Title: Imperial Cas. & Indem. v. General Cas. Co.
Citation: 458 N.W.2d 335
Docket Number: 900071
State: north-dakota
Issuer: north-dakota Supreme Court
Date: July 3, 1990

458 N.W.2d 335 (1990) IMPERIAL CASUALTY &amp; INDEMNITY COMPANY, Plaintiff and Appellant, v. GENERAL CASUALTY COMPANY OF WISCONSIN, Defendant and Appellee. Civ. No. 900071. Supreme Court of North Dakota. July 3, 1990. Zuger, Kirmis, Bolinske &amp; Smith, Bismarck, for plaintiff and appellant; argued by Thomas O. Smith, Bismarck. Bucklin Trial Lawyers, P.C., Bismarck, for defendant and appellee; argued by Clark J. Bormann, Bismarck. VANDE WALLE, Justice. Imperial Casualty &amp; Indemnity Company (Imperial) sued General Casualty Company of Wisconsin (General) for reimbursement of no-fault benefits Imperial paid to its insured, Anthony Kulig. The parties filed cross motions for summary judgment. The district court entered a summary judgment *336 of dismissal from which Imperial has taken this appeal. For the reasons stated in this opinion we amend the judgment, and as amended, we affirm. The parties have stipulated to the facts. On June 28, 1985, Anthony Kulig and Carolyn Tinjum were driving vehicles that collided at an intersection in Grand Forks, and as a result of the accident Kulig sustained serious bodily injury. Kulig's vehicle was insured by Imperial and Tinjum's vehicle was insured by General. Kulig had optional excess no-fault benefits of $25,000 in addition to the $15,000 basic benefits required by statute. Tinjum's insurance policy included liability coverage of $100,000 per person and $300,000 per accident. During the ensuing months Imperial paid no-fault insurance benefits to Kulig for economic loss totaling $40,000. Imperial notified General that it had made these payments and that it was seeking reimbursement from General. Kulig and his wife, Mary, who was a passenger in his car at the time of the accident, sued Tinjum for damages sustained in the motor vehicle accident. The lawsuit was ultimately settled. The Kuligs received $37,500 from General in settlement of their claims against Tinjum, and executed a release expressly discharging Tinjum and General from any further claims relating to the accident. Imperial was not a party to the settlement nor was it given prior notice of the settlement. General notified Imperial in writing of its position regarding Imperial's request for reimbursement of no-fault benefits. General agreed that Imperial has a right of reimbursement for basic no-fault benefits up to a maximum of $15,000 "subject to either litigation or arbitration regarding the reasonableness and the necessity of those payments." General's position was that Imperial only had a right of subrogation to recover the $25,000 of optional excess no-fault benefits paid to Kulig, to the extent of Kulig's right to recover against a responsible third party. General stated that because Kulig had executed a release in favor of Tinjum and General, Imperial must seek reimbursement, if at all, against Kulig, its insured, from the $37,500 settlement. Imperial filed this action against General for reimbursement of the entire $40,000 of no-fault benefits Imperial had paid to Kulig. On cross motions for summary judgment the trial court agreed with General that under North Dakota law Imperial must arbitrate with General for reimbursement of the $15,000 basic no-fault benefits. The court also determined that the Kuligs' release "exonerated" General from further liability and that Imperial's subrogation claim against General for the $25,000 of optional excess no-fault benefits "died also." The trial court entered a summary judgment dismissing, on its merits, Imperial's claim against General, from which Imperial has taken this appeal. Imperial asserts on appeal that under Chapter 26-41, N.D.C.C.,[1] the North Dakota Auto Accident Reparations Act, Imperial is entitled to reimbursement from General of the $40,000 in no-fault benefits that Imperial paid to Kulig. "Basic no-fault benefits" are defined as benefits for economic loss resulting from accidental bodily injury and are limited to $15,000 per person for any one accident. Section 26-41-03, N.D.C.C. A basic no-fault insurer of a secured motor vehicle must pay no-fault benefits, without regard to fault, for economic loss resulting from accidental bodily injury to persons occupying the insured motor vehicle. Section 26-41-07, N.D.C.C. Under Section 26-41-03, N.D.C.C., a "secured motor vehicle" is a vehicle which, at the time of the accident, is insured as required by the chapter and a "secured person" is the owner, operator, or occupant of a secured motor vehicle. By those definitions *337 Tinjum was a secured person at the time her vehicle collided with Kulig's vehicle. For basic no-fault benefits paid to an injured person, an insurer is subrogated to the rights of the injured person against a defendant tortfeasor "other than a secured person." Section 26-41-13, N.D.C.C. A secured person is exempt from liability to pay damages for economic loss to the extent that the injured person receives basic no-fault benefits. Section 26-41-12, N.D.C.C.; Moser v. Wilhelm, 300 N.W.2d 840 (N.D.1980). These statutory provisions are clear and unambiguous. With regard to basic no-fault benefits (no-fault benefits up to $15,000), a tortfeasor whose vehicle carries the required insurance is exempt from liability to pay for the injured person's economic loss which is covered by basic no-fault benefits. The insurer who has paid basic no-fault benefits to the injured person has no right of subrogation against a tortfeasor who is a secured person. That insurer's right to recover basic no-fault benefits paid to the injured person is limited to the terms and conditions set forth under Section 26-41-14, N.D.C.C.: It is undisputed that Anthony Kulig sustained serious injury in the accident.