Van Orden v. United Servs. Auto. Ass'n

• Decision Date: 19 February 2014
• Docket Number: No. OP 13–0430.,OP 13–0430.
• Citation: 374 Mont. 62,318 P.3d 1042
• Parties: Robert VAN ORDEN, Plaintiff, v. UNITED SERVICES AUTOMOBILE ASSOCIATION; USAA Casualty Insurance Company; USAA General Indemnity Company; and Garrison Property and Casualty Insurance Company, Defendants.
• Court: Montana Supreme Court

374 Mont. 62

318 P.3d 1042

Robert VAN ORDEN, Plaintiff,

v.UNITED SERVICES AUTOMOBILE ASSOCIATION; USAA Casualty Insurance Company; USAA General Indemnity Company; and Garrison Property and Casualty Insurance Company, Defendants.

No. OP 13–0430.

Supreme Court of Montana.

Argued and Submitted Dec. 11, 2013.

Decided Feb. 19, 2014.

For Plaintiff: Allen Page Lanning (argued), Lanning, Harris & Conklin, P.C., Great Falls, Montana.

For Appellee: David M. McLean (argued), M. Christy S. McCann, Browning, Kaleczyc, Berry & Hoven, P.C., Missoula, Montana. Paul L. Stoller, Gallagher & Kennedy, P.A., Phoenix, Arizona.

Justice BETH BAKER delivered the Opinion of the Court.

¶ 1 The United States District Court for the District of Montana, Helena Division, the Honorable Sam E. Haddon presiding, certified the following question to this Court:

¶ 2 Does Montana law prohibit an insurer from exercising its rights of subrogation to seek payment from the separate property damage coverage of the liable third-party's automobile insurance for the discrete amounts paid by the insurer for property damage where:

(a) the insured has suffered both bodily injury and property damage in an accident;

(b) the insurer's property damage payments were made under separate, optional collision coverage for physical damage to the insured's vehicle;

(c) the amounts sought from the liable third-party's automobile insurance are covered by separate property damage liability coverage that is not exhausted by the amounts sought by subrogation;

(d) the insured has been fully compensated by payment from his insurer for the property damage loss—including all costs associated with the property damage loss—and made whole as to the property damage loss that he insured as a result of the accident; and

(e) the insured contends he has not been made whole from the separate personal injury liability coverage of the liable third-party's automobile insurance and the underinsured motorist coverage of his own automobile insurance policy?

¶ 3 We accepted the certified question and now answer that Montana law does not prohibit an insurer from exercising its right of subrogation under the specific listed conditions.

PROCEDURAL AND FACTUAL BACKGROUND

¶ 4 We summarize the undisputed facts from the U.S. District Court's certification order. On October 26, 2009, Robert Van Orden (Van Orden) was involved in a motor vehicle accident caused by another driver. Van Orden carried an automobile insurance policy (the USAA Policy) through United Services Automobile Association General Indemnity Company (USAA). The USAA Policy included separate, optional collision coverage (Part D). Part D applied to losses suffered by Van Orden's vehicle as a result of a collision. It covered the actual cash value of the loss minus a $500 deductible. The USAA Policy defined “loss” as:

direct and accidental damage to the operational safety, function, or appearance of, or theft of, your covered auto or equipment and accessories that are not permanently installed in your covered auto. Loss includes a total loss, but does not include any damage other than the cost to repair or replace. Loss does not include any loss-of-use, or diminution in value that would remain after repair or replacement of the damaged or stolen property.

Other provisions of the USAA Policy included underinsured motorist (UIM) coverage with bodily injury limits of $25,000 per person and $50,000 per accident.

¶ 5 The at-fault driver maintained automobile insurance coverage at the time of the accident through Alpha Property & Casualty Insurance Company (the Alpha Policy) which was underwritten by Unitrin Specialty Insurance (Unitrin). The Alpha Policy included liability limits of $25,000 per person for bodily injuries and a separate limit of $25,000 for property damage per accident.

¶ 6 As a result of the accident, Van Orden sustained both bodily injury and property damage. His property damage included $12,261.75 in vehicle repair costs and $720 for the use of a rental car. The parties agree that this $12,981.75 is the total amount of property damage incurred by Van Orden as a result of the accident. USAA paid the vehicle repair and car rental costs directly to the merchants who supplied those services for Van Orden. Because the at-fault driver carried an active insurance policy, USAA waived Van Orden's $500 deductible; Van Orden incurred no out-of-pocket expenses for his property damage.

