Bowen v. American Family Ins. Group

• Decision Date: 18 August 1993
• Docket Number: Nos. 18155 and 18160,s. 18155 and 18160
• Citation: 504 N.W.2d 604
• Parties: Darla BOWEN, Plaintiff and Appellee, v. AMERICAN FAMILY INSURANCE GROUP, Defendant and Appellant.
• Court: South Dakota Supreme Court

Page 604

504 N.W.2d 604

Darla BOWEN, Plaintiff and Appellee, v. AMERICAN FAMILY INSURANCE GROUP, Defendant and Appellant.

Nos. 18155 and 18160.

Supreme Court of South Dakota.

Argued May 25, 1993.

Decided Aug. 18, 1993.

N. Dean Nasser, Jr., of Nasser Law Office, Sioux Falls, for plaintiff and appellee.

Douglas M. Deibert of Cadwell, Sanford & Deibert, Sioux Falls, for defendant and appellant.

AMUNDSON, Justice.

American Family Insurance Company (American Family) appeals from a final judgment awarding Darla Bowen (Bowen) a proportionate amount of attorney fees incurred in settling her personal injury claim which included American Family's subrogation interest. Bowen files notice of review. We affirm.

FACTS

Bowen was injured when she was involved in a motor vehicle accident with David Lee Tuenge (Tuenge) on May 20, 1990. Tuenge struck the rear of Bowen's vehicle when she slowed for traffic. Bowen was insured with American Family; Tuenge was insured with IMT Insurance Company (IMT).

Five days after the accident, on May 25, 1990, Carol Foster (Foster) of American Family wrote Tuenge to ascertain whether Tuenge was insured and, if so, with whom. Foster learned that Tuenge had a policy with IMT and that the IMT agent was State Bank of Rock Rapids, Iowa.

On June 1, 1990, IMT agreed to pay for all property damage to Bowen's vehicle. On July 10, 1990, Bowen retained Dean Nasser (Nasser) as counsel to represent her with respect to her personal injury claims. Nasser informed IMT of his representation two days later.

American Family notified IMT of its subrogation interest for medical expenses on August 6, 1990. IMT responded on August 28, informing American Family that its subrogation interest would be protected upon settlement with Bowen. American Family accordingly kept IMT apprised of the increasing amount of subrogation until it reached its maximum amount of $2,000.00. On December 12, 1990, subsequent to receipt of IMT's letter, American Family sent Bowen a release and subrogation agreement requiring Bowen to do whatever was necessary to secure American Family's subrogation rights.

On April 18, 1991, Nasser reached a tentative settlement with IMT regarding compensation for Bowen's personal injuries. The agreement provided a total of $16,500.00 in payments, $2,000.00 of which would cover American Family's subrogation interest. Nasser contacted representatives of American Family to verify the amount of American Family's subrogation interest and informed them that such interest would be protected in the settlement subject to the apportionment of the costs of litigation (a one-third contingent of attorney fees plus sales tax and costs). Claiming its subrogation interest was protected through its own efforts and not those of Nasser, American Family denied any responsibility for attorney fees and demanded the entirety of its $2,000.00 subrogation interest. Bowen was allowed to recover the $14,500.00 balance of the settlement while the parties disputed whether the $2,000.00 subrogation interest was subject to attorney fees.

Both parties filed motions for summary judgment which the court denied. The parties then submitted the issue of attorney fees to the court on stipulation. The trial court held that American Family was obligated for a proportionate share of attorney fees expended in reaching settlement. American Family appeals and Bowen files notice of review claiming that she was entitled to summary judgment as initially requested.

ISSUE

Whether an insurer's subrogation interest is subject to a proportionate share of attorney's fees incurred by the insured in securing settlement?

ANALYSIS

We will not disturb the findings of the trial court unless they are clearly erroneous. Wiggins v. Shewmake, 374 N.W.2d 111, 114 (S.D.1985). "In applying this standard, we will overturn the findings of the trial court only when, after review of all the evidence, we are left with a definite and firm conviction that a mistake has been made." Id.

American Family asserts that Nasser played no role in securing its subrogation payment. It thus claims it should not be responsible for attorney fees on its subrogation proceeds. While this court has not previously addressed the issue of attorney fees in the recovery of a subrogated interest, we have long recognized that a subrogated interest may not be split from an insured's cause of action against a tort-feasor.

It is a well settled rule of law that an insurer is entitled to subrogation, either by contract or in equity for the amount of the indemnity paid. When the indemnity paid by the insurer covers only part of the loss, as in this case, leaving a residue to be made good to the insured by the wrongdoer, the right of action remains in the insured for the entire loss. In these cases the insured becomes a trustee and holds the amount of recovery, equal to the indemnity for the use and benefit of the insurer. The 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 subjected to a multiplicity of suits.

Parker v. Hardy, 73 S.D. 247, 248, 41 N.W.2d 555, 556 (1950) (citations omitted). See also Sodak Distrib. Co. v. Wayne, 77 S.D. 496, 499, 93 N.W.2d 791, 793 (1958). Bowen's cause of action against IMT thus included seeking the subrogation rights of American Family.

In addressing an insurer's responsibility for attorney fees on a subrogated claim, the Nebraska Supreme Court relied on the indivisibility of a claim as enunciated in Parker. Krause v. State Farm Mutual Auto. Ins. Co., 184 Neb. 588, 169 N.W.2d 601, 604, modified, 184 Neb. 638, 170 N.W.2d 882 (1969). The court found that the insured's cause of action imposes on him a trust for the funds coming into his hands and obligates him, under a fiduciary duty, to account for a proportionate amount of the proceeds for the subrogation interest. Id. at 604. "The right to an attorney's fee follows as a matter of course, since the services rendered by the attorney are beneficial to the administration of the trust and the rights of the beneficiary and as such he is entitled to a proportionate award of an attorney's fee." Id. American Family was a beneficiary of Bowen's settlement. It naturally follows that American Family should bear a proportionate share of the attorney fees that were incurred in obtaining the settlement.

In addition, the Krause court reiterated the rule of law established in the seminal case of United Servs. Auto. Ass'n v. Hills, 172 Neb. 128, 109 N.W.2d 174 (1961).

"The applicable rule is that where the holder of the subrogation right does not come into the action, whether he refuses to do so or acquiesces in the plaintiff's action, but accepts the avails of the litigation, he should be subjected to his proportionate share of the expenses thereof, including attorney's fees."

Krause, 169 N.W.2d at 603 (quoting Hills, 109 N.W.2d at 177). This rule has subsequently been nearly unanimously adopted in all jurisdictions faced with the issue of attorney fees on a subrogated interest recovered either...