Arizona Court of Appeals Division Two Holds ADOA May Recover the Full Amount of Medical Costs Provided to Participants Under the State Employee Health Care Plan, but That Recovery Is Limited to the Participant’s Net Recovery From the Third-Party Tortfeasor After Attorneys’ Fees Are Deducted.

The Arizona Department of Administration (“ADOA”) administers a self-insured plan to provide healthcare benefits to state employees and their dependents.  The state plan paid just over $25,000 for the Coxes’ medical treatment following an automobile accident caused by a third party.  The Coxes recovered $30,000 from the third-party tortfeasor and $200,000 from their automobile liability insurance carrier.  ADOA demanded reimbursement of the fees expended for the Coxes’ medical care under A.R.S. § 12-962 and the Coxes refused.  ADOA filed suit.  Both parties moved for summary judgment.  The trial court granted summary judgment in favor of ADOA and against the Coxes but awarded ADOA just under $2,500 after applying a formula to determine what portion of the $30,000 recovered from the third-party tortfeasor was attributable to medical costs.  The parties cross-appealed.  On appeal, ADOA argue that it should have received the full amount it paid for the Coxes’ medical care.  The Coxes argue that ADOA is not entitled to reimbursement at all.

The Arizona Appeals Court affirmed the grant of summary judgment for ADOA and remanded for the trial court to enter an award to ADOA for the full amount of the Coxes’ medical care.  The Court held that ADOA is entitled to reimbursement under A.R.S. § 12-962, rejecting the Coxes’ many arguments to the contrary.  Under A.R.S. § 12-962, the state can recover the reasonable value of medical care and treatment provided to a person who is injured by a third-party tortfeasor.  The Court reasoned that the ADOA’s payment of the Coxes’ medical bills via the Employee Health Insurance Trust Fund created by A.R.S. § 38-654(A) are payments by the state for purposes of § 12-962.  Moreover, § 12-962 applies to services provided through United Healthcare, the company with which the state contracts for the provision of the medical care.

Addressing the amount of ADOA’s recovery, the Court explained that under § 12-962(A), ADOA is subrogated to the entire claim against the third-party tortfeasor.  Thus, ADOA is entitled to recover the cost of the medical expenses from the amount the Coxes received from the third-party tortfeasor.  Further, because § 12-962(B) does not speak to apportionment, the trial court should not have apportioned the Coxes’ damages in awarding costs to ADOA.  The Court also reasoned that the Coxes’ attorneys’ fees and costs should be deducted from the amount recovered from the third-party tortfeasor before determining the amount available to reimburse ADOA.  Thus, to the extent that ADOA’s claim for medical expenses exceeds the Coxes’ net recovery, ADOA is limited to the amount of the Coxes’ net recovery.      

Judge Howard authored the opinion, Judges Espinosa and Pelander concurred.