Allstate Insurance v. Reitler

No. 80-261
IN THE SUPREME COURT OF THE STATE OF MONTANA
1981

ALLSTATE INSURANCE COMPANY, a Corporation,
Plaintiff and Respondent,
vs.
AURELIA REITLER and FARMERS INSURANCE
EXCHANGE, a Reciprocal Insurer,
Defendant and Appellant,

Appeal from: District Court of the Thirteenth Judicial District,
In and for the County of Yellowstone.
Honorable Charles Luedke, Judge presiding.
Counsel of Record:
For Appellant:
Crowley, Haughey, Hanson, Toole & Dietrich, Billings,
Montana
Cynthia Ford argued, Billings, Montana
For Respondent:
Fred N. Dugan argued, Billings, Montana

Submitted: April 23, 1981

Filed: JfiN2 8 I981
c
M r . J u s t i c e Frank B. Morrison, J r . , d e l i v e r e d t h e Opinion of
t h e Court.

P l a i n t i f f , A l l s t a t e I n s u r a n c e Company ( A l l s t a t e ) b r o u g h t

t h i s a c t i o n i n t h e D i s t r i c t C o u r t a s s e r t i n g t h a t i t was

e n t i t l e d t o s u b r o g a t i o n t o t h e e x t e n t of payments A l l s t a t e

had made under a m e d i c a l payments p r o v i s i o n of a n a u t o m o b i l e

policy. Defendants answered by a l l e g i n g t h a t such s u b r o g a t i o n

c l a u s e s a r e i n v a l i d . Both p a r t i e s f i l e d a motion f o r summary

judgment. The D i s t r i c t C o u r t e n t e r e d an o r d e r g r a n t i n g t h e

p l a i n t i f f ' s motion f o r summary judgment and denying t h e

motion of t h e d e f e n d a n t s . From t h i s judgment, d e f e n d a n t s

appeal.

T h i s c a s e a r i s e s from a n a u t o m o b i l e a c c i d e n t which

o c c u r r e d i n B i l l i n g s , Montana, on August 2 2 , 1976. I n the

a c c i d e n t , an a u t o m o b i l e d r i v e n by one B e v e r l y Welton was h i t

from behind by a n a u t o m o b i l e d r i v e n by t h e d e f e n d a n t , A u r e l i a

Reitler. Welton s u s t a i n e d p e r s o n a l i n j u r i e s and i n c u r r e d

m e d i c a l e x p e n s e s of more t h a n $2,000.

A t t h e time of t h e a c c i d e n t , Welton was i n s u r e d by t h e

plaintiff, Allstate. Her p o l i c y p r o v i d e d f o r m e d i c a l expense

c o v e r a g e i n t h e amount of $2,000. A l l s t a t e d i d pay t o

Welton t h e sum of $2,000 f o r m e d i c a l e x p e n s e s . Welton made

a c l a i m a g a i n s t R e i t l e r which was s e t t l e d f o r $9,500.

During t h e pendency of t h e c l a i m , A l l s t a t e s e n t n o t i c e

of i t s s u b r o g a t i o n i n t e r e s t t o Farmers I n s . Exchange ( ~ a r m e r s ) .

Subsequent t o r e c e i v i n g t h i s n o t i c e , Farmers e n t e r e d i n t o a

s e t t l e m e n t w i t h We1 t o n and o b t a i n e d a r e l e a s e s t a t i n g t h a t

i t was r e l e a s e d of any and a l l c l a i m s r e s u l t i n g from p e r s o n a l

i n j u r y t o Welton. There was no e v i d e n c e t h a t A l l s t a t e a s k e d

i t s i n s u r e d , Welton, f o r reimbursement from t h e p r o c e e d s of

t h e s e t t l e m e n t , n o r i s t h e r e any e v i d e n c e t h a t t h e y i n t e n d
t o p u r s u e a c l a i m a g a i n s t t h e i r i n s u r e d , Welton.

The A l l s t a t e p o l i c y p r o v i d e d , i n p e r t i n e n t p a r t , a s

follows: "upon payment under (medical expense p r o v i s i o n of

t h e p o l i c y ) A l l s t a t e s h a l l be s u b r o g a t e d t o t h e e x t e n t of

such payment t o a l l of t h e i n s u r e d ' s r i g h t s of r e c o v e r y

therefor."

