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Cecily A. Dumas (SBN 111449)

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Counsel to the Plaintiff Official Committee of Tort Claimants

UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN FRANCISCO DIVISION

In re:

PG&E CORPORATION

-andPACIFIC GAS AND ELECTRIC 

COMPANY,

Debtors.

□ Affects PG&E Corporation

□ Affects Pacific Gas and Electric Company

■ Affects both Debtors

*All papers shall be filed in the Lead Case, 

No. 19-30088 (DM)

Bankruptcy Case

No. 19-30088 (DM)

Chapter 11

(Lead Case)

(Jointly Administered)

THE OFFICIAL COMMITTEE OF TORT 

CLAIMANTS,

Plaintiff,

v.

THE AD HOC GROUP OF 

SUBROGATION CLAIM HOLDERS, an 

association of Subrogation Claimants,

Defendant. 

Adv. Pro. No.

COMPLAINT FOR DECLARATORY 

JUDGMENT SUBORDINATING AND 

DISALLOWING CLAIMS AND FOR AN 

ACCOUNTING

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The Official Committee of Tort Claimants (the “TCC”) in the above-captioned chapter 11 

cases (the “Chapter 11 Cases”) of PG&E Corp. and Pacific Gas and Electric Company 

(collectively, the “Debtors” or “PG&E”), allege for its complaint (“Complaint”) for declaratory 

judgment against the Ad Hoc Group of Subrogation Claim Holders (“Subrogation Claimants”), 

an association of holders of insurers’ subrogation wildfire claims identified in the Fifth Amended 

Verified Statement of the Ad Hoc Group of Subrogation Claim Holders Pursuant to Bankruptcy 

Rule 2019, (Dkt. No. 4302), as follows:

NATURE OF THE ACTION

1. The purpose of this Complaint is to resolve intercreditor disputes between the 

parties, which are impairing the parties’ intercreditor relationships and participation in these 

Chapter 11 Cases.

2. Both California law, federal common law, and section 509(c) of chapter 11 of 

title 11 of the United States Code (the “Bankruptcy Code”) require claims arising from 

subrogation rights to be subordinated to, not pari passu with, claims of creditors against the debtor. 

California’s expression of this principle is found in the “made-whole” rule that dictates that the 

claims of insureds against a tortfeasor must be paid in full before payment of subrogation and 

reimbursement claims of an insurer that paid losses sustained by the insured. The same principle 

has been adopted into federal common law by the Ninth Circuit Court of Appeals. Section 509(c) 

sets forth the same principle in the context of all claims by way of subrogation, or for 

reimbursement or contribution of an entity that is liable with the debtor on a creditor’s claim. In 

six separate verified Bankruptcy Rule 2019 statements, the Subrogation Claimants have repeatedly 

stated their subrogation claims arise under State law and Section 509 of the Bankruptcy Code, and 

hence, their Rule 2019 Statements subject their subrogation claims to the corresponding 

subordination provisions of State law and Section 509, as a matter of law. The Bankruptcy Court 

subordinated the insurers’ subrogation claims in the same situation in the Dow Corning Chapter 11 

case, ruling that where an insurer and the debtor are both liable for the victims’ tort damages, the 

insurer’s claims are subrogated and subordinated under Section 509.

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3. An actual dispute has arisen and is continuing between the TCC and Subrogation 

Claimants. The TCC contends that Subrogation Claims against the Debtors are subject to payment 

subordination; upon information and belief, Subrogation Claimants contend that their claims are of 

equal priority with the claims of insureds from whose rights against the Debtors the subrogation 

claims arise. The parties require a declaration resolving such dispute in the context of these Chapter 

11 Cases, as such a declaration is necessary to determine the rights of the parties in these cases. 

Resolution of the dispute is important because three recent events threaten the ability of the Wildfire 

Claimants to be made whole, absent subordination or a consensual allocation of funds among the 

Subrogation Claimants and the Wildfire Claimants: the filing of $8.6 billion of government 

wildfire claims; the pendency of Kincade Fire Claims; and the now-real possibility of additional 

wildfire claims occurring before the end of the current 2019 wildfire season, now that the Kincade 

Fire has established that PG&E is not able to protect the public from disaster.

