Title: SKAUGE v MOUNTAIN STATES TEL TE
Citation: N/A
Docket Number: 13371
State: Montana
Issuer: Montana Supreme Court
Date: May 31, 1977

No. 13371 I N T H E SUPREME C O U R T O F T H E STATE O F MONTANA 1977 J O H N A. S K A U G E and LINDA SKAUGE, P l a i n t i f f s and Appellants, M O U N T A I N STATES TELEPHONE AND TELEGRAPH C O M P A N Y and M O N T A N A - D A K O T A UTILITIES C O M P A N Y , Defendants and Respondents, M O N T A N A - D A K O T A UTILITIES C O M P A N Y , Third-Party P l a i n t i f f , JOHN A. S K A U G E and LINDA SKAUGE, and UNIGARD INSURANCE GROUP, Third-Party Defendants. Appeal from: D i s t r i c t Court of t h e T h i r t e e n t h J u d i c i a l District, Honorable Charles Luedke, Judge p r e s i d i n g . Counsel of Record: For Appellants: Cate, Lynaugh, F i t z g e r a l d & Huss, B i l l i n g s , Montana William F i t z g e r a l d argued, B i l l i n g s , Montana For Respondents : Hooks and Sherlock, Townsend, Montana J e f f r e y Sherlock argued, Townsend, Montana Hughes, Bennett and Cain, Helena, Montana Crowley, Haughey, Hanson, Gallagher and Toole, B i l l i n g s , Montana Submitted: March 18, 1977 Decided : ' y F i l e d : - z m - M r . Chief J u s t i c e Paul G. H a t f i e l d d e l i v e r e d t h e Opinion of t h e Court. O n September 1 0 , 1973 t h e rented home of John and Linda Skauge i n B i l l i n g s , Montana was destroyed by an explosion and f i r e which consumed a l l of t h e i r personal possessions. The Skauges had a f i r e insurance policy with Uniguard Insurance Group (Uniguard), which insured t h e Skauges' personal property t o t h e e x t e n t of $4,000 p l u s $400 f o r i n c i d e n t a l l i v i n g expenses i n case of l o s s . This p o l i c y contained t h e following provision: "Subrogation: This Company may r e q u i r e from t h e insured an assignment of a l l r i g h t of recovery a g a i n s t any p a r t y f o r l o s s t o t h e e x t e n t t h a t payment t h e r e f o r e i s made by t h i s Company. " A f t e r determining t h a t t h e l o s s exceeded t h e policy l i m i t s , Joseph Tobin, a c t i n g a s a d j u s t e r f o r Uniguard, delivered a d r a f t f o r $4,328.98 t o p l a i n t i f f s ' a t t o r n e y , together with a proof of l o s s form t o be signed by Skauges. P l a i n t i f f s ' a t t o r n e y s e n t t h e d r a f t and t h e proof of l o s s t o t h e Skauges. The Skauges then returned t h e proof of l o s s t o t h e i r a t t o r n e y with a r e q u e s t t h a t he r e s e r v e subrogation r i g h t s i n t h e Skauges. The proof of l o s s was subsequently returned t o t h e Skauges with t h e language grant- ing subrogation t o Uniguard s t r u c k o u t , and i n s e r t e d t h e words: "The r i g h t t o sue t o r t - f e a s o r s i s reserved t o t h e insured." The Skauges subsequently signed t h e proof of l o s s and cashed t h e d r a f t . The proof of l o s s was never d e l i v e r e d t o Uniguard. O n February 1 4 , 1974, t h e Skauges f i l e d a complaint a l l e g i n g t h a t Mountain B e l l Telephone and Telegraph Company (Mountain B e l l ) and Montana Dakota U t i l i t i e s Company (MDU) neg- l i g e n t l y caused t h e explosion and f i r e which destroyed t h e i r personal possessions and sought $11,267.32 a s t h e t o t a l amount of t h e i r l o s s . W e note t h a t t h i s a c t i o n was commenced by t h e Skauges through r e t a i n e d counsel, and a t t h i s s t a g e Uniguard was i n no way involved i n t h i s l i t i g a t i o n . M r . Tobin t e s t i f i e d t h a