Transamerica Insurance Company v. Barnes , 29 Utah 2d 101 ( 1972 )

C ALLIS TER, Chief Justice:

Plaintiff insurer initiated this action to enforce its claimed right of subrogation to certain funds received by defendant in settlement of his tort action for personal injuries against third parties. Both parties moved for summary judgment based on the pleadings, affidavits, admissions and answers to interrogatories; the trial court granted judgment to the defendant. Plaintiff appeals therefrom and seeks judgment rendered in its favor.

Defendant was a passenger in a motor vehicle, owned and operated by one Jen-son ; plaintiff had issued a policy of insurance to Jenson. The vehicle was involved in a collision, and defendant sustained personal injuries. Plaintiff, under its medical expense coverage, paid defendant $1,000, the maximum benefit under the policy. Thereafter, defendant filed an action against the alleged tort-feasors, whom he claimed by their negligence caused the collision with the vehicle in which he was riding. Defendant alleged that he had sustained permanent injuries, and sought $65,000 general damages and $10,000 special damages. Plaintiff notified defendant’s attorney of its claimed subrogation right; however, plaintiff refused to participate in defendant’s action or to permit his counsel to act on its behalf. Defendant has emphasized that the law firm that represents plaintiff also represented the tort-feasors, with whom defendant entered into a settlement for a lump sum of $7,500. Plaintiff claims that it is entitled to reimbursement to the extent of $1,000 less a reasonable attorney’s fee and its proportionate share of the costs from the fund recovered by defendant from the tort-fea-sors.

Plaintiff predicates its right of subrogation on three alternative theories: one, on an express contract as provided in the insurance policy issued to Jenson; two, on an implied contract as money had and received; or third, on a quasi contract for unjust enrichment.

The insurance contract provided that the company would pay, “on behalf of the insured,” all reasonable medical expenses for bodily injury caused by accident and sustained by any person while occupying an owned automobile while being used by an insured. The policy further defined an “insured” as a person or organization described under “Persons Insured.” Under the express provisions of the policy, an occupant of a vehicle being used by an in- ¡ sured was not specified as a “person in- > ' sured.” The subrogation clause of the policy provided:

In the event of any payment under the Liability or Medical Expense Coverage or under Part II of this policy, the company shall be subrogated to all the insured’s rights of recovery therefor against any person or organization and the insured shall execute and deliver instruments and papers and do whatever else is necessary to secure such rights. The insured shall do nothing after loss to prejudice such rights. [Emphasis added.]

From the foregoing, defendant was not an “insured” under the express provisions of the contract; and, therefore, it may not be urged that as an insured he breached the contractual provisions of the subrogation clause. Regardless of an express contract provision, an insurer may be entitled to subrogation.

Subrogation springs from equity concluding that one having been reimbursed for a specific loss should not be entitled to a second reimbursement therefor. This principle has been accepted in the insurance field with respect to property damage, and with respect to medical costs by an impressive weight of authority. . . .¹

Equitable principles apply to subrogation, and the insured is entitled to be made whole before the insurer may recover any portion of the recovery from the tortfeasor. If the one responsible has paid the full extent of the loss, the insurer should not claim both sums, and the insurer may then assert its claim to subrogation.² Subrogation is not a matter of right but may be invoked only in those circumstances where justice demands its application, and the rights of the one seeking subrogation have a greater equity than the one who opposes him.³ Subrogation is not permitted where it will work any injustice to others. To entitle one to subrogation, the equities of one’s case must be strong, as equity will, in general, relieve only those who could not have relieved themselves.⁴ The purpose of subrogation, as a creation of equity, is to effect an adjustment between parties so as to secure ultimately the payment or discharge of a debt by a person who in good conscience ought to pay for it.⁵

Plaintiff, urges that defendant’s settlement arid release of his entire claim must necessarily include all of his medical expenses, and therefore, he has received double payment to the extent that plaintiff paid under its piedical' coverage. On the other hand, defendant claims, that he sustained severe injuries, b.ut he was compelled to settle for a 'sum that inadequately compensated him .for the total damages sustained. ,. .

The-Settlement was for a lump sum-without apportionment'as to specific items of damage. -From the-state of the instant record, ''there -is insufficient evidence to iridica-te whether defendant was paid twice: /--When "the ■ settlement- was made, the tort-feasor's .or their representatives apparently'had actual or constructive knowledge thátsome of defendant’s medical expenses .had -previously been paid by plaintiff. Perhaps the’ negotiated settlement was reduced by this amount, particularly when defendant’s counsel had been infoi-med that he did not represent plaintiff’s interest. If the settlement were intended to include plaintiff’s prior medical expenses, two drafts should have been issued, one to plaintiff and defendant jointly and one to defendant, alone. If the settlement were made with knowledge, actual or constructive, of plaintiff’s subrogation right, such settlement and release is a fraud on the insurer and will not affect the insurer’s right of subrogation as against the tort-feásor or his -insurance carrier.⁶

The present st.ate of the record is inadequate to establish who has the greater equity. The record does not. clearly establish .that the tort-feasors or their representatives had actual or constructive knowledge of plaintiff’s right of subrogation. . If such fact be established, they may not disregard plaintiff’s known subrogation right in settling the liability. In such a case, the tort-feasors in good conscience should discharge the liability and plaintiff does not have a right in equity superior to defendant’s. Furthermore, if plaintiff had an opportunity to assert its subrogation rights to the tort-feasors and neglected to give notice or enforce its demands, the. trial court may determine under such circumstances that plaintiff’s rights in equity are equal or inferior to defendant’s, i. e., equity will not relieve one who could have relieved himself. The plaintiff to establish a superior equity and thus to be entitled to prevail must present proof which establishes that the damages covered by defendant’s settlement were the same or cover those for' which the 'defendant has already received indemnity from plaintiff; otherwise, the receipt of payment from the tort-feasor does not entitle the plaintiff to the return of the payments made by it.⁷

This cause is reversed and remanded for a trial in accordance with this opinion. No costs are awarded.

ELLETT, J., concurs. TUCKETT, J., concurs in the result.

2 . Lyon v. Hartford Acc. & Indem. Co., 25 Utah 2d 311, 818, 480 P.2d 739 (1971).

3 . Beaver County v. Home Indem. Co., 88 Utah 1, 36-37, 52 P.2d 435 (1935).

4 . Ashton Jenkins Ins. Co. v. Layton Sugar Co., 85 Utah 333, 337, 39 P.2d 701 (1935).

5 . Holmstead v. Abbott G. M. Diesel, Inc., 27 Utah 2d 109, 493 P.2d 625 (1972).

6 . 16 Couch On Insurance 2d, § 61:197, pp. 34S-350; Davenport v. State Farm Mutual Auto. Ins. Co., 81 Nev. 361, 404 P.2d 10 (1965) ; Hospital Service Corp. of Rhode Island v. Pennsylvania Ins. Co., 101 R.I. 708, 227 A.2d 105, 112 (1967) ; Sentry Ins. Co. v. Stuart, 246 Ark. 680, 439 S.W.2d 797, 799 (1969) ; 6A Appleman Ins. Law & Practice, § 4092, p. 246.

7 . 15 Blashfield Automobile Law and Practice, § 484.6, p. 192.