Eric Virshbo, partner in the subrogation department at MacMillan Scholz & Marks, P.C., will be speaking at the upcoming Advanced Uninsured Underinsured Motorist Law CLE on October 30, 2014, at the World Trade Center. Below is an excerpt from his written materials on the topic of Subrogation Rights of Reimbursement and Liens. The entirety of these materials will be distributed at the presentation and are available for sale from National Business Institute (NBI).
While subrogation is not a topic discussed much in law school, it is central to any tort-based legal practice. To many new personal injury lawyers, managing liens is the greatest source of confusion and anxiety. However, while much of subrogation law is confusing, there are clear best practices available to minimize complications. Below is a general guide to the most common subrogation context – auto cases, beginning with an explanation of the common law and equitable basis for subrogation generally in Oregon and then delving into particulars related to the auto insurance subrogation.
In Oregon, there is a strong common law basis for subrogation generally, as Oregon recognizes both equitable and contractual subrogation. As is explained in Maine Bonding v. Centennial Ins. Co., 298 Or. 514, 520-21, 520-21 n. 4, 693 P.2d 1296 (1985), subrogation is an equitable doctrine that is based on a theory of restitution and unjust enrichment. “The right to be subrogated is not dependent upon legal assignment, nor upon contract, agreement, stipulation or privity between the parties to be affected by it; but the party who paid the debt must not be a mere volunteer.” Id. at 521. The right of subrogation is “based upon principles of equity and natural justice.” United Pacific Insurance Co. v. Schetky Equipment Co., 217 Or. 422, 342 P.2d 766 (1959). As the Schetky court explains:
“We recognize at once the fairness of the proposition that an insurer, who has been compelled by his contract to pay to or in behalf of the insured claims for damages, ought to be reimbursed by the party whose fault has caused such damages, and the principle of subrogation ought to be liberally applied for the protection of those who are its natural beneficiaries.’” Id. at 434.
The purpose of subrogation is to impose the financial consequences of a loss on the party “primarily responsible” for the loss. Northwest Farm Bureau Ins. Co. v. Althauser, 90 Or.App. 13, 750 P.2d 1166 (1988). Thus, “subrogation permits an insurer in certain instances to recover what it has paid to its insured by, in effect, standing in the shoes of the insured and pursuing a claim against the wrongdoer.” Koch v. Spann, 193 Or.App. 608, 612, 92 P.3d 146. “The subrogated party acquires precisely the same rights as the party for whom it substitutes, and no more than that.” U.S. F. & G. Co. v. Bramwell, 108 Or. 261, 277-78, 217 P. 332 (1923). An insurer may pursue a subrogation claim only if its insured could have pursued the underlying claim, and the insurer’s claim is subject to all of the defenses that could have been asserted if the insured had pursued the underlying claim. Koch supra at 612.
The Oregon Supreme Court in U.S.F.& G. Co. supra, explains as follows:
“It is familiar law that a surety paying the debt of his principal is entitled to be subrogated to all of the creditor’s rights, privileges, liens, judgments and mortgages, and that to enjoy the benefit of these no assignment from the creditor is necessary. The surety, by the mere fact of payment, is put into the shoes of the creditor . . .The equitable doctrine of subrogation contemplates full substitution.” (italics added).
Thus, in Oregon, insurers can subrogate in almost all situations where the insurer is compelled under an insurance policy to issue payment to, or on behalf of, an insured, but where it is somebody other than the insured whose fault has caused the damages. The most common subrogation claim is based on negligence in the context of an automobile accident caused by somebody other than the insured. Apart from PIP issues governed primarily by statutes (ORS 742.534, ORS 742.535 and ORS 742.538) and discussed below, these claims are straightforward, typically with strong supportive language in the insurance contract, requiring only timely notice to the insured and tortfeasor of the existence of the claim, and timely suit against the tortfeasor if necessary. If filed in the insured’s name, the allegations in the Complaint can be identical to those of a typical personal injury / property damage lawsuit. If filed in the name of the insurer, other allegations specifying the existence of the insurance contract and the basis for subrogation should be included.