Allstate Ins. Co. v. Druke, 13429-PR

• Decision Date: 08 February 1978
• Docket Number: No. 13429-PR,13429-PR
• Citation: 576 P.2d 489,118 Ariz. 301
• Parties: ALLSTATE INSURANCE COMPANY, Petitioner, v. The Honorable William E. DRUKE, Judge of the Superior Court, and the Honorable James C. Carruth, Judge of the Superior Court, Respondents, and Letha Pancoe, Linda Vincent, Oliver B. Mitchell, Jerrold S. Huffstetler, Barbara Huffstetler, Kenneth Pearman, and Connie Pearman, the Real Parties in Interest, Respondents. Letha PANCOE, Linda Vincent, Oliver B. Mitchell, Jerrold S. Huffstetler, Barbara Huffstetler, Kenneth Pearman, and Connie Pearman, the Real Parties in Interest, Cross-Petitioners, v. The Honorable William E. DRUKE, Judge of the Superior Court, and the Honorable James C. Carruth, Judge of the Superior Court, Respondents and Allstate Insurance Company, the Real Party in Interest, Cross-Respondents.
• Court: Arizona Supreme Court

Page 489

576 P.2d 489

118 Ariz. 301

ALLSTATE INSURANCE COMPANY, Petitioner, v. The Honorable William E. DRUKE, Judge of the Superior Court, and the Honorable James C. Carruth, Judge of the Superior Court, Respondents, and Letha Pancoe, Linda Vincent, Oliver B. Mitchell, Jerrold S. Huffstetler, Barbara Huffstetler, Kenneth Pearman, and Connie Pearman, the Real Parties in Interest, Respondents.

Letha PANCOE, Linda Vincent, Oliver B. Mitchell, Jerrold S. Huffstetler, Barbara Huffstetler, Kenneth Pearman, and Connie Pearman, the Real Parties in Interest, Cross-Petitioners, v. The Honorable William E. DRUKE, Judge of the Superior Court, and the Honorable James C. Carruth, Judge of the Superior Court, Respondents and Allstate Insurance Company, the Real Party in Interest, Cross-Respondents.

No. 13429-PR.

Supreme Court of Arizona, In Banc.

Feb. 8, 1978.

Rehearing Denied March 28, 1978.

Slutes, Browning, Zlaket & Sakrison, P.C. by Thomas A. Zlaket, Tucson, for petitioner and real party in interest Allstate.

Miller, Pitt & Feldman, P.C. by Stanley G. Feldman and Nanette M. Warner, Tucson, for respondents real parties in interest and cross-petitioners.

Corcoran, Magness & Hofmann by John F. Corcoran, San Manuel, memorandum amicus curiae Marion L. Hampton, Jr. and Ruben A. Chavez.

Fennemore, Craig, von Ammon & Udall by Calvin H. Udall, Phoenix, memorandum amici curiae.

CAMERON, Chief Justice.

This is a petition for review of a decision of the Court of Appeals, Division Two, which held in a special action proceeding that it was error for the trial court to deny the motion of the defendant Allstate Insurance Company for summary judgment.

We take jurisdiction pursuant to Rule 47(b), Rules of the Supreme Court, 17A A.R.S.

We must answer two questions on appeal:

1. Was Allstate's policy provision requiring reimbursement of medical payments made by it to its insured out of any proceeds recovered by the insured from a third-party tortfeasor an attempted assignment of the insured's cause of action against the third-party tortfeasor?

2. Did the trial court abuse its discretion in partially denying plaintiffs' motion to compel discovery?

The facts necessary for a determination of this matter are as follows. Defendant Allstate's motor vehicle liability insurance agreement provides in the General Conditions Section at Paragraph 10:

"Subrogation

"Upon payment under

"(b) Part I of Section IV (Medical Payments Insurance), each insured shall repay Allstate out of the proceeds, if any, recovered in exercise of his rights against any person liable to the insured because of the bodily injury for which such payment was made.

"The insured shall do whatever is necessary to secure such rights and do nothing before or after loss to prejudice such rights."

