Judge rules suit against insured’s business does not violate anti-subrogation rule

AUGUST 2020 NEW YORK SUBROGATION ALERT

"ANTI-SUBROGATION" RULE DOES NOT PROHIBIT ONE CARRIER FROM SEEKING TO COLLECT FROM DEFENDANT'S BUSINESS INSURANCE POLICY

The "anti-subrogation rule" prohibits an insurance company from pursuing its own insured in subrogation. The two primary purposes of the anti-subrogation rule are to: (a) avoid a conflict of interest that would undercut the insurer's incentive to provide an insured with a vigorous defense; and (b) to prohibit an insurer from passing its loss to its own insured.¹ However, as New York's highest court noted: "the anti-subrogation rule is an exception to the right of subrogation ... subrogation is typically permissible where the third party [to be sued] is not a named or additional insured [under the subrogating carrier's policy]."²

 Mr. Insured insures his house with Insurance Company A. Mr. Insured runs a hardwood flooring business. He has a business policy with Insurance Company B which, among other things, provides liability coverage for claims against the hardwood flooring business. Mr. Insured had formed a limited liability company ("LLC") for his hardwood flooring business. However, his accountant had advised him to operate under an assumed business name ("d/b/a") rather than an LLC. Mr. Insured ftled a d/b/a, began using the dba name on invoices and letterhead and ftled income taxes as a dba, but the LLC was not dissolved. On a hot Memorial Day weekend, Mr. Insured completed a hardwood flooring/sanding job and brought his sander and other equipment home and placed them in his garage. A flre occurred in the garage that evening which substantially damaged his home. Public authorities concluded the flre started at the sanding equipment.

Mr. Insured submitted a claim to his homeowner's carrier, Company A. Company A became aware that their insured's hardwood flooring business had insurance with Company B, so Company A put Company B on notice of the flre and afforded Company B an opportunity to have a flre investigator inspect the flre scene. Company A paid out on the homeowner's claim and retained my flrm to subrogate. My flrm ftled an action against our insured's hardwood flooring business. Defense counsel flied a motion for summary judgment, arguing that the "anti-subrogation rule" prevented Company A from pursuing subrogation from "its own insured." Defense counsel argued that since Mr. Insured's intent was to operate as a dba under his own name instead of as an LLC, Company A could not sue their own insured.

The court denied defendant's summary judgment motion. The court found significant that the hardwood flooring business had just obtained a $1 ,000,000 business liability policy with a new carrier a few months before the ftre, which was more than sufftcient money to satisfy any judgment, so Company A really was not subrogating against its own insured -it was pursuing the business coverage. Also, the lawsuit was flied against the LLC, not the insured, and the LLC is a separate legal entity from Mr. Insured. The LLC had not been dissolved and still was an existing entity at the time of the ftre. Under these facts, the Court concluded that the antisubrogation rule was not violated and the lawsuit could proceed to trial. So, while the anti-subrogation rule prohibits a carrier from suing its own insured and pursuing its own insured's assets, the rule likely does not apply where your insured runs a business that has business liability insurance.

 1 Millennium Holdings LLC v. Glidden Co., 27 NY3d 406,414, 415 (2016)

2 Millennium Holdings, 27 NY3d at 414