Appellants contend t h a t t h e subrogation c l a u s e s r e l a t i n g

t o m e d i c a l payments c o n s t i t u t e an a s s i g n m e n t of c l a i m s be-

l o n g i n g t o t h e i n s u r e d i n j u r e d p e r s o n and t h a t such a s s i g n -

ment r e s u l t s i n t h e s p l i t t i n g of a s i n g l e c a u s e of a c t i o n .

A p p e l l a n t s a r g u e t h a t t h e common law and p u b l i c p o l i c y b o t h

p r o h i b i t a s s i g n m e n t of p e r s o n a l i n j u r y c l a i m s and t h e s p l i t -

t i n g of a s i n g l e c a u s e of a c t i o n .

A p p e l l a n t s r e l y on t h e c a s e of Coty v. Cogswell ( 1 9 3 5 ) ,

100 Mont. 496, 50 P.2d 249. I n t h a t c a s e one Maude Adams

sued Cogswell t o r e c o v e r f o r p e r s o n a l i n j u r i e s . During t h e

pendency of t h e s u i t Coty commenced a n a c t i o n a g a i n s t Adams

based on a p r o m i s s o r y n o t e . Coty i s s u e d a w r i t of a t t a c h m e n t

a g a i n s t t h e p l a i n t i f f Adams, and t h e s h e r i f f proceeded t o

a t t a c h Adams' c a u s e of a c t i o n a g a i n s t Cogswell. Although

Cogswell knew of t h e a t t a c h m e n t , he proceeded t o s e t t l e

Adams' c l a i m . L a t e r Coty o b t a i n e d a judgment a g a i n s t Adams

which was n o t s a t i s f i e d . Coty t h e n sued Cogswell and h i s

i n s u r e r , s e e k i n g t o h o l d them l i a b l e f o r s e t t l i n g t h e Adams'

a c t i o n a f t e r a n a t t a c h m e n t had been l e v i e d t h e r e o n . This

C o u r t h e l d t h a t a c l a i m f o r p e r s o n a l i n j u r i e s was n o t as-

s i g n a b l e and, t h e r e f o r e , n o t s u b j e c t t o attachment.

Appellants c i t e t h e following j u r i s d i c t i o n s i n support

of t h e i r p o s i t i o n : H a r l e y s v i l l e Mutual I n s u r a n c e Company v .

Lea ( 1 9 6 6 ) , 2 A r i z . App. 538, 410 P . 2d 495, and two s u b s e q u e n t

Arizona c a s e s , t h e l a t e s t of which i s A l l s t a t e I n s . Co. v.
Druke (1978), 118 Ariz. 301, 576 P.2d 489; Berlinski v.

Ovellette (1973), 164 Conn. 482, 325 A.2d 239; Fifield Manor
v. Finston (1960), 54 Cal.2d 632, 354 P.2d 1073, 7 Cal.Rptr.
377; State Farm Fire & Cas. Ins. Co. 9 . Farmers Ins. Exch.

(Okla. 1971), 489 P.2d 480; Wrightsman v. Hardware Dealers
Mutual Fire Ins. Co. (1966), 113 Ga.App. 306, 147 S.E.2d

860; Travelers Indemnity Company v. Chumbley (Mo.App. 1965),
394 S.W.2d 418; Forsthove v. Hardware Dealers Mutual Fire

Ins. Co. (Mo.App. 1967), 416 S.W. 2d 208.

Respondent replies by arguing that a subrogation clause
is not an assignment of claim. Respondent cites the following

cases which have recognized subrogation clauses as being
valid: Alabama Farm Bureau Mut. Cas. Ins. Co. v. Anderson (1972),
48 Ala.App. 172, 263 So.2d 149, cert.den., 288 Ala. 538, 263
So.2d 155; Shipley v. Northwestern Mutual Ins. Co. (1968), 244
Ark. 1159, 428 S.W.2d 268; Western Cas. & Sur. Co. v.

Bowling (1977), 39 Colo.App. 357, 565 P.2d 970; Higgins v.
Allied American Mutual Fire Ins. Co. (1968), 237 A.2d 471;
DeCespedes v. Prudence Mutual Casualty Company of Chicago,
Illinois (1967), 202 So.2d 561; Maryland Casualty Company v.
Plant (1968), 208 So.2d 280; Rinehart v. Farm Bureau Mut.
Ins. Co. of Idaho, Inc. (1974), 96 Idaho 115, 524 P.2d 1343;
Home Ins. Co. v. Hertz Corp. (1978), 71 I11.2d 210, 375

