Opinion ID: 1743416
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Heading Rank: 3

Heading: Equitable Rights to Reimbursement

Text: TAC argues that we should apply the doctrine of equitable subrogation to support its reimbursement claim. Typically, an insurer paying a claim under a policy is equitably subrogated to any claim the insured may have against a third party responsible for the insured's injury. In Medina v. Herrera, we considered whether the election-of-remedies doctrine, which bars the pursuit of remedies that are so inconsistent as to result in manifest injustice, barred an injured worker's tort suit against his employer when the worker had recovered workers' compensation benefits. 927 S.W.2d at 600. The worker contended that no double recovery would result if he were allowed to pursue his tort claims because the employer's compensation carrier could recoup the benefits it had paid via a subrogation action. Id. at 603. We concluded that manifest injustice would result if the compensation carrier were equitably subrogated to its insured, in part because the carrier would be required to, in effect, sue its own policyholder. Id. at 604. As the court of appeals recognized, allowing an insurer to unilaterally settle claims and then step into the shoes of the claimant could potentially foster conflict and distrust in the relationship between an insurer and its insured. 975 S.W.2d at 787. Allowing subrogation of an insurer against its insured has been widely rejected in this context. See, e.g., Great Lakes Transit Corp. v. Interstate S.S. Co., 301 U.S. 646, 654-55, 57 S.Ct. 915, 81 L.Ed. 1318 (1937); McBroome-Bennett Plumbing, Inc. v. Villa France, Inc., 515 S.W.2d 32, 36 (Tex.Civ.App.-Dallas 1974, writ ref'd n.r.e.); Highway Ins. Underwriters v. J.H. Robinson Truck Lines, Inc., 272 S.W.2d 904, 908 (Tex.Civ.App.-Galveston 1954, writ ref'd n.r.e.); Stafford Metal Works, Inc. v. Cook Paint & Varnish Co., 418 F.Supp. 56, 58 (N.D.Tex.1976). Accordingly, we hold that TAC is not entitled to reimbursement on an equitable subrogation theory. Finally, TAC argues that it is entitled to recover under the intertwined quasi-contractual theories of quantum meruit and unjust enrichment. We agree with the court of appeals that these equitable theories do not apply in the circumstances presented. See 975 S.W.2d at 785. Although the dissent relies upon Buss v. Superior Court, 16 Cal.4th 35, 65 Cal.Rptr.2d 366, 939 P.2d 766 (1997) to support a quasi-contractual defense-cost-reimbursement right, the few courts that have considered the settlement-reimbursement question have generally opted to recognize a reimbursement right only if the insured has authorized the settlement and agreed to reimburse the insurer should the insurer prevail on its coverage defense. [5] See Goldberg, 680 N.E.2d at 1129 (holding that an insurer may seek reimbursement only if the insured has agreed that the insurer may commit the insured's own funds to a reasonable settlement with the right later to seek reimbursement from the insured); Mt. Airy Ins. Co. v. Doe Law Firm, 668 So.2d 534 (Ala.1995); see also Val's Painting & Drywall, Inc. v. Allstate Ins. Co., 53 Cal.App.3d 576, 126 Cal.Rptr. 267, 273-74 (1975) (holding insurer may seek reimbursement where the insurer has conveyed a reasonable offer to the insured and given the insured an opportunity to assume the defense); see also Robert H. Jerry, II, The Insurer's Right to Reimbursement of Defense Costs, 42 Ariz. L.Rev. 13, 70 n. 220 (2000). We agree with this approach. Otherwise, the insured is forced to choose between rejecting a settlement within policy limits or accepting a possible financial obligation to pay an amount that may be beyond its means, at a time when the insured is most vulnerable. Cf. Shoshone, 2 P.3d at 516 (citing Order on Plaintiff's Motion for Summary Judgment, America States Ins. Co., Civ. No. 95CV158D). Rather than place the insured in this position, we hold that, when coverage is disputed and the insurer is presented with a reasonable settlement demand within policy limits, the insurer may fund the settlement and seek reimbursement only if it obtains the insured's clear and unequivocal consent to the settlement and the insurer's right to seek reimbursement. See Goldberg, 680 N.E.2d at 1129. TAC claims that the Fifth Circuit has recognized a reimbursement right under Texas law in two cases. In the first, the court held that an excess insurer was not estopped by its participation in a settlement from seeking reimbursement of its retained limit [i]n accordance with the provisions of the ... policy.... Arkwright-Boston Mfrs. Mut. Ins. Co. v. Aries Marine Corp., 932 F.2d 442, 444 (5th Cir.1991). Far from holding that equitable or quasi-contractual principles required reimbursement, as TAC argues, the court merely held that equitable principles did not preclude the insurer from enforcing the policy's terms. In the second case, the court primarily addressed a different, unrelated, issue. See Lloyd's of London v. Oryx Energy Co., 142 F.3d 255 (5th Cir.1998). With no analysis or explanation, the Fifth Circuit merely noted that on remand, Lloyd's was entitled to reimbursement for money it paid in punitive damages. See id. at 260. Oryx provides little, if any, support for TAC's reimbursement claim.