Subrogation Allowed Against Repair Garage?

Our insured's auto was damaged by a collision that occurred while the auto was being test driven by an employee of a repair garage; the employee was at fault for the collision. The insurer has paid for the physical damage done to the insured's auto, but now questions whether it can subrogate against the garage. This hesitancy is brought about by the general provision in the personal auto policy that states that the insurer's right to recover payment “does not apply under part D against any person using your covered auto with a reasonable belief that that person is entitled to do so.”

Now, we can accept the argument that the insurer cannot subrogate against the employee because it is reasonable to believe that he was entitled to drive the auto to check and make sure the repairs were made properly. However, it seems to us that the repair garage could be subrogated against since it is not a person and it has to bear some responsibility for the employee's actions. Furthermore, what about the “no benefit to bailee” clause in the personal auto policy? If the garage does not have to pay for the damage done to our insured's car, is that not a benefit to the garage-bailee?

We are concerned about this since the payment under our insured's physical damage coverage affects our agency's loss ratio. Your comments would be appreciated.

Ohio Subscriber

Whether the reference to any “person” in the personal auto policy's right to recover payment clause describes an individual, exclusive of an organization or a business, is not absolutely certain. A “person” can be of a natural kind or an artificial kind – that is, a human being or an entity to which the law attributes the capacity of having rights and duties, such as a corporation or a business. However, the fact that the policy uses the expression “person or organization” in some clauses would seem to express the idea that the policy does distinguish between persons (individuals) on the one hand and organizations (corporations and other businesses) on the other.

Besides that part of the right to recover payment clause that bothers the insurer refers to “any person using your covered auto.” It can be argued that the repair garage was not a person using the auto because, even if the garage is considered a legal person, it was not using the auto at the time of the accident. The employee was using the auto and he is a separate entity from the repair garage; this is simply the logical application of the separation of insured's tenet.

Finally, as you imply, the no benefit to bailee clause gives the insurer another legal leg to stand on should it try to recover payment from the repair garage. If the garage did not have to pay for the damage it is ultimately liable for, it would indeed benefit from the personal auto policy of the auto owner. That is not permitted by the personal auto policy, it is not equitable in any sense, and it flies in the face of established tort law.

Considering all of this, it is our opinion that the insurer should not hesitate to seek recovery from the garage.

 

This premium content is locked for FC&S Coverage Interpretation Subscribers

Enjoy unlimited access to the trusted solution for successful interpretation and analyses of complex insurance policies.

  • Quality content from industry experts with over 60 years insurance experience, combined
  • Customizable alerts of changes in relevant policies and trends
  • Search and navigate Q&As to find answers to your specific questions
  • Filter by article, discussion, analysis and more to find the exact information you’re looking for
  • Continually updated to bring you the latest reports, trending topics, and coverage analysis