Skauge v. Mountain States Tel. & Tel. Co.

• Decision Date: 07 July 1977
• Docket Number: No. 13371,MONTANA-DAKOTA,13371
• Citation: 565 P.2d 628,34 St.Rep. 450,172 Mont. 521
• Parties: John A. SKAUGE and Linda Skauge, Plaintiffs and Appellants, v. MOUNTAIN STATES TELEPHONE AND TELEGRAPH COMPANY and Montana-Dakota Utilities Company, Defendants and Respondents.UTILITIES COMPANY, Third-Party Plaintiff, v. John A. SKAUGE and Linda Skauge, and Unigard Insurance Group, Third-Party Defendants.
• Court: Montana Supreme Court

Page 628

565 P.2d 628

172 Mont. 521

John A. SKAUGE and Linda Skauge, Plaintiffs and Appellants, v. MOUNTAIN STATES TELEPHONE AND TELEGRAPH COMPANY and Montana-Dakota Utilities Company, Defendants and Respondents.

MONTANA-DAKOTA UTILITIES COMPANY, Third-Party Plaintiff, v. John A. SKAUGE and Linda Skauge, and Unigard Insurance

Group, Third-Party Defendants.

No. 13371.

Supreme Court of Montana.

Submitted March 18, 1977.

Decided May 31, 1977.

Rehearing Denied July 7, 1977.

Cate, Lynaugh, Fitzgerald & Huss, William P. Fitzgerald argued, Billings, for plaintiffs and appellants.

Hooks & Sherlock, Jeffrey M. Sherlock argued, Townsend, Hughes, Bennett & Cain, Helena, Crowley, Haughey, Hanson, Gallagher & Toole, Billings, for defendants and respondents.

HATFIELD, Chief Justice.

On September 10, 1973 the rented home of John and Linda Skauge in Billings, Montana was destroyed by an explosion and fire which consumed all of their personal possessions. The Skauges had a fire insurance policy with Unigard Insurance Group (Unigard), which insured the Skauges' personal property to the extent of $4,000 plus $400 for incidental living expenses in case of loss. This policy contained the following provision:

"Subrogation : This Company may require from the insured an assignment of all right of recovery against any party for loss to the extent that payment therefore is made by this Company."

After determining that the loss exceeded the policy limits, Joseph Tobin, acting as adjuster for Unigard, delivered a draft for $4,328.98 to plaintiffs' attorney, together with a proof of loss form to be signed by Skauges. Plaintiffs' attorney sent the draft and the proof of loss to the Skauges. The Skauges then returned the proof of loss to their attorney with a request that he reserve subrogation rights in the Skauges. The proof of loss was subsequently returned to the Skauges with the language granting subrogation to Unigard struck out, and inserted the words: "The right to sue tort-feasors is reserved to the insured." The Skauges subsequently signed the proof of loss and cashed the draft. The proof of loss was never delivered to Unigard.

On February 14, 1974, the Skauges filed a complaint alleging that Mountain Bell Telephone and Telegraph Company (Mountain Bell) and Montana Dakota Utilities Company (MDU) negligently caused the explosion and fire which destroyed their personal possessions and sought $11,267.32 as the total amount of their loss. We note that this action was commenced by the Skauges through retained counsel, and at this stage Unigard was in no way involved in this litigation. Mr. Tobin testified that he learned of this litigation on June 6, 1974, and thereafter informed Unigard. Then on September 27, 1974 MDU filed a third party complaint against Skauges and Unigard, alleging Unigard's right of subrogation, and requesting the district court to ascertain who was entitled to any damages for which MDU might eventually be held liable. Thereafter, Unigard first appeared in this litigation on December 24, 1974 by filing a motion to dismiss in response to MDU's third party complaint. The subrogation issue was eventually severed from the Skauges' original tort action and tried separately. The original tort action was continued, pending the outcome of the subrogation issue.

The district court, sitting without a jury, made a finding of fact that Joseph Tobin and plaintiffs' attorney had not come to an actual meeting of the minds as to the right of subrogation. Consequently, the district court concluded that Unigard was entitled to be subrogated to the extent of its payment to Skauges, that such right was not waived by Unigard, nor was it subject to any limitation in amount. Neither party contests the district court's findings of fact, however the Skauges object to the above mentioned conclusion of law. The Skauges have raised three issues, and have pled them in the alternative:

1) Whether or not Unigard is entitled to subrogation absent a written assignment by the Skauges?

2) If so, is Unigard's subrogation limited to the portion of the Skauges' recovery from MDU and Mountain Bell which exceeds the sum of the Skauges' total loss and their costs of recovery, including attorney's fees? and

3) Did Unigard waive any right of subrogation it may have had by remaining inactive in the Skauges' lawsuit?

Subrogation is a device of equity which is designed to compel the ultimate payment of a debt by the one who in justice, equity and good conscience should pay it. Bower v. Tebbs, 132 Mont. 146, 314 P.2d 731. A property insurer who has indemnified the insured is usually subrogated to any rights the insured may have against the third party who is responsible for the loss. The theory behind this principle is that absent repayment of the insurer the insured would be unjustly enriched by virtue of recovery from both the insurer and the wrongdoer, or in absence of such double recovery by the insured, the third party would go free despite his legal obligation in connection with loss. 16 Couch on Insurance 2d, Subrogation, § 61.18; Standard Acc. Ins. Co. v. Pellecchia, 15 N.J. 162, 104 A.2d 288; Fidelity & Cas. Co. of N. Y. v. First Nat. Bank in Ft. Lee, D.C., 397 F.Supp. 587. Subrogation is classified as legal or conventional; legal subrogation arises by operation of law, upon the fact of payment made by the insurer; whereas conventional subrogation arises by the contract of the parties. 16 Couch on Insurance 2d, Subrogation, § 61.2; Kroeker v. State Farm Mutual Automobile Ins. Co., (Mo.App.1971) 466 S.W.2d 105. Furthermore, the parties may by agreement waive or limit subrogation. Fire Ass'n of Philadelphia v. Schellenger, 84 N.J.Eq. 464, 94 A. 615; Home Insurance Co. v. Hartshorn, 128 Miss. 282, 91 So. 1; Merchants Fire Assur. Corporation of New York v. Hamilton Co., 76 R.I. 294, 69 A.2d 551; Hardware Mut. Ins. Co. v. Dunwoody, 9 Cir., 194 F.2d 666.

The Skauges have cited these latter four cases and have contended that the insurance policy made Unigard's right of subrogation conditional upon a written assignment from the Skauges. However, the cases cited by the Skauges are easily distinguished by a comparison of the policy provisions involved. In each of the four cases cited above the policy provision in question stated:

"Subrogation. If this company shall claim that the fire was caused by the act or neglect of any person or corporation, this company shall, on payment of the loss be subrogated to the extent of such payment to all right of recovery by the insured for the loss resulting therefrom, and such right shall be assigned to this company by the insured on receiving such payment." (Emphasis supplied.)

On the other hand, the policy provision in the present case states:

"This Company may require from the insured an assignment of all right of recovery against any party for loss to the extent that payment therefore is made by this Company." (Emphasis supplied.)

This provision contains no conditional language, nor does it specifically refer to "subrogation" as does the policy language in the other cases. In addition to this there exists the legal distinction between an "assignment" and "subrogation". As stated in 16 Couch on Insurance 2d, Subrogation, § 61.92, supra:

"Subrogation is the substitution of another person in the place of the creditor, so that the person substituted will succeed to the rights of the creditor in relation to the debt or claim, and is an act of the law growing out of the...