April 13, 2023
Many legal practitioners are familiar with the doctrine of subrogation while some may only recall from their Bar studies that subrogation has something to do with a pair of shoes. For both the experienced subrogation professional and those seeking to enhance their legal acumen, you are invited to walk this article’s literary path, which traverses a lesser-known avenue of subrogation by way of Additional Personal Injury Protection (“APIP”) coverage. APIP supplements personal injury protection limits set by statute in states providing no-fault insurance benefits to those personally injured due to an accident involving a motor vehicle.
Subrogation – Generally
The equitable doctrine of subrogation, indeed, “entitles an insurer to ‘stand in the shoes’ of its insured to seek indemnification from third parties whose wrongdoing has caused a loss for which the insurer is bound to reimburse.” N. Star Reinsurance Corp. v. Cont’l Ins. Co., 82 N.Y.2d 281, 294 (NY 1993). An insurer’s right to subrogation “arises by operation of law when the insurer makes payment to the insured.” Id. However, payment to an insured does not always give rise to a right of subrogation, for example, when a personal injury claim which arises from a motor vehicle accident in a no-fault insurance state such as New York is paid. N.Y. Ins. Law § 5104 (McKinney); see, Hunter v. OOIDA Risk Retention Grp., Inc., 909 N.Y.S.2d 88 (2d Dept. 2010) (recognizing an insurer has no right to recover PIP payments by way of subrogation because the insured is statutorily prohibited from recovering those benefits from the alleged tortfeasor). Thus, an insurer may not always have a pair of shoes in which to step.
An exploration of the purpose, protections, and limitations afforded by no-fault laws will assist the reader’s understanding of why APIP coverage, a supplement to personal injury protection (“PIP”) coverage in no-fault states, is offered and why APIP payments, unlike PIP payments, are recoverable by way of subrogation. For the sake of brevity, the remainder of this article is limited to APIP issues subject to New York law.
New York motorists must submit “proof of financial security” (e.g., policy of insurance providing coverage in the minimum amounts of $25,000.00 per person/ $50,000.00 per accident/ $10,000 for property damage) to register a vehicle in New York. VTL, Article 6, Section 312. A policy of insurance must provide minimum “first-party benefits” for “basic economic loss” equal to $50,000.00. N.Y. Comp. Codes R. & Regs. tit. 11 § 65-1.1. First-party benefits, also referred to as PIP benefits, are statutorily defined as “payments to reimburse a person for basic economic loss on account of personal injury arising out of the use or operation of a motor vehicle.” NY Ins. Law 5102(a); see, N.Y. Comp. Codes R. & Regs. tit. 11 § 65-1.1. Although, basic economic loss payments are subject to the following reductions: twenty percent of reimbursable lost earnings; amounts recovered or recoverable through social security disability or workers’ compensation benefits, or disability benefits; the amount of any applicable deductible. Id. Basic economic loss, generally, includes all necessarily incurred medical expenses, lost earnings (up to two thousand dollars per month for not more than three years from the date of the accident), reasonable and necessary expenses incurred (up to twenty-five dollars per day for not more than one year from the date of the accident), but it does not include any loss incurred on account of death. NY Ins.
Law 5102(a). Notably, an insurer has no right to recover PIP payments by way of subrogation because the insured is statutorily prohibited from recovering those benefits from the alleged tortfeasor. N.Y. Ins. Law § 5104(a) (McKinney); see, Hunter, supra. That is, there are no shoes available into which an insurer may step.
New York’s no-fault law was designed “to remove the vast majority of claims arising from vehicular accidents from the sphere of common-law tort litigation, and to establish a quick, sure and efficient system for obtaining compensation for economic loss suffered as a result of such accidents.” Walton v. Lumbermens Mut. Cas. Co., 88 N.Y.2d 211 (NY 1996). Under the law, for an insured to obtain payment for medical, lost earnings, and other qualified expenses in excess of the monetary limits, another payment pocket must be sought which may be available through litigation if a “serious injury” was sustained or through APIP coverage if procured prior to sustaining injury.