4. Additional intercreditor disputes exist between the parties that must be resolved in 

order for the parties to proceed in the Chapter 11 Cases. For example, the Subrogation Claimants 

have repeatedly represented to the Department of Insurance that their subrogation claims based on 

amounts paid to insureds and reserves for amounts to be paid in the future total approximately 

$15 billion; however, the Subrogation Claimants now contend they have booked reserves for future 

payments that increase their aggregate claims to approximately $20 billion. The Subrogation 

Claimants have never produced to the TCC any proof that their claims exceed $15 billion or that 

they are reserving amounts to pay insureds in the future that would increase the amount of their 

claims to $20 billion. In addition, the Subrogation Claimants have not produced any accounting 

that would show which specific subrogation claims are not subject to subordination on the basis 

that the corresponding Wildfire Claim has been made whole and has not been filed in this case on 

that basis. Without such basic accountings, the TCC and the Court cannot evaluate the Subrogation 

Claimants’ interests in this case or protect the Wildfire Claimants’ subordination rights.

5. In addition, certain claims of the Subrogation Claimants are subject to disallowance 

because such Subrogation Claimants paid billions of dollars of insured property damage claims at 

the actual cash value, which is the replacement value of the lost personal property, less depreciation. 

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However, the actual cash value claims are not recoverable against the Debtors because the 

Subrogation Claimants hold claims against the Debtors only for the present-day fair market value 

of the personal property, which is often less than the actual cash value that the Subrogation 

Claimants paid the insureds. Without an accounting of such payments, the Court cannot evaluate 

whether payment of any amounts to the Subrogation Claimants may constitute an overpayment 

under the law.

6. A portion of such Subrogation Claims is also not recoverable because the 

Subrogation Claimants also insured the Debtors’ liability for the claims of injured parties; and under 

California law, an insurer who insures both sides of the loss (here, both the Debtors and the victims), 

cannot recover the subrogation loss.

7. Finally, the Subrogation Claimants are attempting to force their insureds to release 

the Subrogation Claimants of the insureds’ claims against the Subrogation Claimants, as a condition 

to the Wildfire Claimants obtaining payment of the insureds’ claims, which is illegal under 

California law.

THE PARTIES

8. Plaintiff TCC is the Official Committee of Tort Claimants in these Chapter 11 Cases, 

appointed on February 15, 2019, by the Office of the United States Trustee (Dkt. No. 453). The 

TCC represents the interests of over 30,000 persons who assert claims against the Debtors arising 

from the losses they suffered in the 2015, 2017 and 2018 Northern California wildfires (“Wildfire 

Losses”). The TCC also represents the interests of persons who assert claims against the Debtors 

arising from the 2016 Ghost Ship Warehouse fire, but those interests are not at issue in this 

Complaint.

9. The Subrogation Claimants is an unincorporated association of insurers and other 

parties who either insured and paid a portion of their insureds’ Wildfire Losses, or who purchased 

the claims of insurers who themselves paid a portion of Wildfire Losses. The Subrogation 

Claimants and their Subrogation Claims are identified in the Fifth Amended Verified Statement of 

the Ad Hoc Group of Subrogation Claim Holders Pursuant to Bankruptcy Rule 2019, Dkt. 

No. 4302. The Subrogation Claimants have sued the Debtors in Adversary Proceeding 19-03015 

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as a party, and may be sued in this case as a party in adversary proceedings and contested matters. 

By Order dated March 15, 2019, Dkt. No. 926, the Court ordered that service of papers upon the 

Subrogation Claimants’ counsel, Deimer & Wei, LLP, constitutes notice to the Subrogation 

Claimants.

JURISDICTION AND VENUE

10. This adversary proceeding arises under Bankruptcy Code sections 509 and 524(e) 

in the Chapter 11 Cases of the Debtors. The Court has jurisdiction over this adversary proceeding 

pursuant to 28 U.S.C. sections 157 and 1334. This is a core proceeding under 28 U.S.C. section 

157(b). The TCC consents to the Court’s entry of final judgment in this proceeding.

11. Venue is proper before the Court pursuant to 28 U.S.C. sections 1408 and 1409.

FACTUAL BACKGROUND

12. In 2015, 2017 and 2018, PG&E’s equipment, and system and vegetation 

management practices, sparked a series of wildfires in Northern California that killed over 

130 individuals, injured over 50,000 individuals, destroyed over 30,000 structures, and burned 

hundreds of thousands of California acreage. The persons affected by the fires (the “Wildfire

Claimants”) suffered Wildfire Losses, including personal injury damages, property damages, 

and/or lost their loved ones in the fires, and incurred other losses and attorneys’ fees. The Wildfire 

Claimants have asserted or could assert claims (“Wildfire Claims”) for recovery of their Wildfire 

Losses against the Debtors and their insurers. Some of the Wildfire Claimants held insurance 

policies that covered a portion of their respective Wildfire Claims, issued by the Subrogation 

Claimants. Upon information and belief, none of the insurance policies covered claims arising 

from noneconomic damages, such as physical injuries, emotional distress and trauma resulting from 

fleeing the fires. Upon information and belief, each Subrogation Claimant paid benefits to Wildfire 

Claimants under insurance policies it had issued to such Wildfire Claimants. Upon information 

and belief, some Subrogation Claimants contend they paid policy limits on some Wildfire Claims.

