St. Paul Fire & Marine Ins. Co. v. Nat'L Union Fire Ins. Co. Of Pittsburgh, PaSt. Paul Fire & Marine Ins. Co. v. Nat'L Union Fire Ins. Co. Of Pittsburgh, Pa
This is an appeal from two district court orders granting summary judgment, certified as final under
Respondent Roof Deck Entertainment, L.L.C., which does business as Marquee Nightclub (collectively, Marquee), operates and manages Marquee Nightclub for a subsidiary of nonparty The Cosmopolitan Hotel & Casino (Cosmopolitan) pursuant to a management agreement.1 In 2014, a patron of Marquee sued Cosmopolitan and Marquee for negligent and intentional torts, seeking compensatory and punitive damages, after security members employed by Marquee injured the patron when attempting to oust him from the club. Marquee and Cosmopolitan tendered the action to Aspen Specialty Insurance Company (Aspen),2 a primary insurer, and respondent National Union Fire Insurance Company of
Following the settlement, St. Paul brought this lawsuit and asserted equitable and contractual subrogation claims on behalf of Cosmopolitan against National Union for breach of the implied covenant of good faith and fair dealing and breach of the insurance contract, as well as a direct claim against National Union for equitable contribution, over National Union‘s resolution of the patron‘s lawsuit. St. Paul also brought statutory subrogation claims on behalf of Cosmopolitan against Marquee for statutory contribution and contractual indemnification based on the management agreement between Marquee and Cosmopolitan‘s subsidiary. After National Union and Marquee separately moved for summary judgment on all claims, the district court granted summary judgment based on, among other reasons, its conclusion that Cosmopolitan did not suffer
We review de novo a district court‘s grant of summary judgment. Wood v. Safeway, Inc., 121 Nev. 724, 729, 121 P.3d 1026, 1029 (2005). “Summary judgment is appropriate under
St. Paul‘s equitable and contractual subrogation claims against National Union are not cognizable because Cosmopolitan suffered no damages
St. Paul asks us to recognize equitable and contractual subrogation between equal-level excess insurers.3 Subrogation applies when one party, the subrogee, involuntarily pays the obligation or loss of another, the subrogor, for which a third party, wrongdoer, or otherwise is eventually found to bear responsibility. See AT & T Techs., Inc. v. Reid, 109 Nev. 592, 595-96, 855 P.2d 533, 535 (1993). Equitable and contractual subrogation “exist[] independently of each other, insofar as equitable subrogation derives from equity and contractual subrogation arises out of an agreement. See id. at 596, 855 P.2d at 535. However, in either situation, the subrogee acquires no greater rights than the subrogor. See Houston v. Bank of Am. Fed. Sav. Bank, 119 Nev. 485, 488, 78 P.3d 71, 73 (2003) (describing how, in the context of mortgages, subrogation permits a subrogee to “assume the same . . . position” as the subrogor (internal
We do not need to reach the scope of equitable or contractual subrogation here because Cosmopolitan lacks an underlying claim to subrogate. See Bierman v. Hunter, 988 A.2d 530, 543 (2010) (explaining that the subrogee‘s right to recover a payment via subrogation requires an actionable underlying claim to assert). The implied covenant of good faith and fair dealing in every insurance contract imposes on the insurer the duty to defend and the duty to indemnify every insured. Allstate Ins. Co. v. Miller, 125 Nev. 300, 309, 212 P.3d 318, 324 (2009). An insurer‘s breach of these duties gives rise to tort and contract liability. Id. at 308, 212 P.3d at 324; Century Sur. Co. v. Andrew, 134 Nev. 819, 821, 432 P.3d 180, 183 (2018). While the insurer has a “right to control settlement discussions and . . . litigation against the insured, the duty to defend includes the duty to act reasonably “during negotiations.” Miller, 125 Nev. at 309, 212 P.3d at 324-25. This “duty to settle” requires the insurer to protect the insured from “unreasonable exposure to a judgment in excess of the” insured‘s liability coverage limit to the extent an opportunity to settle arises. Restatement of Liability Insurance § 24 cmt. b (Am. Law Inst. 2019). Breach
St. Paul‘s equitable contribution claim against National Union is not cognizable because each insurer exhausted their policy limits
St. Paul asks this court to recognize an equitable contribution claim between equal-level insurers. Contribution allows one party “to extinguish joint liabilities through payment to the injured party, and then seek partial reimbursement” from a co-obligor “for sums paid in excess of” the party‘s “equitable share of the common liability.” Doctors Co. v. Vincent, 120 Nev. 644, 650-51, 98 P.3d 681, 686 (2004). Equitable contribution, as opposed to statutory or contractual contribution, applies anytime two or more parties “hav[e] a common obligation, either in contract or tort,” regardless of whether parties “signed separate” agreements. 18 Am. Jur. 2d Contribution § 6.
