Korda v. Chicago Insurance Co.

Annotate this Case

Korda v. Chicago Insurance Co. (2004-530); 180 Vt. 173; 908 A.2d 1018

2006 VT 81

[Filed 04-Aug-2006]

NOTICE: This opinion is subject to motions for reargument under
V.R.A.P. 40 as well as formal revision before publication in the Vermont
Reports. Readers are requested to notify the Reporter of Decisions,
Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
any errors in order that corrections may be made before this opinion goes
to press.

2006 VT 81

No. 2004-530

Joan Korda, Executrix of Supreme Court
the Estate of Murray Korda
and Union Mutual Insurance Company
On Appeal from
v. Addison Superior Court

Chicago Insurance Company November Term, 2005

Helen M. Toor, J.

Donald R. Powers of Powers & Byers LLP, Middlebury, for Plaintiff-Appellant
Korda.

F. Brian (Ted) Joslin and Laura Q. Pelosi of Theriault & Joslin, P.C.,
Montpelier, for Plaintiff-Appellant Union Mutual Insurance Company.

John B. Webber and Timothy Budd of Webber, Chapman & Kupferer, Ltd.,
Rutland, and Alfred C. Constants III of Caron, Constants & Wilson,
Rutherford, New Jersey, for Defendant-Appellee.

PRESENT: Reiber, C.J., Dooley, Johnson, Skoglund and Burgess, JJ.

¶ 1. DOOLEY, J. This case arises from a fatal car accident.
Appellants in this case are the Estate of Murray Korda (the Estate) and one
of two uninsured motorist carriers (UIM carriers) (FN1) who insured Mr.
Korda at the time of the accident. Below, the UIM carriers filed suit
under the Estate's name with its permission against defendant Chicago
Insurance Company (Chicago), the insurer of Champlain Valley Speech and
Language Practice, LLC (CVSLP), the company whose employee caused the
accident, for failure to defend the underlying lawsuit, which had resulted
in a stipulated judgment of $2,000,000 against CVSLP. The lower court
dismissed the failure-to-defend case because it found (1) the two-year
wrongful-death limitations period, which had run by the time the original
complaint was filed, applied to the UIM carriers' subrogation action, and
(2) the Estate lacked standing to sue Chicago because CVSLP had not
assigned its rights to the Estate until nearly three years after the
Estate's suit against Chicago was filed. We conclude the assignment
related back to the filing of the Estate's action against Chicago so that
the Estate had the capacity to bring the action and did so within the
applicable limitations period. We also conclude that the subrogation
action was filed within the limitations period of 8 V.S.A. § 4203(2),
assuming the allegations of the complaint are proved. We reverse the
superior court's dismissal of the action and remand.

¶ 2. The following facts are undisputed. On September 30, 1998, Amy
Wyatt, an employee of CVSLP, was driving to see a patient when she struck
an oncoming car, killing the driver, Murray Korda. Ms. Wyatt possessed a
$20,000 automobile insurance policy, which was paid to Murray Korda's
estate. (FN2) Joan Korda, executrix of the Estate, then looked to CVSLP
for further compensation for Mr. Korda's death. At the time of the
accident, CVSLP had a liability insurance policy with Chicago. The actual
coverage of the policy is at issue in the underlying case. Generally,
Chicago disclaimed coverage and refused to defend or indemnify CVSLP.

¶ 3. On July 10, 2000, the Estate sued CVSLP for damages arising
out of the wrongful death of Mr. Korda. CVSLP again asked Chicago to
defend and indemnify, and Chicago again declined coverage. Thereafter, the
Estate and CVSLP entered into a settlement agreement, dated November 2,
2000. The settlement agreement noted that CVSLP was effectively
judgment-proof, and the Estate provided CVSLP with a covenant not to
execute once CVSLP accepted service of the complaint. The agreement
provided for a stipulated judgment in the amount of $2,000,000, but delayed
entry of that judgment pending litigation (described below) against two
insurance carriers, Champlain Casualty Company of Vermont and Hartford
Underwriters Insurance Company, that provided underinsured motorist
coverage to Murray Korda. The agreement also contained the following
provision:

