Court Opinion

ID: 9943839
Source: CourtListenerOpinion
Date Created: 2024-02-26 14:53:44.124404+00
Date Added: 2024-06-11T13:46:01.896839
License: Public Domain

I.
 INTRODUCTION
I agree with the majority decision, insofar as it applies the superior equities doctrine (doctrine) to a subrogation action brought by an insurer against third parties based on alleged tortious conduct. I do so because we are compelled by our state's hierarchical discipline of stare decisis to follow authoritative Supreme Court precedent. (Auto Equity Sales,Inc. v. Superior Court (1962) 57 Cal.2d 450, 455
[20 Cal.Rptr. 321, 369 P.2d 937]; Morrow v. HoodCommunications, Inc. (1997) 59 Cal.App.4th 924, 926
[69 Cal.Rptr.2d 489].) In this case, the antediluvian decision inMeyers v. Bank of America etc. Assn. (1938)11 Cal.2d 92 [77 P.2d 1084] (Meyers) represents our Supreme Court's embrace of the doctrine: a decision that our high court has not reexamined since it was first published 68 years ago. Accordingly, we are bound to apply it here. However, while we must follow binding precedent of our high court, as noted by the renowned dean of California appellate practice, the late Bernard Witkin, "though bound, [we] are not gagged." (Witkin, Manual on Appellate Court Opinions (1977) pp. 168-169.)
Therefore, I write separately to express my view that the doctrine is a judicial anachronism, which is inconsistent with our present day comparative fault tort regime. The Supreme Court should align California's subrogation law with those states which have modified or abandoned the doctrine in favor of the modern comparative fault paradigm. As I explain below, comparative fault tort law, including its application to indemnity and contribution claims, has supplanted any need for determining superior equities; a principle which today can have the pernicious consequence of providing a legal safe haven for third party tortfeasors who, under comparative fault standards, would be otherwise liable for indemnity and contribution in a lawsuit brought directly by the insured. *Page 1121
 II. ORIGIN AND APPLICATION OF SUPERIOR EQUITIESDOCTRINE
In insurance law, the principle of subrogation dictates that an insurer who has paid a loss under an insurance policy is entitled to all the rights and remedies belonging to the insured against a third party with respect to any loss covered by the policy. (Fire Ins. Exchange v. Hammond (2000)83 Cal.App.4th 313, 317 [99 Cal.Rptr.2d 596].) Essentially, subrogation allows an insurer that has indemnified an insured to stand in the shoes of the insured on the insured's claim for compensation against a third party. (Herrick Corp. v.Canadian Ins. Co. (1994) 29 Cal.App.4th 753, 765
[34 Cal.Rptr.2d 844].)
Doctrinally, the roots of subrogation are equitable in origin. Therefore, since the right of the party seeking subrogation stems from equity, it was seen as a logical adjunct that the doctrine "may be invoked against a third party only if he or she is guilty of some wrongful conduct that makes his or her equity inferior to that of the plaintiff. [Citations.]" (13 Witkin, Summary of Cal. Law (10th ed. 2005) Equity, § 187, p. 521; Jones v. Bank of America (1942)49 Cal.App.2d 115, 123 [121 P.2d 94].) Otherwise, equity would perceive no reason to vary the status quo by shifting the financial burden for paying damages. (Nat. Union Fire Ins. Co. v. Riggs Nat.Bank (App.D.C. 1994) 646 A.2d 966, 968 (Riggs).)
Under the doctrine, although an insurer might have a subrogation interest in the insured's claim against the third party who caused or contributed to the loss, it cannot enforce its subrogation rights unless it has equities superior to those of the third party. (Hartford Acc. Indem. Co. v. Bankof America (1963) 220 Cal.App.2d 545, 550
[34 Cal.Rptr. 23] (Hartford).) The doctrine has also been called the "compensated surety defense," which embodies the view "that the insurer, who has been compensated for issuing the policy, should not be allowed to shift to an innocent party the very loss that the policy contemplated, even though the latter, as between itself and the insured, would be absolutely liable." (Farnsworth, Insurance Against Check Forgery
(1960) 60 Colum. L.Rev. 284, 320-321, fn. omitted.)
As noted, the doctrine was expressly adopted by our Supreme Court in 1938 (Meyers, supra, 11 Cal.2d at pp. 98,102-103); and as the majority decision explains, an insurer's subrogation of a negligence claim is not currently allowed in California under either legal or conventional terms unless the insurer shows that "justice requires that the loss should be shifted *Page 1122 
from the insurer to the defendant, whose equitable position is inferior to that of the insurer. . . ." (Fireman's FundIns. Co. v. Wilshire Film Ventures, Inc. (1997)52 Cal.App.4th 553, 556 [60 Cal.Rptr.2d 591].) However, there is no "facile formula" for determining superiority of equities, especially when the primary cause of the loss is someone other than the party against whom subrogation is sought. (Hartford, supra, 220 Cal.App.2d at p. 558.)