13. The Debtors commenced the Chapter 11 Cases by filing voluntary petitions on 

January 29, 2019.

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14. On July 23, 2019, the Subrogation Claimants requested the Court’s permission to 

file a plan of reorganization that would contain the following relevant provisions: First, the plan 

would grant the Subrogation Claimants an allowed claim of $15.8 billion on their Subrogation 

Claims; second, the plan would channel the Wildfire Claims and the Subrogation Claims to a plan 

trust for payment; third, the plan would capitalize the plan trust with enough consideration to pay 

the allowed Subrogation Claims in full, but would be insufficient to pay the allowed amount of 

Wildfire Claims in full; and fourth, the plan would release the Subrogation Claimants of the 

Wildfire Claimants’ claims against the Subrogation Claimants. Motion of the Ad Hoc Group of 

Subrogation Claim Holders to Terminate the Debtors’ Exclusive Periods Pursuant to Section 

1121(d)(1) of the Bankruptcy Code, Dkt. No. 3147 at 5.

15. On September 9, 2019, the Debtors filed a plan of reorganization (the “Plan”) 

pursuant to which the Debtors (1) separately classify the claims of the Subrogation Claimants 

(“Subrogation Claims”) from the claims Wildfire Claimants; and (2) treat Subrogation Claims as 

having equal priority in right to payment under the Plan with Wildfire Claims.

16. On September 24, 2019, the Debtors filed a motion to approve their settlement 

agreement with the Subrogation Claimants, pursuant to which the Subrogation Claims would 

receive aggregate payments under the Plan of $11 billion, plus up to $55 million in attorneys’ fees 

(“Subrogation Claims Settlement”). Under the Plan, as amended by the Debtors, the proposed to 

pay Subrogation Claims and the Wildfire Claims with equal priority, though the Subrogation 

Claims may be paid in full in cash, while the Wildfire Claims may receive a distribution that is a 

mix of cash, stock, and other cash alternatives, which is primarily non-cash.

17. The Subrogation Claimants have filed a Bankruptcy Rule 2019 Statement in which 

they have alleged they paid approximately $15.8 billion of Wildfire Claims, matching the 

Subrogation Claimants’ allegation in their own plan of the amount they contend they are owed. 

The Subrogation Claimants have not filed any more than $15.8 billion of claims in these cases. The 

Subrogation Claimants typically settle such subrogation claims for approximately 55% to 65% of 

the amount of such claims. The Subrogation Claimants’ proposal to settle their claim for $11 billion 

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is approximately 70% of all insurance benefits paid by the settling Subrogation Claimants, or 

payment in full, and more, based on their maximum settlement history in California.

18. Upon information and belief, certain of the Subrogation Claimants also issued 

liability insurance policies to the Debtors that respond to the losses asserted by the Wildfire 

Claimants.

FIRST CLAIM FOR RELIEF

DECLARATORY RELIEF—SUBORDINATION OF SUBROGATION CLAIMS UNDER

STATE MADE-WHOLE RULE

19. The TCC incorporates paragraphs 1-18 of this Complaint.

20. The insurance policies on which the Subrogation Claims are based are construed 

under California law. In addition to the duties undertaken by the parties by the express terms of 

their agreements, the law implies in every insurance contract an implied duty of good faith and fair 

dealing. Comunale v. Traders & Gen. Ins. Co., 50 Cal.2d 654, 658 (1958). The implied promise 

requires each contracting party to refrain from doing anything to injure the rights of the other to 

receive the benefits of the agreement. Crisci v. Sec. Ins. Co., 66 Cal.2d 425, 429 (1966). For the 

insurer to fulfill its obligation, it “must give at least as much consideration” to the insured’s interest 

as its own. Egan v. Mut. of Omaha, 24 Cal.3d 809, 819 (1979).

21. The California Supreme Court stated the following principles in the context of a 

disability policy. The principles apply with equal force to a homeowner’s insurance policy and a 

business property policy: “The insured in a contract like the one before us does not seek to obtain 

a commercial advantage by purchasing the policy—rather he seeks protection against calamity.” 

