VOLUME XVII, NUMBER 2
February, 2005

SUBROGATION:

WHEN IS AN INSURED “MADE WHOLE” WITHOUT RECEIVING HIS DEDUCTIBLE BACK?

Frequently, our clients ask us if they recover only a portion of a claim in subrogation, do they have to repay their insured’s entire deductible, or only the insured’s pro-rata share? Florida is a “made whole” state, meaning that the insured must be made whole before the insurance company receives anything in subrogation. However, a question arises if the insured is partially at fault for causing the loss. In that instance, what does “made whole” mean (A question only a lawyer could love)?

Florida courts have recently clarified that where an insured is partially at fault for causing a loss, the insurance company needs only to reimburse the insured with a pro-rata share of any proceeds recovered in subrogation. For instance, if an insured is 40% at fault in causing an automobile accident, and the insurance company only recovers 60% in subrogation, the insurance company only needs to reimburse the insured 60% of his deductible. Put another way, the insured has been “made whole” taking into account his fault in causing the loss. Ifrain Monte de Oca v. State Farm Fire & Casualty Co., 30 FLW D43 (Fla. 3rd DCA 12/22/04). The court found that the purpose of subrogation is twofold: First, it prevents the insured from being overcompensated for their loss; Second, the wrongdoer does not receive a windfall because the insured had the foresight to purchase insurance. By repaying only the pro-rata share of the deductible, the insured is not overcompensated since they are partially at fault for the loss. Similarly, the at-fault party does not receive a windfall because they need to pay only their actual percentage of fault.

In a second case, decided one week before Monte de Oca, a different court held that an insurance company can actually receive first money out of subrogation. Schonau v. GEICO General Ins. Co., 29 FLW D2812 (Fla. 4th DCA 12/15/04). In that matter, GEICO paid Schonau $9,050.67 for damages resulting from an automobile accident. Schonau also had a $4,000.00 uninsured loss. After paying the claim, GEICO sent Schonau a letter notifying her (Schonau) that GEICO would be pursuing subrogation, and as part of their subrogation would seek recovery of Schonau’s uninsured loss.

GEICO eventually settled with the at-fault party for $9,294.16. GEICO issued Schonau a check for $243.49, the amount GEICO received in excess of what it had paid Schonau. In other words, GEICO kept all of the money of subrogation until it had been completely repaid then sent Schonau the difference. Schonau filed suit seeking class action certification that she should have been reimbursed first under the “made whole” doctrine. The Fourth District Court of Appeal held otherwise.

The gist of the court’s opinion was that Schonau is not precluded from filing her own lawsuit against the tortfeasor. According to the court, the “made whole” doctrine applies only where the at-fault party cannot (because of insolvency, limited insurance coverage, or other reasons) pay the full value of the damages. In Schonau, there was no evidence that the person who caused the automobile accident did not have sufficient insurance coverage or other assets to fully compensate Schonau. Therefore, Schonau could, if she wished, file her own lawsuit to cover any uninsured damages, GEICO was, therefore, entitled to keep its entire recovery up to the amount it had paid.

This ruling is an exception to the general principle that a cause of action may not be “split.” In other words, courts generally prefer one lawsuit arising out of a single incident to multiple lawsuits. However, the courts have carved out a limited exception for insurance subrogation cases. Even though the insurance company “stands in the shoes” of its insured, the carrier still has an independent claim, and the carrier’s lawsuit has no bearing on the insured filing their own, independent claim. Logically, if the insured files a lawsuit first, the insurance company will also be allowed to file its own independent lawsuit at a later date. This is true, even if the insured signs a Release in settlement of the first lawsuit. Lincoln Nat’l Health and Cas. Co. v. Mitsubishi Motor Sales of Am. Inc., 666 So. 2d 159 (Fla. 5th DCA 1995).

In short, Florida courts have clarified the “made whole” doctrine to apply only where an at-fault party does not have sufficient assets to pay for the entire amount of damages it caused. As long as there are sufficient assets, the insurance company may keep all the money received in subrogation, excepting only the insured’s deductible. In instances where the insurance company received only a percentage of its payment in subrogation, and the insured is at fault in causing the loss, then the insurance company needs to only repay the pro-rata percentage of the insured’s deductible.

Mark A. Greenberg

A SUBROGATION NIGHTMARE:

WHAT HAPPENS WHEN YOU DO NOT ADVISE YOUR INSURED THAT YOU HAVE FILED A LAWSUIT?

In a strange, but probably not unique case, a Florida court has found that an insurance company may have breached its insurance policy by filing, and settling, a subrogation lawsuit in the insured’s name without advising the insured. Glenda S.Owens v. Nationwide Mutual Ins. Co., 29 FLW D1812 (2d DCA August 11, 2004). Owens sustained injuries while a passenger in a vehicle driven by Gregory Irving. Believing that Irving did not have insurance, Owens settled with her uninsured motorist carrier, Nationwide. Owens accepted $4,415.00 in uninsured motorist (“UM”) benefits from Nationwide believing it to be only for her lost wages. Owens then signed a “Release and Trust Agreement,” acknowledging receipt of the funds and releasing Nationwide from any further claims. Subsequently, Owens learned that Irving had 100/300 liability insurance coverage.

