Court Opinion

ID: 5452543
Source: CourtListenerOpinion
Date Created: 2022-01-08 19:19:24.836668+00
Date Added: 2024-06-11T08:32:31.431151
License: Public Domain

WERDEGAR, J.,
Concurring. — I agree with the majority that the made-whole rule1 does not bar 21st Century Insurance Company (21st Century) from seeking reimbursement for the no-fault medical payment (med-pay) insurance proceeds it paid Silvia Quintana, subject to deduction under the common fund doctrine for its share of the attorney fees Quintana expended to obtain payment from the tortfeasor. I write separately to offer an alternative rationale for that conclusion.
As the majority notes (maj. opn., ante, at p. 517), Quintana argues that attorney fees and costs should be deducted from an insured’s recovery before determining whether the insured has been made whole and is obligated to reimburse the insurer; in contrast, 21st Century argues attorney fees should be disregarded. As I shall explain, the rale Quintana advocates creates significant disparities in the treatment of similarly situated insurers, as well as anomalies in the treatment of insureds. The rale 21st Century advocates, in contrast, promotes uniformity of outcomes and is consistent with the nature and purpose of med-pay insurance.
I
The conclusion that 21st Century is correct can be seen by considering the relationship between subrogation and reimbursement.
Subrogation and reimbursement are closely related. In a subrogation case, an insurer pays its insured on a claim and thereupon succeeds to any rights the insured might have against a third party for conduct giving rise to the claim, to the extent of the amount the insurer paid. (Hodge v. Kirkpatrick Development, Inc. (2005) 130 Cal.App.4th 540, 548 [30 Cal.Rptr.3d 303]; Travelers Indem. Co. v. Ingebretsen (1974) 38 Cal.App.3d 858, 864 [113 Cal.Rptr. 679].) Rather than recovering from its insured, the subrogated insurer may sue the tortfeasor independently or may intervene in its insured’s *534suit against the tortfeasor. (Hodge v. Kirkpatrick Development, Inc., at p. 550.) However, because California for public policy reasons bars assignment of claims in personal injury cases (Fifield Manor v. Finston (1960) 54 Cal.2d 632, 637-643 [7 Cal.Rptr. 377, 354 P.2d 1073]; Lee v. State Farm Mut. Auto. Ins. Co. (1976) 57 Cal.App.3d 458, 465 [129 Cal.Rptr. 271]), such cases are governed by principles of reimbursement rather than subrogation (Progressive West Ins. Co. v. Superior Court (2005) 135 Cal.App.4th 263, 272-273 [37 Cal.Rptr.3d 434]). In reimbursement cases, the insurer does not succeed to its insured’s rights but instead must wait for the insured to obtain recovery. (Lee v. State Farm Mut. Auto. Ins. Co., at pp. 465 — 466.)
The public policy reasons that preclude assignment of personal injury claims affect the procedure governing how injured parties may recover from a tortfeasor by dictating the identity of who may sue; they do not alter the principle, common to reimbursement and subrogation both, that an insured should not obtain double recovery by obtaining (and retaining) payment for the same loss from both its insurer and a tortfeasor. (See Helfend v. Southern Cal. Rapid Transit Dist. (1970) 2 Cal.3d 1, 10-11 [84 Cal.Rptr. 173, 465 P.2d 61]; Anheuser-Busch, Inc. v. Starley (1946) 28 Cal.2d 347, 355 [170 P.2d 448] (dis. opn. of Traynor, J.).) Accordingly, I take it as a foundational premise that, as among an insurer, an insured, and a third party tortfeasor, the substantive outcome of proceeding by way of reimbursement should essentially mirror the outcome that would arise under subrogation.2
That the rule Quintana advocates leads to disparate outcomes in reimbursement and subrogation cases is thus telling. Consider as a hypothetical a tortfeasor who causes an insured $6,000 in personal injuries, including $2,000 in medical expenses. As here, the insured has a $1,000 med-pay policy, files a claim, and is paid under the policy. Pursuant to the reimbursement model, the insured then sues the tortfeasor and recovers $6,000, with $1,800 of that going to her contingency-fee lawyer.3 Under Quintana’s argument — that in applying the made-whole rule the attorney’s fee should be taken into account — the insured has recovered $5,200 ($1,000 from the insurer and $6,000 from the tortfeasor, less $1,800 to the attorney), but has not been made whole in light of her $6,000 loss, and owes nothing to the insurer. She keeps $5,200, while the insurer is out its $1,000 paid claim.
