Watch the full video at https://rumble.com/v2he362-no-right-to-waive-subrogation.html and at https://youtu.be/TcCuQVsBu0I
After a vehicle accident, Martin Peteet entered into a release and settlement agreement with the driver of the other vehicle and her insurer. Peteet did not seek a waiver of subrogation or consent from his own auto insurer, Mississippi Farm Bureau Casualty Insurance Company (Farm Bureau), before executing the release and settlement agreement. After the release and settlement agreement was executed, Peteet filed a complaint against Farm Bureau seeking damages under the uninsured motorist (UM) provision of his Farm Bureau auto policy. Farm Bureau moved to dismiss the complaint, and the district court denied the motion.
IN Mississippi Farm Bureau Casualty Insurance Company v. Martin Peteet, No. 2021-IA-01420-SCT, Mississippi Supreme Court (April 6, 2023), the Mississippi Supreme Court resolved the dispute.
Martin Peteet was injured in a two-car accident with Maurisha Bland. Following the accident, Peteet entered into a full, final and absolute release of all claims, settlement and indemnification agreement (the Agreement) with Bland and her insurer, Mountain Laurel Assurance Company (Mountain Laurel), in exchange for $25,000. Peteet filed a complaint against his own insurer, Farm Bureau, and claimed that Farm Bureau breached its contract with Peteet.
Peteet argued that the UM provision in his auto policy with Farm Bureau covered up to $50,000 per accident and was intended for this exact purpose. Because Peteet received only $25,000 of the contract-Bland policy limit with Mountain Laurel, he claimed that the rest of his damages from the accident should be paid to him by Farm Bureau under the auto insurance UM provisions.
Farm Bureau moved to dismiss the complaint for failure to state a claim. Farm Bureau argued that because Peteet had entered into the agreement with Bland and Mountain Laurel without first seeking a waiver of subrogation or other consent from Farm Bureau, Peteet was barred from proceeding against Farm Bureau under his UM coverage. Mississippi law established that the Farm Bureau had a right of subrogation and that Mississippi case law supported its position that preemption of the insurer’s right of subrogation barred the insured from proceeding against the insurer for a claim under the policy.
Farm Bureau argued that the agreement executed between Peteet, Bland and Mountain Laurel severed its subrogation rights – to which it is entitled by statute and contract – and barred Peteet from proceeding against Farm Bureau for damages under UM coverage.
Aside from the contractual requirements to consent to possible settlement of claims and to enter into an insured’s right to recover, Mississippi Code Section 83-11-107 provides that an insurer has the right to subrogation.
The law has long been established in the state of Mississippi, the insurer is prohibited from taking action against the tortfeasor, the insured has no further rights to proceed against the insurer. The Supreme Court has ruled that an insured who enters into a settlement and release agreement with an uninsured motorist – which effectively cuts off his own insurer’s right to subrogation – cannot proceed against his own insurer.
Subrogation is the subrogation of one person in place of another. The person who is replaced assumes the other’s rights in relation to the debt or claim and its rights, remedies or collateral.
Farm Bureau was entitled to subrogation by statute and contract. The execution of the agreement between Peteet, Bland and Mountain Laurel severed Farm Bureau’s right of subrogation without Farm Bureau’s consent.
Farm Bureau therefore has no obligation to pay for Peteet’s claim under the UM provision. The Supreme Court reversed the trial court’s denial of the motion to dismiss and entered judgment in favor of Farm Bureau.
Farm Bureau policy required the insured to protect its right to subrogation, as did a Mississippi statute. Peteet released the liable person thereby depriving his insurer of its right of subrogation and thereby destroying his right to seek compensation for underinsured motorist coverage. Failure to protect his insurer’s rights cost Mr. Peteet $25,000. Mr. Peteet forgot that the covenant of good faith and fair dealing applies to him as much as to his insurer. He may not be without relief if the release agreement was based on the advice of an attorney that violated the policy terms and state statute.
(c) 2023 Barry Zalma & ClaimSchool, Inc.
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Barry Zalma, Esq., CFE, now limits his practice to serving as an insurance consultant specializing in insurance coverage, insurance claims management, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims attorney and more than 54 years in the insurance industry. He can be reached at http://www.zalma.com and email@example.com
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