DeTienne Associates Ltd. Partnership v. Farmers Union Mut. Ins. Co., 93-624

• Decision Date: 16 August 1994
• Docket Number: No. 93-624,93-624
• Citation: 266 Mont. 184,879 P.2d 704
• Parties: DeTIENNE ASSOCIATES LIMITED PARTNERSHIP and Park Plaza Hotel, Inc., Plaintiffs and Respondents, v. FARMERS UNION MUTUAL INSURANCE COMPANY, Defendant and Appellant.
• Court: Montana Supreme Court

Page 704

879 P.2d 704

266 Mont. 184

DeTIENNE ASSOCIATES LIMITED PARTNERSHIP and Park Plaza

Hotel, Inc., Plaintiffs and Respondents, v. FARMERS UNION MUTUAL INSURANCE COMPANY, Defendant and Appellant.

No. 93-624.

Supreme Court of Montana.

Submitted on Briefs June 2, 1994.

Decided Aug. 16, 1994.

Robert F. James, James, Gray & McCafferty, Great Falls, for appellant.

Patrick E. Melby, Luxan & Murfitt, Helena, for respondents.

WEBER, Justice.

This action springs from Farmers Union Mutual Insurance Company's (FUMI's) right of subrogation against a third party tortfeasor Montana Rail Link (MRL). MRL damaged FUMI's insured's property Park Plaza Hotel (Park Plaza) when a train wrecked in sub-zero weather and caused a prolonged power outage. When Park Plaza was not totally made whole by FUMI's policy payment, Park Plaza sued MRL for the excess damages. FUMI joined in that litigation. FUMI claims a right of subrogation against MRL. The First Judicial District Court found that, even though both insurer and insured were compensated by MRL, FUMI should pay Park Plaza for its attorney fees and costs incurred in this joint litigation with MRL. We affirm.

The only issue on appeal is:

Did the District Court err in ordering that Farmers Union Mutual Insurance Company must pay Park Plaza's attorney fees and costs, plus interest, before Farmers could assert its subrogation rights?

DeTienne Associates (DeTienne) is a Montana limited partnership which owns the Park Plaza in Helena. FUMI insured Park Plaza under a special multi-peril insurance policy. The hotel sustained property and business losses when an MRL train derailed, exploded, and caused power outages around Helena on February 2, 1989. During this four-hour power outage, Park Plaza sustained damage because the extremely cold weather conditions combined with the power outages caused pipes to freeze and burst.

FUMI paid Park Plaza $411,155.49, which represented the limits of Park Plaza's policy. Park Plaza contended that it sustained damages beyond this amount.

On November 19, 1990, FUMI brought suit against MRL in Cascade County. On February 2, 1991, Park Plaza brought suit against MRL in Lewis and Clark County. On May 31, 1991, FUMI intervened in Park Plaza's suit in order to assert its right of subrogation against MRL, and on October 22, 1991, the Cascade County suit against MRL was transferred to Lewis and Clark County. On November 7, 1991, the First Judicial District Court consolidated the two suits and dismissed FUMI's separate complaint for intervention. The parties stipulated that the issues of negligence would not be tried and that the trial would be limited to the issue of proximate cause and damages.

Park Plaza and FUMI could not agree on the amounts of damage sustained by Park Plaza, including the amounts of personal property damage and business interruption losses. An appraiser was hired and at trial Park Plaza sought $491,111 in business interruption losses for the period between February 2, 1989 and December 31, 1989.

On January 3, 1992, Park Plaza filed a cross-claim against FUMI, asserting that FUMI could not recover its damages until Park Plaza was made whole. Park Plaza's contention was that the policy payment paid by FUMI was short of the total damages it had sustained. On August 27, 1992, the court granted partial summary judgment against MRL and in favor of Park Plaza and FUMI for damages caused to each by the power outage. Following a bench trial the court ordered MRL to pay $411,155 to FUMI for the money it had paid Park Plaza and $122,441 to Park Plaza for the damages sustained over and above the policy limits of the FUMI policy. The court ordered that the time period for which Park Plaza could recover was from the date of the train wreck until November of 1989, because Park Plaza went ahead with previously scheduled remodeling in November of 1989. The court left pending Park Plaza's cross-claim against FUMI for attorney fees.

In July of 1993, the court held a hearing specifically to determine whether Park Plaza should be reimbursed for its attorney fees and costs involved in the lawsuit with MRL. Also in July of 1993, an appeal was filed to this Court for review of the District Court's determination following the bench trial. We affirmed that decision. DeTienne Associates Limited Partnership and Park Plaza Hotel, Inc. v. Montana Rail Link (1994), --- Mont. ----, 869 P.2d 258, 51 St.Rep. 125.