The subrogation waiver in the management agreement between Marquee and Cosmopolitan‘s subsidiary binds Cosmopolitan and prevents St. Paul‘s contractual subrogation claim against Marquee
St. Paul argues that a subrogation waiver in a management agreement between Marquee and Cosmopolitan‘s subsidiary does not
Here, while Cosmopolitan is not a party to the management agreement between Cosmopolitan‘s subsidiary and Marquee, Cosmopolitan is a third-party beneficiary. Even though Cosmopolitan signed the agreement and agreed to 20 specified provisions, a party only becomes bound as a party to a contract if it agrees with the other party to the essential terms and exchanges consideration. See Certified Fire Prot. Inc. v. Precision Constr., Inc., 128 Nev. 371, 378, 283 P.3d 250, 255 (2012) (explaining that the “meeting of the minds exists when the parties have agreed upon the contract‘s essential terms“). National Union does not identify any essential terms of the management agreement to which Cosmopolitan agreed. However, the indemnification provision in the management agreement, which St. Paul seeks to subrogate on behalf of
While a third-party beneficiary enjoys “the same rights and remedies . . . as a promisee of the contract,” 9 John E. Murray, Jr., Corbin on Contracts § 46.1 (2022), it also takes those rights and remedies “subject to any defense arising from the contract . . . assertible against the promisee,” Gibbs v. Giles, 96 Nev. 243, 246-47, 607 P.2d 118, 120 (1980). This means that an intended third-party beneficiary‘s rights remain limited by any conditions or burdens imposed in the contract. See, e.g., Mercury Cas. Co. v. Maloney, 6 Cal. Rptr. 3d 647, 649 (Ct. App. 2003) (stating that a “third party beneficiary takes the benefits subject to the conditions and limitations set forth in the contract“); Mendez v. Hampton Court Nursing Ctr., L.L.C., 203 So. 3d 146, 149 (Fla. 2016) (stating the court “will ordinarily enforce an arbitration clause” against a third-party beneficiary); Sanders v. Am. Cas. Co. of Reading, 74 Cal. Rptr. 634, 637 (Ct. App. 1969) (applying one-year statute of limitations in contract to bar claim by third-party beneficiary to enforce contract and explaining that “the third-party [beneficiary] cannot select the parts favorable to him and reject those unfavorable to him“). Here, Cosmopolitan obtains no greater right to indemnification than its subsidiary and bears the same contractual burdens of its subsidiary. These provisions in the management agreement
The indemnification provision in the management agreement precludes alternative remedies by Cosmopolitan
St. Paul argues, alternatively, that it may assert, via subrogation, a claim for contribution pursuant to
Accordingly, we
ORDER the judgment of the district court AFFIRMED.4
Parraguirre, C.J.
Hardesty, J.
Pickering, J.
Herndon, J.
