This case reviews the denial of American Guarantee and Liability Insurance Company's motion to intervene in an action between James Dobbas and Fred Vitas and Fred Vitas Insurance Agency. The action is based on Vitas's failure to obtain excess insurance to cover an injury for which Dobbas was liable and for which American Guarantee was obligated to pay as an excess insurer. American Guarantee's claimed interest in the action is as a subrogee to Dobbas for Vitas's liability for failing to provide insurance to cover the injury.
The issue arises in the following way.
James Dobbas (Dobbas), the owner of a bull that escaped its pasture and caused a fatal automobile accident, sued his insurance agent, Fred Vitas and Vitas Insurance Agency (Vitas), because the agent either failed to procure or cancelled excess liability insurance from CalFarm Insurance Company (CalFarm) to cover the owner's ranching operations.
The claims of the injured parties were eventually paid pursuant to an excess policy issued by American Guarantee and Liability Insurance Company (American Guarantee), which listed Dobbas as a named insured. Dobbas assigned his rights against Vitas to the accident victims, and the victims assigned their interests to American Guarantee. American Guarantee, as Dobbas's assignee, sought reimbursement of the amounts paid, not from the
An insurer's right to subrogation is delimited by the application of equitable principles and not by the law of assignments. "[O]ne who asserts a right of subrogation, whether by virtue of an assignment or otherwise, must first show a right in equity to be entitled to such subrogation, or substitution...." (Meyers v. Bank of America National Trust & Savings Association (1938) 11 Cal.2d 92, 96 [77 P.2d 1084] (Meyers).) Equitable subrogation requires an insurer to establish that its equitable position is superior to the position of the party to be charged.
The trial court denied American Guarantee's request to intervene in the negligence and breach of contract action against Vitas on the ground that the insurer was not entitled to equitable subrogation because the agent had not caused the accident. We agree with the result for the following reasons.
Code of Civil Procedure section 387
For that reason we shall conclude that the trial court correctly concluded the insurer has no interest in the action against the insurance agent because the insurer cannot establish the elements of a claim for equitable subrogation.
In May 2002, James Dobbas was a rancher living in Sierra County. Prior to that time, he contracted with Vitas to procure primary and umbrella, or excess, insurance on his property, including his property in Sierra County. Through Vitas, Dobbas obtained a CalFarm primary liability policy that provided $1 million coverage for Dobbas's livestock-husbandry activities.
Dobbas was also a named insured under policies by the two other insurance companies issued to James Dobbas, Inc. (JDI), a railroad contractor with operations including railroad salvage and emergency response to train derailments. These policies included a primary coverage policy issued by Steadfast Insurance Company (Steadfast) in the amount of $1 million per occurrence, and an excess policy issued by American Guarantee in the amount of $7 million per occurrence. Both policies expressly provided that Dobbas as an individual was insured "only with respect to the conduct of a business of which [the individual] is a sole owner."
On May 27, 2002, an Angus bull belonging to Dobbas escaped from the pasture in which it had been confined. A vehicle (the Turner vehicle) collided with the bull and with another vehicle (the Mancini vehicle). Two fatalities resulted, and four other occupants were injured.
The victims filed suit against Dobbas in the United States District Court for the District of Nevada. It was discovered that Dobbas's insurance agent, Vitas, had either cancelled or failed to renew the CalFarm excess policy, so that at the time of the subject accident, the CalFarm excess policy was not in effect.
In settlement of the federal action, CalFarm agreed to pay the $1 million primary policy limit to the Mancinis and Turners. The parties agreed to binding arbitration to determine Dobbas's liability and to apportion the recovery between the Turner and Mancini plaintiffs. Dobbas assigned to the Mancinis and Turners his claims against Vitas for cancellation and nonrenewal of the CalFarm excess policy, and the Turners and Mancinis agreed never to execute on any judgment against Dobbas's personal assets. At the time of this settlement the parties were unaware of coverage from the policies issued by Steadfast and American Guarantee.
The binding arbitration resulted in a $5 million award against Dobbas, and the Nevada District Court confirmed the award and entered judgment against Dobbas. Pursuant to the agreement of the parties, the judgment was not appealable.
American Guarantee then entered into a settlement with the Mancinis and Turners for $2.8 million, and as part of the settlement the Mancinis and Turners assigned their claims (previously assigned to them by Dobbas) against Vitas to American Guarantee. The settlement occurred in April 2008.
Within one year of the accident, in May 2003, Dobbas filed this insurance broker malpractice action against Vitas, alleging professional negligence, breach of contract, and declaratory relief.
Subsequent to the settlement between American Guarantee and the Mancinis and Turners, American Guarantee, now the owner of Dobbas's claims against Vitas, filed a motion to intervene in this action, originally filed by Dobbas. The trial court denied the motion to intervene, stating merely that American Guarantee was not entitled to equitable subrogation against Vitas because its loss was not caused by Vitas's failure to maintain the CalFarm policy, but by the accident, the accident being the very risk American Guarantee assumed.
