Ohio Supreme Court Denies Claim Against Third-Party Insurer Arising From Assignment of Prospective Settlement Proceeds
December 7, 2009
Ali Razzaghi
The Supreme Court of Ohio recent held in the case of
West Broad Chiropractic v. American Family Insurance,
1 that a person who was injured in an automobile accident but who did not file or obtain a judgment against the tortfeasor, may not assign her right to proceeds from a prospective settlement or judgment to a medical care provider in exchange for the medical care she received for injuries resulting from the accident.
In
West Broad Chiropractic, the injured person executed a document in which she assigned her right to receive compensation from the tortfeasor’s insurance company to a medical care provider in exchange for the medical treatment she received following the accident. The medical care provider was to receive payment directly before any payment was to be made to the injured person. The third-party insurer received notice of the assignment. Nevertheless, several years later and prior to filing any lawsuit, the injured person settled her claim with the insurer, and the insurer distributed the settlement proceeds directly to the injured person.
First, the Court found that at the time of the assignment, the injured person had not filed a claim based on the accident, nor had she established liability or the right to damages. As such, no settlement proceeds existed at the time of the assignment. Accordingly, the Court held that the agreement could not operate as an assignment because the injured person had no present right in any settlement proceeds to transfer to the medical care provider. In other words, the right to future settlement proceeds was “merely a possibility” at the time of the assignment.
Second, the Court held that R.C. § 3929.06(B), which precludes an injured person from bringing a civil action against a third-party insurer until the former has first obtained a judgment for damages against the latter’s insured, precludes an assignee of prospective settlement proceeds from bringing a direct action against the insurer even though the insurer distributed the settlement proceeds in disregard of the written assignment. Although the statute does not directly address written assignments, the Court reasoned that if an injured person has no direct action against the insurer until after the judgment and such person may assign only those rights that presently exist, then it follows that at the time of the assignment, the injured person had no direct right of recovery against the insurer that could be assigned to the medical care provider.
Thus, the Court held that while the medical care provider may have a contractual right against the injured person for medical bills, it did not have a legal right to enforce the assignment against the insurer. In so doing, the Court resolved a conflict among the First, Ninth, Eleventh, and Twelfth Districts, which had all previously held that such assignments were enforceable. The Court’s decision was undoubtedly influenced by public policy concerns. According to the Court, an assignment of prospective settlement proceeds might encourage and promote litigation and discourage settlement. Further, the Court was concerned that if an injured person executes multiple assignments to multiple creditors, then the third-party insurer may be faced with determining the priority of assignments and proper distribution of settlement proceeds pro rata among the numerous assignees, which could potentially subject the insurer to multiple lawsuits.
1 (2009) 122 Ohio St.3d 497, 912 N.E.2d 1093.