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May 2, 1996


Appeal from the Circuit Court of St. Clair County. No. 92-MR-185. Honorable Ellen A. Dauber & Robert J. Hillebrand, Judges, presiding.

The Honorable Justice Goldenhersh delivered the opinion of the court: Hopkins, P.j., and Rarick, J., concur.

The opinion of the court was delivered by: Goldenhersh

The Honorable Justice GOLDENHERSH delivered the opinion of the court:

Plaintiff, Jo Ann Richter, filed a complaint for declaratory judgment against defendant, her insurer, Standard Mutual Insurance Company, seeking a declaration that plaintiff's settlement with and execution of an unlimited release with the underinsured motorist, Dovie Vowell, and her insurer, State Farm Mutual Automobile Insurance Company (State Farm), did not prejudice defendant's subrogation rights. Defendant appeals the order of the circuit court of St. Clair County which found that defendant's subrogation rights were not prejudiced by plaintiff's release and settlement with Vowell and State Farm and, therefore, plaintiff was not barred from recovering under the underinsured motorist provisions of her insurance policy with defendant. Plaintiff cross-appeals the order of the circuit court finding that the underinsured driver had the financial ability to satisfy any judgment defendant may obtain on a potential subrogation claim under plaintiff's underinsured motorist policy.

Defendant presents a single issue for our consideration on appeal, whether plaintiff's settlement and release with the underinsured motorist and State Farm without defendant's knowledge and consent bars plaintiff's claim for underinsured motorist coverage. We affirm; accordingly, we need not resolve the issue raised in plaintiff's cross-appeal.


On May 25, 1989, plaintiff's vehicle was struck from the rear by a car driven by Dovie Vowell, and plaintiff sustained injuries. At the time, Vowell was insured by State Farm with bodily injury limits of $50,000 per person and $100,000 per occurrence. Plaintiff owned an automobile liability policy issued by defendant that included underinsured motorist coverage with a limit of $100,000 per person and $300,000 per occurrence.

On February 23, 1990, William M. Gibbons, claims examiner for defendant, sent a letter to Ireal Spann, claims adjuster for State Farm, indicating defendant's right of lien and subrogation arising out of plaintiff's claim against State Farm for medical expenses she incurred. Gibbons contacted Spann again, by letter dated April 16, 1991, reiterating defendant's subrogated interest in medical expense payments made to plaintiff. In the same letter, Gibbons informed Spann of plaintiff's retention of counsel and further stated that plaintiff's attorney had no right of recovery to any portion of defendant's subrogation claim. State Farm subsequently settled the medical subrogation claim with defendant.

In the interim, on May 2, 1991, plaintiff initiated suit against Vowell seeking to recover monetary damages in excess of $15,000 for personal injuries sustained in the May 25, 1989, accident. Defendant was informed of the complaint filed in the circuit court of St. Clair County in a letter from plaintiff's attorney dated January 30, 1992, in which plaintiff's counsel notified defendant that plaintiff's damages could exceed Vowell's policy limits of $50,000. Plaintiff's attorney requested information regarding plaintiff's underinsured motorist coverage in effect on the date of the accident, her policy limits, a copy of her policy, and "any other information with respect to proceeding on an underinsured motorist claim on plaintiff's behalf." Gibbons responded to plaintiff's counsel's request in a letter dated February 6, 1992, in which Gibbons stated that plaintiff's policy included underinsured motorist coverage for bodily injury of $100,000 per person, with an aggregate limit of $300,000 for each occurrence. Gibbons further explained that defendant would deduct the $50,000 plaintiff could recover from the tortfeasor from her underinsured motorist coverage. Additionally, Gibbons requested a copy of the complaint plaintiff filed against Vowell. Plaintiff's attorney, on February 11, 1992, sent Gibbons the requested medical records and a copy of the complaint. On March 10, 1992, Joe Macklin, liability supervisor for defendant, sent a fax to plaintiff's attorney, acknowledging plaintiff's likely underinsured motorist claim and requesting a current address for Vowell. As of March 10, 1992, there was no mention of settlement negotiations between plaintiff and State Farm in any correspondence between plaintiff's attorney and defendant.

On April 8, 1992, Michael Constance, the attorney for State Farm, sent a letter to Spann, stating that he had "spoken to plaintiff's counsel several times and because of the potential underinsured motorist exposure and because of the high medical bills plaintiff would not accept less than $50,000." Constance then requested that State Farm forward him a check in that amount for plaintiff and her attorneys. Constance further indicated that he would prepare the release for plaintiff's signature. Plaintiff signed the release of claims on April 23, 1992. Plaintiff received two checks from State Farm in the sum of $49,074.90 and $925.10. The draft for $925.10 represented defendant's medical payments to plaintiff. On April 28, 1992, plaintiff's counsel sent a letter to defendant informing it of plaintiff's settlement of her claim against Vowell and demanding settlement of her underinsured motorist claim in the amount of $50,000. A copy of the stipulation for dismissal of the lawsuit plaintiff intended to file with the court was included.

On May 1, 1992, Macklin sent a memo to Gibbons indicating that defendant had not received prior notification of the settlement between plaintiff, Vowell, and State Farm and that defendant had not approved the settlement. Macklin also stated that the file did not evidence any agreement to waive defendant's subrogation rights against Vowell. Based on the information on file, Macklin determined that plaintiff was barred from recovery under the underinsured motorist coverage of the policy because she failed to notify defendant and obtain its consent before entering into the settlement.

Macklin prepared a draft "denial" letter to be sent to plaintiff's attorney stating that plaintiff lost the benefit of her underinsured motorist coverage because she failed to give defendant advance notice of the settlement with the tortfeasor, thereby prejudicing the company's subrogation right. On May 7, 1992, Macklin sent a memo and the "denial" letter to Maurice Kepner, defendant's attorney. Macklin wanted Kepner to review the "denial" letter to make sure that "all of [the] i's are dotted and t's are crossed" so that the company would not be estopped from asserting the "loss of subrogation rights" defense. On May 11, 1992, Kepner sent the denial letter to plaintiff's attorney.

On July 30, 1992, plaintiff filed a complaint for declaratory judgment against defendant seeking a declaration that her settlement with Vowell did not prejudice defendant's subrogation rights and, therefore, plaintiff had not lost the benefit of the underinsured motorist coverage in her policy. On March 8, 1994, a hearing was held on plaintiff's motion for declaratory judgment.

At the March 8, 1994, hearing, on direct examination Spann read to the court the letter from Constance dated April 8, 1992, in which Constance informed Spann that plaintiff's attorney refused to accept less than the full amount of Vowell's liability coverage ($50,000) due to plaintiff's potential underinsured motorist coverage in addition to the extensive medical bills plaintiff incurred. When asked by plaintiff's counsel what conclusions, if any, Spann drew ...

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