We shall conclude that the denial of mandatory intervention was proper under either standard, and denial of permissive intervention was not an abuse of discretion. We agree with the trial court that any right American Guarantee may have to intervene in the insurance broker malpractice action is conditioned upon its rights as a subrogee or assignee of Dobbas's claims against Vitas. We must therefore decide the substantive merits of American Guarantee's subrogation rights in order to resolve whether it should have been allowed to intervene in the action.
American Guarantee argues it was not required to prove whether Vitas would ultimately be liable, but only to show it had an interest in the matter in litigation. However, the trial court did not require that American Guarantee prove Vitas's negligence or breach of contract. Rather, it required American Guarantee to show that it was entitled to stand in Dobbas's shoes for the purpose of litigating the claims against Vitas.
American Guarantee claims a right to intervene in this action based upon two theories: (1) assignment of the claims against Vitas, and (2) equitable subrogation based upon its payment of money in satisfaction of claims against its insured, Dobbas. As we shall show, American Guarantee has not established its right to pursue the action under either theory.
The trial court apparently found American Guarantee's equitable subrogation claim deficient for failure to establish the first factor, stating: "American Guarantee's loss was not caused by Vitas' failure to maintain the CalFarm policy. Rather, American Guarantee's loss was caused by the vehicle versus livestock accident, which was the very risk that American Guarantee assumed."
Hodge, a case relied upon by American Guarantee, is a classic equitable subrogation case in which the insurer paid its insureds, who were homeowners, for damage caused by the negligent construction of their house. (Hodge, supra, 130 Cal.App.4th at p. 546.) The court held the insurer was equitably subrogated to the defendants and tortfeasors in the homeowners' construction defect lawsuit. (Id. at p. 550.) This case differs in that American Guarantee seeks reimbursement not from the party that caused the loss it covered, but from another party that is alleged to have been contractually bound to procure insurance for the loss.
The facts are not as straightforward as those in Hodge because the insurance company, American Guarantee, is not attempting to collect from the party responsible for the automobile accident, but from another party who agreed to procure insurance. Patent Scaffolding is closer to the facts of this case, and in fact the trial court's decision echoes the language of Patent Scaffolding, supra, 256 Cal.App.2d at page 512. In that case the insurers of a subcontractor (Patent) sued the general contractor (Simpson) when a fire destroyed the subcontractor's equipment at the jobsite. (Id. at p. 508.) Patent and Simpson had agreed that Simpson would procure fire insurance for Patent's protection, but no such insurance was ever obtained. (Ibid.) Patent collected from its own insurers, and they in turn claimed they were equitably subrogated to Patent's claim upon its contract with Simpson. (Ibid.)
Fireman's Fund Ins. Co. v. Wilshire Film Ventures, Inc. (1997) 52 Cal.App.4th 553 [60 Cal.Rptr.2d 591] (Fireman's), concluded that Patent Scaffolding was correctly decided, not because there was no causal connection between the failure to get insurance and the fire, but because the insurers' equitable position was not superior to Wilshire Film Ventures's (Wilshire).
In Fireman's, the defendant (Wilshire) leased camera equipment from Leonetti under a lease agreement that obligated Wilshire to return the equipment by a certain date or pay its full value. (Fireman's, supra, 52 Cal.App.4th at p. 555.) The equipment was stolen, and Wilshire refused to pay for the equipment. Leonetti submitted a claim to its insurer, Fireman's. After paying the claim, Fireman's sued Wilshire for equitable subrogation. The trial court found Leonetti could recover from Wilshire, and the Court of Appeal affirmed. (Ibid.)
The court noted that Patent Scaffolding's focus on a causal connection was inconsistent with the rule it articulated. (Fireman's, supra, 52 Cal.App.4th at p. 557.) The first element in an equitable subrogation claim is that the insured suffered a loss for which a third party is liable either because the third party is a wrongdoer whose act or omission caused the loss, or because the third party is legally responsible to the insured for the loss caused by the wrongdoer. (Ibid.)
Fireman's recognized that "[t]he problem with Patent Scaffolding's `causal connection' approach is that it appears to preclude recovery in any case in
In Fireman's, the court held that the equities favored the insurer because Wilshire, the lessee of the camera equipment, was obligated to return the equipment or pay for it, and not merely to provide insurance coverage. (Fireman's, supra, 52 Cal.App.4th at pp. 558-559.) For this reason the equities were with the insurer. (Id. at p. 559.) This case differs in that both Vitas and American Guarantee agreed to provide insurance to Dobbas. Vitas agreed to procure an excess policy, and American Guarantee agreed to insure Dobbas through its excess insurance policy. There are no superior equities here.
"In subrogation litigation in California, the doctrine of superior equities is critical in determining whether a right of subrogation exists." (State Farm General Ins. Co. v. Wells Fargo Bank, N.A. (2006) 143 Cal.App.4th 1098, 1108 [49 Cal.Rptr.3d 785].) The issue is addressed by the fifth element of equitable subrogation, i.e., whether justice requires that the loss be entirely shifted from the insurer to the third party. The equities do not permit recovery where the insurer and the third party promised the same thing, to provide insurance. (Fireman's, supra, 52 Cal.App.4th at p. 558.)
