We are all aware that Missouri’s prohibition against assignment of a cause of action for personal injuries has complicated subrogation in that state. Subrogation in personal injury cases is considered to be against public policy because it amounts to an impermissible assignment of the insured’s right to a cause of action for suffering a personal injury. Recently, however, one of our clients approached us advising that they are being told that a recent Missouri decision says that carriers are also prohibited from pursuing property subrogation in Missouri unless and until their insured has provided them an Assignment of Claims. We felt a brief overview of property subrogation in the Show-Me State was warranted.
In the June 20, 2023, Missouri Court of Appeals decision in Thomas v. Ramushi, the court held that, absent a “direct assignment”, an auto insurer has no authority to seek a subrogation payment from the tortfeasor without the insured’s consent.[1] Without an assignment of a property damage claim against a tortfeasor, a subrogated insurance company has no right to make a direct claim against the tortfeasor or his insurer for reimbursement of the sums it paid to its insured. This comes as quite a surprise to a number of our clients who have been contently subrogating property damage cases in Missouri just as they have in most other states.
The rule in Missouri is somewhat unique compared to other states, however. Missouri law distinguishes between subrogation rights and assignment rights and the subrogation of property damage claims is problematic because of this distinction. An insured holds the proceeds of any tort recovery for the insurer and the insurer has no right to directly sue, arbitrate, or settle the insured’s claim directly.[2] Unless the insured assigns his cause of action directly to the insurer, the insurer has no power to seek a payment or settlement without the insured’s consent.[3]
In auto property subrogation, it is the insured’s exclusive right to sue the tortfeasor for damages.[4] If the insured obtains a double recovery, the auto insurer may pursue its reimbursement right against its insured, but the unauthorized subrogation actions of the auto insurer do not divest the insured of his ability to seek a full recovery from the tortfeasor. An insured holds the proceeds of any recovery for the insurer and the insurer has no right to directly sue, arbitrate, or settle the insured’s claim directly.[5] Unless the insured assigns his cause of action directly to the insurer, the insurer has no power to seek a payment or settlement without the insured’s consent.[6] With subrogation, the insured retains the legal right to its claim and “the insurer cannot sue the tortfeasor directly but must wait and assert its subrogation interest against any recovery the insured makes against the tortfeasor.”[7]
In Thomas v. Ramushi, the insured’s auto carrier (Liberty Mutual) subrogated (via arbitration) property damage from a total loss it paid together with the insured’s deductible and collected both. It paid the deductible to its insured, who then sued the tortfeasor on its own for other uninsured losses. The tortfeasor prevailed because of the carrier’s subrogation claim. The court of appeals determined that the insurer had no power to seek a payment or settlement without the insured’s consent because she did not assign her claims to it. The court held that, unless the insured assigns their claim to the insurer, the insurer’s only interest is an equitable right to subrogation. The deductible was not Liberty’s claim to recovery and there is nothing suggesting the insured authorized the settlement of her claims. In Hagar v. Wright Tire & Appliance, Inc., the court said,
In a subrogation situation,” the insured retains the legal right to their claim and “the insurer cannot sue the tortfeasor directly but must wait and assert its subrogation interest against any recovery the insured makes against the tortfeasor.[8]
Without an assignment, the insurer has “no right to make a direct claim” against the tortfeasor or his insurer for reimbursement of the sums it paid to the insured and it “certainly [has] no right to arbitrate and settle the claim directly,” without the plaintiff’s consent. The exclusive right to pursue the tortfeasor remains with the insured, and the insured holds the proceeds for the insurer.[9] If the interest of the insurer is derived by subrogation, the action must be brought by, or at least in the name of, the insured, even though the insurer is subrogated to the entire cause of action. If the entire cause of action is assigned to the insurer, the action must be brought by the insurer, even though the insurer has paid only part of the loss and is subrogated to the extent of the payment.[10] Causes of in action for property torts may be assigned. Causes of action for personal injury, however, are not assignable.[11]