This case raises a question of first impression regarding the circumstances under which an insurer may subrogate its insured‘s bad-faith and breach-of-contract claims against another insurer. Rather than address this question, the majority, in my view, misapplies basic precepts of subrogation to dismiss St. Paul‘s equitable and contractual subrogation claims against respondent National Union. The majority holds that exhaustion of the policy limits by the four involved insurers avoided any damages to St. Paul‘s insured, and therefore, precluded subrogation by St. Paul. In so holding, the majority misconstrues the nature of St. Paul‘s payment on behalf of its insured. Because the payment reflects the insured‘s damages and subrogates St. Paul to its insured‘s claims against National Union, I cannot agree with the majority‘s decision today. I therefore dissent in part.5
As the majority correctly outlines, subrogation only creates derivative rights: it permits the paying party, or subrogee, to step into the shoes of the injured party, or subrogor, and pursue recovery from the responsible third-party wrongdoer to the extent that the subrogor possesses a cognizable claim against that third party. See Chubb Custom Ins. Co. v. Space Sys./Loral, Inc., 710 F.3d 946, 957 (9th Cir. 2013). Thus, the subrogee‘s recovery under subrogation principles requires that the subrogor‘s loss remains independently recoverable from the third party whose actions caused the loss, as if the subrogee had never stepped in to
In applying these principles, I believe the majority misconstrues applicable law. The majority concludes that St. Paul lacks a cognizable claim to which to subrogate because the insurers, including St. Paul, collectively exhausted their policy limits towards a settlement of Cosmopolitan‘s liability post-verdict, but pre-judgment. The majority reasons that, consequently, the insurers’ settlement avoided any out-of-pocket expenses or damages to Cosmopolitan. It is true that, in the literal sense, Cosmopolitan never suffered damages because of St. Paul‘s settlement contribution (and by extension, the fortuity that Cosmopolitan obtained more than one applicable policy). However, such reasoning fails to recognize that subrogation substitutes the parties as if the subrogee had never assumed the subrogor‘s loss. See Arguello v. Sunset Station, Inc., 127 Nev. 365, 368-69, 252 P.3d 206, 208 (2011) (discussing that full payment subrogates the insurer to the insured‘s claims against the third-party wrongdoer that arose before the payment occurred); Wimer v. Pa. Emps. Benefit Tr. Fund, 939 A.2d 843, 853 (Pa. 2007) (agreeing that because “a subrogee must first tender payment . . . before a right to subrogation
The only reason [the insured] had no out-of-pocket expense was because its insurer, now seeking subrogation, made the payment. Under [the] view [that the insurer‘s payment obviated damages], no insurer could ever state a cause of action for subrogation in order to recover amounts it paid on behalf of its insured, because of the very fact that it had paid amounts on behalf of its insured. Not only is this illogical, [but also] it contradicts decades of cases consistently holding that an insurer may be equitably subrogated to its insured‘s indemnification claims.
Interstate Fire & Cas. Ins. Co. v. Cleveland Wrecking Co., 105 Cal. Rptr. 3d 606, 615 (Ct. App. 2010) (emphasis omitted).
