The economic loss doctrine is a legal principle that has confused and frustrated subrogation practitioners since its inception. Unfortunately, once practitioners understand the basic theory, they realize how frustrating it can be. If there was any doubt about the doctrine’s effect in New York, the Appellate Division put that to rest in a recent ruling on a subrogation case in which it bolstered the economic loss doctrine defense. Continue reading
In Union Mut. Fire Ins. Co. v. Ace Caribbean Mkt., No. 21-2653,2023 U.S. App. LEXIS 8203 (2d Cir. Apr. 6, 2023), the United States Court of Appeals for the Second Circuit (Second Circuit) considered whether evidence that a fire may have originated in extension cords was sufficient to establish that: a) the owners/proprietors were negligent in their use of the extension cords; and b) their negligence was the cause of the fire. The Second Circuit held that the circumstantial evidence was not sufficient and affirmed summary judgment in favor of the defendant.
In Allstate Veh. & Prop. Ins. Co. v. Glitz Constr. Corp., 2023 N.Y. App. Div. LEXIS 1180, 2023 NY Slip Op 01171, the Supreme Court of New York, Appellate Division, Second Department (Appellate Court), considered whether a contractor could be found liable for its subcontractor’s alleged negligence in causing injury to a homeowner’s property. The homeowner’s insurer, as subrogee of the homeowner, sought to recover damages from the contractor despite an allegation that the subcontractor – an independent contractor – caused the injury to the homeowner’s property. Finding that there was no evidence that any of the exceptions to the non-liability rule related to hiring independent contractors applied, the Appellate Court affirmed the lower court’s decision granting judgment in favor of the contractor.
In this case, the homeowner hired the contractor (defendant) to convert her garage area into a bedroom and an office. The defendant later hired a subcontractor to perform the electrical rough-in work. At trial, the homeowner’s insurer (plaintiff) presented evidence that the subcontractor, who damaged an existing wire with a drill bit, caused an electrical failure that resulted in a fire. The defendant argued that it could not be held liable for the subcontractor’s alleged negligence because the subcontractor was an independent contractor and, on appeal, the Appellate Court agreed.
In Phila. Indem. Ins. Co., a/s/o Baldwin Real Estate Corp. v. Barker, 2021 U.S. Dist. LEXIS 87642 (N.D.N.Y. May 7, 2021), the United States District Court for the Northern District of New York considered whether the plaintiff, Philadelphia Indemnity Insurance Company (PIIC), a subrogating insurer, could prove its damages claim through the testimony of its adjuster, without an damages expert. The court held that, where the plaintiff’s damages proof was based on repair costs and the defendant offered no expert of its own related to the diminution in fair market value, the plaintiff could prove its damages using the adjuster’s testimony. Continue reading
New York has joined a growing number of jurisdictions ruling that Amazon can be liable for defective products sold by third-party sellers on its website. The rationale for New York’s recent ruling is based upon Amazon’s level of control over the sale of the product. There are three ways which products are sold on Amazon: (1) Amazon sells, processes and ships the product; (2) a third-party sells, processes and ships the product (i.e., Amazon does not take possession of the product); and (3) a third-party sells the product and Amazon “fulfills” the order by storing, processing and shipping the product through its “Fulfillment by Amazon” (FBA) logistical program. The FBA program has been the lynchpin in many of the recent decisions decided against Amazon, including a recent New York case. Under the FBA, the sellers store their inventory at Amazon’s warehouse until the product is purchased, at which time Amazon retrieves the product from its warehouse shelf, packages it, and ships it to the consumer. Accordingly, Amazon has significant control over products “fulfilled” through the FBA. Continue reading
Although there are times when both parties agree on the need to perform destructive tests on an object, when the parties disagree, the party seeking the destructive tests must justify its request. In Doerrer v. Schreiber Foods, Inc., et al., No. 2017-08582, 2019 N.Y. App. Div. LEXIS 4743, the Second Department of the Supreme Court of New York’s Appellate Division recently explained what a defendant moving to secure destructive testing needs to show in order to perform the testing it seeks. Continue reading
In New York Cent. Mut. Ins. Co. v. TopBuild Home Servs., Inc., 2019 U.S. Dist. LEXIS 69634 (April 24, 2019), the United States District Court for the Eastern District of New York recently held that the “lesser of two” doctrine applies to subrogation actions, thereby limiting property damages to the lesser of repair costs or the property’s diminution in value. Continue reading
In Rodriguez v. City of New York, 2018 N.Y. LEXIS 793, 2018 NY Slip Op. 02287 (Apr. 3, 2018), New York’s Court of Appeals, New York’s highest court, addressed the question of whether a plaintiff, in moving for summary judgment on the issue of the defendant’s liability, also needs to establish the absence of his or her own comparative negligence. In a 4-3 decision, a majority of the court held that, because the plaintiff’s comparative negligence is a matter of damages, not liability, the plaintiff does not bear that burden. Continue reading
In John Trimble, et al. v. City of Albany, et al., 2016, 144 A.D.3d 1484; 42 N.Y.S. 3d 432 (N.Y. App. Div.), the Supreme Court of New York, Appellate Division, addressed the issue of governmental immunity for municipal fire companies. The court held that the plaintiff, John Trimble (Trimble), had sufficient evidence related to the four-pronged test for establishing a “special relationship” between a municipality and a citizen for liability to attach. In addition, the court held that the defendants were not entitled to summary judgment on the issue of governmental immunity. Specifically, regarding the latter holding, the court stated that, when there is no actual choice made on the part of the government, the government’s actions cannot be considered discretionary and immunity will not apply.