5. Upon final settlement or adjudication of the Estate's claims
against Champlain Casualty and Hartford Insurance Company, and
upon request of the Estate, or of Champlain Casualty or Hartford
Insurance Company as subrogee of the Estate's claims, CVSLP . . .
will assign [its] . . . rights to a claim against Chicago
"Insurance Company" for defense and indemnification under the
insurance policy . . . issued by Chicago "Insurance Company" to
CVSLP and CVSLP will also consent to the right to bring suit on
such claims in the name of CVSLP. Neither Champlain Casualty nor
Hartford Insurance Company shall be permitted to obtain any rights
in the Chicago "Insurance Company" Defense/Indemnification Rights
unless such insurer first executes and delivers to [CVSLP's
counsel] . . . a duly executed and authorized covenant [not to
execute] . . . . Any reassignment by the Estate to Champlain
Casualty or Hartford Insurance Company of the Chicago "Insurance
Company" Defense/Indemnification Rights will not be effective
unless and until such insurer first executes and delivers to
CVSLP's counsel a covenant as described above. In the event of
such assignment(s), CVSLP . . . will provide reasonable
cooperation to the Estate or its subrogees if such cooperation is
required for the Estate or its subrogees to pursue the assigned
rights against Chicago "Insurance Company."

Chicago was not a party to the settlement agreement.

¶ 4. Meanwhile, the Estate looked to the two uninsured motorist
carriers that insured Murray Korda at the time of the accident, Hartford
Underwriters Insurance Company and Champlain Casualty Company of Vermont,
predecessor to Union Mutual Insurance, for coverage. Each of Mr. Korda's
UIM policies had a limit of $500,000, and, on February 1, 2001, the Estate
settled with each of the UIM carriers for $212,500, for a total of
$425,000. The settlement agreement between the Estate and the UIM carriers
has a number of relevant provisions, summarized as follows:

(1) the Estate will assign to the UIM carriers its claims against
CVSLP and Chicago;

(2) the Estate will obtain the stipulated judgment provided for in
the agreement with CVSLP;

(3) the UIM carriers "may prosecute in the name of the Estate
and/or CVSLP an action against Chicago "Insurance Company" for all
compensatory and other damages . . . for which Chicago "Insurance
Company" may be liable to the Estate or CVSLP, whether in
contract, tort or otherwise";

(4) if the UIM carriers prevail in litigation against Chicago, the
proceeds will be split between the Estate and the UIM carriers;

(5) the UIM carriers will execute the covenant not to execute
against CVSLP and deliver it to CVSLP's lawyer;

(6) on receipt of the settlement money, the Estate will dismiss
the suit against the UIM carriers; and

(7) the Estate will release all claims against the UIM carriers.

Based on the above agreements, a stipulated judgment in the amount of
$2,000,000 for the Estate and against CVSLP was entered on October 16, 2001
in the Chittenden Superior Court.

¶ 5. On December 13, 2001, the UIM carriers brought suit in Addison
Superior Court in the name of the Estate against Chicago for breach of
contract and negligent failure to settle. The complaint did not state how
the Estate had standing to bring the action or that the complaint was
actually filed by the UIM carriers in the name of the Estate. It did
allege that "CVSLP is insolvent," to which Chicago answered that it lacked
information to respond.

¶ 6. In October 2003, Chicago moved for summary judgment, seeking a
declaration that it owed CVSLP no duty to defend pursuant to a policy
exclusion; the Estate opposed this motion and filed a cross-motion for
summary judgment.

¶ 7. Before the summary judgment motions on the merits of the
coverage issues could be decided, disputes arose over whether the action
was properly brought. Chicago first filed a motion claiming that the UIM
carriers were the real parties in interest and requesting that they be
substituted as plaintiffs. In March 2004, Chicago filed a second summary
judgment motion, alleging that: (1) the UIM carriers were bringing suit
under an assignment of the Estate's judgment against CVSLP, and the common
law prohibited such an assignment; (2) the action was not a subrogation
action, and even if it was, it violated Vermont Rule of Civil Procedure
17(c); and (3) the underlying action was the product of collusion and
champerty and was unreasonable. In response, plaintiff alleged that it was
raising both a breach of contract and a subrogation claim, the assignment
was valid because it assigned a breach of contract claim and not a personal
injury claim, and the settlement between the Estate and CVSLP was
reasonable and did not involve champerty or collusion. In support of its
response and to respond to Chicago's motion to name the UIM carriers as
parties, the Estate filed a motion to amend its complaint to name the UIM
carriers as additional plaintiffs and to explicitly raise a subrogation
claim in the name of the carriers. The proposed amended complaint alleged
that CVSLP had assigned its rights against Chicago to the Estate on April
6, 2004.

