#23854-rev-MYREN, Circuit Judge
2006 SD 62
IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA
* * * *
MET LIFE AUTO AND HOME
INSURANCE COMPANY, Appellant,
v.
GREGORY C. LESTER, Plaintiff and Appellee,
and
LUKE WETER, Defendant.
* * * *
APPEAL FROM THE CIRCUIT COURT
OF THE SEVENTH JUDICIAL CIRCUIT
PENNINGTON COUNTY, SOUTH DAKOTA
* * * *
HONORABLE JEFF W. DAVIS
Judge
* * * *
ANTHONY P. BOLSON of
Beardsley, Jensen & Von Wald
Rapid City, South Dakota Attorneys for appellant.
GEORGE BEAL of
Beal Law Office Attorneys for plaintiff
Rapid City, South Dakota and appellee Lester.
* * * *
CONSIDERED ON BRIEFS
ON FEBRUARY 13, 2006
OPINION FILED 7/12/06
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MYREN, Circuit Judge
[¶1.] Met Life Auto and Home Insurance Company (Met Life) appeals a
judgment that denied subrogation. We reverse.
FACTS
[¶2.] On April 20, 2004, Luke Weter (Weter) backed his car into a brick wall
owned by Gregory Lester (Lester). Weter was insured by USAA Casualty Insurance
Company (USAA). Lester had a homeowner's property insurance policy with Met
Life.
[¶3.] Lester sought compensation from Weter's insurer, USAA. While
negotiating with USAA, Lester filed a claim with Met Life. Met Life sent an
adjuster who estimated that the damage could be repaired for $3,685.18. Met Life
subtracted Lester's $1000 deductible and issued him a check for $2,685.18. On
December 20, 2004, Met Life sent a "1st Notice of Claim" to USAA requesting
$2,685.18.
[¶4.] Lester believed his damages were greater than those paid by Met Life.
He filed an action in small claims court against Weter and his insurer, USAA.
Weter removed the action to circuit court. After a settlement conference, Weter and
USAA agreed to settle Lester's claim for a total payment of $9,000. Because USAA
had received notice of claim for subrogation from Met Life, the settlement was
structured to address that subrogation claim. USAA agreed to deposit the amount
of the subrogation claim ($2,685.18) with the clerk of courts to be held for
distribution as ordered by the court. The remaining $6,314.82 was paid directly to
Lester. The circuit court reviewed the settlement agreement and entered a
judgment and order approving settlement and deposit with the clerk. This
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judgment and order specifically required Lester's attorney to serve notice of the
deposit upon Met Life. Lester's attorney provided that notice and Met Life filed its
objections. Met Life asserted that the circuit court did not have jurisdiction over it
because it was not a named party, but then requested the court disburse the entire
amount of the deposit to it. Lester responded by arguing that the funds had been
deposited with the court under SDCL 15-6-67 and SDCL ch 21-43 and suggested
that Met Life should move to intervene if it had concerns over not being a named
party.
[¶5.] On July 11, 2005, Weter was dismissed from the proceeding. Notice of
entry of that order was entered on July 13, 2005. No appeal of that order has been
filed. Weter is not participating in this appeal.
[¶6.] On July 11, 2005, the circuit court conducted a motion hearing in
which Lester and Met Life both participated through their attorneys. Met Life's
attorney made the first argument of the day. He squarely addressed the
substantive issue of subrogation. He did not claim that the court had no
jurisdiction over Met Life. In his responsive argument, Lester's attorney noted that
Met Life earlier claimed lack of jurisdiction. The circuit court suggested that the
parties agree to the jurisdiction of the court so that the merits could be addressed
and the matter resolved. Both parties agreed and no further argument regarding
jurisdiction was made to the court.
[¶7.] After listening to the positions of both parties, the circuit court ruled
from the bench explaining that this Court's ruling in Westfield Ins. Co. v. Rowe,
2001 SD 87, 631 NW2d 175, requires a review of the specific contractual or policy
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language to determine the intent of the parties. The circuit court concluded that
Met Life's policy language fell short of excluding application of the made whole
doctrine. The circuit court noted that Lester's claim for damage significantly
exceeded the amount paid by Met Life. That significant claim was accepted and
paid by USAA, Weter's insurer.
