An Injured Party’s Carrier Paid the Loss – Are You Off the Hook?
Sarah Johnson, Esq.
Consider the following scenario: your design error has caused damage to the person or property of another, and you are rightfully concerned about a possible claim against you. However, you later discover that the injured person or property owner has been fully compensated for their loss by their own insurer. Are you off the hook?
The answer to this question is not as straightforward as you might think. Generally, an insurer who pays the loss of its insured has a right of subrogation, meaning that the insurer (the subrogee) has the right to stand in the shoes of its insured (the subrogor) to assert the insured’s rights (or claims) against the third-party that caused its loss.1 In practical terms, this means that a design professional is not insulated from exposure just because the insurer for an injured person or property owner has paid its insured’s loss. That insurer may still attempt to bring a subrogation claim against the design professional.
However, there are limits on an insurer’s right to subrogation. For example, a subrogated insurer has no greater rights than its insured.2 Thus, a subrogated insurer cannot sue a third-party based on a claim or right that does not belong to its insured.
Another common limitation on subrogation is a waiver of subrogation provision in the parties’ contract. A waiver of subrogation provision essentially absolves parties from liability in the event of property loss or damage during construction to the extent there is an insurer that has provided a recovery for the loss.3 The enforceability of waiver of subrogation provisions can be the subject of disputes, as some insurance policies prevent an insured from waiving its rights against a third-party if doing so frustrates the insurer’s right of subrogation.4 On the other hand, some insurers will affirmatively agree to waive their subrogation rights in the policy.5
Other limitations on subrogation that may apply include possible prohibitions on: (1) pursuing a subrogation claim based on an insured’s collateral contract rights (i.e., contract rights unrelated to the loss paid by the insurer)6; pursuing subrogation for a loss that the insurer has not paid7; and pursuing a subrogation claim against one’s own insured.8
Additionally, an insurer claiming a right of subrogation may have an initial burden of proof to establish that it is entitled to pursue a subrogation claim in the first place. Several states impose an obligation on insurers to establish a series of elements as a prerequisite to pursuing a claim based on subrogation.9
The takeaway here is two-fold: (1) just because another insurer has paid a loss sustained by a third-party as a result of your error does not mean that you are off-the-hook for payment of those damages; and (2) the question of whether an insurer can in fact pursue a subrogation claim against you may not be so straightforward and can depend on the specific requirements and/or limitations of your jurisdiction. You should therefore consult with your local attorney if you have any questions about this topic.
1 State Farm General Ins. Co. v. Stewart, 681 N.E.2d 625, 631-32 (Ill. App. Ct. 1997).
1 Kardly v. State Farm Mutual Auto. Ins. Co., 207 Cal. App. 3d 479, 488 (Cal. Ct. App. 1989); Johnson v. State Farm Fire & Casualty Co., 503 N.E.2d 602, 604 (Ill. App. Ct. 1987).
1 See Dixie Nat’l Bank of Dade County v. Employers Commercial Union Ins. Co. of Am., 463 So.2d 1147, 1152 (Fla. 1985).
1 See e.g., Pulte Home Corp. v. CBR Electric, Inc., 50 Cal. App. 5th 216, 229 (Cal. Ct. App. 2020); Laurens Federal Savings & Loan Ass’n v. Home Insurance Co. of New York, 130 S.E.2d 558, 562 (S.C. 1963); Trogub v. Robinson, 853 N.E.2d 59, 63 (Ill. App. Ct. 2006).
1 See Arch Ins. Co. v. Kubicki Draper, LLP, 318 So. 3d 1249, 1253 (Fla. 2021); Great American Ins. Cos. v. Gordon Trucking, Inc., 165 Cal. App. 4th 445, 451 (Cal. Ct. App. 2008); NYP Holdings, Inc. v. McClier Corp., 881 N.Y.S.2d 407, 410 (N.Y. App. Div. 2009).
2 See Gencor Indus., Inc. v. Fireman’s Fund Ins. Co., 988 So. 2d 1206, 1210 (Fla. Ct. App. 2008); Berg v. Pulte Home Corp., 67 Cal. App. 5th 277, 290 (Cal. Ct. App. 2021); Hartford Accident & Indemnity Co. v. CNA Ins. Cos., 472 N.Y.S.2d 342, 344 (N.Y. App. Div. 1984).
3 Empress Casino Joliet Corp. v. W.E. O’Neil Constr. Co., 2016 IL App (1st) 151166, ¶ 61.
4 United States Aviation Underwriters v. Turnberry Airport Holdings, 359 So. 3d 1207, 1208 (Fla. Ct. App. 2023).
5 See e.g. Hodge v. Kirkpatrick Dev., Inc., 130 Cal. App. 4th 540, 546 (Cal. Ct. App. 2005).
6 State Farm General Ins. Co. v. Stewart, 681 N.E.2d 625, 631-32 (Ill. App. Ct. 1997).
7 Kardly v. State Farm Mutual Auto. Ins. Co., 207 Cal. App. 3d 479, 488 (Cal. Ct. App. 1989); Johnson v. State Farm Fire & Casualty Co., 503 N.E.2d 602, 604 (Ill. App. Ct. 1987).
8 See Dixie Nat’l Bank of Dade County v. Employers Commercial Union Ins. Co. of Am., 463 So.2d 1147, 1152 (Fla. 1985).
9 See e.g., Pulte Home Corp. v. CBR Electric, Inc., 50 Cal. App. 5th 216, 229 (Cal. Ct. App. 2020); Laurens Federal Savings & Loan Ass’n v. Home Insurance Co. of New York, 130 S.E.2d 558, 562 (S.C. 1963); Trogub v. Robinson, 853 N.E.2d 59, 63 (Ill. App. Ct. 2006).
