This is an article relating to the use of the Doctrine of Equitable Subrogation in construction cases, involving an insurance carrier written by Frank T. Luciano, Esq., whose office is located in Bergen County. Mr. Luciano has represented contractors, sub-contractors, material suppliers and land owners involved in construction disputes for over thirty years. He works in Bergen , Passaic, Hudson, Morris and Essex Counties.

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CONSTRUCTION LAW IN BERGEN AND PASSAIC COUNTIES: THE DOCTRINE OF EQUITABLE SUBROGATION

Last summer, after three days of trial, we settled a construction case against six defendants, including a litigant who may be one of the largest contractors in the state, where our client’s claim exceeded $850,000.

The case related to a massive construction project sponsored by the New Jersey Department of Transportation that required the pile driving of thick steel sheets into the earth at a depth of over twenty five feet. At times, the pile driving operation was as close as five (5) feet from the client’s building. Suffice it to say, our client’s building sustained serious damages during this effort. Despite this recipe for disaster, no one wanted to pay, not even the client’s insurance carrier who issued a policy covering this type of loss.

We filed a lawsuit against everyone and after about six months of litigation, the insurance carrier finally recognized its liability and settled with the client. The settlement terms authorized the client and the insurance carrier to continue to prosecute the case against the construction defendants in order to allow the insurer the opportunity to recover the money paid to the client under a subrogation claim and the client the opportunity to recover the difference between the amount paid by the insurer and the actual loss. More importantly, the settlement with the insurance carrier reserved the client’s right to recover part of the client’s cost of litigation from the insurance carrier.

In this country, absent a court rule, a statute or a special contract term, each litigant has to assume his/her own litigation costs. This principle of law is so well-settled in this county that it is commonly referred to as the “American Rule.” When the case was resolved, we filed an application with the court to obtain a recovery of attorney fees and costs from the insurer. Suffice it to say, the insurer relied on the American Rule to resist the client’s request for the payment of some of its litigation costs.

Fortunately, the insurer overlooked one other exceptions to the American Rule that is referred to as the doctrine of equitable subrogation. The law on this issue is relatively easy to define. Specifically, a right of subrogation carriers with it the requirement of paying pro rata share of litigation expenses incurred by the subrogor (i.e. our client). This rule is based on the equitable principle that requires an insurer to pay a fair share of the insured’s litigation cost where the insurer obtains a benefit from the insured’s effort and expense. In this case, the insurer literally sat at the back of the wagon and idly watched our client spend almost $100,000 in litigation costs to develop a case that allowed the insurer to recover $400,000 on its subrogation claim.

Unfortunately, we were not successful at the trial level in preserving the client’s fee shifting opportunity. An appeal was taken from the trial court’s ruling. Recently, the Appellate Division reversed that decision, endorsed our position on the doctrine of equitable subrogation and remanded the case to the trial court to conduct a hearing to determine the liability of the insurer for our client’s litigation expense.






Frank T. Luciano, Esq., is a trial lawyer in Bergen County,  Passaic County, Hudson County and Morris County, with over thirty years of experience, who specializes in complex civil litigation, including  legal malpractice, construction claims, wrongful death actions, wills and estate contests and liquor law liability cases. 

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Frank T. Luciano, PC
147 Main Street, Suite 5
Lodi, NJ 07644
Phone: (973) 471-0004
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