Id. at 819. Calamity has befallen the Wildfire Claimants: PG&E caused fires that burned their 

homes, schools, banks, stores, neighborhoods, communities, and in the case of Paradise, California, 

an entire town. Wildfire Claimants have not been compensated for the losses they suffered from 

the wildfires that PG&E caused.

22. Subrogation is an equitable doctrine that permits an insurer to assert the rights and 

remedies of an insured against a third-party tortfeasor. Fireman's Fund Ins. Co. v. Maryland 

Casualty Co., 21 Cal. App. 4th 1586, 1595-96 (1994). When an insurance company pays out a 

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claim on a first-party insurance policy to its insured, the insurance company is subrogated to the 

rights of its insured in order to “pursue recovery from third parties responsible to the insured for 

the loss for which the insurer was liable and paid.” Id. at 1596. Subrogation is purely a derivative 

doctrine, as an “insurer entitled to subrogation is in the same position as an assignee of the insured’s 

claim, and succeeds only to the rights of the insured.... Thus, an insurer cannot acquire by 

subrogation anything to which the insured has no rights, and may claim no rights which the insured 

does not have.” Transcon. Ins. Co. v. Ins. Go. of Pennsylvania. 148 Cal. App. 4th 1296, 1305-06 

(2007).

23. The Subrogation Claims are derivative of the claims of the Wildfire Claimants. In 

the Chapter 11 Cases, the Court entered an order authorizing the Subrogation Claimants to file their 

subrogation claims in their own names, provided that they also file a schedule of the Wildfire 

Claimants whose losses the subrogated claims represent. See Dkt. No. 2806 at ¶ 3(d) & Ex. A-3. 

The order is administrative in nature and does not alter the Subrogation Claims’ status as derivative 

claims.

24. “It is a general equitable principle of insurance law that, absent an agreement to the 

contrary, an insurance company may not enforce a right to subrogation until the insured has been 

fully compensated for her injuries, that is, has been made whole.” Barnes v. Independent 

Automobile Deals Association of California Health & Welfare Plan, 64 F.3d 1389, 1395 (9th Cir. 

1995); see also Progressive West Ins. Co. v. Yolo County Superior Court, 135 Cal. App. 4th 263, 

274 (2005) (“It is a general equitable principle of insurance law that, absent an agreement to the 

contrary, an insurance company may not enforce a right to subrogation until the insured has been 

fully compensated for [his or] her injuries, that is, has been made whole.”); Sapiano v. Williamsburg 

Nat. Ins. Co., 28 Cal.App.4th 533 (1994) (“[T]he entire debt must be paid. Until the creditor has 

been made whole for its loss, the subrogee may not enforce its claim based on its rights of 

subrogation”). The applicability of the made-whole rule “generally depends on whether the insured 

has been completely compensated for all the elements of damages, not merely those for which the 

insurer has indemnified the insured.” Chandler v. State Farm Mut. Auto Ins. Co., 598 F.3d 1115, 

1118 (9th Cir. 2010) (Emphasis added.)

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25. The Wildfire Claimants have not been made whole for their losses.

26. Several recently occurring events have threatened the Wildfire Claimants’ ability to 

be made whole for their losses, and the parties and the Court are unable at this time to evaluate the 

impact of these events on the Wildfire Claimants’ ability to be made whole for their Wildfire losses:

(a) First, Federal and California government entities have filed claims for recovery 

of Wildfire Losses in excess of $7.4 billion, which impairs the Wildfire 

Claimants’ ability to be made whole unless the Subrogation Claims are 

subordinated as required by applicable law, or the Subrogation Claimants and 

the TCC agree to a consensual allocation of available funds in this case.

(b) Second, one of the Debtors’ transmission towers on a Sonoma County ridge 

ignited the Kincade Fire in Northern California on October 24, 2019, when the 

Debtors’ deenergized the electrical system in the low-lying Sonoma County 

valleys, but did not deenergize the system on the ridges were the winds were 

gusting with greater force. The fire is still burning, and the losses from that fire 

may exceed the Debtors’ wildfire insurance coverage of $430 million (as the 

Debtors reported in the second quarter 2019 10-Q at page 71).

(c) Third, California’s 2019 wildfire season will not end until the end of December, 

and given the Debtors’ repeated failures to maintain a safe electrical system, and 

make the correct deenergizing choices, there is a risk that the Debtors could face 

more wildfire loss claims this year.

