No. 93-624
IN THE SUPREME COURT OF THE STATE OF MONTANA
DeTIENNE ASSOCIATES LIMITED
PARTNERSHIP and PARK PLAZA HOTEL, I N C .
. .
plaintiffs and Respondents,
-v-
FARMERS UNION MUTUAL INSURANCE
COMPANY,
Defendant and Appellant.
APPEAL FRC)M: District Court of the First Judicial District,
In and for the County of Lewis & Clark,
The Honorable Thomas C. Honzel, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Robert F. James, James, Gray & McCaf ferty, Great
Falls, Montana
For Respondent:
Patrick E. Melby, Luxan & Murfitt, Helena, Montana
Submitted on Briefs: June 2, 1994
Decided: August 16, 1994
Filed:
Justice Fred J. Weber delivered the Opinion of the Court.
This action springs from Farmers Union Mutual Insurance
Company's (FUMI's) right of subrogation against a third party
tortfeasor Montana Rail Link (MRL). MRL damaged FUMI's insured's
property Park Plaza Hotel (Park Plaza) when a train wrecked in sub-
zero weather and caused a prolonged power outage. When Park Plaza
was not totally made whole by FUMI's policy payment, Park Plaza
sued MRL for the excess damages. FUMI joined in that litigation.
FUMI claims a right of subrogation against MRL. The First Judicial
District Court found that, even though both insurer and insured
were compensated by MRL, FUMI should pay Park Plaza for its
attorney fees and costs incurred in this joint litigation with MRL.
We affirm.
The only issue on appeal is:
Did the District Court err in ordering that Farmers Union
Mutual Insurance Company must pay Park Plaza's attorney fees and
costs, plus interest, before Farmers could assert its subrogation
rights?
DeTienne Associates (DeTienne) is a Montana limited
partnership which owns the Park Plaza in Helena. FUMI insured Park
Plaza under a special multi-peril insurance policy. The hotel
sustained property and business losses when an MRL train derailed,
exploded, and caused power outages around Helena on February 2,
1989. During this four-hour power outage, Park Plaza sustained
damage because the extremely cold weather conditions combined with
the power outages caused pipes to freeze and burst.
2
FUMI paid Park Plaza $411,155.49, which represented the limits
of Park Plaza's policy. Park Plaza contended that it sustained
damages beyond this amount.
On November 19, 1990, FUMI brought suit against MRL in Cascade
County. On February 2, 1991, Park Plaza brought suit against MRL
in Lewis and Clark County. On May 31, 1991, FUMI intervened in
Park Plaza's suit in order to assert its right of subrogation
against MRL, and on October 22, 1991, the Cascade County suit
against MRL was transferred to Lewis and Clark County. On November
7, 1991, the First Judicial District Court consolidated the two
suits and dismissed FUMI1s separate complaint for intervention.
The parties stipulated that the issues of negligence would not be
tried and that the trial would be limited to the issue of proximate
cause and damages.
Park Plaza and FUMI could not agree on the amounts of damage
sustained by Park Plaza, including the amounts of personal property
damage and business interruption losses. An appraiser was hired
and at trial Park Plaza sought $491,111 in business interruption
losses for the period between February 2, 1989 and December 31,
1989.
On January 3, 1992, Park Plaza filed a cross-claim against
FUMI, asserting that FUMI could not recover its damages until Park
Plaza was made whole. Park Plaza's contention was that the policy
payment paid by FUMI was short of the total damages it had
sustained. On August 27, 1992, the court granted partial summary
judgment against MRL and in favor of Park Plaza and FUMI for
damages caused to each by the power outage. Following a bench
trial the court ordered MRL to pay $411,155 to FUMI for the money
it had paid Park Plaza and $122,441 to Park Plaza for the damages
sustained over and above the policy limits of the FUMT policy. The
court ordered that the time period for which Park Plaza could
recover was from the date of the train wreck until November of
1989, because Park Plaza went ahead with previously scheduled
remodeling in November of 1989. The court left pending Park
Plaza's cross-claim against FUMI for attorney fees.
In July of 1993, the court held a hearing specifically to
determine whether Park Plaza should be reimbursed for its attorney
fees and costs involved in the lawsuit with MRL. Also in July of
1993, an appeal was filed to this Court for review of the District
Court's determination following the bench trial. We affirmed that
decision. DeTienne Associates Limited Partnership and Park Plaza
Hotel, Inc. v. Montana Rail Link (1994), 51 St-Rep. 125.
