Issue: The insured’s home was totally destroyed in a gas explosion, and the insurance carrier paid them the amount of the policy - $18,000. Subsequently, the insureds reversed a judgment of $68,611.92 in their damage suit against the utility company, which was insured by an affiliated company of the insured’s carrier. After the judgment was rendered against the gas company, its insurance carrier sought to pay the judgment less the $18,000 paid by the insureds’ company, and the insureds refused the payment. This action was brought by the utility’s insurance carrier to prevent execution on its judgment and for declaratory judgment that it was entitled to subrogation. The court ruled against the homeowners and they appealed.

Judgment: The insureds contended that the judgment, which they secured against the utility company’s insurance carrier, did not include the amount paid them by their own insurance carrier. The insureds argued that their insurance company was not led to believe that its subrogation claim would be honored in the event of their recovery against the utility company. However, the lower court found that certain events prior to the entry of the judgment led the local claims manager to believe that the insureds’ company would be reimbursed, and the claims manager made it clear to the insureds – before the case went to the jury – that reimbursement would be expected.

On appeal, the higher court ruled that the gas company’s insurance carrier was entitled to subrogation in the amount of the $18,000 already paid for the loss of the house. It held further that the insureds’ carrier should pay a portion of the legal fees and expenses paid by the insureds to their attorney, and the action was remanded for determination of the portion of such fees and expenses to be so contributed.

Phillips et al vs. Liberty Mutual Insurance Co. – Delaware Supreme Court – April 28, 1969 (Rough Notes Magazine, June 1970)