In Fischer the court had an opportunity to further expand upon Paulson v. Allstate Insurance Co., 665 N.W.2d 744 (2003). In Paulson the supreme court held that where plaintiff’s insurance company pays 100 percent of the repair costs, then subsequently settles its subrogation claim with the tortfeasor’s insurer for a reduced amount based on plaintiff’s alleged contributory negligence the plaintiff could not collect the difference under the collateral source rule. Fischer extended Paulson to apply in the arbitration context when the plaintiff’s insurance carrier elects arbitration and whether successful or not found the insured cannot maintain a right to its own claim for the subrogated amount.
Fischer v. Steffen, 2010 Wisc.App.LEXIS 319 (2010)
Date: April 28, 2010
In Aurora the Court of Appeals for the First District of Florida had for the first time an opportunity to determine what constitutes prejudice when the doctrine of equitable subrogation is used to allow a refinancer of a first mortgage to retain the seniority of the first mortgage against a second when the second was not paid off during the refinancing. The court determined that Florida adheres to the modern/liberal view when it comes to the application of the doctrine of equitable subrogation. Under the modern view, as opposed to the traditional view, constructive notice of the second lien to the first does not preclude the application of the equitable subrogation doctrine. The court will only look to whether the second lien holder would be prejudiced if the doctrine of equitable subrogation is applied.
In determining if the second lien holder is prejudiced, the court looks to whether the lien holder was left in a worse position than if the prior lien had not been discharged. The court found that when a first mortgage loan is refinanced for more than the amount due and owing on the first mortgage, the risks assumed by the second lien holder increase without the second lien holder’s consent and prejudice ensues.
Aurora is unique in that the refinanced holder of the first mortgage agreed to cap their claim at the amount of the original first mortgage, despite the fact that the re-finance was for a considerably higher amount. The court found that the doctrine of equitable subrogation applied and permitted the re-financed first mortgage holder to maintain its first position over the second lien holder.
Aurora Loan Services, LLC v. Senchuk, et al, 2010 Fla.App.LEXIS 4869
Date: April 13, 2010
The right of an excess insurer to subrogate against the primary carrier was upheld under a Commercial General Liability policy. The court reiterated the standard in Tennessee that equitable subrogation does not arise from any contractual relationship between the parties, but takes place as a matter of equity with or without an agreement to that effect. It found that equitable subrogation is based on the principle that substantial justice should be attained regardless of form, that is, its basis is the doing of complete, essential and perfect justice without regard to form. In a footnote, the court noted that only two states, Alabama and Idaho have not adopted the equitable subrogation doctrine.
Great American Insurance Co. of NY v. Federal Insurance Co., 2010 Tenn.App.LEXIS 296 (2010)
Date: April 28, 2010
Colorado – House Bill 10-1168. The Colorado House has proposed a bill that would dramatically alter the subrogation landscape in the state. The bill essentially codifies the “made whole” and “common funds” doctrines which is a disturbing trend being witnessed in the courts and the legislatures throughout the country. As stated in Section 3(a):
Reimbursement or subrogation pursuant to a provision in an insurance policy, contract or benefit plan is permitted only if the injured party has first been fully compensated for all damages arising out of the claim. Any provision in a policy, contract or benefit plan allowing or requiring reimbursement or subrogation in circumstances in which the injured party has not been fully compensated is void against public policy.
The proposed Act also seeks to preclude the right of the carrier to bring their own cause of action against the tortfeasor for benefits paid to their insured. Section 6(a) provides:
A payer of benefits shall not bring a direct action for subrogation or reimbursement of benefits against a third party allegedly at fault for the injury to the injured party or an insurer providing uninsured motorist coverage.
Additionally, if an insurer obtains reimbursement of benefits paid, the insurer must apply the amount of the reimbursement as a credit against any applicable lifetime cap on benefits contained in the applicable policy or plan.
South Dakota – Senate Bill 169. A recent amendment to the Insurance Code in South Dakota looks to continue the “made whole “ activist trend in subrogation legislation. The amendment is one sentence long and provides, “No insurer under this chapter is entitled to participate in any recovery from any tortfeasor on account of bodily injury or death or damage to property unless and until it’s insured has first been made whole.” This amendment to the Insurance Code would apply to health, worker’s compensation, auto and property insurers. Due to the brevity of this proposed amendment there will be many questions left unanswered if this bill passes. The first that comes to mind is what is meant by “has first been made whole”. Such a broad use of words is open to much interpretation, much of which can be construed negatively against the insurer, which the South Dakota courts will need to interpret as time goes by if this amendment is passed.
The South Dakota amendment and Colorado bill continue the recent trend in the legislatures to limit an insurers’ right to subrogation. As with the just passed New York act and the recently tabled Ohio bill, the nations’ legislatures are becoming increasingly more active in attempting to invalidate at worst and cripple at best an insurers’ right to subrogation. Feel free to contact us for additional updates on these issues and to determine what actions you can take to help stem the recent tide of legislative enactments designed to reduce the right of subrogation.
Proposed Senate Bill 2818 provides that every insurer licensed to issue a policy of automobile insurance in Illinois must be a signatory of the Nationwide Inter-Company Arbitration Agreement. The proposed bill further provides that all disputed claims for automobile physical damage must be arbitrated pursuant to the Nationwide Inter-Company Arbitration Agreement. Under the proposed act, the insurers would have a right on a case by case basis to agree to another forum which may include a court of competent jurisdiction.