Opinion ID: 1225573
Heading Depth: 3
Heading Rank: 4

Heading: Herman's Arguments

Text: {25} Herman, on the other hand, insists that his refusal to release the subrogation rights of Health-Plus was reasonable and in good faith. He emphasizes that Dairyland's policy limit of $33,333.33 was virtually equal to the $33,580.22 that Health-Plus paid for Andrew's medical bills. Had Herman accepted a comprehensive settlement and released the subrogation rights of Health-Plus, he risked being compelled not only to pay to Health-Plus the entire amount of the Dairyland settlement, but to continue paying all the ongoing medical expenses for his son. As stated above, subrogation is an equitable remedy. United States Fidelity, 86 N.M. at 162, 521 P.2d at 124. Under the settlement terms urged by Dairyland, Herman risked being placed in the inequitable position of paying for harm caused by Fragua that, under equitable principles, should be paid by Fragua's estate. A claimant may reasonably refuse to release subrogated claims during settlement negotiations, if such a release may cause the claimant to lose a substantial portion of his or her recovery. The reasonableness of such a demand may preclude, as a matter of law, extinguishing all liability to the insured. Thus, a claimant's reasonable expectation is one factor a jury should consider in determining whether an insurer acted in bad faith in rejecting a settlement offer. {26} Herman argues that, in addition to the possibility that his own interests would have been compromised by the subrogation release, Dairyland's refusal to settle was in violation of the interests of its insured. Herman emphasizes that Dairyland must have been aware, upon verifying the circumstances of the automobile accident, that its policy limits were grossly inadequate to compensate the victims. Fragua, its intoxicated insured, drove on the wrong side of the highway, killed himself and two others, and seriously injured a child. The insurer cannot be expected to predict the outcome of a trial, nor does the insurer act in bad faith when it honestly and reasonably concludes that the policy limits will be adequate to compensate any liability. Farmers Ins. Exch. v. Schropp, 222 Kan. 612, 567 P.2d 1359, 1366 (1977) (quoting Bollinger v. Nuss, 202 Kan. 326, 449 P.2d 502, 514 (1969)). However, in this case, Dairyland cannot plausibly claim, based on its honest judgment and acting on adequate information after competent investigation of the claim, that it did not need to settle and instead would be better advised to proceed to trial. See Ambassador Ins. Co., 102 N.M. at 32-33, 690 P.2d at 1026-27. Herman asserts that, because of this extreme disparity between liability and compensability, Dairyland had a duty to use the policy limits to extinguish as much of the liability as possible and that it acted in bad faith by refusing to do so. Cf. Lujan, 84 N.M. at 237, 501 P.2d at 681 (stating, under the evidence, good faith was a factual issue when the insured was liable for a death, and insurer knew possibility of excess judgment, and the insured requested the case be adjusted or settled). {27} Herman contends that, once he indicated a willingness to settle within the policy limits, Dairyland was required to settle. See Lehto, 36 Cal.Rptr.2d at 817. Herman states that if Dairyland had placed itself in the shoes of Fragua, its insured, and conducted itself as if it alone were liable for the entire judgment, there would have been a settlement. See Johansen, 123 Cal.Rptr. 288, 538 P.2d at 748. He further asserts that if Dairyland's money were at stake, it would certainly have blotted out as much liability as possible by settling Herman's claims and by dealing with the comparatively small subrogation claims separately.