Ex parte State Farm Fire and Casualty Co.
| Decision Date | 21 January 2000 |
| Citation | 764 So.2d 543 |
| Parties | Ex parte STATE FARM FIRE AND CASUALTY COMPANY. (Re: State Farm Fire and Casualty Company v. Scott Hannig and Staci Hannig). |
| Court | Alabama Supreme Court |
Micheal S. Jackson and Roderick N. Nelson of Beers, Anderson, Jackson, Nelson, Hughes & Patty, P.C., Montgomery, for petitioner.
Michael K. Beard of Rives & Peterson, P.C., Birmingham, for respondents.
Albert L. Jordan and Kimberly R. West of Wallace, Jordan, Ratliff & Brandt, L.L.C., Birmingham, for amicus curiae Blue Cross and Blue Shield of Alabama, in support of the petitioner. MADDOX, Justice.
This case involves a subrogation claim filed by an insurer against alleged tortfeasors to recover amounts it had paid to its insured. This Court granted certiorari review specifically to re-examine the rule that an insurer that has paid claims of its insured has no subrogation rights against a tortfeasor who harmed the insured until the insured is "made whole." That rule was established in Powell v. Blue Cross & Blue Shield of Alabama, 581 So.2d 772 (Ala.1990), and its progeny, Sharpley v. Sonoco Products Co., 581 So.2d 792 (Ala. 1990); McKleroy v. Wilson, 581 So.2d 796 (Ala.1990); Peck v. Dill, 581 So.2d 800 (Ala.1991); Complete Health, Inc. v. White, 638 So.2d 784 (Ala.1994); Alfa Mut. Ins. Co. v. Head, 655 So.2d 975 (Ala.1995); and GEICO Ins. Co. v. Lyons, 658 So.2d 445 (Ala.1995).1
State Farm Fire and Casualty Company ("State Farm") and its insured, Ken Belmore, sued Scott Hannig and Staci Hannig, alleging that the Hannigs were responsible for a fire that damaged a house that was owned by Belmore and insured by State Farm. State Farm sought to recover money it had paid to its insured under the terms of its policy insuring the house. The trial court granted the Hannigs' motion for summary judgment, and the Court of Civil Appeals affirmed the summary judgment. State Farm Fire & Cas. Co. v. Hannig, 764 So.2d 538 (Ala.Civ. App.1999). For the reasons discussed below, we reverse the judgment of the Court of Civil Appeals, and we remand the case.
Facts and Procedural History
In March 1994, Ken Belmore contracted with Scott and Staci Hannig for Belmore to buy the Hannigs' house. The parties closed the sale on May 18 of that year, but the contract allowed the Hannigs to remain in possession of the house until May 27. Belmore obtained insurance coverage on the house from State Farm; it became effective on the date of the closing. During the period after the closing but before Belmore took possession from the Hannigs, a fire caused substantial damage to the house.
Belmore filed a claim for benefits under his insurance policy, and State Farm paid him $64,884.93. Subsequently, State Farm and Belmore reached an agreement concerning the practical implications of the subrogation provisions in Belmore's policy. They agreed that State Farm would obtain counsel to represent both State Farm and Belmore and that State Farm would pay all the costs of litigation to be instituted against the Hannigs. They agreed that Belmore would receive $5,250 of any recovery against the Hannigs. Of that amount, $5,000 was to compensate Belmore for the loss of use of his house, the cost he had incurred for temporary alternative housing, and the frustration he had endured while having his house repaired. The sum of $250 was to compensate Belmore for his $250 deductible.
State Farm and Belmore sued the Hannigs. The Hannigs moved for a summary judgment against State Farm, arguing that State Farm had not fully made Belmore whole and therefore was not entitled to any subrogation damages. The trial court granted that motion. Belmore subsequently settled with the Hannigs for $5,000, and the case was dismissed.
State Farm appealed from the summary judgment, and the Court of Civil Appeals affirmed. We have granted State Farm's petition for certiorari review.
Discussion
It is apparent from a reading of the main opinion of the Court of Civil Appeals that although the Court of Civil Appeals followed the law as stated in Powell, two of its members thought Powell had been incorrectly decided by a plurality of this Court. That main opinion stated that this 764 So.2d at 542.
