Thiringer v. American Motors Ins. Co.

• Decision Date: 21 December 1978
• Docket Number: No. 45454,45454
• Citation: 588 P.2d 191,91 Wn.2d 215
• Parties: Henry M. THIRINGER, Respondent, and Cross-appellant, v. AMERICAN MOTORS INSURANCE COMPANY, Appellant.
• Court: Washington Supreme Court

Page 215

91 Wn.2d 215

588 P.2d 191

Henry M. THIRINGER, Respondent, and Cross-appellant, v. AMERICAN MOTORS INSURANCE COMPANY, Appellant.

No. 45454.

Supreme Court of Washington, En Banc.

Dec. 21, 1978.

Lukins, Annis, Bastine, McKay & Van Marter, Eugene Annis, Spokane, for appellant.

Randall & Danskin, Nancy E. Horgan, Spokane, for respondent.

ROSELLINI, Justice.

We are asked to determine the priorities, as between an insurer and its insured, in the proceeds of a settlement effected by the insured with the party responsible for his injuries.

At the time of the automobile accident in which the insured (respondent/cross-appellant) was injured, he carried a policy of insurance issued by the appellant (referred to hereafter as the insurer) which, in addition to other coverage, contained a provision for "Personal Injury Protection" (PIP). Under this coverage, in the event of an accident involving the insured's automobile, the insurer agreed to pay certain medical, hospital and income continuation benefits. The policy provided that if the company paid benefits under this coverage, it should be entitled to the proceeds of any settlement that might result from the exercise of the insured's right of recovery from any person responsible for the injury, to the extent that such settlement included any "expense, amount or payment for which such benefits were paid."

The policy also reserved to the insurer a right of subrogation and provided that the insured should do nothing to prejudice such right. An arbitration clause provided for resolution of any disputes as to the amount payable under the policy. ¹

The insured reported the accident to the insurer. Its employees told him that because the other driver had insurance, his PIP coverage was not available to him, and advised him to pursue his remedy against that party, who it is agreed, was solely responsible for the accident. This he proceeded to do with the assistance of counsel, and accepted a settlement of $15,000, this being the limit of the tortfeasor's liability insurance. A general release was given. The tortfeasor was a member of the armed forces, who had no other reachable assets and no prospect of acquiring any within the period of the statute of limitations.

After securing this payment, the insured, believing that the amount of his general damages exceeded the amount recovered, demanded the benefits payable under his PIP coverage. When the appellant refused to pay any part of them, this action was instituted, in which the insured sought a declaratory judgment and an order requiring the insurer to submit to arbitration the question of the amount of his general damages and the amount of PIP payable.

The court below, after hearing the evidence, determined that the settlement was reasonable and that the insurer's subrogation rights were not prejudiced by it. It held that the proceeds of the settlement should be applied first toward the payment of the insured's general damages and then, if any excess remained, toward the payment of his special damages covered by the PIP provision. The principle upon which this holding was based was that the insured was entitled to be made whole, and that only after he had made a full recovery for his damages did the insurer's right of subrogation arise. Arbitration was ordered to determine the amount of the insured's damages and to distribute the proceeds of the settlement accordingly.

The court rejected a contention of the insured that the policy provisions and the flyer advertising the PIP coverage were unfair and misleading, in violation of the Consumer Protection Act, RCW 19.86.

Both parties have appealed.

It is first argued that, by settling with the tortfeasor for an amount less than his total damages and executing a general release, the insured destroyed the insurer's right of subrogation and consequently forfeited any right which he might have had to recover under the PIP coverage. Upon oral argument, however, the insurer's attorney acknowledged that the settlement exhausted the tortfeasor's assets, both present and prospective. That being the case, the insurer was not prejudiced by the settlement, having lost nothing thereby. The insured holds the proceeds to be equitably dispensed as the rights of the parties appear, and the insurer could not have obtained more had it paid the insured and pursued the tortfeasor directly as subrogee. The rule is that if an insurer has not been prejudiced by a settlement and release, it cannot deny recovery on the policy. 6A Appleman, Insurance Law and Practice § 4093 at 261 (rev.1972). See 15 Blashfield, Automobile Law and Practice § 484.6 n. 67 (3d ed. 1969).

Furthermore, the insurer may well be estopped to contend that its liability was terminated by the settlement, since it refused to make the payments provided in the policy (under the terms of which the right of subrogation was contingent upon such payment) and encouraged the insured to pursue his remedy against the tortfeasor, offering no assistance in the pursuit. See 15 Blashfield, Supra at § 484.10; 46 C.J.S. Insurance § 1209 (1946); 6A Appleman, Supra; Annot., Rights & remedies of insurer paying loss as against insured who has released or settled with third person responsible for loss, 51 A.L.R.2d 697 (1957).

In addition, the policy quite reasonably contemplates that the insured may pursue his remedy against a third party, and the only restriction is that he must not do any act to prejudice the rights of the insurer. Since the losses covered by the PIP provision may represent only a minor portion of an insured's total damage, it would be patently unfair to require him to surrender his right of action against a third party in order to receive this payment. Also, it is unrealistic to expect that a third party will accept only a partial release when he settles a claim, under circumstances such as those presented here.

The trial court having correctly found that the insurer was not prejudiced by the settlement and release, there was no violation of the policy provisions.

The decisive issue before us concerns the allocation of the proceeds of the settlement, as between the insured and the insurer. It is the contention of the insurer that they should be allocated first to the special damages covered by the PIP provision or, in the alternative, prorated between the general damages and the PIP damages.

The general rule is that, while an insurer is entitled to be reimbursed to the extent that its insured recovers payment for the same loss from a tortfeasor responsible for the damage, it can recover only the excess which the insured has received from the wrongdoer, remaining after the insured is fully compensated for his loss. St. Paul Fire and Marine Ins. Co. v. W. P. Rose Supply Co., 19 N.C.App. 302, 198 S.E.2d 482 (1973); Propeck v. Farmers' Mut. Ins. Ass'n, 65 S.W.2d 390 (Tex.Civ.App.1933); 46 C.J.S. Insurance § 1209 at p. 155 (1946); 15 Blashfield, Automobile Law and Practice § 484.8 at 196 (rev.1972 & Supp.1977); 6A Appleman, Supra at 259; 16 Couch, Cyclopedia of Insurance Law § 60:50 (R. Anderson, 2d ed. 1966).

This rule embodies a policy deemed socially desirable in this state, in that it fosters the adequate indemnification of innocent automobile accident victims. See Cammel v. State Farm Mut. Auto. Ins. Co., 86 Wash.2d 264, 543 P.2d 634 (1975).

We find nothing in the language of the policy to indicate that the parties agreed that a different principle would apply to this contract. It provides that, if payment under the PIP coverage is made to the insured, the insurer shall be reimbursed to the extent...