United States District Court, E.D. Kentucky, Northern Division, Covington
REPORT AND RECOMMENDATION
CANDACE J. SMITH, UNITED STATES MAGISTRATE JUDGE
matter is before the Court on Defendants' Motion for
Leave to File Third-Party Complaint. (R. 31). Defendants seek
to join Terry and Terri Renner, Plaintiff's insureds, as
third-party defendants to this case. For the reasons set
forth below, it will be recommended that Defendants'
Motion for Leave to File Third-Party Complaint be denied.
Farmers Mutual Insurance Company of Mason County (Farmers)
filed this subrogation action to recover insurance proceeds
paid on behalf of its insureds, Terry and Terri Renner. (R.
1). On December 6, 2013, the Renners purchased and later
installed a Drolet Eco-65 Pellet Heater manufactured by
Defendant Stove Builder International, Inc. (Stove Builder)
and sold by Defendant Menard, Inc. (Menard). (R. 1, at 2). In
January 2017 a fire occurred at the Renners' home,
originating from the heater manufactured by and purchased
from the Defendants. (Id.). According to Farmers, as
a result of the fire the Renners' home was uninhabitable
for several months and, pursuant to the homeowners policy of
insurance, Farmers paid to or on behalf of the Renners $162,
589.22 for living expenses and repairs. (R. 1, at 3).
Farmers, as contractual subrogee, asserts against Defendants
state-law claims of strict liability for design defect of the
heater and failure to warn, negligence, and breach of express
and implied warranties.
move to join Terry and Terri Renner to this lawsuit as
third-party defendants. (R. 31). In the proposed Third-Party
Complaint, Defendants assert the Renners failed to follow
installation instructions provided by Stove Builder, failed
to seek the advice of a professional when installing the
heater, and further failed to properly maintain the heater in
accordance with the recommended maintenance schedule provided
by Stove Builder.
offer that their Motion is governed by Federal Civil Rule 14,
providing “that a defending party may bring a
third-party into an action when there exists ‘a
nonparty who is or may be liable to it for all or part of the
claim against it.'” (R. 33, at 1). Thus, Defendants
assert they are entitled to contribution from the Renners or
they are entitled to a jury instruction permitting the jury
to apportion fault between the Renners and the Defendants for
purposes of determining whether Farmers is entitled to
recover insurance proceeds paid by it.
opposes Defendants' proposed Third-Party Complaint,
arguing any separate claim allowing apportionment between
Defendants and the Renners in this action is impermissible
and unnecessary under the law of subrogation. (R. 32, at 3).
Farmers further asserts all interests in this matter are
represented, as any defense that would be available to the
Defendants in a direct action by the Renners would also be
available to Defendants in this present action.
diversity action, the Court applies Kentucky substantive law
and federal procedural law. Hoven v. Walgreen Co.,
751 F.3d 778, 783 (6th Cir. 2014). Under Federal Civil Rule
14, “A defending party may, as third-party plaintiff,
serve a summons and complaint on a nonparty who is or may be
liable to it for all or part of the claim against it.”
Fed.R.Civ.P. 14(a)(1). Defendants assert generally that
“[c]ourts have applied a liberal policy in determining
whether leave should be given to file a Third-Party
Complaint” and that timely motions should be freely
granted. (R. 33, at 3). This Court has previously held
“[t]he decision of whether to grant a motion for leave
to implead is a matter committed to the discretion of the
district court, and the exercise of discretion is essentially
a process of balancing the prejudices.” Botkin v.
Tokio Marine & Nichido Fire Ins. Co., Ltd, 956
F.Supp.2d 795, 801 (E.D. Ky. 2013). A third-party complaint
should be permitted under Rule 14(a) “only when the
third party plaintiff is attempting to transfer liability for
the plaintiff's claim against him.” Baker v.
Pierce, 812 F.2d 1406 (table decision), 1987 WL 36585,
at *2 n.2 (6th Cir. 1987). As explained below, such a
third-party complaint is not appropriate here, in
circumstances of a subrogation claim, where Plaintiff Farmers
stands in the shoes of the proposed third-party defendants.
motion briefing, both sides cite to Wine v. Globe
American Casualty Co. to support their arguments. In
Wine, the Kentucky Supreme Court adopted the
“made whole” doctrine to determine when the right
of subrogation comes to fruition. Under this doctrine,
“an insured must be fully compensated for injuries or
losses sustained (made whole) before the subrogation rights
of an insurance carrier arise.” Wine v. Globe
American Cas. Co., 917 S.W.2d 558, 562 (Ky. 1996).
