Case Name: AVEMCO INSURANCE COMPANY, Plaintiff-Appellant, and Lynn U. Goodfellow, Plaintiff, v. CESSNA AIRCRAFT COMPANY, Defendant-Appellee
Court: United States Court of Appeals for the Tenth Circuit
Jurisdiction: United States
Decision Date: 1993-12-15
Citations: 11 F.3d 998
Docket Number: No. 92-4149
Parties: AVEMCO INSURANCE COMPANY, Plaintiff-Appellant, and Lynn U. Goodfellow, Plaintiff, v. CESSNA AIRCRAFT COMPANY, Defendant-Appellee.
Judges: Before BALDOCK, HOLLOWAY and KELLY, Circuit Judges.
Reporter: Federal Reporter 3d Series
Volume: 11
Pages: 998–1004

Head Matter:
AVEMCO INSURANCE COMPANY, Plaintiff-Appellant, and Lynn U. Goodfellow, Plaintiff, v. CESSNA AIRCRAFT COMPANY, Defendant-Appellee.
No. 92-4149.
United States Court of Appeals, Tenth Circuit.
Dec. 15, 1993.
William L. Schanz, William L. Schanz, a Law Corp., Irvine, CA, for plaintiff-appellant.
Tracy H. Fowler (Jon C. Martinson, with him on the brief), Campbell, Maack & Sessions, Salt Lake City, UT, for defendant-appellee.
Before BALDOCK, HOLLOWAY and KELLY, Circuit Judges.

Opinion:
PAUL KELLY, Jr., Circuit Judge.
Plaintiff-appellant Avemeo Insurance Company appeals from dismissal of its action against Cessna Aircraft Company for indemnity and contribution. These claims arose from Avemco's settlement of a claim against its insured, owner and pilot of a Cessna aircraft, to a passenger injured in an airplane crash. The district court held that Avemco's action was barred as an untimely compulsory counterclaim which should have been asserted in prior litigation against the insured. Avemeo appeals the district court's order contending that, for purposes of the compulsory counterclaim rule, a liability insurer is not interchangeable with the insured, and that a contrary view violates due process and prejudices the insured at trial. Our jurisdiction arises under 28 U.S.C. § 1291 and we affirm.
Background
As a result of the crash, Lynn Goodfellow, the owner and pilot of the aircraft insured by Avemeo, was subject to two personal injury claims. The first was an informal claim against Goodfellow by Kasamis, an injured passenger. Avemeo settled this claim against Goodfellow. Barker, another injured passenger, filed suits against Goodfellow and Cessna which were consolidated. Cessna filed a third-party complaint against Goodfel-low alleging negligent operation of the aircraft. In the Barker litigation, Goodfellow, represented by the same attorney furnished by Avemeo in the Kasamis settlement, filed no counterclaim against Cessna for contribution or indemnification for the settlement amount of the Kasamis claim.
Avemeo then filed this action against Cessna for indemnification and contribution for the Kasamis settlement. The district court determined that Fed.R.Civ.P. 13(a) barred this action because it was a compulsory counterclaim in the Barker litigation. We agree.
Discussion
We determine de novo whether the district court erred in finding an untimely compulsory counterclaim. See Xerox Corp. v. SCM Corp., 576 F.2d 1057, 1058 & n. 1 (3rd Cir.1978); Republic Health Corp. v. Lifemark Hospitals of Fla., Inc., 755 F.2d 1453, 1454 (11th Cir.1985).
In applying Fed.R.Civ.P. 13(a) in diversity jurisdiction, we look to state law to address the substantive questions involving the nature and scope of the insurer-insured relationship. See Erie R.R. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 822, 82 L.Ed. 1188 (1938); Pochiro v. Prudential Ins. Co., 827 F.2d 1246, 1249 (9th Cir.1987). We apply California law.
Fed.R.Civ.P. 13(a) provides that
[a] pleading shall state as a counterclaim any claim which at the time of serving the pleading the pleader has against any opposing party, if it arises out of the transaction or occurrence that is the subject matter of the opposing party's claim and does not require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction.
In light of this rule, if a compulsory counterclaim is not brought, the claim is later barred. See Baker v. Gold Seal Liquors, 417 U.S. 467, 469 n. 1, 94 S.Ct. 2504, 2506 n. 1, 41 L.Ed.2d 243 (1974); Sams v. Beech Aircraft Corp., 625 F.2d 273, 276 n. 4 (9th Cir.1980).
Avemco argues that, as the insurer of the party to the action, it is neither an "opposing party" nor a "pleader" and, therefore, although arising out of the same accident, its counterclaim was not compulsory. Aplt. Brief at 11, 14. Avemco does, however, agree that it is the subrogee of its insured, Goodfellow. Aplt. Brief, ex. A at 1 (undisputed fact in district court order of dismissal). As such, "[ujnder settled principles, an insurer as subrogee has no greater rights than those possessed by its insured, and its claims are subject to the same defenses." Liberty Mut. Ins. Co. v. Fales, 8 Cal.3d 712, 106 Cal.Rptr. 21, 24, 505 P.2d 213, 216 (1973). Since Goodfellow was an opposing party in the Barker litigation and answered Cessna's third-party complaint, Rule 13(a) applies to him and, by subrogation, to Avemco.
