When evaluating the potential recovery for pursuing a subrogation action, insurance carriers must consider to what extent, if any, its insured negligently contributed to its injuries. Accounting for the insured’s potential liability is a significant part of the cost-benefit analysis for pursuing any subrogation claim. But in certain circumstances, the carrier may be concerned that a defendant will file a counterclaim or third-party complaint against the non-party insured or otherwise draw the insured into the litigation. Counterclaims and third-party complaints against non-party insureds, if allowed, would open carriers to additional legal costs and potentially damage relationships with insureds who would rather not participate in a lawsuit. Thankfully, federal and state caselaw supports a quick dismissal of these claims.
Recently, in Federated Mutual Ins. Co. v. Kosciusko County, No. 3:20-CV-960 DRL-MGG, 2021WL 1851653 (D. N.D. May 10, 2021), FMIC filed a subrogation action against Phend & Brown, Inc. (“P&B”) and other defendants alleging that they had negligently constructed and maintained the county highway, causing the loss of the insureds’ semi-tractor trailer. The insureds were not named as co-plaintiffs. P&B filed a counterclaim against the non-party insureds, alleging that their negligent operation of the semi-tractor trailer damaged the highway and surrounding area. FMIC moved to strike the counterclaim, in part, because P&B could not file a counterclaim against the insured, a non-party to the lawsuit.
The FMIC Court granted FMIC’s motion, holding that a defendant in a subrogation action cannot file a counterclaim against an insured when it’s a non-party and the substance of the counterclaim can be asserted as a defense to the insurer’s claims. In reaching its decision, the Court agreed with several federal district court decisions holding that defendants in subrogation actions cannot join the insured as a third-party defendant if it could assert those claims as defenses to the insurer’s claims. Similar to the FMIC decision, these courts reasoned that the defendant’s third-party claims against the insureds were adequately addressed as defenses to the insurers’ claims; thus, the third-party complaints served no legal purpose.
If defendants use this tactic to discourage carriers from pursuing litigation or to increase their leverage for settlement, these decisions provide carriers with authority to quickly and efficiently dispose of these unnecessary counterclaims and third-party complaints in jurisdictions that follow these rulings. Please contact any of Cozen O’Connor’s subrogation and recovery attorneys if you have any questions regarding your subrogation target’s ability to involve your insured in any litigation.