27. California courts recognize two exceptions to the applicability of the made-whole 

rule: (1) the insured may disclaim the made-whole rule in an insurance contract by using clear and 

specific language that indicates the parties’ intent to permit the insurer to seek reimbursement even 

if the insured has not been made whole; and (2) the made-whole rule does not apply if the insurer 

participates in the prosecution of the insured’s claim against the third-party tortfeasor through to 

judgment. Chandler, 598 F.3d at 1118. While an insurer may typically pursue a recovery of its 

subrogation rights if its insured is taking no action to recover the remainder of its damages from 

the tortfeasor (Chandler, 598, F.3d at 1118), the made-whole rule, and the rights of the insured to 

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be paid in full prior to payment of the tortfeasor, remains in place. This is particularly so where an 

insurer does not assist the insured in taking its claim against the tortfeasor to judgment. Under such 

circumstances, the made-whole rule remains firmly in place and the insurer is barred from seeking 

a recovery of its own subrogation rights. Barnes v. Independent Automobile Deals Association of 

California Health & Welfare Plan, 64 F.3d 1389, 1395 (9th Cir. 1995) (“[W]hen the insurance 

company makes no payment to the injured insured for covered expenses, and places all the cost and 

risk of seeking recovery from a third party on the injured insured, the make-whole rule remains in 

place despite the ‘all rights’ language in the contract.”). The TCC is informed and believes, and on 

the basis of such information and belief alleges, that the Debtors have a limited fund from which 

they can pay Wildfire Claimants and the Subrogation Claimants. The Subrogation Claimants 

abandoned the Wildfire Claimants’ litigation to pursue their own side deal with the Debtors, and 

are doing nothing to fund the Wildfire Claimants’ litigation or pursuit of recoveries in these cases. 

Instead, the Subrogation Claimants have established themselves as competitors with the Wildfire 

Claimants from the limited funds available from the Debtors. Thus, the made-whole rule bars any 

recovery by the Subrogation Claimants unless and until the Wildfire Claimants have received a 

recovery of the entirety of their damages.

28. The TCC contends that the made-whole rule applies to the Subrogation Claims and 

operates to bar the Subrogation Claimants from receiving equal treatment of their claims in the 

Chapter 11 Cases, and that neither of the exceptions apply. The TCC is informed and believes, and 

on the basis of such information and belief alleges, that the Subrogation Claimants dispute this 

contention.

29. The TCC further contends that in attempting to settle the Subrogation Claims with 

the Debtors, the Subrogation Claimants placed their own interests ahead of the interests of their 

insureds, the Wildfire Claimants, in contravention of their duties under the implied covenant of 

good faith and fair dealing. Under applicable law in the Ninth Circuit Court of Appeals, any claims 

of the Wildfire Claimants arising from such breaches may not be released under a plan of 

reorganization. Nor may the claims of the Wildfire Claimants be released under a settlement 

reached in these Cases. The Debtors’ Settlement with the Subrogation Claimants purports to 

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release such claims between the Wildfire Claimants and the Subrogation Claimants—a release of 

claims between creditors. A Bankruptcy Court lacks the jurisdiction to approve a settlement and 

release of claims between creditors. State ex rel. Roberts v. Mushroom King, Inc., 77 B.R. 813, 

820 (D. Or. 1987) (“A state law dispute between two creditors does not come within the jurisdiction 

of the bankruptcy court unless it is otherwise ‘impossible to administer completely the bankrupt's 

estate.’ ”). This is particularly so where one of the groups of creditors is not even a party to the 

purported Settlement.

30. The TCC further contends that the Subrogation Claimants do not qualify for the 

exception to the made-whole rule that applies when an insured disclaims the made-whole rule in 

an insurance contract by using clear and specific language that indicates the parties’ intent to permit 

the insurer to seek reimbursement even if the insured has not been made whole. Upon information 

and belief, the TCC alleges that to the extent that any Subrogation Claimant contends that a Wildfire 

Claimant signed such a provision in their insurance contract, such provision is invalid or 

insufficient to waive the made-whole rule.

31. A declaration of the Court is necessary and appropriate to determine the respective 

rights of the Subrogation Claimants and Wildfire Claimants in these cases, and enforce the Wildfire 

Claimants’ rights under the California Made-Whole Rule and fiduciary principles.

SECOND CLAIM FOR RELIEF

DECLARATORY RELIEF—SUBORDINATING SUBROGATION CLAIMS PURSUANT 

TO BANKRUPTCY CODE SECTION 509(C), FEDERAL COMMON LAW, AND 

CALIFORNIA LAW

32. The TCC incorporates paragraphs 1-31 of this Complaint.

33. Section 509(a) of the Bankruptcy Code provides that an entity that is liable with the 

debtor on a claim of a creditor against the debtor, and that pays such claim, is subrogated to the 

rights of the creditor to the extent of such payment. California law also provides, by the madewhole rule, that subrogation rights are subordinated to the prior rights of the insured to be made 

whole, and the Ninth Circuit has adopted this principle into federal common law. See Barnes v. 

