Trial court can't cut insurer out of settlement, Texas SC rules

Steve Korris Jun. 2, 2010, 5:00am

Texas Supreme Court

AUSTIN – Fayette County District Judge Daniel Beck improperly cut an insurer out of a wrongful death settlement, the Supreme Court of Texas decided on May 28.

Beck denied subrogation of a $336,874.71 contract lien that the Texas Health Insurance Risk Pool held against the estate of oilfield worker Thomas Sigmundik.

Subrogation is the assumption by a third party, such as a second creditor or an insurance company, of another's legal right to collect a debt or damages.

Beck held that subrogation would be a hardship on the family, but disallowing it would not be a hardship on the Risk Pool.

Third District appeals judges in Austin affirmed Beck, but the Supreme Court justices reversed him in an unsigned opinion.

"While the trial court was free to exercise some discretion in dividing the settlement funds, it abused its discretion by awarding the Risk Pool nothing," they wrote.

Sigmundik suffered injuries in an explosion. After 52 days in a hospital, he died.

The Risk Pool, a state entity providing affordable health insurance to high risk buyers, paid $336,874.41 in medical expenses.

Widow Sharon Sigmundik filed a negligence action on behalf of herself, two minor sons and the husband's estate.

The Risk Pool intervened, asserting a lien against the estate according to a subrogation clause in Sigmundik's policy.

The widow settled for $800,000, but the agreement she signed didn't specify how to allocate the amount.

Beck held a bench trial and awarded it all to the family, ruling that they were not "made whole" by the settlement.

To cut the Risk Pool out, he awarded nothing to the estate.

"It was improper to cut the Risk Pool out of a settlement to which it, through the estate, has a valid claim, just as it would be an error to cut out any other estate creditor or recipient in this situation," the justices wrote.

"Here, the trial court could not cut the estate completely out of the settlement just because the estate's main beneficiary is an insurance company or, more to the point, because the trial court believed the surviving family needed the money more than the insurer," they wrote.

"Trial court discretion is not boundless and cannot insulate a decision to allocate none of the $800,000 settlement to Sigmundik when the court knew the facts surrounding his severe burns and trauma, his suffering and numerous surgeries, and his death 52 days later," they wrote.

They remanded the case to Beck to determine the allocation to the estate.

Larry Parks represented the Risk Pool. Jeff Steinhauser represented the family.

Texas Supreme Court Case No. 09-0772

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