It should seem fundamental to attorneys and subrogation professionals that when a subrogation lawsuit is brought, the insured cannot be named as a defendant in the action. However, there are instances where the uninitiated defendant seeks to name the carrier’s insured as a third-party defendant to force the insured to become a party to the action. Allowing this would undermine the concept of subrogation, and create a scenario where a subrogating carrier would be involuntarily seeking recovery from its own insured. This situation was recently dealt with, and rejected, by the United States District Court for the District of New Jersey in Apollo Underwriting Ltd. v. Pats & Sons General Contract, LLC which reaffirmed that such conduct by a defendant is impermissible.
The Court in Apollo was faced with a property subrogation action arising from a fire at the insured residence. Suit was filed by the owner’s insurance carrier against a contractor who was hired to refinish the floors. It was alleged the defendant contractor caused the fire by improper disposal of materials, which presumably led to spontaneous combustion. The defendant then attempted to file a third-party complaint against the owner of the property for its own alleged negligence contributing to the fire. Because the owner was an LLC, the defendant contractor sought to name the company along with its individual members—perhaps slyly trying to circumvent its inability to name the plaintiff’s insured directly.
Fortunately, the District Court saw through this and refused to allow leave to file the third party claims. The Court recognized that allowing an insured to be named as a defendant was futile and served no purpose since any defense the contractor had against the owners could be asserted against the carrier. Likewise, the Court acknowledged the carrier could not seek recovery against its own insured and there could be no joint liability between the defendant contractor and the insured.
In an effort to sidestep these principles of subrogation law, the defendant contractor argued the carrier “repudiated” it’s connection to the insured because subrogation counsel (1) did not represent the owner at deposition; and (2) did not facilitate discovery demands to the owner. The Court rejected this as well, stating “The Court finds no merit in Defendant’s arguments. Defendant has provided no case law, court rule, or statute establishing an insurance company-litigant’s attorney has an obligation to represent the insurer’s subrogor, let alone a responsibility to accept discovery requests on the non-party insured’s behalf.” In other words, the Court properly held that a subrogating carrier has no obligation to undertake discovery responsibilities for an insured who is not party to the litigation, and failure to do so does not alter the prohibition against adding an insured as a third-party defendant.
The contractor’s attempts to name the individual members of the insured LLC was similarly rejected. There was no showing that the corporate veil should have been pierced or that the LLC had any claims that could arise against its individual members. Because there was no reason to ignore basic principles of business law, the third-party claims against the members was similarly disallowed.
Apollo reaffirms what should be well recognized by subrogation professionals: an insured cannot be named as a third-party defendant. To the extent the insured caused or contributed to the underlying damage, a defendant is free to make those arguments directly against the carrier who has “stepped into the shoes” of its insured.