Insurer May Never Subrogate Against its own Insured
Zurich American Insurance et al sued their coinsurers - Appellant
Certain Underwriters at Lloyd's, London Subscribing to Policy Number
B12630308616 (Lloyd's) and Defendant Arch Insurance Company (Arch) -
seeking a declaratory judgment that Lloyd's is barred under New York law
from bringing a common law indemnification or contribution claim
against a party insured by Zurich, Arch, and Lloyd's.
The district court granted Zurich's motion for summary judgment, holding
that New York's anti-subrogation rule precludes Lloyd's from bringing
that claim.
In Zurich American Insurance Company, American Zurich Insurance Company
v. Certain Underwriters at Lloyd's of London Subscribing to Policy
Number B12630308616, Arch Insurance Company, No. 22-2697, United States
Court of Appeals, Second Circuit (December 12, 2023) the Second Circuit
resolved the dispute.
Many Layers of Insurance
This dispute arose from a large construction project at LaGuardia
Airport. Pursuant to the contract, Skanska and LGA obtained a
Contractors Controlled Insurance Program for the project, which included
a "tower" of general liability insurance with $300 million of coverage
in three layers. Zurich underwrote the base layer of coverage, Arch
provided a first layer of excess coverage, and then Lloyd's provided a
second excess policy, i.e. a third layer of coverage on top of Arch's.
Zurich arranged for counsel to represent Port Authority and LGA
beginning in August 2018. Roughly three years later, Lloyd's contacted
that counsel and requested that LGA and Port Authority commence a
third-party claim for common law indemnification or contribution against
Skanska. Counsel analyzed the feasibility of such a claim but concluded
that New York's anti-subrogation rule would bar it.
The Anti-Subrogation Rule
New York courts have established an anti-subrogation rule that is an
exception to an insurer's usual right of subrogation against third
parties. It provides that an insurer has no right of subrogation against
its own insured for a claim arising from the very risk for which the
insured was covered.
The anti-subrogation rule is needed both to prevent the insurer from
passing the incidence of loss to its own insured and to guard against
the potential for conflict of interest that may affect the insurer's
incentive to provide a vigorous defense for its insured.
ZALMA OPINION
Subrogation is an equitable remedy where, when an insurer pays a debt
owed by its insured, fairness requires the insured to provide the
insurer with the insured's rights against third parties to recoup its
payment on behalf of the insured. Regardless, it is unfair for an
insurer to seek damages from its own insured because doing so violates
the public policy of the state of New York and is, on its face, unfair.
When two people are in a simple auto accident but are insured by the
same insurer, they will both be paid regardless of who is at fault since
the insurer can't subrogate against its own insured.
(c) 2023 Barry Zalma & ClaimSchool, Inc.
Please tell your friends and colleagues about this blog and the videos
and let them subscribe to the blog and the videos.
Subscribe to my substack at
https://barryzalma.substack.com/publish/post/107007808
Go to Newsbreak.com https://www.newsbreak.com/@c/1653419?s=01
Follow me on LinkedIn:
www.linkedin.com/comm/mynetwork/discovery-see-all?usecase=PEOPLE_FOLLOWS&followMember=barry-zalma-esq-cfe-a6b5257
Daily articles are published at https://zalma.substack.com. Go to the
podcast Zalma On Insurance at
https://podcasters.spotify.com/pod/show/barry-zalma/support; Go to Barry
Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to
Barry Zalma on YouTube-
https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the
Insurance Claims Library –
http://zalma.com/blog/insurance-claims-library.
