When Will an Insurer’s Assignment for Property Damage Payments be Destroyed by the Insured’s Signing of a Release of All Claims

Recently, we were confronted with a scenario involving an insurer claiming a right of assignment for property damage against one of our insurance company clients.

The insurance company-assignee insured a vehicle a woman drove at the time of an accident with our client’s insured. The woman filed a bodily injury suit against our client’s insured and a property damage claim with her own insurer. The assignee paid the woman’s property damage, obtained a written assignment of that claim from her, and sent written notice to our client of its right of assignment for the property damage payment. Subsequently, we were able to resolve the woman’s bodily injury claim. As part of the settlement, the woman signed a Full, Final, and Absolute Release of All Claims. The all-encompassing release included any claims for property damage.

In light of the previous situation, a question arose regarding what impact, if any, the fact the woman signed an all-encompassing release would have on her insurance company’s assignment claim. Typically under Mississippi law, any defense that is available against an insured would be available against the insured’s insurance company in an action for subrogation. But does the same extend to a claim for assignment? The case Ellis v. Powe, 645 So. 2d 947 (Miss. 1994), addresses this issue.

In Powe, Powe and Pollara sued each other after an automobile accident. Pollara settled his claims against Powe and signed a release which purported to also apply to any assigns of Powe. Pollara’s insurer, who had obtained an assignment from Pollara after making property damage payments arising out of the accident, later filed suit against Powe seeking reimbursement. Powe raised the release as a defense against the claim. In addressing whether signing the release destroyed the insurer’s right of assignment, the court cited a treatise for what it described as an appropriate summary of the general law regarding an insurance company’s subrogation rights:

The insurance company’s right of subrogation is not destroyed when [the] insured settles with the tort-feasor after receiving payment from the insurance company if the tort-feasor had actual or constructive knowledge of the payment and the right of subrogation . . . On the other hand, the insurance company’s right of subrogation is destroyed when insured settles with the tort-feasor after receiving payment from the insurance company, if the tort-feasor had no notice or knowledge of the payment or of the insurance company’s subrogation claim. It has been held that between an insurance company acquiring a claim by subrogation which fails to notify the tort-feasor thereof, and a tort-feasor failing to inquire as to the existence of insurance coverage, the loss should fall upon the former. Id. at 951 (citing 46A C.J.S. Insurance § 1472 (1993)).

Applying the general rule to the facts in Ellis, the court explained: “If Powe had [notice of the insurer’s assignment] prior to the release and settlement of his claim with Pollara, then [the insurer’s] claim for property damage was not barred and summary judgment should not have been granted. If Powe did not receive notice of [the insurer’s] subrogation assignment prior to settlement with Pollara, then [the insurer’s] claim against Powe was barred.” Id. at 952. The burden is on the insurer to show that it provided notice of the assignment. Id.

In simpler terms, the basic premise in Ellis is that if you knew or should’ve known about the insurer’s assignment right, obtaining a release from the insured will not destroy the assignment. In contrast, if you are unaware of the assignment, it is destroyed by the insured signing a release.

While the Ellis court used the term “subrogation” rather than “assignment,” it is worth noting the insurer in that case obtained a written assignment; as a result, the decision could be distinguished from one involving a contractual or equitable subrogation right.

Given the potential implications as Ellis demonstrates, it is important for any insurer to promptly inform a tortfeasor’s carrier of an assignment in writing in order to preserve that right. Doing so will help keep you from getting stuck with a bill when your insured unknowingly releases your claim.