Independent Automobile Deals Association of California Health & Welfare Plan, 64 F.3d 1389, 

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1395 (9th Cir. 1995) (adopting “as federal common law th[e] generally accepted rule that, in the 

absence of a clear contract provision to the contrary, an insured must be made whole before an 

insurer can enforce its right to subrogation”). That is the case here: after the fires occurred, both 

the Debtors and the Subrogation Claimants and/or their predecessor insurance companies were 

liable for the Wildfire Losses and Wildfire Claims. 

34. The Wildfire Claimants’ right to recover those Wildfire Losses and Wildfire Claims 

from the Subrogation Claimants and the Debtors constitutes a “claim” under Bankruptcy Code 

section 101(5), and hence the Wildfire Claims against the Debtors and the Subrogation Claimants

are covered by Section 509(a). Accordingly, pursuant to Bankruptcy Code section 509(a), the 

Subrogation Claimants are subrogated to the Wildfire Claims, to extent of the Subrogation 

Claimants’ payments to the Wildfire Claimants. 

35. The Subrogation Claimants have asserted such Subrogation Claims against the 

Debtors on the basis of those payments. The Subrogation Claimants’ Rule 2019 Statement states 

that the Subrogation Claims arise under state and federal law, including Bankruptcy Code section 

509, and the Subrogation Claimants must accept the burdens that apply to their theory of recovery 

in these cases. It would be unconscionable for the Court to relieve the Subrogation Claimants of 

their admission that section 509 of the Code applies, after the Subrogation Claimants have appeared 

in these cases repeatedly based on the accuracy and veracity of their five Rule 2019 Statements.

36. Even if this Court were to conclude that the Subrogation Claimants are not liable 

“with” the Debtors, the Subrogation Claimants are subject to mandatory subordination under 

California law and federal common law. Codebtor status is irrelevant to the application of 

California law and federal common law on equitable or contractual subrogation. The made-whole 

rule is a rule of subordination, and it requires subordination of the claims of the Subrogation 

Claimants.

37. Pursuant to Bankruptcy Code section 509(c), federal common law, and/or California 

law, the Court must subordinate the Subrogation Claims to the Wildfire Claims against the Debtors 

and any trust set forth in a plan of reorganization, until the Wildfire Claims are paid in full by the 

Debtors under a plan of reorganization. The Subrogation Claimants dispute that conclusion. But 

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that argument is not supported by the only case law on point, as the bankruptcy court in the Dow 

Corning chapter 11 case ruled in the same insurer/victim/tortfeasor circumstance present in that 

case. In re Dow Corning Corp., 256 B.R. 298, 365 (Bankr. E. D. Mich. 2000). See also In re 

Applause, LLC, 2006 Bankr. LEXIS 2341 *10-12 (Bankr. C.D. Cal. April 3, 2006) (finding 

subrogation rights disallowed under both Section 509(c) and California law, whichever applied).

38. The Subrogation Claimants claim the benefit of their right to assert their Subrogation 

Claims against the Debtors under section 509 and California subrogation law, but deny the 

consequence of subrogation under both: subordination of their Subrogation Claims until the 

Wildfire Claims are paid in full.

39. The TCC is informed and believes, and on the basis of such information and belief 

alleges, that the Subrogation Claimants dispute such contentions.

40. A declaration of the Court is necessary and appropriate to determine the respective 

rights of the Subrogation Claimants and Wildfire Claimants in these cases, enforce the Wildfire 

Claimants’ rights under the Bankruptcy Code, and subordinate the Subrogation Claims to the 

Wildfire Claims in the Chapter 11 Cases.

THIRD CLAIM FOR RELIEF

FOR AN ACCOUNTING

41. The TCC incorporates paragraphs 1-40 of this Complaint.

42. Absent a consensual allocation of funds between a subrogated insurer and an 

insured, the proper administration of a bankruptcy case that involves establishing a trust fund of 

money to pay both insured and subrogation claims arising out of a single set of insured claims 

would be to fund the trust in a total amount that is proper, and distribute the funds as follows: first 

pay off the insured victims; second, pay off the subrogation claims so long as the related insured 

claim has not filed a claim against the debtor; and last, pay off the insurance companies that have 

subrogation claims that relate to the filed insured victim claims. This distribution plan would 

require matching each Wildfire Claimant’s proof of claim to a Subrogation Claim, so that the parties 

can determine the Subrogation Claims for which there is not a corresponding Wildfire Claim, and 

which may therefore not be subject to subordination. This process would determine which 

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Subrogation Claims must be subordinated and which Subrogation Claims are not subordinated. 

