Antisubrogation Rule Bars Physical Damage Claim Against Permissive User of Loaner Car

AUTO – USE OF LOANER CAR – PHYSICAL DAMAGE – ANTI-SUBROGATION RULE
Motors Ins. Corp. v. Africk
(2nd Dept., decided 10/7/2008)

This one almost slipped by me. Car dealers and their insurers routinely seek to hold permissive users of the dealers' vehicles liable for physical damage to the dealers' vehicles and damages to third parties. The rules of whose and which coverage is primary for first- and third-party claims are complex and derive from an understanding of case law, statutes and policy language.

Arroway Chevrolet loaned a vehicle to David Africk while it was servicing his vehicle. Africk subsequently damaged the loaner in a one-car collision. Arroway's insurer, Motors Insurance Corp., paid Arroway's claim for the physical damage to the loaner under its comprehensive and collision policy and commenced this subrogation action against Africk to recover the amount it had paid Arroway.

In AFFIRMING the trial court's dismissal of the complaint against Africk, the Second Department applied the anti-subrogation rule, holding:

An insurer has no right of subrogation against its own insured for a claim arising from the very risk for which the insured was covered (see North Star Reins. Corp. v Continental Ins. Co., 82 NY2d 281, 294; Pennsylvania Gen. Ins. Co. v Austin Powder Co., 68 NY2d 465, 471; Lodovichetti v Baez, 31 AD3d 718, 719; Blanco v CVS Corp., 18 AD3d 685, 686). For the purposes of the antisubrogation rule, a permissive user of an insured vehicle is treated no differently than a named insured (see Jefferson Ins. Co. of N.Y. v Travelers Indem. Co., 92 NY2d 363, 374-375).

Here, the insurer does not dispute that the Supreme Court properly found that Arroway's loan of the vehicle to the defendant made him a permissive user (see Matter of Liberty Mut. Ins. Co. v Clench, 180 AD2d 684). Moreover, under the terms of the relevant policy, the insurer agreed to indemnify Arroway for "loss to a covered auto caused by . . . collision with another object," and for "loss to a covered auto caused by the failure of a person in lawful possession of a covered auto under a lease, rental or loaner agreement to return it to a dealer in accordance with the terms of the agreement." Thus, the insurer is seeking recovery from a permissive user, authorized by its insured, for a claim arising from the very risk for which the insured was covered, an outcome barred by the antisubrogation rule (see Jefferson Ins. Co. of N.Y. v Travelers Indem. Co., 92 NY2d at 374-375; North Star Reins. Corp. v Continental Ins. Co., 82 NY2d at 294).

It is important to note that this decision does not mention whether the Arroway's policy with Motors contained a "no liability" clause, which may have affected Africk's status as an "insured", at least for liability coverage purposes. Coverage Counsel is going to pull the appellate briefs and will let everyone know. For now, this decision appears to support the argument that a car dealer's insurer may not subrogate against the permissive user of a loaner car for physical damage to it. Do you understand now why car dealers and their insurers are so adament in calling loaner vehicles rentals? Hint: it has something to do with New York Insurance Law § 3440.