Maxwell v. Allstate Ins. Companies

• Citation: 728 P.2d 812,102 Nev. 502
• Decision Date: 04 December 1986
• Docket Number: No. 16765,16765
• Parties: Roger MAXWELL and Farmers Insurance Exchange, Appellants, v. ALLSTATE INSURANCE COMPANIES, Respondent.
• Court: Nevada Supreme Court

Page 812

728 P.2d 812

102 Nev. 502

Roger MAXWELL and Farmers Insurance Exchange, Appellants, v. ALLSTATE INSURANCE COMPANIES, Respondent.

No. 16765.

Supreme Court of Nevada.

Dec. 4, 1986.

J. Bruce Alverson and Eric Taylor, Las Vegas, for appellants.

Rawlings, Olson & Cannon and Patrick J. Murphy and J.R. Crockett, Las Vegas, for respondent.

OPINION

PER CURIAM:

The sole issue on appeal is whether an insurer's subrogation clause for medical payments paid under an insured's automobile insurance policy is void as violative of public policy. We hold that a subrogation clause under which the insurer obtains subrogation rights from its insured for medical payments violates public policy. Accordingly, we reverse.

THE FACTS

Jimmie Brown and appellant Roger L. Maxwell were in an automobile accident. Brown was injured. Maxwell was liable for Brown's injuries. Respondent, Allstate Insurance Companies was Brown's insurer. Appellant Farmers Insurance Exchange was Maxwell's insurer.

Brown's automobile insurance policy included coverage for Brown's medical expenses for injuries sustained in an automobile accident. Allstate paid Brown's medical claims. Brown's policy included a medical payments subrogation clause which provided that upon Allstate's payment under the policy Allstate shall be subrogated to the extent of such payment to all of the insured's rights of recovery.

Allstate notified Farmers of its subrogation interest on Brown's medical payments. Subsequent to this notification, Farmers entered into a settlement with Brown and obtained a release stating that it was released of any and all claims resulting from property damage and personal injury to Brown. Allstate was not paid any monies under its alleged subrogation right. Allstate brought the instant action asserting that it was entitled to subrogation to the extent of the medical payments it had made under Brown's policy provision. Both parties filed motions for summary judgments. The district court granted Allstate's cross-motion for summary judgment.

THE LAW

On appeal, Farmers contends that the medical payments subrogation clause in automobile insurance policies contravenes public policy and is therefore void. We have previously considered this type of subrogation clause in Davenport v. State Farm Mutual Automobile Company, 81 Nev. 361, 404 P.2d 10 (1965). Our decision in that case rested upon the statutory interpretation of NRS 41.100 which was subsequently amended. We did not reach the issue of whether such a clause violated public policy. Therefore, Davenport is not controlling.

In 1967 in response to this court's decision in Davenport the legislature amended NRS 41.100 to prohibit the subrogation of medical payments by insurance companies. ¹ In 1969 the legislature further amended NRS 41.100 to preclude an insurance company from requiring the insured to execute a trust or loan receipt in favor of the insurer prior to receiving medical payments under his insurance policy. ²

In 1979 the legislature consolidated and amended the statutory provisions relating to civil actions for wrongful death. These statutory amendments included the amendment of NRS 41.100. Specifically, the legislature deleted former NRS 41.100(3). ³ The legislative history pertaining to this particular amendment is silent as to any legislative policy concerns which may or may not have served as the basis for the amendment. Assuming, without deciding, that a medical payments subrogation clause would now be statutorily permissible, we consider whether the subrogation clause violates public policy.

