Idaho: Insurer that Settled with Tortfeasor Can’t Demand Subrogation Suit by Insured

An insurer that reached a settlement with a motorist who caused a crash cannot deny a underinsured motorist claim on the basis that its policyholder failed to comply with the terms of her auto policy by not filing a subrogation lawsuit on her own, the Idaho Supreme Court ruled.

In a unanimous decision Friday, the high court reversed a trial court ruling that granted summary judgment for State Farm in a lawsuit. The high court also awarded attorney fees and costs to the policyholder because State Farm’s defense was “frivolous, unreasonable and without foundation.”

“Indeed, we cannot overstate how unacceptable State Farm’s arguments and conduct have been in this case,” the opinion says.

Kelly Lynn Christmann, a resident of Idaho, was injured and suffered property damage in a three-car crash in Spokane, Washington in January 2016. The car behind her slowed to stop at an on-ramp on Interstate 90, but a vehicle driven by Bryan Booth rear-ended the vehicle and caused it to crash into Christmann’s car.

Christmann had an insurance policy with State Farm with underinsured motorist limits of $100,000 per person. Booth’s insurer, USAA, paid the full $25,000 policy limit available under Booth’s policy. Christmann told State Farm about the offer and said she intended to pursue additional underinsured motorists benefits from State Farm. She asked State Farm to waive its subrogation claim against Booth.

State Farm refused and paid Christmann the $25,000 offered by USAA. State Farm also paid $10,000 in medical coverage and $18,800 underinsured motorists benefits — a total of $53,800.

Christmann asked for additional money from State Farm to cover the cost of continued medical treatment. State Farm told her that her policy required her to file a subrogation lawsuit against Booth — the third-party tortfeaser — if she wanted additional benefits.

State Farm sued Booth to recover the total amount it paid for the claim and eventually settled for $25,000. After the three-year statute of limitations passed, State Farm told Christmann that she was not entitled to any more benefits because she had not filed a lawsuit against Booth as required by the terms of her policy. A provision titled Deciding Fault and Amount requires policyholders seeking underinsured motorists benefits to file a lawsuit against any person responsible for the injury or damage.

In June 2020, Christmann filed a lawsuit against State Farm. She did not name Booth as defendant.

State Farm filed a motion for summary judgment, arguing that by failing to sue Booth, Christmann had not complied with the terms of her policy. The insurer did not disclose that it had filed a lawsuit against Booth and reached a settlement agreement that released him from all claims.

Kootenai County District Court Judge Cynthia K.C. Meyer granted a motion for summary judgment filed by the insurer finding Christmann did not comply with the policy. Christmann appealed.

The Supreme Court said in order to prevail, State Farm would have to show that it was prejudiced by Christmann’s failure to file a lawsuit against Booth. The carrier, however, had failed to disclose during discovery that it had sued on its own and reached a settlement, the opinion said. State Farm should have provided a copy of Booth’s release of claims during discovery in the case, the court said.

“No additional subrogation rights could have been pursued even if Christmann had complied with her policy by naming Booth in her complaint because no subrogation rights remained to be protected,” the opinion says. “Estoppel would bar any subsequent action between State Farm and Booth resulting from the 2016 accident.”

The Supreme Court also directed State Farm to pay Christmann’s legal fees and costs on appeal. The opinion says State Farm “continuously asserted” that Christmann had prejudiced its subrogation rights even though it has waived those rights itself when it settled with Booth.

“This argument was neither legally nor factually supportable, and State Farm knew as much when it made the argument,” the high court said.