Subrogation vs Contribution–Does it Matter?

Practitioners and judges frequently use the terms subrogation and contribution interchangeably. This is legally incorrect and, as one insurance company recently learned, the distinction between the two concepts can be fatal.

In American States Insurance Company v. National Fire Insurance Company of Hartford 2012 DJDAR 197, an insurance carrier attempted to subrogate against another carrier to recover defense and indemnity costs incurred on behalf of the same insureds. The trial court determined that the action was barred by the two year statute of limitations for equitable contribution. The carrier then attempted an "end run" by amending its complaint to assert a cause of action for equitable subrogation. The Court of Appeal held that the sustaining of a demurrer to the amended complaint on the grounds that the underlying case was one for equitable contribution and, therefore, was time-barred.

The Court of Appeal distinguished equitable contribution from equitable subrogation. It held that equitable contribution is the right to recover not from the party primarily liable for the loss, but rather from a co-obligor who shares liability with the party seeking contribution. Conversely, equitable subrogation is a purely derivative cause of action and may only be asserted against the wrongdoer who caused the loss incurred by the insured.

The moral of the story-it is essential to properly identify whether a case is for equitable contribution or equitable subrogation. The statute of limitations differs for the two causes of action and may time-bar an otherwise properly pled claim!
 

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