Amica Mut. Ins. Co. v. Maloney
| Decision Date | 18 September 1995 |
| Docket Number | Nos. 21873,21959,s. 21873 |
| Parties | AMICA MUTUAL INSURANCE COMPANY, Plaintiff-Appellant and Cross-Appellee, v. Margaretta Coulter MALONEY, Defendant-Appellee and Cross-Appellant. Roy SILVA and Betty Silva, individually and as parents of Roxanne Silva, Plaintiffs-Appellants, v. FARMERS INSURANCE COMPANY OF ARIZONA, Defendant-Appellee. |
| Court | New Mexico Supreme Court |
1. Amica Mutual Insurance Co. v. Maloney and Silva v. Farmers Insurance Co. both present a common question on appeal: When an insurer has a subrogated interest in a portion of the insured's settlement, is the insurer required to pay a proportionate share of the insured's attorney's fees incurred in settling the claim? In both cases the insureds argue that the settlement created a common fund which included the insurers' subrogated interest. They therefore contend that the insurers were obligated to pay a proportionate share of the insureds' attorneys' fees. The insurers counter that they had adequately protected their respective subrogated interests without the efforts of the insureds' attorneys. The trial court in Amica found in favor of the insured. Conversely, in Silva the trial court found for the insurance company. We have consolidated the two cases for purposes of this opinion, and we affirm the proportionate award of attorney's fees for the settlement in Amica and reverse the corresponding denial of attorney's fees in Silva. We also affirm the trial court's denial of attorney's fees for the insureds' efforts in pursuing their claims for proportionate contribution in both cases.
2. On June 18, 1989, Defendant-Appellee Margaretta Coulter Maloney (Maloney) was involved in an automobile accident in which her car was rear-ended. Maloney had an auto insurance policy with Plaintiff-Appellant Amica Mutual Insurance Co. (Amica) which provided for up to $5,000 in medical coverage. The Amica insurance policy expressly provided for subrogation of any amounts paid out under the policy and required that Maloney hold in trust any amount she recovered from a third party so that Amica could be reimbursed for payments made.
3. As a result of injuries suffered in the accident, Amica paid Maloney the full extent of her medical coverage under the policy, totalling $5,000. Maloney then hired an attorney and filed suit against the third-party tortfeasor and his insurer, Allstate. During the course of settlement negotiations between Maloney and Allstate, Amica sent Allstate four letters informing Allstate of its subrogated interest in Maloney's recovery and asking for reimbursement of the $5,000. Allstate ultimately settled with Maloney for $77,500. It issued two checks for the settlement amount, one of which was for $5,000, made payable to Maloney, her attorney, and Amica. Amica demanded that Maloney pay it the full $5,000 for its subrogated interest in the medical payment advances. Maloney countered that a prorated share of attorney's fees and costs should be deducted from the $5,000 to pay for Maloney's efforts in obtaining settlement. On October 14, 1992, Amica sued Maloney for breach of contract and conversion. After receiving briefing by both parties, the trial court awarded Maloney $1809.50 plus 36.19% of all accrued interest on the $5,000, which represented Amica's prorated share of attorney's fees.1 Amica appealed the judgment.
4. On October 28, 1990, Betty Silva and her daughter Roxanne were involved in an automobile accident resulting in personal injury and property damage. Plaintiffs-Appellants Roy and Betty Silva (the Silvas) were insured by Defendant-Appellee Farmers Insurance Co. (Farmers). Farmers' policy similarly furnished medical coverage up to $5,000 and provided for subrogation for amounts paid out under the coverage. The policy also required the Silvas to hold in trust any amount recovered from a third party for Farmers' subrogation interest.
5. Farmers paid the Silvas $1,811.20 for their medical expenses. The Silvas then hired an attorney to pursue their claim against the third-party tortfeasor and entered into negotiations with his insurer, which coincidentally was also Allstate. In June 1992 Allstate settled the Silvas' claim for $9,600. During the course of settlement negotiations, Farmers mailed out two form letters. It sent one to Allstate informing Allstate of its subrogation interest and asking for a separate settlement check. The other letter, sent to the Silvas' attorney, stated that Farmers was independently pursuing its subrogation rights and that the Silvas' attorney did not represent it.
