Tuesday, 10 March 2015 09:54
By Sean McLean
The insurance company denied liability, but argued that to the extent it was liable it would have the right of subrogation to recover from the construction company. The homeowner, thereafter, reached a confidential settlement with the construction company and dismissed her tort claims against the construction company. The insurance company argued that this settlement interfered with its subrogation rights against the construction company and, therefore, the homeowner had forfeited her right to purse her claim against the insurance company.
The homeowner’s policy provided that the insurance company had a right of subrogation under which it could require an assignment of the homeowner’s rights of recovery from others for a loss to the extent that payment is made by the insurance company. Subrogation is an equitable device to compel the ultimate discharge of an obligation by the one who in good conscience ought to pay it, and serves the interests of justice between the parties. Subrogation typically arises when an insurer who has indemnified an insured for damage or loss is subrogated to any rights that the insured may have against a third party that is also liable for the damage or loss. The right of subrogation, however, does not technically arise until the insurer has made payment for the insured’s claim. Nevertheless, the law provides an insurer with standing to assert its claim as subrogee prior to the payment of the claim.
Waiver of Subrogation Right
The homeowner claimed the insurance company waived its subrogation right by denying the homeowner’s claim. The homeowner argued that she should not be punished for mitigating her damages, and perhaps the insurance company’s as well, by settling the underlying matter with the construction company. The insurance company claimed, on the other hand, that such a rule would force it to pay any and all claims by its insured’s, regardless of the arguable merit of the claim, for fear that it would lose its subrogation right. Furthermore, an absolute waiver is inconsistent with the purpose of subrogation to compel the ultimate discharge of an obligation by the one whom in good conscience ought to pay it.
Impact of Subrogation Claim
In analyzing the competing arguments of the homeowner and insurance company, the court noted that generally a settlement, such as the one between the homeowner and the construction company, would not affect the subrogation rights of an insurer that is not a party to the settlement if the tortfeasor has knowledge of the insurer’s subrogation right. Accordingly, the construction company’s knowledge of the insurance company’s subrogation claim may prevent the alleged waiver of the insurance company’s subrogation right. To fully resolve this issue, however, the court determined that it was necessary to provide the construction company with an opportunity to respond. Accordingly, the case was remanded to the trial court to provide the construction company with an opportunity to respond.