Recently, in North Star Mutual Insurance Company v. Stewart, 311 Neb. 33, __N.W.2d ___ (2022), the Nebraska Supreme Court reasoned that a complaint which fails to show compliance with the claim-splitting rule should be dismissed. In this case, an insurance company filed suit in county court against a tortfeasor seeking the amount it paid its insured for property damages as a result of an automobile collision. The complaint listed the insurer as the plaintiff, noted that it was seeking an action as a subrogee of its insured, and that “as a direct result of [the tortfeasor’s] negligence, [the insurer] and its Insured incurred damages…” The lower court dismissed the action, as it found that the complaint failed to show that the insurer was the real party in interest. The case was eventually appealed to the Nebraska Supreme Court.
To be considered a “real party in interest”, a requirement to filing suit, a party must show that they have a claim to relief sought. Nebraska, as with many other jurisdictions, has adopted a rule prohibiting claim-splitting. Claim-splitting occurs when the insurer files a subrogation action against a tortfeasor in one action for only part of a loss, while the insured files suit for the remainder of the loss. Thus, when the insurer covers an insured for only part of the loss, the insured preserves the right of action for the entire loss.
There are two circumstances in which the claim-splitting rule will not apply to prevent an insurer from seeking subrogation in its own name. First, when the insurer has compensated its insured for the entire loss as a result of the tortfeasor’s conduct, the rule does not apply. Second, the insurer may sue in its own name to enforce its subrogation interest after the insured settled with and released the tortfeasor without protecting the subrogation interest.
In this case, the complaint noted that both the insurer and the insured incurred damages. It also failed to show whether the insurer compensated the insured for the entire loss or just part of the loss. Since the complaint failed to show that the claim-splitting rule was not violated, the complaint was properly dismissed as the court could not determine that the insurer was the real party in interest.
Insurers that regularly enforce their subrogation interest should generally be aware of this rule and its exceptions when filing suit. If the case would violate the rule, it may be more prudent to take another route, such as waiting until the insured obtains an offer from the tortfeasor for settlement to recoup funds. If you have any questions about this case and its effect on any matters you are reviewing, please do not hesitate to reach out to our talented attorneys. Sodoro Law Group is a full-service law firm answering to the legal needs of Nebraska, Iowa, Kansas, Missouri and South Dakota.
For more information, or to contact the team at Sodoro Law Group, go to sodorolaw.com or email Kelsey Sievers at email@example.com