Erie Ins. Co. v. George

• Decision Date: 30 May 1997
• Docket Number: No. 49S02-9610-CV-636,49S02-9610-CV-636
• Parties: ERIE INSURANCE CO., Appellant (Defendant below), v. James David GEORGE and his attorney, Gerald J. Sufleta, Appellees (Plaintiffs below).
• Court: Indiana Supreme Court

Page 183

681 N.E.2d 183

ERIE INSURANCE CO., Appellant (Defendant below), v. James David GEORGE and his attorney, Gerald J. Sufleta Appellees (Plaintiffs below).

No. 49S02-9610-CV-636.

Supreme Court of Indiana.

May 30, 1997.

Robert A. Smith, William F. McManus, Indianapolis, for Appellant.

Gerald J. Sufleta, Indianapolis, for Appellees.

Robert L. Hartley Jr., Scott S. Morrisson, Indianapolis, for Amicus Curiae Insurance Institute of Indiana, Inc.

Daniel L. Robinson, George Clyde Gray, Indianapolis, for Amicus Curiae Indiana Trial Lawyers Association.

ON PETITION TO TRANSFER

BOEHM, Justice.

This case deals with the ability of an insurer who has reimbursed part, but not all, of the insured's claim for personal injuries against a third party to institute its own action, apart from its insured's, to recover its subrogated amount. It also deals with the effect of Indiana Code § 34-4-41, which provides for subrogated insurers to bear a portion of the legal expense of collecting their and their insured's claim. We hold that an insurer may not sue independently to enforce a personal injury claim arising out of subrogation prior to resolution of its insured's claims absent an agreement with its insured granting explicit and unequivocal authority to initiate a lawsuit or settlement that governs the forum for resolution of both the insured's and insurer's claims.

Factual and Procedural History

The facts here are undisputed. On February 8, 1993, Donald Kellenberger rear-ended James David George in an auto accident in Indianapolis. George and Kellenberger were insured by Erie Insurance Company and GEICO General Insurance Company respectively. On May 8, 1993, George retained attorney Gerald J. Sufleta to represent him in his claim for personal injuries against Kellenberger. Sufleta notified Erie on May 11, 1993 of his representation and asserted an attorney's lien for fees and costs. ¹ In June 1993, in response to a claim under the medical benefits provision of George's policy, Erie sent Sufleta a check for $4080 as payment for George's medical expenses. Erie's cover letter noted that by paying these expenses it acquired a claim against Kellenberger in that amount by subrogation and conveyed its intent to assert its own subrogated interest. It is undisputed that Erie had a right of subrogation as a result of its payment pursuant to its policy insuring George. On September 24, 1993, Erie informed GEICO by letter of its right of subrogation and requested that GEICO issue Erie a separate check as reimbursement for the medical expenses "[w]hen settlement has been reached with our insured and his attorney." Even though George had not yet settled his claim, a week later Erie wrote GEICO to demand payment within ten days. Payment was not received and Erie as subrogee, without notice to Sufleta or George, initiated its own lawsuit against Kellenberger.

On February 15, 1994, George and Sufleta moved to intervene in Erie's lawsuit, alleging that Erie had no right to bring an action in its own name at this stage. They also alleged that in any event Erie was liable for a pro rata share of George's attorney's fees and costs under Indiana Code § 34-4-41-4, discussed below. At a hearing on April 21, 1994, three things happened: (1) the trial court granted the motion to intervene; (2) Kellenberger, via GEICO, filed a "complaint seeking interpleader" of Erie and Sufleta and deposited a check for $4260 ² with the court; and (3) Erie, George, and Sufleta stipulated to a dismissal of Kellenberger from the lawsuit with prejudice. George and Sufleta moved for summary judgment, contending that Erie could not bring its subrogation claim against Kellenberger directly, but rather had to pursue the claim against any settlement George received from Kellenberger. George and Sufleta also asked for attorney's fees and costs from the interpleaded funds. Erie also moved for summary judgment, arguing that as subrogee it had the right under both common law and Indiana Trial Rule 19(E)(3) to bring an action against Kellenberger in its own name once payment had been made to George. On the fee issue, Erie claimed that Sufleta was entitled to nothing because (1) he expended no effort to recover the money from Kellenberger; (2) the statute did not apply to the facts of this case; and (3) Sufleta was collaterally estopped from litigating the issue by decisions in prior lawsuits involving Sufleta's right to attorney's fees.

