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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Happy Law Day
ZIFL – Volume 30, Issue 9 – May 1, 2026
Read the full article at https://www.linkedin.com/pulse/zalmas-insurance-fraud-letter-may-1-2026-barry-zalma-esq-cfe-2tywc, see the video at at and at https://zalma.com/blog plus more than 5300 posts.
THE SOURCE FOR THE INSURANCE FRAUD PROFESSIONAL
ZIFL – Volume 30, Issue 9 – May 1, 2026
Zalma’s Insurance Fraud Letter (ZIFL) continues its 30th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year and is written by Barry Zalma.
DOJ Creates National Fraud Enforcement Division
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On April 7, 2026, the Acting Attorney General, Todd Blanche, issued a memorandum establishing the Department of Justice National Fraud Enforcement Division (NFED). The memo describes an ambitious, but perhaps redundant, vision for this ...
When Abalone Died As a Result of Multiple Causes The Efficient Proximate Cause Requires Payment
Post number 5345
Read the full article at https://www.linkedin.com/pulse/efficient-proximate-cause-doctrine-saves-claim-barry-zalma-esq-cfe-yndlc, see the video at and at and at https://zalma.com/blog plus more than 5300 posts.
In American Abalone Farms, LLC v. Star Insurance Company et al., H052643, California Court of Appeals, Sixth District (April 27, 2026) the Court of Appeals dealt with an insurance coverage issue that required application of the efficient proximate cause doctrine.
FACTS
American Abalone Farms, LLC ("American Abalone" ) operates an aquaculture farm in Santa Cruz County, California, raising abalone in tanks. In August 2020, the CZU Lightning Complex Fires led to a prolonged power outage and road closures near the farm. As a result, the farm’s water pumps failed, causing the death of most of the ...
Breach of a Specific Condition Precedent Is a Complete Defense
See the video at and at and at https://zalma.com/blog plus more than 5300 posts.
In United Services Automobile Association and State Farm Mutual Automobile Insurance Company v. Anthony Wenzell, 2026 CO 25 (Colo. Apr. 27, 2026) Anthony Wenzell was rear-ended in a car accident. He had a significant prior 2014 accident that required back surgery.
Wenzell claimed underinsured-motorist (UIM) benefits under three policies: (1) the tortfeasor’s liability policy, (2) his own primary UIM policy with State Farm, and (3) an excess UIM policy issued by USAA (under his brother’s policy, which contained an “other insurance” clause making USAA’s coverage excess over any collectible insurance).
After receiving the claims, both USAA and State Farm repeatedly requested that Wenzell execute comprehensive medical-release authorizations so they could obtain his full medical records and ...
It is Fraud to Make the Same Claim Twice
Read the full article at https://www.linkedin.com/pulse/fraud-make-same-claim-twice-barry-zalma-esq-cfe-c4g8c and at https://zalma.com/blog.
Chutzpah: After Being Paid for a New Roof Insured Makes Second Claim For Same Damages
Post number 5347
No One is Entitled to be Paid for the Same Loss Twice
In Mohammed Ali Khalili v. State Farm Lloyds, No. 14-25-00611-CV, Court of Appeals of Texas (April 30, 2026) Khalili maintained a State Farm Lloyds homeowners insurance policy for decades. In 2008 he filed a roof-damage claim; State Farm paid him to replace the entire roof (shingles and gutters). Khalili never replaced the roof and repeated his claim.
BACKGROUND
In 2021 he filed a second roof claim. State Farm’s inspectors found the roof “very old” with extensive non-storm-related damage. The claim was denied because (1) the damage did not exceed the deductible and (2) State Farm had already paid for a full roof replacement.
PROCEDURAL HISTORY
State Farm filed motion for summary...
It is Fraud to Make the Same Claim Twice
Read the full article at https://www.linkedin.com/pulse/fraud-make-same-claim-twice-barry-zalma-esq-cfe-c4g8c and at https://zalma.com/blog.
Chutzpah: After Being Paid for a New Roof Insured Makes Second Claim For Same Damages
Post number 5347
No One is Entitled to be Paid for the Same Loss Twice
In Mohammed Ali Khalili v. State Farm Lloyds, No. 14-25-00611-CV, Court of Appeals of Texas (April 30, 2026) Khalili maintained a State Farm Lloyds homeowners insurance policy for decades. In 2008 he filed a roof-damage claim; State Farm paid him to replace the entire roof (shingles and gutters). Khalili never replaced the roof and repeated his claim.
BACKGROUND
In 2021 he filed a second roof claim. State Farm’s inspectors found the roof “very old” with extensive non-storm-related damage. The claim was denied because (1) the damage did not exceed the deductible and (2) State Farm had already paid for a full roof replacement.
PROCEDURAL HISTORY
State Farm filed motion for summary...
What Must be Done after Notice of a Claim is Received by the Insurer
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A first party property policy does not insure property: it insures a person, partnership, corporation or other entity against the risk of loss of the property. Before an insured can make a claim for indemnity under a policy of first party property insurance the insured must prove that there was damage to property the risk of loss of which was insured by the policy. The obligation imposed on the insured ...
