Antisubrogation Rule Does Not Apply to Non-Insured Parties

On May 5, 2015, the Court of Appeals issued a decision in Millennium Holdings LLC v. Glidden Co., 2016 NY Slip Op 03543, interpreting the scope of the antisubrogation rule.

The doctrine of equitable subrogation "entitles an insurer to stand in the shoes of its insured to seek indemnification from third parties whose wrongdoing has caused a loss for which the insurer is bound to reimburse." Subrogation rights can also be created by contract (e.g., the terms of an insurance party). Under the anti-subrogation rule, which was at issue in Millennium Holdings, “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 . . . even where the insured has expressly agreed to indemnify the party from whom the insurer's rights are derived.” The rule clearly prohibits an insurance carrier from seeking subrogation from a named insured or additional insured, and the Court of Appeals, in Jefferson Ins. Co. of N.Y. v. Travelers Indem. Co., 92 N.Y.2d 363 (1998), also applied the rule to a party that was entitled to coverage under an auto insurance policy (as a “permissive operator” of a covered vehicle), even though he was not specifically named.

In Millenneum Holdings, the Court of Appeals declined to apply the antisubrogation rule to a party that was indisputably not covered by the policy, explaining:

The antisubrogation rule, therefore, requires a showing that the party the insurer is seeking to enforce its right of subrogation against is its insured, an additional insured, or a party who is intended to be covered by the insurance policy in some other way, such as the permissive user in Jefferson. Here, as recognized by the courts below, ANP and its predecessor were not insured under the relevant insurance policies. . . . Thus, the principal element for application of the antisubrogation rule — that the insurer seeks to enforce its right of subrogation against its own insured, additional insured, or a party intended to be covered by the insurance policy — is absent.

The essential element of the antisubrogation rule is that the party to which the insurer seeks to subrogate is covered by the relevant insurance policy. The rule also requires that the insurer seek to enforce its right of subrogation against that covered party on a risk insured by the policy. If we were to extend application of the antisubrogation rule to all non-covered third parties, an insurer who fulfills its obligation to pay on the risks insured by the relevant policy would essentially be foreclosed from the ability to subrogate. For this reason it is essential, absent a policy reason supporting application of the antisubrogation rule, that the third party against whom the insurer seeks to exercise its right of subrogation is not covered by the relevant insurance policy.

The contexts in which courts of this state have extended the antisubrogation rule to third parties who are not covered by the insurance policy are limited and distinguishable from this circumstance. The application of the antisubrogation rule in those cases was primarily based on a policy concern — namely, the existence of a conflict of interest, one of the primary purposes underlying the antisubrogation rule. Thus, the antisubrogation rule has been applied by the Appellate Division Departments to an insured's employee for whom the insured is vicariously liable, an insured property owner's real estate managers, and the president and principal shareholder of a closely held corporation. Here, however, the policy concerns underpinning the antisubrogation rule are not implicated as no conflict of interest arises. Since ANP is not an insured, there is no risk that the Insurers will shirk their obligation to one insured in favor of the other. There is no reason to apply the antisubrogation rule under these facts, and the courts below erred in granting ANP's motion for summary judgment on that basis.

(Citations omitted).