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Ruggles v. Grow (8/20/99) sp-5161
Notice: This opinion is subject to correction before publication in
the Pacific Reporter. Readers are requested to bring errors to the attention of
the Clerk of the Appellate Courts, 303 K Street, Anchorage, Alaska 99501, phone
(907) 264-0608, fax (907) 264-0878.
THE SUPREME COURT OF THE STATE OF ALASKA
CAROLYN RUGGLES, by the )
Estate of CAROLYN MAYER, ) Supreme Court No. S-7986
)
Appellant, )
) Superior Court No.
v. ) 3PA-89-980 CI
)
MONTE GROW, ) O P I N I O N
)
Appellee. ) [No. 5161 - August 20, 1999]
______________________________)
Appeal from the Superior Court of the State of
Alaska, Third Judicial District, Anchorage,
Peter A. Michalski, Judge.
Appearances: Patricia R. Hefferan, Kopperud
and Hefferan, Wasilla, for Appellant. Paul W. Waggoner, Anchorage,
for Appellee.
Before: Matthews, Chief Justice, Compton,
Eastaugh, Fabe, and Bryner, Justices.
MATTHEWS, Chief Justice.
FABE, Justice, with whom BRYNER, Justice,
joins, concurring in part and dissenting in part.
I. INTRODUCTION
This case is here for the second time. The historical
and most of the procedural facts are set forth in our prior
opinion, Grow v. Ruggles. [Fn. 1] We recite only the facts
necessary to understand the issues in this appeal.
II. FACTS AND PROCEEDINGS
Carolyn Ruggles was injured in an automobile accident
involving Monte Grow. Allstate Insurance Company insured both
parties. [Fn. 2] Ruggles sued Grow, who was defended by Allstate.
Allstate paid Ruggles's medical expenses from the medical payments
coverage of her policy. [Fn. 3] Allstate requested Ruggles not to
include its subrogated claim for medical expenses in her suit
against Grow. Ruggles refused to honor this request. Eventually
the superior court ruled that the medical expenses must be deducted
from any recovery Ruggles received, but evidence of the expenses
could be presented to the jury as evidence bearing on the severity
of her injury.
Grow made an offer of judgment under Civil Rule 68 for
$35,000 above her medical expenses. [Fn. 4] The jury awarded
Ruggles the medical expenses which Allstate had already paid
($31,777.88) and $14,760 for lost income. [Fn. 5] It made no award
for pain and suffering. [Fn. 6] The trial court awarded attorney's
fees to Ruggles as the prevailing party. [Fn. 7] Despite the
court's earlier order that medical expenses would be deducted from
the verdict, no deduction was made before an appeal was taken.
Whether this occurred deliberately or inadvertently remains unclear
on the record before us.
Ruggles appealed unsuccessfully on inconsistent verdict
grounds. [Fn. 8] Grow appealed on the ground that he should have
been awarded attorney's fees since the verdict was less than the
offer of judgment. [Fn. 9] We agreed and remanded for a new fee
determination. [Fn. 10]
On remand the superior court, at the request of Allstate
and Grow, substituted Allstate for Grow as the real party in
interest. In response to Ruggles's subsequent motions to recon-
sider this ruling or to allow the prosecution of counterclaims
against Allstate, the court concluded that it had erred by
permitting the substitution and it rescinded its previous order.
Grow thus remained as the sole defendant. After considering
numerous motions, the court deducted from the verdict the medical
expenses which Allstate had paid, and awarded Ruggles reduced
interest on the judgment pursuant to the version of Civil Rule
68(b)(1) then effective. Ruggles's award, before offsets for costs
and fees in favor of Grow, was $17.978.29. The court awarded Grow
fees of $15,328.95 and costs of $8,609.66. Ultimately, this ruling
resulted in a net judgment favoring Grow of $5,960.32.
On appeal Ruggles presents three arguments. Quoting from
the argument headings in her brief, they are:
(1) the trial court should not have credited
Grow with Ruggles's collateral source benefits;
(2) the trial court judgment award of costs
and attorney's fees and interest in Grow's favor is contrary to the
remand and manifestly unreasonable;
(3) if the trial court adjudicates the rights
between Allstate and Ruggles, then there must be due process
safeguards.
