FARMERS INS. GROUP V. MARTINEZ, 1988-NMCA-018,
107 N.M. 82, 752 P.2d 797 (Ct. App. 1988)
Farmers Insurance Group of Companies,
Plaintiff-Appellant,
vs.
Raymond Martinez, Defendant-Appellee
COURT OF APPEALS OF NEW MEXICO
1988-NMCA-018, 107 N.M. 82, 752 P.2d 797
APPEAL FROM THE DISTRICT COURT OF DONA
ANA COUNTY, James T. Martin, Judge.
Certiorari not Applied for
Ruth J. Thomas, Winchester & Thomas,
Ltd., Las Cruces, Attorney for Plaintiff-Appellant.
Lawrence M. Pickett, Pickett &
Holmes, Las Cruces, Attorney for Defendant-Appellee.
{1} Plaintiff Farmers
Insurance Group of Companies (insurer) appeals the trial court's order
dismissing insurer's complaint against defendant Raymond Martinez (tortfeasor).
The dismissal was based on res judicata principles. We reverse the order of
dismissal and remand for an evidentiary hearing.
{2} The chronology giving
rise to this appeal is as follows: Katherine Barreras (insured) filed suit
against tortfeasor for damages arising from an automobile accident. The suit
was dismissed with prejudice after insured notified the trial court that she
desired to dismiss the case and would not appear at the scheduled trial. Later,
insurer filed suit against tortfeasor. This suit joined insured as a party
plaintiff and claimed damages resulting from the same automobile accident.
Insurer alleged it had paid insured for the damages she suffered in the
accident and that as a result, had become subrogated to any rights insured may
have had against tortfeasor.
{3} Tortfeasor filed a motion
to dismiss, claiming insured's prior action against him was res judicata with
respect to insurer and insured's claims against tortfeasor in the second suit.
Insurer then dismissed insured from its lawsuit, but opposed the motion to
dismiss. The trial court granted tortfeasor's motion to dismiss, ruling that
insured's prior action against tortfeasor barred insured's subsequent action
against him.
{4} Three calendar notices
have been filed in this appeal. Our third calendar notice proposed to reverse
and remand to the trial court for an evidentiary hearing. The calendar notice
also stated that it appeared that if the facts had been put before the trial
court at all, it was in the form of argument of counsel and not evidence. Such
argument alone cannot provide the basis for dismissing a case.
See Phillips
v. Allstate Ins. Co.,
93 N.M. 648,
603 P.2d 1105 (Ct. App.1979). Tortfeasor
did not file a memorandum in opposition to our third calendar notice.
{5} Insurer's asserted right
to recover from tortfeasor is based on the concept of subrogation. Subrogation,
whether created by contract or by operation of law, is an equitable remedy and
equitable principles control its application.
State Farm Mut. Auto. Ins. Co.
v. Foundation Reserve Ins. Co.,
78 N.M. 359,
431 P.2d 737 (1967). A
subrogation case based on facts as found in this appeal is properly analyzed
under the law governing such claims and not under ordinary res judicata
principles. In considering what effect an insured's settlement with a
tortfeasor may have on the insurer's subrogation rights, courts have applied a
three-pronged test incorporating equitable principles. The same test should
apply to situations, as here, where insured dismissed her lawsuit against
tortfeasor voluntarily. The effect of such action is the same; the tortfeasor
may be released from all liability potentially arising from the incident upon
which the lawsuit is based. Thus, we will apply the test to this appeal.
{6} If an insured settles
with a tortfeasor
before an insurer has paid damages to the insured, the
insurer's subrogation rights are destroyed and the settlement is a bar to a
suit by the insurer against the tortfeasor.
March v. Mountain States Mut.
Casualty Co.,
101 N.M. 689,
687 P.2d 1040 (1984).
{*84}
If an insured files suit against, and settles with, the tortfeasor
after
receiving payment from the insurer, and the tortfeasor had knowledge of that
payment or of the insurer's subrogation claim, the settlement will not be a bar
to the insurer's suit against the tortfeasor.
United States Fidelity &
Guar. Co. v. Raton Natural Gas Co.,
86 N.M. 160,
521 P.2d 122 (1974); 16 M.
Rhodes,
Couch on Insurance 2d § 61:201 (Rev. ed. 1983). If, on the other
hand, an insured files suit against, and settles with, the tortfeasor after
receiving payment from the insurer, and the tortfeasor has no notice or
knowledge of that payment or of the insurer's subrogation claim, the settlement
will bar the insurer's suit against the tortfeasor.
State Farm Mut. Auto.
Ins. Co. v. Sanditen, 701 P.2d 876 (Colo. App.1985); M. Rhodes,
supra,
at § 61:203. If the insurer's suit is barred under one of the circumstances
described above, then the insurer is relieved of responsibility to pay damages
to the insured, or can file an action against the insured for the destruction
of its subrogation rights.
March v. Mountain States Mut. Casualty Co.;
Melick v. Stanley, 174 N.J. Super. 271, 416 A.2d 415 (1980).
{7} In
United States
Fidelity & Guaranty Co., the supreme court refused to bar a suit by an
insurer against a third-party tortfeasor when the insurer had paid the
insured's claim, the tortfeasor had knowledge of that payment, and the
tortfeasor had settled a lawsuit brought by the insured after that payment had
been made. The court held that the insurer was an indispensable party to the
insured's lawsuit and that it would be inequitable to allow the insurer's
subrogation rights to be defeated in a lawsuit to which it should have been a
party. The court also held that the single cause of action rule, which is a
form of res judicata (
see Three Rivers Land Co. v. Maddoux, 98 N.M. 690,
652 P.2d 240 (1982),
overruled on other grounds), would not bar the
insurer's lawsuit. Both holdings in
United States Fidelity & Guaranty
Co. were premised on the fact that the tortfeasor had knowledge of the
insurer's payment to the insured and, thus, of its subrogation rights. To our
knowledge, no New Mexico court has considered a situation in which the
tortfeasor, without knowledge of the insurer's payment, settled with the
insured after the insured had been paid by the insurer. Yet, as we noted,
authority from other jurisdictions supports the proposition that in such a
case, the insurer's lawsuit against the tortfeasor would be barred.
See
State Farm Mut. Auto. Ins. Co. v. Sanditen; M. Rhodes,
supra, at §
61:203. It is clear that the tortfeasor's knowledge of the insurer's payment
and subrogation claim is crucial to the application of res judicata in such
cases.
{8} In this appeal, there are
no trial court findings in the record on the question of when insured received
payment from insurer. We are unable to determine whether insured received such
payment before her prior action was dismissed with prejudice or afterward.
Similarly, there are no findings regarding tortfeasor's knowledge of insurer's
payment to the insured at the time the prior lawsuit was dismissed. We
therefore reverse the trial court's order of dismissal and remand for an evidentiary
hearing and findings to determine whether tortfeasor had such knowledge at the
relevant time, and for the entry of an appropriate judgment consistent with
such findings and this opinion.
DONNELLY, C.J., and ALARID, J., concur.