Home Ins. Co. v. Hertz Corp.

Decision Date03 April 1978
Docket NumberNo. 49796,49796
Citation375 N.E.2d 115,71 Ill.2d 210,16 Ill.Dec. 484
Parties, 16 Ill.Dec. 484 The HOME INSURANCE COMPANY, Appellant, v. The HERTZ CORPORATION et al., Appellees.
CourtIllinois Supreme Court

Law Offices of Rance V. Buehler, Chicago, for appellant; Rance V. Buehler, Philip W. Domagalski, Chicago, of counsel.

Paul D. Frenz and Elias N. Matsakis, of McBride, Baker, Wienke & Schlosser, Chicago, for appellees.

UNDERWOOD, Justice:

Plaintiff, an auto insurer, filed this subrogation action in the circuit court of Cook County, seeking to recover from defendants certain payments plaintiff made to its insured under the property damage and medical payments provisions of the insured's auto policy. Defendants moved to dismiss, raising as a bar a general release running from the insured to defendants. The circuit court dismissed the complaint and the appellate court affirmed (49 Ill.App.3d 569, 7 Ill.Dec. 430, 364 N.E.2d 591), citing an "unbroken line of Illinois appellate court cases which support the circuit court's ruling that plaintiff's claim is barred by the insured's release to the defendants" (49 Ill.App.3d 569, 571, 7 Ill.Dec. 430, 432, 364 N.E.2d 591, 593). We granted leave to appeal and now reverse.

Plaintiff-insurer alleged that on August 2, 1974, defendant Gary L. Gardner, an employee of defendant Ingram Barge, Inc., negligently drove an automobile owned by defendant Hertz Corporation so as to injure plaintiff's insured and damage his auto. Plaintiff also alleged that it paid its insured's property damage and medical payments policy claims in the amount of $2,082.36 and that it thereby became subrogated to the interests of the insured to the extent of those payments. Ingram submitted in support of its motion to dismiss a full and final release of all personal injury and property damage claims arising from the accident, which release was executed by the insured in consideration of the payment to him of $6,000. It is not disputed that this release had been executed by the insured in connection with the settlement of his separate suit against the defendants here for personal injury damages and the $100 property damage paid by him under his deductible clause, and that no recovery had been sought in that suit for the property damage paid by the insurer. It is also undisputed that defendants had notice of plaintiff's subrogation rights prior to the settlement of the insured's suit and the signing of the release.

The precise question before us is whether an unlimited general release by an insured of all claims against a tortfeasor bars a subrogation action by an insurer-subrogee against that tortfeasor, where the tortfeasor procures the release from the insured-subrogor with knowledge of the insurer's interest.

It is true as defendants contend that the appellate court authority in this State supports their position. The appellate court here relied on Inter Insurance Exchange of Chicago Motor Club v. Andersen (1947), 331 Ill.App. [71 Ill.2d 212] 250, 73 N.E.2d 12, and two subsequent appellate decisions which cite Andersen with approval. (St. Louis Fire & Marine Insurance Co. v. Garnier (1960), 24 Ill.App.2d 408, 164 N.E.2d 625; Shaw v. Close (1968), 92 Ill.App.2d 1, 235 N.E.2d 830.) In Andersen, the insurer, after paying its insured under a collision policy, brought a subrogation action against the tortfeasor for property damage to the insured's automobile; it also joined the insured as a defendant, alleging that, by executing the release, he failed to protect the insurer's subrogation rights as required by the insurance contract. The tortfeasor invoked a release, signed only by the insured, as a bar to the insurer's action. Faced with deciding whether the tortfeasor or the insured should protect the insurer's subrogation interest, the appellate court chose the insured because he had a contractual relationship with the insurer while the tortfeasor did not. The court in Andersen acknowledged that "(t)he general rule seems to be that where the wrongdoer procures a release from the insured with knowledge that the insurance has been paid, the release is no bar to an action by the subrogee insurer against the wrongdoer" (331 Ill.App. 250, 254, 73 N.E.2d 12, 14), but it found that "(t)he goal of prudence in one's conduct would seem to be reached more truly by making the insured duty bound to refrain from executing a release except with the approval of the insurer" (331 Ill.App. 250, 256, 73 N.E.2d 12, 15).

While our appellate court has adhered to this position, authority elsewhere is to the contrary, allowing the insurer to recover from the tortfeasor. Sentry Insurance Co. v. Stuart (1969), 246 Ark. 680, 439 S.W.2d 797; Collins v. Mobile & Ohio R.R. Co. (1923), 210 Ala. 234, 97 So. 631; Mitchell v. Holmes (1935), 9 Cal.App.2d 461, 50 P.2d 473; Bahn v. Shalev (D.C.1956), 125 A.2d 678; Pittsburgh, Cincinnati, Chicago & St. Louis Ry. Co. v. Home Insurance Co. (1915), 183 Ind. 355, 108 N.E. 525; Sharp v. Bannon (Ky.App.1953), 258 S.W.2d 713; Pennsylvania Fire Insurance Co. v. Harrison (La.App.1957), 94 So.2d 92; Cleaveland v. Chesapeake & Potomac Telephone Co. (1960), 225 Md. 47, 169 A.2d 446; Wolverine Insurance Co. v. Klomparens (1935), 273 Mich. 493, 263 N.W. 724; Travelers Indemnity Co. v. Vaccari (1976), Minn. 245 N.W.2d 844; General Exchange Insurance Corp. v. Young (1948), 357 Mo. 1099, 212 S.W.2d 396; Omaha & Republican Valley Ry. Co. v. Granite State Fire Insurance Co. (1898), 53 Neb. 514, 73 N.W. 950; Davenport v. State Farm Mutual Automobile Insurance Co. (1965), 81 Nev. 361, 404 P.2d 10; Fire Association v. Wells (1915), 84 N.J.Eq. 484, 94 A. 619; Ocean Accident & Guarantee Corp. v. Hooker Electrochemical Co. (1925), 240 N.Y. 37, 147 N.E. 351; Nationwide Mutual Insurance Co. v. Canada Dry Bottling Co. (1966), 268 N.C. 503, 151 S.E.2d 14; Motorists Mutual Insurance Co. v. Gerson (1960), 113 Ohio App. 321, 177 N.E.2d 790; Aetna Casualty & Surety Co. v. Associates Transports, Inc. (Okl.1973), 512 P.2d 137; United Pacific Insurance Co. v. Schetky Equipment Co. (1959), 217 Or. 422, 342 P.2d 766; Hospital Service Corp. v. Pennsylvania Insurance Co. (1967), 101 R.I. 708, 227 A.2d 105; Calvert Fire Insurance Co. v. James (1960), 236 S.C. 431, 114 S.E.2d 832; Continental Ins. Co. v. Weinstein (1953), 37 Tenn.App. 596, 267 S.W.2d 521; Wichita City Lines, Inc. v. Puckett (...

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