses on behalf of Gifford in connection with his
injuries. Subsequently, Gifford recovered $100,0002 from his mother’s insurance carrier, State Farm
Insurance Company (“State Farm”), for the injuries he sustained in the accident. Of the $100,000
Gifford recovered from State Farm, $44,000 was for the medical expenses incurred by Gifford in
connection with the accident; the remaining $56,000 was for his pain and suffering. Gifford signed
a full release with State Farm, discharging all claims, including medical expenses, that he may have
had against his mother and brother.

         Meanwhile, Prudential’s assignee regarding Gifford’s claim, for the purposes of investigating
and prosecuting all of Prudential’s rights and claims of reimbursement or overpayment of claims,
was Plaintiff/Appellee Health Costs Controls, Inc. (“HCC”). When HCC learned of Gifford’s
recovery from State Farm, HCC contacted Gifford’s attorney, seeking reimbursement of the
$37,795.08 Prudential paid for Gifford’s medical expenses. Gifford refused this request. HCC then
filed this lawsuit against Gifford seeking return of the payment. In the complaint, HCC alleged that
it was entitled to reimbursement of the payment because Prudential had been unaware that there was
a third party responsible for Gifford’s injuries and, as a result, mistakenly overpaid Gifford for
claims not covered under the policy. HCC later filed a motion for summary judgment. In the
motion, HCC asserted that the claims were not covered under the terms of the Prudential policy and
that Prudential overpaid Gifford based on a mistake of fact, namely, that it was unaware that
payment for Gifford’s injuries was the responsibility of third party.

        The trial court found that the terms of the Prudential policy unambiguously denied coverage
for charges arising from an injury for which a third party is responsible and payment is made by the
responsible party by “settlement, judgment, or in any other way.” The trial court also found that it
was undisputed that Gifford was injured in an automobile accident, that a portion of his medical
expenses were paid by Prudential, and that he “settled his personal injury claim with the automobile
owner’s insurance company, State Farm.” On that basis, the trial court granted HCC’s motion for
summary judgment and ordered Gifford to reimburse Prudential.

        Gifford then appealed to this Court. On appeal, this Court held that under the plain language
of the policy, the expenses arising from the injuries Gifford sustained in the accident were not
covered by the policy. This Court further determined that Prudential’s payment of Gifford’s
expenses was based on a mistake of fact, because it was undisputed that Prudential would not have
paid for Gifford’s medical expenses had it known that a third party was responsible for payment.
Therefore, the trial court’s grant of summary judgment in favor of HCC was affirmed. As noted
above, the case was appealed to the Tennessee Supreme Court, which remanded to this Court with
instructions to reconsider the appeal in light of York v. Sevier County Ambulance Auth., 8 S.W.3d
616 (Tenn. 1999). Accordingly, we now consider the merits of this case in light of York.


         2
            HCC’s amended com plaint an d memo randum in supp ort of sum mary judgment state that Gifford recovered
$105,000 from State Farm. However, in an affidavit filed in support of HCC’s motion for sum mary judgment, State Farm
claim specialist Nancy Th omas stated that State Farm paid Gifford the policy limit of $100 ,000. In addition, the trial
court, in its findings of facts, also listed the sum as $ 100,000.

                                                          -3-
        Prior to York, it had long been established that an insured must receive full compensation
for losses, i.e., be “made whole,” before the insurer can exercise its right of subrogation against a
third-party tortfeasor. See Wimberly v. American Cas. Co. of Reading, 584 S.W.2d 200, 203
(Tenn. 1979). In York, the Tennessee Supreme Court determined that this made whole doctrine
should be extended to apply to an insurer’s right to reimbursement, i.e., that the insurer had no right
to reimbursement until the insured had been made whole. The Court reasoned that “a right of
reimbursement raises many of the same equitable issues involved in subrogation and warrants the
same conclusion – that the insured must be made whole before the insured is entitled to
reimbursement.” York, 8 S.W.3d at 620. The made whole doctrine applies “regardless of what
language is contained in the contract,” because the right arises out of equity, not from the terms in
the contract. Id. at 621 & n.6; see Nelson v. Innovative Recovery Servs., No. M2000-03109-COA-
R3-CV, 2001 Tenn. App. LEXIS 859, at *7 (Tenn. Ct. App. Nov. 21, 2001).

        Although Gifford argued to the trial court that he was not made whole by the payment from
State Farm, it is undisputed that he did not raise the argument in his appellate brief before this
Court.3 Ordinarily, such an omission would be fatal to his claim. See Jackson v. Allen, No.
M2000-01673-COA-R3-CV, 2002 Tenn. App. LEXIS 281, at *5 n.1 (Tenn. Ct. App. April 23, 2002).
However, in light of the Supreme Court’s remand, we will apply the York decision to the merits of
Gifford’s claims. See Tennessee Farmers Mut. Ins. Co. v. Farmer, No. 03A01-9610-CH-00327,
1998 Tenn. App. LEXIS 581, at *5 & n.2 (Tenn. Ct. App. Aug. 20, 1998). At the outset, it must be
noted that, in order to avoid reimbursing HCC for the payment from Prudential, the burden of proof
rests on Gifford to show that he was not made whole by the $100,000 paid to him by State Farm.
See Nelson, 2001 Tenn. App. LEXIS 859, at *10; Tennessee Farmers, 1998 Tenn. App. LEXIS 581,
at *4 & n.2. In addition, the trial court made no finding with respect to whether Gifford was made
whole by the payment from State Farm.

