Swanson v. Hartford Ins. Co. of Midwest

Citation46 P.3d 584,309 Mont. 269,2002 MT 81
Decision Date30 April 2002
Docket NumberNo. 01-198.,01-198.
PartiesHarlan and Elinor SWANSON, Plaintiffs, v. HARTFORD INSURANCE COMPANY OF the MIDWEST, Defendant.
CourtMontana Supreme Court

For Plaintiffs: Rex Palmer, Attorneys Inc., Missoula, Montana.

For Defendant: Jon T. Dyre, Crowley, Haughey, Hanson, Toole & Dietrich, Billings, Montana.

For Amicus: Gregory S. Munro, Missoula, Montana (MTLA).

Justice PATRICIA O. COTTER delivered the Opinion of the Court.

¶ 1 The following Certified Questions were presented to this Court by the U.S. District Court for the District of Montana, Missoula Division, on March 19, 2001, and accepted on March 27, 2001:

1. Is subrogation by the insurer to recover medical payments advanced to its insured, and later paid by the tortfeasor, void in Montana as against public policy?

2. Is it the public policy in Montana that an insured must be totally reimbursed for all losses as well as costs, including attorney fees, involved in recovering those losses before the insurer can exercise any right of subrogation, regardless of contract language to the contrary?

3. Does a provision in an insurance policy issued in Colorado, stating that Colorado law governs the insurer's subrogation rights for [personal injury protection] PIP benefits, violate Montana's public policy, if Colorado law allows subrogation regardless of whether the insured has been made whole and fully compensated, including attorney fees and costs?

¶ 2 We answer Certified Questions # 2 and # 3 in the affirmative. We do not answer Question # 1.

FACTUAL BACKGROUND

¶ 3 Elinor and Harlan Swanson divide their time between their two residences, spending at least six months per year in Plains, Montana, and the remaining time traveling or in their home in Colorado Springs, Colorado. They have owned their Montana home since the early 1960s but lease the land on which it is built from the U.S. Forest Service. They have owned their Colorado home since 1981.

¶ 4 On August 4, 1998, while driving their Montana-licensed Chevrolet Suburban through Ravalli, Montana, to Plains, the Swansons were involved in a motor vehicle accident with a USF/Reddaway (Reddaway) tractor-trailer. Both Mr. and Mrs. Swanson were injured in the accident and subsequently incurred over $50,000.00 in medical expenses, most of which was incurred in Montana.

¶ 5 The Swansons were insured through the Hartford Insurance Company of the Midwest (Hartford). They had purchased their automobile insurance policy in Colorado several years before the accident and had paid all premiums required under the policy. Included in this policy were several provisions that are relevant in determining the answers to the certified questions. They are:

1. a provision for "PIP" coverage, a Colorado-statutorily required type of no-fault insurance also known as "personal injury protection." Colo.Rev.Stat. §§ 10-4-701 et seq. Under PIP coverage, Hartford is required to pay certain types of losses and expenses, including medical expenses, lost wages and rehabilitation expenses;

2. a subrogation clause granting Hartford the right to recover any payments it pays to an insured under PIP coverage in the event the insured recovers damages from the party responsible for the bodily injury; and

3. a choice of law provision stating that any dispute concerning the denial or delay of PIP benefits or subrogation rights will be governed by Colorado law.

¶ 6 After the accident, the Swansons made claims under their policy for PIP coverage. Hartford paid some of the claims but denied others. Hartford subsequently learned that Reddaway's insurer, Constitution State Service Company (Constitution), intended to make payments to the Swansons. On October 7, 1998, Hartford wrote a "subrogation claim" letter to Constitution, notifying Constitution of its intent to pursue subrogation to recover monies it had paid on behalf of the Swansons.

¶ 7 On November 20, 1998, Constitution issued a check on behalf of Reddaway for $25,962.60, payable to Elinor Swanson and Hartford, indicating on the face of the check that it was for "advance payment of medical expenses."