Judge Thompson stated in the main opinion for the Court of Civil Appeals:
Id. at 542 (emphasis added).
We agree with Judge Thompson that in Powell a plurality of this Court did make a "sharp departure" from the law of subrogation that had previously existed in this State. In International Underwriters/Brokers, Inc. v. Liao, supra, this Court had held that the normal equitable rules of subrogation could be modified by contract,2 but, as pointed out by Judge Thompson, this Court reversed course a year later in Powell and has continuously followed the Powell rationale in subsequent cases.
As Judge Thompson's opinion concludes, and as State Farm recognizes, if we apply the Powell rationale to the facts and circumstances of this case, then we must conclude that the trial court and the Court of Civil Appeals reached the correct result. Recognizing that Powell does control if it is not modified or changed, State Farm argues that this Court should overrule Powell and reinstate the prior rule of Liao.
Although we have a healthy respect for the principle of stare decisis, we should not blindly continue to apply a rule of law that does not accord with what is right and just.3 In other words, while we accord "due regard to the principle of stare decisis," it is also this Court's duty "to overrule prior decisions when we are convinced beyond ... doubt that such decisions were wrong when decided or that time has [effected] such change as to require a change in the law." Beasley v. Bozeman, 294 Ala. 288, 291, 315 So.2d 570, 572 (1975) (Jones, J., concurring specially).
What, then, are the competing interests in this case? On the one hand, the doctrine of stare decisis supports the Hannigs' argument that the trial court appropriately applied the rule of Powell and its progeny and that the judgment of the trial court should be affirmed. On the other hand, as Judge Thompson pointed out in this case, application of the Powell rule "confers an unjust benefit on [a] tortfeasor, who is permitted to escape responsibility for his or her wrongdoing." Hannig, 764 So.2d at 542.
Powell was decided eight years ago; it overruled Liao, which had been decided the previous year. We recognize that the doctrine of stare decisis supports the argument that Powell and its progeny should not be overruled. Based on the considerations stated above, however, we conclude that time has revealed the inherent inequity in applying the Powell rule; therefore, "we are convinced beyond ... doubt that [Powell and the other cases listed above that apply the Powell rule] were [wrongly] decided;"4 that they should be overruled; and that the rule of Liao should be reinstated.
In Liao, this Court asked and answered a question relating to the right of an insurer to be subrogated when it has paid a claim under the terms of a contract. The Court asked:
"Is the general rule that a subrogee is not entitled to recover, absent full recovery by the insured ..., in any way altered by the fact that the subrogation interest is based on a contract between the parties?"
Liao, 548 So.2d at 165. The Court's answer was:
"We recognize that, while the doctrine of subrogation is of purely equitable origin and nature, it may be modified by contract."
Id., 548 So.2d at 165-66. Applying that rule to the facts of this case, we conclude that the judgment of the Court of Civil Appeals is due to be reversed. We reverse that judgment, and we instruct the Court of Civil Appeals to reverse the summary judgment against State Farm and to remand the case for further proceedings consistent with this opinion.
REVERSED AND REMANDED WITH INSTRUCTIONS.
Unsatisfactory results can occur no matter how we deal with an insurer's right to contract out from under the general rule that prevents subrogation to the rights of the insured against a third party until the insured has been made whole.5 On the one hand, enforcing an insurer's contractual right to intercept funds recovered by the insured from the tortfeasor, regardless of whether the insured has been made whole, allows an insurer to reimburse itself for sums previously paid to the insured under the terms of its obligation to the insured, at the expense of the insured's right to full compensation for a loss or injury. Yet, on the other hand, insisting upon an insured's being made whole as a prerequisite to the insurer's right to subrogation permits a tortfeasor to escape accountability where an insurance policy compensates the victim for only a part of his...
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...law." Beasley v. Bozeman, 294 Ala. 288, 291, 315 So.2d 570, 572 (1975) (Jones, J., concurring specially).’" Ex parte State Farm Fire & Cas. Co., 764 So.2d 543, 545–46 (Ala. 2000) (footnote omitted). ‘As strongly as we believe in the stability of the law, we also recognize that there is meri......