¶ 8. On April 30, 2004, Chicago moved to dismiss, contending the
Estate lacked standing to sue until CVSLP assigned its rights against
Chicago to the Estate. (FN3) According to Chicago, CVSLP failed to
actually assign its rights until April 6, 2004, nearly three years after
the lawsuit was initiated and outside the two-year statute of limitations
in wrongful-death actions. In response to plaintiff's motion to amend and
explicitly raise subrogation, Chicago also argued the UIM carriers'
subrogation action was time-barred.

¶ 9. In its decision, the trial court addressed only Chicago's
motion to dismiss and the Estate's motion to amend the complaint to raise a
subrogation claim. It did not address any of the motions for summary
judgment that were pending. The court addressed three specific issues: (1)
whether the subrogation claims of the UIM carriers were time-barred; (2)
whether the action against Chicago should be dismissed because neither the
Estate nor the UIM carriers had standing to bring it; and (3) whether the
contract claims against Chicago should be dismissed as barred by the
applicable statute of limitations.

¶ 10. On the first issue, the court ruled that the subrogation claim
of the UIM carriers against Chicago was governed by the limitations period
for wrongful-death actions contained in 14 V.S.A. § 1492(a). Since that
limitations period is two years, and the UIM carriers brought suit three
years after the 2001 accident, the court held the subrogation action was
time-barred. On this basis, it denied plaintiff's motion to amend the
complaint to assert the subrogation claim explicitly. On the second issue,
the court ruled that "[b]ecause Plaintiff had no assigned rights to sue
Chicago at the time the lawsuit was filed, the complaint must be dismissed
for lack of standing." On the third issue, the court decided that the
relevant statute of limitations on the contract claim was contained in 8
V.S.A. § 4203(2), which provides:

No action shall lie against the [insurance] company to recover for
any loss under th[e] [insurance] policy, unless brought within one
year after the amount of such loss is made certain either by
judgment against the insured after final determination of the
litigation or by agreement between the parties with the written
consent of the company.

This statute of limitations, the court concluded, expired in October 2002,
one year after the judgment was entered against CVSLP. Since the
assignment did not occur until April 2004, the court held that the contract
action against Chicago was not filed in time. The court dismissed the
complaint, with prejudice.

¶ 11. For the sake of clarity, we start with the second issue: the
court's decision to grant Chicago's motion to dismiss because plaintiffs
brought their action against Chicago before CVSLP assigned its rights to
the Estate so that plaintiffs lacked standing to bring the action.

¶ 12. Plaintiffs put forward two responses on this issue: (1)
because CVSLP had a contractual obligation to make the assignment,
plaintiffs had an equitable assignment sufficient to allow them to bring
suit; and (2) the standing created by the signing of the assignment related
back to the filing of the case, such that plaintiffs had standing from the
beginning of the action and the case was filed within the applicable
statute of limitations. We conclude that the second response is correct,
and that the dismissal of the action was erroneous.

¶ 13. A motion to dismiss for failure to state a claim upon which
relief can be granted should be denied unless it is beyond doubt that there
exist no facts or circumstances that would entitle the plaintiff to relief.
Union Mut. Fire Ins. Co. v. Joerg, 2003 VT 27, ¶ 4, 175 Vt. 196, 824 A.2d 586. When reviewing the disposition of a motion to dismiss, "this Court
assumes that all factual allegations pleaded in the complaint are true. We
accept as true all reasonable inferences that may be derived from
plaintiff's pleadings and assume that all contravening assertions in
defendant's pleadings are false." Richards v. Town of Norwich, 169 Vt. 44,
48 49, 726 A.2d 81, 85 (1999).

