STATE FARM MUTUAL
AUTOMOBILE INSURANCE COMPANY v. BOWERS
April 17, 1998
Record No. 971257
STATE FARM MUTUAL AUTOMOBILE
OPINION BY JUSTICE CYNTHIA D. KINSER
FROM THE CIRCUIT COURT OF HENRICO COUNTY
George F. Tidey, Judge
Present: All the Justices
This appeal involves the amount of reasonable medical expenses
incurred by an insured under a medical payments provision of an
automobile insurance policy. Because we find that the term
"incurred" includes only those amounts that the insured
would be legally obligated to pay, we will reverse the judgment
of the circuit court.
On April 17, 1995, Carroll Keith Bowers was involved in a
motor vehicle accident in which he sustained injuries requiring
medical treatment. At the time of the accident, Bowers was
insured under an automobile insurance policy issued by State Farm
Mutual Automobile Insurance Company (State Farm). Under the
medical payments provision of the policy, State Farm agreed to
pay "on behalf of each injured person, medical expense
benefits as a result of bodily injury caused by accident."
The policy defines medical expense as "all reasonable and
necessary expenses for medical . . . services
. . . incurred within three years after the date of the
Bowers was also insured under a health insurance plan through
Blue Cross/Blue Shield of Virginia (Blue Cross). All the
health-care providers that rendered services to Bowers as a
result of the accident had signed contracts with Blue Cross
agreeing to accept fees based upon a fee schedule setting forth
the reasonable value of the services provided. According to a
representative of Blue Cross, the fee schedule was based on a
governmental study performed by the Health Care Financing
Administration to determine the reasonableness of fees for
various medical services. Under the agreement with Blue Cross, a
participating health-care provider could collect only the amount
established by the fee schedule plus any co-payment that the
insured was required to pay. In other words, the agreements with
Blue Cross prohibited providers from collecting as full payment
for their services any more than the scheduled fee and required
Following his accident, Bowers sought medical treatment from
various health-care providers and then submitted claims to State
Farm under the policy’s medical payments provision. One such
claim was for $1,586 for treatment received from a rehabilitation
and therapy services company. However, due to an administrative
error, the check that State Farm issued to Bowers was for $31,586
instead of $1,586. Upon realizing its mistake, State Farm
contacted Bowers and requested that he return the $30,000
overpayment. Bowers informed State Farm that he had spent the
entire overpayment and refused to repay the balance.
As a basis for his refusal to repay State Farm, Bowers
asserted that, subsequent to the overpayment, he had incurred
additional medical expenses that should be offset against the
amount allegedly owed to State Farm. A dispute arose between Bowers
and State Farm in regard to the amount that he was entitled to
offset. Specifically, Bowers sought to offset the amounts that
the health-care providers, absent agreements with Blue Cross,
would have charged Bowers rather than the amounts that the
providers accepted as full payment for their services under the
Blue Cross fee schedule.
Because of the dispute and Bowers’ refusal to repay, State
Farm filed an action for unjust enrichment against Bowers,
seeking to recover the money it mistakenly paid to him. On
October 25, 1996, the circuit court granted State Farm’s motion
for partial summary judgment. Because Bowers’ claimed offset
would reduce only a portion of the overpayment, the court awarded
State Farm the sum of $17,703.51, plus interest. Following a
bench trial on January 29, 1997, the circuit court, in an order
dated March 18, 1997, entered judgment against Bowers in
"the total amount of $19,894.90 plus interest
. . . , this amount representing the amount of the
Partial Summary Judgment ($17,703.50) plus the sum of
$2,191.40." In a letter opinion, the court reasoned that
State Farm cannot benefit from the agreement between Blue Cross
and the health-care providers and, thus, allowed Bowers to offset
the full amount of the medical bills rather than the amounts
accepted by the health-care providers as full payment. In other
words, the court allowed Bowers to include in the offset the
amounts that his health-care providers wrote off. The court also
stated that "[t]he fact that the medical provider and [Blue
Cross] have negotiated a figure acceptable to both of them for
services performed does not set the standard of what is
reasonable." State Farm appeals.
In its assignments of error, State Farm raises three issues,
all of which concern the circuit court’s interpretation of the
medical payments provision of the State Farm policy and the
amount that the court allowed Bowers to offset against the
overpayment. Specifically, State Farm asserts that the circuit
court erred (1) in determining the amount of "incurred"
medical expenses, (2) in deciding the "reasonable"
value of the medical services provided, and (3) in failing to
reduce the amount of the offset because Bowers did not mitigate
The first issue requires us to construe the term
"incurred" as used in the definition of medical
expense. As already noted, the State Farm policy defines medical
expense as "all reasonable and necessary expenses for
medical . . . services . . . incurred
. . . ." State Farm argues that the
"incurred" expenses are those amounts which the
health-care providers accepted as full payment for their
services. Bowers, however, posits that he "incurred"
the full amount of the bills.
"If the language of an insurance policy is unambiguous,
we will give the words their ordinary meaning and enforce the
policy as written." United Services Auto. Ass’n v. Webb,
235 Va. 655, 657, 369 S.E.2d 196, 198 (1988). We have previously
construed the term "incurred" in a nearly identical
medical payments provision of an automobile insurance policy as
unambiguous and concluded that "[a]n expense can only be
‘incurred’ . . . when one has paid it or become legally
obligated to pay it." Virginia Farm Bureau Mut. Ins. Co.
v. Hodges, 238 Va. 692, 696, 385 S.E.2d 612, 614 (1989).
