Davenport v. State Farm Mut. Auto. Ins. Co.

• Decision Date: 02 July 1965
• Docket Number: No. 4880,4880
• Citation: 81 Nev. 361,404 P.2d 10
• Parties: Ralph O. DAVENPORT and Esther Davenport, Appellants, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, a Corporation, and Thomas Hanley and Ruth Hanley, Respondents.
• Court: Nevada Supreme Court

Page 10

404 P.2d 10

81 Nev. 361

Ralph O. DAVENPORT and Esther Davenport, Appellants, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, a Corporation, and Thomas Hanley and Ruth Hanley, Respondents.

No. 4880.

Supreme Court of Nevada.

July 2, 1965.

Rehearing Denied July 21, 1965.

Morse & Graves, Las Vegas, for appellants.

Singleton & DeLanoy and J. Forest Cahlan and Rex A. Jemison, Las Vegas, for respondents.

THOMPSON, Justice.

This case was presented to the lower court on stipulated facts and is designed to test the validity of a clause in an automobile insurance policy which subrogates the company to the extent of the medical payments made by it to the assured, '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 * * *.' The plaintiff below was State Farm Mutual Automobile Insurance Company who had paid the sum of $1,565.78 to its injured assureds Mr. and Mrs. Hanley, as required by the medical payment proviso of the automobile policy sold by State Farm to the Hanleys. The main defendant below was Ralph O. Davenport who had been involved in a car accident with the Hanleys, causing them personal injuries. It was agreed that the negligence of Davenport was the sole proximate cause of the car accident. The claim of the Hanleys against Davenport was settled for the sum of $8,000. Before settlement State Farm wrote Allstate Insurance Company (Davenport's insurance carrier), the following letter: 'We are writing to you with reference to the above accident in which Thomas and Ruth Hanley carry an insurance policy with State Farm Fire and Casualty Company, including medical payments coverage with limits of $1,000. Please be advised that this policy contains a subrogation clause with reference to the medical payment coverage and we hereby place your company on notice of our subrogation claim so that this may be taken into consideration at such time as you are able to conclude a personal injury settlement with Mr. and Mrs. Hanley.' ¹ Davenport and his insurance carrier Allstate ignored this letter in settling the Hanleys claim, thus precipitating the instant litigation. The lower court found that the payment of medical expense was a subrogable item and ruled in favor of State Farm. This appeal followed. We affirm.

At common law a right of action for personal injuries was not assignable, nor did it survive the death of either the injured person or the tortfeasor. Prosser, Torts, 2d Ed., pp. 706-709; cases collected Annot., 40 A.L.R.2d 501. Of course the common law is the rule of decision in our courts unless in conflict with the state (or federal) constitution or statutory law. NRS 1.030. The appellant argues that the common law rule is violated if the policy provision before us is given effect. The assureds' right to recover their medical expenses from the tortfeasor is incidental to their right of action for personal injuries and may not be severed therefrom and transferred to another by assignment, subrogation, or otherwise. On the other hand, the respondent State Farm urges that the appellant misconceives the true issue. According to the respondent, the issue is not whether a claim for personal injuries is divisible and assignable, for the assureds' right of action was not assigned. Instead the issue is whether an equitable lien may validly attach to the proceeds of a personal injury settlement an entirely different matter. State Farm contends that the policy provision effectively created an equitable lien upon the proceeds of the settlement which is enforcible against a tortfeasor who settles in disregard of the known lien. In re Behm's Estate, 117 Utah 151, 213 P.2d 657, 662, 40 A.L.R.2d 490; Reddy v. Zurich General Accident & Liability Co., 171 Misc. 69, 11 N.Y.S.2d 88; Richard v. National Transp. Co., 158 Misc. 324, 285 N.Y.S. 870; cases collected Annot., 40 A.L.R.2d at 512; comment 4 Utah L.Rev. 539.

For the purposes of this opinion we need not discuss the differences between an assignment of the proceeds of the settlement of a disputed personal injury claim, and the creation of an equitable lien upon the proceeds of settlement. Restatement, Restitution, § 162, comment (h). Nor need we concern ourselves with the distinction between the assignment of the right to sue for personal injuries, and the assignment of the proceeds of the settlement of a disputed personal injury claim. We say this because it is now quite generally accepted that the assignability of the right to sue in tort for personal injuries is governed by the test of survivorship--i.e., if the right of action survives the death of the injured person, that right is assignable. Prosser, Torts, 2d Ed., p. 709; 40 A.L.R.2d at 508; 15 Pitt.L.Rev. 123; 41 Virg.L.Rev. 687; 27 N.Dak.L.Rev. 208; 18 Minn.L.Rev. 585; 22 Calif.L.Rev. 456; 34 Col.L.Rev. 161. The right to sue in tort for personal injuries does survive in Nevada, NRS 41.100(1), ² and therefore is assignable. A fortiori, an assignment of the proceeds of a personal injury settlement is permissible, and such proceeds may also be the subject of contractual subrogation. The California case of Fifield Manor v. Finston, 54 Cal.2d 632, 7 Cal.Rptr. 377, 354 P.2d 1073, 78 A.L.R.2d 813, heavily relied upon by appellant, is inapposite, for the California survival statute expressly prohibited assignability. Our statute does not.

In this case we do not know whether the Hanleys were paid twice for their medical expenses. ³ Their $8,000 settlement with Davenport and his insurance carrier was on a lump sum basis without apportionment to specific items of damage. When settlement was made the tortfeasor and his carrier were on notice that the claimants' medical expenses had already been paid by State Farm. Perhaps the negotiated settlement was reduced because of this fact. On the other hand, if the $8,000 payment was meant to include the claimants' medical expenses, two drafts should have been issued--one for those expenses payable to the Hanleys and State Farm jointly--and the other of the balance payable to the Hanleys alone. However, our lack of knowledge in this respect is not significant, for one fact is established. Settlement was made without regard to the known subrogation (or lien) right of State Farm. We hold that, where the medical payment clause of an automobile insurance policy subrogates the company to the extent of the medical payments made by it to the assured 'to the proceeds of any settlement that may result from the exercise of any rights of recovery which the injured person receiving such payment may have against any person,' the tortfeasor (or his insurance carrier) may not disregard that known subrogation (or lien) right in settling his liability.

Affirmed.

BADT, J., concurs.

COLLINS, District Judge (dissenting).

I dissent.

My learned brethren, speaking for the majority of the Court, state the issue in this case to be '* * * whether an equitable lien may validly attach to [an assignment of] the proceeds of a personal injury settlement * * *.' I believe...