National Mut. Ins. Co. v. Fincher

• Citation: 428 N.E.2d 1386
• Decision Date: 16 December 1981
• Docket Number: No. 2-281A35,2-281A35
• Parties: NATIONAL MUTUAL INSURANCE COMPANY, et al., Appellant (Defendant Below), v. Kenny FINCHER, Appellee (Plaintiff Below).
• Court: Court of Appeals of Indiana

Page 1386

428 N.E.2d 1386

NATIONAL MUTUAL INSURANCE COMPANY, et al., Appellant (Defendant Below), v. Kenny FINCHER, Appellee (Plaintiff Below).

No. 2-281A35.

Court of Appeals of Indiana, Fourth District.

Dec. 16, 1981.

William E. Beck II, Martin & Beck, Kokomo, for appellant.

Dan J. May, Kokomo, for appellee.

MILLER, Presiding Judge.

Appellee Kenny Fincher was injured when he was struck by a hit-and-run automobile; subsequently, he brought suit against his insurer, appellant National Mutual Insurance Company (Company), when it failed to pay his claim. Fincher received a judgment for his stipulated medical expenses, $467.44, plus costs, following a bench trial. On appeal, the Company raises two issues: 1) whether the trial court erred in entering judgment against the Company because Fincher had extinguished his right of action under his policy when he executed a "complete release" against the alleged hit-and-run driver; and 2) whether the trial court erred in allowing Fincher to proceed under the uninsured motorist provision of the policy because the provision required arbitration. For the reasons stated below we affirm.

FACTS

On June 13, 1979 Fincher was struck by a hit-and-run automobile as he stood in the yard at his girlfriend's home, resulting in knee and head injuries and a broken leg which required him to miss work and to use crutches for one month. At the time of the accident Fincher was covered by an insurance policy issued by the Company. The policy indemnified Fincher for medical expenses, within the policy limit, ¹ incurred as the result of "being struck by an automobile." In addition to the medical expenses benefits, the policy also included some coverage for "loss of income for a period of continuous disability." ² The policy also indemnified Fincher, within the policy limits, for "all sums which the insured (Fincher) ... shall be legally entitled to recover as damages from the owner or operator of an uninsured automobile because of bodily injury; ... an 'uninsured automobile' includes ... a hit-and-run automobile."

Fincher initially brought a negligence action, shortly after the accident, against Jeff McCoy in the Howard County Court, Small Claims Docket, and alleged McCoy was the Some months later, while the matter was pending, counsel for Fincher informed the Company's counsel that Fincher had received a settlement offer from McCoy in the sum of $750, whereupon the Company's counsel sent the following letter, dated July 11, 1980, to Fincher's counsel with a copy to McCoy's counsel:

driver of the hit-and-run automobile. The complaint sought $1,500 in damages for Fincher's personal injuries. While the lawsuit was pending Fincher also (unsuccessfully) sought compensation from the Company for medical injuries and for wages which he lost as a result of the accident. Consequently, Fincher added the Company as a defendant, alleging the Company had breached the insurance contract by "maliciously" denying his claim, and seeking damages for medical expenses, lost wages, and pain and suffering. ³

"This will acknowledge your letter of July 9, 1980. It is my recollection that your client's medical expenses are less than $500. Under our contract with your insured we have subrogation rights and should we ever pay any sums under our policy, we have subrogation rights to proceed to collect first and above your client. Therefore, inasmuch as you have received an offer to settle for $750 against a third party, we would suggest that you go ahead and collect this and waive your medical coverage. Should you settle with the third party, then you have jeopardized our subrogation rights and we would have to deny your claim. We are placing the third party on notice that they should do nothing in any settlement negotiations with you to jeopardize our subrogation rights.

Under the circumstances my client, Celina Group must deny your claim since you can readily collect sums of money above the medical coverage. " (Emphasis added.)

On July 31, 1980 Fincher executed a covenant-not-to sue in which Fincher, in exchange for $750, promised never to institute suit against McCoy with respect to the accident. ⁴ McCoy was not dismissed from the suit. However, the only appearances at trial were by Fincher and the Company.

As noted above, the trial court entered judgment in the amount of $467.44 plus costs for Fincher.