New York’s “no-fault” legislation reflects a public policy designed to make the insurer of first-party benefits absorb the economic impact of loss without resort to reimbursement from its insured or, by subrogation, from the tortfeasor. Country Wide Ins. Co. v. Osathanugrah, 94 A.D.2d 513, 515 (N.Y. 1st Dept. 1983). The no-fault concept embodied in New York’s Insurance Law modifies the common law system of reparation for personal injuries under tort law. Safeco Ins. Co. of Am. v. Jamaica Water Supply Co., 83 A.D.2d 427, 431 (N.Y. 2nd Dept. 1981). “[F]irst party benefits are a form of compensation unknown at common law, resting on predicates independent of the fault or negligence of the injured party.” Id. at 431. The purpose of New York’s no-fault scheme is “to promote prompt resolution of injury claims, limit cost to consumers and alleviate unnecessary burdens on the courts.” Byrne v. Oester Trucking, Inc., 386 F. Supp. 2d 386, 391 (S.D.N.Y. 2005).
New York’s no-fault scheme—contained in Article 51 of its Consolidated Laws (“Comprehensive Motor Vehicle Insurance Reparations”)—requires owners of vehicles to carry insurance with $50,000 minimum limits which covers basic economic loss, i.e., first-party benefits, on account of personal injury arising from the use or operation of a motor vehicle. Basic economic loss includes, among other things: (1) medical expenses; (2) lost earnings up to $2,000 per month for three years; and (3) out-of-pocket expenses up to $25 per day for one year. N.Y. INS. LAW § 5102(a).
Where workers’ compensation insurance coverage exists for an injured motorist— i.e., where the motorist is operating a vehicle while in the course and scope of her employment—the workers’ compensation insurer must pay the injured motorist’s basic economic loss up to $50,000. N.Y. INS. LAW § 5102(b)(2). The compensation insurer in this scenario is said to become “primary.” And since first-party benefits are guaranteed regardless of fault, there is no corresponding right of subrogation for the carrier reimbursing an injured motorist for items of basic economic loss. Condon v. Hathaway, 740 N.Y.S.2d 600, 603 (N.Y. Sup. Ct. 2002).
Instead, New York provides a compensation insurer with what is referred to as “loss transfer.” Loss transfer is simply an opportunity to recover from the negligent motorist’s vehicle insurer the first-party benefits the compensation insurer became obligated to pay as a result of the accident. But the right of a compensation insurer to recover under the loss transfer exception depends on the existence of either of two conditions: At least one of the motor vehicles involved (1) weighs more than 6,500 lbs. unloaded, or (2) is used principally for the transportation of persons (e.g., taxi, bus) or property for hire (e.g., FedEx, delivery truck)1. N.Y. INS. LAW § 5105(a). If one of these two conditions is met, a compensation insurer is free to pursue a loss transfer against the negligent motorist’s vehicle insurer for the recovery of the $50,000 first-party benefits it became obligated to pay under Section 5102(b)(2).
The “sole remedy” for pursuing a loss transfer against the negligent motorist’s vehicle insurer is, without exception, arbitration. N.Y. INS. LAW § 5105(b). Thus there is no signatory requirement as arbitration is the sole remedy of any insurer seeking a loss transfer arising from a motor vehicle accident in New York. The New York Insurance Department has selected Arbitration Forums as the administrator of loss transfer arbitration and, through its regulations contained in 11 NYCRR § 65.10 (2003), has granted Arbitration Forums the authority to “make appropriate administrative rules for arbitration.”
It is important to remember that loss transfer is only applicable to the $50,000 first-party benefits a compensation insurer becomes obligated to pay under Section 5102(b)(2) of New York’s Insurance Law. Recovery of “APIP” 3 —or, additional benefits paid over and above the $50,000 no-fault threshold—can be had through conventional workers’ compensation subrogation provided under N.Y. WORKERS’ COMP LAW § 29.
New York’s loss transfer scheme is fraught with nuance and hidden exceptions, found not only in Article 51 itself, but also in the Insurance Department’s extensive regulations and in the rules promulgated by Arbitration Forums pursuant to its authority given by the Insurance Department. It is critical that counsel be sought as soon as practicable in a potential loss transfer case to not only preserve a loss transfer opportunity but to develop a comprehensive strategy for a successful recovery.
Robert M. Caplan is Counsel with White and Williams LLP and Workers’ Compensation Subrogation Team Leader. In addition to litigating and trying cases, Rob is a frequent lecturer at national and regional conferences held by the National Association of Subrogation Professionals (NASP) where he has been a Track Leader for the Workers’ Compensation Subrogation Track. Rob can be reached at caplanr@whiteandwilliams.com and 215.864.7012.
