Fireman's Ins. Co. of Newark, New Jersey v. Wheeler

• Court: New York Supreme Court — Appellate Division
• Writing for the Court: Before WEISS; LEVINE; WEISS
• Citation: Fireman's Ins. Co. of Newark, New Jersey v. Wheeler, 566 N.Y.S.2d 692, 165 A.D.2d 141 (N.Y. App. Div. 1991)
• Decision Date: 21 February 1991
• Parties: FIREMAN'S INSURANCE COMPANY OF NEWARK, NEW JERSEY, Respondent, v. Donald G. WHEELER, Appellant.

Page 692

566 N.Y.S.2d 692

165 A.D.2d 141

FIREMAN'S INSURANCE COMPANY OF NEWARK, NEW JERSEY, Respondent, v. Donald G. WHEELER, Appellant.

Supreme Court, Appellate Division Third Department.

Feb. 21, 1991.

Donohue, Sabo, Varley & Armstrong (Fred J. Hutchison, of counsel), Albany, for appellant.

Bouck, Holloway, Kiernan & Casey (Mary Ann D. Allen and David J. Pollock, of counsel), Albany, for respondent.

Before WEISS, J.P., and MIKOLL, LEVINE, MERCURE and HARVEY, JJ.

LEVINE, Justice.

Defendant is the president of Wheeler Brothers Brass Founders, Inc., a closely held corporation which has been owned and operated as a brass foundry in the City of Troy, Rensselaer County, by several generations of defendant's family. At the pertinent time involved in this case, the corporation employed seven people. A fire occurred at the premises of the foundry on July 30, 1987. The corporation submitted a proof of loss to plaintiff, its insurer, under the fire insurance coverage provided in a comprehensive business insurance policy issued by plaintiff. The property portion of the policy covering, inter alia, fire loss provided that the insured could apply "up to $2,500 to cover direct loss * * * to personal effects while located on * * * the designated premises, belonging to * * * officers, directors, partners or employees". Defendant was specifically included as a named insured in the automobile liability portion of the policy. Also, the comprehensive general liability portion of the policy extended coverage as an additional insured to "any executive officer" of the corporation, while acting within the scope of that person's duties, for injury to person or to property not owned by the corporation.

Plaintiff settled and paid the corporation's fire loss claim for some $210,000 in November 1987. In accordance with its obligations as the named insured under the policy, the corporation executed a "SUBROGATION RECEIPT" subrogating plaintiff to all of its rights to recover for the loss "against any person or corporation" and agreeing "to cooperate fully" with plaintiff in the prosecution of such a claim. Defendant signed the instrument on behalf of the corporation. Plaintiff then commenced this action against defendant, alleging that the fire was caused by the negligent acts of defendant. After issue was joined, defendant moved for summary judgment dismissing the complaint, essentially on the ground that defendant, as an officer of the primary insured corporation, was also an insured under the policy and, therefore, subrogation by plaintiff against him was barred as a matter of law. Defendant appeals from the denial of his motion. 145 Misc.2d 847, 548 N.Y.S.2d 870.

There should be a reversal. In our view, the equitable principles and public policy considerations underlying the denial of any right of subrogation by an insurer against an additional insured under its policy, as set forth in Pennsylvania Gen. Ins. Co. v. Austin Powder Co., 68 N.Y.2d 465, 510 N.Y.S.2d 67, 502 N.E.2d 982, apply here sufficiently to bar plaintiff's claim. The Court of Appeals in Pennsylvania Gen. Ins. Co. characterized an insurer's attempt to recoup its payment to a primary insured from a person who is an additional insured under the same policy as an "unseemly result [which] would not be consistent with the equitable principles that govern subrogation claims" (id., at 471, 510 N.Y.S.2d 67, 502 N.E.2d 982). Subrogation by an insurer, the court noted, has traditionally applied to claims against "third parties" whose active wrongdoing caused the loss for which the insurer was required to indemnify its insured. The court pointed out, however, that "[a] third party, by definition, is one to whom the insurer owes no duty under the insurance policy through which its loss was incurred" (id. [emphasis supplied]. Permitting recovery against an insured is inequitable because it "would permit an insurer, in effect, 'to pass the incidence of the loss * * * from itself to its own insured and thus avoid the coverage which its insured purchased' " (id., quoting Home Ins. Co. v. Pinski Bros., 160 Mont. 219, 226, 500 P.2d 945, 949).

Another court described the same inequity, in a fire loss subrogation claim, as follows:

An overwhelming percentage of all insurable losses sustained because of fire can be directly traced to some act or acts of negligence. Were it not for the errant human element, the hazards insured against would be greatly diminished. It is in full appreciation of these conditions that the property owner seeks insurance, and it is after painstaking analysis of them that the insurer fixes his premiums and issues the policies. It is in recognition of this practice that the law requires the insurer to assume the risk of the negligence of the insured and permits recovery by an insured whose negligence proximately caused the loss (Federal Ins. Co. v. Tamiami Trail tours [5th cir.], 117 F.2d 794, 796 [emphasis supplied].

(See also, Builders & Mfrs. Mut. Cas. Co. v. Preferred Auto. Ins. Co., 6th Cir., 118 F.2d 118.) Moreover, several authorities have concluded that the foregoing principle barring an insurer's subrogation against an insured may apply in claims against persons not named in the policy, because the relationship between the person and the insured makes it reasonable to infer that the insured paid the insurer to completely assume the risk of loss by the acts of that person. As stated in a major text on insurance law:

A person not named in an insurance policy is considered an insured for purposes of preventing subrogation when, under the circumstances, the insurer seeking subrogation is attempting, in effect, to recover from the insured on the risk the insurer had agreed to take upon payment of the premium (6A Appleman, Insurance Law and Practice § 4055, at 77 [1990 supp.].

Thus, subrogation against the brother of a homeowner/insured was denied for a fire loss caused by the brother while a guest at the insured premises, the court stating:

It may be presumed that the insured bought this policy so that he would not...