t he learned of t h i s l i t i g a t i o n on June 6 , 1974, and t h e r e a f t e r informed Uniguard. Then on September 27, 1974 MDU f i l e d a t h i r d p a r t y complaint a g a i n s t Skauges and Uniguard, a l l e g i n g Uniguard's r i g h t of subrogation, and requesting t h e d i s t r i c t c o u r t t o a s c e r t a i n who was e n t i t l e d t o any damages f o r which MDU might eventually be held l i a b l e . Thereafter, Uniguard f i r s t appeared i n t h i s l i t i g a t i o n on December 2 4 , 1974 by f i l i n g a motion t o dismiss i n response t o M D U ' s t h i r d p a r t y complaint. The subrogation i s s u e w a s eventually severed from t h e Skauges' o r i g i n a l t o r t a c t i o n and t r i e d separately. The o r i g i n a l t o r t a c t i o n w a s continued, pending t h e outcome of t h e subrogation issue. The d i s t r i c t c o u r t , s i t t i n g without a jury, made a finding of f a c t t h a t Joseph Tobin and p l a i n t i f f s ' a t t o r n e y had not come t o an a c t u a l meeting of t h e minds as t o t h e r i g h t of subrogation. Consequently, t h e d i s t r i c t c o u r t concluded t h a t Uniguard was e n t i t l e d t o be subrogated t o t h e e x t e n t of its payment t o Skauges, t h a t such r i g h t was not waived by Uniguard, nor w a s it subject t o any l i m i t a t i o n i n amount. Neither p a r t y c o n t e s t s t h e d i s t r i c t c o u r t ' s findings of f a c t , however t h e Skauges o b j e c t t o t h e above mentioned conclusion of law. The Skauges have r a i s e d t h r e e i s s u e s , and have pled them i n t h e a l t e r n a t i v e : 1) Whether o r not Uniguard is e n t i t l e d t o subrogation absent a w r i t t e n assignment by t h e Skauges? 2) I f so, i s Uniguard's subrogation limited t o t h e portion of t h e Skauges' recovery from MDU and Mountain Bell which exceeds the sum of t h e Skauges' t o t a l l o s s and t h e i r c o s t s of recovery, including a t t o r n e y ' s fees? and 3 ) Did Uniguard waive any r i g h t of subrogation it may have had by remaining i n a c t i v e i n t h e Skauge's lawsuit? Subrogation i s a device of equity which i s designed t o compel t h e u l t i m a t e payment of a debt by t h e one who i n j u s t i c e , equity and good conscience should pay it. Bower v. Tebbs, 132 Mont. 146, 314 P.2d 731. A property i n s u r e r who has indemnified t h e insured is u s u a l l y subrogated t o any r i g h t s t h e insured may have a g a i n s t t h e t h i r d p a r t y who i s responsible f o r t h e l o s s . The theory behind t h i s p r i n c i p l e i s t h a t absent repayment of t h e i n s u r e r t h e insured would be u n j u s t l y enriched by v i r t u e of re- covery from both t h e i n s u r e r and t h e wrongdoer, o r i n absence of such double recovery by t h e insured, t h e t h i r d p a r t y would go f r e e d e s p i t e h i s l e g a l o b l i g a t i o n i n connection with l o s s . 16 Couch on Insurance 2d, Subrogation S61.18; Standard A c c . I n s . Co. v. Pellecchia, 15 N . J . 162, 1 0 4 A.2d 288; F i d e l i t y & C a s . Co. of N.Y. v. F i r s t Nat. Bank i n F t . L e e , 397 F.Supp. 587. Subrogation i s c l a s s i f i e d a s l e g a l o r conventional; l e g a l subrogation a r i s e s by operation of law, upon t h e f a c t of payment made by t h e i n s u r e r ; whereas conventional subrogation a r i s e s by t h e c o n t r a c t of t h e p a r t i e s . 