       The facts in this case must be compared to those in Tennessee Farmers.4 In that case, the
insureds were injured in a car accident. Their medical expenses were approximately $16,000, and
$14,000 of that amount was paid by their own insurance company. Tennessee Farmers, 1998 Tenn.
App. LEXIS, at *2 n.1. The insureds later settled with the third-party tortfeasor for $45,000; the
insureds’ insurance company did not participate in the settlement negotiations. Id. at *7. There was
no determination in the tort action or settlement agreement as to whether the insureds had been

         3
           The issues raised by Gifford in his brief filed with this Court pertained to whether there were genuine issues of
material fact in dispute and whether the trial court had properly interpreted the insurance agreement. Those issues were
addressed in this Court’s prior Opinion. Thu s, the issue regarding application of the made whole doctrine would
ordinarily be consid ered abandoned on appeal.

         4
           In our initial decision, this Court determined that HC C was entitled to reimbursement because it had paid for
Gifford’s medical expenses based on a mistake of fact, namely, that the loss was covered u nder the policy. It is arguable
that, had the m ade who le doctrine been raised in Gifford’s appeal to this Court, it wou ld no t apply because Gifford’s
obligation to reimburse his insurance company did not arise out of a “reimbursement” clause. Rather, his obligation arose
out of the fact that the insurance co mpany had made the initial payment in error. Nevertheless, York states that it applies
regardless of the langu age in the insu rance po licy. Therefore, on remand, York will be applied to this case as if Gifford’s
duty to reimburse HCC arose out of a typical reimbursement clause.

                                                             -4-
made whole. Id. at *8. The insureds’ insurance company then sought to recover from the insureds
the amount the insurance company had paid. The insureds argued that their insurance company
could not recover from them, because the $45,000 payment from the tortfeasor did not make them
whole. On appeal, this Court rejected that argument, holding that the made whole doctrine
“generally has no application to a typical tort case where the personal injury claim is merged with
the claim for reimbursement of medical expenses, and where there has been no determination
otherwise as to whether or not the insured has been made whole by the tort recovery.” Id. at *6-*7.
The Tennessee Farmers court noted that it was settled that “if the insurer claiming subrogation did
not participate in the settlement negotiations between its insured and the third-party tortfeasors, and
waived no rights, its subrogation claim must be honored and the made-whole doctrine has no
application.” 5 Id. at *7. To defeat subrogation, the insured must “affirmatively show . . . that she
was not made whole.” Id. at *9. Consequently, the Tennessee Farmers court determined that the
insureds’ insurance company had a right to subrogation, despite the insureds’ assertion on appeal
that they had not been made whole by the insurance proceeds.6

        In the instant case, Gifford recovered $100,000 from State Farm. An affidavit from the State
Farm agent attested that $44,000 was attributable to medical expenses and $56,000 was attributable
to pain and suffering; this fact was undisputed. As in Tennessee Farmers, there had been no
findings as to whether the insured, Gifford, had been made whole. Moreover, in this case, as in
Tennessee Farmers, Prudential did not participate in the settlement negotiations between Gifford
and State Farm. In fact, Prudential was not even aware that another party was responsible for
payment for Gifford’s injuries. In such a situation, in which the parties dispute whether the plaintiff
has been made whole and there has been no determination that the insured was not made whole, the
made whole doctrine has no application. Tennessee Farmers, 1998 Tenn. App. LEXIS 581, at *7.
Therefore, the holding in York, that the made whole doctrine can be applicable to an insurer’s right
to reimbursement, has no application here, since Gifford did not carry his burden of establishing that
he was not made whole. For these reasons, we affirm the decision of the trial court that HCC is
entitled to reimbursement from Gifford.

       The decision of the trial court is affirmed. Costs are to be taxed to the appellant, Ronald
Gifford, and his surety, for which execution may issue if necessary.


                                                        ____________________________
                                                        HOLLY KIRBY LILLARD

         5
          This differs from the situation in w hich the parties agree that the insured was not made who le, or where it is
clear from the facts that the insu red was not m ade whole. See Doss v. Tennessee Farmers Mut. Ins. Co., No. M2000-
01971-COA-R3-CV, 2001 Tenn. App. LEXIS 906, at *12 (Tenn. C t. App. Dec. 10, 2001); Brow n v. Now lin, No.
W2001-01455-C OA-R 3-RV, 2001 T enn. App. LEXIS 895, at *12 (Tenn. Ct. Ap p. Nov. 30, 2001).

         6
           The insureds in Tennessee Farmers were actually entitled to reimbursement, rather than subrogation, because
the insured had already received the money from the tortfeasor’s insurance company. See Yo rk, 8 S.W.3d at 618-19
(contrasting the right to subro gation and the right to reimbursem ent).

                                                           -5-
