Allstate Ins. Co. v. Mazzola

Decision Date27 April 1999
Docket NumberD,No. 743,743
Citation175 F.3d 255
PartiesALLSTATE INSURANCE COMPANY, Plaintiff-Appellant, v. Kieron MAZZOLA and First Fidelity L.S. Group, Inc., Defendants-Appellees. ocket 97-7974.
CourtU.S. Court of Appeals — Second Circuit

Michael Majewski, Garden City, N.Y. (James P. McCarthy, Nicole Norris Poole, Majewski & Poole, LLP, on the brief), for Plaintiff-Appellant.

Kevin E. Wolff, New York, N.Y. (Timothy P. Smith, McElroy, Deutsch & Mulvaney, on the brief), for Defendants-Appellees.

Before: NEWMAN and JACOBS, Circuit Judges, and BURNS, District Judge. 1

BURNS, District Judge: 2

Plaintiff Allstate Insurance Company ("Allstate") appeals from a judgment entered on July 22, 1997 in the United States District Court for the Southern District of New York (Scheindlin, J.), granting defendants Kieron Mazzola's and First Fidelity L.S. Group's ("First Fidelity") motion for summary judgment. Allstate commenced this insurance action in district court, invoking diversity jurisdiction, to recover payments of medical benefits the company made on behalf of its insured following an auto accident. On appeal, Allstate asserts that the district court erred in granting the defendants' motion for summary judgment. The plaintiff specifically objects to the district court's reading of New York law and the lower court's holding that a written release of claims obtained by the defendants from Allstate's insured barred any recovery under the common law doctrine of equitable subrogation. Allstate contends that a genuine issue of material fact exists concerning whether the defendants executed the release with actual or constructive knowledge that its right of subrogation had attached. We agree and

thus vacate the judgment of the district court and remand the case for further proceedings in accordance with this opinion.


This action arose out of an automobile accident that occurred on an exit ramp of the New York State Thruway (I-87) at Ramapo, New York on July 21, 1993. Kevin Hall was a passenger in a New Jersey-registered Jeep Wrangler operated by Kieron Mazzola and owned by First Fidelity. Royal Insurance Company of America ("Royal") insured the Jeep and the driver through a policy issued to Kim Lewis Mazzola and Carole Mazzola, Kieron's parents. The insurance policy, which was purchased in New Jersey, provided coverage of $250,000 per person and $500,000 in the aggregate, as well as no-fault personal injury protection benefits. On the day in question, Mazzola apparently lost control of the Jeep and collided with a Dodge Sedan driven by Marie Solimine. Kevin Hall suffered serious burns in the accident and his medical expenses totaled $133,637.22. Allstate paid the entire amount of medical expenses, as provided by the no-fault insurance provisions of the Personal Auto Policy issued to his father.

Shortly thereafter, Kevin Hall and his parents filed a personal injury action against Mazzola, First Fidelity, Royal, and Solimine in the Superior Court of New Jersey, Law Division, Essex County on August 18, 1994. One month later, the Halls and Mazzola, First Fidelity, and Royal settled the case for one million dollars. As a result of the settlement, the action was dismissed with prejudice with respect to these defendants. The following month, the Halls signed a release that extended to and included all of the Halls' claims arising out of the accident.

Allstate instituted two proceedings designed to recover the amount of medical benefits paid on behalf of Kevin Hall. The company first filed for arbitration against Royal to recover $133,637.22 on July 19, 1996, pursuant to New York Insurance Law § 5105(b). The arbitrator, Mary Carol Bate of Arbitration Forums, Inc., awarded Allstate $58,637.22. In April 1997, Allstate filed a petition to vacate or modify the arbitration award in the Supreme Court of New York, Kings County. On January 20, 1998, the court vacated the award and remitted the case to arbitration for a recomputation of the award to a maximum of $50,000.

Allstate filed the present suit against Kieron Mazzola and First Fidelity in the United States District Court for the Southern District of New York on July 19, 1996, and now seeks to recover the remaining $83,637.22. On July 18, 1997, the district court granted the defendants' motion for summary judgment. See Allstate Ins. Co. v. Mazzola, 986 F.Supp. 756, 761 (S.D.N.Y.1997). The court rested its decision upon two separate analyses. First, the court held that the Halls' signed release and waiver in the New Jersey state court action operated to bar Allstate's right to recover from the defendants under the doctrine of equitable subrogation. Employing the general principle that a subrogee holds no more rights than those possessed by the subrogor, the court concluded that Allstate's right of subrogation terminated when the Halls, the subrogors, executed the release of claims with Mazzola and First Fidelity. See id. at 758. Second, the district court found that Allstate could not recover under the statutory no-fault insurance provisions under either New York law or New Jersey law. Although the parties disputed whether New York law or New Jersey law applied, the court avoided the issue by deciding that neither state's insurance laws provided an avenue of recovery. See id. at 760-61. Allstate argues its appeal entirely on New York law, and therefore abandons any argument under the law of New Jersey. Our analysis is grounded in New York law; but we recognize that the choice of law issue will await remand.


