APIP Subrogation Suit Not Barred by Settlement of Subrogor's Personal Injury Action

NO-FAULT – APIP SUBROGATION – RES JUDICATA – RELEASE
Farm Family Cas. Ins. Co. a/s/o Raymon Morgan v. Kieper
(Sup. Ct., Wayne Co., decided 6/30/2008)

Question: Since a subrogee "stands in the shoes" of the subrogor, does the subrogor's settlement of his separate personal injury action cut off or extinguish the subrogee's related claim? Answer: It depends.

Raymon Morgan was injured in a motor vehicle accident and brought a personal injury action against the estate of the driver of the motor vehicle. Just before that action settled, Farm Family commenced this subrogation action (presumably for additional personal injury protection benefits paid to or on behalf of Morgan) against Kieper, as well, seeking recovery of approximately $22,000 in medical expenses Farm Family had paid. The Morgan personal injury settled shortly thereafter, with an unconditional general release and stipulation of discontinuance.

Kieper then moved to dismiss Farm Family's complaint based on the doctrine of res judicata and/or collateral estoppel and other defenses.

In denying Kieper's motion, Wayne County Supreme Court Justice Dennis Kehoe ruled:

[A] closer inspection of [Morgan's Supplemental Bill of Particulars, general release and stipulation of discontinuance] reveals certain weakness in the Defendant's contentions. First of all, while Morgan does set forth a claim for medical expenses in the approximate amount of $25,000.00, he makes it clear in his Supplemental Bill that such expenses were paid by Farm Family, and that Morgan himself makes no claim for such expenses in his own right, as they were paid under the no-fault coverage, provided by Farm Family.

Further, while the Release and Stipulation of Discontinuance executed by Morgan appear to be general in nature, at the bottom of the Release, Morgan clearly states that the total settlement amount is allocated to pain and suffering, and that "(n)o portion of the settlement amount is for medical expenses, all of which were paid for by no-fault insurance."

In Progressive Insurance Company v. Sheri Torah, Inc., 44 AD3d 837 (2007), the Fourth Department held that "(w)hen an insured executes a general release in favor of a tortfeasor without reserving the rights of his or her insurer (emphasis added), the insured impairs the rights of his insurer." However, in the instant matter this Court finds that the language at the foot of Morgan's release, while not couched in express terms of a reservation of rights, is sufficient to preserve Farm Family's rights of subrogation.

Further, this Court finds that the doctrines of res judicata/collateral estoppel do not constitute a bar to the instant action. In Ocean Accident & Guarantee Corp v. Hooker Electochemical Co., 240 NY 37(1925), the Court of Appeals held that "an insured cannot extinguish the subrogation rights of its carrier when the defendants are on notice of the carrier's claims prior to the settlement." In this instance, Farm Family instituted the instant action, albeit at the eleventh hour, against Kieper, thus substantiating its claim that the Defendant was on notice of the carrier's claim, prior to the execution of the release and stipulation of discontinuance.

The best practice, of course, is for subrogation counsel to remain in touch with and coordinate the settlement of the subrogor's personal injury action with either the settlement of the APIP subrogation action or its legal survival and continuation.