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NY Second Department Holds Insurer is Bound to Legal Position Adopted by Its Insured in a Subrogation Claim
In State Farm Fire Casualty Company v. Brownstones Coffee, Inc., et al., the Second Department of the New York Appellate Division held that insurers cannot contradict positions previously taken by their insureds in related litigation, reinforcing the importance of consistent legal strategies in subrogation claims.
This claim arose in August 2015 when a fire destroyed commercial property owned by New Age Management, LLC, which was insured by State Farm, and leased to tenants Brownstones Coffee, Inc. and Country Fare Market, Inc. After paying out insurance benefits to New Age for the damage, State Farm commenced a subrogation action against the two tenants seeking to recover its payment. The tenants’ insurers, Utica First Insurance Company and Graphic Arts Mutual Insurance Company, counter-sued against New Age seeking to recover their own payouts to the two tenants. The three separate subrogation actions were consolidated for all purposes in the Supreme Court of Suffolk County.
The key point of contention became a waiver of subrogation clause contained within the tenants’ leases with New Age, by which the parties waived their rights to sue each other’s insurance companies for covered losses. Based on this clause, New Age moved for summary judgment to dismiss the claims by Utica First and Graphic Arts, claiming that the waiver clauses precluded their actions. The lower court granted this motion. After New Age’s success, State Farm then attempted to contrarily argue that the waiver clauses should not preclude its ability to recover from the tenants. The tenants challenged the contradictory position in a summary judgment motion of their own. The lower court granted the tenants’ motion.
When State Farm appealed, the Second Department affirmed, applying the doctrine of judicial estoppel. Under this doctrine, a party is precluded from assuming a position in one legal proceeding, prevailing on that position, and then assuming a contrary position simply because its interests have changed. As the Court explained, the doctrine protects judicial integrity by preventing inconsistent results. Further, the Court noted that, “an insurer can only recover if the insured could have recovered and its claim as subrogee is subject to whatever defenses the third party might have asserted against its insured.” The Court found that State Farm’s position directly contradicted the position already successfully assumed by New Age, its subrogor, and accordingly held that State Farm was precluded from assuming the contrary position.