Equitable Subrogation Not Available Against Third Party Whose Liability Arises By Contract; Case Remanded For Consideration of Contractual Subrogation Claim

On January 17, 2017, the First Department issued a decision in Millennium Holdings LLC v. Glidden Co., 2017 NY Slip Op. 00258, holding that the doctrine of equitable subrogation did not permit an insurance carrier to recover against a third-party whose liability to the insured arose only by contract, and remanding the case to the trial court to determine whether a claim could be made for contractual subrogation.

We previously blogged about the Court of Appeals' decision in this case, which held that the so-called "anti-subrogation rule" did not preclude a carrier from pursuing a subrogation claim against a party that was not an insured or additional insured under the policy.

As explained in our prior post, "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)" At issue in Millennium Holding was whether an insurance carrier could subrogate to its insured's contractual indemnification claim against a third party. Following the Court of Appeals' decision, the case went back to the First Department, which held that the carrier could not invoke equitable subrogation against a third-party whose liability arises only by contract, and not because of any wrongdoing. Because some of the insurance policies contained an express subrogation clause, the court also considered the issue of contractual subrogation. With one Justice dissenting, the First Department found ambiguities in the parties' agreements, and it remanded the case to the trial court to consider those agreements "in light of the extrinsic evidence." Specifically, the indemnification agreement was contained in an asset purchase agreement between Millennium (the insured and the indemnitee under the agreement), and ANP (the indemnitor). The Court noted that "[t]he asset purchase agreement as a whole contemplates that Millennium will maximize its insurance coverage before seeking indemnity from ANP, and that ANP will receive the benefits of Millennium's coverage under the policies," and these provisions "would arguably be rendered meaningless if ANP were required to repay the insurers through subrogation." Justice Andrias dissented, concluding that ANP's indemnification obligation was not ambiguous and that nothing in the agreements waived any subrogation claim by an insurer.