The trial court ruled that Erie could not sue in its own name to enforce its subrogation rights until George settled with Kellenberger or obtained a judgment against him. In the absence of a common-law right to sue independently before George had reached a settlement or judgment Erie could do so only if its policy with George so provided. The court interpreted the policy as providing that Erie could enforce its subrogation rights only after a settlement or judgment. In the interim, any damages George recovered to which Erie was entitled were to be held in trust by George until the claim was settled or finally adjudicated. The court ordered Sufleta to submit an affidavit substantiating the costs incurred in pursuing George's claim and reporting whether the claim was settled or pending. Disbursement of the interpleaded funds was delayed pending resolution of the fee issue.

Erie appealed and the Court of Appeals reversed, holding that Erie was entitled to initiate its own action against Kellenberger after payment of George's medical expenses and that a factual determination of Sufleta's contribution to securing the interpleaded funds was required before attorney's fees and costs could be awarded to Sufleta. Erie Ins. Co. v. George, 658 N.E.2d 950 (Ind.Ct.App.1995). Sufleta and George sought transfer, which was granted on October 7, 1996. Ind. Appellate Rule 11(B)(3).

Standard of Review and Issues Presented

Summary judgment is appropriate when the evidence shows there is no genuine issue of material fact and the moving party is entitled to a judgment as a matter of law. Ind. Trial Rule 56(C). Our standard of review is well established. Although Erie has the burden of persuading us that the grant of summary judgment was erroneous, we carefully assess the trial court's decision to ensure that Erie was not improperly denied its day in court. Mullin v. Mun. City of South Bend, 639 N.E.2d 278, 280-81 (Ind.1994). On summary judgment, all facts and reasonable inferences drawn from those facts are construed in favor of the nonmoving party. Wright v. Carter, 622 N.E.2d 170, 171 (Ind.1993).

Specifically, this appeal raises two questions:

I. Does Erie as subrogee have the right to bring an independent action for medical expenses paid to George? ³

II. Who is entitled to the interpleaded funds?

As explained below, we hold that Erie cannot file a lawsuit for medical expenses in its own name independent of George's claim. We also hold the Court of Appeals correctly ruled that summary judgment on the fee issue is inappropriate at this time because a factual determination remains as to Sufleta's role, if any, in obtaining the recovery from Kellenberger, and the application of Sufleta's fee arrangement with George to those facts.

I. The Substantive Law of Subrogation

A. Subrogation at common law.

Subrogation is a doctrine of equity long recognized in Indiana. It applies whenever a party, not acting as a volunteer, pays the debt of another that, in good conscience, should have been paid by the one primarily liable. See, e.g., Loving v. Ponderosa Sys., Inc., 479 N.E.2d 531, 536-37 (Ind.1985). When a claim based on subrogation is recognized, "a court substitutes another person in the place of a creditor, so that the person in whose favor it is exercised succeeds to the right of the creditor in relation to the debt." Matter of Estate of Devine, 628 N.E.2d 1227, 1230 n. 4 (Ind.Ct.App.1994). It is settled that "[s]ubrogation confers no greater right than the subrogor had at the time the surety or indemnitor became subrogated. The subrogator [sic] insurer stands in the same position as the subrogor, for one cannot acquire by subrogation what another, whose rights he claims, did not have." American States Ins. Co. v. Williams, 151 Ind.App. 99, 106, 278 N.E.2d 295, 300 (1972) (internal quotation marks and citation omitted). The ultimate purpose of the doctrine, as with other equitable principles such as contribution, is to prevent unjust enrichment. 73 AM.JUR. 2D Subrogation § 4 (1974). This string of established common-law maxims adds up to: (1) Erie, having paid George for medical bills allegedly caused by Kellenberger's negligence, has acquired an interest in George's claim against Kellenberger to that extent; but (2) Erie gets no more than George had before the payment.

B. The insurer subrogation statute.

Although subrogation is a creature of equity originally formulated and applied by courts, the Indiana Legislature in 1992 enacted a statute addressing subrogation and attorney's fees in personal injury actions. IND.CODE §§ 34-4-41-1 to 34-4-41-5 (1993). This case presents the first occasion for this Court to interpret this statute. The Court of Appeals has construed the statute in several decisions, but none involved an insurer's attempt to sue a tortfeasor in its own name to enforce subrogation rights for personal injury damages prior to some final resolution by the insured. ⁴ By its plain terms, the statute "applies to an insurer claiming subrogation or reimbursement rights to the proceeds of a settlement or judgment resulting from a legal proceeding commenced by an insured against a third party legally responsible for personal injury for which payment is made by the insurer." § 3. It obligates an insurer claiming subrogation or reimbursement rights to "pay, out of the amount received from the insured, the insurer's pro rata share of the reasonable and necessary costs and expenses of asserting the third party claim." § 4. One of the first...