INSURANCE-RELATED COURT CASES
Digested from case reports published online
COURT DECISIONS
Insurer can subrogate against another insurer
In May 2017, an individual was shot and killed in a Shelter Island Apartments unit. The victim’s estate filed a suit against Alhambra Place. Alhambra, at the time of the tragedy, was listed as an additional insured (which included Shelter as an insured location) under coverage issued to L.A. Pacific Center (Pacific).
Pacific held a commercial general liability policy with a $1 million limit from James River Insurance Company, as well as a policy providing a $10 million excess layer of protection issued by North River Insurance Company. Upon receiving notice of the estate’s action alleging wrongful death and various instances of negligence, James River agreed to legally defend Pacific.
The estate initially made a demand for $1 million. Later it reduced the amount to $990,000 and then to $975,000. James River rejected both settlement offers. Later, the suit was settled, but only after the estate’s demand rose substantially from $1 million to $5 million. Whereas James River merely paid out its policy premium, the excess amount of $4 million was the financial burden of North River.
North River paid the excess amount but did so under a reservation of rights. After handling its much larger part of the settlement, North River sued James River by claiming a right of subrogation. The excess insurer’s argument was that James River’s rejection of the estate’s earlier, lower demands represented a breach of good faith. North River asked to be allowed to recover its excess payment in full.
James River immediately sought dismissal. It pointed out that the underlying lawsuit was settled within the combined limits available from itself and the excess insurer. Therefore, subrogation should not apply. The district court hearing the dispute agreed, ruling that, per Nevada law, subrogation would be barred. North River appealed.
The higher, circuit court stopped its examination of the litigants’ positions quickly. The court realized that, although North River filed the appeal in a different state, any decision could impact Nevada and, of course, its insurance companies. The reason was due to the higher court’s inability to find any precedents involving two insurers debating subrogation. It then decided that the proper move was to kick the matter further up by asking a certified question. The court believed that was necessary even though James River objected. The question was as follows:
“Under Nevada law, can an excess insurer state a claim for equitable subrogation against a primary insurer where the underlying lawsuit settled within the combined policy limits of the insurers?”
Given the question, the court placed its effort on determining the question of whether subrogation may be applied. James River asserted that subrogation may be exercised by an excess insurer against a primary insurer when an insured is placed in a position of having to handle an excess judgment before settlement, a primary insurer refuses to pay its portion of a settlement, or if a breach of defense duty by a primary insurer results in the insured having to pay defense costs. James River contended that, as it paid its part of the settlement after taking up a defense of the insured and the total settlement fell within the total available limits of the insurers, North River was without grounds to subrogate.
The higher court reasoned that subrogation may be applied if an insurer places itself in the shoes of an insured to recover payments that an insured would have had to pay, but for insurance being available. North River’s position was that the primary insurer’s actions prevented a settlement that could have been satisfied within the limits of the primary policy. Therefore, a claim may be made against a third party that bears responsibility for a financial loss via subrogation.
The court held that the right to subrogate is not affected by whether a settlement was capable of being handled by available insurance. Therefore, with respect to the certified question, the court’s response was that “North River may pursue reimbursement under the doctrine of equitable subrogation.”
North River Insurance Company, A New Jersey Corporation v. James River Insurance Company, An Ohio Corporation—Supreme Court of the State of Nevada—No. 89228—January 29, 2026.
