A liability insurer who was required to indemnify its insured did not have “superior equities” to, and thus could not pursue “equitable subrogation” against, the insured’s broker who allegedly was negligent in failing to procure other insurance to cover the insured. ( Dobbas v. Vitas, et al. (2011) 191 Cal.App.4th 809)
Facts
James Dobbas hired Vitas Insurance Agency to procure primary and excess liability insurance for Dobbas’ ranch operations. Vitas initially procured a $1 million primary policy and a $3 million excess policy for Dobbas through Cal-Farm Insurance Company. However, Vitas later allegedly allowed the Cal-Farm excess policy to lapse.
Dobbas owned a bull that escaped from its pasture and caused an automobile accident in which two people died and four other people were injured. The victims subsequently filed wrongful death / personal injury actions against Dobbas. When Dobbas discovered that his insurance broker, Vitas, had previously allowed Dobbas’ Cal-Farm excess policy to lapse, Dobbas filed a broker malpractice action against Vitas.
Eventually the victims settled their wrongful death / personal injury lawsuits against Dobbas. Pursuant to the terms of the settlement, Cal-Farm paid its $1 million primary policy limit on behalf of Dobbas to the victims; Dobbas assigned his broker malpractice claim against Vitas to the victims; and the victims agreed to arbitrate their wrongful death / personal injury claims against Dobbas and not to enforce any judgment against Dobbas’ personal assets. In the ensuing arbitration proceeding, the victims obtained a $5 million judgment against Dobbas.
Later, it was discovered that Dobbas had a separate $7 million excess policy through American Guarantee and Liability Insurance Company which covered Dobbas’ liability to the victims. American Guarantee ultimately paid $2.8 million to settle the victims’ claims. As part of the settlement, American Guarantee received from the victims an assignment of Dobbas’ broker malpractice claim against Vitas.
American Guarantee then moved to intervene in the broker malpractice action against Vitas on a theory of “equitable subrogation.” The trial court denied American Guarantee’s motion to intervene, finding that American Guarantee was not entitled to subrogate against Vitas. American Guarantee appealed.
Holding
The Court of Appeal affirmed the trial court’s ruling that American Guarantee was not entitled to intervene in the malpractice action against Dobbas’ broker, Vitas. The appellate court focused on principles of “equitable subrogation,” emphasizing that in a subrogation action the insurer must establish that it has “superior equities” to the party against whom the action is brought. According to the appellate court, American Guarantee did not have superior equities to Vitas because American Guarantee and Vitas had both “agreed to provide insurance to Dobbas” (i.e., American Guarantee “agreed to insure” Dobbas and Vitas “agreed to procure” insurance for Dobbas). Since American Guarantee did not have a superior equitable position to Vitas, American Guarantee had no right to reimbursement from Vitas and thus had no right to pursue a subrogation claim against Vitas.
Comment
The appellate court’s treatment of the doctrine of equitable subrogation was somewhat convoluted and unsatisfactory. It seems that the appellate court could simply have focused on the fact that American Guarantee “stood in the shoes” of Dobbas for purposes of the broker malpractice claim against Vitas, and Dobbas himself could not show any “injury” resulting from Vitas’ alleged malpractice in allowing the Cal-Farm excess policy to expire. In other words, even though Dobbas did not have coverage under the lapsed Cal-Farm excess policy, Dobbas nevertheless did have coverage under the belatedly discovered American Guarantee excess policy, which means that Dobbas himself was not “damaged” as a result of Vitas’ alleged negligence in failing to keep the Cal-Farm excess policy in place. As such, neither Dobbas nor his assignee, American Guarantee, had any viable malpractice claim against Vitas.