Fireman's analyzed the facts in Meyer Koulish and Patent Scaffolding, and concluded that its facts, like those in Meyer Koulish, permitted recovery under equitable subrogation. The court stated that the equities permitted recovery in Meyer Koulish because the consignee's contractual responsibility was primary, the consignee having promised to return or pay for the jewelry. (Fireman's, supra, 52 Cal.App.4th at p. 558.) In Patent Scaffolding, however, the general contractor had merely promised to provide insurance, which was the same obligation undertaken by the subcontractor. Fireman's concluded that in its case the insurer's position was superior to the lessee's because the lessee had obligated itself to return the equipment or pay for it, not merely to provide insurance coverage. (Id. at pp. 558-559.)
Here, as in Patent Scaffolding, justice does not require that the loss be shifted entirely from the insurer because Vitas was merely obligated to obtain insurance for the loss. A federal court determined that the American Guarantee excess policy covered the accident in question. Had Vitas not cancelled or failed to renew the excess policy with CalFarm, both policies would have been available to satisfy a judgment against Dobbas.
American Guarantee insists that it would not have been required to pay anything to the injured parties had Vitas not cancelled the CalFarm policy. For this reason, it claims superior equities, arguing that it was forced to make payment because of Vitas's negligence. This erroneous argument is based upon the apparent assumption that no one would have discovered the American Guarantee policy if the CalFarm excess policy had been in place. This factual possibility does not change American Guarantee's legal position. A federal court has decided that the American Guarantee policy provided coverage for the accident in question. Had the CalFarm excess policy been in place, American Guarantee still would have been legally responsible for its pro rata share of damages.
American Guarantee relies in part on Troost v. Estate of DeBoer (1984) 155 Cal.App.3d 289 [202 Cal.Rptr. 47] (Troost). In that case Troost, who was the
The court held that Aetna was entitled to equitable subrogation against DeBoer, in part because Aetna established the superior equity of its claim. Aetna was not contractually bound to indemnify Troost for the amount between $100,000 and $250,000, and even though DeBoer was likewise not contractually bound to do so, it was his wrong which created the potential liability. (Troost, supra, 155 Cal.App.3d at p. 297.) "`The rule in equitable phraseology is this: Where two parties are contractually bound by independent contracts to indemnify the same person for the same loss, the payment by one of them to his indemnitee does not create in him equities superior to the nonpaying indemnitor, justifying subrogation, if the latter did not cause or participate in causing the loss.'" (Ibid., quoting Patent Scaffolding, supra, 256 Cal.App.2d at p. 514.)
The First District recently decided Interstate Fire & Casualty Ins. Co. v. Cleveland Wrecking Co. (2010) 182 Cal.App.4th 23 [105 Cal.Rptr.3d 606]. That case supports our resolution even though the court held the plaintiff was entitled to equitable subrogation. It distinguished Patent Scaffolding from the case before it because (1) the defendant was alleged to have caused the loss; (2) the defendant "expressly promised to indemnify (not just to obtain insurance) in a contract related to the project from which the underlying loss occurred"; and (3) the insurer's receipt of premiums did not preclude it from being equitably superior to a party that contractually agreed to indemnify. (Id. at p. 39.) Here, Vitas did not cause the loss and did not contractually agree to indemnify, but only to obtain insurance. Therefore, American Guarantee is not in a superior equitable position to Vitas.
Through assignment, American Guarantee owned Dobbas's claims against Vitas for failure to secure excess insurance for Dobbas's ranching operations. However, the express assignment added nothing to American Guarantee's right to recover from Vitas.
Meyers involved a surety on a fidelity bond. Fidelity bonds are generally recognized as resembling traditional insurance contracts rather than surety bonds because they are considered contracts of insurance between an insurer and an employer. (State Farm General Ins. Co. v. Wells Fargo Bank, N.A., supra, 143 Cal.App.4th at p. 1107, fn. 6.) The superior equities rule set forth in Meyers is regularly applied in California in the context of insurance, such that an insurer cannot enforce its subrogation rights in the claim its insured has against the party that caused the loss, unless the insurer's equities are superior to those of the wrongdoer. (Id. at p. 1108.)
Thus, although American Guarantee held an express assignment of Dobbas's cause of action against Vitas, American Guarantee's right to recover against Vitas is limited by the principles of equitable subrogation. As we have determined American Guarantee's equitable subrogation claim is defeated by the fact that its equitable position is not superior to Vitas's, American Guarantee has no basis upon which to intervene as of right in the action. Additionally, since American Guarantee cannot recover on the basis of equitable subrogation or assignment, it cannot establish a "direct and immediate interest" in the broker malpractice litigation or in the success of either of the parties. (Hinton v. Beck (2009) 176 Cal.App.4th 1378, 1383 [98 Cal.Rptr.3d 612].) Therefore, the trial court did not abuse its discretion in denying permissive intervention.
The judgment (order) is affirmed. Costs are awarded to respondent CalFarm. (Cal. Rules of Court, rule 8.278 (a)(1), (2).)
Raye, P.J., and Nicholson, J., concurred.