Opinion ID: 1723196
Heading Depth: 1
Heading Rank: 4

Heading: the contractual obligations of the parties

Text: The last area we review to determine the respective rights of the uninsured motorist carrier and its insured is the understanding between the parties. In the present case that understanding arises from two sources, the insurance policies and the executed releases. We must decide whether the equitable doctrine of subrogation is modified by the contracts of the parties. All three insurance policies contained language like or similar to that included in the Aetna policy: If we make a payment under the policy and the person to and for whom payment was made has a right to recover damages from another, we shall be subrogated to that right. That person will do whatever is necessary to enable us to exercise our rights and shall do nothing after loss to prejudice them; (b) if we make a payment under this policy and the person to and for whom payment is made recovers damages from another, that person shall hold in trust for us the proceeds of the recovery and shall reimburse us to the extent of our payment. (Emphasis added.) The parties direct us to cases from other jurisdictions which address the issue of whether the equitable principles of subrogation may be modified by an insurance policy. Some jurisdictions declare any such provision unenforceable and void as against public policy while others honor such provisions if they are clear and explicit. We need not address this issue because the three insurance policies in question contain no clause which contravenes the equitable principles outlined earlier in this decision. The policy language cited above only provides the insurance carrier the right of subrogation, i.e., at some future time to be substituted in the place of its insured. The policies do not express an intent to invest the carrier with a priority over its less than fully compensated insured. It is well established in our Commonwealth that an insurance carrier must be held strictly accountable for the terms of the contract it prepares. Wolford v. Wolford, Ky., 662 S.W.2d 835, 838 (1984). Furthermore, when a contract has two reasonable constructions, the one most favorable to the insured must be adopted. Id. Accordingly, we hold the policy language outlined above only gives the carrier the right of subrogation and, in keeping with the equitable principles of subrogation, that right does not arise until the insured is fully compensated (made whole) for injuries and losses sustained. Lisa Webb, as Administratrix of the estate of her deceased husband, settled the estate's uninsured motorist claim with each of the three insurance carriers. At all relevant times she, the estate and the children were represented by counsel. She entered into a release with Motorist and a release and trust agreement with Globe. Aetna paid the full amount of the uninsured motorist benefits without requesting any documents be signed. Both Motorist and Globe argue the contractual language contained in their releases provide them first priority of payment. Because the documents contain substantially different language, we must analyze them separately. The release with Ms. Webb entered into with Motorist provides: Lisa D. Webb, Administrator, assigns and transfers to Motorist all rights and claims Lisa D. Webb, Administratrix, may have against uninsured motorist as a result of this accident. INSURED agrees to hold in trust for MOTORISTS any money received from UNINSURED MOTORIST. Although in abstract terms an assignment differs from subrogation, in the field of insurance subrogation the distinction is academic and not a substantive matter. Bryan v. Henderson Elec. Co., Ky.App., 566 S.W.2d 823 (1978); and 6 W. Clay, Kentucky Practice, pp. 313-314 (3rd ed. 1974). When the right of the insurer to subrogation is formalized by the execution of an express assignment of the claim against the tortfeasor, the status of the insurer is nevertheless that of a subrogee rather than an assignee. The assignment adds nothing to the rights vested in the surety by the doctrine of subrogation. Couch on Insurance, 2d, Section 61.108 (Rev.Ed. 1983). The above-cited release gave Motorist a right of subrogation and substituted it in the place of the estate for the uninsured motorist benefits paid. The release provides Motorist written documentation of the amount of its subrogated interest and permits it, at some later time, to seek reimbursement. This document in no way modified the rights of the parties under the doctrine of subrogation and in no way subordinated the insured's equitable right to full recovery to that of the insurance company. On the other hand, the Globe Release  Trust Agreement Under Uninsured Motorists Protection Coverage is significantly different in scope and purpose. It provides: We . . . agree to hold any moneys received as a result of settlement or judgment in trust for the company, to be paid to the company immediately upon same coming into my/our hands; provided that any sum received in excess of the amount paid by the company, including legal or other expenses incurred by it in completing the recovery, shall be retained by me/us. (Emphasis added.) The contractual language clearly and explicitly documents the intent of the parties to: (1) provide Globe with the right of subrogation; (2) permit that right to arise immediately; and (3) thereby subordinate Lisa Webb's interests in any further recovery in favor of Globe until Globe is reimbursed for the payments made. Our Commonwealth recognizes two types of subrogation, legal and conventional. Because Globe's subrogation rights are derived by contract, this is an example of conventional subrogation. Both legal and conventional subrogation are governed by equity and generally require the insured to be fully compensated for injuries and losses sustained before an insurer's right of subrogation arises. However, subrogation rights may be modified by contract, provided violence is not done to established equitable principles. See Westendorf v. Stasson, 330 N.W.2d 699, 703 (Minn.1983) and citations therein. Here, when the uninsured motorist claim was negotiated, each party was represented by counsel and enjoyed a parity in bargaining position. Furthermore, the insured's losses had already been sustained and were fully known and appreciated. In exchange for valuable consideration each transferred certain legal rights. This agreement does no harm to equitable principles and in no way is violative of our Commonwealth's public policy. Accordingly, we hold that under the facts of this case the doctrine of subrogation was modified by Globe and Lisa Webb and such modification is valid.