The Subrogation Strategist

In a subrogation action, one party is substituted to the rights and remedies of another with respect to a lawful claim. The substituted party (the subrogee) is legally able to pursue any right or seek any remedy that would be available to the subrogor regarding that claim. But can a defendant in a subrogation action assert any claim against the subrogee that it would have against the subrogor? In Federated Mut. Inc. Co. v. Kosciusko County, No. 3:20-CV-960, 2021 U.S. Dist. Lexis 88735, the United States District Court for the Northern District of Indiana considered whether a defendant could assert counterclaims against the insureds/subrogors in an action filed in the name of their subrogee. The court held that since the insurerds/subrogors were not a party to the action and the defendant could assert the substance of its counterclaim as a defense, the defendant could not file counterclaims against the insureds/subrogors in the insurer’s subrogation action.

Kosciusko County arose from a motor vehicle accident involving a semi-tractor trailer owned by Bellman Oil Company, Inc. (Bellman) and B & B Transport, Inc. (B & B). The accident occurred on a highway in Kosciusko County in October of 2019. The accident caused the semi-tractor trailer containing ethanol fuel to roll over four times and burst into flames. Federated Mutual Insurance Company (FMIC) insured Bellman and B & B for the semi-tractor trailer and issued payments as a result of the accident.

FMIC filed a lawsuit against Kosciusko County, the Kosciusko County Highway Department, and Phend & Brown, Inc. (Phend & Brown), a public works contractor, alleging that they were negligent in the construction and maintenance of the county highway, which resulted in the accident. Phend & Brown filed counterclaims against Bellman and B & B, alleging that negligent operation of the semi-tractor caused $22,700 in damages to the highway. FMIC filed a motion to strike the counterclaim, primarily on grounds that the insureds/subrogors—Bellman and B & B—were not “opposing parties” under Federal Rule of Civil Procedure 13.

The court began its analysis by noting that FMIC filed the action in its own name, as subrogee of Bellman and B & B. The court recognized that as the subrogee, FMIC succeeded to the rights of the its insured in relation to the claim, and its rights, remedies and securities. However, the court explained that the subrogee does not take the identity of the insured/subrogor, and thus remains a separate entity from the subrogor. As such, the court held that the defendant could not assert counterclaims against FMIC as if FMIC were Bellman and B & B. The court found that the defendant could only assert the substance of the counterclaims as a defense to the subrogation action. The court further noted that the defendant could not bring the insureds/subrogors into the lawsuit as third-party defendants if the allegations could be asserted as defenses against the subrogee. Thus, the court granted FMIC’s motion to strike Phend & Brown’s counterclaims against Bellman and B & B.

Kosciusko County highlights that, in courts following the federal rules, a subrogating plaintiff proceeding in its own name should not be subjected to counterclaims that a defendant has against the insured/subrogor who is not named as an independent party in the case. Courts applying this analysis may insulate subrogees from potential liability for counterclaims made against the subrogor.