The Anti-Subrogation Rule
I know, my dear students, that you are clamoring for more obscure insurance coverage tidbits and I am here to deliver. Our rule for today: anti-subrogation.
The short form is this – an insurance company cannot subrogate against its own insured. This means that an insurer cannot look to its own policyholder to satisfy or to repay the loss that the insurer has covered.
The reasons behind this rule are rooted in equity, which is a fancy way to say “fairness.” Subrogation is a doctrine created to give relief to a party that pays a legal obligation that should have, in good conscience, been satisfied by another. See 16 Lee R. Russ & Thomas F. Segalla, Couch on Insurance 3d § 222:8, at 222-30 (2000); see also State Dep’t of Human Servs. ex rel. Palmer v. Unisys Corp., 637 N.W.2d 142, 154 (Iowa 2001).
However the doctrine does not extend itself to classic insurance patterns. If a loss was caused by you, and your insurance company pays, the insurer cannot turn around and sue you for the payment it made on your behalf. An insurance company has no right of subrogation against its own insured, even if the insured is the wrongdoer. This is the majority rule. Iowa: Allied Mut. Ins. Co. v. Heiken, 675 N.W.2d 820, 824 (Iowa 2004); Nebraska: Stetina v. State Farm Mut. Auto. Ins. Co., 196 Neb. 441, 451, 243 N.W.2d 341, 346 (Neb.1976); North Dakota: Community Credit Union v. Homelvig, 487 N.W. 2d 602, 603 (N.D. 1992); Missouri: Sherwood Med. Co. v. B.P.S. Guard Servs., Inc., 882 S.W.2d 160, 162 (Mo. Ct. App. 1994); South Dakota: Am. Family Mut. Ins. Co. v. Auto-Owners Ins. Co., 2008 S.D. 106, 757 N.W.2d 584, 593 (S.D. 2008) and Minnesota: United Fire & Cas. Co. v. Bruggeman, 505 N.W.2d 87, 89 (Minn. Ct. App. 1993).
This is called the anti-subrogation rule. If you think about it, it makes sense. After all, a policy holder pays a premium for this coverage. It would be patently unfair to have the policyholder “pay twice” in essence for a loss the insurance company agreed to cover. The policyholder would not be getting the benefit of his bargain under the contract. See e.g. LaSalle Nat. Bank v. Massachusetts Bay Ins. Co., 958 F. Supp. 384, 388 (N.D. Ill. 1997)
There are some deviations of the rule, as with anything in the law. For example, some states have extended the rule to relatives who are residing in the insured’s household at the time of the loss. See Jindra v. Clayton, 247 Neb. 597, 605, 529 N.W.2d 523, 528 (1995) (court denied subrogation claim against another member of a closely related family group because the wrongdoer owned the property in joint tenancy with the policyholder); Cont’l Ins. Co. v. Bottomly, 250 Mont. 66, 70, 817 P.2d 1162, 1165 (Mont. 1991) (court found that members of the policyholder’s household were protected under the policy and subrogation was not allowed) and Am. Family Mut. Ins. Co. v. Auto-Owners Ins. Co., 2008 S.D. 106, 757 N.W.2d 584, 593 (South Dak. 2008) (agreeing with the general principle, but adopting a case-by-case approach). But compare Neubauer v. Hostetter, 485 N.W.2d 87, 89 (Iowa 1992) (rejecting the “fiction” that the tenant or guest was also an insured under a homeowner’s policy) and Page v. Scott, 263 Ark. 684, 686, 567 S.W.2d 101, 103-04 (1978) (likewise rejecting the underlying “fiction” that supports the extension of the anti-subrogation rule).
Some states also extend the anti-subrogation rule to any guest in the policyholder’s home. See Reeder v. Reeder, 217 Neb. 120, 348 N.W.2d 832 (1984) (insurance was for the benefit of the homeowner’s guests as well as the policyholder) and Wasko v. Manella, 74 Conn. App. 32, 39, 811 A.2d 727, 732 (2002) rev’d, 269 Conn. 527, 849 A.2d 777 (Conn. 2004) (it would be inequitable to suggest that every houseguest should carry a liability policy adequate to protect him or her from the consequences of negligence in another’s home).