Subrogation Settlement

Dallas insurance attorneys will sometimes run across semi-complicated subrogation issues. One of these situations arose in a 1998, Dallas Court of Appeals case styled, Universal Underwriters of Texas v. Transamerica Insurance Group, et al. Here is some of the relevant information from that case.
The case is a subrogation case between two insurance companies who settled a case. Morris was an employee of Race Promotions Management, Inc. d/b/a the Dallas Grand Prix. The Grand Prix had borrowed a 1988 Corvette owned by Young Chevrolet for promotions. Morris was involved in a single car accident which killed his passenger, Bradshaw. Morris was legally intoxicated. Bradshaw’s parents sued Morris and Young Chevrolet alleging negligence and negligence per se against Morris, and negligent entrustment and strict liability against Young Chevrolet. Young Chevrolet brought a third party action against Grand Prix as Morris’ employer. Universal insured Young Chevrolet and Transamerica insured Grand Prix. Transamerica, Universal and others settled with the Bradshaws for $695,000. Universal paid $275,000 on behalf of Young Chevrolet. Allstate paid $20,000 on behalf of Morris under his personal auto policy. Transamerica paid $400,000 in return for which the Bradshaws released Morris, Race Promotions Management, Southway Management Corporation, Grand Prix, Ronald Scott Wheeler, Darryl Snaden, Southern Sports Management, Allstate, Transamerica, and the adjuster. In all, the Bradshaws released ten individuals and entities.
After settling with the Bradshaws, Transamerica brought a declaratory judgment action against Universal asserting that Morris was insured under Universal’s policy. Transamerica’s policy provided that it was excess over any other collectable insurance. The trial court concluded that Transamerica proved that Morris was an insured under Universal’s garage policy, granted Transamerica judgment for the remainder of Universal’s policy limits of $225,000, as well as $30,000 in attorney’s fees. Universal filed this appeal.
This Dallas Court of Appeals reversed the judgment and rendered judgment in favor of Universal. The Court stated “subrogation” is the substitution of one party with another in reference to a lawful claim or right. There are two types of subrogation: equitable and contractual. Equitable subrogation does not depend on an express contract between the parties but arises by operation of law or by implication in equity to prevent injustice. When an insurance company pays a lose under a policy, it becomes equitably subrogated to any cause of action the insured may have had against a third-party. The insurance company right of subrogation derives from the rights of the insured and is limited to those rights. The settling insurance company bears the burden of establishing what portion of the settlement is attributable to its subrogor.
In this case, Transamerica did not apportion the settlement proceeds into the amount paid on behalf of Morris and the amount paid on behalf of Grand Prix or the other nine persons or entities that release Transamerica. Under Texas law, Transamerica had the burden of proving what portion of the settlement funds were actually paid on behalf of Morris, as opposed to funds paid to secure the release of others not covered by the Universal policy such as Grand Prix.