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Subrogation
The collateral source rule does not apply to prevent a carrier from claiming a set-off against
the insured's breach of contract claim for amounts recovered by the insured from the responsible
tortfeasors.
In Plut v. Firemen's Fund Insurance Company (2000) 85 Cal.App.4th 98, 102 Cal.Rptr. 36,
the insured homeowners brought suit against their homeowners' insurer for breach of contract and bad
faith in refusing to pay a claim for water loss and theft. The jury awarded the insureds $486,876.50
for breach of contract, and $50,000.00 for bad faith. The trial court, upon the insurer's motion,
offset against the judgment $71,378.42 previously paid by the insurer to the insured, and $380,000.00
the insured had collected in suits against the legally-responsible third parties.
On appeal, the Second District held that amounts recovered from legally-responsible third parties
may be set-off, the collateral estoppel rule does not preclude a set-off on a breach of contract
claim, and the insurer's decision not to participate in the third party suit did not constitute a
waiver, or estop them from asserting their subrogation rights in the form of a set-off.
A landlord's fire insurer may be entitled to subrogation against the tenants for negligently
causing the fire.
In Fire Insurance Exchange v. Hammonds (2000) 83 Cal.App.4th 313, 99 Cal.Rptr.2d 596, the
Fourth District Court of Appeals reversed the trial court's entry of summary judgment in favor of
the tenants, and remanded the case for trial. In interpreting the language of the lease agreement,
the court distinguished this case from the decision in Parson's Manufacturing Corp. v. Superior Court
(1984) 156 Cal.App.3d 1151, 203 Cal.Rptr. 419, and other California cases which have denied the landlord's
insurer subrogation rights on the theory that tenants are "implied-in-law" co-insureds under the landlord's
fire policy.
The language of the subject lease required the demised premises to be returned in good condition,
specifically held the tenants responsible for any damage caused by the tenant, his family, his
invitees and guests, and limited the right to terminate the lease after a fire to only the landlord
if the fire damage was the result of the negligence of the tenants or their invitees.
It is not permissible for an insured and an insurer to pursue
separate actions against the same tortfeasor on the same loss.
In Allstate v. Mel Rapton, Inc. (2000) 77 Cal.App.4th 901,
92 Cal.Rptr.2d 151, the insurer brought a subrogation action
against the tortfeasor to recover what it had paid to the insured
as a result of the tortfeasor's negligence. The insurer's action
was commenced after the insured had recorded the small claims
judgment against the tortfeasor for damages not covered under
the policy. The trial court entered summary judgment for the
tortfeasor which was ultimately upheld upon appeal.
When, as often happens, the insured is only partially compensated
by the insurer for a loss (due to deductibles, policy limits,
exclusions, etc.), the operation of the subrogation doctrine
results in two or more parties having a right of action based
upon the same incident. Although each party has standing to
bring an action upon their claim, the rule against splitting
an action is violated if separate lawsuits are pursued. To avoid
violating the rule against splitting a cause of action, the
insured and the insurer should join in a single suit against
the tortfeasor (See, Ferraro v. Southern California Gas Company
(1980) 102 Cal.App.3d 33, 43, 162 Cal.Rptr. 238.)
Since the subrogation insurer arguably owes its insured a fiduciary
duty, it is always advisable to consult the insured before commencing
a lawsuit against the tortfeasor.
The insurer of a general contractor was found lacking in
standing to arbitrate a subrogation claim against a subcontractor.
In Vallev Casework, Inc. v. Comfort Construction, Inc.
(1999) 76 Cal.App.4th 1013 90 Cal.Rptr.2d 779, a subcontractor
sued to enjoin an arbitration pending on a claim by the general
contractor's insurer for equitable subrogation for the amounts
it had paid settle claims arising out of defective cabinets
installed by the subcontractor. The Appellate Court held that
the insurer, as a non-party to the contractor's arbitration
agreement with the subcontractor, lacked standing to arbitrate
its subrogation claim, and the injunction was appropriate.
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