American Nat. Fire Ins. Co. v. Hughes

• Decision Date: 26 March 2003
• Docket Number: No. 20020207.,20020207.
• Citation: 658 N.W.2d 330,2003 ND 43
• Court: North Dakota Supreme Court
• Parties: AMERICAN NATIONAL FIRE INSURANCE COMPANY as subrogee of United Crane & Excavation, Plaintiff and Appellant, v. Gary HUGHES, Defendant and Appellee.

658 N.W.2d 330

2003 ND 43

AMERICAN NATIONAL FIRE INSURANCE COMPANY as subrogee of United Crane & Excavation, Plaintiff and Appellant, v. Gary HUGHES, Defendant and Appellee.

No. 20020207.

Supreme Court of North Dakota.

March 26, 2003.

Brian T. Suth (argued), Ellison, Nielsen, Knibbs, Zehe & Antas, P.C., Chicago, IL, and Eric G. Olsen (appeared), Jeffries, Olson & Flom, PA, Moorhead, MN, for plaintiff and appellant.

Steven L. Marquart, Cahill & Marquart, Moorhead, MN, for defendant and appellee.

KAPSNER, Justice.

[¶ 1] American National Fire Insurance Company, as subrogee of United Crane & Excavation, appeals from a summary judgment dismissing its subrogation action against Gary Hughes. We hold American National is not entitled to subrogation from Hughes because for purposes of subrogation he was not a third party but an implied co-insured under American National's insurance policy with United Crane. We affirm.

I

[¶ 2] United Crane was a closely held corporation engaged in demolition work, bridge construction, and installation of underground water and sewer lines. Hughes' parents owned all the stock of United Crane, and he was an employee and officer of United Crane, acting as its director and vice president. American National insured United Crane under a "BUSINESSPRO" mono line property policy that designated United Crane as the insured and provided coverage for physical damage to its scheduled vehicles and equipment. The policy did not provide liability coverage for the scheduled property and did not explicitly designate United Crane's owners, officers, or employees as insureds.

[¶ 3] During nonbusiness hours on Saturday, January 13, 2001, Hughes was using United Crane's tools at its shop to do mechanical work on his personal snowmobile. Hughes' snowmobile was not used for United Crane's business and was not listed as scheduled property under American National's policy with United Crane. Hughes was using a shop vac to remove gasoline from his snowmobile's gas tank when a spark ignited the gasoline and caused a fire that damaged vehicles and equipment insured under American National's policy with United Crane. American National paid United Crane more than $250,000 for damage to property covered under the policy.

[¶ 4] American National thereafter brought this subrogation action against Hughes, alleging his negligence caused the damage to United Crane's property. The trial court granted Hughes summary judgment dismissal of American National's subrogation action against him, concluding he was an additional insured under American National's policy with United Crane. American National appealed.

II

[¶ 5] We review this appeal in the posture of summary judgment, which is a procedure for resolving a controversy on the merits without a trial if the evidence establishes there are no genuine issues of material fact, or inferences to be drawn from undisputed facts, and if the evidence shows a party is entitled to judgment as a matter of law. Bender v. Aviko USA L.L.C., 2002 ND 13, ¶ 4, 638 N.W.2d 545. If the law is such that resolution of any factual disputes will not alter the result, the disputed facts are not material and summary judgment is appropriate. Richmond v. Nodland, 552 N.W.2d 586, 588 (N.D.1996).

III

[¶ 6] American National argues the trial court erred in deciding Hughes was an additional insured under its insurance policy with United Crane, because Hughes was not acting within the scope of his employment for United Crane when the fire occurred. American National argues there is a factual dispute about whether Hughes was acting within the scope of his employment when the fire occurred. American National argues the court erred in relying on a factually distinguishable out-of-state case, see Fireman's Ins. Co. v. Wheeler, 165 A.D.2d 141, 566 N.Y.S.2d 692 (N.Y.App.Div.1991), while ignoring established North Dakota law on respondeat superior. See Zimprich v. Broekel, 519 N.W.2d 588 (N.D.1994). American National argues the rule precluding subrogation from landlord-tenant cases is not applicable to this case, and asserts equitable principles support its subrogation claim against Hughes.

[¶ 7] Under the doctrine of respondeat superior, an employer is vicariously liable for the negligence of its employees while the employees are acting within the scope of their employment. Nelson v. Gillette, 1997 ND 205, ¶ 10, 571 N.W.2d 332; Zimprich, 519 N.W.2d at 590-91. The underlying rationale for the doctrine is the employer's right to control its employee's conduct, and the employer's vicarious liability extends only to an employee's acts done on the employer's behalf and within the scope of the employee's employment. Zimprich, at 591. In Zimprich, at 589, a Kenworth tractor owner leased his tractor to a common carrier, who provided loads for the owner to transport. This Court concluded the owner was performing his independent contractual duty to repair his tractor when a fire occurred, and the owner was not an employee of the common carrier acting within the scope of employment. Id. at 592-93. We further concluded the common carrier was not vicariously liable for the tractor owner's negligence because the common carrier was not exercising control over the owner's work. Id. at 593-94. However, Zimprich did not involve a subrogation claim and does not necessarily control whether American National is entitled to subrogation from Hughes.