When insurance companies began to incorporate a medical payments subrogation clause in automobile insurance policies, opposition to the inclusion was primarily based upon the contention that the subrogation clause was an attempt to assign a personal injury claim which the common law prohibited. See Higgins v. Allied American Mutual Fire Ins. Co., 237 A.2d 471 (D.C.App.1968). Courts' reasoning and response to this argument are varied and diverse. Id.; see also Allstate Insurance Company v. Reitler, 628 P.2d 667 (Mont.1981); Rinehart v. Farm Bureau Mut. Ins. Co. of Idaho, Inc., 96 Idaho 115, 524 P.2d 1343 (1974). We need not consider the characterization of this type of an assignment. Whether the subrogation clause is viewed as an assignment of a cause of action or as an equitable lien on the proceeds of any settlement, the effect is to assign a part of the insured's right to recover against a third-party tortfeasor. Reitler, 628 P.2d at 670. We hold such an assignment is invalid. We are cognizant that in so doing we join a minority of jurisdictions so holding. See Reitler, 628 P.2d at 668-670.

In the context of automobile insurance, we have consistently upheld the fundamental principle that an insured is entitled to receive the insurance benefits for which he has paid a premium. See Mid-Century Ins. Co. v. Daniel, 101 Nev. 433, 705 P.2d 156 (1985); Neumann v. Standard Fire Ins., 101 Nev. 206, 699 P.2d 101 (1985). Sullivan v. Dairyland Insurance Co., 98 Nev. 364, 649 P.2d 1357 (1982); Allstate Insurance Co. v. Maglish, 94 Nev. 699, 586 P.2d 313 (1978). ⁴ Therefore, we conclude that it violates public policy to allow an insurer to collect a premium for certain coverage and then allow the insurer to subrogate its interest and deny the insured his benefits. Precluding the subrogation of the insurer does not result in a double recovery for the insured because the insured is merely receiving the benefits for which he has already paid. Reitler, 628 P.2d at 670. Allowing subrogation deprives the insured of the coverage for which he had paid and results in a windfall recovery for the insurer. As the court in Allstate Ins. Co. v. Druke, 118 Ariz. 301, 576 P.2d 489, 492 (1978) stated, the only justification for allowing subrogation for medical payments would be the lowering of premium rates as a result of such recoupment which is generally not the case:

"Subrogation is a windfall to the insurer. It plays no part in the rate schedules (or only a minor one), and no reduction is made in insuring interests ... where the subrogation right will obviously be worth something." Patterson, Essentials of Insurance Law 151-152 (2d ed. 1957). See also 2 Richards, Law of Insurance, § 183 (5th Ed.1952) and DeCespedes v. Prudence Mut. Cas. Co. of Chicago, Ill., 193 So.2d 224, 227-28 (3d D.C.A.Fla.1966), aff'd 202 So.2d 561 (Fla.1967).

Other public policy rationales preclude an insurer's subrogation of medical payments. The injured person must bear the total costs of the suit including attorney fees. Yet under a subrogation clause the insurer collects 100 percent of the payments made with no corresponding obligation for expenses. Reitler, 628 P.2d at 670.

Further, the injured person may be unable to fully recover his actual damages. The injured person often must compromise his claim, either because of liability problems or because of limited coverage carried by the tortfeasor. Reitler, 628 P.2d at 670. The injured person's medical expense insurance coverage may not provide full indemnity. Druke, 576 P.2d at 491. The injured person suffers "out-of-pocket" losses, such as loss of income or earning power and the costs of asserting the claim and non-economic losses such as physical pain and mental anguish which are often not monetarily indemnifiable. Id. Yet under a subrogation clause the plaintiff's insurer is assured full reimbursement for its medical expense payments regardless of whether the injured person's tort recovery fully covers his actual damages. Id.; Reitler, 628 P.2d at 670. Thus, if an insurer were permitted to assert a subrogation right the injured person may recover neither his actual damages nor the benefit of the premiums he has paid.

Finally, the tortfeasor's carrier may consider that as the injured person has already been paid medical expenses his offer can be reduced proportionate to the payment that has already been made. Reitler, 628 P.2d at 670. If subrogation were permitted, the injured person may recover nothing for medical expenses. Id.

Accordingly, we hold that an insurer's medical payments subrogation clause in an...