John A. Kasel v. Union Pacific Railroad Company

John A. Kasel sustained injuries at a motel while he was

an employee of Union Pacific Railroad Company (Union

Pacific). Kasel sued Union Pacific and the motel. After the

parties settled, Union Pacific asserted a contractual right

of subrogation to the extent of medical payments made on

Kasel's behalf by a third-party administrator. The contract in

question created a lien or right of reimbursement if a third

party is liable, but not if Union Pacific is liable. The court

held that Union Pacific did not have a lien or right of reimbursement

because it was party to the settlement. We also

conclude that Union Pacific is a liable party under the settlement.

We therefore affirm.

BACKGROUND

Parties

Kasel, an engineer, stayed at an Oak Tree Inn in Wyoming,

while on duty for Union Pacific in October 2009. Union

Pacific contracted with Oak Tree Inn to provide overnight

lodging for its employees. Kasel sustained injuries when the

bottom of the bathtub in his room gave way.

In January 2010, Kasel sued Union Pacific and Oak Tree Inn.

Count I of the complaint alleged that Union Pacific was negligent

and liable for his injuries under the Federal Employers'

Liability Act (FELA). Count II alleged that Oak Tree Inn negligently

failed to provide a reasonably safe premises, warn of

hidden dangers, and inspect for defects.

Liberty Mutual Insurance Company (Liberty Mutual)

accepted tenders of defense from both Union Pacific and Oak

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KASEL v. UNION PACIFIC RR. CO.

Cite as 291 Neb. 226

Tree Inn. Liberty Mutual issued insurance policies to Oak

Tree Inn, and Oak Tree Inn had executed an indemnity agreement

with Union Pacific. Counsel hired by Liberty Mutual

represented both defendants.

The Union Pacific Railroad Employes Health Systems

(UPREHS) paid some medical expenses on behalf of Kasel.

UPREHS was the third-party administrator for on-duty injuries

to active Union Pacific employees. UPREHS is not a subsidiary

of Union Pacific.

During the period relevant to this case, UPREHS' "Challenger

Health Plan” applied to Kasel. Article XI of the Plan—titled

"SUBROGATION”—provides:

a) In consideration of treatment or payment for treatment

of a Member by UPREHS, said Member assigns,

transfers and subrogates to UPREHS, to the extent of all

expenditures made in behalf of said Member by UPREHS,

all rights, claims, interest and rights of action that the

Member may have against any party, person, firm or corporation

that may be liable for the loss except . . . Union

Pacific . . . and its affiliated and subsidiary companies.

Said UPREHS Member authorizes UPREHS to sue, compromise

or settle in the Member's name and UPREHS is

fully substituted for the Member and subrogated to all

of the Member's rights to the extent of all expenditures

made in behalf of said Member. . . .

b) In the event a Member elects to pursue a suit, claim

or right of action against any party, person, firm, or corporation

that may be liable for loss, except . . . Union

Pacific . . . , with respect to on-duty injuries, UPREHS

is entitled to full reimbursement to the extent of all benefits

it pays out of any proceeds, settlement, or verdict

recovered by the Member. In all such cases, UPREHS

shall have a lien against any recovery and expects and

is entitled to be reimbursed in full in the amount of all

benefits it pays, without any reduction for costs or attorney's

fees. This subparagraph shall not in any way limit

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Cite as 291 Neb. 226

or impair UPREHS' right to independently recover such

expenditure as set forth in subparagraph (a) above.

In March 2012, 2 days before the start of trial, Kasel's attorney

and an attorney representing Union Pacific and Oak Tree

Inn reached a tentative agreement to settle Kasel's claims.

In May 2012, Kasel and his wife signed a "Release of All

Claims” (Release), early drafts of which "originated” from

Union Pacific. The Release provided: "For the sole gross consideration

of Four Million Dollars . . . to be paid on behalf

of DEFENDANTS to CLAIMANTS, CLAIMANTS releases

[sic] any and all CLAIMS against RELEASEES arising out

of . . . KASEL'S employment with UNION PACIFIC . . . .”

