It is common in most jurisdictions that personal injury claims cannot be assigned. This can occasionally present a concern when an insurance carrier attempts to bring a contribution action against a third-party tortfeasor following settlement of a bodily injury claim against an insured. A recent order from a federal judge provides insurers with additional authority to support pursuit of recovery claims in personal injury contexts. Such claims can generally be referred to as “pay and chase” claims whether labelled contribution or subrogation claims.
Universal Prop. & Cas. Ins. Co. v. Lifetime Brands, No. 15-14333 (S.D. Fla. 2016), involved one such contribution action. Universal provided liability insurance to homeowners Jeffrey and Allison Wik. The Wiks invited their friends Tracie and William Harris to their house for a dinner party involving a fondue pot manufactured by Lifetime. During the operation of the fondue pot, a fireball emanated from the pot, causing serious burns to Ms. Harris. Universal settled the claim of Ms. Harris against its insureds, the Wiks. Universal obtained a release from the Harrises, and proceeded with a contribution action against Lifetime as well as WM Barr Co., the manufacturer of denatured alcohol that was used as a fuel source for the fondue pot.
Lifetime and WM Barr filed motions to dismiss focused on three main arguments. First, they argued that subrogation/contribution and assignment are similar vehicles that produce the same result. As such, Universal’s action should be barred because personal injury actions cannot be assigned. Second, they argued that Universal, who brought the lawsuit as subrogee of the Harrises (not the Wiks, whom it insured), cannot become subrogated to the rights of individuals it does not insure. Finally, they argued that Universal’s payment to the Harrises was voluntary, as no insurance policy or judgment required Universal to make the payment.
The court quickly rejected the defendants’ first two arguments. In rejecting the argument that personal injury actions cannot be assigned, the court noted the differences between subrogation and assignment. Although they are similar, “assignment and subrogation remain distinct legal concepts.” Cont’l Cas. Co. v. Ryan Inc. Eastern, 974 So. 2d 368, 376 (Fla. 2008). Using this language as its vehicle, the court explained that the public policy concerns associated with assigning a personal injury claim to an unaffiliated third party are not present when the third party is the interceding insurer. With respect to the defendants’ second argument, the court noted that the defendants did not cite to any authority prohibiting an insurer from becoming subrogated to the rights of an individual or entity that it does not insure. In the absence of such authority, the court refused to prohibit Universal from bringing an action as subrogee of the Harrises.
In evaluating the defendants’ third argument, the court explained the difference between two types of subrogation: equitable and contractual. Contractual subrogation rights arise out of a contractual relationship, such as a release or an insurance policy. However, equitable subrogation rights arise by operation of law. The court focused on an equitable subrogation analysis in Lifetime Brands, which requires five elements: 1) the subrogee made the payment to protect its own interest; 2) the subrogee did not act as volunteer; 3) the subrogee was not primarily liable for the debt; 4) the subrogee paid the entire debt; and 5) subrogation would not work any injustice to the rights of a third party. Dade County Sch. Bd. v. Radio Station WQBA, 731 So. 2d 638, 646 (Fla. 1999).
Lifetime and WM Barr argued that Universal acted as a volunteer in making the payment, as there was no insurance contract between Universal and the Harrises obligating payment. The court reasoned that “even if the Defendants are correct that Universal had no direct or specific legal obligation to pay the Wiks’ claim against their homeowner’s insurance policy in the Harrises’ favor, Universal still had reasonable and legitimate reasons for why it felt that it must, or should, so act.” Lifetime Brands, supra, D.E. 49. The court appears to agree with Universal’s position that Universal was required to pay the claim to avoid liability in a potential bad faith insurance practice lawsuit, even though there was no contractual duty or legal judgment against it or the Wiks that formally required the payment. See West Am. Ins. Co. v. Yellow Cab Co. of Orlando, Inc., 495 So. 2d 204, 207 (Fla. 5th DCA 1986).
Throughout its opinion, the Lifetime Brands court noted that equitable subrogation is a creature of equity and that its application should be liberally applied. In making arguments against motions to dismiss in equitable subrogation cases, subrogating insurers should focus on this liberal principle as most jurisdictions consider equity the foundation of subrogation.