6. After settlement Allstate sent out separate checks for Farmers' subrogated interest of $1,811.20 and for the remainder of the settlement award. The Silvas requested that Farmers endorse the check and return it to their attorney so that he could deduct a pro rata share of attorney's fees before reimbursement. Farmers refused, and the Silvas sued for breach of contract and bad faith. After the Silvas presented their case, the trial court directed a verdict for Farmers and awarded to it the entire $1,811.20. The Silvas then appealed the trial court's judgment.
7. Both cases on appeal present us with the single question: whether an insurer's subrogation interest is subject to a proportionate set-aside of attorney's fees incurred by the insured in securing settlement. The facts are essentially undisputed, so we confine ourselves to examining whether the trial courts properly applied the law in these cases. Investment Co. of the S.W. v. Reese, 117 N.M. 655, 657, 875 P.2d 1086, 1088 (1994).
8. It is well settled that when an insurer pays the claim of its insured under the insured's policy, it "is deemed to be subrogated by operation of law to recovery of its payments against the person who caused the loss." Safeco Ins. Co. v. United States Fidelity & Guar. Co., 101 N.M. 148, 149, 679 P.2d 816, 817 (1984); see also United States Fidelity & Guar. Co. v. Raton Natural Gas Co., 86 N.M. 160, 162-63, 521 P.2d 122, 124-25 (1974). The doctrine of subrogation "is founded upon the relationship of the parties and upon equitable principles, for the purpose of accomplishing the substantial ends of justice." Raton, 86 N.M. at 162-63, 521 P.2d at 124-25 (quoting 6A Appleman, Insurance Law and Practice § 4054 at 142-44).
9. Ordinarily the right of subrogation allows an insurer who has fully compensated the insured to step into the shoes of the insured and collect what it has paid from the wrongdoer. See White v. Sutherland, 92 N.M. 187, 190, 585 P.2d 331, 334 (Ct.App.), cert. denied, 92 N.M. 79, 582 P.2d 1292 (1978). When the amounts paid by the insurer under the policy cover only part of the insured's loss, leaving an excess loss to be made good by the tortfeasor, the insured retains the right of action for the entire loss. Krause v. State Farm Mut. Auto. Ins. Co., 184 Neb. 588, 169 N.W.2d 601, 604 (1969); Sellman v. Haddock, 62 N.M. 391, 393, 310 P.2d 1045, 1046 (1957), overruled on other grounds by Safeco, 101 N.M. at 150, 679 P.2d at 818. Thus, we have consistently held that when properly raised in a subsequent suit against the tortfeasor, the subrogated insurer is ordinarily considered an indispensable party. Safeco, 101 N.M. at 149, 679 P.2d at 817. In Safeco this Court set out the proper procedure for joining the subrogated insurer and described the role of the insurer in the litigation. Id. at 150, 679 P.2d at 818 ().
10. We have also held that the insured is responsible for protecting the insurer's subrogated interest when pursuing its claim against the tortfeasor. See Maldonado v. Haney, 94 N.M. 335, 336-37, 610 P.2d 222, 223-24 (Ct.App.1980); see also Farmers Ins. Group v. Martinez, 107 N.M. 82, 83-84, 752 P.2d 797, 798-99 (Ct.App.1988) (). Accordingly, when the insured pursues its claim against the tortfeasor,
the insured becomes a trustee and holds the amount of recovery, equal to the indemnity for the use and benefit of the insurer. [This] rule is founded on the principle that the wrongful act was single and indivisible, and gives rise to but one liability. Upon this theory the splitting of causes of action is avoided and the wrongdoer is not subject to a multiplicity of suits.
Bowen v. American Family Ins. Group, 504 N.W.2d 604, 605 (S.D.1993); see also Krause, 169 N.W.2d at 603-04 ().
11. Thus in insurance subrogation cases such as the ones presently before us, there is but one cause of action for the entire recovery, including the subrogated amount, and that cause of action lies in the name of the insured. The insurer is entitled to join with the insured and participate in settlement negotiations for the entire settlement amount, and it is entitled to intervene in any legal action. However,...
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