Court Continues To Strictly Enforce The Anti-Subrogation Rule
July, 2011
In Homeland Insurance Company of New York v. National Grange Mutual Insurance Company, 84 A.D.3d 737, 922 N.Y.S.2d 522 (2d Dep't 2011), the Appellate Division, Second Department reversed the lower court's decision and held that the anti-subrogation rule precluded owner's liability insurer from recovering defense and settlement costs from manager's liability insurer.
The Court's decision arises out of the underlying action. In the underlying action, the owner of an apartment complex, Olde Poste Mall Apartment ("Old Poste") entered into a contract with Asset Property Services ("Asset Property"), to manage the apartment complex. Id. at 524. Pursuant to the contract, Olde Post agreed to indemnify Asset Property against personal injury claims in connection with the property unless the injury was caused by Asset Property's negligence, in which case Asset Property would indemnify Olde Post. Olde Poste was also required to carry liability insurance and include Asset Property as an insured under its policy. Id. Olde Post obtained a liability insurance policy from the Plaintiff Homeland Insurance Company of New York ("Homeland"), which provided that Asset Property, as a real estate manager, is insured under the policy. Id. Asset Property had its own liability insurance policy from Defendant National Grange Mutual Insurance Company ("National Grange"). Id.
In August, 2004, Vernon Coon commenced a personal injury action against Olde Post and Asset Property alleging that he sustained injuries when he slipped and fell on a wooden ramp while delivering an appliance at the apartment complex. Id. Homeland assigned counsel to represent Olde Post and Asset Property as its insured under its policy. Id. Asset Property notified National Grange of the claim. Id. National Grange communicated with Homeland and assigned counsel, and was assured that Homeland's policy was primary and National Grange's policy was excess. Id.
In April, 2005, near the completion of discovery in the underlying personal action, Homeland determined that National Grange was a primary co-insurer of Asset Property and requested that National Grange contribute to the defense and potential settlement on behalf of Asset Property. National Grange refused to contribute as a primary insurer. Id. Homeland then settled the underlying action on behalf of Olde Post and Asset Property to the limits of its policy, and commenced a declaratory judgment action seeking a declaration that National Grange is obligated to pay one-half of the defense and settlement costs on behalf of Asset Property. Id. Homeland moved for summary judgment and National Grange cross-moved for summary judgment. The lower court denied the motions; it denied Homeland's motion on the basis that it failed to establish a prima facie case and denied National Grange's motion as untimely. Id. National Grange appealed.
The Appellate Court concluded that the lower court improvidently exercised its discretion in denying as untimely National Grange's cross-motion for summary judgment and reversed its decision. Id. The Court surmised that an untimely cross-motion for summary judgment may be considered by the court, where, as here, a timely motion for summary judgment was made on identical grounds. Id. Therefore, the Court stated that National Grange's Cross-Motion should have been reviewed and granted. Id.
The Court concluded that the Cross-Motion should have been granted because of the anti-subrogation rule. The Court noted that the anti-subrogation 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." Id. The Court stated that National Grange established its entitled to judgment as a matter of law by demonstrating that the policies underlying the anti-subrogation rule are implicated by Homeland's handling of the defense of its insured in the underlying action. Id. at 525. The Court further stated that Homeland fashioned the litigation to favor its insured, Olde Post, at the expense of its other insured, Asset Property, by not vigorously pursuing a defense on behalf of Asset Property and having the same attorney represent both Olde Post and Asset Property. Id. By doing so, Homeland created a conflict between its interests and the interests of its insured, and attempted to shift the loss of its insured to another insurer, National Grange. Id. Accordingly, the Court concluded that Homeland cannot recover from its insured, Asset Property, through Asset Property's insurer, National Grange, for any potential liability on the part of Asset Property in connection with the underlying action. Id.
Learning Point
Courts continue to strictly enforce the anti-subrogation rule. Therefore, it is imperative that counsel identify early whether there is indemnity and additional insured language in a contract to understand the client's rights from the start.
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