N.E.2d 115; Damhesel v. Hardware Dealers Mutual Fire Ins.
2 9-
9
Co. (1965), 60 I11.App. ad, .209 N.E.2d 876; Bernardini v.
Home & Automobile Insurance Co. (1965), 64 II.l.App.2d 465,
212 N.E.2d 499; Imel v. Travelers Indemnity Company (1972),
152 1nd.App. 75, 281 N.E.2d 919; Mutual Hospital Ins., Inc.
v. MacGregor (1977), - n , @
Id~ 368 N.E.2d 1376; City of
Detroit v. Bridgeport Brass Company (1970), 28 Mich.App. 54,
184 N.W.2d 278; Travelers Indemnity Co. v. Vaccari (1976), 310
Minn. 97, 245 N.W.2d 844; Davenport v. State Farm Mutual

Automobile Ins. Co. (1965), 81 Nev. 361, 404 P.2d 10; Anderson

v. Allstate Insurance Company (1966), 266 N.C. 309, 145
S.E.2d 845; Schuldt v. State Farm Mut. Auto. Ins. Co. (1975),

89 S.D. 687, 238 N.W.2d 270; Smith v. Motor Club of America
Ins. Co. (1959),54 N.J.Super. 37, 148 A.2d 37; Motto v.

State Farm Mutual Automobile Insurance Co. (1969), 81 N.M. 35,
462 P.2d 620; Jacobson v. State Farm Mutual Automobi1.e Ins.
Co. (1971), 83 N.M. 280, 491 P.2d 168; Miller v. Liberty
Mutual Fire Insurance Co. (1965), 264 N.Y.S.2d-319; Smith
v. Travelers Ins. Co. (1977), 50-Ohio St.2d-43, 362 N.E.2d
264; Geertz v. State Farm Fire and Casualty (1969), 253 Or.
307, 451 P.2d 860; Bradford v. American Mutual ~iability
Insurance Co. (1968), 213 Pa.Super.Ct. 8, 245 A.2d 478;
Demrnery v. National Union Fire Insurance Company (1967), 210

Pa.Super.Ct. 193, 232 A.2d 21; Hospital Service Corp. of R.I.
v. Pennsylvania Ins. Co. (19671, 101 R.I. 708, 227 A.2d 105;

Wilson v. Tennessee Farmers Mutual Insurance Co. (1967), 219
Tenn. 560, 411 S.W.2d 699; Foundation Reserve Insurance Company
v. Cody (Tex. 1970), 458 S.W.2d 214; State Farm Mut. Ins.
Co. v. Farmers Insurance Exch. (1969), 22 Utah 2d 183, 450
P.2d 458; State Farm Mut. Ins. Co. v. Farmers Insurance

Exch. (1972), 27 Utah 2d 166, 493 P.2d 1002; ~ o l l i n sv. ~ l u e
Cross of Virginia (1973), 213 Va. 540, 193 S.E.2d 782;
~etropolitanLife Insurance Company v. Ritz (1967), 70 wash.
2d 317, 422 P.2d 780; Travelers Indemnity Company v. Rader
(1969), 152 W..Va./
&
' 166 S.E.2d 157; State Farm Mutual
Automobile Ins. Co. v. Geline (1970), 48 Wis. 2d 290, 179
N.W.2d 815; Associated Hospi Serv. v. Milwaukee Auto. Mut.
I. Co. (1967), 33 Wis.2d 170, 147 N.W.2d 225.
Most of the cases cited by the respondent involve

situations.where the insurance company sued its own insured
t o r e c o v e r m e d i c a l payments advanced o r where t h e i n s u r e d

b r o u g h t a n a c t i o n a g a i n s t t h e i n s u r a n c e company t o c o l l e c t
m e d i c a l payments c o v e r a g e .

The r a t i o n a l e e x p r e s s e d i n c a s e s c i t e d by r e s p o n d e n t

varies. Some of t h e c a s e s h o l d t h a t t h e " s u b r o g a t i o n " pro-

v i s i o n i n t h e i n s u r a n c e p o l i c y i s n o t an a s s i g n m e n t of a

c a u s e of a c t i o n , b u t r a t h e r simply i m p r e s s e s an e q u i t a b l e

l i e n upon t h e p r o c e e d s of any s e t t l e m e n t . Some of t h e c a s e s

a r e from j u r i s d i c t i o n s where a s s i g n m e n t of c l a i m s i s s p e c i f i -

c a l l y a u t h o r i z e d by s t a t u t e . I n o t h e r of t h e c a s e s t h e r e

was e v i d e n c e t h a t t h e s u b r o g a t i o n p r o v i s i o n i n t h e m e d i c a l

pay p o r t i o n of t h e i n s u r e d ' s p o l i c y r e s u l t e d i n a r e d u c t i o n

o f premium t o t h e i n s u r e d . Some d e c i s i o n s a r e premised upon

the f a c t t h a t the insured, i n s e t t l i n g the case with a t o r t -

f e a s o r , breached t h e c o o p e r a t i o n c l a u s e i n t h e p o l i c y . '

