Shumpert v. Time Insurance
1998 S.C. App. LEXIS 9, 329 S.C. 605, 496 S.E.2d 653 (1998)
Rule of Law:
A health insurer is not entitled to equitable subrogation to an insured's recovery from a third-party tortfeasor if the health insurance policy does not contain an express contractual subrogation provision, as the common law doctrine of equitable subrogation does not apply to health insurance.
Facts:
- Richard Shumpert purchased a health insurance policy from Time Insurance Company in 1976.
- In July 1991, Richard Shumpert was seriously injured in an automobile accident caused by another driver.
- Pursuant to the policy, Time Insurance Company paid Richard Shumpert a total of $18,818.76 for medical bills incurred due to the accident.
- The Shumperts initiated a civil action against the at-fault driver, and Lois Shumpert also asserted a claim for loss of consortium.
- Time Insurance Company advised the Shumperts by letter in November 1992 that it had a right of subrogation to their recovery from the at-fault driver.
- The Shumperts' legal assistant responded in December 1992, stating, 'We will honor your right of subrogation.'
- In February 1993, the Shumperts' attorney asked for documentation supporting Time's subrogation claim, and later communicated a belief that equitable subrogation did not apply to health insurance.
- The Shumperts settled their case against the at-fault driver for $75,000.
Procedural Posture:
- The Shumperts brought a declaratory judgment action against Time Insurance Company in circuit court, seeking a declaration that Time had no subrogation interest in their settlement proceeds and alleging a claim for bad faith.
- Time Insurance Company answered and counterclaimed, asserting an equitable subrogation interest and alleging a bad faith claim against the Shumperts.
- Both the Shumperts and Time Insurance Company filed motions for summary judgment with the circuit court.
- The circuit court granted Time's motion for summary judgment, denied the Shumperts' motion, and ruled that Time was entitled to equitable subrogation for $18,818.76. The initial order did not explicitly rule on the bad faith claims.
- The Shumperts, as appellants, served a notice of appeal regarding the circuit court's order.
- The circuit court then issued an amended order, correcting a typographical error in the amount of subrogation and denying both parties' claims for bad faith, but did not address offset for the Shumperts' litigation expenses.
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Issue:
Does a health insurance provider have a right to equitable subrogation of an insured's recovery against a third-party tortfeasor when its policy does not include an express subrogation clause, as provided by statute?
Opinions:
Majority - Anderson, Judge
No, a health insurer is not entitled to equitable subrogation of an insured's recovery against a third-party tortfeasor when it fails to include an express subrogation provision in the health insurance policy. The court agreed with the Shumperts, holding that the doctrine of equitable subrogation, while applicable in property and casualty insurance contexts, is not universally applied to health insurance policies. The court reasoned that in property insurance, losses are typically liquidated and tort recovery is usually comparable, making the prevention of an 'unwarranted windfall' clear. However, personal injury tort recoveries often encompass unliquidated damages such as pain and suffering, lost wages, and impaired earning capacity, making it artificial to isolate medical expenses and determine a true 'windfall.' The court cited persuasive authority from other jurisdictions, such as Frost v. Porter Leasing Corp. (Massachusetts) and American Pioneer Life Insurance Co. v. Rogers (Arkansas), which similarly concluded that common law or equitable subrogation does not apply to health insurance policies without an explicit contractual provision. Health insurers are considered the primary obligors for the medical expenses they contract to cover. The court affirmed the circuit court's denial of the Shumperts' bad faith claim, finding Time was justified in litigating the issue of equitable subrogation, even if ultimately unsuccessful.
Concurring - Connor, Judge
Yes, the health insurer is not entitled to equitable subrogation. Judges Connor and Huff concurred with the majority opinion, indicating agreement with its reasoning and conclusion.
Concurring - Huff, Judge
Yes, the health insurer is not entitled to equitable subrogation. Judges Connor and Huff concurred with the majority opinion, indicating agreement with its reasoning and conclusion.
Analysis:
This case establishes a significant limitation on the application of equitable subrogation in South Carolina, explicitly distinguishing health insurance from property and casualty insurance. It underscores the critical importance of express contractual provisions for subrogation in health insurance policies, compelling insurers to clearly define their reimbursement rights within the policy terms. Future cases involving subrogation claims by health insurers will require a thorough examination of the policy language, placing the burden on insurers to include such clauses if they wish to recover from third-party settlements. The ruling also clarifies that merely asserting a subrogation claim, even if ultimately unsuccessful, does not automatically constitute bad faith, particularly when the underlying legal issue is a matter of first impression or reasonably debatable.