¶ 7 For the bodily injuries suffered because of the accident, Van Orden recovered $24,430.19 from Unitrin under the bodily injury liability limits of the Alpha Policy and $50,000 from USAA under the UIM coverage of the USAA Policy. Van Orden claims that his bodily injury damages and costs to recover those damages exceed both the payments he has received and the limits of the bodily injury liability coverage of the Alpha Policy and the UIM coverage of his Policy.

¶ 8 USAA sought subrogation for the property damage expenses from Unitrin on November 24, 2009. On December 8, 2009, Unitrin paid USAA $12,981.75 out of the property damage liability limits of the Alpha Policy.

¶ 9 On February 24, 2011, Van Orden filed an action in Montana's Eighth Judicial District Court, Cascade County, on behalf of himself and a putative class of plaintiffs. He alleged that USAA violated Montana law by seeking subrogation for property damage loss from a tortfeasor's automobile liability insurer before its insured had been made whole with respect to related personal injuries. USAA removed the action to the U.S. District Court for the District of Montana and filed a motion for summary judgment; following a hearing, the U.S. District Court certified its question to this Court.

STANDARD OF REVIEW

¶ 10 When answering a certified question from another qualifying court as permitted by M.R.App. P. 15(3), our review is “purely an interpretation of the law as applied to the agreed facts underlying the action.” BNSF Ry. Co. v. Feit, 2012 MT 147, ¶ 6, 365 Mont. 359, 281 P.3d 225 (quoting State Farm Fire & Cas. Co. v. Bush Hog, LLC, 2009 MT 349, ¶ 4, 353 Mont. 173, 219 P.3d 1249).

DISCUSSION

¶ 11 Subrogation is the “substitution of one party for another whose debt the party pays, entitling the paying party to rights, remedies, or securities that would otherwise belong to the debtor.” Black's Law Dictionary 1563–64 (Bryan A. Garner ed., 9th ed., West 2009). Subrogation acts as an equitable device “designed to compel the ultimate payment of a debt by the one who in justice, equity and good conscience should pay it.” Skauge v. Mt. States Tel. & Tel. Co., 172 Mont. 521, 524, 565 P.2d 628, 630 (1977). “ ‘It is an appropriate means of preventing unjust enrichment.’ ” DeTienne Assocs. Ltd. Partn. v. Farmers Union Mut. Ins. Co., 266 Mont. 184, 188, 879 P.2d 704, 707 (1994) (quoting Youngblood v. Am. States Ins. Co., 262 Mont. 391, 866 P.2d 203 (1993)). An insurer who has indemnified its insured usually is subrogated to the insured's rights of recovery against a third party who is responsible for the loss. Skauge, 172 Mont. at 524, 565 P.2d at 630. The policy underlying this equitable right of subrogation 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 the absence of such double recovery by the insured, the third party would go free despite his legal obligation in connection with loss.” Skauge, 172 Mont. at 524–25, 565 P.2d at 630.

¶ 12 An insurer's right to subrogation is limited, however, by the recognition that an insured is entitled to be fully compensated for his or her damages. Known as the “made whole doctrine,” this principle was explained in Skauge, where we 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 attorney's 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. The plaintiffs in Skauge suffered fire damage in excess of the $4,000 policy limit paid out under their fire insurance policy through Unigard Insurance Group. Skauge, 172 Mont. at 523, 565 P.2d at 629. Seeking the remainder of their damages, Plaintiffs commenced a negligence action against the parties they believed to be responsible for the fire. Skauge, 172 Mont. at 523, 565 P.2d at 629. Because the Skauges had not yet been fully compensated for their losses, this Court reversed the district court's determination that Unigard was entitled to subrogation for the $4,000 paid under the insurance policy. Skauge, 172 Mont. at 528–29, 565 P.2d at 632.

¶ 13 The made whole doctrine is consistent with the equitable principles underlying subrogation because plaintiffs who are not yet compensated for their loss are not unjustly enriched by recovering from both parties, and third-party tortfeasors are not relieved of their legal obligation for the loss. “When the sum recovered by the Insured from the Tortfeasor 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.” Skauge, 172 Mont. at 528, 565 P.2d at 632 (quoting St. Paul Fire & Marine Ins. Co. v. W.P. Rose Supply Co., 19 N.C.App. 302, 198 S.E.2d 482, 484 (1973)) (emphasis in original).

¶ 14 This Court has affirmed application of the made whole doctrine in numerous subsequent decisions. We held that the equitable subrogation principles articulated in Skauge control an insurer's subrogation rights over standard insurance policy language mandating repayment of all money paid out under the policy. DeTienne, 266 Mont. at 184, 879 P.2d at 704. We later answered “yes” to a certified question asking, “[i]s it the public policy in Montana that an insured must be totally reimbursed for all losses...