Insured's Release In Personal Injury Action Prohibited Carrier's Subrogated Claim For No-Fault Payments
January, 2007
In Progressive Insurance Company as subrogee of Arye Weiner v. Sheri Torah, Inc., 2007 N.Y. App. Div. Lexis 10749 (2d Dep’t 2007), the Appellate Division held that a release executed by an insured prohibited the subrogated insurance carrier’s subsequent action which sought reimbursement for additional personal injury protection (“APIP”) benefits. The underlying personal injury action arose from injuries sustained by Moshe Weiner (“Moshe”) on December 31, 2004, when he was struck by a school bus which he just exited. Id. at 1. Moshe, through his father Arye Weiner (“Arye”), made a claim for APIP benefits from Arye’s motor vehicle insurer, Progressive Insurance Company (“Progressive”). Id. at 2. As a result of the accident, Progressive paid approximately $85,000.00 for Moshe’s medical expenses. Id. at 2. Additionally, Arye commenced a lawsuit on behalf of his infant son Moshe for personal injuries against the bus company, Sheri Torah, Inc., and its driver (hereinafter collectively referred to as “Defendants”). Id. at 2.
In 2005, the personal injury action was settled. Id. at 2. Progressive was notified of the settlement agreement and the pending infant’s compromise hearing. While Progressive orally notified Defendants’ carrier of its claim, it was unable to reach a settlement prior to the infant’s compromise hearing and did not appear at or participate in the hearing. After the lower court approved the settlement, Arye executed a general release in favor of Defendants releasing them from further liability. Id. at 2.
Thereafter, Progressive filed a separate lawsuit against Defendants to recover the APIP benefits paid as a result of Moshe’s injuries. Id. at 2. Pursuant to CPLR §3211, Defendants moved to dismiss Progressive’s lawsuit and contended that the release executed by Arye in the underlying personal injury action shielded Defendants from further liability. Id. at 3. The trial court denied Defendants’ motion. Id. at 3. On appeal, the Appellate Division, Second Department reversed the trial court and dismissed Progressive’s lawsuit. Id. at 3.
The Court reasoned that since an insurer stands in the shoes of its insured, and Arye executed an unconditional release in favor of Defendants which did not expressly reserve Progressive’s claim, Arye fatally impaired Progressive’s right of subrogation. Id. at 3. Furthermore, the Court rejected Progressive’s argument that its insured could not effectively release its claim, which Defendants’ carrier had notice of, since Progressive was similarly on notice of the infant’s compromise hearing and had the opportunity to participate in, or object to the partial settlement at that time. Id. at 3. Finally, the Court noted that Progressive was not without a remedy since it may pursue a claim against its subrogor for breaching the terms of the insurance policy by prejudicing Progressive’s subrogation rights. Id. at 3.
Learning Point:
When an insured pursues its own litigation related to an insured loss, the carrier and its counsel must carefully monitor the insured’s handling of that litigation to protect the carrier’s interests. Courts are not likely to be sympathetic to a carrier who fails to actively protect its interest by failing to closely monitor its insured’s actions or intervening in the insured’s litigation.
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