St. Paul Fire & Marine Ins. Co. v. Murray Guard

• Decision Date: 18 January 2001
• Docket Number: No. 99-515.,99-515.
• Citation: 343 Ark. 351,37 S.W.3d 180
• Parties: ST. PAUL FIRE & MARINE INSURANCE COMPANY v. MURRAY GUARD, INC.
• Court: Arkansas Supreme Court

37 S.W.3d 180

343 Ark. 351

ST. PAUL FIRE & MARINE INSURANCE COMPANY v. MURRAY GUARD, INC.

No. 99-515.

Supreme Court of Arkansas.

January 18, 2001.

Lizabeth Lookadoo, Hot Springs and Barrett & Deacon, by D.P. Marshall Jr., Jonesboro, for appellant.

The Laser Law Firm, P.A., by Dan F. Bufford and Donna L. Gay, Little Rock, for appellee.

ROBERT L. BROWN, Justice.

This appeal presents the issue of whether the doctrine of equitable subrogation applies to a case where appellant St. Paul Fire & Marine Ins. Co. has paid benefits to a third party (the law firm of Wright, Lindsey & Jennings), which is not the insured of St. Paul. We hold that the doctrine does apply under these facts, and we reverse the order of the circuit court granting summary judgment in favor of appellee Murray Guard, Inc., and remand the case for further proceedings.

The facts are these. On January 24, 1994, at about 10:15 p.m., a fire broke out on the fourteenth floor of the Worthen National Bank Building. (Worthen National Bank of Arkansas has since been purchased in succession by Boatmen's National Bank of Arkansas, by NationsBank, N.A., and by Bank of America.) The fire began in the offices of KPMG Peat Marwick and apparently was caused by a space heater under the receptionist's desk at KPMG. As a result of the fire, several floors of the Worthen Bank Building were damaged, including some of the offices of the law firm of Wright, Lindsey and Jennings (hereinafter the Wright Law Firm).

Two lawsuits were filed that resulted from the fire. In 1995, the first lawsuit was filed by KPMG and Worthen Bank, and it alleged that an employee of Laidlaw, Inc., had been negligent in inadvertently turning on the KPMG space heater that caused the fire. The complaint further alleged that the employees of Murray Guard, Inc., a security service, had been negligent in failing to report the "odor of something burning" on the fourteenth floor for two hours or more. Plaintiffs KPMG and Worthen Bank sought damages in the amount of $2,804,834.

On February 23, 1996, St. Paul moved for leave to file a complaint in intervention in the KPMG-Worthen Bank lawsuit. In that motion and the attached complaint in intervention, St. Paul asserted that the Wright Law Firm was covered under an "errors and omissions" policy issued by St. Paul to the Ramsey, Krug, Farrell and Lensing Agency (hereinafter Ramsey Krug) for loss caused by business interruption. Because of an error and omission on the part of Ramsey Krug in not obtaining business interruption insurance for the Wright Law Firm, St. Paul further alleged that it paid the Wright Law Firm $402,671 for business interruption losses and that it was entitled to be equitably subrogated to the rights of the Wright Law Firm against Murray Guard for the money paid.

A second lawsuit was filed by the Wright Law Firm in 1996, and an amended complaint was filed in 1997. In that lawsuit, the Wright Law Firm sued (1) Worthen Bank for failing to have a sprinkler system, adequate fire alarm, or smoke detectors in the area of the fire; (2) KPMG for negligently using a space heater; (3) Laidlaw for inadvertently turning on the space heater and failing to use ordinary care when its employees smelled smoke; and (4) FTTWIC Management, Inc., for negligently managing the building in terms of fire safety. The suit prayed for damages in the amount of $910,060.10. St. Paul was shown as an intervenor in the Wright Law Firm lawsuit. The Wright Law Firm lawsuit and the Worthen-KPMG lawsuit were consolidated for purposes of trial.

Thereafter, many of the parties involved in the consolidated lawsuits settled in what is termed a global settlement. The salient features of the global settlement for purposes of this appeal are these. The Hartford Insurance Company (hereinafter The Hartford), which insured the Wright Law Firm for property damages and paid it $910,060, received $250,000 on its subrogation claim against the alleged tortfeasors, with the exception of Murray Guard. On June 25, 1998, The Hartford and the Wright Law Firm settled with Murray Guard and released the company from all future liability. The release stated that all subrogation rights of any insurance company had been paid in full. In the global settlement, St. Paul received $60,000 from certain alleged tortfeasors, with the exception of Murray Guard, and released them from future liability.

