I. FACTUAL BACKGROUND
On July 21, 1993, Kevin Hall and his parents, Robert Hall and Gladys Hall, were passengers in a New Jersey-registered Jeep Wrangler operated by Kieran Mazzola and owned by First Fidelity Leasing Group ("First Fidelity"). Royal Insurance Company of America ("Royal") insured the automobile and the driver through a policy issued to Kim Lewis Mazzola and Carole Mazzola, Kieran's parents. This policy, which was purchased in New Jersey, provided coverage of $ 250,000 per person and $ 500,000 in the aggregate as well as no-fault personal injury protection ("PIP") benefits. On an exit ramp of the New York State Thruway (I-87) at Ramapo, New York, the Jeep collided with a Dodge sedan driven by Marie Solimine. See Defendants' Memorandum of Law ("Defs.' Mem."), at 2. In that accident, Kevin Hall suffered serious burns. His medical expenses totaled $ 133,637.22 and were paid by Allstate Insurance Company ("Allstate") under the no-fault insurance provisions of the Personal Auto Policy issued to Robert Hall.
On August 18, 1994, Kevin Hall, Robert Hall and Gladys Hall filed a Complaint against Mazzola, First Fidelity, Royal, Solimine and others in the Superior Court of New Jersey, Law Division, Essex County. See Defs.' Mem. at 2. In September 1994, a one million dollar settlement was effected among the Halls and Mazzola, First Fidelity, and Royal. As a result of the settlement, the action was dismissed with prejudice as against these defendants. See Defs.' 3(g) Ex. D. The following month, the Halls signed a release that extended to and included all of the Halls' claims arising out of the accident. See id. Ex. E.
On July 19, 1996, Allstate instituted arbitration proceedings against Royal to recover the no-fault medical payments of $ 133,637.22 pursuant to Section 5105(b) of the New York Insurance Law.
The arbitrator (Mary Carol Bate of Arbitration Forums, Inc.) awarded Allstate $ 58,637.22 to be paid by Royal. On May 9, 1997, the Arbitration Forums' counsel (Donald L. Booth) voided the award for "lack of jurisdiction." See id. Ex. L. Plaintiffs then filed a petition to modify the award which is currently pending in the Supreme Court, King's County. See id. Ex. K.
II. APPLICABLE LEGAL STANDARD
A party is entitled to summary judgment when there is "no genuine issue of material fact" and the undisputed facts warrant judgment for the moving party as a matter of law. See Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). The moving party carries the initial burden of demonstrating the absence of any genuine issue of fact. See Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 26 L. Ed. 2d 142, 90 S. Ct. 1598 (1970). If the moving party satisfies its burden, then the burden shifts to the non-moving party to proffer evidence demonstrating that a disputed issue of material fact exists. See Weg v. Macchiarola, 995 F.2d 15, 18 (2d Cir. 1993). Finally, summary judgment is improper if "as to the issue on which summary judgment is sought, there is any evidence in the record from any source from which a reasonable inference could be drawn in favor of the nonmoving party." Chambers v. TRM Copy Centers Corp., 43 F.3d 29, 37 (2d Cir. 1994).
It is beyond cavil that a subrogee has no more rights than those possessed by the subrogor. By executing the release, the Halls waived all of their common law rights against Defendants. Thus, Plaintiff only seeks recovery under no-fault statutes.
A. Doctrine of Equitable Subrogation
"Subrogation is the right one party has against a third party following the payment, in whole or in part, of a legal obligation that ought to have been met by the third party." 2 Allan D. Windt, Insurance Claims and Disputes (1995) § 10.05. Thus the doctrine of equitable subrogation
allows an insurer that has paid benefits to its insured to "stand in the shoes" of that insured and to pursue claims the insured may have against a tortfeasor. An equitably subrogated insurer has only those rights of recovery as would its insured had no benefits been paid. See Great American Insurance Co. v. United States, 575 F.2d 1031, 1034 (2d Cir. 1978) (Subrogation "is an exclusively derivative remedy which depends upon the claim of the insured and is subject to whatever defenses the tortfeasor has insured against."). See also Gibbs v. Hawaiian Eugenia Corp., 966 F.2d 101, 106 (2d Cir. 1992).