In contrast, if subrogation were available, the insurer, permitted to intervene in an action against the tortfeasor (see Hodge v. Kirkpatrick *535Development, Inc., supra, 130 Cal.App.4th at pp. 551-554; Allstate Ins. Co. v. Mel Rapton, Inc. (2000) 77 Cal.App.4th 901, 908-909 [92 Cal.Rptr.2d 151]), could recover $1,000 less its transaction costs for doing so and would be out not the full amount of the claim — $1,000—but only its transaction costs. The insured, on the other hand, would receive $1,000 from her insurer, would retain a $5,000 claim against the tortfeasor, and after suing, recovering the $5,000, and paying her contingency-fee lawyer $1,500 (30 percent of $5,000), would retain $4,500. Quintana’s version of the made-whole rule would, in this hypothetical, result in the insured retaining $700 more than under subrogation — $5,200 versus $4,500 — and the insurer losing a corresponding amount. Thus, her application of the rule would add to the procedural differences between reimbursement and subrogation significant substantive differences, with insureds recovering and retaining more under reimbursement than they would under subrogation, and insurers recovering less.
In contrast, under 21st Century’s proposed application of the made-whole rule, the results of reimbursement and subrogation are the same, as they should be. Returning to the hypothetical, under the reimbursement model the insured who recovered $6,000 would, disregarding attorney fees, have been made whole for her $6,000 loss and would be obligated to reimburse the insurer its $1,000 payment, minus — under the common fund doctrine — the $300 attorney fees/transaction costs of recovering that sum. (See Quinn v. State of California (1975) 15 Cal.3d 162, 167-169 [124 Cal.Rptr. 1, 539 P.2d 761]; Lee v. State Farm Mut. Auto. Ins. Co., supra, 57 Cal.App.3d at pp. 467-469.) The insured thus would reimburse the insurer $700 and would retain $4,500 ($6,000 from the tortfeasor and $1,000 from the insurer, less $1,800 to her contingency-fee lawyer and $700 reimbursed to the insurer), the exact outcome that would arise under subrogation. The insurer, in turn, would be out not the full $1,000 claim paid, but only the transaction costs — the $300 attorney fees — expended to recover that amount from the tortfeasor. 21st Century’s proposed application of the made-whole rule restores parity between outcomes under reimbursement and subrogation. For this reason, I think it is the correct rule.
n
That the made-whole rule must be applied without considering an insured’s attorney fees is apparent as well because to do otherwise would subtly change the very nature of the coverage involved in a med-pay policy.
Consider again the hypothetical involving a $6,000 personal injury claim with $2,000 in medical expenses. In this instance consider two injured insureds, each with $2,000 med-pay policies, one who sues and recovers from *536the tortfeasor under a 40 percent contingency fee arrangement, the other who sues and recovers under a 30 percent contingency fee arrangement. Were attorney fees a factor in determining whether the insured was made whole, the amount each insured retains or reimburses her insurer would be dependent not on the extent of the insured’s medical expenses (the putative reason for med-pay coverage) but on the extent of her attorney fees. The first insured, with a $2,000 med-pay policy, $2,000 in medical expenses, and $2,400 in attorney fees, would keep the entire amount received from her insurer; the second insured, with a $2,000 med-pay policy, $2,000 in medical expenses, and $1,800 in attorney fees, would pay back the $200 of excess recovery. If reimbursement were to hinge not on the amount of medical expenses ($2,000 in either case) nor on the amount of recovery ($6,000 in either case) but on the amount of attorney fees, the policy would be converted from a policy to reimburse for immediate medical expenses to one to reimburse for eventual legal expenses. This, as the majority correctly notes, is not what med-pay insurance was designed to do.
Ill
For these reasons, I agree the Court of Appeal’s judgment should be affirmed.

 “ ‘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.’ ” (Plut v. Fireman’s Fund Ins. Co. (2000) 85 Cal.App.4th 98, 104 [102 Cal.Rptr.2d 36], quoting Barnes v. Independent Auto. Dealers of California (9th Cir. 1995) 64 F.3d 1389, 1394.) “ ‘The general rule is that an insurer that pays a portion of the debt owed to the insured is not entitled to subrogation for that portion of the debt until the debt is fully discharged. In other words, the 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.’ ” (Sapiano v. Williamsburg Nat. Ins. Co. (1994) 28 Cal.App.4th 533, 536 [33 Cal.Rptr.2d 659], quoting 2 Cal. Insurance Law & Practice (1988 rev.) § 35.11[4][b], p. 35-47, fns. omitted.)

I address only the circumstances (as here) of an insurer that is, for public policy reasons, precluded from independently proceeding against the tortfeasor under subrogation, and not whether an insurer which could so proceed, but instead voluntarily elects to await reimbursement, should be placed in the same position under reimbursement as under subrogation.

Though the hypothetical assumes a 30 percent contingency fee for simplicity’s sake, it would not matter if a different rate were charged.