16 Couch on Insurance 2d, Subrogation S61.2; Kroeker v. S t a t e Farm Mutual Automobile Ins. Co., (Mo.App. 1971) 466 S.W.2d 105. Furthermore, t h e p a r t i e s may by agreement waive o r l i m i t subrogation. F i r e Ass'n of Philadelphia v. Schellenger, 84 N.J.E. 464, 94 A. 615; Home Insurance Co. v. Hartshorn, 128 M i s s . 282, 91 So. 1; Merchants F i r e Assur. Corporation of New York v. H a m i l - t o n Co., 76 R.I. 294, 69 A.2d 551; Hardware Mut. I n s . Co. v. Dunwoody, 194 F.2d 666. The Skauges have c i t e d t h e s e l a t t e r four c a s e s and have contended t h a t t h e insurance policy made Uniguard's r i g h t of subrogation conditional upon a w r i t t e n assignment from t h e Skauges. However, t h e cases c i t e d by t h e Skauges a r e e a s i l y d i s t i n g u i s h e d by a comparison of t h e p o l i c y provisions involved. I n each of t h e f o u r c a s e s c i t e d above t h e policy provision i n question s t a t e d : "Subrogation. I f t h i s company s h a l l c l a i m t h a t t h e f i r e w a s caused by t h e a c t o r neglect of any person o r corporation, t h i s company s h a l l , on payment of t h e l o s s be subrogated t o t h e e x t e n t of such payment t o a l l r i g h t of recovery by t h e insured f o r t h e l o s s r e s u l t i n g therefrom, and such r i g h t s h a l l be assigned t o t h i s company by t h e insured on receiving such payment." (Emphasis supplied. ) O n t h e o t h e r hand, t h e policy provision i n t h e present case s t a t e s : "This Company may r e q u i r e from t h e insured an assignment of r i g h t of recovery a g a i n s t a n y p a r t y f o r l o s s t o t h e e x t e n t t h a t payment t h e r e f o r e - - is made by t h i s Company." (Emphasis supplied.) This provision contains no c o n d i t i o n a l language, nor does it s p e c i f i c a l l y r e f e r t o "subrogation" a s does t h e policy language i n t h e o t h e r cases. I n a d d i t i o n t o t h i s t h e r e e x i s t s t h e l e g a l d i s t i n c t i o n between an "assignment" and "subrogation". A s s t a t e d i n 16 Couch on Insurance 2d, Subrogation, S61.92, supra: "Subrogation i s t h e s u b s t i t u t i o n of another person i n t h e place of t h e c r e d i t o r , so t h a t t h e person s u b s t i t u t e d w i l l succeed t o t h e r i g h t s of t h e c r e d i t o r i n r e l a t i o n t o t h e d e b t o r claim, and is an a c t of t h e l a w growing o u t of t h e r e l a t i o n of t h e p a r t i e s t o t h e o r i g i n a l c o n t r a c t of insurance, and t h e n a t u r a l j u s t i c e o r e q u i t i e s a r i s i n g from t h e f a c t t h a t t h e i n s u r e r has paid t h e insured, r a t h e r than a r i g h t depending upon t h e c o n t r a c t . O n t h e o t h e r hand, an assignment of a r i g h t o r c l a i m i s t h e a c t of t h e p a r t i e s t o t h e assignment, dependent upon a c t u a l i n t e n t i o n , and n e c e s s a r i l y contemplating t h e continued e x i s t e n c e of t h e d e b t o r claim, t h e whole of which i s assigned. "Subrogation presupposes an a c t u a l payment and s a t i s f a c t i o n of a d e b t o r claim t o which t h e p a r t y paying i s subrogated, although t h e remedy is kept a l i v e i n equity f o r t h e b e n e f i t of t h e payor, while t h e assignment n e c e s s a r i l y contemplates continued e x i s t e n c e of t h e d e b t o r claim assigned." A f u r t h e r d i s t i n c t i o n i s found i n Kroeker v. S t a t e Farm Mutual Automobile I n s . Co., supra, p. 110: "When t h e r e i s a n assignment of an e n t i r e claim t h e r e i s a complete divestment of a l l r i g h t s