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National Union Fire Insurance Co. of Pittsburgh, PA v. Smaistrala

Court of Appeals of Utah

August 30, 2018

National Union Fire Insurance Company of Pittsburgh, PA, Appellee,
Michael W. Smaistrala, Appellant.

          Second District Court, Ogden Department The Honorable W. Brent West No. 130902158

          Paul M. Belnap and Chet W. Neilson, Attorneys for Appellant

          Randall R. Smart and Jeffrey A. Callister, Attorneys for Appellee

          Judge David N. Mortensen authored this Opinion, in which Judges Michele M. Christiansen Forster and Ryan M. Harris concurred.



         ¶1 Michael W. Smaistrala found himself sucked into the vortex of Utah insurance subrogation law when his insurer, National Union Fire Insurance Company of Pittsburgh, PA (National Union), demanded that he return $127, 000 that the company had paid out on his behalf. When the district court ruled as a matter of law that Smaistrala was indeed required to return the money because he had settled a lawsuit with a group of potential tortfeasors, Smaistrala filed an appeal in this court. Specifically, Smaistrala claims that the district court erred in concluding that he breached the insurance contract as a matter of law. Further, Smaistrala claims that the district court erred by ruling that National Union did not need to show the liability of the parties with whom Smaistrala had settled. We agree and reverse.


         ¶2 Smaistrala's injuries occurred while he was resting in the sleeper unit of his uncle's semi-truck. Uncle, who employed Smaistrala, was driving the truck at the time; Uncle lost control of the semi-truck on an icy overpass and rolled the vehicle. National Union, as Smaistrala's insurer, paid Smaistrala roughly $127, 000 for medical services and disability benefits as a result of the accident.

         ¶3 Smaistrala sued Uncle, SRF LLC, KB Trucking, and Fleet Car Lease, [1] alleging negligence by Uncle and negligent supervision and entrustment by SRF, KB, and Fleet Car. The case proceeded, and the parties made preparations for mediation. Counsel for Smaistrala informed National Union of the pending mediation and offered to "represent and protect [National Union's] interests regarding the subrogation."[2] National Union declined that offer. At no time did National Union provide Smaistrala with any forms to complete, nor did National Union request that Smaistrala sign any subrogation forms.

         ¶4 The case subsequently settled. In the settlement agreement, the defendants agreed to pay Smaistrala $300, 000. The settlement included a release of all claims Smaistrala may have had against the defendants and stated that the parties "acknowledge and agree that the settlement of the Lawsuit is the compromise of disputed claims and no terms of the Agreement are to be taken as any admission of liability or damages." After the settlement was finished, the court granted a stipulated order of dismissal of the action with prejudice.

         ¶5 National Union learned of the settlement and eventually filed this lawsuit against Smaistrala, alleging that he breached the insurance contract by failing to preserve National Union's right of subrogation against SRF and KB and by refusing to reimburse the $127, 000 that National Union had paid to Smaistrala as a result of the accident.[3] The subrogation provision in the insurance policy states,

To the total extent the Company pays for losses incurred, the Company may assume the rights and remedies of the Insured Person relating to such loss. The Insured Person agrees to assist the Company in preserving its rights against those responsible for such loss, including but not limited to, signing subrogation forms supplied by the Company.

         Additionally, the "Conditional Claim Payment" (CCP) provision in the policy, which National Union believes requires Smaistrala to reimburse the $127, 000, states as follows:

If an Insured Person suffers a Covered Loss(es) as the result of Injuries for which, in the opinion of the Company, a third party may be liable, the Company will pay the amount of benefits otherwise payable under this Policy. However, if the Insured Person receives payment from the third party, the Insured Person agrees to refund to the Company the lesser of: (1) the amount actually paid by the Company for such Covered Loss(es); or (2) an amount equal to the sum actually received from the third party for such Covered Loss(es). If the Insured Person does not receive payment from the third party for such Covered Loss(es), the Company reserves the right to subrogate under the Subrogation clause of this Policy.
At the time such third party liability is determined and satisfied, this amount shall be paid whether determined by settlement, judgment, arbitration or otherwise. This provision shall not apply where prohibited by law.

         ¶6 National Union eventually filed a motion for summary judgment, which the district court granted. First, the district court found that "[National Union's] action is a breach of contract and therefore [National Union] does not need to show liability of the underlying tortfeasors." In so concluding, the district court maintained that the Utah Supreme Court held "that if a person is not 'made whole' by a settlement, then that person's insurer has the burden to show that it could have successfully subrogated against the underlying tortfeasors to recover the settlement award." (Quoting Hill v. State Farm Mutual Auto Ins. Co., 765 P.2d 864 (Utah 1988), overruled on other grounds by Sharon Steel Corp. v. Aetna Cas. & Surety Co., 931 P.2d 127 (Utah 1997).) However, the court further elaborated that subrogation is an "equitable doctrine" and that "Hill specifically states that the subrogation doctrine 'can be modified by contract.'" (Quoting Hill, 765 P.2d at 866.) The court then cited the CCP provision, and concluded that this provision modified the made whole doctrine by ...

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