## Facts

- St. Mary’s Medical Center, Inc. provided outpatient medical services to Elizabeth Munford on January 23, 1991, totaling $3,836.47.
- Munford listed United Farm Bureau Family Life Insurance Company as her health insurer and assigned her Farm Bureau health insurance benefits to St. Mary’s.
- On February 5, 1991, St. Mary’s submitted a claim to Farm Bureau for Munford’s medical expenses.
- Farm Bureau made a partial payment to St. Mary’s of $3,685.87, which St. Mary’s applied to Munford’s bill, leaving a small unpaid balance.
- After paying the claim, Farm Bureau discovered Munford’s coverage had lapsed on December 1, 1990, before the date of treatment.
- Farm Bureau notified St. Mary’s that the payment was made by mistake and requested a refund on March 29, 1991, and again on May 21, 1991.
- St. Mary’s refused to refund the payment, stating it was not the hospital’s policy to refund payment for medical services already rendered.
- St. Mary’s had no knowledge of the lapse in coverage until Farm Bureau notified it, and St. Mary’s made no misrepresentations to induce Farm Bureau’s payment.
- Farm Bureau sued St. Mary’s for restitution on February 26, 1992; the case was tried to the court on stipulated facts, and the trial court entered judgment granting restitution to Farm Bureau.
- St. Mary’s appealed.

## Issues

1. Whether an insurer is entitled to restitution from a hospital for a payment made by mistake under an assignment of benefits when the hospital is an innocent third-party creditor that provided services, received payment in discharge of a valid debt, and neither misrepresented facts nor had notice of the mistake.

## Decision

- The Court of Appeals of Indiana reversed the trial court’s judgment.
- The court held Farm Bureau was not entitled to restitution from St. Mary’s on these facts.
- The court recognized an “innocent third-party creditor” exception to the general restitution rule for mistaken payments and applied it to bar Farm Bureau’s recovery.

## Legal Principles

- As a general rule, a party who pays money under a mistake of fact may seek restitution, because restitution is aimed at preventing unjust enrichment.
- Restitution is limited where the payee is a creditor of another who received the payment in discharge of a valid debt and the creditor (1) made no misrepresentations and (2) had no notice of the payer’s mistake.
- Restatement of Restitution § 14(1) supports denying restitution against an innocent creditor who receives a benefit from a third person in discharge of a debt, despite the third person’s mistake as to duty or obligation, when the creditor lacked notice and did not mislead the payer.
- In the medical-billing setting, a hospital that provides services exchanges value for the right to payment; when it receives payment toward that debt in good faith and without notice of a coverage problem, it is not unjustly enriched by retaining the payment.
- Indiana’s prior mistaken-payment cases had recognized a “change of position” (detrimental reliance) limitation, but those cases did not foreclose recognizing additional limits where unjust enrichment is absent; the innocent-creditor rule provides such a limit.
- An assignment of benefits explains why the insurer paid the hospital directly, but it does not by itself require repayment when the hospital took payment as satisfaction of an actual debt and was not involved in the insurer’s mistake.

## Conclusion

The Indiana Court of Appeals reversed the restitution judgment because St. Mary’s was an innocent third-party creditor: it provided medical services creating a valid debt, received Farm Bureau’s payment in discharge of that debt through Munford’s assignment, and had neither notice of Farm Bureau’s coverage mistake nor made any misrepresentation; therefore, retaining the payment was not unjust enrichment and restitution was unavailable.


St. Mary's Medical Center, Inc. v. United Farm Bureau Family Life Insurance Company, 624 N.E.2d 939 (1993)