Avemco argues that the subrogation relationship ends upon its full payment of the settlement amount. Aplt. Brief at 21. Avemco contends that the insured does not possess the claim which it is asserting against Cessna and that, instead, Avemco itself is the "real party in interest" required under Fed.R.Civ.P. 17(a). Id. at 20. This rule states "every action shall be prosecuted in the name of the real party in interest." Thus, Avemco argues that upon its full payment of the Kasamis settlement the claim is in no way related to Goodfellow; rather, it is Avemco's alone.
To the contrary, California law states that
an insurer who has paid a claim by an insured whom it is required by contract to indemnify is subrogated to its insured's right to indemnity from a third party who has contributed to the loss suffered by the insured. An insurer's subrogated right is to be put in the position of its insured for the loss which the insurer has both insured and paid. In other words, the insurer as subrogee stands in the same position as does an assignee-in the shoes of the sub-rogor or assignor.
Smith v. Parks Manor, 197 Cal.App.3d 872, 243 Cal.Rptr. 256, 258-59 (1987) (citations and quotations omitted). Under California law, therefore, Avemco's claim is derived from Goodfellow, despite payment.
Avemco's argument in this respect is similarly at odds with Cal.Civ.Proc.Code § 875 which provides that "a liability insurer who by payment has discharged the liability of a tortfeasor judgment debtor shall be subro-gated to his right of contribution." If payment of the whole judgment removed all of the insured's rights which could transfer by subrogation, then both this statute and Parks Manor would confer nothing on the liability insurer. However, if the insurer is to step into the shoes of the insured as if the insured himself had paid the claim, see Underwriters at Lloyd's Under Policy No. LHO 10497 v. Peerless Storage Co., 561 F.2d 20, 26 (6th Cir.1977), these California laws then have substance. Thus, Avemco might have to sue in its own name under Fed.R.Civ.P. 17(a), but in so doing the scope of such claim would be limited to indemnification rights derived from the insured, had the insured paid the settlement.
California law similarly disposes of Avem-co's argument that Goodfellow "never" pos sessed the claim upon which Avemco sues. Aplt. Brief at 17. Cessna cites authority that the compulsory counterclaim rule applies to insurers who pay the entire claim amount. Avemco argues that since the settlement was paid directly by Avemco, and Avemco's interests were therein protected, these cases are inapposite. Avemco's argument, however, is directly at odds with Parks Manor.
Avemco has approached this issue as though it has an independent right to indemnification rather than a pure subrogation right. This also appears to be the approach of the dissent. The Second Circuit distinguished these two types of rights, however, in Great Am. Ins. Co. v. United States, 575 F.2d 1031 (2d Cir.1978). The court held that while indemnification sometimes arises from an independent contract with the third person, an insurer's right to indemnity is by subrogation and entirely dependent on the insurance contract. Great Am. Ins. Co., 575 F.2d at 1034. The situation in this case is of the latter type. Avemco lacks an independent right to indemnification based on full payment; instead, Avemco has succeeded to a right arising solely from the insurance policy.
As a result, we find no merit in Avemco's argument that it had an independent relationship with Kasamis. The Kasamis settlement arose directly out of an accident involving the insured. Avemco's involvement can only have been on Goodfellow's behalf. Therefore, California law recognizes that subrogation relationship beyond the insurer's payment of the claim. See Cal.Civ.Proc.Code § 875; Parks Manor, 243 Cal.Rptr. at 258-59. Other courts presented with similar situations also have followed this approach. See Employers Mut. Casualty Co. v. Hanshaw, 176 N.W.2d 653, 656 (Iowa 1970); Firemen's Ins. Co. v. L.P. Steuart & Bro., 158 A.2d 675, 677 (D.C.1960); General Casualty Co. v. Fedoff, 11 F.R.D. 177, 179 (S.D.N.Y.1951).
Policy also supports this application of the rules. Rule 13(a) is designed to promote joinder of related claims in the same litigation. Rule 17(a) is similarly designed to reduce the threat of multiple litigation against a single defendant based on the same occurrence between the parties. In a situation such as this, where the insurer has controlled the defense in both actions, there is little to commend allowing the insurer to sit idly by during the subsequent litigation, only to bring a separate action against the very same defendant at a later date.
Avemco also claims that this application of Rule 13(a) violates due process. It argues lack of notice. Avemco not only had notice of the proceedings, however, but also was extensively involved in them. Avemco's counsel handled the Kasamis settlement on behalf of Goodfellow. Avemco was aware of the later Barker litigation and also supplied the same counsel. Under California law Avemco's claim is merely derivative of Good-fellow's. Goodfellow already had his "day in court." Because the claim is derived from Goodfellow as though he himself had paid the claim, and Avemco was involved in both actions, we find no due process violation.
Plaintiff further argues that the injection of the existence of liability insurance into an insured's tort case is prejudicial. While this concern is understandable, it is easily remedied.
For the foregoing reasons the judgment of the district court is
AFFIRMED.