Youngblood v. American States Ins. Co.

• Decision Date: 14 December 1993
• Docket Number: No. 93-225,93-225
• Citation: 866 P.2d 203,262 Mont. 391
• Parties: Alfred YOUNGBLOOD and Mary Ann Youngblood, Plaintiffs and Appellants, v. AMERICAN STATES INSURANCE COMPANY, an Indiana Corporation, Defendant and Respondent.
• Court: Montana Supreme Court

Page 203

866 P.2d 203

262 Mont. 391

Alfred YOUNGBLOOD and Mary Ann Youngblood, Plaintiffs and Appellants, v. AMERICAN STATES INSURANCE COMPANY, an Indiana Corporation,

Defendant and Respondent.

No. 93-225.

Supreme Court of Montana.

Submitted Nov. 4, 1993.

Decided Dec. 14, 1993.

John M. Morrison (argued), Morrison Law Office, Helena, for plaintiffs and appellants.

Stuart L. Kellner & Stephen M. Frankino (argued), Hughes, Kellner, Sullivan & Alke, Helena, for defendant and respondent.

NELSON, Justice.

Plaintiffs Alfred Youngblood (Alfred) and Mary Ann Youngblood (Mary Ann) appeal an order of the First Judicial District Court, Lewis and Clark County, denying their motion for summary judgment and granting Defendant's (American States) motion for summary judgment. We reverse.

The issues on appeal are as follows:

1. Is the choice of law provision in Alfred's insurance policy, which allows American States to subrogate pursuant to Oregon law, enforceable?

2. Does the subrogation clause at issue violate Montana's public policy?

American States issued an automobile liability insurance policy to Alfred in Oregon. The policy contained a personal injury protection (PIP) endorsement issued in Oregon, and required subrogation of medical pay benefits pursuant to Oregon law. Alfred is a resident of Oregon and Mary Ann is a resident of Washington.

On June 24, 1990, Mary Ann and her parents, Alfred and Vivienne Youngblood, were traveling in Montana. They were rear-ended by a Montana truck which was insured by National Farmers Union Standard Insurance Company (National). Mary Ann was injured and American States paid approximately $10,000 in PIP benefits to her health care providers to cover some of her medical expenses.

Thereafter, Mary Ann settled her claims with National for $85,229.50. Mary Ann paid one-third of that amount in attorney's fees, $1,000 in costs, and $5,437.50 to Union Life Insurance Company (Mary Ann's health insurance company) in a compromise settlement of that company's subrogation claim. American States sought to recover, via subrogation, from Mary Ann the payments it made on her behalf under the PIP endorsement of the policy issued to Alfred. Mary Ann refused to remit these funds and, on May 4, 1992, Alfred and Mary Ann filed their complaint for declaratory relief, seeking a ruling that the place of performance of the American States' insurance policy was Montana, the state in which the accident occurred. Alfred and Mary Ann further requested a ruling that the medical payment subrogation provisions of Alfred's insurance policy were void as against public policy so that American States had no valid subrogation interest for the amounts paid under that insurance policy to Mary Ann.

All parties filed motions for summary judgment and, on March 25, 1993, the District Court issued its order denying Alfred's and Mary Ann's motion and granting American States' motion. In essence, the District Court held that a choice of law provision in the PIP endorsement was enforceable against Mary Ann and required application of Oregon law, which permitted medical pay subrogation. From that order, Alfred and Mary Ann appeal.

Our standard in reviewing a grant of summary judgment is the same as that initially utilized by the district court. McCracken v. City of Chinook (1990), 242 Mont. 21, 24, 788 P.2d 892, 894. Summary judgment is proper when there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law. Rule 56(c), M.R.Civ.P.

I--CHOICE OF LAW PROVISION

The interpretation of an insurance contract in Montana is a question of law. Wellcome v. Home Ins. Co. (1993), 257 Mont. 354, ----, 849 P.2d 190, 192. In general, unless the terms of the insurance contract provide otherwise, the law of the place of performance controls its legal construction and effect, while the law of the place where the contract is made governs on questions of execution and validity. Kemp v. Allstate Ins. Co. (1979), 183 Mont. 526, 533, 601 P.2d 20, 24; Section 28-3-102, MCA. Here, the general policy language in the insurance contract requires American States to pay whatever damages are required in Montana; that is, the contract is to be performed in Montana. Therefore, unless a contract term provides otherwise, Kemp and § 28-3-102, MCA, require the application of Montana law because the contract was to be "performed" in Montana. In this case, however, the insurance contract contains a choice of law provision which requires the application of Oregon subrogation law. In pertinent part, that provision provides as follows:

Reimbursement and Trust Agreement. In the event of payment to any person of any benefits under this endorsement:

(a) the Company shall be entitled to reimbursement or subrogation in accordance with the provisions of ORS 743.825, ORS 743.830, or Section 8 of Chapter 784 Laws, 1975; ...

