overruling an earlier decision wherein a three-judge plurality had concluded that "conventional subrogation rights of an insurer created by contract prevail over an insured's equitable right of subrogation arising as an operation of law"
How later courts described this case
- overruling an earlier decision wherein a three-judge plurality had concluded that "conventional subrogation rights of an insurer created by contract prevail over an insured's equitable right of subrogation arising as an operation of law"
- finding suggestion that probate court lacked subject-matter jurisdiction for lack of strict compliance with the adoption statutes was not valid where cases addressed jurisdiction of the person
- specifically holding that the dominance of one type of subrogation over another is arbitrary; thus, the insured's right to subrogation takes precedence over that of an insurer
- “[T]he insured must be wholly compensated before an insurer’s right to subrogation arises; therefore, the insurer’s right to subrogation arises only in situations where the recovery by the insured exceeds his or her total amount of damages incurred.”
Written by the judges who cited it.
The opinion
Annabelle Clinton Imber, Justice, dissenting. The majority’s opinion abolishes the precedent established only three years ago in Higginbotham v. Arkansas Blue Cross & Blue Shield, 312 Ark. 199 , 849 S.W.2d 464 (1993), dissolves the legal distinction between equitable and conventional subrogation, and disregards the well-established doctrine in Arkansas that the parties to an insurance contract are free to determine the terms of their agreement. For these reasons, I must respectfully dissent.
First, the majority’s opinion overrules the well-reasoned precedent we established only three years ago in Higginbotham. This court has consistently recognized that the doctrine of stare decisis is of fundamental importance, and that our prior decisions should not be overruled unless great injury or injustice would result. Sanders v. County of Sebastian, 324 Ark. 433 , 922 S.W.2d 334 (1996); Independence Fed. Bank v. Webber, 302 Ark. 324 , 789 S.W.2d 725 (1990). According to the United States Supreme Court, adherence to precedent is necessary to promote “stability, predictability, and respect for judicial authority.” Hilton v. South Carolina Pub. Rys. Comm’n, 502 U.S. 197 (1991). As Justice Cardozo recognized many years ago, no judicial system could do society’s work if it eyed each issue afresh in every case that raised it. B. Cardozo, The Nature of the Judicial Process 149 (1921).
In no area of law is stare decisis more important than in contract law where the parties, such as Franklin and Healthsource, have relied on precedent when they executed a document that proscribed their respective legal rights. See Payne v. Tennessee, 501 U.S. 808 (1991); Parish v. Pitts, 244 Ark. 1239 , 429 S.W.2d 45 (1968). Most importantly, the United States Supreme Court has admonished that precedent should be abandoned only where the prior decision is unsound in principle, unworkable in practice, or significantly diluted. See Planned Parenthood v. Casey, 505 U.S. 833 (1992); Allied-Signal Inc. v. Director, Division of Tax, 504 U.S-768 (1992). None of these circumstances exist which would compel this court to abandon the precedent it established only three years ago in Higginbotham.
The majority characterizes the Higginbotham opinion as “a plurality opinion.” I disagree with this characterization. A majority of the Higginbotham court, as recognized injustice Brown’s separate dissenting opinion in this case, upheld conventional subrogation for the same damages.
The majority incorrectly states that “[fjollowing Bough, an insurer is entided to enforce its contractual right of subrogation.” (Emphasis added.) Rather, Shelter Mut. Ins. Co. v. Bough, 310 Ark. 21 , 834 S.W.2d 637 (1992), merely reaffirmed an insurer’s equitable right of subrogation. Moreover, the majority’s opinion dissolves the distinction we observed in Higginbotham between equitable and conventional subrogation by concluding that the “same facts give rise to both.” With this assertion, I also cannot agree. Equitable subrogation, as was utilized by the trial court in Bough, is a remedy imposed upon the parties by operation of law. In contrast, conventional subrogation, which occurred in Higginbotham, arises under the terms of a contract to which the parties specifically assented. This distinction is an important one because this court has consistently held that an insured may contract with his or her insurance carrier on whatever terms the parties agree so long as the terms are not contrary to statute or public policy. Pardon v. Southern Farm Bureau Casualty Ins., 315 Ark. 537 , 868 S.W.2d 468 (1994); Shelter Gen. Ins. v. Williams, 315 Ark. 409 , 867 S.W.2d 457 (1993).
This court recently held that the public policy of this State may be found in its constitution and statutes. Guaranty Nat’l Ins. Co. v. Denver Roller Inc., 313 Ark. 128 , 854 S.W.2d 312 (1993). The right of subrogation between an insured and his or her insurance carrier is recognized in several places in the Code, and therefore cannot be said to be contrary to public policy. See e.g., Ark. Code Ann. §§ 23-89-101 , 207, & 405 (Repl. 1992). Because a conventional subrogation agreement does not violate public policy, this court should enforce the terms of the contract to which the parties expressly agreed.
Of particular importance to this case is Ark. Code Ann. § 16-22-304 (Repl. 1994), whereby the public policy of this State allows attorneys to attach a statutory lien on their client’s settlement proceeds. In fact, by virtue of this statutory provision, Franklin’s attorneys were granted over one-third of Franklin’s settlement money despite the fact that he had not been made whole. Surely, if such a statutory provision is in accordance with this State’s public policy, then so too must an insured’s common law right to enter into a conventional subrogation contract be in accordance with the State’s public policy.
Furthermore, Franklin received the benefit of his subrogation contract when he allowed Healthsource to pay over $71,000 in medical benefits. This court should not allow him to escape his corresponding duty to reimburse Healthsource, to the extent possible, for this disbursement. See Ray v. Pearce, 264 Ark. 264 , 571 S.W.2d 419 (1978); Williams Mfg. Co. v. Strasberg, 229 Ark. 321 , 314 S.W.2d 500 (1958). It should also be noted that Healthsource only recouped approximately $14,000 of the $71,000 it spent on Franklin’s behalf. Therefore, neither Franklin nor Healthsource was “made whole” by Franklin’s tactical decision to accept $25,000 from the tortfeasor as full compensation for his injuries. In other words, both Healthsource and Franklin were damaged by the tortfeasor’s insolvency, and not by virtue of the subrogation agreement.
In sum, the Higginbotham decision was not only consistent with the well-established principles of contract law, but was also in accordance with the rule adopted by several other jurisdictions that the parties may, by contract, alter their rights to equitable subrogation such that the insured does not have to be made whole before the insurance carrier is entitled to reimbursement for the expenses it paid on the insured’s behalf. E.g., Martin v. Dillow, 637 N.E.2d 961 (Ohio Ct. App. 1994); Unified School Dist. No. 259 v. Sloan, 871 P.2d 861 (Kan. Ct. App. 1994); In re Estate of Scott, 567 N.E.2d 605 (Ill. App. Ct 1991) cert. denied, 575 N.E.2d 915 (Ill. 1991); Hill v. State Farm Mut. Auto. Ins. Co., 765 P.2d 864 (Utah 1988). In the majority’s opinion, this court has simply removed the parties’ freedom to determine the terms of their insurance agreement, and with such a result I cannot agree.
For these reasons, I cannot join in the majority’s departure from the legally sound, workable, and undiluted precedent established in Higginbotham. Therefore, I respectfully dissent.
Newbern and Brown, JJ., join in this dissent.