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(Article from Insurance Law Alert, January 2018)

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A Florida district court dismissed an equitable subrogation claim brought by one insurer against another, finding that the insurer seeking contribution failed to establish coverage under the other insurer’s policy, and in any event, had waived its right to seek such contribution.  Privilege Underwriters Reciprocal Exchange v. The Hanover Insurance Grp., 2018 WL 477277 (S.D. Fla. Jan. 19, 2018).

The dispute arose out of a defamation suit filed against Alan Dershowitz.  During the relevant time frame, Dershowitz was insured under a homeowner’s policy issued by Privilege and a business owner’s policy issued by Hanover.  The defamation suit was settled, with both insurers contributing.  Thereafter, Privilege filed an equitable subrogation claim against Hanover seeking to recover the amount it contributed to the settlement.  Following a bench trial, the court concluded that Privilege failed to prove Hanover’s liability under its policy and that in any event, Privilege waived its right to equitable subrogation by volunteering settlement payments without reserving its right to later recover them.

The court held that Privilege’s equitable subrogation claim required a threshold demonstration that Hanover’s policy provided coverage for the settled claims.  The court concluded that Privilege failed to make such a showing because Hanover had disputed coverage in a reservation of rights to Dershowitz and its coverage obligations “still remain unresolved.”  In any event, the court ruled that Privilege volunteered settlement funds and waived its right to seek equitable contribution.  In so ruling, the court noted that the insurers did not enter into a subrogation agreement and that Privilege did not preserve a cause of action against Hanover for indemnity, contribution or subrogation.  Further, the court emphasized that in its reservation of rights letter to Dershowitz, Privilege cited only an intentional acts exclusion and did not raise a priority-of-coverage issue with respect to the Hanover policy.