Subrogation Limited to What Was Paid by Insurer to Insured

Post number 5270

Posted on January 23, 2026 by Barry Zalma

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In Erie Insurance Exchange A/S/O Bates Collision, Inc. James Myers, Anita Morgan, Lossie Auto Service, And Benedictine Sisters Of Erie, Inc. v. United Services Automobile Association v. Bates Collision, Inc., No. 19 WAP 2024, No. J-23-2025, Supreme Court of Pennsylvania (January 21, 2026) Erie attempted to obtain coverage for spoiliation of evidence against the property insurer.

FACTUAL BACKGROUND

On January 22, 2017, a fire broke out at Bates Collision, Inc., resulting in substantial damage to both the facility and several vehicles stored inside. Erie Insurance Exchange, as insurer for Bates and the affected vehicles, paid more than $1.6 million to its insureds under its insurance policy, which allowed Erie to pursue reimbursement for its payments.

Erie, acting as subrogee for Bates and the other insured parties, filed suit against United Services Automobile Association (USAA), asserting that USAA failed to preserve a vehicle Erie believed was crucial evidence and possibly the cause of the fire. According to the Complaint, Erie’s investigators determined that the fire originated from and was caused by a BMW.

The Complaint alleged that USAA failed to preserve the vehicle, a BMW, responsible for the fire, and as a result, Plaintiff cannot pursue its claim against the manufacturer or the owner of the vehicle or anyone involved in maintaining the vehicle as it was unable to perform an invasive laboratory examination, testing and/or other investigation necessary to precisely identify the components inside the BMW which caused the fire.

LEGAL ANALYSIS

Erie’s claim was framed as one for “promissory estoppel,” but the Supreme Court questioned whether this was, in essence, a claim for spoliation of evidence — a cause of action not recognized under Pennsylvania law.

The central legal issue was whether, as subrogee of its insureds, Erie had any right of recovery against USAA for its alleged failure to preserve evidence. The Court examined the insurance policy’s subrogation clause and Pennsylvania law regarding both subrogation and spoliation of evidence.

Erie pled that it insured Bates and several cars in the shop, and that it paid out approximately 1.6 million dollars in claims. Based on payments made to insureds under the relevant insurance policy provisions and Pennsylvania law.

The Supreme Court determined that Erie, in its capacity as subrogee, did not possess a right of recovery against USAA for the alleged failure to preserve the vehicle. The Court noted that the underlying claim for promissory estoppel was tantamount to a spoliation claim, which Pennsylvania courts do not recognize as an independent cause of action.

As a result the trial court’s decision in favor of USAA was reinstated holding that Erie could not recover under the circumstances presented since USAA was not responsible for the fire. Since Erie’s suit is brought solely as the subrogee of its insureds and an insurance company’s rights as subrogee do not rise above those of its insureds.

Pursuant to the basic premise a subrogee may only recover for the loss it paid and against the party liable for the loss. Here, the loss that Erie paid out was for the fire loss damage sustained by its insureds. Thus, under subrogation principles, Erie could seek to recoup that payout from the party responsible for the fire loss. USAA did not cause the property damage for which Erie paid its insureds nor could its insured seek damages against its insurer.

ZALMA OPINION

Spoiliation of Evidence, as a tort is available in many courts across the USA but not in the state of Pennsylvania. Although Erie believed the BMW caused the fire, it could not prove the fact because USAA, insuring the auto’s in its insured’s care, allowed it to be disposed of without analysis, deprived itself and USAA of the ability to subrogate against BMW. Both insurers failed to protect the evidence and neither had a suit against BMW nor could Erie succeed against USAA for spoiliation.

(c) 2026 Barry Zalma & ClaimSchool, Inc.

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