Waiver of subrogation right doesn’t discharge tort liability

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Where an insurer waived its right to subrogation, this did not prevent the insured plaintiff from “recovering on a judgment against the tortfeasor.”

Background

Brown received a $286,000 judgment against Kirkpatrick for damages “for damages arising out of a motor vehicle accident.”

Before trial, USAA, Brown’s insurer, told Kirkpatrick that it would waive subrogation against him if State Farm, Kirkpatrick’s insurer “‘continues the defense … through the trial of this matter.’

“USAA’s right to subrogation was derived from Code § 38.2-2206(G) which provides that ‘[a]ny insurer paying [an underinsured motorist claim] shall be subrogated to the rights of the insured to whom the claim was paid against the person causing the … damage and that person’s insurer.’

“Following the verdict, State Farm paid out its per person policy limit of $50,000, plus costs, on behalf of Kirkpatrick. After the State Farm payment, USAA sent Brown a check for $236,000 pursuant to Brown’s underinsured motorist coverage.

“In the letter accompanying that check, USAA requested that Brown ask that the circuit court ‘mark this matter as “paid and satisfied.”’ Brown responded that he believed that he was entitled to pursue recovery against Kirkpatrick in light of USAA’s waiver of its right to subrogation.

“Following Brown’s refusal, Kirkpatrick filed a motion under Code § 8.01-455 requesting that the circuit court enter an order marking the judgment as satisfied. At the hearing on the motion Kirkpatrick argued that ‘USAA indicated that they would satisfy their share post-verdict and waive subrogation against Mr. Kirkpatrick if he appeared for trial.’

“However, Kirkpatrick argued that the waiver of USAA’s right to pursue Kirkpatrick did not mean that Brown regained the right to pursue Kirkpatrick. …

“The circuit court agreed with Kirkpatrick[.] … Brown now appeals.”

Discussion

“The question raised by this case is whether an insurer’s waiver of its right to subrogation against a tortfeasor precludes the insured-plaintiff from recovering on a judgment against the tortfeasor. …

“[W]e hold that the mere waiver of the insurer’s right to subrogation does not discharge the underlying tort liability. …

“‘Subrogation is merely the “substitution of one person in the place of another with reference to a lawful claim, demand or right so that he who is substituted succeeds to the rights of the other in relation to the debt or claim, and its rights, remedies, or securities.”’ Llewellyn v. White, 297 Va. 588, 599 (2019)[.] …

“[A]n insurer who has paid a loss becomes a subrogee to the rights of their insured against the responsible party with respect to any loss covered by the policy. …

“The insurer’s right of subrogation is wholly derivative of the subrogor’s rights; in other words, ‘a subrogated insurer stands in shoes of an insured, and has no greater rights than the insured, for one cannot acquire by subrogation what another, whose rights he or she claims, did not have.’”

‘Llewellyn’

“In Llewellyn v. White, the Virginia Supreme Court held that an insurance company’s agreement with the plaintiff to waive its right of subrogation did not relieve the tortfeasor’s judgment debt.

“The plaintiff settled her UIM claim with her insurer pre-trial for $750,000. … As part of that settlement the UIM insurer agreed with the plaintiff that it would waive its rights to be subrogated to the rights the plaintiff had against the defendant. …

“The case proceeded to trial, and the plaintiff was awarded $1.5 million in damages. … The defendant filed a motion to have her judgment reduced by the $750,000 paid by plaintiff’s UIM carrier pursuant to Code § 8.01-35.1. …

“The Supreme Court held that the UIM insurer was not a joint tortfeasor and that the payment to the plaintiff was a collateral source; therefore, the defendant remained liable for the full amount of the judgment. …

“The collateral source rule, as applied in Llewellyn, establishes that ‘a person who is negligent and injures another owes to the latter full compensation for the injury inflicted[,] … and payment for such injury from a collateral source in no way relieves the wrongdoer of [the] obligation.’ …

“Specific to the insurance context, the collateral source rule is that ‘damages, recoverable of personal injuries inflicted through the negligence of another are not to be reduced by reason of the fact that the injured party had been partly compensated for his loss by insurance which he has procured and for which he has paid.’ …

“The collateral source rule and the principle that an injured party should not be entitled to a double recovery are fundamentally at odds. …

“The Virginia Supreme Court determined that in resolving this tension ‘the better option is to allow plaintiff to retain the “windfall” that results from his foresight in voluntarily electing to purchase [UIM] coverage rather than allowing defendant … to be the ultimate beneficiary of plaintiff’s decision to procure additional insurance coverage.’ …

“Brown argues that the logic of Llewellyn applies with equal force to a situation where the insurance company has agreed with the defendant to waive its subrogation rights. We agree.

“[W]e note that Code § 8.01-455 only entitles Kirkpatrick to have the judgment marked as satisfied upon proof that the judgment has been ‘paid off or discharged.’ It is undisputed that the judgment has not been ‘paid off.’ …

“USAA has waived its right to pursue Kirkpatrick for the money it paid to Brown. That does not mean that Kirkpatrick’s obligation has been paid off. …

“Accordingly, we reverse the ruling of the circuit court and remand for further proceedings consistent with this opinion.”

Reversed and remanded.

Brown v. Kirkpatrick, Record No. 1100-22-2, July 5, 2023. CAV (published opinion) (Humphreys, Huff dissenting) From the Circuit Court of the City of Newport News. (Pugh) Steven L. Lauer (S. Geoffrey Glick; The Joel Bieber Firm, on briefs), for appellant. John D. McGavin (Kara A. Schmidt; McGavin, Boyce, Bardot, Thorsen & Katz, PC, on brief), for appellee. VLW 023-7-255, 15 pp.