Unfortunately, between the time of signing the release and Owens learning of Irving’s coverage, Nationwide had sued Irving. Nationwide filed the subrogation lawsuit both in its own name as well as in the name of Owens. The result of Nationwide’s lawsuit was a judgment against Irving in the amount of $4,415.00.

Owens then filed a complaint against both Irving and Nationwide, arguing negligence against Irving for the accident, and breach of contract and bad faith against Nationwide. Owens claimed that although Nationwide had a subrogation right for the monies it paid, Nationwide breached the duty it owed to Owens by: 1) failing to notify her (Owens) of the lawsuit against Irving, even though Nationwide listed her as an individual Plaintiff; and 2) by representing to the court that the $4,415.00 judgment was a fair and reasonable amount for the damages and injuries Owens suffered when Nationwide knew, or should have known, that Owens’ damages far exceeded this amount. Once the judgment was entered in the Nationwide v. Irving lawsuit, Owens was then precluded from suing Irving personally. The trial court granted summary judgment for Nationwide based upon the above mentioned release. On appeal, however, the appellate court reversed.

The appellate court found that Nationwide’s conduct in not advising Owens of the lawsuit, as well as the allegation that Nationwide knew or should have known of Owens’ more extensive personal injury damages, precluded summary judgment for Nationwide. In other words, Owens could pursue her breach of contract claim against Nationwide, and presumably, if that was successful seek additional bad faith damages.

The moral of the story is to always advise your insured of a pending lawsuit, especially if there is an issue of uninsured and/or underinsured damages. Please also keep in mind that Florida’s “made whole” doctrine also requires that an insured be paid first for any uninsured or underinsured damages before the carrier receives anything in subrogation.

Perhaps put in another way, advising your insured of a lawsuit is a simple step, which can save many dollars in post claim lawsuits and attorneys fees.

Mark A. Greenberg

NEGLIGENT SECURITY:

CONDOMINIUM AND MANAGE-MENT COMPANY ARE LIABLE FOR DEATH OF RESIDENT EVEN IN ABSENCE OF EVIDENCE OF PRIOR INCIDENTS

This action stems from a wrongful death allegation against Lago Grande Homeowners Association (Lago Grande) and Centurion Protective Services, Inc. (Centurion) for the death of Victoria Valle. The estate of Victoria Valle accused Lago Grande and Centurion of negligence in providing security for the condominium property. As a result of the negligent security, the decedent’s ex-husband was able to get onto the property whereupon he shot and killed Victoria Valle. This was after Victoria Valle specifically warned the security company not to allow her ex-husband onto the property for fear that he would become violent. After a jury trial, the jury found for the Estate of Victoria Valle and found both defendants negligent, allocating 90% of the fault to Centurion and 9% to a Fabre non-party defendant (the management company) and 1% to Lago Grande. In allocating among the survivors, the jury awarded a total award of just over $5,000,000.00

After the trial, Centurion and Lago Grande moved for judgments notwithstanding the jury verdict on the grounds that neither defendant had a duty to prevent the death of Victoria Valle in the absence of prior similar crimes at the condominium complex or in the absence of any information suggesting that Frank Valle, the perpetrator, was a dangerous person. The trial court reluctantly agreed and granted judgment in favor of the defendants. In its ruling, the court relied upon well established case law which holds that there is no duty, other than to act with reasonable care, to prevent the death or injury to someone from another’s criminal acts unless there has been notice of prior similar crimes or knowledge of the offender’s violent tendency.

The Estate appealed the trial court’s ruling and the Third District Court of Appeal reversed the trial court and remanded the case back to enter final judgment on the jury verdict in favor of the plaintiffs. The Third District held “As to this well-recognized, and entirely separate, basis of liability, prior-offense evidence is not necessary. This is simply because such a requirement is entirely superfluous to the fundamental basis of the underlying claim itself. It simply makes no sense that liability arising from what is essentially a breach of contract or a voluntary undertaking would require a prior breach of the agreement to establish responsibility. Stating it a different way, since the very purpose of what Lago Grande and Centurion agreed to do was to exercise reasonable care to prevent any criminal incident from occurring, it cannot matter that the deadly incident in question was the first one. In other words, the court found that there was enough evidence submitted to the jury that Lago Grande marketed itself to its residents, as well as perspective residents, that it was a safe and secure facility and that the security company specifically took on the obligations by contract to provide security at the condominium. Since the defendants undertook a specific duty to provide for the security of the residence they were negligent for failing to provide reasonable security for the residents despite no prior crime or evidence of violent tendencies being presented in the case in chief. Juan Carlos Vazquez as Personal Representative of the Estate of Victoria Valle v. Lago Grande Homeowners Association and Centurion Protective Services, Inc., 29 FLW D2751 (3rd DCA, December 8, 2004).

Steven C. Teebagy