[¶8.] Lester submitted a proposed decision. Met Life filed objections. On
August 24, 2005, the circuit court signed a decision essentially identical to the
proposed decision. On that same day, the circuit court also entered a judgment
effectuating the decision. Lester provided Met Life with notice of entry of the
judgment on August 25, 2005. Met Life filed a notice of appeal on October 20, 2005.
ISSUE ONE
[¶9.] Did the circuit court have personal jurisdiction over Met Life?
[¶10.] At the hearing on July 11, 2005, the circuit court suggested that the
parties agree to submit to the jurisdiction of the court so that the matter could be
resolved. Met Life agreed and made no further arguments about lack of jurisdiction
until after the court ruled that the $2,685.18 belonged to Lester.
[¶11.] The circuit court clearly had subject matter jurisdiction under SDCL
15-6-67 and SDCL ch 21-43. A person may waive a lack of personal jurisdiction by
submitting to the jurisdiction of the court and pleading on the merits. In re Estate
of Green, 516 NW2d 326 (SD 1994); Union Bond & Mort. Co v. Brown, 64 SD 600,
269 NW 474 (1936). That is what occurred during the July 11, 2005, hearing. Met
Life will not be heard now to reassert a lack of personal jurisdiction after having
agreed to submit to the court's jurisdiction.
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ISSUE TWO
[¶12.] Did the circuit court correctly interpret the subrogation
language of Met Life's policy with Lester?
[¶13.] The right to subrogation is not new in South Dakota. A half century
ago, this Court stated: "It is a well settled rule of law that an insurer is entitled to
subrogation, either by contract or in equity for the amount of the indemnity paid."
Parker v. Hardy, 73 SD 247, 248, 41 NW2d 555, 556 (1950). Though frequently
repeated, that sentence is seldom parsed. Subrogation can arise out of two sources.
First, the parties can agree to create a contractual right of subrogation. This is
commonly done in insurance policies. Second, equity can require the creation of
subrogation based upon the circumstances, even without a contractual obligation. *
[¶14.] In Julson v. Federated Mut. Ins. Co., 1997 SD 43, ¶12, 562 NW2d 117,
121 this Court implicitly addressed this distinction between equitable subrogation
and contractual subrogation with the following language:
Federated's contract of insurance specifically provides for
Federated's right to subrogation after making full
payment to Julsons as required by its contract. It is
undisputed that there is no statement in the policy
requiring Julsons to be made whole before subrogation
may arise or at the time any settlement is made with any
third-party tortfeasors. Thus, there is no question of
material fact surrounding the policy language, and the
terms are construed according to their plain and ordinary
meaning. American Family Mut. Ins. Co. v. Elliot, 523
NW2d 100, 102-03 (SD 1994). The plain language of the
* For a good example of subrogation created by equity, see Application of Mach,
71 SD 460, 465, 25 NW2d 881, 883 (1947)("Subrogation has been defined by
this court as the mode which equity adopts to compel the ultimate discharge
of the debt by him who, in good conscience, ought to pay it, and to relieve him
whom none but the creditor could ask to pay. The right is not dependent upon
an agreement, but rests upon principles of natural justice and equity.") See
also, Buhl v. McDowell, 60 SD 22, 242 NW 638 (1932).
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policy permits Federated to subrogate, file an action, and
settle it after making full payment to Julsons.
[¶15.] In short, the language of the Julson insurance policy created a
contractual right to subrogation. The nature of the subrogation was governed by
the terms of that policy. There was no need to apply the principles of equitable
subrogation.
[¶16.] This Court continued that line of analysis in Westfield, 2001 SD 87 at
¶15, 631 NW2d at 180:
We recognized in Julson v. Federated Mut. Ins. Co., 1997
SD 43, ¶12, 562 NW2d 117, 121, that subrogation rights
may arise independent of the common law "made whole"
doctrine. In Julson, the insurance policy specifically
provided the right of subrogation, without any
requirement that the insured be made whole. Id.
Likewise, Westfield's policy provides:
If we make a payment under this policy and:
a. The person to or for whom payment was
made has a right to recover damages from
another, we shall be subrogated to that right
. . .
b. The person to or for whom payment is
made recovers damages from another, that
person shall: (1) hold in trust for us the
proceeds of the recovery and (2) reimburse us
to the extent of our payment.
