Opinion ID: 1694803
Heading Depth: 1
Heading Rank: 2

Heading: Did Aetna waive or fail to preserve its right to subrogation?

Text: This Court has established guidelines for preserving subrogation rights in regard to an uninsured/underinsured motorist claim. In Lambert v. State Farm Mut. Auto. Ins. Co., 576 So.2d 160 (Ala.1991), we discussed the right of an insured to settle with a tort-feasor, and give the tort-feasor a complete release from liability, without getting consent to the settlement from the insured's carrier of underinsured motorist coverage. The competing principles in that case were the insured's right to settle and the insurer's right to subrogation. The Court set out the following general rules for protecting the rights of the insured and the carriers of underinsured motorist coverage: (1) The insured, or the insured's counsel, should give notice to the underinsured motorist carrier of the claim under the policy for underinsurance benefits as soon as it appears that the insured's damages may exceed the tort-feasor's limits of liability coverage. (2) If the tort-feasor's liability insurance carrier and the insured enter into negotiations that ultimately lead to a proposed compromise or settlement of the insured's claims against the tort-feasor, and if the settlement would release the tort-feasor from all liability, then the insured, before agreeing to the settlement, should immediately notify the underinsured motorist insurance carrier of the proposed settlement and the terms of any proposed release. (3) At the time the insured informs the underinsured motorist insurance carrier of the tort-feasor's intent to settle, the insured should also inform the carrier as to whether the insured will seek underinsured motorist benefits in addition to the benefits payable under the settlement proposal, so that the carrier can determine whether it will refuse to consent to the settlement, will waive its right of subrogation against the tort-feasor, or will deny any obligation to pay underinsured motorist benefits. If the insured gives the underinsured motorist insurance carrier notice of the claim for underinsured motorist benefits, as may be provided for in the policy, the carrier should immediately begin investigating the claim, should conclude such investigation within a reasonable time, and should notify its insured of the action it proposes with regard to the claim for underinsured motorist benefits. (4) The insured should not settle with the tort-feasor without first allowing the underinsured motorist insurance carrier a reasonable time within which to investigate the insured's claim and to notify its insured of its proposed action. (5) If the uninsured motorist insurance carrier refuses to consent to a settlement by its insured with the tort-feasor, or if the carrier denies the claim of its insured without a good faith investigation into its merits, or if the carrier does not conduct its investigation in a reasonable time, the carrier would, by any of those actions, waive any right to the subrogation against the tort-feasor or the tort-feasor's insurer. (6) If the underinsured motorist insurance carrier wants to protect its subrogation rights, it must, within a reasonable time, and, in any event before the tort-feasor is released by the carrier's insured, advance to its insured an amount equal to the tort-feasor's settlement offer. Lambert, 576 So.2d at 167. The Court noted in Lambert that the procedure set forth there should take into consideration the facts and circumstances of each case. We now apply these guidelines to the facts of this case. As to the first step, Plowman notified Aetna that her claim would exceed the tort-feasor's liability, when she sued Aetna in October 1990 for underinsured motorist benefits. At that time, Aetna began investigating Plowman's claim for the benefits. Plowman complied with step two when she notified Aetna by letter of the proposed settlement with Turner. Plowman also notified Aetna that she intended to pursue a claim for underinsured motorist benefits; thus, she complied with step three. Aetna, based on Plowman's letter, stated that it took no position on Plowman's proposed settlement with Turner, believing it had no obligation to pay benefits to Plowman. Aetna's denial of an obligation to pay benefits is an option under step three. We see nothing in the record to indicate that Aetna's belief that it did not owe Plowman any benefits was based on anything other than good faith, and this conclusion is supported by the trial judge's summary judgment in favor of Aetna. Aetna had notice of the claim for underinsured motorist benefits in October 1990, and it began its investigation then. Approximately two years later, Plowman notified Aetna of her intent to settle with Turner. Certainly this was more than a reasonable period within which Aetna could investigate Plowman's claim; thus step four is satisfied. Step five provides that a carrier of underinsured motorist coverage may waive its right of subrogation if it refuses to consent to the settlement or denies the claim without a good faith investigation into its basis or if it does not timely conduct an investigation. In this case, Aetna conducted an investigation into the claim. Believing that it did not owe Plowman any benefits, Aetna moved for a summary judgment. The trial judge agreed with Aetna's contention that it was not obligated to pay Plowman the benefits. This Court's reversal of the summary judgment does not mean that Aetna lacked a good faith basis for believing that it owed no benefits to Plowman. Therefore, Aetna did nothing to waive its right to subrogation. The sixth step requires the carrier of underinsured motorist coverage to provide the insured with an amount equal to the settlement offer before the release of the tort-feasor, if it wants to preserve its subrogation rights. However, in this case, it would serve no purpose to require that Aetna had paid the settlement amount to its insured (Plowman) before the release of the tort-feasor (Turner), because Aetna, having received the summary judgment, was no longer in the case. When Plowman began her settlement negotiations with Turner, the trial court had determined that Plowman was not entitled to benefits under the policy with Aetna. This Court did not reverse the summary judgment entered in favor of Aetna until after Turner had been released. We find no reason why Aetna should have paid Plowman an amount equal to the settlement offered by Turner in order to preserve its subrogation rights, under the facts of this case. Based on the foregoing, we conclude that Aetna did not waive its rights to subrogation from Turner. REVERSED AND REMANDED. MADDOX, SHORES, HOUSTON, INGRAM, COOK, and BUTTS, JJ., concur.