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decided: January 19, 1979.


Nos. 1136 and 1223 Oct. Term 1977, Appeals from the Order of the Court of Common Pleas of Phila. County, No. 366, December Term, 1972. Trial Division, Equity


Barry J. Goldstein, Philadelphia, for appellant at No. 1136 and for appellee at No. 1223.

Raymond T. Cullen, Philadelphia, for appellant at No. 1223 and for appellee at No. 1136.

Watkins, President Judge, and Jacobs, Hoffman, Cercone, Price, Van der Voort and Spaeth, JJ. Cercone, J., concurs in the result. This decision was reached prior to the retirement of Jacobs, former President Judge. Watkins, former President Judge, and Hoffman, J., did not participate in the consideration or decision of this case.

Author: Spaeth

[ 262 Pa. Super. Page 605]

This case arises on cross appeals in an equity action. The issues raised involve the right of subrogation.

On May 27, 1968, Alan Pustilnik was injured when he was struck by a SEPTA subway car in Philadelphia. As a result of the accident, Pustilnik was hospitalized on three separate occasions. Medical bills accruing from these hospitalizations totaled $30,200.87, but Pustilnik was given a credit of $18,960.18 against this amount under the terms of his subscription agreement with Associated Hospital Service of Philadelphia (Blue Cross).

Soon after the accident, Pustilnik instituted suit against SEPTA. During pendency of this suit, Blue Cross notified Pustilnik and his attorney, Malcolm Waldron, of its subrogation interest in any recovery ultimately obtained from SEPTA. Blue Cross also invited Waldron to represent its interest in the suit in return for 25% of any recovery as an attorney's fee, or 33 1/3% if the case went to trial. Waldron rejected this offer, demanding 50% of any recovery as a prerequisite for his representation of Blue Cross' interests. Blue Cross did not agree to pay this fee, but nevertheless continued to advise Waldron of its increasing subrogation interest as a result of Pustilnik's second and third hospitalizations.

Pustilnik's suit against SEPTA went to trial in May 1971. After the fifth day of trial, but before a verdict was returned, the parties settled the suit. Pustilnik agreed to take $235,000 in return for his release relieving SEPTA from additional liability. Upon learning of the settlement, Blue Cross, which did not participate in the trial, immediately alerted SEPTA and the trial judge of its subrogation claim. Eventually, when Pustilnik and Blue Cross were unable to agree on the size of Blue Cross' interest, the trial judge placed $30,000 of the settlement monies into an escrow fund. Thereafter, Blue Cross brought the present action in equity to obtain an adjudication governing the disbursement of the escrowed monies.

[ 262 Pa. Super. Page 606]

Trial was held in November 1975. At the close of the evidence, the court ruled that Blue Cross was entitled to subrogation for the amounts it spent on Pustilnik's behalf, but that it had not proved that it had paid $18,960.18, the amount credited against Pustilnik's hospital bills. The court found that although Blue Cross might have paid this sum, its proof failed to show with reasonable certainty that it had expended more than $16,721.64. The court therefore ruled that Blue Cross' subrogation recovery should be limited to this amount. The court further ruled that this amount was subject to the following additional deductions. First, finding that Pustilnik's $235,000 settlement was less than the full value of his personal injury claim, the court reduced Blue Cross' recovery by 50%. Next, the court reduced Blue Cross' recovery by another 40% to reflect its proportionate share of Waldron's attorney's fee. Finally, the court imposed a reduction of $120 to cover Blue Cross' share of the litigation expenses incurred by Waldron in the suit against SEPTA. Judgment was accordingly entered for Blue Cross in the amount of $4,889.49. Both parties filed exceptions to the court's adjudication, which were dismissed by an opinion and order dated February 15, 1977. Pustilnik and Blue Cross cross-appealed (in Nos. 1136 and 1223 October Term, 1977) to this court. The appeals have been consolidated, and will now be decided together.

-Pustilnik's Appeal-

Pustilnik's principal argument is that Blue Cross erred in bringing its action in equity.*fn1 ...

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