Consequently, “[a]ll subrogation rights are derivative
and the insurer acquires the rights of its insured”
meaning the “subrogee is substituted in place of its
insured….” Id. at 566. Although the
Defendants correctly cite that a subrogee “does not
acquire greater rights” than its insured subrogor, it
does allow the subrogee “to be placed in the position
of its insured in order to pursue recovery for the payments
[it] was obligated to pay its insured.” Id. at
law provides not just that a subrogee acquires the rights of
its insured subrogor to pursue causes of action the subrogor
may have, but the subrogee is also subject to any limitations
on those causes of action. Progressive Northern Ins. Co.
v. Therm Tech. Corp., 2006 WL 1814346, at *2 (W.D. Ky.
June 29, 2006). “[T]he law of subrogation in Kentucky
dictates that ‘[t]he rights and remedies of the
subrogee . . . are never greater than those of its subrogor .
. . and, in fact, are subject to any pre-existing defenses
and limitations.'” Id. (quoting Acuity
v. Planters Bank, Inc., 362 F.Supp.2d 885, 889 (W.D. Ky.
2005) and citing Federal Deposit Ins. Co. v.
Wilhoit, 180 S.W.2d 72 (Ky. 1943)). Here, the parties
have not identified a Kentucky case on point - that is,
addressing the issue of whether a defendant can join a
plaintiff's subrogor as a third-party
defendant. Other federal district courts faced with
the question have not permitted third-party proceedings.
Continental Casualty Co. v. Equity Industrial Maple
Heights, LLC, the plaintiff insurance company filed a
subrogation action to recover insurance proceeds it paid
after its insured suffered losses from a warehouse fire.
Continental, No. 1:16-cv-453, 2017 WL 1317123, at *1
(N.D. Ohio Apr. 10, 2017). The plaintiff insurer filed an
action against the owner of the warehouse who had entered
into a lease agreement with the insured and others who were
responsible for maintaining the warehouse, alleging the
defendants failed to maintain the warehouse's fire
suppression system. Id. The defendant owner filed a
third-party complaint against the insured, alleging the
insured “was contractually responsible for
maintaining” the fire suppression system and thus
sought contribution from the insured. Id. The
insured moved to dismiss the claims. Id.
granting the insured's motion to dismiss the claims
asserted in the third-party complaint, the district court
explained that because “[s]ubrogation ‘is the
principal under which an insurer that has paid a loss under
an insurance policy is entitled to all the rights and
remedies belonging to the insured…'” in
essence “‘[a] subrogated insurer stands in the
shoes of the insured-subrogor and has no greater rights than
those of its insured-subrogor.'” Id. at *3
(quoting Corn v. Whitmere, 916 N.E.2d 838, 845 (Oh.
Ct. App. 2009)). The district court reasoned that because a
subrogee “stands in the shoes” of its insured,
“the presence of the subrogors in the case as third
party defendants, would serve no legal purpose or be of any
legal benefit to [the third party plaintiff.]”
Id. (quoting American Fire & Casualty Co. v.
Material Handling Supply, Inc., No. 06-1545, 2007 WL
1296200, at *2 (D.N.J. Apr. 27, 2007)). Defendants in
Continental were “seek[ing] to recover from
[the insured] for any tortious conduct [the insured] may have
engaged in that caused damages to [its insurer].”
Id. Accordingly, the Continental court held
“[a]n insurer, however, cannot recover damages from its
subrogated insured. Rather, [the defendants] may assert
whatever ‘contribution claim' they have against
[the insured] as an affirmative defense to [the
insurer's] claim for relief.” Id. Other
federal district courts have employed the same reasoning as
the Northern District of Ohio in determining a third-party
complaint seeking to bring in an insured in a subrogation
action is not proper. Rather, the appropriate action would be
for the defendant to assert their claim as a defense to the
insurer's subrogation claim. See National Fire Ins.
Co. of Hartford v. Daniel J. Keating Co., 35 F.R.D. 137,
140 (W.D. Pa. 1964); American Fire, 2007 WL 1296200,
at *2; USAA Cas. Ins. Co. v. Metropolitan Edison
Co., No. 1:12-cv-1178, 2013 WL 2403309, at *2-3 (M.D.
Pa. May 31, 2013).
factual circumstances surrounding the instant action mirror
those in Continental. Here, the Defendants seek
leave of court to file a third-party complaint against the
Plaintiff's insureds, asserting the Defendants are
entitled to contribution or apportionment due to the
insureds' own alleged negligence. However, Farmers has
fully compensated the Renners and contractually Farmers has
acquired the rights of the Renners to bring this action. And,
because Farmers must also stand in the shoes of the Renners
in seeking to recoup from others allegedly tortiously causing
the Renners to sustain damages, Farmers must also bear the
burden of any negligent acts or omissions of the Renners that
contributed to ...