Robert Van Orden v. USAA, 2014 MT 45 (Mont. 2014)
Montana has long been one of the toughest states to subrogate in because it has a very strict made whole policy. It is the public 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. Ferguson v. Safeco Ins. Co. of Am., 180 P.3d 1164 (Mont. 2008); Swanson v. Hartford Ins. Co. of Midwest, 46 P.3d 584 (Mont. 2002); Skauge v. Mountain States Tel. & Tel. Co., 565 P.2d 628 (Mont. 1977); Mont. Code Ann. § 33-23-203(2) (1997) (held unconstitutional to the extent that it allowed auto insurer to charge premiums for non-existent UIM coverage); Hardy v. Progressive Specialty Ins. Co., 67 P.3d 892 (Mont. 2003). In fact, courts have held that an insurer may not even attempt to collect subrogation without first determining that its insurer has been made whole. Ferguson, supra. As a result, auto property subrogation had all but dried up in Montana, but it may be time to take the boards off the windows. A new Montana Supreme Court decision appears to have given hope to the hopeless.
On February 19, 2014, the Montana Supreme Court in Van Orden v. USA restored some sanity to a state which had spawned multiple class action suits against carriers innocently trying to help keep the cost of insurance down by responsibly subrogating for property damage. Robert Van Orden suffered personal injuries and his vehicle was damaged in an accident for which he was not at fault. Van Orden’s insurer, USAA, paid for repair of his vehicle under his collision coverage, and then sought subrogation for those payments from the insurer of the at-fault driver. In the Federal Court action, Van Orden maintained that USAA’s failure to wait until he had been “made whole” as to all of his damages, including his personal injuries, violated Montana’s Unfair Claim Settlement Practices Act, constituted both a breach of contract and constructive fraud, and was sufficient cause for forfeiture of the insurer’s subrogation rights. The insurer argued that, because Van Orden had been made whole under his separately-elected collision coverage for his property damages, the insurer was entitled to assert its subrogation rights under Montana law.
The United States District Court for the District of Montana asked the Montana Supreme Court to clarify Montana law concerning subrogation and the Made Whole Doctrine, for purposes of a class action now pending before the Federal Court. The Montana Supreme Court issued a significant decision which specifically addressed the following question:
Does Montana law prohibit an insurer from exercising its rights of subrogation to seek payment from the separate property damage coverage of the liable third-party’s automobile insurance for the discreet amounts paid by the insurer for property damage where:
(a) the insured has suffered both bodily injury and property damage in an accident;
(b) the insurer’s property damage payments were made under separate, optional collision coverage for physical damage to the insured’s vehicle;
(c) the amounts sought from the liable third-party’s automobile insurance are covered by separate property damage liability coverage that is not exhausted by the amounts sought by subrogation;
(d) the insured has been fully compensated by payment from his insurer for the property damage loss – including all costs associated with the property damage loss – and made whole as to the property damage loss that he insured as a result of the accident; and
(e) the insured contends he has not been made whole from the separate personal injury liability coverage of the liable third-party’s automobile insurance and the underinsured motorist coverage of his own automobile insurance policy?
The Supreme Court issued a long-awaited common sense decision declaring that Montana law does not prohibit an insurer from exercising its right of subrogation under the above-listed conditions, single-handedly resurrecting auto property damage subrogation in Montana. This is true even though the Supreme Court had previously stated 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. Swanson, supra. The dissent in Swanson had urged a more narrow interpretation of when an insured is made whole – limiting the definition to all compensation, including costs and attorney’s fees, for only that element of damage for which the insured purchased insurance. Because Van Orden sustained $12,981.75 in total property damage, USAA paid that full amount under a separate and optional property damage portion of his policy, and USAA received that full amount from a separate property damage liability limit of the third-party liability policy, the Court held that subrogation could proceed. The Court stated that the key here was that the insured had been made whole for the element of damage for which he purchased insurance.
While the Van Orden decision is obviously carefully tailored and limited to a specific set of conditions, it does open the door for successful auto property subrogation in Montana where the above conditions exist. MWL currently represents dozens of insurance carriers, self-insureds, and TPAs for national auto property subrogation. If you have any questions regarding this case or auto subrogation anywhere within the U.S., please contact Gary Wickert at [email protected]. Our book, Automobile Insurance Subrogation In All 50 States remains a reference staple in insurance companies and law schools around the country and may be previewed HERE.