State Farm’s Subrogation Bid Blocked by Insured’s Prior Court Victory

A recent New York appellate decision shows how a successful legal strategy in one courtroom can derail subrogation recovery in another. State Farm sought to recover payments made to a landlord after a 2015 fire, targeting the building’s tenants. However, the landlord—State Farm’s own insured—had previously used a lease’s waiver of subrogation clause to defeat claims brought by the tenants’ insurers. When State Farm attempted to sidestep that same clause in its own subrogation case, the tenants invoked judicial estoppel, and the court agreed.

For claims professionals, especially those handling subrogation in commercial property settings, this ruling serves as a critical reminder: an insured’s legal positions bind their insurer. The doctrine of judicial estoppel barred State Farm from arguing against the very lease clause that its insured had previously relied on to win a separate case. This created a fatal inconsistency in legal posture that courts could not ignore.

The decision emphasizes three lessons for insurance professionals. First, litigation coordination between insurers and insureds is essential, especially in multi-party fire losses. Second, successful use of waiver of subrogation clauses by insureds limits the insurer’s recovery avenues. Third, once a court upholds a contractual defense, that ruling can echo throughout related claims, potentially cutting off later recovery efforts. The case is a cautionary tale about the legal traps that can arise when subrogation strategies are not aligned with earlier litigation positions.