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Insurance Law News: Equitable Subrogration in Broker Negligence Case - AMCO Ins v. All Solutions Agency

Posted By Colin G. McCarthy, Wednesday, May 11, 2016

This blog post has been cross posted from the Insurance Section Blog.


Mr. Colin G. McCarthy

Robinson & Wood, Inc. 


The issue in Amco v. All Solutions, 2016 Cal. App. Lexis 96 was whether the trial court was correct in granting summary judgment to an insurance company defendant on the grounds of the doctrine of superior equities, when sued by the assignees of a client when the assignees do not have a relationship with the insurance company.  The appellate court overturned the summary judgment on the grounds that the assignee was not a surety entitled to subrogation.


A fire in a commercial building started in an Indian restaurant adjoining one of the assignees' Japanese restaurant in Sonoma County.  The fire started because of the negligence of the owner of the Indian restaurant.  That restaurant owner sustained almost $500,000 in damages and the fire damaged the Japanese restaurant.  AMCO insured the Japanese restaurant, which it paid and then filed a subrogation action against the owner of the Indian restaurant.  Meanwhile, the owners of the Japanese restaurant sued the owners of the Indian restaurant and there was stipulated judgment of $194,000 and assigning rights against the broker.  Before the fire, the owner of the Indian restaurant received a notice of non-renewal, and he communicated with his broker regarding the notice.  What was said was disputed, with the owner claiming he told his broker to get him insurance and the broker denied it. AMCO filed suit against the broker as an assignee of rights of the owner of the Indian restaurant as well.  In granting summary judgment to the broker, the trial court stated that both had to show that their equitable right to subrogation was superior in position to that of the broker.


California allows that an agent who negligently fails to procure requested coverage will be liable to the client in tort for proximately caused damages.  California also allows assignment of claims unless they were to"rongs done to the person, the reputation, or the feelings of the injured party, and to contracts of a purely personal nature, like promises of marriage."  (Citing to Rued v. Cooper, 109 Cal. 682, 693 (1893).  The appellate court then observed that Cal. Civ. Code §§953 and 954 have removed many of the restrictions in assigning claims. Thus recently the California Supreme Court ruled that a cause of action is transferable by its owner if it arises out of a legal obligation or a violation f a property right." (Citations omitted).  The case of Troost v. Estate of DeBoer, 155 Cal. App. 3d 289 (1984) held that broker negligence claims were assignable. 


The broker argued that these assignees were barred because they had no right of subrogation directly against the broker and cited to a 1938 California Supreme Court case as support.  Further, there are five elements which an insurer must prove in an equitable subrogation case, including that the loss be shifted from the insurer to the party to be charged "whose equitable position is inferior to that of the insurer."  (Citations omitted).  That is the "rule of superior equities", the purpose of which is to prevent an insurer which has accepted  premiums for issuing the policy should not be able to shift the loss to an innocent party, even if that party between itself and the insured would be liable.  In some instances, equitable subrogation principles will bar a contractual assignee from recovering on an assignment.  The appellate court read the cases in that regard as limiting the assignment only where the assignee is a surety which is not entitled to subrogation.  The owners of the Japanese restaurant were not surety's that made payments on behalf of another. So the doctrine did not apply to them.  AMCO did once occupy the role of equitable subrogee but not as to the owner of the Indian restaurant, but with its insured the owners of the Japanese restaurant.  So it was also allowed to take assignment and pursue equitable subrogation against the owner of the Indian restaurant.  


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