The principle of equitable subrogation plays a central role in ensuring that the party responsible for causing loss or damage is held accountable. This doctrine allows an insurer, who has compensated the insured for a loss, to assume the legal rights of the insured to seek recovery from the third party responsible for the loss.
The recent decision of New York Municipal Insurance Reciprocal v. Stewart’s Shops Corporation, 228 A.D.3d 1116, 212 N.Y.S.3d 859 (3d Dep’t 2024), presents a scenario involving property damage, insurance claims, and the intricacies of equitable subrogation. In 2016, Stewart’s Shops Corporation acquired properties with the intention of constructing a new store. The development required the removal of an underground fuel storage tank and contaminated soils, a task undertaken by its contractor. However, the remediation project led to structural damage in a neighboring building owned by the Village of Middleburgh.
In response to the damage, the Village’s insurance company initiated a subrogation action against both Stewart’s and its contractor. The defendants countered by moving for summary judgment challenging plaintiff’s standing. Defendants noted the absence of payment under the policy prior to the commencement of the action and argued that any future attempt to do so was barred by the statute of limitations.
The lower court’s decision to deny the defendants’ motion for summary judgment was reversed on appeal. The appellate court held that the insurer for the owner of a building damaged by a contractor’s work on adjacent property lacked standing to bring a claim as the owner’s subrogee. This was because standing accrues only upon payment of the loss, and the insurer filed suit before making any payments. According to established precedent, an insurer’s right to subrogation arises upon payment of the loss, which must be directed toward satisfying an actual claim rather than a potential liability. This right arises independently of any contractual agreement between the insurer and the insured.
The appellate court’s ruling underscores that the insurer, as an equitable subrogee, is subject to the same defenses that could have been raised against the insured, including the statute of limitations.
The case serves as a reminder of the legal complexities surrounding equitable subrogation. It highlights the importance of timely payment by insurers to secure their subrogation rights.
Jose A. Aquino (@JoseAquinoEsq on X) is a special counsel in the New York office of Duane Morris LLP, where he is a member of the Construction Group and of the Cuba Business Group. Mr. Aquino focuses his practice on construction law, lien law and government procurement law. This blog is prepared and published for informational purposes only and should not be construed as legal advice. The views expressed in this blog are those of the author and do not necessarily reflect the views of the author’s law firm or its individual attorneys.