Rowe can point to no language in the policy or statutory
authority which restricts this right of subrogation to
instances where the insured has been made whole.
Therefore, Westfield is entitled to reimbursement of the
$144,660.69 it paid to Rowe.
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[¶17.] Similarly, subrogation in this case is created and controlled by the
language of the insurance policy between Lester and Met Life. Met Life's
subrogation clause in Lester's policy read as follows:
You must do everything you can to preserve your rights of
recovery. When we have paid you for your damage or
injury, your right to recover from others who caused the
damage or injury will belong to us up to the amount we
have paid you for the damage or injury, so don't sign any
release without our permission.
[¶18.] The circuit court concluded that this language did not create a right to
subrogate in Met Life. This Court conducts a de novo review of the interpretation of
contractual language. Gloe v. Union Ins. Co, 2005 SD 30, 694 NW2d 252; Sawyer v.
Farm Mut. Ins. Co., 2000 SD 144, 619 NW2d 644. Although the language in Met
Life's policy is less legalistic than that in Westfield, it clearly and unequivocally
creates a right to subrogation. As in Westfield, Lester can "point to no language in
the policy or statutory authority which restricts this right of subrogation to
instances where the insured has been made whole." 2001 SD 87 at ¶15, 631 NW2d
at 180. The language of Lester's insurance policy clearly establishes contractual
subrogation and controls the nature and terms of that subrogation.
[¶19.] This is not a case of equitable subrogation. "A court of equity is not at
liberty to disregard the contract of the parties in this respect where deliberately
made and clearly expressed, for equity follows the law and will neither make a new
contract for the parties nor violate that into which they have freely and advisedly
entered." Heikkila v. Carver, 378 NW2d 214, 219 (SD 1985) (quoting Jesz v. Geigle,
319 NW2d 481, 483 (ND 1982)). The contract requires that Lester reimburse Met
Life for the $2,685.18 it advanced to him.
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[¶20.] Neither party to this action has requested that we reverse our rulings
in Julson and Westfield. We are well aware of the public policy arguments
advanced in Westfield Insurance Company, Inc. v. Rowe: The South Dakota
Supreme Court Rejects the Common Law Made Whole Doctrine on a Property
Insurance Subrogation Claim, 47 SDLRev 316 (2002). Any significant alteration in
the law of contractual subrogation as suggested in that article would be within the
province of the South Dakota Legislature. The South Dakota Legislature has not
done so in the years since Julson and Westfield were decided and that article was
published.
[¶21.] The circuit court is reversed and directed to enter a judgment
requiring Lester to pay $2,685.18 to Met Life.
[¶22.] GILBERTSON, Chief Justice and KONENKAMP and ZINTER,
Justices, concur.
[¶23.] MEIERHENRY, Justice, concurs in part and dissents in part.
[¶24.] MYREN, Circuit Judge, for SABERS, Justice, disqualified.
MEIERHENRY, Justice (concurring in part and dissenting in part).
[¶25.] I agree that Met Life waived the issue of personal jurisdiction. I
disagree, however, that the circuit court erred when it denied subrogation.
[¶26.] As we have stated, "[i]t is a well settled rule of law that an insurer is
entitled to subrogation, either by contract or in equity for the amount of the
indemnity paid." Parker v. Hardy, 73 SD 247, 248, 41 NW2d 555, 556 (1950). Even
though subrogation may be provided by contract, the concept of subrogation
originated in equity. We have explained, "'[s]ubrogation is an equitable doctrine
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and depends upon a just resolution of a dispute under a particular set of facts.'"
Julson v. Federated Mut. Ins. Co., 1997 SD 43, ¶8, 562 NW2d 117, 120 (citation
omitted). Therefore, even if an insured's right of subrogation arises from contract,
we cannot ignore the equitable origin of that right.
[¶27.] Because of its origin in equity, subrogation is subject to the principles
of equity. As the Nebraska Supreme Court explained:
It is well established that in the absence of an express
provision to the contrary, an insurance policy reaffirms
the rights of parties relative to subrogation but does not
alter the fundamental principles pertaining to
subrogation. Therefore, if a contractual right of
subrogation is merely the usual equitable right which
would have existed in any event in the absence of a
contract, equitable principles control subrogation.
