"Forcing" Insured to Protect Carrier's Subrogation Interests May Violate GBL 349

On or about October 8, 2005, a storm allegedly caused a hillside on an insureds' property in Rosslyn, NY, to collapse, destroyed their retaining wall, felled several trees, and caused other damage.Allstate denied the claim, prompting a lawsuit by the insureds.Among other things, the insureds' complaint sought punitive damages and damages under General Business Law ("GBL") section 349, claiming the insurer had engaged in "deceptive acts and practices."Specifically, the insured alleged that the insurer purposely failed to reach a decision on the merits of their insurance claim in order to force the plaintiffs to bring a suit against the Village of Rosslyn before the statute of limitations expired.[1]  The insureds contended that their policy of insurance had language which required the insureds to retain an attorney and sue the Village in order to protect the insurer's subrogation rights. The plaintiffs/insureds argued that, if they did not do so, the insurer could refuse reimbursement of the claim on the ground that the plaintiffs had failed to protect the defendant's subrogation rights.  They alleged that the insurer's actions "caused injury to Plaintiffs, and have the potential to harm the public at large."

The insurance policy contained the following language, which required the insured to protect the insurer's subrogation rights:

"When we pay for any loss, an insured person's right to recover from anyone else becomes ours up to the amount we have paid. An insured person must protect these rights and help us enforce them. You may waive your rights to recover against another person for loss involving the property covered by this policy. This waiver must be in writing prior to the date of loss."

The defendant insurer argued that the above-quoted language did not require the insureds to sue the Village to preserve the statute of limitations and moved to dismiss these portions of the complaint.  Both the judge and the appellate court disagreed and denied the insurer's motion to dismiss. The Court allows the insureds to go forward with both their GBL 349 and punitive damages claim.[2]

Bottom Line:  It is important to note the Court did not rule on the merits of the insureds' claims.  Rather, the courts merely allowed the allegations to go forward to discovery.  The insured may still make a motion for summary judgment on these allegations following discovery if there is no proof that the insurer deliberately delayed their decision on coverage to "trick" the insured into either suiing the Village or having their claim denied for failure to preserve the insurer's subrogation interests.

[1] The Court did not indicate the theory under which the Village might be liable for the insureds' damage.
[2] Wilner v. Allstate Ins. Co., 893 NYS2d 208 (2nd Dept January 12, 2010)