Anti-Subrogation Rule Bars Recovery by Auto Insurer Against Driver

A New York appellate court recent ruled on the applicability of the “anti-subrogation” rule. This rule 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.”  

Arroway Chevrolet loaned a vehicle to the defendant (we’ll call him “Mr. D”) while it was servicing his vehicle. Mr. D damaged the loaned vehicle in a one-car collision. Arroway's insurer, Motors Insurance Corp., paid Arroway's claim for the damage under its comprehensive and collision policy and brought a subrogation lawsuit against Mr. D to recover the amount it had paid Arroway.   The case proceeded to a non-jury trial in Westchester County.  The judge awarded Motors Insurance $5,870.35 in damages.

Following the trial, the judge granted Mr. D’s motion to dismiss the judgment under the anti-subrogation rule.  The appellate court agrees and affirms the dismissal of the lawsuit.   There was no dispute that Mr. D was driving the Arroway vehicle with Arroway’s consent, so this made Mr. D a “permissive user.”  Under Arroway’s insurance policy, Motors Insurance agreed to pay "loss to a covered auto caused by the failure of a person in lawful possession of a covered auto under a lease, rental or loaner agreement to return it to a dealer in accordance with the terms of the agreement."  Mr. D was an insured under the Motors Insurance policy and, therefore Motors cannot go after its own insured in subrogation.

Bottom Line:  Keep in mind that New York law prevents a carrier from suing someone who is considered “an insured” (such as a “permissive user”) under the policy.

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