Johnson v. Beane

• Citation: 541 Pa. 449,664 A.2d 96
• Parties: Leslie Ann JOHNSON, Appellant, v. George L. BEANE and State Auto Mutual Insurance Company, Appellees.
• Decision Date: 22 August 1995
• Court: United States State Supreme Court of Pennsylvania

Page 96

664 A.2d 96

541 Pa. 449

Leslie Ann JOHNSON, Appellant, v. George L. BEANE and State Auto Mutual Insurance Company, Appellees.

Supreme Court of Pennsylvania.

Argued Dec. 6, 1995.

Decided Aug. 22, 1995.

Richard C. Angino, Harrisburg, for L.A. Johnson.

F. Lee Shipman, Harrisburg, for G.L. Beane and State Farm Mutual.

Before NIX, C.J., and FLAHERTY, ZAPPALA, PAPADAKOS, CAPPY, CASTILLE, MONTEMURO, JJ.

OPINION

ZAPPALA, Justice.

This case requires us to determine the effect of payment received by an injured accident victim from her own underinsured motorist carrier on any claims the victim has against the tortfeasor. For the reasons enumerated herein, we hold that when an injured party is fully compensated for a particular loss by her underinsurance carrier, her right to sue the tortfeasor is extinguished. By operation of law, the underinsurance carrier acquires the right to sue the tortfeasor to recover the amount it paid its insured.

A recitation of the complex factual scenario allows a better understanding of the case. On August 25, 1985, Appellant Leslie Ann Johnson and Appellee George L. Beane were involved in an automobile accident. Beane admitted liability but his insurance company, Appellee State Auto Mutual Insurance Company, (State Auto), refused to settle for the policy limit of $25,000. The case went to trial on the issue of damages and the jury returned a verdict of $200,000 in Appellant's favor. Appellant requested $175,000 from her underinsured motorist carrier, Erie Insurance Group, (Erie). ¹ No agreement was reached and Appellant filed a Petition to Compel Underinsured Motorist Arbitration.

In the meantime, on July 13, 1987, the trial court ruled on Beane's post-trial motions and ordered a remittitur reducing the verdict to $75,000 or, alternatively, if the remittitur was not accepted, granting Beane's motion for a new trial. No appeal was taken and Appellant filed a praecipe to enter judgment on July 30, 1987. State Auto paid the $25,000 policy limit. Appellant agreed to settle with Erie for the remaining $50,000 of the judgment and Appellant executed a Release and Agreement which states in pertinent part:

... In consideration of such payment, I agree as follows: 1) to subrogate Erie Insurance Exchange/Erie Insurance Company to my right of recovery against any person or party legally liable to me for the amount of and for the purpose of the payment noted above; 2) that I have not and will not make any separate settlement with nor give any separate release to any person or parties who caused or alleged to have caused me the above mentioned loss or accident; 3) to authorize my attorneys, Angino & Rovner, P.C., to proceed with a bad faith/excess action against State Auto; and 4) to cooperate in prosecuting said action.

It is my understanding that Erie has agreed to advance any out-of-pocket expenses reasonably necessary to prosecute the bad faith/excess action against State Auto and if said action is successful Erie has agreed to pay its pro rata share of attorneys fees and expenses as per the contingent fee agreement entered into by Angino & Rovner, P.C. and myself....

Appellant thereafter received the $50,000 from Erie. Although Erie initially intended to join with Appellant in bringing a bad faith action against State Auto, it decided not to pursue the matter any further. By letter of February 12, 1988, Appellant's counsel advised Erie of its understanding that Erie was waiving its subrogation interest and requested that Erie advise him immediately if his understanding was incorrect. Erie did not respond to the letter.

Appellant subsequently commenced the instant "bad faith garnishment action" against Beane's insurer, State Auto, by filing a Writ of Execution for $50,000 plus interest based upon the existing judgment against Beane, naming State Auto as garnishee. ² Appellant alleged that State Auto had acted in bad faith in dealing with Beane by failing to settle the claim for the policy limits. ³ State Auto filed a motion for summary judgment which the trial court denied, finding that there were genuine issues of material fact for a jury to weigh in determining whether State Auto acted in bad faith. The court further found that the recovery from Erie was from a collateral source and was irrelevant to the proceedings.

A jury trial was held which resulted in a mistrial. State Auto filed a second motion for summary judgment which was again denied. On February 25, 1991, State Auto filed a petition for a rule to show cause why the judgment entered against Beane should not be marked satisfied and the garnishment proceeding should not be dismissed without prejudice. The trial court then issued an opinion and order dismissing the garnishment proceeding, holding that Appellant effectively assigned her right to recover to Erie in exchange for payment of the entire sum due her.