¶ 8 In mid-December, 1998, Mrs. Swanson endorsed the check and forwarded it to Hartford with a letter from her attorney requesting that Hartford endorse the check and return it to her. Hartford did not do so at that time, but on March 23, 2000, after the Swansons had filed an action against Hartford, Hartford endorsed the check, returned it to Mrs. Swanson and waived its subrogation rights.

¶ 9 On November 11, 1999, the Swansons settled their personal injury claims against Reddaway. This settlement did not exceed the Swanson's actual damages and did not include any compensation for attorney fees or costs incurred by the Swansons to obtain recovery from Reddaway, nor did it reimburse the Swansons for insurance premiums paid to Hartford since the origination of their automobile policy. However, it is undisputed that Reddaway's limits of liability exceeded the amount of the settlement reached between the Swansons and Reddaway.

¶ 10 At some unspecified date prior to March 23, 2000, the Swansons filed an action against Hartford in the Fourth Judicial District Court of Montana, Missoula County, asserting that Hartford had breached the insurance contract and had violated the Unfair Claims Settlement Practices Act, § 33-18-201, et seq., MCA. Hartford had the case removed to the United States District Court for the District of Montana, Missoula Division, and filed a motion for partial summary judgment, requesting that the District Court determine that Colorado law governed Hartford's subrogation rights vis-à-vis the Swansons' settlement with Reddaway. The parties fully briefed the issues and participated in oral argument.

¶ 11 On March 19, 2001, Federal Magistrate Judge Leif B. Erickson submitted a Certification Order to this Court with the above three certified questions. This Court accepted the certification on March 27, 2001.

¶ 12 On September 6, 2001, this Court ordered the parties to present briefs and oral arguments to the Court en banc on November 1, 2001. In addition to the parties participating in oral argument, we granted the Montana Trial Lawyers Association (MTLA) leave to appear as amicus curiae.

DISCUSSION

¶ 13 We shall first address Certified Question # 2.

¶ 14 Certified Question # 2: Is it the public policy in Montana that an insured must be totally reimbursed for all losses as well as costs, including attorney fees, involved in recovering those losses before the insurer can exercise any right of subrogation, regardless of contract language to the contrary?

We answer this question affirmatively.

¶ 15 In 1977, this Court established the "made whole" doctrine to be applied in insurance subrogation cases. The doctrine required that an insured be "made whole" before an insurer could assert its subrogation rights, which meant that, not only must the insured recover all of her losses but also all costs of recovery as well, such as attorney fees and costs of litigation. In other words, borrowing from the language of Certified Question # 2, the insured must be "totally reimbursed for all losses as well as costs, including attorney fees." See Skauge v. Mountain States Tel. and Tel.Co. (1977), 172 Mont. 521, 565 P.2d 628.

¶ 16 In Skauge, the Skauges lost all their personal possessions when their rented home exploded and burned. The Skauges were insured through the Unigard Insurance Group, with personal property limits of $4,000.00 with a $400.00 incidental living expense allowance. The policy also contained a subrogation clause that read: "This Company may require from the insured an assignment of all rights of recovery against any party for loss to the extent that payment therefore is made by this Company." Skauge, 172 Mont. at 523, 565 P.2d at 629.

¶ 17 Unigard determined that the Skauges' loss exceeded the policy coverage and delivered to the Skauges' attorney a check for $4,328.98 and a proof of loss for the Skauges' signature. However, Skauges refused to give Unigard an assignment of rights. Skauges then attempted to recover the balance of their $11,000+ loss from the tortfeasors, and Unigard asserted its subrogation rights. Skauge, 172 Mont. at 523, 565 P.2d at 629.

¶ 18 The district court ruled that Unigard's adjuster and the Skauges had no "meeting of the minds" as to the subrogation issues and therefore Unigard was entitled to subrogation up to $4,328.98, which was the amount it had paid. Skauge, 172 Mont. at 524, 565 P.2d at 629-30. The Skauges appealed and this Court held, "that when the insured has sustained a loss in excess of the reimbursement by the insurer, the insured is entitled to be made whole for his entire loss and any costs of recovery, including attorneys fees, before the insurer can assert its right of legal subrogation against the insured or the tort-feasor." Skauge, 172 Mont. at 528, 565 P.2d at 632.