Following the subsequent court hearing involving attorney
fees, the court ruled that Park Plaza was entitled to its fees and
costs plus interest before FUMI could assert its right of
subrogation against MRL. The result of this ruling would require
FUMI to pay Park Plaza's attorney fees for the bench trial.
FUMI appeals this ruling.
Did the District Court err in ordering that Farmers Union
Mutual Insurance Company must pay Park Plaza's attorney fees and
costs, plus interest, before Farmers could assert its subrogation
rights?
The resolution of this case involves the District Court's
interpretation of existing case law involving subrogation rights.
We review a District Court's interpretation of law as to whether it
is correct. Steer, Inc. v. Department of Revenue (1990), 245 Mont.
470, 803 P.2d 601.
The District Court determined that Park Plaza was entitled to
be made whole including reimbursement of attorney fees and costs
before FUMI could subrogate its interests against the insured or
the tortfeasor (MRL). The court based this ruling on a prior case
decided by this Court, Skauge v. Mountain States Tel. and Tel. Co.
(1977), 172 Mont. 521, 565 P.2d 628. Further, the court determined
that Park Plaza had paid premiums to FUMI so that it could be made
whole should it be injured.
FUMI argues that it should not have to pay Park Plaza's
attorney fees and costs, plus interest, because it is entitled to
bring an action for subrogation in its own name. Further, FUMI
argues that only when the insurer is seeking reimbursement from an
insured who has recovered his total loss from the tortfeasor is the
insurer prevented from subrogating until the insured is made whole.
Park Plaza argues that the rule in Skause applies and FUMI
cannot recover from MRL until Park Plaza has recovered the total
sum of its losses. Also, Park Plaza contends that the specific
subrogation provision in its policy states that it has the right to
recover for its total losses before FUMI can subrogate its own
interests. FUMI interprets this subrogation provision as meaning
that it, the insurer, must be permitted to recover all the monies
it paid to Park Plaza.
The clause as included in Park Plaza's policy states:
Subrogation.
(a) In the event of any payment under this policy, the
Company shall be subrogated to all the insured's riqhts
of recovery against any third 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.)
However, what we must determine on review is not only the
interpretation of this provision, but also what significance it has
to the entire purpose of subrogation.
We have already determined the purpose of "subrogation":
The purpose of subrogation is to prevent injustice by
"compelling the ultimate payment of a debt by one who, in
justice, equity, and good conscience, should pay it. It
is an appropriate means of preventing unjust enrichment."
Youngblood v. American States Insurance Co. (1993), 262 Mont. 391,
866 P.2d 203; citing Bower v. Tebbs (1957), 132 Mont. 146, 155, 314
Subrogation is the substitution of another person in the
place of the creditor, so that the person substituted
will succeed to the rights of the creditor in relation to
the debt or claim, and is an act of the law growing out
of the relation of the parties to the original contract
of insurance, and the natural justice or equities arising
from the fact that the insurer has paid the insured,
rather than a right depending upon the contract.
Younqblood, 262 Mont. at 394-96.
FUMI attaches great weight to the subrogation provision in
Park Plaza's policy and would have us interpret it to require that
FUMI must be totally reimbursed for all monies it paid to the
insured. FUMI contends that given this interpretation, the clause
prohibits its payment of Park Plaza's attorney fees because if it
has to pay the insured's costs and attorney fees, the insurer would
have to subtract this amount from its total recovery. Such an
interpretation is negated by what we have determined to be the
purpose of subrogation.
That purpose is not to ensure that the risk-taker, the
insurer, be compensated for all money it paid to policy holders:
[Tlhe insurer cannot assert any claim by way of
subrogation unless the insured has a claim against the
third person to which the insurer can be subrogated for
the reason that the subrogated insurer stands in no
better position than the insured, and cannot recover over
against the wrongdoer unless the insured could have done
so, for if the insured had no right of action against the
wrongdoer none can pass to the insurer by way of
subrogation. . . .Otherwise stated, subrogation by
definition and of necessity presupposes the existence of
a right of the insured against some third person or fund
...
G.Couch and R.Anderson, 16 Couch Cvclo~edia of Insurance Law,
Subrogation, g 61:114, pgs. 183-184 (1983).