None of that has occurred in these Chapter 11 Cases.

43. Instead, in their Bankruptcy Rule 2019 Statements, motions and other papers filed 

in the Chapter 11 Cases, the Subrogation Claimants lumped all of the subordinated Subrogation 

Claims and potentially unsubordinated Subrogation Claims together as a single class, and requested 

that they be afforded equal priority to their own insureds’ Wildfire Claims that are validly filed 

against PG&E prior to the bar date.

44. Lumping subordinated and unsubordinated Subrogation Claims is improper from an 

insurance fiduciary duty standpoint, an accounting standpoint between the insurance company and 

its insured, and a bankruptcy administration standpoint. In doing so, the Subrogation Claimants 

have violated their duties to the insureds and rendered a proper evaluation of the priority of the 

claims inappropriate and impossible until the accounting and allocation are made.

45. Cause exists for entry of Judgment directing the Subrogation Claimants to provide 

an accounting of each Subrogation Claim, including the name of the insured to which the 

Subrogation Claim relates, the amount that the insurance company has paid on behalf of the insured, 

the amount the Subrogation Claimant paid for replacement value on each insured claim, and the 

amount that the insured has asserted against PG&E in these Chapter 11 Cases, so that the Court can 

afford effectual relief including subordination of the corresponding Subrogation Claims under state 

law, the made-whole rule under both state law and federal common law, and/or section 509 of the 

Bankruptcy Code.

46. Cause exists for entry of Judgment directing the Subrogation Claimant to prove up 

the amount of their claims including, without limitation, the amount of reserves each Subrogation 

Claimant supposedly has set aside to pay future claims, and to set forth in detail the extent to which 

the Subrogation Claimants have disputed in any way their obligation to pay the reserved amounts 

to their insureds.

47. Cause exists for entry of Judgment directing Subrogation Claimants who have 

purchased their claims from insurers to account for the claims they have purchased by setting forth 

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in detail each claim they purchased, the dollar amount of the purchased claims, and the dollar 

amount paid for the purchase of such claims.

FOURTH CLAIM FOR RELIEF

PARTIAL DISALLOWANCE OF SUBROGATION CLAIMS

48. The TCC incorporates paragraphs 1-47 of this Complaint.

49. California’s anti-subrogation rule provides that, where an insurer has insured both 

the tortfeasor and the injured party under separate policies, the insurer cannot bring a subrogation 

action standing in the shoes of the injured party against the insurer’s other insured party, the 

tortfeasor. State Farm Gen. Ins. Co. v. Wells Fargo Bank, N.A., 143 Cal. App. 4th 1098, 1106-07 

(2006); Truck Ins. Exch. v. City of Los Angeles, 95 Cal. App. 4th 13, 22-23 (2002), as modified on 

denial of reh’g (Feb. 6, 2002).

50. The TCC is informed and believes, and on the basis of such information and belief 

alleges, that certain Subrogation Claims—that the TCC believes to be in excess of $700 million but 

will be shown according to proof—placed liability insurance with the Debtors that provided 

coverage for the Debtors for some of the Wildfire Claims. Stated another way, at least $700 million 

of Subrogation Claims are prohibited by California’s anti-subrogation rule because the Subrogation 

Claimants insured both sides of the Wildfire Claim loss.

51. The TCC contends that payments to Subrogation Claimants that provided liability 

insurance covering the Wildfire Claims would violate the anti-subrogation rule. The TCC is 

informed and believes, and on the basis of such information and belief alleges, that Subrogation 

Claimants dispute such contentions.

52. In addition, certain claims of the Subrogation Claimants are subject to disallowance 

because such Subrogation Claimants paid billions of dollars of insured property damage claims at 

insured values that matched the replacement value of the lost personal property, but are not 

recoverable against the Debtors because the Subrogation Claimants hold claims against the Debtors 

only for the present-day value of the personal property, and not the insured replacement value. A 

declaration of the Court is necessary and appropriate to determine the respective rights of the 

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Subrogation Claimants and Wildfire Claimants in these cases. The Subrogation Claimants also 

dispute these conclusions and that dispute should similarly be resolved.

FIFTH CLAIM FOR RELIEF

DECLARATORY RELIEF—DECLARING THIRD PARTY RELEASES ARE BARRED 

BY BANKRUPTCY CODE SECTION 524(E)

53. The TCC incorporates paragraphs 1-52 of this Complaint.

54. The Subrogation Claimants’ attempt to enter into a settlement with the Debtors that 

would release the Subrogation Claimants of the Wildfire Claimants’ claims against the Subrogation 

Claimants is barred by Bankruptcy Code section 524(e), and is illegal under well-settled Ninth 

Circuit law, California Insurance Code sections 2695.4(e), 2695.7(e) and 2695.7(i), and California 

case law. [In a series of well-settled decisions, the Ninth Circuit has repeatedly held that a plan 

provision that releases claims between non-debtor parties violates Bankruptcy Code section 524(e), 

which prohibits the discharge of debts between non-debtor parties. In re Lowenschuss, 67 F. 3d 

1394, 1401-02 (9th Cir. 1995). The Subrogation Claimants dispute that conclusion. Moreover, a 

settlement brought before a Bankruptcy Court under F.R.B.P. 9019 cannot settle claims between 

two groups of creditors—particularly when one such group is not even a party to the settlement—

as a Bankruptcy Court lacks the jurisdiction to approve a settlement and release of claims between 

creditors. State ex rel. Roberts v. Mushroom King, Inc., 77 B.R. 813, 820 (D. Or. 1987) (“A state 

law dispute between two creditors does not come within the jurisdiction of the bankruptcy court 

unless it is otherwise ‘impossible to administer completely the bankrupt's estate.’”).

55. There is a substantial controversy between the TCC and the Subrogation Claimants 

of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.

56. A declaratory judgment confirming that the Subrogation Claimants may not 

negotiate for, or receive a forced release of the Wildfire Claimants’ claims against, the Subrogation 

Claimants is therefore both necessary and appropriate in order to enforce the Wildfire Claimants’ 

rights in these cases.

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PRAYER

WHEREFORE, the TCC respectfully requests the Court enter Judgment against defendant 

Ad Hoc Group of Subrogation Claim Holders, as follows:

(a) Judgment declaring the Subrogation Claims are subordinated to the Wildfire Claims 

pursuant to the ‘made-whole rule’ under California law and federal common law;

(b) Judgment declaring that the Subrogation Claims are subordinated to the Wildfire 

Claims pursuant to the provisions of Bankruptcy Code section 509(c);

(c) Judgment declaring the Subrogation Claimants may not receive any payment on 

their Subrogation Claims until each of the Wildfire Claims are paid in full via a 

direct payment of cash and/or securities to the Wildfire Claimants themselves (and 

not payment to a capped Trust established to pay such claims at some point in time 

from a limited fund in the capped Trust);

(d) Judgment directing the Subrogation Claimants to provide an accounting of each 

Subrogation Claim, including the name of the insured to which the Subrogation 

Claim relates, the amount that the insurance company has paid on behalf of the 

insured, the amount the Subrogation Claimant paid for replacement value on each 

insured claim, and the amount that the insured has asserted against PG&E in these 

Chapter 11 Cases, so that the Court can afford effectual relief including 

subordination of the corresponding Subrogation Claims under state law, the madewhole rule under both state law and federal common law, and/or section 509 of the 

Bankruptcy Code; 

(e) Judgment directing the Subrogation Claimant to prove up the amount of their claims 

including, without limitation, the amount of reserves each Subrogation Claimant 

supposedly has set aside to pay future claims, and to set forth in detail the extent to 

which the Subrogation Claimants have disputed in any way their obligation to pay 

the reserved amounts to their insureds;

(f) Judgment directing Subrogation Claimants who have purchased their claims from 

insurers to account for the claims they have purchased by setting forth in detail each 

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claim they purchased, the dollar amount of the purchased claims, and the dollar 

amount paid for the purchase of such claims;

(g) Judgment that Subrogation Claims held by Subrogation Claimants who insured the 

Debtors for Wildfire Claims are barred by the California anti-subrogation rule, 

according to proof;

(h) Judgment declaring that the Subrogation Claimants may not obtain a release of the 

Wildfire Claimants’ claims against the Subrogation Claimants from the Debtors, by 

settlement, by a plan of reorganization, or otherwise by the Court;

(i) Costs of suit herein; and

(j) Any other relief that the TCC requests in open court or in a paper filed in Court, or 

that the Court finds is just or reasonable.

Dated: November 8, 2019

BAKER & HOSTETLER LLP

By: /s/ Robert A. Julian

Robert A. Julian

Counsel to the Plaintiff Official Committee of 

Tort Claimants

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