Richards v. Allstate Ins. Co
In Richards v. Allstate Ins. Co., 193 W.Va. 244, 455 S.E.2d 803 (1995), the Court concluded that when the insurance company insures both the injured plaintiff and the negligent defendant, and the plaintiff recovers from the defendant, the insurer cannot seek from the plaintiff "subrogation" of medical payments made to the plaintiff.
In Richards, the plaintiffs were injured in an automobile accident with a third-party tortfeasor. The plaintiffs' insurance company, Allstate, paid the plaintiffs $ 4,000.00 pursuant to medical payments insurance coverage purchased by the plaintiffs.
The plaintiffs later recovered $ 59,000.00 in a settlement from the tortfeasor- who, coincidentally, was also insured by Allstate.
Allstate then sought to recover the $ 4,000.00 in medical payments from the plaintiffs by exercising its contractual right to "subrogation."
In concluding that the insurance company could not pursue "subrogation" from the plaintiff-insured, the Court in Richards analyzed the case in two steps.
In the first step, the Court concluded that Allstate had no right to subrogation against the tortfeasor, because Allstate was also the tortfeasor's liability insurer. "In essence, it creates a situation where an insurance carrier is claiming a right of subrogation against itself." Richards, 193 W.Va. at 246, 455 S.E.2d at 805.
The Court reasoned that:
To permit the insurer to sue its own insured for a liability covered by the insurance policy would violate these basic equity principles, as well as violate sound public policy. Such action, if permitted, would:
(1) allow the insurer to expend premiums collected from its insured to secure a judgment against the same insured on a risk insured against;
(2) give judicial sanction to the breach of the insurance policy by the insurer;
(3) permit the insurer to secure information from its insured under the guise of policy provisions available for later use in the insurer's subrogation action against its own insured;
(4) allow the insurer to take advantage of its conduct and conflict of interest with its insured;
(5) constitute judicial approval of a breach of the insurer's relationship with its own insured. (193 W.Va. at 247, 455 S.E.2d at 806.)
In the second step, the Court concluded that because Allstate could not maintain a "subrogation" claim against the tortfeasor, then it could not maintain a "subrogation" claim against the plaintiff-insured either. The Court began by finding that the policy language only permitted Allstate to seek "subrogation" of medical payments. The Court determined that Allstate was "entitled to reimbursement from the plaintiff-insured only if it can maintain a valid subrogation claim." 193 W.Va. at 248, 455 S.E.2d at 807.
Because Allstate had no valid right of subrogation against the tortfeasor, it therefore had no right of subrogation against the plaintiff-insured. In sum, the Richards Court found that "an insurance carrier may not rely upon a subrogation clause in its policy to receive reimbursement from a plaintiff-insured when it also insures the tortfeasor." 193 W.Va. at 249, 455 S.E.2d at 808.