The Release defined "DEFENDANTS” as Union Pacific and

Oak Tree Inn; defined "RELEASEES” as Union Pacific, Oak

Tree Inn, and Liberty Mutual; and defined "CLAIMANTS”

as Kasel and his wife. The "CLAIMS” subject to the Release

include not only those arising from Kasel's October 2009

injuries, but all claims arising out of Kasel's employment with

Union Pacific. For example, Kasel expressly waived any wage

claims under collective bargaining agreements and claims for

unlawful discrimination under federal law. In addition to dismissing

his lawsuit, Kasel agreed to resign from active service

with Union Pacific and to never again seek employment with

the railroad.

Procedural Background

After Kasel and his wife signed the Release, a disagreement

arose about Union Pacific's subrogation rights. The court

sustained Liberty Mutual's motion to interplead $300,000 to

the clerk of court. The court later released $129,736.70 of

the interpleader fund to Kasel after the parties stipulated that

Union Pacific sought only $170,263.30.

Union Pacific and UPREHS jointly filed a notice of claims

to the interpleader fund. In their "Claim for Subrogation,”

they alleged that the "moment UPREHS began paying medical

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bills on behalf of [Kasel], [Kasel] assigned the right of subrogation

to UPREHS to pursue any claims against any third

party,” and that "UPREHS assigned to Union Pacific the right

of subrogation that [Kasel] assigned to UPREHS.” In their

second and third claims, Union Pacific and UPREHS alternatively

asserted that UPREHS had a lien against the settlement

that it did or did not assign to Union Pacific.

In May 2014, the court released the remaining $170,263.30

to Kasel. The court reasoned that the settlement was just as

much on Union Pacific's behalf as it was on behalf of Oak Tree

Inn: "Liberty Mutual did not pay four million dollars to settle

only Kasel's claims against Oak Tree Inn. It was paid to settle

all Kasel's claims against both [Union Pacific] and Oak Tree

Inn.” The court emphasized the unity of Union Pacific's and

Oak Tree Inn's fortunes:

[D]uring the course of this lawsuit [Union Pacific] and

Oak Tree Inn were represented by the same attorney

or attorneys . . . . From the time that Kasel filed his

Complaint until the time the case was settled Kasel's

claim was against both Oak Tree Inn and [Union Pacific].

The parties' eventual "Release of All Claims” was a

global release wherein Kasel and his wife released all

claims against [Union Pacific] and Oak Tree Inn (and its

insurer) "arising out of [Kasel's] employment with Union

Pacific . . . .”

Union Pacific appealed. The Court of Appeals sustained

Oak Tree Inn's motion to be excused from the appeal.

ASSIGNMENT OF ERROR

Union Pacific assigns that the court erred by "holding that

UPREHS did not have a valid subrogation interest in Kasel's

settlement with Union Pacific and Oak Tree Inn and in holding

that as a result neither Union Pacific nor UPREHS had

a valid lien, right of subrogation or right of reimbursement

against the interpleaded funds.”

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KASEL v. UNION PACIFIC RR. CO.

Cite as 291 Neb. 226

STANDARD OF REVIEW

[1] The meaning of an unambiguous contract is a question

of law, in connection with which an appellate court has an

obligation to reach a conclusion independently of the determination

made by the court below.1

ANALYSIS

Union Pacific argues that "[b]ecause Kasel sued a responsible

third party . . . ,” it has a lien against the settlement

funds.2

Union Pacific's in-house counsel conceded that Kasel

could have sued only Union Pacific and that, if Kasel had

done so, "there's no UPREHS lien.” But, according to Union

Pacific, once Kasel sued a third party, the railroad was entitled

to recover medical expenses paid by UPREHS whether or not

Union Pacific was also liable.

[2,3] We note that Union Pacific is not asserting a subrogation

interest arising from a relationship between itself and

Kasel. Instead, Union Pacific argues that UPREHS assigned

to it certain contractual subrogation rights. As an assignee,

Union Pacific stands in the shoes of its assignor and is bound

by the terms of the contract to the same extent as UPREHS.3

An assignment does not affect or change any of the provisions

of the contract.4

If the assignor could not have maintained an

action based on the contract, neither can the assignee.5

The contractual provision in question is article XI of the

Challenger Health Plan. There, Kasel generally transferred to

UPREHS his remedies against third parties in the amount that

UPREHS paid medical expenses on his behalf. In paragraph (a),

1 Weber v. North Loup River Pub. Power, 288 Neb. 959, 854 N.W.2d 263

(2014).