We address these arguments in turn.
III. DISCUSSION
A. Deduction of the Medical Payments
Ruggles argues that the question of whether she must pay
part of her recovery to Allstate represents a question between her
and Allstate and was thus improperly decided by the court on
remand. Ruggles also argues that the collateral source rule
prevents the deduction made by the trial court. She further
contends that permitting the deduction would essentially allow an
insurance company a right of subrogation against its own insured.
Each of these contentions is effectively answered by the
consequences flowing from the fact that Allstate requested
Ruggles's attorneys not to present its claim for medical expenses.
Once this request was made Ruggles lost the right to present the
claim. The trial court's pre-verdict order requiring the deduction
of medical expenses, and the court's post-remand deduction of such
expenses, corrected the wrongful inclusion of Allstate's claim with
Ruggles's claim. We explain this conclusion in the following
paragraphs.
When an insurer pays expenses on behalf of an insured it
is subrogated to the insured's claim. The insurer effectively
receives an assignment of its expenditure by operation of law and
contract. [Fn. 11] If the insurer does not object, the insured may
include the subrogated claim in its claim against a third-party
tortfeasor. Any proceeds recovered must be paid to the insurer,
less pro rata costs and fees incurred by the insured in prosecuting
and collecting the claim. But the subrogated claim belongs to the
insurer. The insurer may pursue a direct action against the
tortfeasor, discount and settle its claim, or determine that the
claim should not be pursued. These rights are inherent in our
discussion of the subject in Brinkerhoff v. Swearingen Aviation
Corp.:
Although [the insured] could have sued to
recover for the full amount of damage and held the appropriate
portion of that recovery . . . in trust for his insurer whose
subrogation rights arose upon payment under the policy, the
insurance company's decision to settle its claim foreclosed this
option. We also attach no relevance to [the insured's] allegation
that the settlement agreement reached [with the tortfeasor] was
collusive. An insurance company is free to settle its subrogation
claims for any amount.[ [Fn. 12]]
When Allstate instructed Ruggles not to pursue its
subrogation claim, Ruggles lacked authority to pursue it. Grow was
entitled to raise this lack of authority, for it represented a
legitimate partial defense to Ruggles's claim. [Fn. 13]
Deducting the subrogated claim did not violate the
collateral source rule. Quoting Tolan v. ERA Helicopters, Inc.,
[Fn. 14] Ruggles notes that the collateral source rule provides
that "a tort-feasor is not entitled to have his liability reduced
merely because [the] plaintiff was fortunate to have received
compensation for his injuries or expenses from a collateral
source." But this rule speaks to the relationship between insureds
and tortfeasors, not to that between insureds and their insurers.
Given that the insurer is the owner of the subrogated claim, the
rule cannot be read to permit an insured to pursue subrogated
collateral source benefits against the insurer's wishes. [Fn. 15]
And the rule should not prevent a tortfeasor from raising lack of
authority to present a claim as a partial defense.
Nor did the deduction violate the rule preventing
insurers from prosecuting subrogation claims against parties whom
they insure. Allstate was not prosecuting a claim against its
insured. Its efforts were directed instead toward achieving the
opposite result: Allstate sought control of its claim to prevent
Ruggles from bringing the claim against Grow. This represented a
logical step for Allstate, since it would have been both the payor
and the payee of the claim. It could accomplish the same result as
prosecuting the claim with a simple bookkeeping entry, without
incurring attorney's fees and costs. [Fn. 16]
B. Award of Costs and Fees
Ruggles's argument that the award to Grow of attorney's
fees is contrary to the remand is frivolous. The penultimate
sentence of our opinion stated: "Thus, pursuant to Civil Rule 68,
Grow should be awarded attorney's fees from the date of the offer."
[Fn. 17] In awarding fees to Grow the superior court followed the
directions given by our prior opinion.
Ruggles's argument that the amount of fees awarded Grow,
$15,328.95, is manifestly unreasonable is merely conclusory. She
notes that Allstate's total defense costs exceeded $70,000, but she
does not attempt to demonstrate that the court misapplied either
Civil Rule 68 or Civil Rule 82 in making the award. This argument
therefore fails for lack of support.