[2] Consequently, it appears that Imperial has a right to recover from General the amount of basic no-fault benefits Imperial paid to Kulig. The statute unambiguously provides, however, that both the right of recovery and the amount of recovery must be determined between the no-fault insurers and, absent agreement, by binding intercompany arbitration. Imperial must pursue reimbursement for its basic no-fault payments through arbitration.[3] In its action against General, Imperial also sought reimbursement for the $25,000 of optional excess no-fault benefits that it paid to Kulig. The relevant statutory provision is Section 26-41-06, N.D. C.C.: *338 The Kuligs' insurance policy with Imperial, which provided optional excess no-fault benefit coverage, contained a subrogation clause in favor of Imperial for benefits paid under the policy. Imperial had a contractual right of subrogation, for the $25,000 of optional excess no-fault benefits paid to Kulig. Under general subrogation principles, when the Kuligs settled their tort action against Tinjum and executed a release exempting Tinjum and General from further liability associated with the accident, Imperial's subrogation rights were extinguished. See Farmers Insurance Exchange v. Arlt, 61 N.W.2d 429 (N.D.1953); see also State Farm Mutual Automobile Insurance Company v. Lou, 36 Wash. App. 838, 678 P.2d 339 (1984); Amica Mutual Insurance Company v. Barton, 1 Conn. App. 569, 474 A.2d 104 (1984). Several jurisdictions recognize an exception to this general principle. They have held that when a tortfeasor or the tortfeasor's liability insurer, with notice of the subrogation claim of the injured party's insurer, procures a general release by settling with the injured person in the absence of that person's insurance company, the release will not affect the subrogation rights of the injured party's insurance company. Leader National Insurance Company v. Torres, 113 Wash. 2d 366, 779 P.2d 722 (1989); Dickhans v. Missouri Property Insurance Placement Facility, 705 S.W.2d 104 (Mo.App.1986); Home Insurance Company v. Hertz Corp., 71 Ill. 2d 210, 16 Ill. Dec. 484, 375 N.E.2d 115 (1978); Travelers Indemnity Company v. Vaccari, 310 Minn. 97, 245 N.W.2d 844 (1976). In explaining the rationale for this rule the Missouri Court of Appeals states in Dickhans, supra: The Supreme Court of Minnesota in Travelers, supra, explains its rationale for applying the rule: In Inter Insurance Exchange of Chicago Motor Club v. Andersen, 331 Ill.App. 250, 73 N.E.2d 12 (1947), the Illinois Court of Appeals held that a release given by the injured party to the defendant tortfeasor, who had knowledge of the injured party's insurance company's subrogation claim, prevented the insurer from enforcing its subrogation rights against the tortfeasor. Three decades later the Supreme Court of Illinois in the Hertz, supra, decision rejected Andersen and persuasively stated its reasons for doing so: Tinjum and her insurer, General, were expressly notified by Imperial prior to their settlement with the Kuligs that Imperial had a right of subrogation which it fully intended to exercise. Furthermore, prior to the settlement, the Kuligs' attorney and Tinjum's attorney agreed that no evidence would be introduced of damages for which Kulig had received no-fault benefits. There is no indication in the record that any part of the $37,500 the Kuligs received in settlement of their action against Tinjum was paid to the Kuligs for purposes of reimbursing Imperial for the excess no-fault benefits it had paid to the Kuligs. Also, the settlement in this case did not exhaust the limits of Tinjum's liability insurance policy with General. Under these circumstances, we hold that the release executed by the Kuligs did not extinguish Imperial's right of subrogation against Tinjum for the excess no-fault benefits Imperial paid to Kulig. Furthermore, the release did not absolve General of its obligations as Tinjum's insurer with regard to Imperial's subrogation claim. In accordance with Section 26-41-06, N.D.C.C., Imperial is contractually subrogated to its insured's right of recovery against "any responsible third party." However, Imperial filed this action against General, rather than Tinjum, the alleged tortfeasor and "responsible third party" for the Kuligs' damages. General's liability is contingent upon the liability of Tinjum, its insured. Consequently, we affirm the district court's dismissal of Imperial's action against General, but amend the judgment to provide that it is without prejudice to Imperial's right to bring an action against Tinjum to pursue its right of subrogation to recover the excess no-fault benefit payments. Judgment amended, and, as amended, affirmed. ERICKSTAD, C.J., and GIERKE, LEVINE and MESCHKE, JJ., concur. [1] The motor vehicle accident in this case occurred on June 28, 1985. At that time North Dakota's no-fault insurance law was codified under Chapter 26-41, N.D.C.C., and all references in this opinion are to the provisions under that chapter as they existed on the day of the accident. During the 1985 legislative session, the no-fault law was recodified under Chapter 26.1-41, N.D.C.C. [2] Under Section 26-41-03, N.D.C.C., serious injury is defined, in part, as injury which results in medical expenses in excess of one thousand dollars. [3] Imperial argues that if litigation is pursued to recover excess optional no-fault benefit payments, then reimbursement for basic no-fault benefits should be determined in the same litigation. This is a policy argument which must be directed to the Legislature.