## Facts

- Home Insurance Company issued an auto policy providing property-damage and medical-payments coverage.
- The insured was injured and his vehicle was damaged in an accident allegedly caused by Gary L. Gardner, who was driving a Hertz vehicle while acting within the scope of his employment with Ingram Barge, Inc.
- Home paid the insured $2,082.36 for covered property damage and medical payments and asserted subrogation rights to that extent.
- The insured separately sued Hertz, Ingram, and Gardner for personal injuries arising from the same accident.
- That action settled for $6,000, and the insured executed a “full and final release” of all personal-injury and property-damage claims arising from the accident.
- The settlement addressed the insured’s personal-injury claim and his $100 deductible, but did not seek recovery for the amounts Home had paid.
- Defendants had notice of Home’s subrogation interest before the settlement and execution of the release.
- Home then filed a subrogation action against Hertz, Ingram, and Gardner to recover the amounts it had paid.

## Issues

1. Whether an insured’s unlimited general release of all claims against alleged tortfeasors bars an insurer’s later subrogation action when the tortfeasors obtained the release with notice of the insurer’s subrogation rights.

## Decision

- The Illinois Supreme Court reversed the appellate court and the trial court’s dismissal of Home’s complaint.
- The court held that the insured’s general release did not bar Home’s subrogation claim because defendants had notice of Home’s subrogation rights before procuring the release.
- The cause was remanded for further proceedings.

## Legal Principles

- Upon payment of a covered loss, an insurer becomes subrogated to the insured’s rights against responsible parties to the extent of the payment.
- A tortfeasor (or its insurer) who obtains a release from the insured with notice of the insurer’s subrogation interest remains liable to the insurer for the subrogated amount despite the release’s general language.
- An insured may settle and release personal claims that remain his own, but cannot, by general release, extinguish a known subrogated claim that has passed to the insurer.
- Subrogation prevents both insured double recovery and a tortfeasor windfall created by settling with the insured while disregarding known subrogation rights.

## Conclusion

The court held that a tortfeasor cannot use an insured’s broad settlement release to defeat an insurer’s subrogation claim when the tortfeasor had prior notice of the insurer’s subrogation interest, and it reinstated the insurer’s action for the amounts it paid.


Home Insurance Co. v. Hertz Corp., 71 Ill. 2d 210 (Ill. 1978)