The evidence in the instant case was that Bowers would never
be liable for any amount greater than that which the various
health-care providers accepted as full payment for their services
based on the Blue Cross fee schedule. Stated differently, the
health-care providers’ agreements with Blue Cross prevented them
from collecting more than the scheduled fee and any required
co-payment. Therefore, we conclude that the medical expenses
Bowers "incurred" were the amounts that the health-care
providers accepted as full payment for their services rendered to
him. Bowers has not paid nor is he "legally obligated to
pay" the amounts written off by the providers. Id.; accord
Irby v. Gov’t Employees Ins. Co., 175 So. 2d 9, 10 (La.
Ct. App. 1965); United Services Auto Ass’n v. Schlang, 894
P.2d 967, 969 (Nev. 1995); Lefebvre v. Gov’t Employees Ins.
Co., 259 A.2d 133, 135 (N.H. 1969); Sanner v. Gov’t
Employees Ins. Co., 376 A.2d 180, 182 (N.J. Super. Ct. App.
Div. 1977); Atkins v. Great Am. Ins. Co., 189 S.E.2d 501,
504 (N.C. Ct. App. 1972).
To decide otherwise would be to grant Bowers a windfall because
he would be receiving an amount greater than that which he would
ever be legally obligated to pay.
Turning to the second issue, we agree with the circuit court
that the fact that medical providers and Blue Cross negotiate a
fee schedule that is acceptable to them does not necessarily set
the standard for what is a "reasonable" medical
expense. However, the only evidence in this case regarding
reasonableness was from the Blue Cross representative. She
testified that the Blue Cross fee schedule was based on a
government study that determined the reasonableness of fees for
various medical services. Thus, absent any evidence to the
contrary, we must conclude in this case that the
"reasonable" expenses were those contained in the Blue
Cross fee schedule and accepted as full payment by the
Finally, State Farm claims that Bowers failed to mitigate his
damages by reducing the amount of medical expenses he
"incurred." State Farm argues that, because Bowers
directed a rehabilitation and therapy clinic not to submit one of
its bills to Blue Cross, the bill was never reduced in accord
with the Blue Cross fee schedule even though the clinic was a
participating provider with Blue Cross. However, we do not decide
this issue because State Farm presented no evidence regarding the
amount that the rehabilitation and therapy clinic would have
accepted as full payment under the Blue Cross fee schedule.
For these reasons, we conclude that the circuit court erred by
granting an offset for any amount in excess of that which Bowers’
health-care providers accepted as full payment for their
services. The amount erroneously allowed by the circuit court is
the amount that the health-care providers wrote off, $7,669.60.
Accordingly, we will reverse the judgment of the circuit court
and enter judgment here for State Farm in the additional amount
of $7,669.60, for a total judgment in the amount of $27,564.50.
Reversed and final judgment.
 Following the $30,000
overpayment, Bowers submitted additional claims for medical
expenses totaling $2,428 to State Farm for payment. State Farm
gave Bowers credit against the $30,000 overpayment, reducing his
obligation to $27,572.
 For example, an orthopedic
clinic billed $3,770.50 for the services provided to Bowers.
However, since the orthopedic clinic was a participating provider
under the Blue Cross plan, it agreed to accept $1,157.25 as full
payment for its services in accord with the Blue Cross fee
schedule. Of that amount, Blue Cross paid the orthopedic clinic
$861.70, and Bowers was to pay $295.55. (At the time of trial,
Bowers had paid only $35 of the $295.55.) In other words, the
orthopedic clinic wrote off $2,613.25 of its original bill.
Bowers, nevertheless, claims that he should be able to offset the
amount the orthopedic clinic billed rather than the amount that
it accepted as full payment. Thus, Bowers wants to offset the
full $3,770.50 rather than the reduced fee of $1,157.25.
Six health-care providers issued total bills of $10,677.10 but
accepted lesser payments totaling $3,007.50, thereby collectively
writing off $7,669.60 of the amounts originally billed.
 The language at issue in Hodges
was "all reasonable expenses incurred within one year from
the date of accident for necessary medical . . .
services." Id. at 693, 385 S.E.2d at 612.
In 1997, the General Assembly defined "incurred" in
Code ? 38.2-2201(A)(3), which addresses medical payments in
liability insurance policies:
An expense . . . shall be deemed to have been
a. If the insured is directly responsible for payment of the
b. If the expense is paid by (i) a health care insurer
pursuant to a negotiated contract with the health care provider
or (ii) Medicaid or Medicare, where the actual payment with
reference to the medical bill rendered by the provider is less
than or equal to the provider’s usual and customary fee, in the
amount of the actual payment; however, if the insured is required
to make a payment in addition to the actual payment by the health
care insurer or Medicaid or Medicare, the amount shall be
increased by the payment made by the insured;
c. If no medical bill is rendered or specific charge made by a
health care provider to the insured, an insurer, or any other
person, in the amount of the usual and customary fee charged in
that community for the service rendered.
While this statute does not apply to this case, our decision
is consistent with the statutory definition of