¶ 14. Although the parties have characterized the issue as one of
standing, the issue is really one of capacity. Chicago argued successfully
below that the Estate and the UIM carriers were the wrong parties to bring
the suit; under Chicago's theory, the suit had to be brought by CVSLP until
it assigned its right to bring suit to the Estate or the UIM carriers.
Under this theory, if the assignment had occurred before the suit was
filed, the assignees would have had the capacity to bring the suit assuming
a valid assignment. Conversely, because the assignment occurred after the
suit had commenced and the statute of limitations had run, the assignees
lacked capacity when the suit was initiated and did not gain capacity until
after the suit was time-barred.

¶ 15. Although Chicago's theory was once viable in most
jurisdictions, it is now overwhelmingly rejected in jurisdictions, like
Vermont, that have adopted rules based on the Federal Rules of Civil
Procedure. Two rules are particularly applicable. Vermont Rule of Civil
Procedure 17(a), entitled "Real Party in Interest", which is based on
Federal Rule 17(a), Reporter's Notes, V.R.C.P. 17, requires that an action
"be prosecuted in the name of the real party in interest," but goes on to
provide:

No action shall be dismissed on the ground that it is not
prosecuted in the name of the real party in interest until a
reasonable time has been allowed after objection for ratification
of commencement of the action by, or joinder or substitution of,
the real party in interest; and such ratification, joinder, or
substitution shall have the same effect as if the action had been
commenced in the name of the real party in interest.

The last phrase of the rule makes clear that the correction of the
real-party-in-interest deficiency relates back to the commencement of the
action. It is consistent with Rule 15(c), also based on the federal
analogue, see Reporter's Notes, V.R.C.P. 15, on relation back of amendments
to pleadings:

. . . .

(2) the claim or defense asserted in the amended pleading arose
out of the conduct, transaction, or occurrence set forth or
attempted to be set forth in the original pleading, or

(3) the amendment changes the party or the naming of the party
against whom a claim is asserted if the condition of paragraph (2)
of this subdivision is satisfied and, within the period provided
by Rule 3 for service of the summons and complaint, the party to
be brought in by amendment (A) has received such notice of the
institution of the action that the party will not be prejudiced in
maintaining a defense on the merits, and (B) knew or should have
known that, but for a mistake concerning the identity of the
proper party, the action would have been brought against the
party.

V.R.C.P. 15(c). (FN4) Also relevant is the direction of Rule 15(a) that
leave to amend a pleading should "be freely given when justice so
requires." The relation back doctrine normally controls when an action is
commenced for purposes of the statute of limitations: "Rule 15(c) is
grounded on the notion that a party who has been notified of litigation
concerning a given transaction has been accorded all the notice that
statutes of limitations are intended to afford." Hojaboom v. Town of
Swanton, 141 Vt. 43, 51, 442 A.2d 1301, 1305 (1982).

¶ 16. Here, the Estate lacked capacity to sue when it filed the
complaint, but acquired it later by obtaining the assignment just before
Chicago filed the motion to dismiss. As the Supreme Court of Washington
held in Beal v. City of Seattle, 954 P.2d 237, 241 (Wash. 1998), the plain
language of the last sentence of Washington's identical Rule 17(a) applies
to give a plaintiff the opportunity to correct the real-party-in-interest
deficiency before the action is dismissed. Moreover, under Rule 17(a), and
applying the considerations expressed in Rule 15(c), the acquiring of
capacity relates back to the filing of the action and avoids any statute of
limitations concern caused by the lack of capacity when the action was
filed. Id. at 244. Many courts have now adopted this holding. See,
e.g., Flores v. Cameron County, Tex., 92 F.3d 258, 272-73 (5th Cir. 1996);
Davis v. Piper Aircraft Corp., 615 F.2d 606, 614 (4th Cir. 1980); Shinkle
v. Union City Body Co., 94 F.R.D. 631, 638 (D. Kan. 1982); Burcl v. N.C.
Baptist Hosp., 293 S.E.2d 85, 93-94 (N.C. 1982); Thomas v. Grayson, 456 S.E.2d 377, 380 (S.C. 1995); Austin Nursing Ctr. v. Lovato, 171 S.W.3d 845,
853 (Tex. 2005). As the Supreme Court of North Carolina explained:

