No. 93-624 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

DeTIENNE ASSOCIATES LIMITED 

PARTNERSHIP and PARK PLAZA HOTEL, INC. . . 

plaintiffs and Respondents, 

-vFARMERS 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 subzero 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. 

FUMI 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 FUMI 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 FUMI who filed to intervene in 

Park Plaza's action for excess damages against MRL. 

Thus, regardless of the simultaneous judgments to FUMI 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, FUMI. 

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 prejudgment 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