Cont'l W. Ins. Co. v. Swartzendruber, 253 Neb 365, 370, 570 NW2d 708, 711 (1997)
(citations omitted) (emphasis added). One principle to which subrogation is subject
is the "made whole" doctrine, which states that an insured's right to subrogation
arises only when the insured receives compensation for all of the loss it incurred.
See id. at 371, 570 NW2d at 712 ("Under principles of equity, an insurer is entitled
to subrogation only when the insured has received, or would receive, a double
payment by virtue of an insured's recovering payment of all or part of those same
damages from the tort-feasor."). Therefore, a subrogation clause in an insurance
contract does not necessarily preclude application of the "made whole" doctrine.
[¶28.] Our cases, however, have not recognized these generally accepted
principles of equity. See Westfield Ins. Co. v. Rowe, 2001 SD 87, 631 NW2d 175;
Julson, 1997 SD 43, 562 NW2d at 117. In fact, a prominent insurance law
commentator deemed our decision in Julson "authority to the contrary" of the
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general rule that an insurer is entitled to subrogation only after an insured has
been made whole. 16 Lee R. Russ & Thomas F. Segalla, Couch on Insurance §
223:134 (3d ed 2000). Both Westfield and Julson refused to invoke the "made
whole" doctrine because no contractual provision required that the insured be made
whole before the insurer sought subrogation. For example, the provision at issue in
Westfield stated:
"If we make a payment under this policy and:
a. The person to or for whom payment was made has a
right to recover damages from another, we shall be
subrogated to that right ...
b. The person to or for whom payment is made recovers
damages from another, that person shall: (1) hold in trust
for us the proceeds of the recovery and (2) reimburse us to
the extent of our payment."
2001 SD 87, ¶15, 631 NW2d at 180. The Court concluded that because the insured
could "point to no language in the policy or statutory authority which restricts this
right of subrogation to instances where the insured has been made whole,"
subrogation was appropriate. Id.
[¶29.] This case, however, presents a situation ripe for application of the
"made whole" rule. The contract provision at issue here merely restates the
equitable principle of subrogation; it benefits neither the insurer nor the insured.
As Met Life stresses, the provision does not condition its right to subrogation on the
insureds being made whole. Cf. Julson, 1997 SD 43, ¶12, 562 NW2d at 121 ("It is
undisputed that there is no statement in the policy requiring [insureds] to be made
whole before subrogation may arise"). On the other hand, neither does the
provision give Met Life's subrogation right priority over Lester regarding damages
recovered from Weter. There is no language requiring payments to be "held in
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trust," and there is no language precluding the application of the "made whole"
doctrine.
[¶30.] Because the contract provision does not unambiguously abrogate the
doctrine, the generally accepted, based-in-equity "made whole" doctrine should
apply. Therefore, in the absence of an express limitation, the circuit court correctly
concluded that the provision "is a little short." The "made whole" doctrine precludes
Met Life from seeking subrogation until Lester has received full compensation for
his damages.
[¶31.] The "made whole" doctrine is based on the theory that "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." DeTienne
Assocs. Ltd. P'ship. v. Farmers Union Mut Ins. Co., 266 Mont 184, 190, 879 P2d
704, 708 (1994); see also Julson, 1997 SD 43, ¶10, 562 NW2d at 121 (quoting a New
York Court of Appeals case stated that "[t]he ['made whole'] rule is based upon the
nature of the relationship between the insurer and the insured—if the loss of one of
the two must go unsatisfied, it should be the insurer who has been paid to assume
the risk of loss."). This logic is especially relevant here, in light of our well-settled
rule of liberal construction in favor of the insured. See Culhane v. W. Nat'l. Mut.
Ins. Co., 2005 SD 97, ¶19, 704 NW2d 287, 293. Because the contract is silent
regarding the "made whole" doctrine, we should construe it in favor of Lester. The
majority's decision does the opposite.
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[¶32.] More important, in the absence of a subrogation clause, this Court
would undoubtedly allow an insurer to subrogate based on the equitable principles
of subrogation. In the absence of specific language to the contrary, the insured
should also be allowed to invoke the equitable principles of subrogation—in this
case, the "made whole" doctrine. The principle of fairness inherent in equity should
run to both the insurer and the insured.
[¶33.] For these reasons, I would affirm the trial court.
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