Insurer Loses Subrogation Case Based on Voluntary Payment Doctrine

In 2004, the Church of Greater Works, Inc. (“Church”) hired ARS Mechanical, LLC (“ARS”) to install an air conditioning system at the Church. Several holes for air ducts were made in the roof of the Church by ARS and allegedly improper (or no) flashing was used around the holes. When it rained, the Church flooded causing in excess of $150,000 in property damage. Southern Mutual insured the Church and in inspecting the property determined that the holes made by ARS were unprotected and un-flashed thereby causing the leakage.

Southern Mutual made a payment to the Church for its loss even though, later, the claims adjustor for Southern Mutual admitted in his deposition that there was no provision that covered the loss and that Southern Mutual had made a voluntary payment so that the Church could go ahead and make its repairs.

Southern Mutual obtained a subrogation agreement from the Church and filed suit against ARS seeking damages for property damage, negligence, and breach of contract. The trial court granted summary judgment to ARS based on the voluntary payment doctrine and the Court of Appeals agreed.

According to the Court, the party seeking to recover payment bares the burden of showing that the voluntary payment doctrine does not apply. The general rule is that an insurer’s voluntary payment to its insured does not give rise to a right of subrogation. No indemnity claim exists when the party seeking indemnity was not legally obligated to make payment. Because Southern Mutual admitted, through its adjustor, that this loss was not covered and that it had made a mistake in paying the claim, it had no right of subrogation against the contractor.

In bringing any subrogation claim make sure that there is no argument that the claim was excluded under the policy. In defending any subrogation claim make sure to examine the insurance policy closely to determine that the amounts being claimed were actually owed under the policy.

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About the Author

Michael Rust graduated from Emory University in 1980 and Emory University School of Law in 1983 where he was Notes and Comments editor of the Emory Law Journal (Law Review). Since that time, he has maintained an active trial practice in the state of Georgia both in State and Federal Courts. Mr. Rust teaches litigation as part of Emory University School of Law’s annual Trial Practice Program. He has received AV rating from Martindale Hubble, the highest rating afforded to lawyers by their peers.