Contractual Privity Not Required Between Subrogating Insurer and Defendant


The U.S. Court of Appeals for the Ninth Circuit has recently issued an opinion holding that a subrogating insurer can sue a defendant for negligence for damage to property even though the subrogating insurer and the defendant were not in privity of contract.  This opinion provides guidance on privity of contract as well as economic loss issues.

In Affiliated FM Ins. Co. v. LTK Consulting Servs, Inc., Affiliated FM Insurance Company (AFM) was subrogated to the rights of its insured, Seattle Monorail Services Joint Ventures (SMS), for a fire that damaged the Seattle monorail. SMS sued LTK asserting that LTK had provided negligent design advice to SMS, which ultimately caused the fire. LTK challenged AFM’s interest in the Monorail System because SMS only had a contractual right to operate on the property owned by the City of Seattle. LTK argued it was not in privity of contract with SMS, and therefore AFM could not sue LTK. The Ninth Circuit Court of Appeals certified the issue to the Washington State Supreme Court, who concluded that SMS had legally protected interests in the monorail and that LTK, having undertaken its engineering services, had assumed a duty of reasonable care. The Court concluded that LTK’s duty encompassed SMS’s legally protected interests in the monorail, and therefore AFM was free to subrogate and sue LTK for negligence.

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