We have jurisdiction over this appeal pursuant to 28 U.S.C. § 1291, and review the grant of summary judgment de novo. See Reeves v. Johnson Controls World Servs., Inc., 140 F.3d 144, 149 (2d Cir.1998); Davidson v. Scully, 114 F.3d 12, 14 (2d Cir.1997). Summary judgment must be granted when the evidence shows that there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c); Urena v. Biro Mfg. Co., 114 F.3d 359, 362 (2d Cir.1997). This Court will reverse a grant of summary judgment if there is sufficient evidence in the record from which a jury could reasonably decide the case in favor of the nonmoving party. See Brady v. Town of Colchester, 863 F.2d 205, 211 (2d Cir.1988). The issues presented on this appeal concern: (1) whether Allstate's inability to maintain an action under New York Insurance Law §§ 5104(b) and 5105(a) bars any relief under the common law doctrine of equitable subrogation; and (2) whether the Halls' written release of claims against Mazzola and First Fidelity operated to destroy Allstate's right to recover as an equitable subrogee. We take up each issue in turn.

I. Doctrine of Equitable Subrogation

"Subrogation is the right one party has against a third party following payment, in whole or in part, of a legal obligation that ought to have been met by the third party." 2 Allan D. Windt, Insurance Claims and Disputes § 10.05 (1995). The doctrine of equitable subrogation allows insurers to "stand in the shoes" of their insured to seek indemnification by pursuing any claims that the insured may have had against third parties legally responsible for the loss. See Winkelmann v. Excelsior Ins. Co., 85 N.Y.2d 577, 626 N.Y.S.2d 994, 650 N.E.2d 841, 843 (1995); 16 George J. Couch et al., Couch on Insurance 2d § 61:1 (2d rev. ed. 1983 & Supp.1998) ("Couch"). In short, one party known as the subrogee is substituted for and succeeds to the rights of another party, known as the subrogor. The doctrine of subrogation, which is based upon principles of equity, see Gibbs v. Hawaiian Eugenia Corp., 966 F.2d 101, 105 (2d Cir.1992); Kozlowski v. Briggs Leasing Corp., 96 Misc.2d 337, 408 N.Y.S.2d 1001, 1004 (N.Y.Sup.Ct.1978); 16 Couch, supra, § 61:18, has a dual objective as stated by New York courts:

It seeks, first, to prevent the insured from recovering twice for one harm, as it might if it could recover from both the insurer and from a third person who caused the harm, and second, to require the party who has caused the damage to reimburse the insurer for the payment the insurer has made.

Winkelmann, 626 N.Y.S.2d 994, 650 N.E.2d at 843 (citations omitted); see also 3105 Grand Corp. v. City of New York, 288 N.Y. 178, 42 N.E.2d 475, 477 (1942); Kozlowski, 408 N.Y.S.2d at 1004.

II. Statutory Bar to an Equitable Subrogation Claim

The first issue concerns whether Allstate's inability to recover under New York Insurance Law §§ 5104(b) and 5105(a) 3 bars a remedy under the doctrine "As a creature of equity, the right of subrogation does not arise from, nor is it dependent upon, statute or the terms of a contract of insurance." Gibbs, 966 F.2d at 106; see also Kozlowski, 408 N.Y.S.2d at 1004; 16 Couch, supra, § 61:20. One court stated this axiom in the following manner:

                of equitable subrogation as applied by New York courts.  Allstate does not quarrel with the district court's ruling in so far as it held that the company may not recover no-fault medical benefits paid on behalf of Kevin Hall from the defendants under these statutes. 4  (Appellant's Br. at 15.)   In addition, the plaintiff acknowledges that sections 5104(b) and 5105(a) provide the exclusive remedy for insurers seeking to bring an action to recoup "first party benefits" or the first $50,000 of no-fault benefits paid to their insured.  However, Allstate contends that sections 5104(b) and 5105(a) do not bar an equitable subrogation claim to recover the remaining amount of $83,637.22 in excess of the nonrecoverable $50,000.  We agree

If the insured were permitted to keep the payment from [the insurer] under his additional endorsement and recover from [the tortfeasor] for extended economic loss, he would sustain a double recovery. Such result is clearly not contemplated under the no-fault statutory scheme. Subrogation is the principle which exists to prevent double recovery by the...

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