Case Briefs

In McKinley v. XL Specialty Insurance Co., 2005 Cal. App. LEXIS 1299 (Cal. App. July 21, 2005), an insurance carrier brought a subrogation action against a student pilot for damage suffered to a plane during a landing. The carrier insured the owner of the plane, providing physical damage coverage for the plane itself, as well as liability coverage for claims brought by third parties. The carrier also covered student pilots with respect to claims asserted against them by third parties. After paying the owner of the plane for the damage to the plane, the carrier filed an action in the owner's name against the student pilot. The student pilot ultimately was found not liable for damage to the plane. She then filed a bad faith action against the carrier, contending that it should have defended and indemnified her regarding the claim for damage to the plane, rather than sued her in subrogation for that damage. The court reaffirmed the general principle that a carrier may not pursue subrogation against its insured, stating:

An insurer has no right of subrogation against its own insured with respect to a loss or liability for which the insured is covered under the policy. Thus, it follows that “[i]f the policy does not cover the insured for a particular loss or liability … it would neither undermine the insured's coverage nor be inequitable to impose the loss or liability on the insured if the insured caused or was otherwise responsible for the loss or liability.

The court noted that the student pilot was not insured under the policy for damage to the plane itself. Therefore, the court concluded that the carrier was not barred from pursuing its subrogation claim against the student pilot. It stated that, “In the end, an insurer who has paid a claim for damage to rented equipment cannot be said to have acted in bad faith in seeking subrogation from a renter reasonably believed to have caused that damage.”