In a recent decision from the Fifth District Court of Appeal, the court held that a negligence cause of action against an insurance broker could be assigned to a third party, including the insurer of an injured party. In AMCO Insurance Company v. All Solutions Insurance Agency, LLC, 16 C.D.O.S. 1521, two separate lawsuits were filed against Amarjit Singh (“Singh”) in connection with a fire caused by Singh’s negligence. Hideo Ogawa and Myong Echols (collectively, “Ogawa”) owned a restaurant that was damaged by the fire. David Saari (“Saari”) owned commercial property that was damaged by the fire. AMCO Insurance Company (“AMCO”) was the commercial property insurer for Saari and paid $371,326 to Saari for damages caused by the fire. AMCO then brought a subrogation action against Singh. Ogawa also brought suit against Singh for losses caused by the fire. Singh tendered the claims to his insurance company but the claims were denied because there was no policy in effect on the date of the fire as a result of the negligence of Singh’s insurance broker, All Solutions Insurance Agency, Inc. (“All Solutions”). Subsequently, Singh entered into stipulated judgments with AMCO and Ogawa and assigned his claims against All Solutions to AMCO and Ogawa.
AMCO and Ogawa as assignees of Singh filed suit against All Solutions. The trial court granted summary judgment to All Solutions holding that Singh’s claim for broker negligence against All Solutions was not assignable. In addition, the trial court held that AMCO and Ogawa’s claims were precluded by the rule of superior equities.
The Court of Appeal noted that the general rule in California favors the assignability of tort causes of action. However, there are exceptions for causes of action for wrongs done to the person, the reputation or feelings of the injured party. Other exceptions include legal malpractice based upon the highly personal and confidential relationship between an attorney and client. All Solutions argued that the same reasons for prohibiting assignment of legal malpractice claims were equally applicable to insurance malpractice claims. However, the Court of Appeal rejected this argument stating that the communications between an insurance broker and client are not privileged or confidential and because of the standardized nature of insurance policies, the product delivered by the insurance broker to the client is not highly unique or personal.
The Court of Appeal also held that AMCO and Ogawa’s claims were not barred by equitable subrogation principles or the doctrine of superior equities. Equitable subrogation refers to the transfer of rights against a third party that arises in equity and occurs only by operation of law because a party (i.e., the subrogee) has paid a loss of another (i.e., the subrogor). The most common equitable subrogation action is one brought by an insurer against a wrongdoer who caused the loss paid by the insurer. In these instances, the doctrine of superior equities has developed based on the idea that an insurer who has been compensated (by receipt of premiums) for issuing a policy should not be allowed to shift the very loss contemplated by the policy to an innocent party. An insurer pursuing a claim for equitable subrogation must demonstrate that it is not attempting to shift the loss to an innocent party. California does not recognize a difference between equitable subrogation and conventional (i.e. contractual subrogation). Accordingly, even a contractual assignment to an insurer from its insured is subject to the doctrine of superior equities. All Solutions contended that the doctrine of superior equities limited the contractual assignments because it was Singh, and not All Solutions, who caused the fire.
With regards to Ogawa, the Court of Appeal held that the doctrine of superior equities did not apply because Ogawa was not a surety (i.e., an insurer). The Court of Appeal also found that AMCO was not subject to the doctrine of superior equities because it did not have a subrogee-subrogor (i.e., insurer-insured) relationship with Singh who had caused the fire. Rather, AMCO insured Saari who had been damaged by Singh. The doctrine of superior equities would have precluded the contractual assignment to AMCO if AMCO had insured Singh. However, AMCO’s insured was Saari and AMCO pursued its equitable subrogation claim against Singh for payments AMCO made to Saari. Accordingly, the doctrine of superior equities did not apply.
Finally, the Court of Appeal held that even if the doctrine of superior equities did apply, All Solutions had not demonstrated through material facts that its equitable position was equal or superior to AMCO. The Court of Appeal criticized the separate statement of undisputed material facts that All Solutions had submitted in support of summary judgment. No facts were introduced demonstrating how the fire losses would have been allocated if All Solutions had obtained the proper insurance for Singh. As a result, the Court of Appeal was unable to determine how the unobtained coverage would have related to coverage provided by AMCO. Accordingly, All Solutions did not demonstrate that its equitable position was equal or superior to AMCO’s equitable position. The Court of Appeal reversed the trial court granting All Solutions’ motions for summary judgment.
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