Alabama Farm Bureau Mut. Cas. Ins. Co. v. Anderson

• Decision Date: 08 March 1972
• Docket Number: 8 Div. 45
• Citation: 48 Ala.App. 172,263 So.2d 149
• Parties: ALABAMA FARM BUREAU MUTUAL CASUALTY INSURANCE COMPANY, Inc., a Corporation v. Floyd ANDERSON, Sr.
• Court: Alabama Court of Civil Appeals

Page 149

263 So.2d 149

48 Ala.App. 172

ALABAMA FARM BUREAU MUTUAL CASUALTY INSURANCE COMPANY, Inc., a Corporation v. Floyd ANDERSON, Sr.

8 Div. 45.

Court of Civil Appeals of Alabama.

March 8, 1972.

Rehearing Denied March 29, 1972.

Camp, Page, Williams & Spurrier, Huntsville, for appellant.

Martinson, Manning & Martinson, Huntsville, for appellee.

Rives, Peterson, Pettus, Conway & Burge, Birmingham, amicus curiae in behalf of State Farm Mutual Automobile Ins. Co.

Albert W. Copeland and Richard H. Gill, Montgomery, amici curiae in behalf of Floyd Anderson, Sr., appellee.

THAGARD, Presiding Judge.

Under the medical payments coverage of an automobile liability policy appellee sued and recovered a judgment for.$1000.00 against appellant for medical expenses incurred by him in the treatment of injuries sustained by his minor son while riding in an automobile of one Velma Farrior and being driven at the time by one Michael R. Overman. The Farrior automobile was insured against personal liability but not against medical expenses incurred by the driver or passengers. From the judgment appellant brings this appeal.

Before suing on his own policy appellee obtained and collected the proceeds of a judgment against Michael Overman in the amount of $2927.25 for medical expenses and loss of services.

The trial was had without a jury upon an agreed statement of facts. Appellant admitted that the policy sued upon was in full force and effect; that it provided for medical coverage up to.$1000.00; and that the injured son of appellee, who was a relative of the named insured and resided in the same household, was insured under the medical payments clause, but pleaded the subrogation provision of the policy in defense of the claim. The proceeds of the $2927.25 judgment theretofore obtained The medical payments coverage of the policy was set out in Coverage C--1 thereof. The subrogation clause relied upon by appellant reads:

against Overman exceeded appellee's son's medical expenses by about $900.00.

'4. Subrogation

'Upon payment under Coverages C and C--1 of this policy the Company shall be subrogated to the extent of such payment To the proceeds of any settlement or judgment that may result from the exercise of any rights of recovery which the injured person or anyone receiving such payment may have against any person or organization and such person shall execute and deliver instruments and papers and do whatever else is necessary to secure such rights. Such person shall do nothing after loss to prejudice such rights.' (Emphasis supplied)

Appellant assigns as error the finding of the issues and the entering of the judgment against the defendant and in favor of the plaintiff.

The issue before us is the validity, vel non, in Alabama of subrogation clauses in substantially the language and meaning of the one before us when made applicable to the medical coverage provisions of automobile liability policies. The parties agree that the issue had not before been tried in the appellate courts of the state. We have the benefit of excellent briefs furnished by the parties' attorneys and also Amicus curiae briefs furnished by highly skilled advocates of both sides of the issue.

The question of the validity of subrogation provisions, not only in automobile policies but under group medical and hospitalization policies, has been decided in at least 25 jurisdictions. According to our count the score is about 4 against their validity and about 21 in favor. The holdings in cases denying effect to subrogation clauses in medical coverage policies have been based for the most part upon the premises that they either (1) attempt an assignment of a cause of action for personal injuries (Arizona, California, Georgia and Missouri), or (2) constitute the splitting of an indivisible cause of action in tort (Oklahoma).

