(Article from Insurance Law Alert, May 2016)
For more information, please visit the Insurance Law Alert Resource Center. The New York Court of Appeals ruled that the anti-subrogation rule did not bar insurers’ claims against a party who was not an insured under the applicable policy. Millennium Holdings LLC v. The Glidden Co., 2016 WL 2350158 (N.Y. May 5, 2016).
The coverage dispute arose from paint and pigment manufacturer Glidden Company’s complex corporate history, which involved numerous corporate purchases, transfers and takeovers. Ultimately, Glidden’s pigment and paint businesses were divided and became separately owned entities. Akzo Nobel Paints (“ANP”) is the successor company of the paint business, and Millennium is the successor company of the pigment business. ANP’s predecessor agreed to indemnify Millennium’s predecessor.
Various London insurers and Northern Assurance Company provided primary and excess coverage to one of Millennium’s corporate predecessors. The insurers funded the defense of lead paint/pigment claims asserted against Millennium and ANP under those policies. In the present action, the insurers, as Millennium’s subrogee, sought indemnification from ANP for the defense costs based on a judicial ruling that ANP’s predecessors were not insured under the policies issued to Millennium’s predecessor. See The Glidden Co. v. Lumbermens Mutual Casualty Co., 112 Ohio St. 3d 470 (2006).
A New York trial court found that ANP was required to indemnify Millennium under the predecessors’ agreement but that the anti-subrogation doctrine precluded the insurers’ subrogation claim against ANP. Millennium Holdings LLC v. The Glidden Co., 2013 WL 6182552 (N.Y. Sup. Ct. New York Cnty. Nov. 25, 2013) (see December 2013 Alert). Under the anti-subrogation rule, “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.” Even though ANP was not insured under the subject policies (either by name or by operation of law), the trial court concluded that the anti-subrogation rule applied because the insurers sought “to recover for the very risk [they] insured when [they] originally issued the policies.” More specifically, the trial court reasoned that the reimbursement the insurers sought from ANP –relating to defense costs for lead paint/pigment claims – was the same risk the insurers covered under policies issued to Millennium’s predecessor. Therefore, the court dismissed the insurers’ claims. An intermediate appellate court affirmed. The New York Court of Appeals reversed, applying a literal reading of the policies at issue.
The New York Court of Appeals ruled that the anti-subrogation rule applies only where “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.” Here, because it was determined that ANP and its predecessor were not insured under the applicable policies, the anti-subrogation rule did not apply. The court distinguished
Jefferson Ins. Co. of N.Y. v. Travelers Indem. Co., 92 N.Y.2d 363 (1998), which held that the anti-subrogation rule barred an insurer’s claim against a non-insured party. In
Jefferson, the non-insured party was covered under the policy as a “permissive user” of the insured vehicle and was thus “a party who was intended to be covered by the insurance policy in some other way.” The court also distinguished cases in which lower courts have extended the anti-subrogation rule to third parties who are not covered by the applicable policies as “limited and distinguishable” and based on public policy grounds not applicable here.