Relying on Skauqe, the District Court determined that while
FUMI was entitled to be subrogated, it had to reimburse Park Plaza
for its attorney fees and costs involved in the litigation with the
tortfeasor. Such reimbursement was required to make the insured
whole. FUMI contends this reliance is error because of the
different set of facts in Skauqe--basically, the fact that the
insurer in Skause had to be drawn into the action against the
tortfeasor where in the present case FUMI assisted Park Plaza at
trial. While it is true that the facts of the two cases differ,
and each case involving subrogation must be considered on its own
facts, the equitable principles set down in Skaucre are applicable
here, despite the possible differences in facts.
The facts of the present case provide us with a subrogation
clause that by its own terms, does not extend subrogation beyond
the equitable principles set out in Skause. The clause permits
FUMI to subrogate--it does not dictate upon what terms that
subrogation shall occur. The terms of subrogation are not provided
by the parties* contract, here, but are provided by the equitable
principles inherent in the Skauqe ruling.
We determined in Skause that in a situation where the sum
recovered by the insured from the tortfeasor is less than the total
loss and thus, either the insured or the insurer must to some
extent go unpaid, the loss should be borne by the insurer for that
is a risk the insured has paid it to assume. Skause, 172 Mont. at
528, 565 P.2d at 632. Likewise, we held in Skauue that when the
insured has sustained a loss in excess of the reimbursement by the
insurer, the insured is entitled to be made whole for its entire
loss and any costs of recovery, including attorney fees, before the
insurer can assert its right of legal subrogation against the
insured or the tortfeasor. Skause, 172 Mont. at 528, 565 P.2d at
632.
What this means if applied to the present case is that Park
Plaza must recover all that it has lost because of the train wreck,
including any attorney fees and costs expended in an attempt to
recover sums over and above those received under its policy with
FUMI. This must be done before FUMI can recover pursuant to
subrogation rights.
We used the word "before" in Skauqe to indicate that the
paramount interest is that of the insured. This language actually
indicates that the insured's interests are the primary concern and
are attached to the subrogation rights of the insurer: the use of
the word "before" does not necessarily indicate a chronology of
events.
It is possible that neither the insurer nor the insured will
be able to make a decision as to which party should litigate
against the tortfeasor. In many fact situations, the tortfeasor
will eliminate the timing concerns raised in Skause by joining both
parties in simultaneous litigation:
[Tlhe insured may prosecute an action for the full amount
of the loss, or either the insured or the insurer may
separately sue for his portion of the loss, and if the
action is instituted by either one alone, the defendant
can compel joinder of the other or may waive joinder.
Glacier General Assurance Co. v. G. Gordon Symons Co., Ltd. (9th
Cir. 1980), 631 F.2d 131, 134 (citing State ex rel. Slovak v.
District Court (1975), 166 Mont. 485, 489-90, 534 P.2d 850, 852.)
This case law recognizes that in order to protect themselves from
multiple lawsuits, defendants can require that both the insurer and
insured join in the suit or otherwise be bound by its outcome.
United States v. Aetna Casualty & Surety Co. (1949), 338 U.S. 366,
381, 70 S.Ct. 207, 94 L.Ed.2d 171.
Therefore, despite the use of the word "beforeM in the Skause
ruling, the important aspect of the case is the adoption of the
equitable principle that an insured must be totally reimbursed for
all losses as well as the costs involved in recovering those
losses. The insured has paid premiums to be insured. This
equitable principle is not impaired by concurrent litigation of
both the insured's and the insurer's interests.
F U M I maintains that if this Court determines that Park Plaza
obtains reimbursement for its costs and attorney fees, the ensuing
precedent would remove any incentive for an insurance company to
participate in an action to recover the damages of its insured
above policy limits. We disagree. Such a conclusion by this Court
could just as easily prompt insurance companies to simultaneously
litigate both their own subrogation rights and the insured's losses
over and above policy limits paid. By litigating the insured's
damages concurrently with its own, the insurer has control over the
costs of litigation by combining its own interests with those of
the insured. While F U M I argues that it could not concurrently
litigate both its concerns and Park Plaza's because of a conflict
of interest, we note that it was F U M I who filed to intervene in
Park Plaza's action for excess damages against MRL.
Thus, regardless of the simultaneous judgments to F U M I and
Park Plaza here, we are cognizant of two guiding concerns based
upon prevailing equitable principles: 1) Park Plaza must be made
whole for its losses, including the attorney fees it incurred in
the litigation against the tortfeasor, and 2) if either the insured
or the insurer must to some extent go unpaid, equity prescribes
that the loss should be borne by the insurer, in this case, F U M I .