W e h o l - d - t h a t m e d i c a l payment s u b r o g a t i o n c l a u s e s a r e

invalid. I n doing s o , w e a r e mindful t h a t t h i s Court i s

j o i n i n g a m i n o r i t y of j u r i s d i c t i o n s s o h o l d i n g . However,

t h e p u b l i c p o l i c y c o n s i d e r a t i o n s m i l i t a t e i n f a v o r of s u c h a

result.

F i r s t , t h e i n s u r e d h a s p a i d a premium f o r m e d i c a l

payments c o v e r a g e . This Court has previously given g r e a t

w e i g h t t o such a c o n s i d e r a t i o n i n a l l o w i n g s t a c k i n g of i n -

surance p o l i c i e s . See Kemp v . A l l s t a t e I n s . Co. (1979), -
,
Mont. - 601 P.2d 20, 36 St.Rep. 1381. The a l l e g a t i o n

t h a t t h e i n s u r e d w i l l make a d o u b l e r e c o v e r y i n t h e a b s e n c e

of m e d i c a l payments s u b r o g a t i o n i s n o t p e r s u a s i v e f o r t h e

insured has paid f o r t h a t a d d i t i o n a l coverage.

Second, t h e i n j u r e d p e r s o n i s t h e one l i k e l y t o s u f f e r

most i f medical payments r e c e i v e d must be r e p a i d o u t of a

third-party recovery. The one i n j u r e d b e a r s t h e c o s t of
s u i t i n c l u d i n g a t t o r n e y f e e s and l i t i g a t i o n e x p e n s e s . Yet

under a s u b r o g a t i o n c l a u s e t h e i n s u r e r c o l l e c t s 1 0 0 p e r c e n t

of payments made w i t h no c o r r e s p o n d i n g o b l i g a t i o n f o r e x p e n s e s .

F u r t h e r m o r e , t h e i n j u r e d p e r s o n o f t e n must compromise t h e

p e r s o n a l i n j u r y c l a i m , e i t h e r because of l i a b i l i t y problems

o r b e c a u s e of l i m i t e d c o v e r a g e c a r r i e d by t h e t o r t f e a s o r .

Y e t under s u b r o g a t i o n t h e p l a i n t i f f ' s i n s u r e r makes a f u l l

recovery.

T h i r d , t h e t o r t f e a s o r ' s c a r r i e r may c o n s i d e r t h a t t h e

i n j u r e d p e r s o n h a s a l r e a d y been p a i d m e d i c a l e x p e n s e s and

c a n make a s m a l l e r o f f e r which a l l o w s f o r such payment

having been p r e v i o u s l y made. I f a s u b r o g a t i o n i n t e r e s t must

t h e n be r e p a i d , t h e i n j u r e d p a r t y may r e c o v e r n o t h i n g f o r

m e d i c a l expenses.

Montana h a s l o n g opposed t h e a s s i g n m e n t of p e r s o n a l

i n j u r y claims. Coty v. Cogswell, s u p r a . Whether a n i n s u r a n c e

policy provides f o r subrogation (as i n t h i s case) o r provides

t h a t t h e c a r r i e r h a s a l i e n on t h e p r o c e e d s of a n i n s u r e d ' s

t h i r d - p a r t y r e c o v e r y , t h a t p o l i c y h a s t h e e f f e c t of a s s i g n i n g

a p a r t of t h e i n s u r e d ' s r i g h t t o r e c o v e r a g a i n s t a t h i r d -

party tortfeasor. W h o l d t h a t such a n a s s i g n m e n t i s i n v a l i d .
e

Summary judgment e n t e r e d i n f a v o r of r e s p o n d e n t A l l s t a t e

I n s u r a n c e Company i s s e t a s i d e . W e remand t h e c a s e t o t h e

D i s t r i c t C o u r t w i t h d i r e c t i o n s t o e n t e r judgment f o r t h e

a p p e l l a n t s , A u r e l i a R e i t l e r and Farmers I n s u r a n c e Exchange.
>
W e concur:

Chief J u s t i c e

/ .+&us t i c e s