Dallas Fort Worth Insurance Lawyer Blog

What if a policyholder in Grand Prairie, Arlington, Fort Worth, Dallas, Weatherford, or anywhere else in Texas, collects uninsured motorist benefits from their insurance company and then later makes a claim against the at fault driver, do they have to pay back their insurance company? The general answer is yes, but there may be a few exceptions, depending on the circumstances.

This issue came up in the case, State Farm Mutual Automobile Insurance Company v. Shannon Perkins, et al. This case was decided by the Texas Court of Appeals in Eastland, Texas. It was an appeal from the 35th District Court, Brown County, and was decided July 13, 2006.

The background facts are that Shannon Perkins was involved in an automobile accident with Mike Cooper Jr. on May 22, 2003. Perkins was injured in the accident. Cooper was driving a truck owned by Harold Oaks. Cooper did not have insurance. State Farm Mutual Auomobile Insurance Company (State Farm) paid Perkins $25,000 in uninsured motorist benefits. Oaks had an automobile liability policy with State Farm. Perkins sued Oaks for her injuries. State Farm intervened in the lawsuit saying they were entitled to subrogation on the $25,000 they had already paid. At trial the jury awarded Perkins $53,000 for her injuries. State Farm insisted that they were intitled to $25,000 of that amount.

What if you just settled your insurance claim with the person who caused your financial loss. And lets say you live in Grand Prairie, Arlington, Dallas, Fort Worth, Weatherford, or anywhere else in Texas. What happens if your own insurance company sends you a letter asking for a return of money they paid on your behalf?

The case law in Texas is pretty simple sounding. When an insured settles with or releases a wrongdoer from liability for the loss before payment of the loss has been made by the insurance company, the insurer’s right to subrogation ends. This was stated in 1991, in the Houston Texas Court of Appeals case, Interstate Fire Insurance Co. v. First Tape, Inc.

In this case, Gary Pentecost (Pentecost) owned a commercial building which was insured by Interstate Fire Insurance Company (Interstate). Pentecost leased the building to First Tape, Inc. (First Tape). The lease between Pentecost and First Tape contained a clause on insurance and liability that read in relevant part that the two mutually agreed to release each other from liability for any acts of negligence that caused harm to the building and further agreed that there would be no rights of subrogation by their respective insurance companies. Further, the lease was transferable.

What if a resident of Grand Prairie, Weatherford, Dallas, Arlington, Fort Worth, or some other Texas city, suffers a loss because of some other persons negligence. Their own insurance company pays for the loss. Then the other persons insurance company pays for the same loss. What happens next?

This is where “contractual subrogation” rears its head. Contractual subrogation arises by virtue of an agreement between the parties and is awarded under that agreement, usually but not always, subject to the dictates of equity.

The Texas Supreme Court case dealing with this is, Fortis Benefits v. Cantu. This was a case decided in 2007. Here the Texas Supreme Court held that an insurance company, here Fortis Benefits, could recover benefits from the insured’s (Cantu) settlement even if the insured is not made whole. In this case, Cantu was severly injured in an automobile accident, and later sued several defendants. The health insurer, Fortis, intervened in the case, asserting a right of subrogation on its prior payments to Cantu. Cantu settled with the various defendants, and Fortis sought to recover solely from Cantu. Cantu, who had not recovered enough from the settlement and from Fortis to cover her actual damages, argued the “made whole” doctrine. In other words, she argued that she should not have to repay Fortis until all her damages had been paid and she was “made whole.” The court disagreed with Cantu, saying the “made whole” doctrine did not apply because in the Fortis insurance contract there was language saying that Fortis was entitled to recover for all the benefits it had paid if and when the insured made a recovery against a third party.

A Weatherford man suffers a property damage loss. Or maybe he is from Grand Prairie, Dallas, Arlington, or Fort Worth. His own insurance pays his losses then he makes a claim against the insurance company of the person who caused the loss. How does that work?

The doctrine of equitable subrogation is applied liberally and is broad enough to include every instance in which one person, not acting voluntarily, has paid a debt for which another was primarily liable and which in equity and good conscience should have been discharged by the latter. This was stated in the case, Matagorda County v. Texas Association of Counties Government Risk Management Pool, a 1998, Corpus Christi Court of Appeals case.

The purpose of equitable subrogation is to allow the insurance company to recover the monies it has paid out, only after the insured injured person is fully compensated. The Texas Supreme Court explains how this works in, Ortiz v. Great Southern Fire & Casualty Ins. Co. This is a 1980 case, wherein the Ortiz home and contents were damaged in a fire caused by the negligence of a third party. The home was insured, but the contents were not. The money damages recovered from a settlement with the third party (a carpet cleaner) were less than the amount of damages that Ortiz suffered. The insurance company, Great Southern Fire & Casualty Ins. Co., was only entitiled to subrogate to the extent that the sum of the insurance collected, plus the amount allocated in the settlement agreement to real property damage, exceeded Ortiz real property loss. Because Great Southern could not show at trial what amount, if any, of the settlement agreement was allocated to Ortizs’ real property loss, it was not entitled to seek the amount it paid to Ortiz from Ortiz settlement.