Auto insurer has traditional subrogation rights to recover property damage

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Meas sued State Farm for bad faith. Meas then settled his personal-injury claim with Allied and To. Meas and State Farm filed cross-motions for summary judgment. The trial court held that State Farm was entitled to pursue its property-damage subrogation on its own and did not owe Mahler fees. Meas appealed.

The State Farm policy provided that it possessed a right of recovery of any party it paid, but "only after the insured has been fully compensated for the bodily injury, property damage or loss." Meas argued that under Mahler, an insurer has no right of direct subrogation where its insured pursues third-party recovery for himself.

The Court of Appeals disagreed. The court noted that Mahler viewed property-damage subrogation differently from PIP reimbursement. The former caused few disputes between insurer and insured since the insured had “no interest in competing with the insurer for the right to sue the tortfeasor; economic damages could make the insured whole." By paying the property damage initially, State Farm had made the insured whole, and its policy entitled it to pursue property-damage reimbursement directly from the tortfeasor. In contrast, the policy did not permit State Farm to pursue its PIP reimbursement until the insured received full compensation for the personal-injury claim. Unlike a property-damage claim, in a personal-injury claim "the claimed noneconomic damages typically amount to many multiples of the economic damages and are almost always disputed because they are not objectively ascertainable."

Accordingly, since State Farm had traditional rights of subrogation directly against the tortfeasor for the property damage, it did not owe a proportionate share of attorney fees in connection with that subrogation recovery.