Here, Allstate's claim against Defendants rests on its status as the equitable subrogee of the Halls' right of recovery. Thus, Allstate may recover from Defendants only to the extent that the Halls would do so. Similarly, to the extent that the Halls are barred from recovery against Defendants, Allstate's claims are also barred.
B. General Principles of No-Fault Insurance Law
Under the traditional, tort-based automobile insurance system, the injured party must establish the liability of the tortfeasor before recovering from defendant's insurer. These laws encouraged drivers to purchase liability insurance and gave "injured parties a means to collect damages." Megan K. Gajewski, Automobile Insurance Reform in New Jersey, 25 Seton Hall L. Rev. 1219, 1231 (1995). But the system was generally perceived as creating a "compensation gap." Sonja Stenger, No-Fault Personal Injury Automobile Insurance, 14 Hastings Int'l & Com. L. Rev. 505, 510-511 (1991). To recover, plaintiffs had to demonstrate liability, frequently involving great expense and time-consuming litigation.
Replacing tort-based systems (at least in part), no-fault insurance systems require all drivers to carry personal injury protection coverage which provides specified benefits directly to the injured without regard to fault. Gajewski, at 1237. Under these systems, an injured party recovers initially from his or her own insurer and has a limited right to recover from the tortfeasor.
These systems provide the benefits of fast and assured recovery with fewer litigation costs. On the other hand, the first party insurer bears the brunt of the loss because its rights to recover from tortfeasors (or tortfeasors' insurers) are strictly limited. Modified no-fault plans, such as those in New York and New Jersey, abolish the right to sue in tort except in cases of "very serious injury."
They also eliminate the right to sue for economic loss. Stenger, at 510-511 (1991). Under no-fault (or modified no-fault) equitable subrogation is very strictly restricted.
Here the parties dispute whether New York or New Jersey law applies. Defendants claim that New Jersey law should apply because the Plaintiff seeks to recover benefits paid under New Jersey law, pursuant to a New Jersey insurance policy. See Defs.' Mem. 8. Plaintiff contends that because the accident occurred in New York, the Court should apply New York law. See Plaintiff's Memorandum of Law, at 3. Because the outcome is the same under either statute, I need not decide which state law to apply.
C. New York Law
New York law permits an insurer to recover first party benefits in only two circumstances, neither of which exists here. First, New York Insurance Law § 5104(b) provides in relevant part, that:
In any action by or on behalf of a covered person, against a non-covered person, where damages for personal injuries arising out of the use or operation of a motor vehicle or a motorcycle may be recovered, an insurer which paid or is liable for first party benefits on account of such injuries has a lien against any recovery to the extent of benefits paid or payable by it to the covered person.
N.Y. Ins. Law § 5104(b) (emphasis added). This section limits recovery to actions by or on behalf of a covered person against a non-covered person. See also Fireman's Insurance Company of Newark, New Jersey v. Le Compte, 194 A.D.2d 918, 599 N.Y.S.2d 139 (3rd Dep't 1993) (insurer had no right to recover amount of benefits paid pursuant to N.Y. Ins. Law § 5104(b) because the defendant was a "covered person").
It follows that Allstate may not recover under § 5104(b) if Mazzola is a "covered person." Under New York law, a "covered person" is one who is insured by an authorized insurer at a level equal to or in excess of, that required by New York Vehicle and Traffic Law § 311(4)(a).
See Fireman's Insurance, 599 N.Y.S.2d at 140-141. The parties do not dispute that Mazzola was insured by Royal at a level above that required by § 311(4)(a). Mazzola is, therefore, a covered person, and Allstate has no right of action under § 5104(b).
Second, N. Y. Insurance Law § 5105(a) allows:
any insurer liable for the payment of first party benefits to or on behalf of a covered person and any compensation provider paying benefits in lieu of first party benefits . . . . has the right to recover the amount paid from another insurer of any other covered person to the extent that such other covered person would have been liable, but for the provisions of this article, to pay damages in an action at law.