The opinion of the court was delivered by: Long, J.
On certification to the Superior Court, Appellate Division, whose opinion is reported at 330 N.J. Super. 455 (2000).
The question presented in these consolidated appeals is whether the collateral source rule embodied in N.J.S.A. 2A:97-15 allows a health insurer, who expends funds on behalf of an insured, to recoup those payments through subrogation or contract reimbursement when the insured recovers a judgment against a tortfeasor. The answer is no.
The purpose underlying N.J.S.A. 2A:15-97 is twofold: to eliminate the double recovery to plaintiffs that flowed from the common-law collateral source rule and to allocate the benefit of that change to liability carriers. Allowing health insurers to recover funds expended pursuant to an insurance contract either by way of subrogation or contract reimbursement would reallocate the benefit accorded by N.J.S.A. 2A:15-97 in contravention of the underlying legislative intent Accordingly, we hold such recovery to be interdicted by the statutory scheme.
The Beninato case arose when Takako Beninato, a professional dog groomer, was seriously injured during a grooming session involving a dog owned by Lenore and Leonard Achor. Beninato's health insurer, Oxford Health Plans, Inc. ("Oxford"), paid $7,357 for her medical expenses. Beninato then sued the Achors, whose homeowner's insurance carrier, Preferred Mutual Insurance Company ("Preferred"), defended the suit.
While the underlying case was pending, the Achors and Preferred filed an action against Oxford, seeking a declaration that Oxford was barred by the collateral source statute, N.J.S.A. 2A:15-97, from asserting a subrogation or reimbursement remedy. That action was consolidated with the Beninatos' negligence action that settled for $95,000. The release expressly stated that "payment for medical bills and expenses incurred" are not included in that amount.
Oxford moved for summary judgment, arguing that if medical expenses were included in the settlement, it had a right to be reimbursed for what it expended on behalf of Beninato. If those expenses were not included in the settlement, then Oxford claimed a right to bring a subrogation action against the Achors for repayment. The Achors and Preferred argued that "the collateral source rule and the subrogation provision within [Oxford's] insurance contract conflict with each other." The trial court entered judgment for the Achors and Preferred, concluding that Oxford's claim was barred by the collateral source statute. Oxford appealed.
The Perreira case arose when Maria Perreira fell on the premises of the Columbia Savings Bank ("Columbia"). She sued Columbia along with its liability carrier Atlantic Mutual Insurance Company ("Atlantic"), Michael Rediger, the bank's snow removal contractor and Rediger's liability carrier, the Preserver Insurance Company ("Preserver"). In that case, Oxford, Perreira's health insurer, had paid about $13,000 for her medical expenses.
While that suit was pending, the Perreiras filed an action against Oxford, Columbia, Rediger, Atlantic, and Preserver, "seeking a declaration that Oxford was barred by the collateral source statute from either reimbursement or subrogation against the defendants." That action was consolidated with the Perreira's negligence action.
The Perreiras moved for summary judgment, arguing that under the collateral source rule, Oxford could not assert a lien on their recovery in the tort action. The trial court granted the motion and Oxford appealed. After the grant of summary judgment, the Perreiras entered into a settlement with Columbia and Rediger, the terms of which have not been disclosed.
The Appellate Division consolidated Oxford's appeals and reversed, holding that the collateral source rule does not bar the health insurer of a plaintiff in a non-PIP personal injury negligence action from asserting a claim for reimbursement from the plaintiff or subrogation against the tortfeasor. In so doing, the court observed that its ruling "places the ultimate burden on the tortfeasor, where in fairness it belongs . . . ." Perreira v. Rediger, 330 N.J. Super. 455, 466 (2000).
The Appellate Division based its conclusion on two distinct grounds. One was Oxford's insurance contract that contained the following provision for reimbursement from the insured:
If a Member is injured or becomes ill through the act of a third party, Health Plan shall provide care for such injury or sickness. Acceptance of such services will constitute consent to the provisions of this section.
Upon providing care for such injury or sickness pursuant to the terms of this agreement, Health Plan shall be permitted to recover the reasonable value of such care for injury or sickness, when payment is made directly to the Member in third party settlements or satisfied judgments.
The Member shall cooperate fully to assist Health Plan in protecting its legal rights under this Part X. [Emphasis added.]
The court also held that Oxford had a common-law equitable right of subrogation against the Achors and Rediger for the amount of money it spent due to their tortious conduct and that the silence of N.J.S.A. 2A:15-97 "on the subject of subrogation bespeaks its intention not to alter or affect that well-established common-law right." Perreira, supra, 330 N.J. Super. at 461. Thereafter, the court outlined a methodology to effectuate a health insurer's subrogation and contract reimbursement rights after trial and upon settlement. Id. at 465-66.
The Achors and Rediger filed a petition for certification that we granted. Perreira v. Rediger, 165 N.J. 491 (2000). We now reverse.
The Achors and Rediger argue that the collateral source rule, N.J.S.A. 2A:15-97, bars any action by Oxford either by way of contract reimbursement or equitable subrogation to obtain repayment of its health insurance payments to Beninato and Perreira and that the methodology adopted by the Appellate Division to provide for such repayment runs afoul of the statute. Oxford counters that the collateral source rule was not meant to affect its pre-existing equitable right of subrogation against the tortfeasors who injured Beninato and Perreira or to limit its contract right of reimbursement from its insured and that the Appellate Division's scheme for effectuating those rights conforms with the statute.
The New Jersey Defense Association and the Association of Trial Lawyers, in a rare convergence of views, argue that the collateral source rule interdicts subrogation and contract reimbursement by health insurers.
The collateral source rule, with deep roots in English common law, is firmly embedded in American common law as well. It was first cited in an American judicial decision in 1854 and has had continued currency in the centuries to follow. Michael F. Flynn, Private Medical Insurance and the Collateral Source Rule: A Good Bet?, 22 U. Tol. L. Rev. 39, 40 (1990)(citing The Propeller Monticello v. Mollison, 58 U.S. (16 How.) 152 (1854)). The common law collateral source rule "allows an injured party to recover the value of medical treatment from a culpable party, irrespective of payment of actual medical expenses by the injured party's insurance carrier. The purpose of the collateral source rule is to preserve an injured party's right to seek tort recovery from a tortfeasor without jeopardizing his or her right to receive insurance payments for medical care." Ibid. The rule "prohibits the tortfeasor from reducing payment of a tort judgment by the amount of money received by an injured party ...