Michigan Mutual Insurance v. Shaheen

Danhof, C.J.

(concurring). I agree with the majority that defendant Shaheen bears no liability to the plaintiff, having never formed an attorney-cli*769ent relationship with it. I also agree that the insurer’s recovery of the $20,000 in uninsured motorist benefits that it paid to defendant Daher must be conditioned on Daher’s full recovery for his injury. However, I cannot accept the reasoning that has led the majority to their conclusion on this point.

The priorities in Daher’s recovery set by the majority are those that would result under the equitable principles of subrogation, also called in the cases "common law subrogation” or "legal subrogation”. This device imposes the equivalent of an equitable trust upon the recovery of an injured person in favor of an insurer who has paid the loss in part or in full; the limit of the insurer’s right is the amount by which the insurance payment and the insured’s recovery frota third parties exceeds his actual loss. No contract is required to give rise to an equitable subrogation. See Washtenaw Mutual Fire Ins Co v Budd, 208 Mich 483; 175 NW 231 (1919), and Union Ins Society of Canton v Consolidated Ice Co, 261 Mich 35; 245 NW 563 (1932).

However, when an insured contracts for benefits from an insurer and makes "subrogation” promises that are inconsistent with the ordinary rules of equitable subrogation, the contract controls their relationship, which is sometimes described as "conventional” subrogation. This precedence of contract over the unaided operation of law was recognized in Consolidated Ice, supra, and discussed briefly in Hoosier Condensed Milk Co v Doner, 96 Ohio App 84; 121 NE2d 100.(1951), and Hardware Mutual Ins Co v Dunwoody, 194 F2d 666 (CA 9, 1952). It was applied to the detriment of insureds in Travelers Indemnity Co v Ingebretsen, 38 Cal App 3d 858; 113 Cal Rptr 679 (1974), *770and Pettengill v New Hampshire Ins Co, 129 Vt 23; 270 A2d 883 (1970). In the former case, the insured claimed that the conventional subrogation to which he had agreed would prevent full recovery for his loss. Cf., Detroit v Bridgeport Brass Co, 28 Mich App 54; 184 NW2d 278 (1970), lv den 384 Mich 828 (1971).

In Matson v State Farm Mutual Automobile Ins Co, 65 Mich App 713; 238 NW2d 380 (1975), this Court enforced a conventional subrogation arising from a "Trust Agreement” written into the policy obligating an insurer to pay uninsured motorist benefits, upholding the trial court’s judgment that the insurer was entitled to pro tanto recovery of its payment from whatever recovery the decedent-insured’s representative might have against third parties.1 In my opinion, Matson’s enforcement of a contractually created "subrogation” right should control here, if it is shown that the plaintiff and the defendant formed a binding contract to that effect, for this "trust agreement” explicitly grants the insurer priority in the plaintiff’s recovery from third parties.

In Matson, the "trust agreement” was binding because it was shown to be a part of the agreement that gave rise to the insurer’s obligation to pay uninsured motorist benefits in the first instance. On the other hand, the plaintiff in this action has relied solely on the "trust agreement” signed by defendant Daher after the loss occurred, the insurer’s pleadings do not claim that the policy under which it paid the defendant bound the policyholder or persons claiming payment under *771the policy to hold those proceeds for the company. Thus, so far as is shown in this case, the payment to Daher was the preexisting unconditional duty of the insurer and so is not legally sufficient consideration to support his asserted obligation under the "trust agreement”.

I therefore concur in the result reached by the majority.

Michigan Mutual Liability Co v Karsten, 13 Mich App 46; 163 NW2d 670 (1968), lv den 381 Mich 792 (1968), cited by my colleagues, is not to the contrary, for that case did not consider the effect of a policy "trust agreement” on the insurer’s right to participate in the insured’s recovery from third party tortfeasors.