Shumpert v. Time Ins. Co.

• Decision Date: 19 March 1998
• Docket Number: No. 2782,2782
• Citation: 329 S.C. 605,496 S.E.2d 653
• Parties: Richard SHUMPERT and Lois Shumpert, Appellants, v. TIME INSURANCE COMPANY, Respondent.
• Court: South Carolina Court of Appeals

Page 653

496 S.E.2d 653

329 S.C. 605

Richard SHUMPERT and Lois Shumpert, Appellants, v. TIME INSURANCE COMPANY, Respondent.

No. 2782.

Court of Appeals of South Carolina.

Submitted Jan. 6, 1998.

Decided Jan. 12, 1998.

Rehearing Denied Mar. 19, 1998.

Mitchell J. Williams and Robert F. McMahan, Jr., both of Harris & Graves, Columbia, for Appellants.

William R. Calhoun, Jr., and William O. Sweeny, III, both of Sweeny, Wingate, Murphy & Barrow, Columbia, for Respondent.

ANDERSON, Judge:

This appeal concerns a claim for subrogation by a health insurance provider against an insured's recovery from a third-party tortfeasor. At issue is whether the insurer is entitled to subrogation when the health insurance policy does not contain a subrogation clause as provided by S.C.Code Ann. § 38-71-190 (Supp.1996). The circuit court held a health insurer may still recover under the theory of equitable subrogation in the absence of an express contractual provision for subrogation. The court denied the Shumperts' claim for bad faith. We affirm in part and reverse in part. ¹

FACTUAL/PROCEDURAL BACKGROUND

Appellant Richard Shumpert purchased a health insurance policy from Respondent, Time Insurance Company, in 1976. In July of 1991, he was seriously injured in an automobile wreck caused by another driver. Pursuant to the policy, Time paid Shumpert a total of $18,818.76 for medical bills incurred due to the accident.

The Shumperts initiated a civil action against the at-fault driver. ² By letter dated November 30, 1992, Time advised the Shumperts, through their attorney, that it had a right of subrogation. A legal assistant from the firm representing the Shumperts responded to Time on December 8, 1992 that "[w]e will honor your right of subrogation on the above referenced insured." In February of 1993, the Shumperts' attorney asked for documentation supporting Time's claim for subrogation. Time asserted it was basing its "equitable right of subrogation on South Carolina law." Time continued periodically to send letters to the Shumperts' attorney asserting its subrogation lien. However, the attorney stated that once he took control of the case, he never responded to any of these letters.

On February 16, 1996, the Shumperts' attorney informed Time the at-fault driver had agreed to a settlement. The attorney advised Time that he did not believe equitable subrogation applied in a health insurance context, and if Time did not inform him within one week that it would not assert a subrogation lien, he would "take all steps necessary to have this matter judicially resolved." The Shumperts' case against the driver was settled for $75,000.

The Shumperts thereafter brought an action against Time seeking a declaration that Time had no subrogation interest in the settlement proceeds because there was no provision in the contract for subrogation. The Shumperts alleged a claim for bad faith for The Shumperts and Time both filed motions for summary judgment. In its supporting memorandum, the Shumperts' attorney stated the December 8, 1992 letter acknowledging Time's assertion of a subrogation lien was merely a "professional courtesy," and that counsel did not address the validity of the claim because he did not have a copy of the policy at that time.

Time's assertion of a subrogation interest when it had failed to include a subrogation clause in the policy. Time answered and counterclaimed, maintaining it had an equitable subrogation interest and alleging a claim for bad faith based on Richard Shumpert's "assuring [T]ime that he would honor [Time's] subrogation claim against [the Shumperts'] settlement with a third-party tortfeasor [and by] stringing [Time] along and leading it to believe that" he was going to honor his "recognized obligation."

In an order dated December 19, 1996, the circuit court granted Time's motion for summary judgment and denied the motion made by the Shumperts. The court ruled Time was entitled to equitable subrogation in the absence of a contractual provision in the health insurance policy allowing subrogation, and determined Time was entitled to subrogation in the amount of $18,818.76. The order did not mention the bad faith claims. The Shumperts served a notice of appeal on December 31, 1996.

On January 6, 1997, Time's counsel wrote a letter to the court informing it of a typographical error in the order. ³ By letter dated January 7, 1997, the Shumperts' attorney informed the court that the December 19th order made no mention of the bad faith claims. The Shumperts' counsel did not mention an offset for attorney's fees in this letter.

