Why did the insurance company sue the fire department for $9 million?
An unusual $9 million lawsuit filed by an insurer against a fire department in New York over a fire in its own fire station has sparked some questions in social media and among attorneys as well. The questions from social media include: why would a fire insurance company sue a fire department over a fire that occurred in the department’s fire station? What is the point of purchasing fire insurance if the insurance company can turn around and sue you for mistakes that may have contributed to the fire? Isn’t part of the reason we have fire insurance to cover us in case we screw up?
Then there are these questions raised by several attorneys with whom I shared the case: Why does the complaint allege negligence and not a breach of the insurance policy? Why would the insurer pay the claim and then sue, as opposed to simply denying the claim in the first place? Could the insurer have been concerned about a bad faith claim so they settled, and sued to recoup what they paid?
The answers to these questions lie in the details, and the details are enlightening.
In 2014, a fire at the headquarters of the Goldens Bridge Fire Department caused approximately $9 million in damages. Goldens Bridge is a volunteer fire company located in Westchester County.
The fire began in a 1998 Suburban that was parked inside the station and having mechanical problems. Firefighters apparently had worked on the vehicle and left it connected to a charging system. Firefighters also wedged open a fire door that allowed the fire to extend to the second floor of the station.
Arch Insurance Company paid $9 million on the resulting loss last February. On December 23, 2016 Arch filed suit against the Goldens Bridge Fire Department, claiming the negligence and recklessness of its members caused the fire and/or allowed the fire to spread leading to Arch having to pay $9,188,352.71. The suit was filed in US District Court for the Southern District of New York.
The NY Post quoted Goldens Bridge Fire Chief Ed Brancati as saying:
- “My understanding is that they are trying to recover the money they already paid out through a subrogation claim”
- “It’s a volunteer fire department that has an insurance policy with a dollar limit.”
- “I’m not going to say what it is, but you can’t get blood from a stone.”
That is as far and as deep as the news media went in discussing the case, leaving many readers with those lingering questions. Several Fire Law readers reached out to me with those questions, and I was intrigued.
As you may expect, some important details were missing from the headlines.
First of all, the insured under the Arch Insurance Company policy was not the Goldens Bridge Fire Department. Rather it was the Goldens Bridge Fire District. The two are separate entities, with the fire district owning the building and the fire department providing fire services. Also important to understanding the case: the fire department owned the Suburban that caught fire.
The suit was brought as subrogation action, with Arch paying the fire loss claim to the fire district, and now seeking to offset its losses by suing those who were somehow responsible for the damage. The fire department – being a separate entity – finds itself as the target.
For the next important detail we have to rely somewhat on speculation, albeit very insightful speculation from my good friend, colleague and firefighter-attorney, Raymond Pezza. Ray suggests that based upon the fact that the complaint is drafted to allege negligence, the fire department probably has its own liability insurance coverage, either through an automobile policy, or comprehensive insurance that includes liability and perhaps an umbrella policy. Ray suggests that Arch is trying to trigger liability coverage under those other policies and in turn recoup some of the $9 million in damages it sustained from the other insurers.
I think Ray has it right, but to be sure I placed a call to the attorney for Arch, Bradley LeVien, to confirm his legal strategy. Unfortunately, he was unavailable, but I will update the posting if he gets back to me.
So What Does It All Mean… does the case have any relevance to other fire departments?
If nothing else, the case serves as a reminder for all fire departments to periodically evaluate your insurance coverage to identify the potential for problems like this. Where there are multiple separate entities involved in providing fire protection, gaps in insurance coverage could leave one or more of the entities vulnerable to such a subrogation lawsuit.
In this case, the fire station was owned by the Goldens Bridge Fire District, but used by the Goldens Bridge Fire Department. Had the Goldens Bridge Fire Department been a named insured under the Goldens Bridge Fire District’s policy, or the policies properly coordinated, this suit would not have been possible.
My advice: consider this case to be a warning to fire departments that operate closely in conjunction with other entities such as fire districts, townships, counties, or municipalities. Where multiple entities exist, it would be wise to sit down with your insurance provider – armed with a copy of this case – and evaluate whether your organization might be vulnerable to such a suit.
Here are the original and amended complaints: