Amco Insurance Company v. All Solutions Insurance Agency

(A Claim Against a Broker For Failure To Secure Insurance Assigned By Client to Third Party And Its Insurer Is Valid And The Doctrine Of Equitable Subrogation Did Not Bar such Claim)

In Amco Ins. Co. v. All Solutions Ins. Agency, LLC, 244 Cal.App.4th 883 (February 8, 2016), the California Fifth District Court of Appeal reversed the trial court’s entry of summary judgment in favor of a broker which had allegedly failed to procure insurance on behalf of its client prior to a fire loss which damaged adjoining properties. The owner of the adjoining properties (“Restauranteurs”) and their first party insurer, Amco Insurance Company (“Amco”), filed a lawsuit against the broker’s client, Amarjit Singh (“Singh”) in connection with the fire loss. The parties’ dispute arose out of a 2009 fire which started in an electrical panel box and was caused by Singh’s negligence. Singh suffered $491,088.44 in property damage. In addition, the fire damaged the neighboring properties owned by the Restauranteurs. Singh tendered his first party claim and plaintiffs’ third party claims to his insurance company, but the claims were denied because there was no policy in effect on the date of the fire.

Subsequently, in 2010, the Restauranteurs sued Singh for their property and business losses. In November 2011, Singh stipulated to a judgment for $194,200.71, representing the damage to Restauranteurs’ property and business interests. Singh also assigned to Restauranteurs his rights against his broker, All Solutions Insurance Agency, LLC (“Broker”) for failing to obtain fire insurance coverage for Singh’s property. In addition, the Restauranteurs’ insurer, Amco, paid its insured $371,326 and then filed a subrogation action against Singh. In November 2011, Amco obtained a stipulated judgment against Singh for the amount paid. Singh also assigned to Amco his rights against the Broker for failure to obtain insurance.

In December 2011, Restauranteurs filed a complaint against Broker in their capacity as assignees of Singh. A few days later, Amco filed a separate lawsuit against Broker, also asserting rights as an assignee of Singh’s causes of action against Broker. Thereafter, the Broker filed separate motions for summary judgment against Amco and Restauranteurs arguing the following:

The assignment of Singh’s rights to Restauranteurs and Amco was barred as a matter of public policy;
Based on the doctrine of equitable subrogation, neither the Restauranteurs nor Amco were in a equitably superior position to assert a claim for subrogation against the Broker; and
The Broker did not fall below the standard of care in connection with Singh’s claim for failure to procure insurance.

The trial court granted summary judgment in favor of the Broker against the Restauranteurs and Amco and concluded that they could not establish the required superior position in order to pursue a claim for equitable subrogation against the Broker. Hence, their claims failed as a matter of law.

In reversing the trial court’s decision, the Court of Appeal held that Singh’s assignment of his rights against the Broker to the Restauranteurs and Amco was valid and not against public policy. The Court of Appeal stated as follows:

Our conclusion that a client's causes of action against an insurance broker are assignable is consistent with the majority view. In DC-I0 Entertainment, LLC v. Manor Insurance Agency, Inc. (Colo.App. 2013) 308 P.3d. 1223, the court cited a number of cases and concluded that a majority of jurisdictions "that have addressed an insured's assignment of negligence claims against an insurance broker or agent have found such assignments valid," (Id. at p. 1228.) Thus, Broker's suggestion that Troost is antiquated is at odds with current developments.

In summary, we conclude that Singh's negligence cause of action against Broker is assignable under California law. Therefore, the summary judgments granted in favor of Broker cannot be affirmed on the ground that Singh's cause of action was not assignable.

The Court of Appeal also held that the doctrine of equitable subrogation did not apply to the Restauranteurs and Amco as neither of them were “subrogees” which had paid a loss required by contract or by operation of law on behalf of Singh. In so holding, the Court of Appeal reasoned as follows with respect to the Restauranteurs and Amco:

Restauranteurs

Based on this reading of Meyers and Dobbas, we conclude that the principles of equitable subrogation do not extend to situations where the contractual assignee was not a surety and does not occupy the role of potential equitable subrogee. The practical impact of Meyers and Dobbas is that a surety in the position of subrogee cannot avoid the principles of equitable subrogation by obtaining an assignment of the cause of action to bolster its position. Therefore, when the contractual assignee is not a potential subrogee, the limitation recognized in Meyers and Dobbas does not apply and the assignees fall under the general rule that causes of action are assignable.

Here, Restauranteurs were not sureties and no payments, akin to the type of payment a surety would make on behalf of another, were made. Therefore, they had no possibility of pursuing a claim for equitable subrogation, much less an equitable subrogation claim that replicated the contractually assigned cause of action against Broker. Consequently, we conclude the limitation on contractual assignments recognized in Meyers and Dobbas does not apply to Restauranteurs. It follows that the order granting Broker's motion for summary judgment against Restauranteurs cannot be upheld on the ground that equitable subrogation requires Restauranteurs' position to be equitably superior to the position of Brokers.

Amco

In this case, AMCO had a subrogee-subrogor relationship with its insured, Saari. AMCO did not have a subrogee-subrogor relationship with Singh. Therefore, based on our reading of Meyers and Dobbas, we conclude that the contractual assignment of Singh's cause of action against Broker is not subject to the principles of equitable subrogation. We have found no convincing policy reasons for extending the principles of equitable subrogation down the chain of relationships that can arise after an insurer has successfully pursued its rights as an equitable subrogee. Furthermore, the policies underlying the general rule of assignability and the relevant statutory text convinces us not to take language from Meyers and Dobbas out of context and create a new exception to the general rule of assignability.

Lastly, the Court of Appeal held that there were triable issues of fact relative to whether the Broker fell below the standard of care with respect to failing to procure insurance on behalf of Singh prior to the fire.