Following the subsequent court hearing involving attorney fees, the court ruled that Park Plaza was entitled to its fees and costs plus interest before FUMI could assert its right of subrogation against MRL. The result of this ruling would require FUMI to pay Park Plaza's attorney fees for the bench trial. FUMI appeals this ruling.

Did the District Court err in ordering that Farmers Union Mutual Insurance Company must pay Park Plaza's attorney fees and costs, plus interest, before Farmers could assert its subrogation rights?

The resolution of this case involves the District Court's interpretation of existing case law involving subrogation rights. We review a District Court's interpretation of law as to whether it is correct. Steer, Inc. v Department of Revenue (1990), 245 Mont. 470, 803 P.2d 601.

The District Court determined that Park Plaza was entitled to be made whole including reimbursement of attorney fees and costs before FUMI could subrogate its interests against the insured or the tortfeasor (MRL). The court based this ruling on a prior case decided by this Court, Skauge v. Mountain States Tel. and Tel. Co. (1977), 172 Mont. 521, 565 P.2d 628. Further, the court determined that Park Plaza had paid premiums to FUMI so that it could be made whole should it be injured.

FUMI argues that it should not have to pay Park Plaza's attorney fees and costs, plus interest, because it is entitled to bring an action for subrogation in its own name. Further, FUMI argues that only when the insurer is seeking reimbursement from an insured who has recovered his total loss from the tortfeasor is the insurer prevented from subrogating until the insured is made whole.

Park Plaza argues that the rule in Skauge applies and FUMI cannot recover from MRL until Park Plaza has recovered the total sum of its losses. Also, Park Plaza contends that the specific subrogation provision in its policy states that it has the right to recover for its total losses before FUMI can subrogate its own interests. FUMI interprets this subrogation provision as meaning that it, the insurer, must be permitted to recover all the monies it paid to Park Plaza.

The clause as included in Park Plaza's policy states:

Subrogation.

(a) In the event of any payment under this policy, the Company shall be subrogated to all the insured's rights of recovery against any third person or organization and the insured shall execute and deliver instruments and papers and do whatever else is necessary to secure such rights. The insured shall do nothing after loss to prejudice such rights. (Emphasis added.)

However, what we must determine on review is not only the interpretation of this provision, but also what significance it has to the entire purpose of subrogation.

We have already determined the purpose of "subrogation":

The purpose of subrogation is to prevent injustice by "compelling the ultimate payment of a debt by one who, in justice, equity, and good conscience, should pay it. It is an appropriate means of preventing unjust enrichment."

Youngblood v. American States Insurance Co. (1993), 262 Mont. 391, 866 P.2d 203; citing Bower v. Tebbs (1957), 132 Mont. 146, 155, 314 P.2d 731, 736.

Subrogation is the substitution of another person in the place of the creditor, so that the person substituted will succeed to the rights of the creditor in relation to the debt or claim, and is an act of the law growing out of the relation of the parties to the original contract of insurance, and the natural justice or equities arising from the fact that the insurer has paid the insured, rather than a right depending upon the contract.

Youngblood, 262 Mont. at 394-96, 866 P.2d 203.

FUMI attaches great weight to the subrogation provision in Park Plaza's policy and would have us interpret it to require that FUMI must be totally reimbursed for all monies it paid to the insured. FUMI contends that given this interpretation, the clause prohibits its payment of Park Plaza's attorney fees because if it has to pay the insured's costs and attorney fees, the insurer would have to subtract this amount from its total recovery. Such an interpretation is negated by what we have determined to be the purpose of subrogation.

That purpose is not to ensure that the risk-taker, the insurer, be compensated for all money it paid to policy holders:

[T]he insurer cannot assert any claim by way of subrogation unless the insured has a claim against the third person to which the insurer can be subrogated for the reason that the subrogated insurer stands in no better position than the insured, and cannot recover over against the wrongdoer unless the insured could have done so, for if the insured had no right of action against the wrongdoer none can pass to the insurer by way of subrogation.... Otherwise stated, subrogation by definition and of necessity presupposes the existence of a right of the insured against some third person or fund ...

G. Couch and R. Anderson, 16 Couch Cyclopedia of Insurance Law, Subrogation, § 61:114, pgs. 183-184 (1983).

Relying on Skauge, the District Court determined that while FUMI was entitled to be subrogated, it had to reimburse Park Plaza for its attorney fees and costs involved in the litigation with the tortfeasor. Such reimbursement was required to make the insured whole. FUMI contends this reliance is error because of the different set of facts in Skauge--basically, the...