Opinion ID: 1723196
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Heading: the doctrine of subrogation under common law

Text: Subrogation is the rule of law which allows a party under a legal obligation to satisfy the debt of another and acquire the rights of the creditor against the debtor. National Surety Corp. v. First Nat. Bank, 278 Ky. 273, 128 S.W.2d 766 (1939). The requisites for subrogation are usually described as (1) payment by one of a debt of another; (2) subrogee is not a volunteer; (3) the debt is not one for which the subrogee is primarily liable; (4) the entire debt must be paid unless the others who made payment are joined; and (5) subrogation must not work any injustice to the rights of others. Bryan v. Henderson Elec. Co., Ky.App., 566 S.W.2d 823, 825 (1978). The appellants, Globe, Motorist and Aetna, each have a right of subrogation. This right permits each to be placed in the position of its insured in order to pursue recovery for the payments each was obligated to pay its insured. The issue before us is not whether the right of subrogation exists, rather it is when does this right arise? In a world of limited resources, who has priority in its claim, the uninsured motorist carriers or its insured who sustained damages in excess of those benefits received from the carrier? In Williston on Contracts, Section 1269, (Third Ed.1967) the author states: The surety's right of subrogation does not arise ordinarily until the debt is paid in full. A partial payment of the debt, even though it may be the full amount for which the surety has bound himself, will not entitle him to subrogation to the creditor's rights and securities. And at Section 1273: There is no equity on which to base the deprivation of the creditor of any of his legal rights for the benefit of the surety until he has been paid in full. In the absence of relevant statutory law or contractual obligations between the parties, the answer to when the right of subrogation arises is rooted in equity. In order to achieve natural justice we look to the purpose of subrogation and the relationship between the insurer and its insured. The doctrine of subrogation has a long and rich tradition of benevolence and fairness, Evans' Adm'r. v. Evans, 304 Ky. 28, 199 S.W.2d 734 (1947), and is irrevocably anchored in principles of natural justice. Movl Const. Co., et al v. Covington Trust & Banking Co., 258 Ky. 485, 80 S.W.2d 560 (1934). It was an invention of equity, designed to prevent unjust enrichment by requiring those who benefited from another paying their debt to ultimately pay it themselves. Rollins v. Board of Drainage Com'rs, 281 Ky. 771, 136 S.W.2d 1094 (1940). It was often called the rule of substitution because one legally required to pay the obligation of another became legally entitled to be substituted in the place of the creditor. Lewis' Administrator v. United States Fidelity & Guaranty Co., 144 Ky. 425, 138 S.W. 305, 306 (1911); and Rollins, supra . Because the goal of subrogation is to accomplish justice between the parties, under common law great care is taken to ensure that invoking the doctrine does not impair one with a superior equitable right. Accordingly, the doctrine is applied only after considering the rights of all parties and where an injustice will be wrought the doctrine will not be applied. Rollins, supra , at Maryland Casualty Co. v. Walker, 257 Ky. 397, 78 S.W.2d 34, 36 (1935). These principles underlying the common law doctrine of subrogation must also underlie the determination of when the right to subrogation arises. Under common law, it has generally been held that no subrogation rights exist (or the right does not arise) until the insured has first recovered the full amount of loss sustained. In Couch on Insurance 2d, Section 61:64 (Rev.Ed.1983), the author states: [T]he insurer may in a given case have made the full payment required of it by its contract of insurance but this amount is not adequate to indemnify the insured in full. In such an instance, it has been held, in absence of waiver to the contrary, that no right of subrogation against the insured exists upon the part of the insurer where the insured's actual loss exceeds the amount recovered from both the insurer and the wrongdoer, after deducting costs and expenses. In other words, the insurer has no right as against the insured where the compensation received by the insured is less than his loss. [Emphasis added.] In the context of uninsured motorist coverage, the purpose of the doctrine of subrogation is two-fold: the prevention of double recovery by the plaintiff and a prevention of a windfall to the tortfeasor by benefiting from the payment of the insurance carrier without ultimately bearing at least some of the cost. It is indisputable that Wine lacks sufficient assets to satisfy the judgment. Therefore, Lisa Webb, the Administratrix of the estate of her deceased husband, will never be fully compensated for the losses sustained, no less unjustly enriched. Granting priority to the uninsured motorist carrier would place the burden of loss squarely on the shoulders of the party least able to bear the loss and would defeat the age old, underlying principles of subrogation. On the other hand, granting the injured insured, not fully compensated, priority over the insurance carrier places the risk of loss on the entity paid to assume such risk. Under general principles of equity, in the absence of statutory law or valid contractual obligations to the contrary, an insured must be fully compensated for injuries or losses sustained (made whole) before the subrogation rights of an insurance carrier arise.