City not entitled to subrogation before insurer

A city is not eligible for subrogation from a firefighter's third-party lawsuit, New Jersey's highest court, held Monday in a dispute between the city and its insurers.

In City of Asbury Park v. Star Insurance Co. ., The state supreme court unanimously decided that under New Jersey law, the whole doctrine does not apply to money paid in deductible or self-insured retentions.

Between February 2010 and February 2011, the city of Asbury Park had a workers 'compensation policy with Star Insurance Co., which included a $ 400,000 self-insured border protection event for workers' compensation losses against the city. Star agreed to compensate the city for labor losses that exceeded this detention.

In January 201

1, a firefighter sustained serious injuries at work and filed a labor claim. The city paid him $ 400,000 and Star paid the remaining $ 2.61 million. He later filed a lawsuit against a third party for his damages and received a $ 2.7 million settlement. The city, Star and the firefighter reached a contract agreement and decided that the city and Star would be partially replaced by $ 936,000 from third parties. Star then demanded a full $ 936,000, arguing that it was entitled to a refund before the city could recover anything. The city claimed that it had the right to become "whole" before its insurer could recover from the third party's claim, even if its only loss was a deductible or self-insured retention.

The city requested an explanatory judgment against Star, but a district court granted Star a summary judgment, which considered it to have a subrogation right to the firefighter's settlement. The city appealed and a circuit court affirmed the matter to the New Jersey Supreme Court because the New Jersey courts had never determined whether the entire doctrine was about the risk of the first dollar as deductible and self-insured retentions.

The Court held that the whole doctrine did not apply to the risk of the first dollar, such as the self-insured withholding paid by the city before Star's workers' compensation coverage began.

"A self-insured retention or deductible is a risk amount that the insured has agreed to adopt in exchange for a lower premium cost for the insurance," the court says. "… (T) prioritizing the recovery of the insured would, in fact, transform the insurance into one without a self-insured retention."