Failure of Insured to Consent to Settlement Eliminates Right of Subrogation

Mandato arose out of a claim for negligent construction. Builders Insurance Group (“Builders”) sued four subcontractors to recover $325,000 it had paid in settlement of a claim brought against its insured, a general contractor. Builders claimed that the subcontractors negligently performed their subcontracts in building a residence.

The underlying settlement came about when the homeowner, the general contractor and Builders participated in a mediation and afterward agreed to settle for $325,000. Both Builders and the general contractor signed off on a document confirming acceptance of an offer by the homeowner. Builders paid the settlement and received a release of all claims against the general contractor and then filed its claims against the subcontractors.

The Court of Appeals found that O.C.G.A. § 33-7-12(a) allows an insurer, acting as an independent contractor, to settle claims. As an independent contractor, however, the insurance company has no right of subrogation because it did not make a payment as an agent of the insured under the policy. The Court ruled that even though the general contractor had signed the agreement accepting the settlement amount proposed by the homeowner this did not constitute evidence of the general contractor’s written consent to Builders’ settlement payment to the homeowner.

If you are prosecuting a subrogation case make sure that you have a signed acknowledgment of the insured to the settlement of the underlying case. A signed subrogation agreement would also be helpful. If you are defending a subrogation case, make sure to explore the issue of the insured’s explicit consent to the claim. Many lawyers, as a matter of course, include language in a release agreement indicating that the insurer acts as an independent contractor. Where subrogation is anticipated, this language should not be put in the release and the insured should be asked to sign the release acknowledging their consent to settlement and to subrogation.

Please call me if you have any questions or would like a copy of the case.

About the Author

Michael Rust graduated from Emory University in 1980 and Emory University School of Law in 1983 where he was Notes and Comments editor of the Emory Law Journal (Law Review). Since that time, he has maintained an active trial practice in the state of Georgia both in State and Federal Courts. Mr. Rust teaches litigation as part of Emory University School of Law’s annual Trial Practice Program. He has received AV rating from Martindale Hubble, the highest rating afforded to lawyers by their peers.