Subrogating Insurer May & Must Sue in Name of Insured

Posted on February 16, 2021 by Barry Zalma

Disclosing that Insurer was Real Party in Interest Prejudiced Rights of Insurer

George Antoniadis’s house caught fire while undergoing renovations. Antoniadis’s homeowners insurance company, Amica Mutual Insurance Company (Amica), paid Antoniadis’s insurance claim and then brought this subrogation action against some of the renovation contractors, including architect Walter Basnight and Basnight’s firm (collectively, defendants), alleging that the renovation contractors were responsible for the fire. Amica originally filed the complaint in its own name but then substituted Antoniadis as the plaintiff.

In George Antoniadis v. Walter Basnight & another, No. 19-P-1437, Appeals Court of Massachusetts (February 5, 2021) the trial judge, however, fully informed the jury of the insurance context of the case and allowed matters of insurance to be introduced in evidence. Amica appealed from the judgment following a jury verdict in the defendants’ favor.

BACKGROUND

Antoniadis decided to renovate his house in Belmont and hired the defendants to provide architectural services. One of contractor Shine Star’s employees left oil-soaked rags in a bucket, which spontaneously ignited and caused the house fire

After settling Antoniadis’s insurance claim, Amica brought a subrogation action in its own name. Amica later substituted Antoniadis as the plaintiff, as permitted under Mass. R. Civ. P. 17 (a), 461 Mass. 1401 (2011). The trial judge denied Amica’s motion in limine to exclude evidence of insurance. As the judge explained, “I do not want a plaintiff on the stand with a multimillion-dollar loss and [to] allow the testimony to create the impression that he is out for that entire loss.” The judge informed the jury that because Amica paid the insurance claim, Amica “stands in the shoes of the homeowner . . . and can seek recovery from persons that they believe are responsible.” The defendants emphasized this point establishing on cross-examination of Antoniadis that he was the plaintiff and by arguing in closing that Antoniadis actually had no interest in the trial. In addition, the precise amount of money that Amica paid Antoniadis – roughly four million dollars – was admitted in evidence, as were statements Antoniadis made to Amica in the course of settling the insurance claim.

In particular, the defendants cross-examined Antoniadis on his prior negotiations with Amica, in which Antoniadis took the position that he did the work of a general contractor himself and was entitled to the typical markup paid to general contractors. The defendants also offered evidence that it was Antoniadis – not Basnight – who hired Shine Star and last saw the Shine Star employee working on the evening of May 31, 2012.

DISCUSSION

Introduction Of Insurance In Evidence

Amica argued that it was unfairly prejudiced by the many references to insurance at trial, including the judge’s instructions to the jury regarding subrogation. The defendants argued that references to insurance were necessary for the jury to understand damages. Even assuming, however, that the defendants had at least some need to reference insurance, the extent to which matters of insurance were allowed to be introduced and referenced at trial exceeded the bounds of appropriate judicial discretion.

A party’s insurance coverage is inadmissible as a general rule. The information is irrelevant, yet jurors might be led by the irrelevancy to consider plaintiffs’ claims unimportant or trivial or to refuse plaintiffs’ verdicts or reduce them, believing that otherwise there would be unjust double recovery.

This case, however, involved a different dilemma: how to avoid the prejudice associated with insurance coverage when the real party in interest is an insurance company that is seeking to recover from possible tortfeasors for money the insurance company paid to an insured. Massachusetts Rules of Civil Procedure 17 (a) (rule 17 [a]) resolves this dilemma by providing that “[a]n insurer who has paid all or part of a loss may sue in the name of the [insured] to whose rights it is subrogated.” The general rule regarding the inadmissibility of insurance is based on the premise that whether a party has insurance coverage is not itself probative of any relevant proposition.

There may be times, however, when information regarding insurance is probative of a specific issue. When that is the case, a judge should weigh the information’s probative value against its prejudicial effect.

The judge noted two specific issues on which he thought information regarding insurance was probative, neither of which withstands scrutiny. First, the judge noted that it appeared likely that the defendants would bring up statements made to Amica during the claim process and the trial judge also noted that Amica would prove damages through documentation of Amica’s payments.

As an initial matter, Amica could have proved damages through other means. Regardless, to the extent Amica chose to prove damages through documentation of its payments, the parties could have redacted that documentation to avoid references to Amica — as Amica requested. Moreover, the amount of damages was not seriously disputed. Indeed, at the final trial conference, counsel for the defendants conceded, “I don’t really have much to contest the dollar amounts.” Despite the low, if any, probative value and high prejudicial effect of the fact that Amica paid Antoniadis for his loss, the judge declined to exclude this unnecessary evidence.

In addition to allowing evidence that Amica paid Antoniadis for his loss, the judge informed the jury of this fact at the outset. The judge’s concern was antithetical to the reason why a party’s insurance coverage is inadmissible as a general rule. The judge’s instructions that Amica paid Antoniadis for his loss created the precise problem that the rules regarding the inadmissibility of insurance seek to avoid: the jury, knowing that Amica paid Antoniadis for his claim – and that Amica was the real party in interest – may have been led to consider the claims unimportant or trivial.

Regardless what the jurors may have assumed, nothing about Antoniadis’s relationship with the defendants was so unique that it warranted repeated instructions and reminders that Antoniadis was not the real party in interest. In these circumstances, where the judge’s decision was not based on a valid evidentiary need, but was instead based on a legally irrelevant concern that the jury would think Antoniadis was out for the entire loss, the appellate court concluded the judge made a clear error of judgment in weighing the factors relevant to the decision, such that the decision to broadly allow matters of insurance to be introduced in evidence and otherwise referenced at trial fell outside the range of reasonable alternatives.

The judgment entered in the defendants’ favor was reversed and remanded for a new trial.

ZALMA OPINION

Subrogation is both an equitable remedy and a contractual one where an insurance policy requires the insured to assist the insurer in proving a case against a tortfeasor who is responsible for the sums paid by the insurer to the insured as the result of an insured against peril. Amica paid Antoniadis more than $4 million and, by its contract, and state law, had a right to sue in its insured’s name to to recover the amounts paid from the tortfeasors. By making it clear to the jury that the insurer was the real party in interest totally deprived the insurer of its right to subrogation by probably causing the jury to believe that Antoniadis would receive double recovery or that he incurred no loss. The Appeals Court did justice and reversed the erroneous trial court rulings.

? 2021 – 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 https://www.zalma.com and [email protected].

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

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