In Peller v. Liberty Mut. Fire Ins. Co., 220 Cal.App.2d 610, 34 Cal.Rptr. 41 (1963), the court observed that the effect of the subrogation provision was to transfer the insured's cause of action against a third party tort-feasor to the insurer. Since the state legislature had codified the common law rule against assignability of causes of action arising out of personal injuries, the court felt compelled to hold the subrogation clause invalid. The court did suggest that such a common law rule should not apply, but decided that any change must come from the legislature.

But in Block v. California Physicians' Service, 244 Cal.App.2d 266, 53 Cal.Rptr. 51, which was a suit upon a medical expense policy, the indemnity of which was made subject to a requirement that the recipient of any payment thereunder must make reimbursement upon collection of damages, and a lien was reserved upon proceeds, the same court held that these contractual provisions did not directly or indirectly effect a transfer of any cause of action and found the clause was not contrary to statutory or case authority nor to public policy of California, and further said:

'While he has a right to seek to be made whole, it is unfair for him to seek enrichment by double recovery which would result from retention of all proceeds of the settlement of his suit against Gray and of all medical and hospital benefits paid to him by defendant Service under its agreement--for the same injuries--all eventually at the cost of the participating members of the plan.' (53 Cal.Rptr. 55)

Summaries of some additional cases holding subrogation in medical policies invalid follow:

A statute prohibiting assignment of claims for personal injuries was decisive in Wrightsman v. Hardware Dealers Mut. Fire Ins. Co., 113 Ga.App. 306, 147 S.E.2d 860.

In Travelers Indem. Co. v. Chumbley, 394 S.W.2d 418 (Mo.Ct.App.1965), the insurer argued that medical expenses are a special damage, separate and apart from bodily injury claims and thus subject to subrogation. The court agreed that the damages were special but said that they were nonetheless an integrated element of a personal tort. Therefore, they held the provision invalid as a prohibited assignment of a claim arising out of personal injury. The court also observed that to allow subrogation would invite multiple subrogation claims and promote suits and interpleaders, all contrary to the policy of the law.

In Lowder v. Oklahoma Farm Bur. Mut. Ins. Co., 436 P.2d 654 (Oklahoma 1967), the court noted that a single tort to a single person gives rise to but a single action, however numerous the resulting items of damages may be. Thus a separate action by an insurer to recover only medical expenses controverted the rule against splitting a cause of action and was barred. The court reasoned that the prevention of a multiplicity of suits and of vexatious litigation outweighed the arguments for subrogation.

In addition, one state, Virginia, has enacted a statute expressly forbidding the incorporation of a subrogation provision in medical expenses coverage. Va.Code Ann. § 38.1--381.2 (1968).

Now we turn to the other side of the coin and review the holdings of some states more favorable to the position of appellant:

A claim for personal injuries may be assigned (Nevada, New Mexico and Ohio). Medical payments subrogation merely impresses an equitable lien in favor of the insurer upon the proceeds of any recovery obtained by the insured from the tort-feasor to the extent of its payment (Illinois, Minnesota, New York, and Washington). Such right is based on contract; is not unfair or overreaching; and is accompanied by an appropriately reduced premium (Michigan, Rhode Island, and Wisconsin). The provision merely provides for conventional subrogation and does not constitute an assignment (Arkansas, District of Columbia, Florida, New Jersey, North Carolina, Oregon, Pennsylvania, Tennessee, Utah, and West Virginia). In addition, three of the states listed above (Illinois, New Jersey, and Ohio) based their decision on the additional ground that such provision is not contrary to public policy in the absence of action by the insurance department, which is vested by the legislature with duties concerning the form of insurance policies.

In Hospital Service Corp. of R.I. v. Pennsylvania Ins. Co., 101 R.I. 708, 227 A.2d 105 (1967), the court concluded that the subrogation clause differed from an assignment. The court also stated that such a contract tends to reduce premiums and fosters a type of coverage that provides protection for the insured without creating a windfall.

In Bernardini v. Home & Auto Ins. Co., 64 Ill.App.2d 465, 212 N.E.2d 499 (1966), the court held that there was no attempted assignment, since subrogation operates only to secure contribution and indemnity, whereas an assignment transfers the...