Therefore, while we have a situation in which both insurer and
insured were compensated by the tortfeasor at the same time during
the same litigation instead of the insured regaining its total
costs first as indicated by Skauue, we must still arrive at the
same equitable conclusion that Park Plaza must be made whole in
terms of all losses--including money it expended on the MRL
litigation.
To do otherwise would mean that the insured looses money
(money paid for litigation of excessive damage plus money paid as
premiums to insurer) and the insurer gains by such a financial
arrangement (insurer has received premiums plus has been fully
recompensed for money it paid to the insured). In Skauqe we
determined that such a state of affairs is akin to unjust
enrichment and is not equitable.
FUMI contends that the Skauqe case can be distinguished
because it involves ulegalu subrogation and that the present set of
circumstances involves "conventional" subrogation. We stated in
Skauqe:
Again we note, the doctrine of legal subrogation is
applied to subserve the ends of justice and to do equity
in the particular case under consideration.
Skauqe, 172 Mont. at 528, 565 P.2d at 632. "Subrogation is an
equitable doctrine which is not dependent on any contractual
relationship between the parties." Youngblood v. American States
Insurance Co. (1993), 262 Mont. at 395, 866 P.2d at 205. Equity is
the motivating factor in Skauue--that the insured, after paying
premiums to be insured, be made whole--and, although a different
set of facts exists in the present case, the same equitable
principle applies to Park Plaza--equity here dictates that Park
Plaza recoup its total losses, including attorney fees and costs
because it has paid insurance premiums to be insured and FUMI has
completely recovered its payment to Park Plaza
The District Court further determined that Park Plaza was
entitled to interest as provided in 5 25-9-205, MCA:
Amount of Interest. (1) Except as provided in
subsection (2), interest is payable on judgments
recovered in the courts of this state at the rate of 10%
per annum and no greater rate.
This statute governs the interest rate on any judgment already
rendered, but not yet paid. It is self-explanatory and applicable
to all judgments.
The court also determined that Park Plaza was entitled to pre-
judgment interest after financial affidavits determined the exact
amount of attorney fees and costs. FUMI argues that it is not
responsible for pre-judgment interest.
Section 27-1-211, MCA, states:
Right to interest. Every person who is entitled to
recover damages certain or capable of being made certain
by calculation and the right to recover which is vested
in him upon a particular day is entitled also to recover
interest thereon from that day except during such time as
the debtor is prevented by law or by the act of the
creditor from paying the debt.
Prejudgment interest can be awarded by the trial judge pursuant to
5 27-1-211, MCA, when the following criteria are met: 1) there is
an underlying monetary obligation; 2) the amount of recovery is
certain or capable of being made certain by calculation; and 3) the
right to recovery vests on a particular day. R.H. Grover, Inc. v.
Flynn Ins. Co. (1989), 238 Mont. 278, 777 P.2d 228.
Park Plaza asserts that they are due monies spent on
litigation through June 29, 1993. They presented financial
affidavits dated June 29, 1993, at a hearing held by the court on
July 7, 1993. FUMI agreed to the totals in these affidavits. The
court found that FUMI owed Park Plaza pre-judgment interest on the
costs of recovery of $35,112.59 from June 29, 1993.
We conclude that the elements required for pre-judgment
interest have been satisfied: FUMI has an underlying monetary
obligation to Park Plaza for costs and attorney fees amounting to
$35,112.59, that sum was made certain on June 29, 1993, when it was
incorporated into financial affidavits, and the right to recover
these fees vested on July 7, 1993, when FUMI agreed that the fees
were reasonable. In determining when pre-judgment interest will
commence, we have held that it will begin on the date that the
exact amount due is ascertained. Marriage of Gerhart (1990), 245
OMont. 279, 800 P.2d 698. Here, the date that the money due was
ascertained was June 29, 1993. Therefore, the court was correct in
determining that it was from this date that the interest should
run.
We hold that the District Court did not err in ordering that
Farmers Union Mutual Insurance Company must pay Park Plaza's
attorney fees and costs, plus interest, before Farmers could assert
its subrogation rights.
August 16, 1994
CERTIFICATE OF SERVICE
I hereby certify that the following certified order was sent by United States mail, prepaid, to the
following named:
Robert F. James, Esq.
James, Gray & McCafferty
P.O. Box 2885
Great Falls, MT 59403
Patrick E. Melby, Esq.
Luxan & Murfitt
P.O. Box 1144
Helena, MT 59624-1144
ED SMITH
CLERK OF THE SUPREME COURT
STATE OF MONTANA