Opinion ID: 1794946
Heading Depth: 2
Heading Rank: 2

Heading: Assignment versus Subrogation

Text: A surety may obtain standing to sue its principal's liability insurer either through an assignment, under principles of subrogation, or both. Despite the express limitations in section 627.428 as to the class of designated entities entitled to recover attorney's fees, this Court has previously approved an award of attorney's fees in situations where policy coverage was obtained through an assignment from an insured. The assignment exception is derived from language in our decision in Roberts, where we rejected an award of attorney's fees in favor of a third-party beneficiary of an insurance contract. 350 So.2d at 79. In Roberts, an insurer and its insured appealed a district court decision authorizing an award of attorney's fees to an injured party under section 627.428. Id. at 78. The injured party was neither an insured [n]or the named beneficiary under the policy, but was entitled to sue the insurer because of its status as a third-party beneficiary. See id. at 79. [6] Because the injured third party did not fall within the narrow class of entities authorized to recover fees under the statute, we reversed the district court's award. See Roberts, 350 So.2d at 79. In reaching this decision, we held that an award of attorney's fees under Section 627.428(1) is available only to the contracting insured, the insured's estate, specifically named policy beneficiaries, and third parties who claim policy coverage by assignment from the insured. Id. (footnotes omitted). By using the phrase contracting insured, we unintentionally created confusion as to whether an insured other than the contracting insured could recover its fees under the statute. See Prygrocki, 422 So.2d at 315-16. However, we clarified that the term contracting insured was not intended to revise the language of the provision, but rather to distinguish between those persons insured under an insurance contract and the third party claimant at issue in Roberts. See id. at 316. We reiterated that the unambiguous terms of the statute clearly applied to all insureds under an insurance policy. See id. Furthermore, the Legislature amended the statute in 1982 to include any named or omnibus insured or the named beneficiary. Ch. 82-243, § 376, Laws of Fla. Unfortunately, in another decision regarding the assignment exception we recognized in Roberts, this Court may have created confusion by using the words assignee and subrogee interchangeably. See Fid. & Deposit Co. v. First State Ins. Co., 677 So.2d 266, 267, 269 (Fla.1996). In First State, an entity received an assignment from the insured for the right to recover under the insured's insurance policy. However, we held that the assignee, as the insured's subrogee, will be entitled to attorney's fees should it ultimately prevail in this litigation. Id. at 269. As cogently stated in 16 Lee R. Russ & Thomas F. Segalla, Couch on Insurance 3d (2005), [t]he distinction between rights arising by virtue of an assignment and by way of subrogation is frequently obscured by defining one in terms of the other, in a manner which makes it difficult to tell whether the usage was an intentional. recognition that the two theories are considered as equivalent or an unintentional usage in a context where the difference was unimportant. Id. § 222:54 (footnotes omitted). Although we agree that the terms can be interrelated and are often confused, assignment and subrogation remain distinct legal concepts. Thus, the question we must resolve is whether, for purposes of the attorney's fees statute, obtaining the right to sue the insurer via equitable subrogation is functionally equivalent to obtaining that right through an assignment. Because the rights acquired under an assignment differ from the rights acquired by virtue of subrogation, we decline to equate these two distinct principles. An assignment has been defined as a transfer or setting over of property, or of some right or interest therein, from one person to another. Black's Law Dictionary 128 (8th ed.2004) (quoting Alexander M. Burrill, A Treatise on the Law and Practice of Voluntary Assignments for the Benefit of Creditors § 1, at 1 (James Avery Webb ed., 6th ed. 1894)). Essentially, it is the voluntary act of transferring an interest. DeCespedes v. Prudence Mut. Cas. Co., 193 So.2d 224, 227 (Fla. 3d DCA 1966); accord Fla. Power & Light Co. v. Road Rock, Inc. , 920 So.2d 201, 204 (Fla. 4th DCA 2006); 3A Fla. Jur.2d Assignments § 1 (2007); 6 Am. Jur.2d Assignments § 1 (2007). Importantly, once transferred, the assignor no longer has a right