Opinion ID: 1119948
Heading Depth: 2
Heading Rank: 2

Heading: Legal or Equitable Subrogation

Text: In its October 26, 1988 decision letter, the trial court correctly concluded that a volunteer cannot recover on a theory of legal subrogation. In Postin, 610 P.2d at 986 (quoting Criss v. Folger Drilling Company, 195 Kan. 552, 407 P.2d 497, 500 (1965)), we discussed subrogation as follows: Subrogation has been defined as the substitution of another person in the place of a creditor, so that the person in whose favor it [subrogation] is exercised succeeds to the rights of the creditor in relation to the debt.          There are two kinds of subrogation  legal or equitable and conventional. Legal or equitable subrogation arises by operation of law, and conventional subrogation arises by contract. See also Richardson Associates, 806 P.2d at 811. The principle established in Postin, 610 P.2d at 987 was that it is a defense in legal or equitable subrogation to show that [the party claiming subrogation] paid as a mere volunteer. [4] After determining that the insurance company in Postin had not paid under compulsion, we further noted that a party claiming subrogation is not a volunteer if it acts to protect its own interest. Specifically, we stated as follows: Within the ambit of legal-subrogation law, it is recognized that one is not a volunteer where it is shown that he made payment to protect his own interest. At 73 Am.Jur.2d, Subrogation, § 25, Persons acting in self-protection, p. 614, it is said: The right of subrogation is not necessarily confined to those who are legally bound to make the payment, but extends as well to persons who pay the debt in self-protection, since they might suffer loss if the obligation is not discharged. A person who has an interest to protect by making the payment is not regarded as a volunteer.    The extent or quantity of the subrogee's interest which is in jeopardy is not material. If he had any palpable interest which will be prohibited by the extinguishment of the debt, he may pay the debt and be entitled to hold and enforce it just as a creditor could.    It would seem that one acting in good faith in making his payment, and under a reasonable belief that it is necessary to his protection, is entitled to subrogation, even though it turns out that he had no interest to protect. Postin, 610 P.2d at 989-90. See also Wyoming Building & Loan Ass'n v. Mills Const. Co., 38 Wyo. 515, 269 P. 45 (1928). Volunteer status is a question of law to be determined by the court. Employers Mut. Fire Ins. Co. v. Piper, 335 S.W.2d 925 (Ky. 1960). However, factual issues must be resolved before the court can decide the legal issue of whether or not a party was a volunteer and not entitled to subrogation. Id. at 928. In Piper, the insurer paid its insured for damaged machinery under a first-party casualty policy. Following payment, the insurer sought subrogation from a contractor who was moving machinery to a new site under a contract when an explosion damaged the insured machinery. The Piper court held that granting summary judgment was erroneous and that factual issues of whether or not the contractor had control of the machinery at the time of the explosion and whether or not the machinery was within 100 feet of the building as required in the policy would have to be resolved before the court could decide the issue of whether or not the insurer was a volunteer and therefore not entitled to subrogation. See 16 Couch on Insurance 2d § 61:55 (Rev. ed. 1983). The court in Weir v. Federal Ins. Co., 811 F.2d 1387, 1394 (10th Cir.1987) accurately analyzed: The question of voluntariness turns on the facts of each particular case. Sturdevant v. Mills, 177 Mont. 137, 138, 580 P.2d 923, 926 (1978) (citing 70 C.J.S. Payments § 134 (1951)). There is a presumption, however, that a payment is not made voluntarily. McGuire v. Wilson, 372 So.2d 1297, 1302 (Ala. 1979) (citing 16 G. Couch, Cyclopedia of Insurance Law § 61.54 (1966)). We agree with NUD that genuine issues of material fact exist that must be resolved before the trial court can decide whether or not NUD was a volunteer; specifically, whether NUD's payment was in good faith and under a reasonable belief that payment was necessary. A review of the record demonstrates that NUD had potential liability and monetary exposure in this situation. NUD had conducted regular inspections of the main, service pipes, connections, and valves in the area of the explosion prior to the date of the accident, and had failed to find a leak. In addition, NUD had actually received customer complaints of a gas odor from Ferron, but failed to determine that no leak existed or to locate its existence. Under threat of litigation, and with claims of damages to Ferron in excess of $150,000, NUD settled at the compromised amount. NUD's investigation following the explosion established that Ferron was not contributorily negligent. Under the rule of joint and several liability which existed at the time, if a jury found that NUD was even one percent negligent for failing to discover the leak, NUD was exposed to the entire amount of any judgment awarded to Ferron. The record now presented could factually support a determination that NUD's settlement was in good faith and under a reasonable belief that payment was necessary to protect NUD's interests. In general, subrogation is applied to avoid unjust enrichment when one party, other than a volunteer, has discharged an obligation which should have been satisfied by another.    It is a device whereby a court compels the ultimate payment of an obligation by the party who in good conscience ought to pay it. Hocker v. New Hampshire Ins. Co., 922 F.2d 1476, 1485 (10th Cir.1991). Subrogation is an equitable doctrine; and, therefore, equitable principles apply in determining whether subrogation is available. Remy v. Michael D's Carpet Outlets, 391 Pa.Super. 436, 571 A.2d 446, 452 (1990). Within this factual issue addressing NUD's interest at risk, it is certainly not determinable as a matter of law that NUD was a volunteer when it paid the $90,000. We reverse and remand on the issue of legal or equitable subrogation.