In Elrich v. American Int’l Group, Inc., 2015 NY Slip Op 04411, 2015 N.Y. App. Div. LEXIS 4339 (1st Dept. May 26, 2015), an intermediate New York appellate court reaffirmed the long-held principle that an insured who is paid the full amount due under a policy is not entitled to recover proceeds of an insurer’s subrogation action against a third-party tortfeasor for uninsured losses.

In Elrich, plaintiffs installed in their home a water cooler made by Greenway Home Products, Inc. (Greenway) that malfunctioned, causing a fire that substantially damaged their home and property. The damage was covered by a “multi-peril” homeowners’ insurance policy issued by New Hampshire Insurance Co. (NHIC). NHIC had a reinsurance agreement with Everest Reinsurance Company (Everest), which covered the Policy, and also entered into an assignment agreement, under which NHIC assigned its subrogation rights to Everest. In all, plaintiffs claimed $124,123.81 in damages. NHIC paid a total of $111,956.61, the difference withheld being plaintiffs’ uninsured loss comprising the deductible and depreciation.

Everest commenced a subrogation action against Greenway, alleging that Greenway was liable for plaintiffs’ damages, and thus was obligated to reimburse Everest for the payments made to plaintiffs. Everest settled with Greenway, for less then the amount Everest paid to plaintiffs, and sent plaintiffs their pro rata share of the recovery. Plaintiffs then commenced this action against Everest, seeking to recover the amount of uninsured loss withheld from plaintiffs of the deductible and depreciation. Further, plaintiffs alleged that Everest must disgorge its settlement with Greenway since an insurance company is not entitled to subrogation until its insured as been fully compensated.

The Appellate Division, First Department, found that “plaintiffs are not entitled to any of the proceeds of the settlement of the insurer's subrogation action against the third-party tortfeasor to recover their uninsured losses, i.e. their deductible and the loss due to depreciation.” The court relied on Winkelmann v. Excelsior Ins. Co.,85 N.Y.2d 577 (1995), which held that “an insurer who has paid its insured the full amount due under a [policy], but less than the insured’s loss, may proceed against the third-party tortfeasor responsible for the loss before the insured has been made whole by the tortfeasor.” The court did note that an insurer’s subrogation rights are limited when the sources of recovery ultimately available are inadequate to fully compensate the insured for its losses. However, this was not the case in the matter at hand. The trial court had found that “where the tortfeasor is not judgment proof…the policy holder must commence its own action against the tortfeasor to recover its uninsured losses.” Erlich v. American Int’l Group, Inc., 41 Misc. 3d 1224(A), at *5 (Sup. Ct. N.Y. Cnty. Nov. 7, 2013). The trial court further stated that an insured “cannot piggyback on its insurer’s lawsuit, especially where, as here, to do so would greatly prejudice the insurer because, by settling with the tortfeasor, the insurer has already released its claims.” Id. The Appellate Division affirmed the trial court’s dismissal of plaintiffs’ claims.

Based upon these authorities, under New York law an insurer may pursue a subrogation claim against a third-party tortfeasor without fear that the proceeds from any recovery will be subject to an unjust enrichment or other claim by the insured, where the insured has been paid the full amount due under the policy, even though it may be less than the total loss.