The Georgia Court of Appeals recently confirmed that subrogation rights will not pass to an insurer until payment under the policy has been made.
The Georgia Court of Appeals recently confirmed that subrogation rights will not pass to an insurer until payment under the policy has been made. In the case of Auto Owners Ins. Co. v. Parks, the Georgia Court of Appeals considered whether an insurer has standing to pursue subrogation, even though it had not made payment under the policy. Auto Owners Ins. Co. v. Parks, 2006 Ga. App. LEXIS 343, *1 (Ga. Ct. App. Mar. 24, 2006).
Auto Owners was sued by its insured, Grant Stepp Equipment, to collect on an insurance claim submitted for damage to a piece of excavating equipment, owned by Grant Stepp Equipment and leased to a third party, Robert Parks. Auto Owners filed a motion for summary judgment, claiming that the loss was not covered by the policy and filed a third-party action against Parks, claiming Parks was responsible for the damage. The trial court granted summary judgment in favor of Parks holding that Auto Owners had no right of subrogation and was not entitled to bring suit in its own name. Auto Owners’ appealed.
In arguing that the trial court erred in granting summary judgment to Parks in its third-party action, Auto Owners focused on the following provision in the insurance policy:
After making payment under this policy, we will have the right to recover to the extent of our payment from anyone held responsible. You agree to do whatever is required to transfer this right to us.
Auto Owners asserted that the policy provision provided an absolute right of subrogation and gave Auto Owners standing to bring a third-party action in its own name against Parks. The Georgia Court of Appeals disagreed.
The Court of Appeals held that Auto Owners right of subrogation under the insurance policy did not arise until "after making payment under the policy." The Court found that Auto Owners failed to make such payment under the policy prior to filing suit in denying its insured claim. As such, the Court properly held that Auto Owners failed to satisfy the condition precedent for asserting any subrogation right it may have had under the policy. Id. (citing) Rabun & Assoc. Const. v. Berry, 276 Ga. App. 485, 623 S.E.2d 691 (2005)(holding that "to be entitled to conventional subrogation under the agreement, the insurer must show valid and valuable consideration, or a payment that was actually completed or consummated").
More importantly, the Court of Appeals also held that the policy provision only provided Auto Owners with a right of recovery and did not expressly provide Auto Owners with its own right of action. The Court held that there was no evidence that the right of action had been transferred to Auto Owners by its insured when the third-party action was filed. Consequently, any action against Parks had to be brought in the name of the insured, Grant Stepp Equipment. Thus, Auto Owners’ third- party action was improperly brought in its own name and subject to dismissal. Id. (citing) Allstate Insurance Co. v. Welch, 259 Ga. App. 71, 576 S.E.2d 57 (2003);Liberty Mutual Ins. Co. v. Clark, 165 Ga. App. 31, 299 S.E.2d 76 (1983).
This case comes as no surprise in Georgia and upholds long standing principals of subrogation. However, it underscores the pitfalls that all insurers should be aware of in pursuing subrogation actions. In particular, insurers should be reminded that subrogation rights will not be vested until payment has been made under the policy and that legal advice should be sought when determining whether the subrogation action must be brought in the name of the insurer or its insured.