The only comprehensible argument Ruggles offers concerns
costs, as distinct from fees, and the trial court's reduction of
interest. She notes that Grow's motion for rehearing had requested
that we explicitly direct the trial court to award costs as well as
attorney's fees and that reduced interest be applied. We denied
the motion for rehearing without explanation in an order dated
December 6, 1993. She contends that our denial of rehearing
precluded the trial court from awarding costs and making the
interest adjustment on remand. This argument lacks merit, for the
denial of a motion for rehearing has no precedential effect and
establishes no law binding on the trial court after remand.
Indeed, a common reason for denying a motion for rehearing is that
the subject of the motion should be addressed by the trial court
after remand.
We reversed the judgment because Grow's offer under Rule
68 was more favorable to Ruggles than the final judgment. [Fn. 18]
We remanded to enable the trial court to correct this error. [Fn.
19] One consequence of our ruling was that Grow should have been
awarded attorney's fees from the date of the offer. [Fn. 20]
Although this is the only consequence we explicitly mentioned, two
other consequences arose as well: Grow was entitled both to costs
incurred after the offer and to a reduction in prejudgment
interest. [Fn. 21] The trial court correctly recognized these
consequences and made the adjustments required by the rule.
C. Due Process
Ruggles complains that the trial court should have
allowed her to file and pursue counterclaims against Allstate. She
moved for permission to file such counterclaims on the same day
that she sought reconsideration of the court's ruling substituting
Allstate for Grow as a party defendant. In her reconsideration
motion she asked the court to "remove Allstate and finalize this
case as between Ruggles and Grow." The court granted that relief.
This mooted her motion for permission to file counterclaims against
Allstate, and thus the trial court did not err in failing to grant
the motion regarding counterclaims.
IV. CONCLUSION
For the above reasons the judgment is AFFIRMED.
FABE, Justice, with whom BRYNER, Justice, joins,
concurring in part and dissenting in part.
Although I agree that the superior court properly
construed our remand in Grow v. Ruggles, I disagree with the
majority's conclusion that the superior court appropriately
deducted the amount of Allstate's medical payments from the
judgment that its insured, Carolyn Ruggles, obtained against Monte
Grow. Ruggles's obligation to reimburse Allstate for medical
expenses involves a contractual dispute separate from her
underlying tort case. Yet the superior court reduced Ruggles's
judgment without first reviewing and interpreting her insurance
contract. I believe that the case should be remanded to the
superior court to resolve the contractual dispute between Ruggles
and Allstate.
Ruggles argues that the question whether she must
reimburse Allstate for its payment of her medical expenses "is
properly between Allstate and Ruggles, and should not have been
before the trial court in this matter on remand." She seeks to
resolve this issue according to the terms of her contract with
Allstate.
The superior court assumed, and the majority appears to
agree, that "principles of subrogation"automatically resolve any
dispute between Allstate and Ruggles in Allstate's favor. In the
court's view, this conclusion obviates the need for consideration
of Ruggles's claims against Allstate's right to reimbursement. But
in Maynard v. State Farm Mutual Automobile Insurance Co., [Fn. 1]
we determined that whether an insurer is entitled to seek
reimbursement from an injured party when it insures both the
injured party and the tortfeasor depends on the contract between
the insurer and the injured party. [Fn. 2] Maynard presented the
following question: "May an insurance company seek reimbursement
for medical expenses paid to its insured under his policy when it
also insures the tortfeasor and the insured brings an action
against the tortfeasor seeking damages for the same medical
expenses?"[Fn. 3] We answered the question in the affirmative.