from t h e assignor and a v e s t i n g of those same r i g h t s i n t h e assignee. I n t h e case of subrogation, however, only an e q u i t a b l e r i g h t passes t o t h e subrogee and t h e l e g a l t i t l e t o t h e claim i s never removed from t h e subrogor, but remains with him throughout." Therefore, w e conclude t h a t an express assignment of t h e c l a i m t o Uniguard was unnecessary, s i n c e l e g a l subrogation a r o s e from t h e f a c t of payment, and t h i s w a s n o t waived o r made conditional by agreement of t h e p a r t i e s . A s f o r t h e second i s s u e , t h e Skauges contend t h a t when t h e payment of p o l i c y l i m i t s i s less than t h e a c t u a l l o s s , t h e i n s u r e r cannot a s s e r t a r i g h t of subrogation u n t i l t h e insured has f u l l y recovered h i s l o s s , p l u s t h e c o s t s of recovery, in- cluding a t t o r n e y ' s f e e s . Uniguard argues t h a t such a r u l e i s a p p l i c a b l e , i f a t a l l , when t h e i n s u r e r is seeking reimburse- ment from an insured, who has recovered h i s l o s s from t h e t o r t - f e a s o r , and not when t h e i n s u r e r seeks t o recover from t h e t o r t f e a s o r . There i s a u t h o r i t y f o r t h e r u l e r e l i e d upon by t h e Skauges, with some j u r i s d i c t i o n s upholding Uniguard's p o s i t i o n t h a t t h e r u l e only a p p l i e s when t h e insured is s o l e l y responsible f o r t h e recovery from t h e t o r t f e a s o r , whereas o t h e r j u r i s d i c t i o n s do n o t make t h i s d i s t i n c t i o n . A n example of t h e f i r s t form of t h e r u l e is found i n United Services Automobile Association v. H i l l s , 172 Neb. 128, 109 N.W.2d 174, 2 ALR3d 1422, 1428: " ' * * * Where t h e assured, a s i n case of p a r t i a l insurance, s u s t a i n s a l o s s , i n excess of t h e reimbursement o r compensation by t h e underwriter, he has an undoubted r i g h t t o have it s a t i s f i e d by a c t i o n a g a i n s t t h e wrong-doer. But i f , by such a c t i o n , t h e r e comes i n t o h i s hands, any sum f o r which, i n e q u i t y and good conscience, he ought t o account t o t h e under- w r i t e r , reimbursement w i l l , t o t h a t e x t e n t , be compelled i n an a c t i o n by t h e latter, based on h i s r i g h t i n equity t o subrogation. But t h e assured w i l l not, i n t h e forum of conscience, be required t o account f o r more than t h e surplus, which may remain i n h i s hands, a f t e r s a t i s f y i n g h i s own excess of l o s s i n f u l l , and h i s reasonable expenses incurred i n its recovery; unless t h e underwriter s h a l l , on n o t i c e and opportunity given, have contributed t o , and made common cause with him, i n t h e prosecution.'" See a l s o Krause v. S t a t e Farm Mutual Automobile Ins. Co., 184 Neb. 588, 169 N.W.2d 601; S t . Paul F i r e & Marine Ins. Co. v. W. P. Rose Supply Co., 19 N.C.App. 302, 198 S.E.2d 482. How- ever, o t h e r j u r i s d i c t i o n s have not l i m i t e d t h i s r u l e t o re- covery by t h e i n s u r e r a g a i n s t t h e insured, as evidenced by 67 N.J.Super. 