State Farm Fire & Casualty Company has scored a win in its ongoing attempt to recoup over $217,000 paid out following a warehouse fire, after a New York appellate court ruled that a release agreement signed by the insured and another insurer didn’t automatically block State Farm’s right to sue.
The dispute arose after a fire broke out in a warehouse occupied by Moving & Storage, Inc., damaging the adjoining warehouse operated by K&B Global Corp., a State Farm insured. State Farm ultimately paid K&B $217,143.63, with the final payment made in 2021.
Before that final payment, however, K&B reached a separate settlement with Moving & Storage’s insurer, Selective Insurance Company of America. On November 16, 2020, Selective paid K&B $92,424.24 in exchange for a general release. The agreement released both Selective and Moving & Storage from “any and all claims that may be submitted by another insurance carrier on K&B’s behalf.” State Farm was not notified or asked for consent before the release was signed. State Farm also did not send a formal letter to Selective placing it on notice of its subrogation rights.
Relying on the release, Moving & Storage secured a dismissal of State Farm’s lawsuit in Bronx Supreme Court. But on May 1, 2025, the Appellate Division, First Department, unanimously reversed that decision, reinstating the complaint and allowing State Farm’s subrogation claim to proceed.
The appellate court pointed to several pieces of evidence suggesting that Selective may have had actual or constructive knowledge of State Farm’s payments and subrogation rights before the release was signed. These included a May 14, 2020 letter from State Farm to K&B naming Moving & Storage as the responsible party and referencing Selective as an involved insurer. K&B’s owner also testified that he and his daughter discussed their State Farm claim with Selective. Additionally, State Farm’s fire investigator stated that he attended a joint inspection with Selective’s inspector, who was “fully aware” of the State Farm claim.
The court cited well-established New York precedent: when a third party knows - or should know - that an insurer has paid a claim, it cannot rely on a release to extinguish that insurer’s subrogation rights without the insurer’s consent.
Although the case doesn’t turn on any specific policy terms, it highlights a foundational rule in insurance law: subrogation rights arise once a claim is paid, and they can’t be bargained away without the subrogated insurer’s involvement. The decision affirms that where knowledge exists - or should exist - about another insurer’s interest, release agreements may not offer blanket protection.
The ruling sends the case back to the lower court for further proceedings. For claims professionals and insurers managing multi-party losses, the message is clear - subrogation rights must be handled carefully, and consent from all potentially involved carriers is critical when finalizing settlements.