[Fn. 4] Our conclusion that the insurance company was entitled to
seek reimbursement from the insured party, however, was based on a
close analysis of the contract between the parties, not on general
principles of subrogation. [Fn. 5] The contract between Maynard
and his insurer conclusively barred double recovery and provided
that the insurer would "not pay any expenses for which the claimant
ha[d] already been compensated."[Fn. 6]
In this case, by contrast, the superior court reduced
Ruggles's judgment against Grow without reference to the contract
between Ruggles and Allstate. Indeed, although Ruggles points to
a portion of the contract requiring disagreements to be resolved
through arbitration, and Grow refers to the affidavit of an
Allstate employee stating that Ruggles's policy includes a
subrogation clause, the entire contract does not even appear in the
record. It is therefore impossible to evaluate either Ruggles's
contractual claims against Allstate or Grow's allegations regarding
the contract's subrogation clause. I agree with the court that
both Brinkerhoff v. Swearingen Aviation Corp., [Fn. 7] and Rice v.
Denley [Fn. 8] stand for the proposition that a subrogated insurer
controls its claim and may direct its insured not to pursue it.
[Fn. 9] But there is no way to be certain that Allstate is in fact
a subrogated insurer without analyzing the contractual language.
And if we cannot determine that Allstate is the subrogee, then it
follows that we cannot determine whether Allstate controlled the
claim.
Whether Allstate is entitled to reimbursement of the
medical expenses portion of the judgment against Grow is best
resolved in the context of Allstate's contractual dispute with
Ruggles. In my view, the case should therefore be remanded to give
the trial court an opportunity to resolve the contractual dispute
separately. Ruggles would then be afforded the same opportunity as
the insured party in Maynard. I therefore respectfully dissent.
FOOTNOTES
Footnote 1:
860 P.2d 1225 (Alaska 1993).
Footnote 2:
Id. at 1226.
Footnote 3:
Id.
Footnote 4:
Id. at 1227.
Footnote 5:
Id. at 1226.
Footnote 6:
Id.
Footnote 7:
Id. at 1227.
Footnote 8:
Id. at 1226-27.
Footnote 9:
Id. at 1227.
Footnote 10:
Id. at 1228.
Footnote 11:
See Rice v. Denley, 944 P.2d 497, 500 (Alaska 1997).
Footnote 12:
663 P.2d 937, 942 (Alaska 1983) (citation omitted).
Footnote 13:
A defendant may defend on the ground that the plaintiff has
assigned the claim to another person or entity. See Alaska R. Civ.
P. 17(a). See also Rodriguez v. Compass Shipping Co., 617 F.2d
955, 958 (2d Cir. 1980), aff'd, 451 U.S. 596 (1981); 6 Am. Jur. 2d
Assignments sec. 105 (1963) (noting that "one who has made a valid
assignment of a claim has no right thereafter, unless authorized by
the assignee, to receive payment from the debtor.").
Footnote 14:
699 P.2d 1265, 1267 (Alaska 1985).
Footnote 15:
See Maynard v. State Farm Mut. Auto. Ins. Co., 902 P.2d 1328,
1334 (Alaska 1995).
Footnote 16:
See id. at 1333.
Footnote 17:
Grow, 860 P.2d at 1228.
Footnote 18:
Id. at 1228.
Footnote 19:
Id.
Footnote 20:
Id.
Footnote 21:
See Alaska R. Civ. P. 68(b)(1). The version of Rule 68(b)(1)
applicable to the present case provided for both costs and a
reduction in prejudgment interest.
FOOTNOTES (Concurrence / Dissent)
Footnote 1:
902 P.2d 1328 (Alaska 1995).
Footnote 2:
See id. at 1331-32.
Footnote 3:
Id. at 1329.
Footnote 4:
See id. at 1334. Ruggles contends that Maynard stands for the
proposition that an insurer may not subrogate against its own
insured. We did not so hold; rather, we explained that "[t]he
cases giving rise to the rule prohibiting subrogation against one's
own insured all involve situations in which the insurer paid out on
a loss to its insured and then sought to hold a second coinsured
party under the same insurance contract liable for the loss." Id.
at 1332. The case at hand, like Maynard, does not involve
coinsured parties.
Footnote 5:
See id. at 1331-34.
Footnote 6:
Id. at 1332.
Footnote 7:
663 P.2d 937 (Alaska 1983).
Footnote 8:
944 P.2d 497 (Alaska 1997).
Footnote 9:
See Rice, 944 P.2d at 500; Brinkerhoff, 663 P.2d at 942.