On July 23, 1998, Murray Guard moved for summary judgment on St. Paul's complaint in intervention in the consolidated lawsuits and cited the release of Murray Guard by The Hartford and the Wright Law Firm in support of its motion. In its brief supporting the motion, Murray Guard asserted that St. Paul's claim to equitable subrogation was invalid because it received no assignment or agreement from the Wright Law Firm to pursue the firm's business interruption claim against Murray Guard. St. Paul responded to the motion and attached affidavits from a recovery specialist and its attorney to the effect that it did not agree to the release of Murray Guard by the Wright Law Firm and was not notified before execution of that release.

On January 7, 1999, the circuit court granted Murray Guard's motion for summary judgment. In the court's ruling from the bench, it stated that it was not basing its ruling on the Wright Law Firm's release but rather on the fact that "every case seems to indicate that the right of subrogation is through the shoes of the insured."

On April 22, 1999, final judgment in Worthen Bank's remaining lawsuit against Murray Guard was entered following a jury trial. In special interrogatories, negligence was apportioned as follows: Murray Guard 32%; KPMG 21%; Worthen Bank (then NationsBank) 47%. KPMG was awarded $320,000 against Murray Guard for damages and interest. NationsBank was awarded no damages against Murray Guard.

St. Paul appeals the grant of Murray Guard's motion for summary judgment and contends that it made the Wright Law Firm whole for its business interruption loss and, as a result, was entitled to equitable subrogation against Murray Guard which caused the losses by its negligence. We agree.

The critical issue in this case, as we see it, is whether St. Paul is entitled to equitable subrogation when the Wright Law Firm was not its insured but still was paid its business interruption losses by St. Paul under an errors and omissions policy issued to Ramsey Krug. According to Murray Guard, St. Paul cannot be subrogated to the Wright Law Firm's claim because this would result in "two step subrogation" with St. Paul first being subrogated to the rights of its insured, Ramsey Krug, and then, second, to the rights of the Wright Law Firm.

By the admission of all parties, this is a novel question for Arkansas, and we turn first to an analysis of the general principles of the doctrine of equitable subrogation and next to cases that are apposite. In Hunter v. Jennings, 216 Ark. 886, 227 S.W.2d 946 (1950), this court set out general principles related to subrogation:

As a general rule any person who, pursuant to a legal obligation to do so, has paid even indirectly for a loss or injury resulting from the wrong or default of another, will be subrogated to the rights of the creditor or injured person against the wrongdoer or defaulter.

....

Subrogation, an equitable doctrine taken from the civil law, is broad enough to include every instance in which one party pays a debt for which another is primarily answerable, and which in equity and good conscience should have been discharged by the latter, so long as the payment was made either under compulsion or for the protection of some interest of the party making the payment, and in discharge of an existing liability. 216 Ark. at 888-889, 227 S.W.2d at 947-948 (quoting Home Ins. Co. v. Lack, 196 Ark. 888, 120 S.W.2d 355 (1938); Gerseta Corp. v. Equitable Trust Co. of New York, 241 N.Y. 418, 150 N.E. 501 (1926)). Under subrogation, the payor who is the subrogee steps into the shoes of the payee and becomes subrogated to whatever rights the payee had against a wrongdoer.

This court has said that subrogation is an equitable remedy that rests upon principles of unjust enrichment and attempts to accomplish complete and perfect justice among the parties. Blackford v. Dickey, 302 Ark. 261, 789 S.W.2d 445 (1990); Baker v. Leigh, 238 Ark. 918, 385 S.W.2d 790 (1965). We have further said that the elements of subrogation are as follows:

1) a party pays in full a debt or an obligation of another or removes an encumbrance of another, 2) for which the other is primarily liable, 3) although the party is not technically bound to do so, 4) in order to protect his own secondary rights, to fulfill a contractual obligation, or to comply with the request of the original debtor, 5) without acting as a volunteer or an intermeddler. Blackford v. Dickey, supra. Finally, we have said that subrogation is a doctrine of equity governed by equitable principles. Cooper Tire & Rubber Co. v. Northwestern National Cas. Co., 268 Ark. 334, 595 S.W.2d 938 (1980); Federal Land Bank of St. Louis v. Richland Farming Co., 180 Ark. 442, 21 S.W.2d 954 (1929). The doctrine is deeply rooted and flexible and extends as far as needed to do justice. American Surety Co. v. Vann, 135 Ark. 291, 205 S.W. 646 (1918). The doctrine has as its basis the doing of complete and perfect justice between the parties without regard to form. Newberry v. Scruggs, 336 Ark. 570, 986 S.W.2d 853 (1999).

There are two kinds of subrogation known to the law: conventional subrogation and equitable subrogation. 73 Am. Jur.2d Subrogation § 2 (1974).¹ Equitable subrogation is given a liberal application and is broad enough to include every instance in which one person, not acting voluntarily, has paid a debt for which another was primarily liable and which that other party should have paid. 73 Am.Jur.2d Subrogation § 14 (1974). Conventional subrogation, on the other hand, is founded on some...