2 Brief for appellant at 11.

3 See Spanish Oaks v. Hy-Vee, 265 Neb. 133, 655 N.W.2d 390 (2003).

4 Hansen v. E. L. Bruce Co., 162 Neb. 759, 77 N.W.2d 458 (1956).

5 Id.

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Kasel "authorize[d] UPREHS to sue, compromise or settle in

[Kasel's] name.” In paragraph (b), Kasel recognized UPREHS'

right to assert a lien or right to reimbursement against any

settlement Kasel reached with "any party, person, firm, or corporation

that may be liable for loss, except . . . Union Pacific

. . . , with respect to on-duty injuries.” This appeal involves the

interpretation of paragraph (b).

[4-7] In interpreting a contract, a court must first determine,

as a matter of law, whether the contract is ambiguous.6

A contract

is ambiguous when a word, phrase, or provision in the

contract has, or is susceptible of, at least two reasonable but

conflicting interpretations or meanings.7

If the terms of a contract

are clear, a court may not resort to rules of construction.8

The court must accord clear terms their plain and ordinary

meaning as an ordinary or reasonable person would understand

them.9

The fact that the parties suggest opposing meanings

of a disputed instrument does not compel the conclusion

that the instrument is ambiguous.10

We conclude that Union Pacific does not have a lien or

right of reimbursement under the unambiguous terms of the

Challenger Health Plan. The railroad argues that "Liberty

Mutual on behalf of Oak Tree Inn, a third party, funded the

settlement; Union Pacific did not.”11 But Kasel sued Union

Pacific in addition to Oak Tree Inn. Liberty Mutual accepted

tenders of defense from both Union Pacific and Oak Tree

Inn. The attorney hired by Liberty Mutual represented both

Union Pacific and Oak Tree Inn. And Liberty Mutual funded

the settlement on behalf of the "DEFENDANTS,” defined as

6 Gibbons Ranches v. Bailey, 289 Neb. 949, 857 N.W.2d 808 (2015).

7 Id.

8 Id.

9 Id.

10 Id.

11 Reply brief for appellant at 3.

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Union Pacific and Oak Tree Inn, in order to relieve both parties

of their potential liability to Kasel. Union Pacific's argument

that the settlement was on behalf of Oak Tree Inn only

is simply inaccurate.

In fact, the Release benefits Union Pacific in ways that it

does not benefit Oak Tree Inn. Kasel waived potential claims

against Union Pacific that are wholly unrelated to the incident

at the Wyoming motel. For example, Kasel waived employment

discrimination claims and claims for unpaid wages. The

surrender of these rights benefited only Union Pacific. The

railroad was at least an equal party to the Release.

Union Pacific argues that the trial court's interpretation of

article XI "circumvent[ed] FELA law,”12 citing our decision in

Strasburg v. Union Pacific RR. Co.

13 There, a railroad employee

filed separate lawsuits against Union Pacific and a third-party

manufacturer. The employee settled his claims against the

manufacturer and obtained a judgment against Union Pacific.

The trial court sustained Union Pacific's motion for a setoff

against the verdict for the amount of the employee's medical

expenses that UPREHS paid. But the court declined to give

Union Pacific a setoff for the difference between the amount

that medical providers initially billed and what UPREHS actually

paid (the "'writeoff amount'”).14

Union Pacific appealed in Strasburg, assigning that the

court erred by not including the writeoff amount in the

medical expense setoff. We noted that UPREHS assigned its

subrogation rights to Union Pacific, but we did not discuss

the source of UPREHS' subrogation rights in any detail.

Furthermore, the employee did not cross-appeal and did not

dispute that Union Pacific had a lien for the amount that

12 Brief for appellant at 13.

13 Strasburg v. Union Pacific RR. Co., 286 Neb. 743, 839 N.W.2d 273

(2013).

14 Id. at 747, 839 N.W.2d at 277.

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UPREHS actually paid. And, unlike the instant case, the

employee separately sued and recovered from the railroad and

a third-party tort-feasor. For these reasons, Strasburg does not

mean that Union Pacific is entitled to a lien or right of reimbursement

in this case.

Under the unambiguous terms of the contract, Union

Pacific does not have a lien or right of reimbursement. We

therefore affirm the order releasing the remainder of the interpleader

fund to Kasel.



Affirmed.