We have previously held that, if a contract's terms are clear and unambiguous, the contract language will be enforced. Keller v. Dooling (1991), 248 Mont. 535, 539, 813 P.2d 437, 440; Section 28-3-401, MCA. The only exception to enforcing an unambiguous contract term is if that term violates public policy or is against good morals. Steinke v. Boeing Co. (D.Mont.1981), 525 F.Supp. 234, 236. Here, the insurance contract clearly provides for subrogation pursuant to Oregon law, and expresses the intention of the parties to apply Oregon law no matter where the accident occurred or where the contract is to be performed. Therefore, the choice of law provision will be enforced unless enforcement of the contract provision requiring application of Oregon law as regards subrogation of medical payments violates Montana's public policy or is against good morals. We must, therefore, analyze whether the Oregon law subrogation provision violates Montana's public policy or is against good morals.

II--VIOLATION OF PUBLIC POLICY

Mary Ann contends that the subrogation clause at issue is not enforceable in Montana because it violates public policy--a rule which has been adopted and discussed in prior case law. We agree, although some further discussion and clarification of that case law is necessary.

Subrogation is an equitable doctrine which is not dependent on any contractual relationship between the parties and is not dependent on privity. Bower v. Tebbs (1957), 132 Mont. 146, 155, 314 P.2d 731, 736. The purpose of subrogation is to prevent injustice by "compel[ling] 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." Bower, 314 P.2d at 736.

Our past decisions have, on occasion, confused subrogation with assignment; however, there is an important legal distinction between the two concepts.

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 relation of the parties to the original contract of insurance, and the natural justice or equities arising from the fact that the insurer has paid the insured, rather than a right depending upon the contract. On the other hand, an assignment of a right or claim is the act of the parties to the assignment, dependent upon actual intention, and necessarily contemplating the continued existence of the debt or claim, the whole of which is assigned.

. . . . .

When there is an assignment of an entire claim there is a complete divestment of all rights from the assignor and a vesting of those same rights in the assignee. In the case of subrogation, however, only an equitable right passes to the subrogee and the legal title to the claim is never removed from the subrogor, but remains with him throughout.

Skauge v. Mountain States Tel. & Tel. Co. (1977), 172 Mont. 521, 526, 565 P.2d 628, 630-31.

Montana law has long held that a property damage claim is assignable, while a cause of action growing out of a personal right, such as a tort, is not assignable. Caledonia Ins. Co. v. Northern Pac. Ry. Co. (1905), 32 Mont. 46, 49, 79 P. 544, 545. Notwithstanding, and because we have, on occasion, blurred the distinction between subrogation and assignment, there has been some confusion between the assignment of a personal injury claim and subrogation of a personal injury claim. See Allstate Ins. Co. v. Reitler (1981), 192 Mont. 351, 628 P.2d 667.

With some exceptions, subrogation against an insured is allowed if that insured has been made whole and has been fully compensated, which compensation includes costs and attorney's fees. Skauge, 565 P.2d at 632. However, an insurance company is only allowed to subrogate to the amount it actually paid. Farmers Ins. Exchange v. Christenson (1984), 211 Mont. 250, 254, 683 P.2d 1319, 1321.

At issue here is one of the exceptions under Montana law to the general rule allowing subrogation. We have previously refused to allow subrogation of medical payment benefits. In Reitler, Welton sustained personal injuries and incurred medical expenses after she was hit from behind by a vehicle driven by Reitler. Welton was insured by Allstate Insurance Company (Allstate), which paid her $2,000 in medical benefits. Allstate sent a notice of subrogation to Reitler's insurer, Farmers Insurance Exchange (Farmers). Thereafter, Welton settled her claim with Farmers for $9,500, and Farmers obtained a release from Welton. Allstate then filed an action against Farmers for the amount of its subrogated interest against Welton. Reitler, 628 P.2d at 668. We held that medical payment subrogation clauses are invalid, due in part to public policy considerations. Those public policy considerations included the following: (1) the insured has paid a premium for medical payment coverage; (2) the insured person is the one likely to suffer most if medical payments received must be repaid out...