to enforce the interest because the assignee has obtained all rights to the thing assigned. Price v. RLI Ins. Co., 914 So.2d 1010, 1013-14 (Fla. 5th DCA 2005) (quoting Lauren Kyle Holdings, Inc. v. Heath-Peterson Constr. Corp., 864 So.2d 55, 58 (Fla. 5th DCA 2003)). On the other hand, subrogation is a broader concept, involving an act of law growing out of the relation of the parties to the original contract of insurance, 16 Russ & Segalla, supra, § 222:53, where one entity pays the debt or discharges the obligations of another. See 22 Eric Mills Holmes, Holmes' Appleman on Insurance 2d § 141.1[B] (2003). Two types of subrogation have been recognized-conventional and equitable. Conventional subrogation is created by an agreement between the parties whereby one party having no interest in the matter discharges the debt of another and is thus entitled to the rights and remedies of the original creditor. Dade County Sch. Bd. v. Radio Station WQBA, 731 So.2d 638, 646 (Fla. 1999). Essentially, it, is an agreement that the party paying the debt will be subrogated to the rights of the original creditor. Nat'l Union Fire Ins. Co. of Pittsburgh, Pa. v. KPMG Peat Marwick, 742 So.2d 328, 332 (Fla. 3d DCA 1999), approved, 765 So.2d 36 (Fla.2000). Indeed, an assignment could be part of a conventional subrogation agreement. Unlike conventional subrogation, which is created by an express agreement, equitable (sometimes referred to as legal) subrogation arises by operation of law. See DeCespedes, 193 So.2d at 227; 31A Fla. Jur.2d Insurance § 3295 (2002). Equitable subrogation has been defined as the substitution of one party for another whose debt the party pays, entitling the paying party to rights, remedies, or securities that would otherwise belong to the debtor. Black's Law Dictionary 1467. Basically, it is an equitable remedy created by the legal consequences of the acts and relationships of the parties. Radio Station WQBA, 731 So.2d at 646. Accordingly, equitable subrogation, the object of which is to prevent injustice, is governed by the principles of equity. Holmes, supra, § 141.1[C][1]. The Second District premised its award of attorney's fees on equitable subrogation, which is a remedy commonly associated with surety relationships. As we explained in Transamerica Insurance Co. v. Barnett Bank of Marion County, 540 So.2d 113, 116 (Fla.1989) (quoting Pearlman v. Reliance Ins. Co., 371 U.S. 132, 137, 83 S.Ct. 232, 9 L.Ed.2d 190 (1962)), a surety who pays the debt of another is entitled to all the rights of the person he paid to enforce his right to be reimbursed. In the context of a surety relationship, the key to equitable subrogation lies in the surety's right to indemnification. Because a surety who pays a judgment on behalf of its principal is entitled to indemnification by its principal, it has the right to be subrogated to any rights the principal has against its liability insurer if that judgment is covered by the principal's liability policy. See Western World, 358 So.2d at 604. Although the surety may stand in the shoes of the principal, the principal does not lose its status as an insured under the policy. In fact, as is evident from Ryan's involvement in the underlying litigation in this case and the principal's involvement in the underlying coverage dispute in Western World, the insured principal retains its right to sue for insurance coverage. Because the principal retains its rights under the policy, which includes the statutory right to claim attorney's fees, the surety does not acquire the principal's status as one of the designated entities entitled to attorney's fees under the statute. This prevents the insurer from being subject to a claim for attorney's fees from both the principal (insured) and the surety (subrogee) when, as in this case, both litigate the same coverage issue. On the other hand, an assignment transfers all of the insured's rights to a claim under the policy, including its status as an insured under the policy. Thus, an assignee is entitled to an award of fees under section 627.428. See Roberts, 350 So.2d at 79. We reaffirm our holding in' Roberts that only the named or omnibus insured, the insured's estate, specifically named beneficiaries under the policy, and other third parties who claim policy coverage through an assignment are entitled to an award of fees under section 627.428. See id. at 78-79. Hartford does not fall within the narrow class of entities identified in the statute. Thus, the only way Hartford can recover its fees in this declaratory judgment action is through a valid assignment from Ryan, the named insured under the CGL policies.