Equitable subrogation is a claim that can be pursued when a party (referred to as the subrogee) pays for damages to protect its interest–perhaps to mitigate its own exposure–seeks reimbursement from another party primarily liable for the damages. There are times a party seeking reimbursement for purely economic losses is best able to pursue an equitable subrogation claim, as opposed to a common law indemnification or negligence claim.
Equitable subrogation is generally appropriate where: (1) the subrogee made the payment to protect [its] own interest, (2) the subrogee did not act as a volunteer, (3) the subrogee was not primarily liable for the debt, (4) the subrogee paid off the entire debt, and (5) subrogation would not work any injustice to the rights of a third party.
Tank Tech, Inc. v. Valley Tank Testing, L.L.C., 43 Fla.L.Weekly D868a (Fla. 2d DCA 2018) quoting Dade Cty. Sch. Bd. v. Radio Station WQBA, 731 So.2d 638, 646 (Fla. 1999).
Equitable subrogation is not dependent on a contract—it is simply an “equitable remedy for restitution to one [the subrogee] who in the performance of some duty has discharged a legal obligation which should have been met, either wholly or partially, by another.” Tank Tech, Inc., supra, quoting W. Am. Ins. Co. v. Yellow Cab Co. of Orlando, Inc., 495 So.2d 204, 206 (Fla. 5th DCA 1986).
As shown in the recent decision below, there are times an equitable subrogation claim will generate more traction for purposes of a reimbursement claim than a negligence claim or common law indemnification claim, because an equitable subrogation claim does not require the party seeking reimbursement to show a duty is owed to it by the party it is seeking reimbursement from.
The recent decision of Tank Tech, Inc. involved damage to underground petroleum storage tanks at Circle K locations. Company “A,” the subrogee, had been hired by Circle K to retrofit existing tanks by adding an interior wall inside of the tanks. Company “B” was separately hired by Circle K to test the interstitial space between the new interior wall installed by Company “A” and the existing tank wall. There was no contractual relationship between Company “A” and Company “B.”
After the tanks were retrofitted, Circle K notified Company “A” that the modified tanks were damaged and failing. Although Company’s “A” investigation revealed the failure was the result of Company’s “B’s” testing methodology, Company “A” nevertheless repaired the damage to the tanks because its contract with Circle K required it to do so regardless of whether the damage was caused by a third party, such as Company “B.”
Company “A” then sued Company “B” for reimbursement of its repair costs under various claims, one of which was equitable subrogation. Each party had expert opinions that pointed to the other for the cause of the tanks’ failure and damage. The trial court granted a motion for summary judgment in favor of Company “B” finding that equitable subrogation did not apply. This summary judgment was reversed on appeal as the Second District maintained that there were factual issues supporting the basis of the equitable subrogation claim:
Tank Tech’s [Company “A”] contract with Circle K obligated it to repair damages to the USTs [tanks]. But Tank Tech’s contractual obligation to Circle K did not convert Tank Tech into a “volunteer” to pay for damages caused by a third party and thus did not prevent the application of the equitable subrogation doctrine. Instead, Tank Tech was merely fulfilling its legal obligation to Circle K which was a necessary means of protecting itself from liability to Circle K. And Tank Tech, by virtue of Dr. Cignatta’s affidavit [expert opinion establishing Company “B” caused failure to tanks], established a genuine issue of material fact regarding whether Tank Tech or Valley Tank [Company “B”] was primarily liable for the damages. If Tank Tech is ultimately successful in proving that Valley Tank caused the damage to the USTs, then it would be entitled to seek any damages it incurred as a result of having to repair the damaged USTs. To hold that Tank Tech is precluded from pursuing a claim for subrogation would leave Tank Tech without a remedy, a “most unfair and inequitable result.”
Tank Tech, Inc., supra (internal citations omitted).
Negligence and Common Law Indemnification
Relatedly, Company “A” also sued Company “B” for negligence and common law indemnification for repairing tanks it claimed were caused by Company “B’s” testing methodology. The trial court also granted summary judgment in favor of Company “B” on these claims. Unlike the equitable subrogation claim, the Second District affirmed the summary judgment in favor of Company “B” on these claims.
For Company “A” to sustain a negligence claim, it would have to establish that Company “B” owed it a duty. Without a duty owed, there is no negligence claim. Whether there is a duty is a question of law for the court. In this case, when dealing with only economic losses, the relationship between the parties—Company “A” and Company “B”—needs to be examined to determine whether a special relationship exists to warrant creating a duty to protect the economic interests of another. “[I]n order to proceed on a common law negligence claim based solely on economic loss, there must be some sort of link between the parties or some other extraordinary circumstance that justifies recognition of such a claim.” Tank Tech, Inc., supra. Here, the Second District agreed that Company “B” did not owe Company “A” a duty to support a negligence claim:
The reason why the negligence claim fails here is because there is neither a special relationship between Valley Tank [Company “B”] and Tank Tech [Company “A”] nor any extraordinary circumstance that would require imposition of a duty. Tank Tech’s injury did not flow from Valley Tank’s testing of the USTs [tanks]. Instead, Tank Tech seeks to recover the money it spent in repairing the USTs, an expense that was the result of a negotiated contract between Tank Tech and Circle K. There was no contract between Valley Tank and Tank Tech obligating Valley Tank to repair any USTs it damaged during testing or otherwise obligating Valley Tank to repay Tank Tech for the expenses incurred pursuant to Tank Tech’s contract with Circle K. And Valley Tank’s testing did not cause any personal injury or property damage to Tank Tech, the types of injuries for which the common law of negligence has historically permitted recovery.
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This is simply a case of a party attempting to bring a tort claim to recover monies that it spent as a result of a contractual obligation to a third party. But negligence claims cannot proceed based on a party’s desire to relieve itself from a bad bargain.
Tank Tech, Inc., supra.
Likewise, regarding the common law indemnification claim, “actions for indemnity have been restricted to situations involving either a duty, an express contract, or the existence of active and passive negligence.” Tank Tech, Inc., supra, quoting Hiller Grp., Inc. v. Redwing Carriers, Inc., 779 So.2d 602, 603 (Fla. 2d DCA 2001). Since the Second District already agreed there was no special relationship between Company “A” and Company “B” and, thus, no duty owed, the common law indemnification claim failed for the same reasons as the negligence claim.
Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.