475, Providence Washington Ins. Co. v. Hogges,/l71 A.2d 120, 124: " * * * I n t h e absence of express t e r m s i n t h e c o n t r a c t t o t h e contrary, he (insured) must be made o r kept whole before t h e i n s u r e r may recover anything from him o r from a t h i r d p a r t y under its r i g h t of subrogation." (Emphasis supplied.) Utah a l s o agrees with t h i s view. Lyon v. Hartford Accident and Indemnity Company, 25 Utah28 31(, 480 P.2d 739; Transamerica Insurance Company v. Barnes, 29 Utah2d 1 0 1 , 505 P.2d 783. The b a s i c r a t i o n a l e f o r t h i s r u l e , i n e i t h e r of t h e two c a t e g o r i e s , i s b e s t s t a t e d i n S t . Paul F i r e & Marine Ins. Co. v. W. P. Rose Supply Co., supra a t 484: " * * * When t h e sum recovered by t h e Insured from t h e Tort-feasor is less than t h e t o t a l l o s s and t h u s e i t h e r t h e Insured o r t h e I n s u r e r must t o some e x t e n t go unpaid, t h e l o s s should be borne by t h e i n s u r e r f o r t h a t is a r i s k t h e insured has paid it t o assume." (Emphasis supplied.) Again w e note, t h e d o c t r i n e of l e g a l subrogation i s applied t o subserve t h e ends of j u s t i c e and t o do e q u i t y i n t h e p a r t i c u l a r c a s e under consideration. Bower v. Tebbs, supra. For t h e s e reasons we adopt t h e view t h a t when t h e insured has sustained a l o s s i n excess of t h e reimbursement by t h e i n s u r e r , t h e insured i s e n t i t l e d t o be made whole f o r h i s e n t i r e l o s s and any c o s t s of recovery, including a t t o r n e y ' s f e e s , before t h e i n s u r e r can a s s e r t i t s r i g h t of l e g a l subrogation a g a i n s t t h e insured o r t h e t o r t f e a s o r . Examining t h e f a c t s of t h i s case, we f i n d t h i s r u l e should be applied t o t h e c l a i m of t h e Skauges. Uniguard d i d n o t volun- t a r i l y seek t o a s s i s t t h e Skauges i n t h e i r s u i t , a s a l l e g e d by Uniguard. The d i s t r i c t c o u r t f i l e r e v e a l s t h a t t h e Skauges f i l e d t h e complaint a g a i n s t MDU and Mountain B e l l on February 1 4 , 1974. M r . Tobin t e s t i f i e d t h a t he knew of t h i s l i t i g a t i o n a s e a r l y a s June 6 , 1974, and t h e r e a f t e r informed Uniguard. However, Uni- guard d i d not appear i n t h e l i t i g a t i o n u n t i l December 2 4 , 1974, and t h i s w a s done i n v o l u n t a r i l y i n response t o M D U ' s t h i r d p a r t y complaint. A t t h i s s t a g e , discovery and i n v e s t i g a t i o n w a s s u b s t a n t i a l l y completed by t h e Skauges through r e t a i n e d counsel. Although Uniguard a l l e g e d a t o r a l argument t h a t Skauges w e r e r e l u c t a n t t o allow them t o join i n t h e s u i t , Uniguard made no attempt t o intervene pursuant t o Rule 2 4 , M.R.Civ.P. It appears t h a t Uniguard would have contentedly remained on t h e s i d e l i n e s u n t i l t h e conclusion of t h i s l i t i g a t i o n i f not forced i n t o t h e s u i t by MDU. W e note, a l s o , t h a t i n applying t h i s r u l e t h e Skauges w i l l not be u n j u s t l y enriched by v i r t u e of recovery from Uniguard and t h e t o r t f e a s o r s , nor would t h e t o r t f e a s o r s be r e l i e v e d of t h e i r l e g a l o b l i g a t i o n f o r t h e l o s s , i f found l i a b l e i n t h e d i s - t r i c t c o u r t . Since t h e t h i r d i s s u e of waiver by Uniguard has been @re- sented i n t h e a l t e r n a t i v e , it was not f u l l y l i t i g a t e d i n t h e d i s t r i c t c o u r t . W e have held t h a t t h e Skauges be made whole be- f o r e Uniguard may a s s e r t i t s l e g a l subrogation and we d e c l i n e t o address t h a t i s s u e . This cause is reversed and remanded t o t h e d i s t r i c t c o u r t with i n s t r u c t i o n s t o e n t e r Chief J u s t i c e W e concur: J u s t i c e s - 8 -