In Farmers Mut. Ins. Co. of Mason County v. Stove Builder Int’l, 2019 U.S. Dist. Lexis 46993 (E.D. Ky.), the United States District Court for the Northern Division of the Eastern District of Kentucky, by adopting a Magistrate Judge’s report and recommendations, see Farmers Mut. Ins. Co. v. Stove Builder, Int’l, Inc., 2019 U.S. Dist. LEXIS 48103 (E.D. Ky. Feb. 11, 2019), considered whether to allow the defendants to file a third-party complaint against the plaintiff’s insureds-subrogors. Finding that the defendants could not pursue contribution claims against the plaintiff’s insureds-subrogors, the court denied the defendant’s motion to file a third-party complaint.
The underlying subrogation action involved allegations of strict liability, negligence and breach of warranty against a pellet heater manufacturer and the retailer who sold the heater. The claims arose from a fire allegedly originating from the heater, which spread to the insureds-subrogors’ home causing property damage, along with consequential damages. Pursuant to the applicable insurance policy, the insureds-subrogors’ insurer issued payments to its insureds-subrogors. Thereafter, the insurer filed suit against the heater manufacturer and retailer.
The defendants filed a motion for leave to file a third-party complaint against the plaintiff’s insureds-subrogors, seeking to assert a contribution claim. The defendants alleged that the insureds-subrogors failed to properly install and maintain the pellet heater. The defendants also sought a jury instruction that would permit the jury to apportion fault to the insureds-subrogors, resulting in a reduction of the plaintiff’s recovery. The court looked to federal procedural law, but Kentucky substantive law to decide the defendants’ motion.
In its analysis, the court focused on what it means to “step in the shoes” of an insured-subrogor, noting that Kentucky law provides that when an insurer makes full payment to its insured, it acquires all of the insured’s rights. The court stressed that an insurer’s subrogation rights are derivative in nature and are no greater than the insured’s rights. Such rights are also subject to any limitations, such as contractual waivers or defenses based on contributory/comparative negligence.
The court concluded that allowing the defendants to file a third-party complaint against the plaintiff’s insureds-subrogors would serve no legal purpose. The court explained that the plaintiff’s claims were already subject to any defenses that the defendants could directly assert against the insureds-subrogors, rendering any direct claims against the insureds-subrogors superfluous.
The Stove Builder case confirms the derivative nature of subrogation rights, such that an insurer’s claims are limited by any defenses that can be directly asserted against an insured. It is also a reminder that the appropriate vehicle for raising such defenses is through affirmative defenses, which may be waived if not raised in the defendant’s answer to the complaint.