APIP Coverage & Subrogation
APIP coverage offers a reimbursement opportunity to an insured for extended economic loss benefits in excess of no-fault first-party benefits when personal injuries are caused by an accident arising out of the use or operation of a motor vehicle, a decided benefit to insureds who sustain significant, but not “serious” injuries (which may be compensated through litigation). See, Additional Personal Injury Protection Endorsement at N.Y. Comp. Codes R. & Regs. tit. 11, § 65-1.3.
An insurance company which has paid APIP benefits for extended economic loss has a right of subrogation to recover the benefits paid to an insured from a third-party tortfeasor. See, Allstate v. Stein, 1 N.Y.3d 416 (NY 2004) and State Farm Ins. Co. v. Baltz Concrete Constr. Inc., 29 A.D.3d 777 (2d Dept. 2006). This right is traditional, based in common law, and not pursuant to a statute. See, Allstate, supra at 42 (noting that no statute refers to APIP benefits and that Insurance Regulation 11 NYCRR 65-1.3, which is the only reference of APIP benefits, “does not create a new right which did not exist at common law, but merely prescribes the form of a clause that declares [the insurer’s] pre-existing right”); see also State Farm, supra at 778 (stating that a subrogation claim for “extended economic loss” pursuant to an “additional personal injury protection” endorsement is a “traditional equitable right of subrogation”).
Procedural and Substantive Practice Insights
An APIP insurer’s right of subrogation accrues on the date of accident, not upon the payment of benefits, contrary to traditional subrogation matters. Allstate, supra at 420–21. Moreover, a three-year statute of limitations period applies. Id.
Pursuant to the Made Whole Doctrine, “an insurer has no right of subrogation against its insured when the insured’s actual loss exceeds the amount it has recovered from both the insurer and the wrongdoer.” Winkelmann v. Excelsior Ins. Co., 85 N.Y.2d 577, 581 (NY 1995). Though an insurer need not delay its subrogation pursuit against a tortfeasor of benefits paid to its insured “to avoid impairing the insured’s rights.” Id. at 583.
In the event an insured reaches a settlement with a tortfeasor (unbeknownst to the APIP insurer) where APIP benefits were conferred and the release represents that the settlement amount
is limited to pain and suffering damages only, the APIP insurer is entitled to a hearing to determine what portion of the settlement should be allocated for APIP coverage reimbursement. Aetna Cas. & Sur. Co. v. Jackowe, 96 A.D.2d 37, 45–46 (NY 1983).
When an insured is injured on account of a motor vehicle accident involving a person not covered by New York’s no-fault law (e.g., requisite insurance lapsed), an insurer “has a lien against any recovery to the extent of [first-party] benefits paid or payable by it” to its insured. N.Y. Ins. Law § 5104(b) (McKinney); see, Aetna, supra at 44.
New York has applied and adheres to the existence of the Made Whole Doctrine. Winkelmann v. Excelsior Ins. Co., 626 N.Y.S.2d 994 (NY 1995); U.S. Fid. & Guar. Co. v. Maggiore, 749 N.Y.S.2d 555 (NY 2002). An insurer has no right of subrogation against its insured when the insured’s actual loss exceeds the amount it has recovered from both the insurer and the third party. Id. Where there are multiple plaintiffs, each insurer needs only to establish that its individual insured has been made whole before subrogation is allowed. Maggiore, supra. It seems, however, that the Made Whole Doctrine is applicable only to situations in which the insured makes a recovery and the subrogated insurer is seeking reimbursement from the insured and out of that recovery. An insurer’s action based on partial subrogation through its insured will not necessarily interfere with the insured’s right to be made whole by the tortfeasor and the insurer need not delay its subrogation claim against the third party to avoid impairing the insured’s rights. Maggiore, supra.
While the doctrine of subrogation may not be widely known to legal practitioners and thoughts on the subject, if contemplated, may focus on its prevalence in property damage claims, by having journeyed the literary path of this article, the reader, hopefully, will have gained a better understanding of the concept of subrogation and its application to motor vehicle claims.
All requests to reimburse the cost of new shoes will be taken under advisement.