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Virginia Electric & Power Co. v. Westinghouse Electric Corp.

United States Court of Appeals for the Fourth Circuit · Civil Procedure

Civil ProcedureRule 17 real party in interestRule 19 required joinderdiversity jurisdictionpartial subrogationreal party in interestindispensable partyrequired joinder

Facts

VEPCO suffered losses of about $2,200,000 when one of its generating stations failed. INA insured VEPCO subject to a $100,000 deductible and paid VEPCO $1,900,000, later paying an additional $50,000 after settlement of a separate coverage action, leaving VEPCO with an unreimbursed loss of $150,000. VEPCO and INA agreed that INA would furnish counsel and have exclusive control over this action, and VEPCO executed a subrogation agreement in INA's favor. INA was a Pennsylvania corporation, as was defendant Westinghouse, so joining INA as plaintiff would destroy diversity jurisdiction.

Issue

When an insurer has only partially subrogated the insured's loss, may the insured prosecute the action for the entire loss without joining the insurer when joinder would destroy diversity jurisdiction? Relatedly, is the partial subrogee an indispensable party under Rule 19(b) in those circumstances?

Rule

In a partial-subrogation case, both the subrogor and subrogee are real parties in interest under Rule 17. Either may sue: the subrogee to the extent of reimbursement, or the subrogor for the entire loss or its unreimbursed portion. A partial subrogee is a person to be joined if feasible under Rule 19(a), but if joinder is not feasible because it would destroy diversity, the court must apply Rule 19(b)'s equitable factors; the absent subrogee is not indispensable where nonjoinder does not prejudice the parties, any risk can be mitigated, the judgment will be adequate and binding in practical effect, and dismissal may leave no adequate alternative forum.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Lakefront Milling, an Ohio corporation, suffered $800,000 in fire damage at its Toledo facility. Its insurer, Granite Harbor Insurance, paid $500,000 under the policy, leaving Lakefront with a substantial unreimbursed loss. Lakefront then sued the allegedly negligent maintenance contractor in federal diversity court in Michigan for the entire $800,000.

The contractor moves to dismiss, arguing that because Granite Harbor paid most of the loss, only the insurer may prosecute the action. How should the court rule?

Explanation. In a partial-subrogation case, both the subrogor and subrogee are real parties in interest. The insured may sue for the entire loss, or for only its unreimbursed portion, so long as it possesses the right to enforce the claim under the applicable substantive law and retains a significant pecuniary interest in the litigation. Rule 17 is not read to require dismissal merely because the insurer paid most of the loss. (Derived from Virginia Electric & Power Co. v. Westinghouse Electric Corp. (n.d.).)