Do You Have To Pay Back Your Insurance When They Pay Benefits To You?

What if a policyholder in Grand Prairie, Arlington, Fort Worth, Dallas, Weatherford, or anywhere else in Texas, collects uninsured motorist benefits from their insurance company and then later makes a claim against the at fault driver, do they have to pay back their insurance company? The general answer is yes, but there may be a few exceptions, depending on the circumstances.
This issue came up in the case, State Farm Mutual Automobile Insurance Company v. Shannon Perkins, et al. This case was decided by the Texas Court of Appeals in Eastland, Texas. It was an appeal from the 35th District Court, Brown County, and was decided July 13, 2006.
The background facts are that Shannon Perkins was involved in an automobile accident with Mike Cooper Jr. on May 22, 2003. Perkins was injured in the accident. Cooper was driving a truck owned by Harold Oaks. Cooper did not have insurance. State Farm Mutual Auomobile Insurance Company (State Farm) paid Perkins $25,000 in uninsured motorist benefits. Oaks had an automobile liability policy with State Farm. Perkins sued Oaks for her injuries. State Farm intervened in the lawsuit saying they were entitled to subrogation on the $25,000 they had already paid. At trial the jury awarded Perkins $53,000 for her injuries. State Farm insisted that they were intitled to $25,000 of that amount.
The clear language in the State Farm policy entitled them with contractual rights of subrogation and reimbursement. Also, Texas Insurance Code, Section 1952.108, gives State Farm a right to subrogation.
The court discussed five reasons why subrogation is not allowed in certain situations. This is known as the antisubrogation rule. First, it is based on the premise that an insurer who seeks subrogation stands in the shoes of the insured and can take nothing by subrogation but the rights of the insured. Because a person cannot sue himself for damages, that person’s insurer, who stands in the person’s shoes for subrogation purposes cannot sue the person either. Second, the insurer that has accepted premiums to cover certain risks should not be allowed to pass the same risks back to its insured in a subrogation action. Otherwise, the insurer would be allowed to avoid the coverage that the insured has purchased. The third reason is the relationship between an insurer and its insured are fraught with conflicting interests. Fourth, if insurers were permitted to sue their insureds for subrogation, the insurers would be able to obtain information from their insureds under the guise of policy provisions for later use in a subrogation action. And fifth, an insurer’s right to sue its insured could be interpreted by the insurer as a judicial sanction to breach the insurance policy.
But as the court pointed out, the difference in this case is, State Farm paid uninsured benefits to Perkins under her policy, and State Farm seeks subrogation and reimbursement for those benefits from the proceeds of Oak’s policy. To not allow subrogation in this case would be to sanction a double recovery by Perkins. She would have the $25K of underinsured benefits, plus $53k of Perkins policy for a total recovery of $78K. This after a jury had determined her claim was a total of $53K.
In this case there were some other subrogation theory’s discussed that are interesting reading. Bottom line is, a person must seek the advice of an experienced Insurance Law Attorney. Handling these subrogation issues in an incorrect manner can result in the policyholder being sued by the insurance company.