In Florida Peninsula Ins. Co. v. Ken Mullen Plumbing, Inc., 171 So. 3d 194 (Fla. 5th DCA 2015), a panel of Florida's Fifth District Court of Appeal reinstated a first-party insurance company's third-party complaint against a plumber. The third-party complaint included an alleged cause of action in equitable subrogation.
The insurance carrier paid on a water damage claim under a homeowner's policy. Thereafter, the insurance carrier filed a third-party complaint against the plumbing company which allegedly caused the water damage. However, the kicker was that the homeowner's damage was not fully paid at the time that the carrier filed its third-party complaint.
The trial judge granted the plumbing company's motion to dismiss the equitable subrogation count in pertinent part, on the ground that the insured homeowner had not been fully compensated for the water damage. On appeal, the Florida appellate panel reversed and reinstated the third-party claim for equitable subrogation, in pertinent part.
The basis for the appellate panel's decision seems a bit murky. In allowing the cause of action in equitable subrogation to go forward, the panel's opinion seems to have relied on the language of Florida's third-party practice rule. That rule allows a third-party complaint to be filed against a nonparty who "is or may be liable" to the defendant/third-party plaintiff for all or a part of the original plaintiff's complaint against it. Florida Peninsula Ins. Co. v. Ken Mullen Plumbing, Inc., 171 So. 3d 194, 197-98 (Fla. 5th DCA 2015). In so ruling, the panel joined other Florida district courts of appeal on one side of a split among Florida's district courts of appeal.
However, the panel's opinion also included language summarizing the approach collectively taken by other DCA's "which permits pleading a third-party action for equitable subrogation before the underlying debt has been paid." Florida Peninsula Ins. Co. v. Ken Mullen Plumbing, Inc., 171 So. 3d 194, 197 (Fla. 5th DCA 2015). [Emphasis added.] To the extent that this panel's opinion mirrors the ruling of two judges on a different panel in an opinion explored on Insurance Claims and Issues Bad Faith Blog on Sunday, October 4, 2015, perhaps there is a "war" in Florida on equity's requirement that the victim, i.e., the one which is the creditor in a subrogation action, must be fully compensated before subrogation will be available in equity.
Allowing a subrogation action to go forward in favor of the party which paid money to the creditor because the subrogation plaintiff had an obligation to pay under an insurance contract or for any other reason, does nothing for equity or for the creditor-victim. Certainly, judges may have the power to order subrogation to go forward even when the creditor has not been fully compensated but they have no right if that is how they rule, to call their rule "equitable" subrogation.
Rather, equity clearly would seem to require that if the requirement of full compensation of the creditor-victim is discarded, that an appropriate substitute be put in place. An appropriate substitute might include requiring that any recovery in the subrogation action, in which the subrogation plaintiff "stands in the shoes" of the creditor-victim, to be paid first to the creditors-victims until they are fully compensated. Any remaining proceeds would be paid to the subrogation plaintiff only after the victim is fully compensated. Under such an arrangement, that might be an equitable way to "punch" the subrogation plaintiff's "ticket" to claim standing to sue because it "stands in the shoes" of the victim.
Please Read The Disclaimer. ©2015 by Dennis J. Wall, author of Litigation and Prevention of Insurer Bad Faith (3d ed. Thomson Reuters West in 2 Volumes, with 2015 Supplements), including Section 7:9, Actions by Excess Carriers -- Subrogation. All rights reserved.
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