Creative Pleadings Cannot Change a Subrogation Claim Into Something Else
Subrogation is an equitable remedy allowing a person who pays to indemnify another who was injured by a negligent tortfeasor to step into the shoes of the other to seek reimbursement from the person responsible for the debt. In West Virginia, regardless of the negligence of a political entity – like a volunteer fire department or a city – no one may bring a suit in subrogation and collect from the responsible entity.
In West Virginia Counties Group Self-Insurance Risk Pool, Inc. v. Great Cacapon Volunteer Fire Department, Inc., No. 19-0103, Supreme Court Of Appeals Of West Virginia (November 4, 2020) litigation arose after a fire in 2016 destroyed the building where Respondent Great Cacapon Volunteer Fire Department, Inc., (VFD) was housed. The owner of the building, the Morgan County Commission (Commission), was reimbursed for the loss by Petitioner West Virginia Counties Group Self-Insurance Risk Pool, Inc. (WVCoRP). Seeking to recover the funds it expended, WVCoRP sued the VFD and other parties whose negligence it claims caused the fire, and in the process invoked a contractual right to subrogation.
The Circuit Court of Morgan County determined that WVCoRP’s suit against VFD was barred by West Virginia Code § 29-12A-13(c)(1986), which prohibits claims against political subdivisions made under a right of subrogation. On appeal, WVCoRP contends that § 29-12A-13(c) does not apply because (a) its claims against the VFD are something other than the subrogation prohibited under that code provision; and (b) WVCoRP is exempt by legislative rule from insurance laws of this State.
In its original complaint, WVCoRP stated that it had made payments under the insurance policy to reimburse the Commission for its loss, and that pursuant to other terms of the policy, WVCoRP had the right to subrogation for those payments. Faced with the anti-subrogation statute WVCoRP then filed an amended complaint, adding the Commission as a Plaintiff and removing the subrogee designation. The amended complaint changed the “insurance policy” language and changed it to a “coverage contract.”
VFD filed a motion to dismiss the amended complaint pursuant to West Virginia Code § 29-12A-13(c), that immunizes political subdivisions from subrogation claims. WVCoRP argued that it was not pursuing a subrogation claim, and that even if it were, WVCoRP, as a self-insurance risk pool, is exempt from “insurance laws of this State” and therefore not subject to the prohibition in West Virginia Code § 29-12A-13(c). The circuit court granted VFD’s motion to dismiss.
In this appeal, WVCoRP’s claim that VFD’s negligence caused the loss of the building owned by the Commission WVCoRP was proceeding under a right of subrogation, and subrogation claims are barred by West Virginia Code § 29-12A-13(c).
WVCoRP’s contended that it is not proceeding under a right of subrogation, the court reviewed West Virginia Code § 29-12A-13(c) that states “[a]ll actions filed against a political subdivision shall be filed in the name of the real party or parties in interest and in no event may any claim be presented or recovery be had under the right of subrogation.” It is undisputed that VFD is a political subdivision as defined by the GTCA, and it is undisputed that subrogation claims are barred against political subdivisions.
WVCoRP argued that its claim does not fit into the definition of a subrogation claim as contemplated by West Virginia Code § 29-12A-13(c) because WVCoRP is a risk pool and does not operate like an insurance company. Although the Coverage Contract provides for subrogation, WVCoRP argued that the claim is not, in fact, one for “true” subrogation.
WVCoRP argued a risk pool is not an insurance company, and the Coverage Contract is not an insurance policy. It also contends that it is not making a claim for subrogation because a payment from a self-insurance fund to cover the loss of one of the fund’s members is not a payment of the debt of another.
In its normal sense, subrogation gives the payor a right to collect what it has paid from the party who caused the damage. Further, in examining this very statute, the general term “subrogation” used in W. Va. Code § 29-12A-13(c)  implicates diverse circumstances whereby one party may acquire or exercise rights derived from another party’s rights – such as sureties, codebtors, purchasers, persons paying debts of strangers, creditors, and officers.
The plain language of West Virginia Code § 29-12A-13(c) applies to all subrogation claims, not just those arising in the insurance context. If WVCoRP’s claim is not subrogation it can’t be anything else that allows the suit.
Black’s Law Dictionary provides: “[s]ubrogation simply means substitution of one person for another; that is, one person is allowed to stand in the shoes of another and assert that person’s rights against the defendant. Factually, the case arises because, for some justifiable reason, the subrogation plaintiff has paid a debt owed by the defendant.”
To put that definition into factual perspective, the basis of WVCoRP’s claim is that risk pool funds were expended to pay for the loss of the building that should have been paid by VFD on account of VFD’s negligence. VFD owed WVCoRP no duty of care; so WVCoRP could not state a claim for negligence against VFD in its own name.
Because WVCoRP’s Coverage Contract with the Commission provides WVCoRP with a right of subrogation, WVCoRP claims it had a cause of action against VFD to recover the risk pool funds paid out to the Commission because the Commission had a cause of action against VFD. However, whatever monikers it employs to disguise its claim as anything other than subrogation to avoid application of West Virginia Code § 29-12A-13(c), WVCoRP’s cause of action is derived from the right of subrogation and can only plausibly be pursued on that theory.
Creative pleading should be, and mostly is, offensive to a court. Subrogation is an equitable remedy that has existed in British jurisprudence – adopted by U.S. courts – since before insurance as it is know today existed. WVCoRP had a contract that gave it a right of subrogation, sued under that right, changed the wording of its allegations to avoid the application of the statute by creative arguments. They could not get the argument past the Supreme Court of Appeals.
© 2020 – Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and firstname.lastname@example.org.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
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