For subrogation professionals, it is important to limit the liability exposure of your insured. In cases where the insurer, as subrogee, is proceeding as the plaintiff, this means limiting any direct claims against the insured – whether for contribution or indemnity – to affirmative defenses as opposed to third-party claims. Limiting direct claims against insureds not only keeps captions clean, but avoids strategic maneuvering by the defense that could negatively impact your case. In Ohio, when a defendant tries to pursue direct claims against the insured for contribution or indemnification, practitioners should, consistent with the analysis set forth in Continental Casualty Company v. Equity Indus. Maple Heights, LLC, 2017 U.S. Dist. LEXIS 54440 (N.D. Ohio, April 10, 2017), argue that defendants can no longer attempt this maneuver and that they are limited to raising affirmative defenses against the plaintiff’s subrogor.
Cont’l Cas. Co. is a subrogation case arising from a warehouse fire that occurred in Maple Heights, Ohio. The plaintiff carrier, Continental Casualty Company (Cont’l), paid its insured, Fannie May Confections Inc. (Fannie May), for damage to property Fannie May stored in the warehouse. Cont’l then sued defendants Equity Industrial Maple Heights, LLC (Equity), Commercial Property Maintenance, LLC (Commercial Maintenance), Fire Protection, Inc. (FP, Inc.) and Tempest, Inc. (Tempest). Against Equity, Fannie May’s landlord, Commercial Maintenance and FP, Inc., Cont’l based its lawsuit on theories of liability related to improper maintenance, service and inspection of the property, including the fire suppression system. Against Tempest, the complaint alleged that Tempest’s actions or inactions resulted in an explosion due to ammonia levels at the property. Equity filed a third-party complaint against Fannie May for contribution and indemnification, and Tempest and FP, Inc. filed cross-claims for contribution against Fannie May. Fannie May moved to dismiss the claims against it by all three parties. Only Equity and Tempest opposed the motion.
The court, noting that the question of whether defendants may assert direct claims against an insurer’s subrogor-insured was a case of first impression in Ohio, looked to other federal courts across the country and found that dismissal of all of the tort-based cross-claims for contribution was warranted. The court dismissed the claims by reasoning that the claims should be – and in fact also were – properly brought as affirmative defenses rather than cross-claims. As noted by the court, any such contribution claim would be based on tortious conduct of Fannie May causing damage to Cont’l. However, since Cont’l was Fannie May’s insurer and, thus, could not recover damages from its subrogated insured, the defendants could not pursue their contribution cross-claims against Fannie May. As stated by the court, the claims “serve no legal purpose” as they fail to state claims upon which relief can be granted.
Similarly, the court held that the same rationale warranted dismissal of Equity’s third-party claims, including its breach of contract claim. Finding no distinction between the breach of contract and contribution claims in this analysis, the court noted that Equity was, essentially, seeking an offset of damages that should be brought as an affirmative defense rather than as a third-party action.
In Cont’l Cas. Co., a United States District Court in Ohio holds that the murky practice of bringing a subrogated plaintiff’s insured into the action as an additional defendant is improper. The holding in this case is important, and hopefully indicative of how other states will subsequently rule on this issue, because it cuts defendants off from playing three-card monte with the pleadings in such a way that leaves an insured exposed and the insurer’s subrogation case weakened. Instead, it limits claims against an insured to affirmative defenses – asserted against the insurer – so that the subrogation attorney can litigate the case without fear of the client’s insured being sued.