Assignment v. Subrogation
All of this begs the question of whether an insurance policy provides for “subrogation” or “assignment.” This is where the terms of the policy become so important. Whether or not there is an assignment of a claim for damage to property depends on the wording of the policy. In Travelers v. Chumbley, the subrogation clause of the policy in question provided:
* * * the insured shall execute and deliver instruments and papers and do whatever else is necessary to secure such rights * * * the insured shall have against the tort-feasor.[12]
The court held that Travelers’ status, in legal effect, was that of an assignee of a portion of Chumbley’s cause of action. When determining whether an insurance policy creates an assignment or a right to subrogation, the rules governing the interpretation of insurance policies are important. If a policy is not ambiguous, it is enforced as written. However, if it is ambiguous, the policy is construed against the insurer, which drafted the policy.[13] The subrogation clause found in Travelers v. Chumbley appears to be stronger than the subrogation language we typically see within conventional Missouri policies. Carriers should ensure they have included specific assignment language which clearly establishes the assignment of an insured’s right of subrogation. However, it must be remembered that Missouri law prevents a carrier from receiving an assignment of an insured’s right of subrogation when in the realm of a personal injury claim. A traditional assignment of rights is effective in Missouri for property damage cases only. This is true even with the most clear and specific assignment language.
An “assignment” is “a transfer or making over to another of the whole of any property, real or personal, in possession or in action.”[14] When there is an assignment of an entire claim there is a complete divestment of all rights from the assignor and a vesting of those same rights in the assignee. In the case of subrogation, however, only an equitable right passes to the subrogee (insurer) and the legal title to the claim is never removed from the subrogor (insured) but remains with him throughout.[15]
The controlling difference in Missouri between the assignment of a claim and subrogation to a claim is that when there is an assignment of an entire claim there is a complete divestment of all rights from the assignor (insured) and a vesting of those same rights in the assignee (insurer). In the case of subrogation, however, only an equitable right passes to the insurer and the legal title to the claim is never removed from the insured but remains with him throughout.[16]
Subrogation professions handling Missouri claims should look closely at the policy language they are dealing with and make subrogation decisions based on this language and Missouri’s strange subrogation/assignment dichotomy.
For questions regarding property subrogation in Missouri, contact Lee Wickert at leewickert@mwl-law.com.
[1] Thomas v. Ramushi, 674 S.W.3d 112 (Mo. App. 2023), reh’g and/or transfer denied (July 24, 2023), transfer denied (Sept. 26, 2023).
[2] Hagar v. Wright Tire & Appliance, Inc., 33 S.W.3d 605 (Mo. App. 2000).
[3] Id.
[4] Farmers Ins. Co., Inc. v. Effertz, 795 S.W.2d 424 (Mo. App. W.D. 1990) (citing Jessee, 523 S.W.2d at 834) (“The exclusive right to sue for the entire loss remains with the insured …. though he will hold the proceeds for the insurer.”).
[5] Hagar v. Wright Tire & Appliance, Inc., 33 S.W.3d 605 (Mo. App. 2000).
[6] Id.
[7] Effertz, supra.
[8] Hagar, supra.
[9] Knob Noster R-VIII School Dist. v. Dankenbring, 220 S.W.3d 809 (Mo. Ct. App. 2007).
[10] Warren v. Kirwan, 598 S.W.2d 598 (Mo. Ct. App. 1980).
[11] Scottsdale Insurance Company v. Addison Insurance Company, 448 S.W.3d 818 (Mo. 2014).
[12] Travelers Indem. Co. v. Chumbley, 394 S.W.2d 418 (Mo. App. 1965).
[13] Keisker v. Farmer, 90 S.W.3d 71 (Mo. 2002).
[14] Kroeker v. State Farm Mut. Auto. Ins. Co., 466 S.W.2d 105 (Mo. App. 1971).
[15] Id.
[16] Id.
