The Rough Notes Company Inc.

Subrogation skirmish

Michael Smaistrala was resting in the sleeper unit of his uncle’s semi-truck when his uncle lost control of the truck on an icy overpass and rolled the vehicle. Smaistrala, who was employed by his uncle, was injured in the rollover. Smaistrala’s insurer, National Union Fire Insurance Company of Pittsburgh, Pennsylvania, paid him approximately $127,000 for medical services and disability benefits.

Smaistrala sued his uncle, SRF LLC, KB Trucking, and Fleet Car Lease, alleging negligence by his uncle and negligent supervision and entrustment by SRF, KB, and Fleet Car. The case proceeded, and the parties prepared for mediation. Counsel for Smaistrala informed National Union of the pending mediation and offered to “represent and protect [National Union’s] interests regarding the subrogation.” National Union declined that offer. At no time did National Union provide Smaistrala any forms to complete, nor did it request that he sign any subrogation forms.

The case subsequently was settled. In the settlement agreement, the defendants agreed to pay Smaistrala $300,000. The settlement included a release of all claims Smaistrala might have had against the defendants and stated that the parties “acknowledge and agree that the settlement of the Lawsuit is the compromise of disputed claims and no terms of the Agreement are to be taken as any admission of liability or damages.” After the settlement was finished, the court granted a stipulated order of dismissal of the action with prejudice.

National Union learned of the settlement and filed suit against Smaistrala, alleging that he breached the insurance contract by failing to preserve National Union’s right of subrogation against SRF and KB and by refusing to reimburse the $127,000 that National Union had paid to Smaistrala as a result of the accident. The subrogation provision in the policy stated:

To the total extent the Company pays for losses incurred, the Company may assume the rights and remedies of the Insured Person relating to such loss. The Insured Person agrees to assist the Company in preserving its rights against those responsible for such loss, including but not limited to, signing subrogation forms supplied by the Company.

Additionally, the “Conditional Claim Payment” (CCP) provision in the policy, which National Union believed required Smaistrala to reimburse the $127,000, stated:

If an Insured Person suffers a Covered Loss(es) as the result of Injuries for which, in the opinion of the Company, a third party may be liable, the Company will pay the amount of benefits otherwise payable under this Policy. However, if the Insured Person receives payment from the third party, the Insured Person agrees to refund to the Company the lesser of: (1) the amount actually paid by the Company for such Covered Loss(es); or (2) an amount equal to the sum actually received from the third party for such Covered Loss(es). If the Insured Person does not receive payment from the third party for such Covered Loss(es), the Company reserves the right to subrogate under the Subrogation clause of this Policy.

At the time such third party liability is determined and satisfied, this amount shall be paid whether determined by settlement, judgment, arbitration or otherwise. This provision shall not apply where prohibited by law.

National Union filed a motion for summary judgment, which the court granted. The court concluded that “[National Union] performed under the contract by paying for covered losses [Smaistrala] suffered as a result of the accident. [Smaistrala] breached the contract by settling with [KB] and [SRF] and agreeing to dismiss his lawsuit against them with prejudice. This breach interfered with [National Union’s] contractual subrogation right.” Accordingly, the court ordered Smaistrala to reimburse National Union for all payments it made as a result of the accident. Smaistrala appealed.

On appeal, Smaistrala argued that the evidence in the trial record created an issue of material fact that precluded summary judgment. The court of appeals agreed, stating that Smaistrala contracted to “assist [National Union] in preserving its rights against those responsible” for his injuries. Only where the subrogation right has not been preserved can a breach be found. Here, the court said, there were no possible subrogation rights against the uncle and Fleet Car, and it remained a disputed issue of fact whether SRF and KB had any fault at all. Under Utah law, in a tort action, a fact-finder is to “allocate the percentage or proportion of fault attributable” to the plaintiff and all defendants, whether the defendants are immune or not.

In this case, the court said, the determination of relative liability never occurred. Were it determined in a future proceeding that SRF and KB bore no fault, there would be no subrogation claim to preserve. For this reason alone, summary judgment should not have been granted. Further, even if SRF and KB were found to be minimally at fault, a disputed issue of fact precluding summary judgment would still exist as to the amount of the subrogation right that had not been preserved. National Union was thus not entitled to judgment as a matter of law, and the district court erred in granting summary judgment as to the full amount of the claim.

In addition, Smaistrala argued that he took action to assist National Union in preserving its subrogation rights. Specifically, Smaistrala argued that his attorney contacted National Union and offered to represent its subrogation right at the mediation, but National Union refused. Additionally, Smaistrala argued that he never received the forms indicated in the subrogation provision, so he never had an opportunity to assist National Union by signing anything. These facts, the court said, showed a dispute as to whether Smaistrala assisted National Union in preserving its rights against potentially liable parties. Because issues of material fact existed on the issue of breach, summary judgment was not appropriate.

National Union also claimed that Smaistrala breached the CCP provision. In relevant part, the CCP provision stated:

[I]f the Insured Person receives payment from the third party, the Insured Person agrees to refund to the Company the lesser of: (1) the amount actually paid by the Company for such Covered Loss(es); or (2) an amount equal to the sum actually received from the third party for such Covered Loss(es).

This provision also specified:

At the time such third-party liability is determined and satisfied, this amount shall be paid whether determined by settlement, judgment, arbitration or otherwise.

In this case the settlement agreement expressly stated that liability was not being determined. No party admitted fault as part of the settlement agreement, and the settlement agreement in no way apportioned fault among the parties. The record reflected that no judgment was entered nor any arbitration conducted. National Union was the insurer and the moving party in the summary judgment proceeding. Construing the provision against National Union, the provision required that liability be determined before the payment obligation was triggered. The provision itself stated that the amount shall be paid only when third-party liability is otherwise “determined and satisfied.” Therefore, the court said, summary judgment should not have been granted in National Union’s favor based on this provision.

The judgment of the district court was reversed and the case remanded for further proceedings.

National Union Fire Insurance Company of Pittsburgh, Pa, v. Smaistrala-Court of Appeals of Utah-August 30, 2018-No. 20160401-CA.