[¶ 8] Subrogation is an equitable remedy which provides for an adjustment between parties to secure the ultimate discharge of a debt by the person who, in equity and good conscience, ought to pay for it. St. Paul Fire & Marine Ins. Co. v. Amerada Hess Corp., 275 N.W.2d 304, 308 (N.D.1979); State Farm Mut. Auto. Ins. Co. v. Wee, 196 N.W.2d 54, 59-60 (N.D.1971). Generally, when an insurer pays its insured for a loss, the insurer is subrogated to the insured's right of action against any third party responsible for the loss. Continental Ins. Co. v. Bottomly, 250 Mont. 66, 817 P.2d 1162, 1164 (1991); Reeder v. Reeder, 217 Neb. 120, 348 N.W.2d 832, 836 (1984); Pennsylvania Gen. Ins. v. Austin Powder, 68 N.Y.2d 465, 510 N.Y.S.2d 67, 502 N.E.2d 982, 985 (1986); Wheeler, 566 N.Y.S.2d at 693. See generally 6A Appleman, Insurance Law and Practice § 4051 (1972); 16 Lee R. Russ and Thomas F. Segalla, Couch on Insurance §§ 222:5 and 223:1 (3rd ed.2000). However, an insurer is not entitled to subrogation from its own insured for a claim arising from the very risk for which the insured was covered. Bottomly, at 1164; Reeder, at 836; Austin Powder, at 985; Wheeler, at 693. See Uren v. Dakota Dust-Tex, Inc., 2002 ND 81, ¶¶ 6, 13, 643 N.W.2d 678; Community Credit Union v. Homelvig, 487 N.W.2d 602, 603, 605 (N.D.1992). See generally 6A Appleman, at ¶ 4055; 16 Couch, at §§ 224:1 and 224:3. An insurer is not entitled to subrogation from entities named as insureds in the insurance policy, or entities deemed to be additional insureds under the policy. See Bottomly, at 1164; Reeder, at 836; Wheeler, at 693; Uren, at ¶ 6; Homelvig, at 603. See generally 6A Appleman, at § 4055; 16 Couch, at § 224:12. An entity not named as an insured in an insurance policy is considered an additional insured when, under the circumstances, the insurer is attempting to recover from the insured on the risk the insurer had agreed to take upon payment of premiums. See Bottomly, at 1164; Reeder, at 836; Wheeler, at 693; Uren, at ¶ 6; Homelvig, at 603. See generally 6A Appleman, at § 4055. The rule precluding an insurer's subrogation claim against a co-insured generally applies absent fraud or design by the co-insured. See Sherwood Med. Co. v. B.P.S. Guard Servs., Inc., 882 S.W.2d 160, 162 (Mo.Ct.App.1994); State Farm Fire & Cas. Co. v. Sentry Indem. Co., 316 So.2d 185, 188 (La.Ct.App.1975). See generally 16 Couch, at § 224:10.

[¶ 9] In Homelvig, 487 N.W.2d at 605, this Court held that absent an express agreement to the contrary, a tenant was an implied co-insured under the insurer's policy with the landlord, and the insurer was not entitled to subrogation from the tenant. See also Uren, 2002 ND 81, ¶ 13, 643 N.W.2d 678 (holding Homelvig applies where lease contains no express agreement indicating tenant should not be considered an implied co-insured under landlord's property insurance policy). In Homelvig, at 603-04 (quoting 6A Appleman, at § 4055), this Court said the primary rationale for concluding a landlord and tenant were co-insureds was their "`insurable interests in the property, and the commercial realities under which lessors insure leased premises and pass on the premium cost in rent.'" See also Uren, at ¶ 27.

[¶ 10] Other courts have rejected subrogation claims in cases involving other relationships between the insured and a third party. See Bottomly, 817 P.2d at 1165; Reeder, 348 N.W.2d at 837; Wheeler, 566 N.Y.S.2d at 693. In Bottomly, at 1163-65, the court held a named insured's brother and nephew were additional insureds under a policy insuring a seasonal cabin used for recreational purposes by the insured's family. In Reeder, at 835-37, the court held the named insured's brother and niece were additional insureds while temporarily occupying the insured's house as a guest during construction of the brother's new house. In Bottomly, at 1165, and Reeder, at 836, the courts concluded the relationship between the named insured and a third-party tortfeasor was such that allowing subrogation would permit the insurer to sue its insured on the very risk the insurer had agreed to take upon payment of premiums.

[¶ 11] In Wheeler, 566 N.Y.S.2d at 693-95, the Appellate Division of the New York Supreme Court rejected an insurer's subrogation claim against the president and principal shareholder of the named insured, a closely held corporation that had incurred a fire loss and submitted a claim under a comprehensive business insurance policy. In Wheeler, at 693, the president and principal shareholder was an...