Insurer cannot Subrogate against its own insured

by Michael Papuc

Attorney at Law

44 Montgomery Street

Suite 2405

San Francisco, California 94104

415-773-1755

Fax: 415-723-9703

email: Michael.Papuc@gmail.com

Subrogation is an insurance company’s right to go after a person or entity responsible for a loss that the insurance company paid to its insured. For example, when an insured is involved in a car accident, the insurance company pays for the damage to the insured’s car. Under the insurance policy, the insurance company is entitled to stand in the shoes of its insured to attempt to recover the amount the insurance company paid to the insured against the person responsible for the accident.

Sometimes Homeowner Associations ("HOA") vote to require the owners of the various condominiums to purchase liability insurance to cover property damage losses to the common areas of the complex, which are covered by the insurance policy issued to the HOA, which the owner/members pay a premium for through HOA dues, and who are beneficiaries under the policy. The request or requirement by the HOA in such a case provides duplicative coverage, which is unnecessary, because the HOA policy will usually cover the property damage loss, and the insurer who issues the policy to the HOA cannot subrogate against the homeowners who are its own insureds.

An insurer who has also issued liability insurance to the person responsible for causing an insured loss cannot enforce subrogation rights against its own insured: "For the insurer to recover from its insured for an insured loss or liability would undermine the insured's coverage and would be inequitable." (Truck Ins. Exch. v. County of Los Angeles (2002) 95 Cal.App.4th 13, 21; see McKinley v. XL Specialty Ins. Co. (2005) 131 Cal.App.4th 1572, 1575.)

Where an insurance policy expressly covers more than one insured, the insurer cannot subrogate against any insured covered by the policy: "No right of subrogation can arise in favor of an insurer against its own insured since, by definition, subrogation exists only with respect to rights of the insurer against third persons to whom the insurer owes no duty." (St. Paul Fire & Marine Ins. Co. v. Murray Plumbing & Heating Corp. (1976) 65 Cal.App.3d 66, 75.)

The paradigm case is where Tenant, named as an additional insured under Landlord's property insurance policy, negligently causes the property to burn down. The insurer paying the fire loss acquires no right of subrogation against Tenant because Tenant is insured under the policy.

To allow subrogation in such cases would permit the insurer to pass on the loss from itself to its own insured, and thus avoid the coverage which the insured purchased. (St. Paul Fire & Marine Ins. Co. v. Murray Plumbing & Heating Corp., supra, 65 Cal.App.3d at 76)