Supreme Court Rejects "Make Whole" Attack on Med Pay Reimbursement

In a case of first impression, a unanimous California Supreme Court rejected an attempt to effectively abolish automobile insurers’ med pay reimbursement rights. Quintana v. 21st Century Ins. Co., ____ Cal.4th ____ (August 24, 2009). The Supreme Court simultaneously decided companion cases filed against the Interinsurance Exchange of the Automobile Club, Allstate Insurance Company, and Allstate Indemnity Company.

Quintana was one of thirteen identical class actions – the so-called “make whole” cases – filed against nearly every major automobile insurer in California. The question presented in the “make whole” cases was this: Can an insurer assert its contractual right to reimbursement of med pay benefits, after the policyholder settles with the at-fault driver, if the policyholder’s attorney fees incurred in obtaining the settlement from the tortfeasor exceed the amount of med pay benefits paid by the insurer?

Quintana argued that an insurer’s right of reimbursement is barred completely by the “make whole” rule anytime the policyholder’s attorney fees exceed the med pay benefits. Because attorney fees almost always exceed the typically small amount of med pay benefits, plaintiff’s argument – if accepted – would have effectively prohibited med pay reimbursement. In contrast, 21st Century argued that attorney fees are irrelevant to whether the policyholder has been made whole, and that the proper way to allocate attorney fees is pro rata sharing in accordance with the common fund doctrine.

The class actions sought restitution of millions of dollars of med pay reimbursement payments collected by insurers from policyholders since 2001, the beginning of the class period.

In rejecting the plaintiff’s argument and adopting 21st Century’s, the California Supreme Court affirmed the decision of the Court of Appeal which had granted writ petitions by 21st Century, Allstate, and the Interinsurance Exchange after the trial courts overruled the insurers’ demurrers. The Supreme Court rejected the contrary conclusion previously reached by a federal district court in Chong v. State Farm Mut. Auto. Ins. Co., 428 F.Supp.2d 1136 (S.D. Cal. 2006).

The Quintana decision should be dispositive for all thirteen pending “make whole” class actions in both state and federal court. The result eliminates the risk that insurers will be liable for restitution of med pay reimbursement payments collected.