In furtherance of this policy provision, Allstate sends to its policyholders who are involved in motor vehicle accidents the following form letter:

"Did you incur medical expenses as a result of your recent accident?

"If so, and you desire to present the claim under the Medical Payments coverage, the enclosed form should be completed by you and your doctor and returned to us with your itemized bills.

"If the other party or his bodily injury liability insurance carrier makes a settlement to you, policy conditions applicable to the Medical Payments coverage require that you repay Allstate Insurance Company out of the proceeds of the settlement, to the extent of the payments made under the Medical Payments coverage.

"In the event you do present a claim under Medical Payments coverage, we will notify the other party and his carrier of our interest and will request that Allstate's name be included on any settlement draft or check.

"Please indicate by checking the appropriate statement at the bottom of this letter, how you wish to handle your claim for medical expenses, and return the letter to us promptly.

"---- I do not desire to present a medical payments claim.

"_______ I plan to submit a medical payments claim and understand that Allstate is to be repaid the amount of such claim out of the proceeds of any bodily injury liability settlement.

Signed _______ Date_______"

On 27 May 1976, a class action complaint was filed against Allstate Insurance Company alleging essentially that Allstate's motor vehicle insurance policy provision requiring an insured to repay Allstate's medical expense benefits out of any proceeds recovered by the insured from a tortfeasor violates Arizona law and public policy prohibiting the assignment or subrogation of personal injury claims. The original "named" plaintiffs in this class action were Letha Pancoe, Linda Vincent and Oliver B. Mitchell. Later, Jerrold S. and Barbara Huffstetler and Kenneth and Connie Pearman were added as named plaintiffs when the trial court granted their motion to intervene.

The named plaintiffs allege that they and the members of the class they represent either:

1. were refused payment by Allstate of medical expense benefits due to their refusal to agree to repay Allstate out of any proceeds they might recover from the tortfeasor, or

2. did in fact reimburse Allstate out of the proceeds of their recovery from a tortfeasor in ignorance of the fact, known and concealed by Allstate, that Allstate had no legal right to obtain such reimbursement.

After extensive pretrial proceedings, Allstate filed a motion for summary judgment. This motion was denied by the trial court. Thereafter, Allstate filed a special action petition in the Court of Appeals seeking a reversal of the trial court's denial of its motion for summary judgment. The Court of Appeals accepted jurisdiction and on 1 September 1977 issued an opinion finding Allstate's repayment requirement to be lawful and ordering the trial court to grant Allstate's motion for summary judgment. The plaintiffs petitioned this court for review which we granted.

WAS THIS AN ATTEMPTED ASSIGNMENT?

In Harleysville Mutual Insurance Company v. Lea, 2 Ariz.App. 538, 410 P.2d 495 (1966), an insured motorist was involved in an automobile accident in which he sustained personal injuries necessitating medical treatment. His insurance carrier paid an amount covering his medical expenses pursuant to its policy. Upon receipt of this payment, the insured signed a receipt and release providing in part:

"In further consideration of the aforesaid payment, the undersigned hereby assigns and transfers to COMPANY its successors and assigns, any and all claims and demands against any other person, persons, property or corporation arising from or in any manner connected with such loss or damage and COMPANY is hereby subrogated in the place of and to the claim and demands of the undersigned against such persons, property or corporation, to the extent of such medical payment above named." 2 Ariz.App. at 540, 410 P.2d at 497.

Thereafter, the insured entered into a settlement with the tort-feasor and refused to reimburse the insurance company out of the proceeds of his settlement recovery. The Court of Appeals stated:

"Any rights that the insurance company may have as a subrogee in the instant case * * * must be based upon the ability in law of the defendant Lea to assign in whole or in part, his cause of action for personal injuries to the insurance company. If the defendant Lea may not in law assign his cause of action to the plaintiff either in whole or in part, then his cause of action may not be subrogated." 2 Ariz.App. at 540, 410 P.2d at 497.

Harleysville spoke only to the issue of whether an insurer could be subrogated to the extent of its medical expense payment to its insured's right of action against parties responsible for the insured's personal injuries. While the court in Harleysville recognized that some states have adopted the policy that a cause of action for personal injuries may not be...