When an insurer expends sums to defend and indemnify its insured it may “step into the shoes” of its insured and sue parties responsible for the insured’s loss for reimbursement. This is called “subrogation.” Ordinarily, there are very few defenses to a subrogation action as the amount paid is certain and the defendants rarely can question the amount of the loss. Defendant’s responsibility for the loss may have already been determined in a prior proceeding. Therefore, Defendants in subrogation rarely are able to effectively defend a subrogation action. However, a recent decision by the Third District of the California Court of Appeals in Travelers Property Casualty Company of America v. Engel Insulation, Inc. provides a possible way to procedurally dispose of some subrogation cases in favor of the Defendant.
In Travelers, the insurer defended and indemnified its insureds, the Westlake entities, developers sued by a homeowners association for construction defects. After that litigation was concluded, the insurer sued the sub-contractors it claimed responsible for the defects seeking reimbursement of the sums the insurer paid to resolve and defend the construction defect action on behalf of the Westlake entities. Engel Insulation, Inc. moved for judgment on the pleadings claiming, all of the Westlake entities were suspended corporations and, thus, by law, the insurer could not file its own action to assert claims solely as a subrogee of the suspended corporations.
The trial court granted the Motion and the Appellate Court affirmed. Since the Westlake entities would be barred from bringing the claim directly due to the suspension of their corporate status, the insurer could not prosecute the claims on the Westlake entities or its own behalf.
If you are sued by an insurer in a subrogation action you may not have many defenses. However, have your legal counsel check to see if the insurer’s insureds, if they are business entities, are in good standing with their state’s regulatory agency and have not been suspended. If they are suspended, you have a viable defense to the subrogation action.
The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.
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