Defendants had full notice of the transactions and occurrences
upon which this wrongful death claim is based when the claim was
originally filed within the period of limitations . . . . They
can in no way be prejudiced by allowing plaintiff by supplemental
pleading to show the change in her capacity . . . even though this
change occurred after the period of limitations had run. The
purpose served by the statute of limitations-protection against
stale claims-is in no way compromised by allowing such a pleading
to relate back to the action's commencement. To hold otherwise
would be to return to hypertechnical pleading restrictions
inimical to just resolution of disputed claims, restrictions which
our present rules of pleading were designed to overcome.

Burcl, 293 S.E.2d at 95. We agree with this reasoning and hold that where,
as here, a plaintiff acquires capacity to sue after the suit is filed, and
before the action is dismissed for lack of capacity, the acquisition of
capacity relates back to the filing of the action for all purposes,
including compliance with the statute of limitations. Under this holding,
the superior court erred in dismissing the action against Chicago because
plaintiff did not have an assignment from CVSLP at the time of the filing
of the action. The court also erred in denying plaintiffs' motion to amend
to allege the assignment.

¶ 17. In addition, the superior court ruled that the contract action
was governed by the statute of limitations in 8 V.S.A. § 4203(2): "No
action shall lie against the company to recover for any loss under th[e]
policy, unless brought within one year after the amount of such loss is
made certain . . . by judgment against the insured after final
determination of the litigation . . . ." The court held that because
plaintiff did not obtain the assignment within a year after the judgment
against CVSLP was filed, the one-year limitations period specified in that
section bars the action. Plaintiff argues for a longer limitations period,
but we need not decide that issue. (FN5) The action against Chicago was
filed within two months after the Estate obtained a judgment against CVSLP,
and that date governs for statute of limitations purposes. Accordingly,
the filing was well within any applicable limitations period, and the
superior court erred in dismissing the complaint on statute of limitations
grounds.

¶ 18. We now turn to the superior court's holding that the UIM
carriers' subrogation claims, asserted implicitly in the original complaint
and explicitly in the proposed amended complaint, are barred by the statute
of limitations for wrongful death actions contained in 14 V.S.A. § 1492(a),
which requires that an action be filed within two years from the discovery
of the death of the deceased person. Because Murray Korda died in 1998,
and the Estate did not sue Chicago until 2001, the court ruled the action
fell outside the limitations period.

¶ 19. Although the court dismissed the action on the theory set out
above, it reached out to decide this subrogation limitations claim,
apparently because it concluded the UIM carriers still had a valid, albeit
untimely, subrogation claim despite the ineffectiveness of the late
assignments. Although we found the assignments to be timely, we note that
Chicago challenges the assignments on other grounds that we do not now
address. Therefore, we also reach this statute of limitations issue
because if the assignments are at some point held invalid, the UIM carriers
can go forward alternatively based on their right to subrogation.

¶ 20. In reaching its conclusion, the superior court relied upon
cases in which a subrogated insurance carrier sued the tortfeasor but
initiated the suit beyond the limitations period for the injured party to
sue. The superior court found that the weight of authority from other
jurisdictions placed the subrogated carrier in the position of the injured
party for statute of limitations purposes. Thus, the court held that if
the estate of the deceased was subject to the two-year limitations period
of 14 V.S.A. § 1492(a), the subrogated UIM carriers were subject to the
same limitation.

¶ 21. The case at bar, however, is different from those relied upon
by the trial court. Here, the Estate brought suit against the employer of
the alleged tortfeasor within the wrongful-death limitations period and
obtained a judgment. The carriers that are subrogated to the claims of the
Estate are suing the employer's insurance carrier, alleging the employer's
carrier is responsible to pay the wrongful-death damages of the Estate.
Like the claims based on the assignment, these claims are covered by the
limitations period in 8 V.S.A. § 4203(2). (FN6) As explained above,
plaintiffs met the demands of § 4203(2) because they sued Chicago within
two months of obtaining the judgment against CVSLP.

¶ 22. The UIM carriers' limited right of subrogation is created by
statute. 23 V.S.A. § 941(e) ("If payment is made under uninsured motorist
coverage, . . . to the extent of that payment, the insurer is entitled to
the proceeds of any . . . recovery from any person legally responsible for
the damage or personal injury . . . ."). It is limited because the
carrier can obtain reimbursement only after the injured party is fully
compensated:

A UM carrier is therefore entitled to reimbursement for payment it
makes to an accident victim to the extent the victim's total
recovery from all sources exceeds his or her damages; the carrier
is entitled to no reduction of UM coverage, however, where the
victim is not fully compensated.

Bradley v. H.A. Manosh Corp., 157 Vt. 477, 485, 601 A.2d 978, 984 (1991).
Subrogation is the substitution of a person for a creditor to whose rights
the substitute succeeds in relation to the debt, and it gives the creditor
"all the rights, priorities, remedies, liens, and securities of the person
for who he or she is substituted." 16 L. Russ & T. Segalla, Couch on
Insurance 3d § 222.4, at 222-18 (3d ed. 2000) [hereinafter Couch].
Subrogation "enables a secondarily liable party who has been compelled to
pay a debt to be made whole by collecting that debt from the primarily
liable party, who, in good conscience, should be required to pay."
Nationwide Mut. Fire Ins. Co. v. Gamelin, 173 Vt. 45, 52, 786 A.2d 1078,
1084 (2001). The purpose of subrogation is "purely equitable." Id.

¶ 23. The situation before us was addressed in part in T.
Copeland & Sons, Inc. v. Kansa General Insurance Co., 171 Vt. 189, 762 A.2d 471 (2000). There, a company sued an adjoining landowner company alleging
the defendant's actions had contaminated the plaintiff company's property.
The plaintiff obtained a judgment, and, after the bankruptcy of the
defendant, sued defendant's insurance carrier to cover the loss, but
brought the action beyond the one-year limitations period set out in 8
V.S.A. § 4203(2). Plaintiff argued that § 4203(2) applied only to actions
between the insured and the insurer, and not to "third-party actions
seeking payment on a judgment." Id. at 192, 762 A.2d at 472. In rejecting
that argument, we described the applicability of § 4203(2) as follows:

If a third-party judgment creditor may "recover" the judgment
against the insured, we see no reason why it cannot also be said
that he can "recover" against the insurer.

While "loss" traditionally has been defined as the amount of an
insured's financial detriment that the insurer becomes liable to
pay, we believe that the Legislature broadened "loss" to include
the financial detriment suffered by a third party. . . .

. . . We believe, therefore, that the Legislature used "loss" in
subsection (2) to refer to damages suffered by either the insured
or an injured third party. Consequently, the plain language of
subsection (2)-"[n]o action shall lie against the company to
recover any loss"-applies to third-party actions brought under the
direct action provision. Id. § 4203(2).

Id. at 194, 762 A.2d at 474 (alteration in original).

¶ 24. Under Copeland, if the UIM carriers' subrogation claims
involve "financial detriment suffered by a third party," id., and
particularly if they involve "third-party actions brought under the direct
action provision," id., § 4203(2) applies to these claims. The subrogated
UIM carriers in this case have suffered financial detriment as a result of
Chicago's denial of coverage. Therefore, their claim that Chicago breached
its insurance contract in denying coverage is subject to § 4203(2).

¶ 25. This conclusion is reinforced by the fact that Vermont's
direct action statute-8 V.S.A. § 4203(3), the adjoining subsection to that
containing the applicable statute of limitations-applies to the UIM
carriers' subrogation claims. In general, direct actions against the
insurer by persons other than the insured are prohibited because of the
absence of privity of contract. See 7A Couch, supra § 104:2, at 104-10
to104-12 (1997). We need not decide in this case whether we would deviate
from that generality as a matter of contract law because here the
Legislature has supplied an applicable statutory right in § 4203(3):

The insolvency or bankruptcy of the insured shall not release the
company from the payment of damages for injury sustained or loss
occasioned during the life of the policy, and in case of such
insolvency or bankruptcy an action may be maintained by the
injured person or claimant against the company under the terms of
the policy, for the amount of any judgment obtained against the
insured not exceeding the limits of the policy.

8 V.S.A. § 4203(3); see also 7A Couch, supra, § 104:7, at 104-20 to 104-21
(1997) ("The absence of privity is no bar to a direct action against a
liability insurer where there is a statute or contract clause giving the
injured person a direct action right; . . . such statute . . creates a
separate cause of action by reason of the insurance contract."). As we
said in Copeland, "subsection (3) created an avenue through which injured
parties could directly sue insurance carriers if the insured is insolvent
or bankrupt." Copeland, 171 Vt. at 192, 762 A.2d at 472. In fact, the
language of the statute is broader; it allows suit to be maintained by a
"claimant against the company under the terms of the policy." § 4203(3).
Under the plain meaning of the statutory section, the UIM carriers can
bring a direct action against Chicago if its insured, CVSLP, was insolvent
when the direct action was filed. In the initial complaint in this case,
plaintiffs alleged that CVSLP was insolvent, the trigger that would make §
4203(3) applicable. Assuming plaintiffs can prove their allegations, §
4203(3) is applicable to their action. The applicability of subsection (3)
to allow a direct action against the insurance company reinforces that the
limitations period in subsection (2) applies.

¶ 26. We recognize that, just as it argued in relation to the
assignment, Chicago argues the UIM carriers have not alleged that they were
enforcing their own subrogation rights and the attempt to amend the
complaint to do so came too late under the one-year limit of § 4203(2). We
note, however, that the UIM carriers were able to bring the action in the
name of the Estate. See V.R.C.P. 17(a) ("An insurer who has paid all or
part of a loss may sue in the name of the assured to whose rights it is
subrogated."); see also 17 Couch, supra, § 241:56, at 241-77 (3d ed. 2000)
(observing that suit can be brought in name of insured, instead of
subrogee, because defendant is protected from multiple liability when
judgment will be bar to any further proceeding against defendant). There
is no requirement that the subrogee must specify in the complaint that they
are bringing the action in the name of the insured. Thus, we conclude that
the complaint was sufficient to raise the subrogation claims. See, e.g.,
George L. Schnader, Jr., Inc. v. Cole Bldg. Co., 202 A.2d 326, 330 (Md.
1964) (holding that, although pleadings did not specifically claim right to
subrogation, appellant was entitled to recover as subrogee because
essential elements necessary for application were alleged, "albeit somewhat
ineptly," in pleadings and established during trial). Moreover, Chicago
had actual notice of the UIM carriers' subrogation claim. Defendant not
only deposed the UIM carriers' adjusters, it engaged in discovery with the
UIM carriers and participated in a mediation session with the UIM carriers
and the Estate. See Low v. Golden Eagle Ins. Co., 125 Cal. Rptr. 2d 155,
164 (Ct. App. 2002) (allowing subrogation claim even though not
appropriately pled because otherwise "party who had actual notice could
hide behind one plaintiff's pleading flaw to avoid paying the full extent
of damages claimed by another").

¶ 27. Finally, for exactly the same reasons that we held the Estate
could amend the complaint to allege the after-acquired assignment, and that
allegation related back to the filing of the action, the UIM carriers could
amend the complaint to enter as parties, see Reporter's Notes, V.R.C.P. 17
(recognizing that insurer may sue in its own name), and specify their
subrogation claims, effective as of the original filing of the action. See
also Transport Int'l Pool, Inc. v. Pat Salmon & Sons of Fla., Inc., 609 So. 2d 658, 663-64 (Fla. Dist. Ct. App. 1992) (holding that although plaintiff
did not plead subrogation in amended complaint, court should have allowed
cause of action that was fully supported by the record, where defendants
were not prejudiced because subrogation was not dependent on new facts);
Nebraska Beef, Ltd. v. Universal Sur. Co., 607 N.W.2d 227, 235-36 (Neb. Ct.
App. 2000) (holding that although subrogation should generally be plead,
trial court abused its discretion in failing to allow plaintiff to amend
complaint to state cause of action based on subrogation).

¶ 28. Chicago further argues that the UIM carriers cannot assert
subrogation claims because they failed to abide by the requirements of
V.R.C.P. 17(c):

No claim or counterclaim shall be asserted on behalf of an insurer
in the name of the assured for damages resulting from alleged
wrongful acts, claimed by right of subrogation or assignment,
unless at least 10 days prior to asserting such claim the insurer
gives notice in writing to the assured of its intention to do so.
Such notice shall be served in the manner provided for service of
summons in Rule 4 or by registered or certified mail, return
receipt requested, with instructions to deliver to addressee only.
There shall be attached to the pleading asserting such subrogation
claim a copy of the notice together with either the return of the
person making the service or the return receipt.

The rule was enacted, however, not for the protection of insurers, but to
protect the injured party from losing the ability to file a later suit if a
subrogation suit has been brought in the insured's name without the injured
party's knowledge. Reporter's Notes, V.R.C.P. 17. Although the UIM
carriers did not comply with the Rule 17(c) procedure, its purpose was
fully implemented by the settlement agreement between the Estate and UIM
carriers, see supra, ¶ 5. We note that the Estate, which is represented by
separate counsel in this Court and joined independently through counsel on
the motion to amend the complaint, has not claimed a Rule 17(c) violation.
Thus, the Estate was aware of the action and actively assisted in its
prosecution. Even if we allowed Chicago to take advantage of a violation
of Rule 17(c) that is not claimed by the beneficiary of the rule's
provisions, here the Estate, we find any error harmless. See V.R.C.P. 61
("The court at every stage of the proceeding must disregard any error or
defect . . . which does not affect the substantial rights of the
parties.").

¶ 29. For the above reasons, we find that each of the rulings the
superior court made in support of its decision to dismiss the complaint was
erroneous. Plaintiffs are entitled to go forward with this case under
their amended complaint.

Reversed and remanded.

FOR THE COURT:

_______________________________________
Associate Justice

------------------------------------------------------------------------------
Footnotes

FN1. Only one of the UIM carriers, now named Union Mutual Insurance Company,
has joined in the appeal. The relevant decisions in the superior court
involved both of the UIM carriers and the discussion in the text pertains
to both carriers. In addition, unless otherwise indicated, we refer to the
Estate and the UIM carriers collectively as "plaintiffs."

FN2. In exchange for the proceeds from Amy Wyatt's insurer and based on her
affidavit indicating that she did not own assets subject to execution of
judgment, the Estate gave Ms. Wyatt a covenant not to sue. Ms. Wyatt is no
longer a party in this matter.

FN3. Chicago actually moved to dismiss at the end of a memorandum of law
filed March 26, 2004, and asserted that no assignment of CVSLP's claim
against Chicago had been made.

FN4. Rule 15 is usually implicated in cases like this because the plaintiff
attempts to amend the complaint to allege the new capacity to sue. That is
exactly what happened here-the Estate alleged that it had received the
assignment in the proposed amended complaint. A complaint amendment is not
required in these instances, however, because a plaintiff is not required
to allege the capacity to sue; instead it is defendant's obligation to
allege lack of capacity. See V.R.C.P. 9(a) ("It is not necessary to aver
the capacity of a party to sue or be sued . . . ."). In fact, lack of
capacity to sue was not alleged either generally or specifically in this
case, and plaintiff had no obligation to amend the complaint to allege the
newly-created capacity. Thus, we rely on Rule 15 less for its literal
application and more for its expression of the policy on relation back.

FN5. The Estate argues that § 4203(2) does not apply because CVSLP purchased
its insurance policy through a professional purchasing group under Federal
law. It argues that the longer six-year limitations period in 12 V.S.A. §
511 controls instead. We do not reach that argument because the Estate met
the shorter limitations period in § 4203(2).

FN6. As with the earlier issue, the Estate argues that under federal law, a
longer limitations period applies. Because we conclude that plaintiffs met
the shorter limitations period in § 4203(2), we need not address
plaintiffs' alternative argument.

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