Equitable Subrogation Only Available for Running Afoul of the Insurance Contract
The plaintiff in a medical malpractice case offered to settle with the doctor for $1,000,000, an amount within the policy limits. The physician’s primary professional liability insurer refused. The excess insurer advised the insured to accept the offer and paid the settlement. The excess carrier then sued for equitable subrogation against the primary insurer to recover $1 million for its refusal to accept the offer to settle within primary policy limits. The excess insurer won summary judgment below and the primary insurer appealed. A Colorado appellate court held the excess insurer was required to plead and prove that the primary insurer's refusal to accept offer was made in bad faith. The court concluded Colorado law does not recognize an independent claim for equitable subrogation by an excess insurer against a primary insurer. The right is actually derivative dependent on the obligations created by the insurance contract, thus its requirement to establish the primary carrier acted in bad faith.
Preferred Professional Insurance Company v The Doctors Co