Frost v. Porter Leasing Corp.

Brief Fact Summary.

Frost and his wife were injured in a car accident. While the case was still pending, Frost received $22,700 from insurance. The insurer intervened in this suit, claiming a right of subrogation for medical expense damages recovered. The Frosts settled for $250,000.

Synopsis of Rule of Law.

An insurer’s right of subrogation may be reserved in an agreement between the insurer and the insured or may arise by implication as a matter of common law.

Facts.

Frost and his wife were injured in a car accident. Frost sued the other driver for medical expenses incurred, pain and suffering, impaired earning capacity, and future expenses, and his wife sued for loss of consortium.

While the case was still pending, Frost received $22,700 under a union health insurance plan paid for by his employer. The insurer, Union Labor, intervened in this suit, claiming a right of subrogation for any of the medical expense damages recovered in this action but without making a direct claim against the other driver.

The Frosts settled for $250,000.

Issue.

Does a group insurer that provides medical and hospital expenses benefits to an insured have a right of subrogation in a recovery by the insured against a tortfeasor for personal injuries even though the group insurance policy contains no express provision entitling the insurer to subrogation rights?

Held.

Reversed.

No, a group insurer that provides medical and hospital expenses benefits to an insured does not have such a right, absent a subrogation clause, to share in the insured’s recovery against the tortfeasor.

Concurrence.

Justice Wilkins

Out of fairness to an insured who is not expected to have knowledge of a common law right of subrogation, a policy should disclose the possibility of subrogation claims so that the insured is aware of the limitations of coverage.

The amount of the insured’s loss, the insurer’s payment, the tort recovery, and the insured’s attorney fees are all known with certainty.

Subrogation is a reasonable way to keep down the cost of health insurance.

Discussion.

Subrogation entitles a creditor or victim of loss to recover from two sources, the first of which bears a primary legal responsibility. If the second source pays the obligation, the right of subrogation applies to the creditor or loss victim against the third, primarily responsible party.

The doctrine of subrogation applies to insurance policies, such that the insurer will have a right to the proceeds of any recovery the insured recovers from the tortfeasor.

Here, Union Labor admits that Frost’s insurance policy did not contain an express provision for subrogation but argues that such a provision was implied.

Implied subrogation is permitted to prevent the insured from receiving duplicative recovery from both the insurer and the tortfeasor. However, rights of subrogation do not arise automatically upon payment of benefits under any insurance contract; rather, these rights depend on the type of coverage involved. For example, courts read implied rights into policies covering property damage because the insured’s actual loss and the amount of any excess compensation can be determined with certainty.

However, courts have not recognized implied rights of subrogation into personal insurance policies, in part because the insured will likely suffer imprecise intangible losses. Where subrogation rights play no part in the bargain between insurer and insured, courts should not intervene.