In an amended order dated January 21, 1997, the court corrected the typographical error and denied both parties' claims for bad faith. The court denied any demand for contribution to litigation expenses by Time, but did not address offset for the Shumperts' litigation expenses from the subrogation award. The Shumperts appeal.

ISSUES

1. Did the circuit court err in finding a health insurance provider may obtain equitable subrogation of an insured's recovery against a third-party tortfeasor when it fails to include a subrogation provision in the health insurance policy as provided by section 38-71-190?

2. Did the circuit court err in determining the amount of Time's subrogation interest and in ruling that Time did not have to reduce its subrogation claim by the proportionate share of litigation expenses when such a reduction is required by statute?

3. Did the circuit court err in granting summary judgment in favor of Time on the Shumperts' bad faith claim?

STANDARD OF REVIEW

Summary judgment is appropriate only when it is clear there is no genuine issue of material fact and the moving party is entitled to a judgment as a matter of law. Kreutner v. David, 320 S.C. 283, 465 S.E.2d 88 (1995). In ruling on a motion for summary judgment, the trial court must view the evidence and all inferences which can be reasonably drawn therefrom in the light most favorable to the nonmoving party. Koester v. Carolina Rental Ctr., Inc., 313 S.C. 490, 443 S.E.2d 392 (1994).

LAW/ANALYSIS

1. RIGHT TO EQUITABLE SUBROGATION

The Shumperts contend the circuit court erred in concluding Time was entitled to equitable subrogation after it failed to contractually include the right to subrogation in the health insurance policy as provided by section 38-71-190. They argue the doctrine of equitable subrogation, although invoked in "Subrogation may be broadly defined as the substitution of one person in the place of another with reference to a lawful claim or right." 73 Am.Jur.2d Subrogation § 1 (1974). The general rule is that when an insurer pays its insured for a loss resulting from the tortious conduct of a third party, the insurer is subrogated to the rights of its insured against the third party. Frank B. Hall & Co. v. Bailey Lincoln-Mercury, Inc., 298 S.C. 282, 379 S.E.2d 892 (1989). Subrogation enables the insurer to recover the amount paid to its insured out of any judgment or settlement proceeds received by the insured from the third party.

the areas of property and casualty insurance, is not universally applied to health insurance policies and should not be permitted. We agree.

Subrogation can arise by statute, by contract, or through equity. Dailey v. Secura Ins. Co., 164 Wis.2d 624, 476 N.W.2d 299 (App.1991). Conventional subrogation arises by contract and is specifically bargained for by the parties. In contrast, equitable (or legal) subrogation is implied subrogation that arises under the common law.

Legal subrogation is not dependent upon contract. The doctrine is an equitable one, founded not upon any fixed law, but upon principles of natural justice; its purpose is to require the ultimate discharge of a debt by the person who in equity and good conscience ought to pay it; and it is to be applied according to the dictates of equity and good conscience in the light of the actions and relationship of the parties.

Calvert Fire Ins. Co. v. James, 236 S.C. 431, 435, 114 S.E.2d 832, 834 (1960).

The elements of the doctrine of equitable subrogation are (1) the party claiming subrogation has paid the debt; (2) the party was not a volunteer, but had a direct interest in the discharge of the debt or lien; (3) the party was secondarily liable for the debt or for the discharge of the lien; and (4) no injustice will be done to the other party by the allowance of the equity. United Carolina Bank v. Caroprop, Ltd., 316 S.C. 1, 446 S.E.2d 415 (1994).

Time argues the enactment of section 38-71-190 ⁴ permitting subrogation clauses to be included in contracts for health insurance did not abolish the availability of equitable subrogation arising under the common law. Time contends this Court has stated equitable subrogation is permissible in health insurance policies in Provident Life and Accident Insurance Co. v. Driver, 317 S.C. 471, 451 S.E.2d 924 (Ct.App.1994).

In Provident, we held an insurer did not waive, and was not estopped from asserting, its right to subrogation due to the insurer's failure to respond to three letters from the insured's attorney and, further, laches did not bar the subrogation claim. Unlike the case now before us, the health insurance policy in Provident did contain a subrogation clause. In reviewing the equitable defenses of waiver, estoppel, and laches, we stated the general principle that subrogation is an equitable procedure arising independently of the contract. Contrary to Time's assertion, we do not consider Provident dispositive because the question directly before the Court did not concern the application of subrogation in the absence of a subrogation clause in the health insurance contract and we were not asked to rule on that issue.

Other jurisdictions specifically considering the question now before us have determined the principle of equitable subrogation should not be applied to health insurance policies. E.g., Schultz v. Gotlund, 138 Ill.2d 171, 149...