Under this subrogation principle, Cosmopolitan, the subrogor, would have unquestionably been subject to liability for the remaining amount of the settlement if St. Paul, the subrogee, had not paid its contribution towards the settlement in accordance with Cosmopolitan‘s insurance policy. And assuming the truth of St. Paul‘s allegations, as we must at the motion-to-dismiss stage, see Buzz Stew, LLC v. City of North Las Vegas, 124 Nev. 224, 228, 181 P.3d 670, 672 (2008) (treating factual allegations in a complaint “as true” and drawing inferences in the plaintiff‘s favor on a motion to dismiss for failure to state a claim for relief), National Union, the third party, caused the settlement to exceed its policy limits by its breach of the contract- and tort-based duty to settle, see Hamada v. Far E. Nat‘l Bank, 291 F.3d 645, 649 (9th Cir. 2002) (explaining that the derivative claim lays against the third-party wrongdoer who caused the subrogor‘s loss). According to the complaint, National Union took control of the litigation against Cosmopolitan and rejected several offers to settle liability below or at its policy limits, despite its own retained counsel‘s assessment of the damages at over 10 times the amount of National Union‘s policy limits. Only after the jury rendered an excess verdict six times the policy limits did National Union finally orchestrate a settlement of Cosmopolitan‘s liability in excess of its policy limits. Accepting these allegations as true, had Cosmopolitan, rather than St. Paul, paid the remaining portion of the settlement, Cosmopolitan could have independently sued National Union to recover those damages under breach-of-contract and bad-faith theories.6 See Century Sur. Co. v. Andrew, 134 Nev. 819, 821, 432 P.3d 180, 183 (2018) (recognizing contract liability for breach of the duty to defend); Allstate Ins. Co. v. Miller, 125 Nev. 300, 309, 212 P.3d 318, 324 (2009) (recognizing insurer‘s duty to act reasonably during settlement negotiations as derived from insurer‘s duty to defend). Ultimately, St. Paul covered Cosmopolitan‘s exposure that exceeded National Union‘s policy limits. But the very fact of St. Paul‘s payment does
Because I believe a subrogatable loss exists, I would go one step further and address whether to recognize subrogation between equal-level insurers under the circumstances presented. While we have not previously recognized subrogation in this context, we have consistently “balance[d] the equities based on the facts and circumstances of each particular case” and applied subrogation to the extent necessary to “grant an equitable result between the parties.” Am. Sterling Bank v. Johnny Mgmt. LV, Inc., 126 Nev. 423, 428, 245 P.3d 535, 538 (2010) (internal quotation marks omitted). Moreover, many courts recognize equitable subrogation of the insured‘s bad-faith and breach-of-contract claims between insurers, albeit between primary and excess insurers. See, e.g., Hartford Acc. & Indem. Co. v. Aetna Cas. & Sur. Co., 792 P.2d 749, 754 (Ariz. 1990) (permitting excess insurer to subrogate to rights of insured against primary insurer for primary insurer‘s bad-faith “failure to settle within policy limits“); Com. Union Assurance Cos. v. Safeway Stores, Inc., 610 P.2d 1038, 1041 (Cal. 1980) (same); Preferred Prof‘l Ins. Co. v. Doctors Co., 419 P.3d 1020, 1028 (Colo. App. 2018) (same); Home Ins. Co. v. N. River Ins. Co., 385 S.E.2d 736, 740 (Ga. Ct. App. 1989) (same); Com. Union Ins. Co. v. Med. Protective Co., 393 N.W.2d 479, 483 (Mich. 1986) (same); Cont‘l Cas. Co. v. Reserve Ins. Co., 238 N.W.2d 862, 864 (Minn. 1976) (same); Me. Bonding & Cas. Co. v. Centennial Ins. Co., 693 P.2d 1296, 1300 (Or. 1985) (same). While none of these decisions, nor any of the decisions relied on by the parties, addressed subrogation of an insured‘s bad-faith and breach-of-contract claims by one excess insurer against another equal-level excess insurer, our case law
The majority, however, sidesteps the issue of subrogation between two excess insurers and instead concludes that Cosmopolitan suffered no damages based on the settlement payment by the insurers that resolved its personal liability. I cannot agree that Cosmopolitan suffered no damages by virtue of the insurers’ exhaustion of their policy limits, as such a conclusion misapplies a fundamental presupposition of subrogation that the subrogee insurer‘s payment reflects the subrogor insured‘s loss. I therefore dissent in part.
Cadish, J.
I concur:
Stiglich, J.
Lansford W. Levitt, Settlement Judge
Hutchison & Steffen, LLC/Reno
Hutchison & Steffen, LLC/Las Vegas
Lewis Roca Rothgerber Christie LLP/Las Vegas
Herold & Sager/Las Vegas
Keller/Anderle LLP/Irvine
Eighth District Court Clerk