DECISION

The Company contends Fincher foreclosed all his rights against the Company when he covenanted not to sue ⁵ McCoy because such covenant destroyed the Company's subrogation rights against McCoy. ⁶ In support of its contention the Company cites Hockelberg v. Farm Bureau Ins. Co., (1980) Ind.App., 407 N.E.2d 1160. The plaintiff in Hockelberg was injured in an automobile collision with a vehicle owned by a trucking company. The plaintiff brought a negligence action against the driver and the trucking company. She had the suit dismissed with prejudice after reaching a settlement with the defendants. Prior to the dismissal of the suit, the plaintiff made a claim against her insurance carrier for medical expenses incurred as a result of the accident. Her insurance carrier declined payment until she signed, in accordance with the policy, a medical subrogation receipt and trust agreement which would have assigned her right of recovery against the defendants to the carrier. The plaintiff refused to sign the subrogation agreement and after her suit was dismissed, she brought an action against her insurance carrier to recover under the policy. The trial court granted summary judgment in favor of the insurance carrier, and on appeal this Court held:

"Under the facts as developed in the present case it seems apparent that (the plaintiff) foreclosed (the insurance carrier's) right to subrogation by giving the tortfeasors a complete release of all claims and by dismissing her lawsuit with prejudice when such suit encompassed all claims. Having thus destroyed (the insurance carrier's) subrogation rights, (the plaintiff) cannot recover under the policy as a matter of law and the trial court was correct in so holding."

Id. at 1162. The Company maintains that the holding in Hockelberg, supra, is controlling in the present case. We disagree.

Generally, recovery by an insured from his insurer is barred when, before the insured settles with his insurer, the insured settles with, or releases the alleged tortfeasor. Hockelberg v. Farm Bureau Ins. Co., supra; Auto Owners' Protective Exchange v. Edwards, (1922) 82 Ind.App. 558, 136 N.E. 577; 44 Am.Jur.2d Insurance § 1839 at 767 (1969). The rationale for the rule is that the release or settlement with the tortfeasor deprives the insurer of its subrogation right granted by the policy, since the insurer only has whatever rights its insured has. A policy requirement that the insured shall do nothing after the loss to prejudice his right of subrogation is generally breached by the insured when he releases or settles with the wrongdoer, and as a result extinguishes his right of action on the policy. Hockelberg v. Farm Bureau Ins. Co., supra; Hilley v. Blueridge Ins. Co., (1952) 235 N.C. 544, 70 S.E.2d 570.

However, it is also well settled that the doctrines of waiver and estoppel extend to any ground upon which liability can be denied by an insurer. Protective Ins. Co. v. Coca Cola Bottling Co., (1981) Ind.App., 423 N.E.2d 656; West v. Indiana Ins. Co., (1970) 148 Ind.App. 176, 264 N.E.2d 335. A subrogation right may be waived. Kozanjieff v. Petroff, (1939) 215 Ind. 286, 294, 19 N.E.2d 563, 566. ⁷ Other jurisdictions have established an insurer may waive its right of subrogation or be estopped to assert it, if its conduct induces the insured to settle with the wrongdoer. The courts have held waiver or estoppel by the insurer in this regard may consist of a direct suggestion of settlement, an unreasonable delay in satisfying its obligation under the policy, or an arbitrary denial of a claim. Russell Gasket Co. v. Phoenix of Hartford Ins. Co., (6th Cir. 1975) 512 F.2d 205; Weber v. United Hardware & Implement Mutuals Co., (1948) 75 N.D. 581, 31 N.W.2d 456; Powers v. Calvert Fire Ins. Co., (1950) 216 S.C. 309, 57 S.E.2d 638; Runner v. Calvert Fire Ins. Co., (1953) 138 W.Va. 369, 76 S.E.2d 244; Poole v. William Penn Fire Ins. Co., (1955) 264 Ala. 62, 84 So.2d 333; Liberty Mutual Ins. Co. v. Flitman, (1970) Fla.App., 234 So.2d 390; McNeill v. District-Realty Title Ins. Corp., (1975) D.C., 342 A.2d 55; 44 Am.Jur.2d Insurance, § 1840 at 768 (1969); see Havanich v. Safeco Ins. Co. of America, (2nd Cir. 1977) 557 F.2d 948. Initially, the insurer in Russell Gasket arbitrarily denied the insured company's claim under a policy which covered losses arising from employee embezzlement. The insured brought an action against the employees, who offered to settle for an amount equal to the limits on the policy between the insured and the insurer. The insurer advised its insured to accept the offer and to settle with the wrongdoers. After refusing the settlement offer, the insured obtained a judgment against the employees whereupon the insured filed suit against the insurer. The Court of Appeals held the conduct of the insurer in denying that the insured's losses were covered and in standing idly by while the insured pursued the wrongdoers, constituted, as a matter of law, an estoppel and waiver of the insurer's claim the insured had violated the insurer's subrogation rights. Russell Gasket Co. v. Phoenix of Hartford Ins. Co., supra at 209.

Powers v. Calvert Fire Insurance Co., supra, involved an automobile accident in which the insured suffered severe personal injuries and the total loss of his automobile. The insurer was "undoubted(ly) liable" to the insured for the loss of the automobile under a collision insurance policy. The insured promptly made a claim which was not paid by the insurer. Meanwhile the insured brought an action against the alleged tortfeasor in which the insured...