Facts
- Nathan G. Russell was injured in a logging accident on September 13, 1984, suffering a broken back and arm.
- Sacred Heart General Hospital treated Russell from September 13, 1984, through August 30, 1985, and later sought payment of unpaid charges.
- Russell filed workers’ compensation claims against four possible employers due to uncertainty about who employed him at the time of injury.
- A referee, and later the Workers’ Compensation Board, determined that an employer insured by The Aetna Casualty and Surety Company (Aetna) was Russell’s employer for workers’ compensation purposes.
- While judicial review petitions were pending, Russell, the four possible employers, and their insurers executed a Workers’ Compensation Board-approved Disputed Claim Settlement (DCS).
- The DCS listed specific alleged medical expenses, provided that Aetna would be solely responsible for the stated sums, and required Aetna to hold Russell harmless from claims seeking those medical expenses; it also stated Aetna was free to make arrangements regarding settlement of the alleged bills.
- The hospital sued Russell (implied-in-fact contract and account stated) and Aetna (as an intended third-party beneficiary of the DCS) to recover unpaid medical charges.
- A jury found for the hospital against Aetna on the third-party beneficiary claim and against the hospital on its claims against Russell; judgment entered against Aetna for $97,092.74.
Issues
- Whether the hospital was an intended (creditor) third-party beneficiary of Aetna’s promises in the DCS and therefore could sue Aetna directly for the hospital charges listed in the DCS.
- Whether the hospital had to prove its services were reasonable and medically necessary as a condition to recover from Aetna under the DCS.
Decision
- The Oregon Supreme Court reversed the Court of Appeals and affirmed the circuit court judgment for the hospital.
- The Court held that the DCS could be interpreted to make the hospital an intended creditor beneficiary of Aetna’s promise to assume responsibility for identified medical expenses.
- The Court held that the DCS did not condition Aetna’s obligation on proof that the hospital’s services were reasonable and necessary.
- The Court upheld the trial court’s denial of Aetna’s directed-verdict motion because the contract language and circumstances allowed a reasonable jury to find for the hospital.
Legal Principles
- A nonparty may enforce a contract as a third-party beneficiary when the contracting parties intended the promised performance to benefit that person; intent may be shown by contract text and structure, not only by express naming.
- A medical provider may qualify as a creditor beneficiary when a promisor undertakes, in a settlement agreement, to pay specified debts owed by the promisee to identifiable medical creditors.
- Courts interpret and enforce third-party beneficiary rights according to the contract’s terms and will not add extra conditions to payment that the agreement does not include.
- A clause allowing the promisor discretion in how to settle listed bills can address the manner of performance without negating a contractual undertaking to be responsible for those debts.
Conclusion
The Oregon Supreme Court held that the hospital could enforce the DCS directly against Aetna as an intended creditor beneficiary and that the hospital was not required to prove medical necessity or reasonableness because the settlement agreement did not make payment contingent on those facts.