¶ 19 The Court explained its equitable holding by stating, "[w]hen the sum recovered by the Insured from the Tort-feasor is less than the total loss and thus either the Insured or the Insurer must to some extent go unpaid, the loss should be borne by the insurer for that is a risk the insured has paid it to assume." (Emphasis in original.) Skauge, 172 Mont. at 528, 565 P.2d at 632.

¶ 20 This Court reaffirmed Skauge in 1994 in DeTienne Assoc. v. Farmers Union Mut. Ins., 266 Mont. 184, 879 P.2d 704. In DeTienne, we restated the purpose of subrogation as being "to prevent injustice by `compelling the ultimate payment of a debt by one who, in justice, equity, and good conscience, should pay it. It is an appropriate means of preventing unjust enrichment.'" DeTienne, 266 Mont. at 188, 879 P.2d at 707 (citing Youngblood v. American States Ins. Co. (1993), 262 Mont. 391, 866 P.2d 203.) We rejected the insurer's argument that its contract's subrogation clause...

To continue reading

Request your trial
36 cases
  • Musselshell Ranch Co. v. Seidel–joukova, DA 10–0349.
    • United States
    • United States State Supreme Court of Montana
    • August 31, 2011
    ...We presume that if the legislature disagreed with our interpretation ... it would have amended the statute accordingly.” Swanson v. Hartford Ins. Co., 2002 MT 81, ¶ 22, 309 Mont. 269, 46 P.3d 584 (internal citation and quotation marks omitted). See also Norman J. Singer & J.D. Shambie Singe......
  • Babcock v. Casey's Mgmt.
    • United States
    • United States State Supreme Court of Montana
    • August 31, 2021
    ...See Sampson, ¶ 20; Gaustad v. City of Columbus, 265 Mont. 379, 382, 877 P.2d 470, 472 (1994); Swanson v. Hartford Ins. Co. of the Midwest, 2002 MT 81, ¶ 22, 309 Mont. 269, 46 P.3d 584; In re Adoption of Voss, 550 P.2d 481, 486 (Wyo. 1976); 2B Sutherland Statutory Construction § 50:1, Interp......
  • Babcock v. Casey's Mgmt.
    • United States
    • United States State Supreme Court of Montana
    • August 31, 2021
    ...See Sampson, ¶ 20; Gaustad v. City of Columbus, 265 Mont. 379, 382, 877 P.2d 470, 472 (1994); Swanson v. Hartford Ins. Co. of the Midwest, 2002 MT 81, ¶ 22, 309 Mont. 269, 46 P.3d 584; In re Adoption of Voss, 550 P.2d 481, 486 (Wyo. 1976); 2B Sutherland Statutory Construction § 50:1, Interp......
  • Babcock v. Casey's Mgmt., LLC
    • United States
    • United States State Supreme Court of Montana
    • August 31, 2021
    ...Sampson , ¶ 20 ; Gaustad v. City of Columbus , 265 Mont. 379, 382, 877 P.2d 470, 472 (1994) ; Swanson v. Hartford Ins. Co. of the Midwest , 2002 MT 81, ¶ 22, 309 Mont. 269, 46 P.3d 584 ; 405 Mont. 244 In re Adoption of Voss , 550 P.2d 481, 486 (Wyo. 1976) ; 2B Sutherland Statutory Construct......
  • Request a trial to view additional results
1 books & journal articles
  • Chapter 3
    • United States
    • Full Court Press Business Insurance
    • Invalid date
    ...Golchin v. Liberty Mutual Insurance Co., 460 Mass. 222, 950 N.E.2d 853 (2011). Montana: Swanson v. Hartford Insurance Company of Midwest, 46 P.3d 584 (Mont. 2002). Nebraska: Blue Cross and Blue Shield of Nebraska, Inc. v. Dailey, 687 N.W.2d 689 (Neb. 2004). New Jersey: McShane v. New Jersey......

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT