SWANSON v HARTFORD INSURANCE CO
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KO.01-198 I THE SliPREtIE COURT OF THE STATE OF MOXTIZN.4 X 2002 MT X! Plaintiffs. V. I-lhRTFORD INSURANCE COMPAXY O F THE MIDWEST. Defendant. CERTIFIED QUESTION FROM: United States District Court For the District of Montana, Missoula Division The fIonorable Leif Erickson. Federal Magistrate presiding C'OU?;Sl!L Of: RECORD: For Plaiiltiffs: Rex Palmcr, Attorneys Inc., Rtissoula, Monrana For Defendant: Hanson, Toole & Diet!-ich, Billings. Montana Jon T. Dyrc, C:rowley. Haugl~ey, For Amicus: Gregory S. Munro, h.lissoula, Montana (MTLA) Heard: Iro~ember , 2001 I 6. Submitted. No~einbrr 2001 Just~ce Patricia O Cotter deii+ered the Op~nron ofthe Court " : The ibilocving Certified Questions were presented to this Court by the U.S. District Court for the District of Montana; hlissouia Division, on March 19.2001, and accepted on I Js ~ubrogationby the msurer to recover rned~calpaqment5 advanced to i t s insured, and later paid by the tortfeasor; void in Montana as against public policy? 2, Is it the pubiic policy in Montana that an insured must be totally reimbursed for all losses as well as costs, including attorney fees, involved in recovering those losses before the insurer can exercise any right of subrogation, regardless of contract language to the contrary'? 3. Does a provision in an insurance policy issued in Colorado, stating that Colorado law governs the insurer's subrogation rights for [personal injury protection] PIP benefits. violate Montana's public policy, i f Colorado law allous subrogation regardless of uliether the insured has been made whole and fully con~pensated, including attorney fees and costs? $2 C e answer Certified Questions $2 and #3 in the affim~ative. We do not answer V Question if!. FACTUAL BACKGROUKD 73 Elinor and Harlan Swanson divide their time between tlteir two residences, spending per at least six niol~ths year in Plains, Montana, and the remaining time traveling or in their honie in Colorado Springs. Colorado. They have owned their illontana home since the early 1960s but lease the land on which it is built from the E.S. Forest Service. They have o~vned tlteir C:olorado home since 1% 1. On Augrrs14. I(ji")X;7"vhiIcdriving their Montana-licenscd C'hhevrolet Suburban through 71.4 Ravaiii, Viontanx. to Plains, ibe Swansons :vcrc involved in a inotor i-e!~icle aiiidcni \i.lth the accidcnt and siibscqucntlv incurreii over SSO,OOO.i)fi in rncdical cxptnses. most of which mas incurred in Moi~tana The Swansons were insured through the flartford Insurance Cornpasly oftile Midwest 75 (1 r r . t'hey had purchased their automobile insurance policy in C:olorado several years before the accident and had paid all premtuuns required uniier the pol~c) lncluded in this pollcq were s e ~ e r aprovisions that arc rcle~aiil dete~minsng ansmcrs tit the certtfied l tn the questions. They are: 1. a provision for "PIP" coverage, a C:olorado-statutorily required type ofno-fauit insurance also known as "personal injury protection." Colo. Rev. Stat. $3 104-70 1 et seq. I!nder PIP coverage, Hartford is required to pay certain types of losses and expenses, including inedical expenses, lost wages and rehabilitation expenses; 7 a subrogarion clause granting Hartford the right to recover any payments it pays to an insured under PIP coverage in the event the insured recovers damages from the party responsible for the bodily injury; and 7 ... a choice of law provision stating that any dispute concet-ning the denial or delay of PIP benefits or subrogation rights will be governed by Coloraclo law. ',6 After the accrdcnt, the S\\ansons made clalms under their policy for PIP cotcragc. Hartfbrd p a d some of the claims but denied others. Hartfotd subsequentlq learned that Kedclaway's insurer. Constitution State Service Company (Constitution), intended to makc p a p ~ e n t to tlrc Sx~ansons.On October '7, 1998, Hartford \\rctre a "subrogation ulaum" letter s to Constitutiori, notifying Constitution ot'its intent to pursue subrogation to recover rnotiics ii had paid on behalf of the Swansons, :7 1 On Xovembcr 20, 1998. Constitution issued a check on behalf of Reddaivay for $25,962.60, pay-able to Elinor Swanson and Hartford, indicating on the face ofthe clleck that it was for "advance payment of medical expenses." 78 In mid-December, 1998, Mrs. Swanson endorsed the check and fontarded it to Marttbrd with a letter i'ro~n attorney requesting that Hartford endorse the check and return her it to her. Hartford did not do so at that time, but on March 23,2000, after the Swansons had filed an action against Hartford, Hartford endorsed the check, returned it to Mrs. Swanson and waived its subrogatioli rights. 19 On Nove~nber1 1; 1999, the Swansons settled their personal injury claims against Reddaivay. This settlement did not exceed the Swanson's actual damages and did not include any compensation for attorney fees or costs incurred by the Swansons to obtain recovery fi-on1Reddaway, nor did it reimburse the Swansons for insurance premiums paid to Hartford since the origination of their a~ltomobile policy. Hourever. it is ~~ndisputed Reddaway's that limits of liability exceeded the amount of the settlement reached bet~veen Swansons and the Reddaway. TI0 At some unspecified date prior to March 23, 2000, the Swansons filed at1 action against Hartford in the Fourth Judicial District Court of Montana. Missoula Coutity, asserting that Hartford had breached the insurance contract and had violated the Unfair Claims Sctrieme.it Pracic;s "icr. $ 33-i 8-20!, eiseq., ZliiYA. Hartford had iki: case rcrnoved to the (.;nil& Sr::tcs D i s ~ i c eC'ouri fc~rthe Dlstricr of Montana: CIissoiiia Division, and .fiicd a motion for partial summary judgrncnl, requesting that the District Goui? detcrminr that Colorado law g o ~ o m e d Hartford's srtbrogittion rights \-is-i-.iis the Swansons' settlen~cnt with Keddaway. The parties fullj~ briefed the issues and participated in oral argument. 'jll On March 1") 2001, Federal \.lagistrate Juctge l.,eif B. kickson submitted a Certification Order to this Court with the above three certified q~testions. This Court accepted the certification on March 27, 200 1. (112 On Scpteriiber 6, 2(i011 this Court ordered the parties to present briers and oral arguments to the Coui-t cn bane on Novctnber 1, -3001. In addition to the partics participating in oral argurtlcnr, w e granted ilie Montana Trial Lawyers Association (ILll'i~..%)leave to appear as arnicus curiae, DISCUSSION '113 We shall first address Certified Question +: 2. Certified Questio~l 2: 1s it the public policy in hfontana that ail insured must be # I totally reimbursed for all losses as well as costs, including attorney fees, involved in rccoveving those losses before the insurer can exercise any right of subrogation, regardless of contract language to the contrarq'l We answer this question affirmatively. q15 in 1977, this Court established thc "made whole" doctrine to be applied in insurance subrogation cases, The doctrine required that an insured be "made whole" before an insurer could assert its subrogation rigl~ts; \vhich meant that, not only ii~iist insured recover all the of her losses hut also ail costs o t recovery as well, suclt as attorney fccs and costs of* litigation. In other ivords; borrowing from the language of Cerrified Question $ 3;rlie insurcd InLlst he "totally reimbursed for all losses as well as costs. including attorney kes." See Skuztge v. Zlozcntuirr Stulcs Tel. und TeLC'o. (1 977). 172 'cfont. 521, 565 P.2d 628. '116 In Skauge, the Skauges lost all their personal possessions when their rented home exploded and burned. The Skauges were insured through the Unigard Insurance Group. with personal property limits of 54,000.00 with a 5400.00 incidental living expense allowance. clause that read: "Tliis Company may require from The policy also contained a subrogatior~ the insured an assignment of all rights of recovery against any party for loss to the extent that payment therefore is made by this Company." Skauge, 172 Mont. at 523, 565 P.2d at 629. '117 Unigard detem~ined the Skauges' loss exceeded the policy coverage and delivered tllat to the Skauges' attorney a check for S41328.98and a proof of loss for the Skauges' signature. I-io~vever, Skauges refused to give Unigard an assignment of rights. Skauges then attempted to recover the balance of their $1 1,000+ loss from the tortfeasors, and Unigard asserted its stibrogation rights. Skauge, 172 Mont. at 523. 565 P.2d at 629. 711 8 The district court ruled that Unigard's adjuster and the Skauges had no "meeting of the minds" as to the subrogation issues and therefore Unigard kvas entitled to stibrogation up to $4,328.98, which was the amount it had paid. Slzcz11ge, 172 Mont. at 524, 565 P.2d at 62930. The Skauges appealed and this Court held, "that when the insured Itas sustained a loss in excess of the reimbursemerit by the insurer, the insured is entitled to be made whole for his entire loss and any costs of recovery, including attorneys kes. before the insurer can ;assert its right ofliegal subrogation against the insured or the tort-feasor." Sk~~iigc. Viont. i 72 at 528, 565 P.2d at 632. '119 The Court explairied its equitable holding by stating. "[wlhen the sum recovered by the Insured froill the Tort-feasor is less than the total loss and thus either the lnsured or the Insurer must to some extent go unpaid, the loss should he hot-ne hy the insut-er,fi,r that ic.a ~-!.sk insui-cd has paid it ro assu~rze." (Emphasis in original.j Skcrtrge. 172 Mont. at 528, the 565 P.2d at 632. 7120 This Court reaffirmed Skacige in 1993 in DcTietzrleilssoc. v. I;'ut.~ners L'nirjrl iWut. itls., 266 Mont. 183: 879 P.2d 704. In DeTienrie, we restated the purpose of subrogation as being by "to prevent i~ljusticc 'compelling the ultimate payment of a debt by one who, in justice, equity, and good conscience. should pay it. It is an appropriate means of preventing u~ijust enrichment."' DeTienizc. 266 Mont. at 188, 879 P.2d at 707 (citing You~igblood A~rzericnfz v. States IFIS.(h.( 1 993), 262 Mont. 391. 866 P.2d 203.) We rejected the insurer's argument that its contract's subrogation clause mandated that it be reimbursed for all monies it had paid to its insured, and reiterated the "imade whole" policy established in .Ykuuge. LL'e explained that the policy subrogation clause by its own terms, [did] not extend subrogation beyond the equitable principles set out in Sliuzrge. The clause permits [thc insurer] to subrogate -- it does not dictate upon what tenns that subrogation shall occur. The terms of subrogation are not provided by the parties' contract. here, hut are provided by the equitable principles inherent in the ,S'kiilr,uc ruling. DeTieiiirt., 260 Mont. at 190, t 7 P.2d at 708. Thus, we held th&tthe principles announced i9 in Skazrgci dictated hov subrogatioil rights %*-auld be administeredl and not the hiariker language of the insurance policy. As recently as August 2001, this Court again implemented the "made w!loleW policy 2 in Stare Compet~satiotlIns. F U I I ~h4c1bfillutt, v. 2001 MT 168. 306 Mont. 155>3 1 P.3d 347. In Mr,Millan. we held that the Montana State Colnpensation Insurance Fund could not assert its subrogation claim it1 the context of a workers' compensation claim until the injured worker had fully recovered his losses, as determined by the district court in a declaratory action preceding the workers' compensation action, as well as all costs ofrecovery. ibfcMiilan, 2001 h1T 168,306 Mont. 155,3 1 P.3d 347. y22 Hartford argues that because the Montana Legislature revised $ 33-23-203(2), blCA. in 1997 to allow for "reasonable subrogation" and declined to specifically include a "made whole" requirement ill the statute, this Court "cannot add what has been omitted." S\vansons, on the other hand, argue that we must presume that the Legislature was fully aware of the well-e.;tablished equitable common law doctrine adopted in Montana, and that it could have easily excluded soltie portion of that doctrine, if it chose. We agree with S~vansons.C;ir~r.stud Cizy oJ'Col~mlhu.s 1.. (1994), 265 h4ont. 379, 877 P.2d 470 ("We presume that the legislature is aware of the existi~iglaw, including our decisions interpreting individual statutes. . . . We presume that if the legislature disagreed with our interpretatiorr .. ..it m-ould have amended the statute accordingly. It did not do so."); I n re bVil.so~i:s siusluie E, i 1935), 102 k#f011:. 178: 134. 56 P.2d 733,737 ("In the criactmcrit of'a11y law the lcgislalurc is presumed to proceeci hating in m r ~ d existing law. . . ."). Therefore. we cat~cludc. tile that $ 33- 23-203(2), t l C A (1997), as revised by the Legislature, approved subrogation clauses "designed to prevent dtlplicate payments for the same element of loss rrnder a motor vehicle liability policy or under another casualty policy" and that under Montana's established conlmon law, duplicate payments do not occur until the insured has been made \vliole for all lo: > s L.~ as well as costs of recovery. .., , 723 The consistent jurisprudence underlying our past and current "made whole" cases and the policy established by them are not in conflict with the revised statute. Rather; the coxnnion law and the statute jointly establish two rules of subrogation--an insured should not payments for the same element of loss, and the insurer may not assei-t receive dt~plicatc subrogation rights until the insured has been fully cornpensated for his damages, including attorney fees and costs. 7124 In his dissent, Justice Rice concludes that the "made whole" doctrine " . . . cannot possibly be applied to risks that the insurer has not been paid to assume." This assertion is suprising in light of the fact that Justice Rice authored our opinion in ti'c.2.lillcln, wherein this Court reaffirmed the "made whole" doctrine in response to the State Fund's attempt to assert a subrogation claini against McMillan's third-party tort recovery. We concluded in iM<;ibfillu~~ that State Fund could not assert its subrogation interest until McMillan had recovered "the amount of his entire loss ofs4.7 rnillion plus costs of recoveiy . . ." f I l u , 1 5 It goes willlout saying titat the State Fnnci did not begin to cover all of blcbfiilan's losses. and that, when he sought and was abvarsied 54.7 million for the tonfeilsor, ~ v l c ~ ~ i i i aav/ariled was ~ ~ darnages far in excess of those the State Fund either paid or had a colttractual duty to assunre. %onetheless. relying squarely 011the "itlade whole" doctrine, this Court absolutely precluded ; State Fund from asserting a subrogation interest against c r r ~ janlourits awarded to McMillan, making no distinction between those amounts awarded him for losses covered by State Fund, and those amounts awarded for damages in excess of those covered by State Fund. The that dissent's conel~ision proper application of the "made whole" doctrine would not permit the insured to recover unrelated losses befbre the insurer is entitled to snbrogate for the patlicular losses it was paid to assume, therefore appears to fly in the Eace of our unequivocal holding in h.li;2fillui2. lj25 In his coneu~ring dissenting opinion, Justice Leaphart nraintains that our holding and is too broad. and that an insurer should be allowed its subrogation rights once the insured has been made whole, including costs and attorney fees, as to that elentent of damages for \vhiclr she purchased insurance. Theoretically, the logic of his argument is appealitig. If a plaintiff recovered a discrete aniount from her insurer for a particular element of loss, and then recovered the identical amount fiom a third party, plus her costs and attorney fees associateti with that recovery, and the amounts of each were specifically and separately determined either by agreement or in a judgment, then. in theory, subrogation should proceed. In the alternative, as Justice Rice suggests, the subrogating insurer could sirnply recover its payment. less that amount attributable to :he costs and tees associated wit11 the recovery. tio\\~ever. there is a Cundar-ilentai pracricai flaw in either analysis. " 6 Seldom to never do we find such perfect symmetry in an award or settlement. Typically. as here. the ultimate settlement (or judgment amount) i s for a gross amount. without allocation for each particular element of loss. Thus, we would be left to speculate of as to whether the insured did recover the identical arnou~it the loss Tor which the insurer seeks subrogation. Perhaps the jury assumed the plaintiff had medical payments coverage: and did not award the full ar-nount of the medical hills. Even more typical and pervasive is the situation where a settling insurer, lcnowing full well that the plaintiff had trledical payments coverage, takes this into account in its settlenzent offer and reduces its offer accordingly. I n either instance, there is not a duplicate payment. However, if we were to accept Justice Leaphart's and Justice Rice's proposed solution, we would have to engage in the presumption that the insured was compensated for the loss and reimburse the insurer. of regardless of the presence ofthese Factors. Quite plainly, this \vould resolve the q~iestion who should go unconipensated in favor of the insurer who has collected a premium fhr its services, and against the injured plaintiff who could very well end up sacrificing a portion of her uncotnpensated recovery for the benefit of the insurer. '127 Twenty-five years ago, we said in Sknttge that, if one must to some extent go uncompensated. it should be the insurer rather than the injured party. Skazcge, 172 bfont. at 528, 565 f'.2d at 632. The only practical way we can satisti. this principle is to allow full compensation to the piaintiKfirst, hclorc subrogatioi~ aiiowcd. is totally rcimbursed for all losses as well as costs, including attorney fees, ini-olvcd in recovering those losses before the insurer can exercise any right of subrogatiort, regardless of any contract language providing to the contrary. We also conclude that this policy is not in conflict with 5 33-23-203(2), MCA (1997) 7/29 Certified Qucstiorltt3: Does a provision in an insurance policy issued in Colorado, stating that Colorado law governs the insurer's subrogation rights for [personal injuly protection] PIP benefits, violate Montana's public policy, if Colorado law allows subrogation regardless of whether the insured has been made whole and fully compensated, including attorney fees and costs? 730 Having concluded that the Hartford policy language runs contrary to blontma's "made Colorado whole" doctrine. we must determine whether the policy provision providing tl~at lam governs tlartford's subrogat~on rights for PIP benefits is applicable 73 1 As Hartford points out in its brief. Section IV. Part F of the Swanson's tiartford policy concludes with the following sentence granting Hartford rights of subrogation: [I-la!-tford] shall be entitled to recovery under Paragraphs A [right to subrogate directly against a third party tortfeasor] and B [right to subrogate against insured who recovers damages from third party tortfeasor] only after the person has been full [sic] cornpensated for dainages by another party. Hartford argues that this clause is to be interpreted in accordance with Colorado law and, that under Colorado lan, "an insured is deerncd to be fully compcnsated when the tortfeasor's paid to the injured person by the insurance coverage exceeds the reasonable con~pensation tortfeasor's insurer." 732 We addresbed a very similar situation in Yo~~ngh/ood. irtsurance policy in The Y~j~i/?ghIoiicl contained a choice of law provision Eworing Oregon law. Applying Oregon law \vould Irate sesulrcd in medical payment subrogation, which was precltrded under Montana law. Ln Youttghlood~we reaffirmed our earlier decision in :lll.srilrc~ itls. Co. v. Keiilcr ( i 98 I), 192 Mont. 35 1.628 P.2d 667, in urhich we held that subrogation of medical paynlent benefits was void in Montana as against public policy. IVhile this Court has previously held that, "if a contract's terms are clear and unambiguous, the contract language will be enforced," Youtighlood, 262 Ylont. at 395, 866 P.2d at 205 (citing kpellerv. Dooling (1991). 248 Mont. 535,539*813 P.2d 437.440), we have also acknowledged an exception to that rule. "The only exception to enforcing an unambiguous cot~tract term is if that term violates public policy or is against good morals." I'or~tzghlood, iMont. at 395, 866 P.2d at 205 (citing 262 Steitzke v. Boeitig Ch. (D. Mont. SOXI), 525 F.Supp. 234,236). This exception is applicable here. Applying Yoztilghlood,we find the Colorado provision in the Hartford policy here void as against our public policy. Application of Colorado law would result it1 the allo\vance of subrogation before an insured has been made whole, which violates Montana public policy. 1j33 Therefore, we conclude that application of the Colorado choice of law provision violates Montana public policy. and that Montana's "made \vholen doctrine sliall be applied to the subrogation provision. '34 Having answered Certified Questions 112 and ri3 in the affinliative, it is unnecessary # to tile hcts and dispute of'this case to address the broad scope of Certified Questior~ I . Therefore, .L? e decline to ans\t cr .it \tie Concur: Chief Justice Justices iusrice 3 5 'iiiliiail~I.capi?art concurring in par-t iinil discnting in part, 1c u ri t t o r r , . ! I S 13 i s I i , i3jr rirc ibllouing reasons, i dissent as to issue number two. "36 The majority opinion hoiils that "":m instrrcii n ~ u sbe totally rcimhursctl for all iosses i as \vcll as costs, including attorney fees . . . before the irls~irercan excrcise any righi ~ i subrogation." While I agree that an irisured should be made ~vhole beii~re insurcr can an exercise its subrogatior~ right, I disagree with the Co:irt7s broad ii~terprctatio:;of when aii instired is made whole. The majority concludes that an insured is oniy tnaclc wboie \vI:ei~ he has bee11 compensated for all losses, apparently incluciii~glosscs that mi>i ~ o h ~ r 5ci:n t ~c covcred by the insurer. 1 wcsuld h<ildthatl for pilrposcs of ar: insill-cr's subrogation right, an iiis~ircd rnadc whole when she has been fully compensated, including costs :ind ii.nomcy is fees, for that clement of damage for which she purchased insurance When an an~ouni recovered from a third party (or its insurer) can be broken doivn anci attrihuted to scp:iiatc elemeilts of a claim, either through settlement documents or through special intcrro;iiticirics at trial. subrogetioii is rcasonahle. 'i37 Subrogation is a dcvice of equity. "'l'he theory behind this principle is absent repayment oi'tlie instil-cr the inslrrcd tt~oirlrl unjtisrly ci:richcti by virtti:: ofrcco;.cry i i . ~ m be both rhc ii~surcr the wrongdoer, or in ahsence of such Joubi!: recovery h) the ir~siireci and t!~c >. third party would go free despite his legal obligrition in connecrior~ wit11 [the] ioss. S/cc~rtge. 172 bloilt. at 523-25, 565 P.2~1 030. at q;,? b ', in S ~ Z I L ~ noicci that when a n insured rcco~krs a i ~ ~ o ~ i n t die ioi.ii';iisor we L , it11 from tiiiil i s icss L;lar! 1116: iota1 ju;is; "ihc loss shoiiiil b :boriii: by inc lilsurcr roi. ri:-rrr is (1 ii;k {hi; :>iir~i.eii i % . irfispaid it rti :~scrtnrc." Sicct~gc~ Rionl. at 528, 565 iJ.2d st 632 (einpihasls added). 1 72 "30 t- In that case, the Skauges lost all oftheirpersoni!l possessions ir: a ilre. Their persona! proper.ty insurer paid them their policy limit. approuimatcly S1300. Skiriger then broiight a negligence action against third parties, alleging over S 11.000 in total danlages. LVi: held that the Skauges' insurer could not assert its subrogation right until Skauges had bccn "t::adc whole for [their] entire ioss and any costs of recovery, including attonicy's fees." .Ykciirge; 172 tioni. at 528,565 P.2d at 632. "40 in Skiiiilgc, the insurer. hit3 bccn paid to assiiiilc ihc risk of da~niigc.io S k i i ~ g 2 ~ ' pcrsonal property. l,hti! Skauges hat! beer1 fully cornp:~~sated for their ioss of personal property, they had not been "made whole." 1 In the prcsent case, tiartford was paid to assume tlic risk that Swansans wuuid incur ~nedlcal expenses. Becrtuse of the lack of a record tn this case. i%e not kiio-i? i hcthcr the do i S\vansoni; were '.made m:holemas to their medical expenses and wc cio not know what other elements of damage werc included in their settlement frorn the tui-tfcasor, A11 .ivc kiicw is il?at IHartford paid "some" medical expenses, that the tortfeasctr's ccirnpiiny, C'o~istitrrllon. clnc paid check towards mcdicals in the amount oi'S25.902 and Sw?insons' roriii mcciical expenses eucccdeii S5Oii)00. LVithoui. knotving the total rncilical cxpcnses and hoiv much i-iartlbid paid (:>ward them, we cannot tell whcther Swansons werc made ivhoie as to 111iit loss. i f tiicrc is iig11i i i i ' ..A i , .-.- , ,,>.., .*.. (?:I n o ~ i l d . Llnr.vai?~lahic. iihc t~,~-tc,i~-ru. i S-..,iiib~,..l ,, I.iiirb " recrtcvcc! S;v~ai~sons hacc not l b ~ ~made \~liolc ti? tiheir n~cdica! ii as cxpcnscs, snhrcgarii)n7as ii tJ1tri1 .- . ~ medicai paqrncnts in excess o f tlicir actrial rneciic;l.i cxpenicc. ilimrarra public policy, pursuant to tj 33-23-203. MC'A, ~~lloivs reasonable subr-ogaiiorr. for. li42 To deny liartfbsd's right of suhrogetioii unless Swansons recox:xr ~ O Iorlier cicx?~cn~s - of darnage would imvc the effect of making Flarthrd an insurer against those uninsured losscs as lvel! as medical expenses. Swansons, however, liave not paid for-proiection bcqor~d their medical expenses, See Lutli.t:ig v. Fcirtn Btrr.ecrrl !I.fzrtztil/it?surc~rrcc (lciv<ii IOS6). 303 Co. N.LV.2d143. $43 By \Lay of a hypotheticai, assume that Jim lias insurance t'hr.oiigh ;\erne !nsura!icc ('ompai~yon a paiiltirlg valued at S2O,Ofi0, Whi!e transpoiling rhe pair~tir~g h i s l~onrc,, ti; .lii.i~ is involved in an automobile accident. 'The painting is cfestmyci?. his a i r is rotaid iiind Jin-: is injurcd. iZcmc pays Jim S20,000 for tltc painting. 'T'he crihcr-driver's insurance Lcinrpai?? pays Jim S35,000 for property damage: 520,000 for tire painting arzd $1 5,000 h r his vcl~icle. The company also pays Jim 525,000 for his pcrsoiral injriric:;. if~~ve\;c:; rncdica! his expenses wcrc S30,OOO. t'44 As I read the majority opinion, cvcil though Jim hiis rec.ci\-cd dupiic;:rc pap?ci.iis $:ir tile same element of loss (the paintingj, Acme would not hc ;il!o;vcd to siibrilgiite sitice Jim 1x1s not been fully compcnsatcd for all his losses--illat is. he siir'l'ercd S?(i,!;iiii expenses and has oniy bcen paid SZli.O(i0. in r-ric.iic;ii j-he "';nade a-]-toic"doctrine llas to be :rppiieii ro the risk whicl? n a i insurcci against. T45 iil thc cwaalplc. the risk asumcd by ,Aci71e \vas that rhc paintii~g 'xiouid hi.ditir~agsd.AcI-;.a ricji L i;ss.irnc. tile rislr. that Jiin n;ou!ci suffer personal iiliury. it did not i n s ~ ~Jim kigaiast rc -'all lo3scs." If Jiin l-ias becii ni;& wholc i i s to thc risk f i w-hich hc paid p-ciniiirns :u;d for ~ which acme insur-eil, ihcn Acme must be a!!o~.vcd to subrogatc. "Clacic whole" Incans that Jim has recovered all his costs and attorney fees inelired in collecting the dup!im!c p i y r n c ~ ~ t korn the ~ o ~ f e a s o r . !j36 Montana's statute, $33-23-203!2), MCA, allows for rcasonahie subrogation clauses "that are desig~ted p r e v c ~duplicate paytnents fo'urihesitti~e to ~t c;lciiret~r ofiiiss under.the inoror >, vehiclc liability policy or under another casualiy policy rliat provides coverage . . . . (crrrpllasis addcd). I'he ('ourt's interpretation of the "n~ade ~vholc" doctrine is preixiscd on the assuti~piion that "typically, as here, the ultimate settle me^^: (orjrrdgmen! :imount) is for a gnoss amount, without allocation for each particular elcrnent of loss."' I n 1h1.l~ assaming that r!picul scttlcn~er~ts cannot be allocilted, the Court; in effccrl writes the 'kame clerncr?i cif loss" language out of the statute and conveniently neglects to factor that rcyuircnicnt into its "rtladc c\jholc" analysis. The statutory language, however, requircs a casc 114 crisc deter-~nination whether an allocation as to thc "same clcmc~ir of oi'loss" is practical. 747 .'san,e If we are to give cfket to both the concept of "rcasonablc siibrogation" and tllc ofloss" language in $ 33-23-203(2),Mi".%., u-c must intcrprer tile sratutc riS ('onrrary lo the C'uust's assuin~~tion the ieiilcrnunt hci~ewas o "gn~sian~oniit:i:ih~~ui that a1locatios1,-' thc siipiilatcd iacts indicatc that it w a s allocaleii to "sdv;ii~ccpliysnrrit oimi.diciii cx}~c:iscs." allowing su"oogation by the inj:!red party's insurer once the insuzcd has received a dupiicatc ~. payment from a third party ins~trcr the ""sarnc elcrnerri ~ i l o s s . " :)rh~i-~ o r d suncierthe for 111 , provisions of 5 31-3-203(2>. h.il-ic prcrcqiiisile "11C' for reasc>aahii."itlbrogatioi~i s niii whether the insured as beerr irrdernnified for "a!l losscs" but whether he or shc has bee11 iaciemnificd by a third party for the "same element of loss" as that \vhich \ i n s insureci. Justice Chief Juscice Karla M. Gray joins in the foregoing concurring and dissentinq opinion of Justice Leaphart. j ~ s t i c c Rice concurring in pan anci dissenting in part. Jim "48 i disscnt from the Court's answer to question two. "13.9.4s a nmttcr of plrblic policy, subrogation by an insurer of payments made to the insured pursuant to a medical payment policy violates the basic tenets of insurance coverage. The insured is forced to return the benefits for which hc has paid, reimbursing the insurer, who thus avoids the risk of loss which it was paid to assume, while nonetheless keeping the premiums it has received. Premiums are no doubt premised upon the anticipated orchestration of this scheme: and pursuit of the wrongdoer by the insurer is encouraged. I-towever,recognizing the effect of subrogatiovi on the insurance consumer, this Court held that medical payment subrogation clauses are violative of public policy in Allsfizte Instirniicc V, Keitler. 7150 Keirler was rcaffirrned in Youilg-blood v. ilnrericc~n Stutes, even in the face of the insurer's assertion that subrogation was atrthorized under 3 33-23-703; MCA. Although subrogation was authorized by statute in other insurance contexts, the CIourt noted that it was not referenced in 3 33-23-203, MCA, and refused to read the right of sithrogation into the statute 15 I ' The 1-cg~slature responded to Yoii~z~hloorlby cnactlng Clldptet 203. Laws of Montana (1997), entitled ",4n Act Establishing Subrogation Rights i n Motor Velticle Liability Policies; and Amending Section 33-23-203," This section lvas thus amended to read as follows. ( 2 ) A motor vehicle liability policy may aiso provide for other reasonable limitations, exclusions, reductions of coverage, or scibrogcltiorz c1uzrse.s tllnt ure de,rigized top?-eve~zt dupiicilti.pny~r~ents,fi)r s n ~ ~elenierzf the re ofloss under rlle rnoior \.chicle liability policy or under another casualty policy that provides coverage for an injnry that necessitates damages or benefit payments- [Emphasis added.] 752 The iaegislaturc thus revised the public policy declarcd by this Court in iieirier and validated "reasonable" subrogation clauses which are desigiied to prevent duplicate payments for the same element of loss. Howe\-er oxymoronic the telm "reasonable subrogation" may appear in light of the above-noted effects of subrogation or1 the insurance consumer; it is clear that tnotor vehicle polrcies may now properly lnclude such clauses. *153 Pursuant to the terms of the poltcy at ~ s s u c here, Hartford pald certain medical costs incurred by Swansons. When Constitution then made payment to Swansons for the sitme medical costs, 1-lartford sought to subrogate against Constitution's payment. Because C:onstitution's payment was a "duplicate payment for the same element of loss," Hartford's attempt, pursuant to its policy, to subrogate against Constitution's medical expense paynient was permissible under the 1997 amendment to 5 33-23-203, MCA. As the Court acknowledges in7 22, tlie legislation specifically authorizes subrogation in this circumsta~~ce. 754 However, the Court responds to the legislation by holding that a duplicate payment for mcdicai expenses is not really a duplicate payment until the insured has recovered all other damages related to the accident. 'Phe Court reasons in 5 22 that because the Legislature ' did not address the made whole doctrine witl-iin the amendment, it intended the doctrine to remain intact, and, consequently, the doctrine fol-estalls subrogation until the insured has fully recovered all elenients of loss. While the Court's reluclance to yield our anti- subrogation policy to legisiative enactment is understa~idable, el-rotleousiyapplies the alade it "5 15 Our cases establish that the doctrine is premised upon rhe principle that the insurer has recervcd a premlum to take thc risk that the ~nsured m111 be dmased. and that the insured must be made %hole before the insurer can exerclse its subrogatron interest: [W]e adopt the view that when the insured has sustained a loss in excess offhe reimbursenletzt by the insut-er,the insured is entitled to be made whole for his entire loss and any costs of recovery, including attorney's fees, before the insurer can assert its right of legal subrogation against the insured or the tortfeasor. Skcknuge, 172 Mont. at 528. 565 P.2d at 632 (emphasis added). [TIhc important aspect of the [Skaugc]case is the adoption of the equitable principle that an insured must be totally reimbursed for all losses as well as the costs involved in recovering those losses. Tile insz~reif pc~itlpremiunlsto lrlzs DiTterzne. 256 Mont. at 191. 870 P.2d at 708-09 (emphas~s added) [Ilt is equitable that the loss be born by the insurer which had been paid an insurance premium for the assumption of its liability. . . . Tlze key aspect is that the i17surerhus been paid fur tlze assu~nptiou tile liabilitj),forthe ciuinz, of and that where the claimant has not been made whole, equity concludes that it is the insurer which should stand the loss, rather than the claimant. (emphasis added). These cases clearly demonstrate that the made nhole doctr~tieis conipletely premised upon the princ~ple the irrsurer has assuiiled the risk for the insured's that loss. The doctrine cannot possibly be applied to risks that the iiisurer has not been paid to $56 According to the submitted facts, the prcrniirrns paid by S\va:~sons pui.cl?ased corcragc from iiaithrd for medical cxpenscs, last wagcs and rehabilitation expenses. Therefore, Hartford did not assume the risk tltat Swansons uiiuid bc lirilp cornpcnsatcd for orhcr darnails they may s u f i r from the accident-it assumed the risk only h those dameges i'or r which coverage uras provided under the policy, Swansons have pursued recovery of losses not covered by the Hartford policy. By applying the made whole doctrine to Hartford's subrogation interest, the Court ss holdlng Hartford hostage to Swansons' recovery of damages that are beyond the risk that Hartford mas paid to assume. This tiolates the fundamental premise upon wliich the made whole doctrine is founded. 7\57 Swansons paid a premium for the medical benefits that wme provided under the t-iartford policy. Thus, under the made whole doctrine, they are entitled to be made whole prlor to Hartford's subrogation of thosc payments. Proper application ofthc doctrine herc requires Swansons to be rc~mbursed Hartford for t h e ~ attorney fees and costs assoc~ated by r with their recovery of medical damages from Constitution, so that Hartford bears the burden of the costs of reeotery of thosc damages. Howeter. the doctrine does not require that Swansons recover losses not insured b} Hartford's polscy before f l a ~ ~ f o r d entitled to 1s stlbrogate for the particular losses it was paid to assume. "i,5 'The fourt sees inconsistency between tliis dissent and our decision in Mc~Willan. It states that MeMillan ivas awarded damages in excess of those the State Fund had a contractual dutj to assume, and that our application of the made \vliole doctriiic there did not d~st~nguisli betmeen the amounts auarded for losses cotcrcd by the State Fund and thosc not 23 covered by d ~ Fund. T'be Court is correct ifi s t a t i ~ g e that we rnade no such distinciioi~ in ,kIi'~~lilliirz: was not at issue there. In ,Ilchfi-liil/r!z, addressed the State Fur~d'srequest to it we be reIeu,sei/ koni co~~tractual ~obligations it had been paid to assume. tlerc, Hartford docs nor seek to be released kom its obligations. Ratlier, !-!artford has completelyfulfiilcil its contractual obligation and undertaken all of the risks it was paid to assume. Further, an entirely different statute governs here. 759 In lI,I~ChIi/lanl State Fund petitioned, pursuant to the subrogation provisions of the 5 39-71-414, hlCA (1985), of the Workers' Compensation Act, to terminate its continuing contractual obligation to pay workers' compensation payments, arguing that it could recol-el-y.This Court correctly subrogate its obligation against McMillan's partial tl~irdparty determined that the subrogation statute at issue did not relicve the Fund of its contractual obligatioti to pay benefits until such time as McMillan had been made whole for his injuries. Our holding was premised on State Fund's assumption of the risk that it would have to fulfill the entirety of its cotttractual obligation: "tlte insurer has been paid for the assumption of the liability for the claim." hfchlillan, 'il6. Thus, 1Lli1Millutz addressed the obligation of an illsurer for risks it had assumed. Here, the Court is improperly applying the doctrine to risks the insurer did not assrune. 760 The made whole doctrine provides that when a clairnar~i's third party recovery is less than the losses sustained by the claimant, and for which the illsurer has paid the claimant? then the insurer must bear the deficit: [?:]he basic conclusion is that when the amount recovered by a claimant is less than the ciaimant's toral loss, with a result iwat either the claimant or the insurer must to some extent go unpaid, rbcn it is equitable that the loss be born lsic] by the insurer which had been paid an insurance premium for the assumption of its liability. ;'clc~~~fiIlu'uiz,quoting Zocher. v. itrr~ericnir Co.. supra. .4 propcr understanding of the qi ") ins. doctrine illustrates that it equitably distributes unrecovered loss in the contractual relationship betueen insurer and insured. It is premised upon the insurer's assumption of a risk for which it has beet1 p a ~ d premtum, and thus places any dcficlt in thc recovery of those losses on the a insurer. it Thus, as stated in 11Ic~%lillun, is the insurer which "must to some extent go unpaid," and must bear the claimant's cost of recovery. 761 Houeier, the Court here applies the doctrine to damages unrelated to the insurer's acceptance of premium and the accompanying risk. Application of the doctrine in such manner divorces it from the principles upon which this Court founded it in Sknuge, and applied it in all subsequent eases The Court noti uses the doctr~neas an untcthered bludgeon to prevent the rccoi ery to uhich the Insurer 1s statutorily entitled. 762 TOthc extent that I uonld require a Colorado insurance policy to conform to Montana public policy, I concur with thc Court's answer to question three.
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