The Superior Court affirmed in an opinion by Judge Popovich, with Judge Johnson concurring and Judge McEwen dissenting. The lead opinion held that because Appellant was paid the full amount of the remitted verdict in exchange for subrogating her right of recovery to Erie, Erie acquired the right to pursue any action against State Auto. The majority also found the collateral source rule inapplicable since a judgment in Appellant's favor had already been rendered and her receipt of payment from her underinsurer did not diminish the amount to which she was entitled.

In his concurring opinion, Judge Johnson found that the claim against State Auto was subrogated to Erie on the basis that Erie had paid the entire remainder of the judgment, regardless of whether the "agreement" between Appellant and Erie would have also conferred the right.

Judge McEwen dissented, noting that the judgment against Beane was not satisfied since the payment by Erie was from a collateral source. He concluded that Erie would have a claim in subrogation against any monies subsequently recovered by its insured (Appellant) from the tortfeasor (Beane).

Appellant first contends that the collateral source rule prohibits Beane and State Auto from benefiting from the payments she received from Erie. She argues that a tortfeasor should not enjoy the benefits of a policy for which the injured victim paid a separate premium.

The collateral source rule provides that payments from a collateral source shall not diminish the damages otherwise recoverable from the wrongdoer. See generally, Beechwoods Flying Service, Inc. v. Al Hamilton Contracting Corp., 504 Pa. 618, 476 A.2d 350 (1984). The principle behind the collateral source rule is that it is better for the wronged plaintiff to receive a potential windfall than for a tortfeasor to be relieved of responsibility for the wrong.

Although we reaffirm the collateral source rule in general, we find it inapplicable to the instant case since the tortfeasor's liability is not being reduced. When the $25,000 policy limit was paid by State Auto, the outstanding judgment of $75,000 was reduced to $50,000. By accepting the $50,000 underinsurance benefits from Erie, Appellant did not reduce the amount of the tortfeasor's liability. Beane is still liable for $50,000. The question becomes to whom is he liable. Because we are not dealing with a situation where the liability of a tortfeasor is being reduced or extinguished, the collateral source rule does not apply.

We must next determine whether Appellant can commence any further action against the tortfeasor. The Superior Court held that there was no debt owing from Beane to Appellant since Appellant had been fully compensated by Erie. We agree. Specifically, we agree with Judge Johnson's concurring opinion which held that regardless of the language contained in the Release and Agreement, Appellant's claim passed to Erie by virtue of the fact that Erie paid the remainder of the judgment.

The goal of subrogation is to place the burden of the debt upon the person who should bear it. The equitable doctrine of subrogation places the subrogee in the precise position of the one to whose rights he is subrogated. Allstate Insurance Company v. Clarke, 364 Pa.Super. 196, 201, 527 A.2d 1021, 1024 (1987). As subrogee, Erie now stands in the shoes of Appellant and may pursue an action to recover the amount it paid to Appellant. It is of no moment to Appellant if Erie decides not to pursue its right of recovery.

The cases relied upon by Appellant for the proposition that the subrogor may still maintain an action against the tortfeasor are distinguishable. Associated Hospital Service of Philadelphia v. Pustilnik, 262 Pa.Super. 600, 396 A.2d 1332 (1979), vacated on other grounds, 497 Pa. 221, 439 A.2d 1149 (1981) (Blue Cross/Blue Shield subrogation); Furia v. Philadelphia, 180 Pa.Super. 50, 118 A.2d 236 (1955) (subrogation claim of city to recover wage payments made to injured police officer); Demmery v. N.U.F. Insurance Company, 210 Pa.Super. 193, 232 A.2d 21 (1967) (insurer's medical expense subrogation); and, Walls v. City of Pittsburgh, 292 Pa.Super. 18, 436 A.2d 698 (1981) (uninsurer subrogation). Appellant suggests that injured victim subrogors in those cases have standing and the right to pursue the tortfeasor.

Appellant fails to realize, however, that the injured parties in the aforementioned cases were not fully compensated at the time they received their collateral benefits. The insured under those circumstances could recover proceeds in excess of the amount it recovered from its insurer either because there was a deductible amount that had not been paid by the insurance company and/or because the full amount of damages arising from the accident had not yet been determined when the insurer remitted payment.

In summary, because Appellant has received the full value of the remitted verdict, she has no claim to pursue. Accordingly, the order of the Superior Court affirming the dismissal of Appellant's garnishment action is hereby affirmed.

PAPADAKOS, J.,...