As the majority decision points out, the doctrine has been inconsistently applied in cases where an insurer is attempting to enforce its subrogation rights against a defendant whose negligence did not cause the entire loss. Among the many attempts made to define this exquisite balance between the equities favoring the third party tortfeasor and the insurer, there are cases flatly holding that subrogation is not available when the defendant is not the primary cause of the loss. (Meyers, supra, 11 Cal.2d at pp. 102-103;Fireman's Fund Ins. Co. v. Morse Signal Devices (1984)151 Cal.App.3d 681, 688 [198 Cal.Rptr. 756].) Other courts have held that an insurer should be allowed to enforce its subrogation rights when the defendant's conduct is "related to the primary cause of the loss." (Continental Ins. Co. v.Morgan, Olmstead, Kennedy Gardner, Inc. (1978)83 Cal.App.3d 593, 604 [148 Cal.Rptr. 57]; see Golden EagleIns. Co. v. First Nationwide Financial Corp. (1994)26 Cal.App.4th 160, 171 [31 Cal.Rptr.2d 815].) Still other courts find the insurer's equities are superior to those of a third party who could have prevented the primary wrongdoer from causing the loss. (Hartford, supra,220 Cal.App.2d at pp. 561-562; Barclay Kitchen, Inc. v. California Bank
(1962) 208 Cal.App.2d 347, 355 [25 Cal.Rptr. 383] (BarclayKitchen).)
In the face of these conflicting cases, the majority has exerted heroic efforts to reconcile them, and to produce a unitary system for applying the doctrine in subrogation cases based on tortious conduct, not otherwise involving contractual promises. In the course of this analytical struggle, the doctrine's incoherence has been exposed, as courts have tried without success to comport this antiquated principle with modern tort common law. The effort is futile, for only by replacing the rubric of the doctrine with comparative fault principles can subrogation meet its core goal of allowing indemnifying insurers "`"to stand in the shoes"'" of its insured on the insured's claim for compensation against a third party. (Fireman's Fund Ins. Co. v. Maryland CasualtyCo. (1998) 65 Cal.App.4th 1279, 1292
[77 Cal.Rptr.2d 296].)1 *Page 1123
 III. EVOLUTION OF MODERN DAY COMPARATIVE FAULT PRINCIPLES
The superior equities doctrine developed at a time in judicial history when common law precepts precluded any attempt to ascertain comparative fault. As a consequence, the doctrine was entirely consistent with the then-existing concept of "all or nothing" contributory negligence. (Buckley v. Chadwick
(1955) 45 Cal.2d 183, 192 [289 P.2d 242]; Innis v. TheSteamer Senator (1851) 1 Cal. 459, 460-461.) Concomitantly, the "all or nothing" rule was also applied to indemnity actions which resulted in a total shifting of liability to the indemnitor/third party tortfeasor, but only where the party seeking indemnity was itself not negligent. (Cahill Bros., Inc. v. Clementina Co. (1962)208 Cal.App.2d 367, 382 [25 Cal.Rptr. 301].)
This extension of the "all or nothing" rule to indemnification was founded on the common law belief that a party seeking indemnification should not be allowed to recover against a third party if the party seeking indemnification was "actively" responsible for causing the loss. Recovery was only permitted where the conduct could be classified as "passive." (City County of S. F. v. Ho Sing (1958) 51 Cal.2d 127, 130
[330 P.2d 802]; Cahill Bros., Inc. v. Clementina Co.,supra, 208 Cal.App.2d at p. 382.)
Like the doctrine, which ostensibly was created to allow the recovery in subrogation against a third party "primarily" responsible for causing the loss, equitable indemnity also was premised "`upon a difference between the primary and secondary liability of two persons each of whom is made responsible by the law to an injured party.'" (Alisal Sanitary Dist. v.Kennedy (1960) 180 Cal.App.2d 69, 75 [4 Cal.Rptr. 379].) Consistent with this view, cases at the time held that, while a complete shifting of liability to one primarily at fault was allowed under equitable indemnity principles, joint tortfeasors were prevented from obtaining a sharing of legal responsibility under the related doctrine of contribution. (Id. at p. 74; Dow v. Sunset Tel. Tel. Co. (1912)162 Cal. 136 [121 P. 379]; City County of S. F. v. Ho Sing,supra, 51 Cal.2d 127.)2
Of course, the legal landscape in tort law changed dramatically in 1975 when the Supreme Court abandoned the "all or nothing" rule of contributory *Page 1124 
negligence and "superseded [it] by a rule which assesses liability in proportion to fault." (Li v. Yellow CabCo. (1975) 13 Cal.3d 804, 810 [119 Cal.Rptr. 858,532 P.2d 1226].) This decision was followed three years later byAmerican Motorcycle Assn. v. Superior Court (1978)20 Cal.3d 578, 597-598 [146 Cal.Rptr. 182, 578 P.2d 899], which extended comparative fault principles to claims seeking equitable indemnity among multiple negligent tortfeasors whose liability for the underlying injury was joint and several.
Since then, comparative fault has been extended and refined, virtually saturating the entire field of tort law with its contemporary equitable precepts. Citing just a few examples, comparative fault principles have been applied to apportion responsibility between a strictly liable defendant and a negligent plaintiff in a product liability action (Daly v.General Motors Corp. (1978) 20 Cal.3d 725, 736
[144 Cal.Rptr. 380, 575 P.2d 1162]); to bar a claim for "total" indemnity against a defendant who had settled in good faith directly with the injured party in attempt to limit its potential liability (Far West Financial Corp. v. D SCo. (1988) 46 Cal.3d 796, 807, 816-817 [251 Cal.Rptr. 202,760 P.2d 399]); to allow the apportionment of fault for a judgment entered against both negligent and strictly liable defendants (Safeway Stores, Inc. v. Nest-Kart (1978)21 Cal.3d 322, 325 [146 Cal.Rptr. 550, 579 P.2d 441]); and to indemnity actions between commercial entities to recover purely commercial losses (GEM Developers v. Hallcraft Homes of SanDiego, Inc. (1989) 213 Cal.App.3d 419, 430
[261 Cal.Rptr. 626] (GEM Developers).)
The facts in this last case are particularly germane inasmuch as the appellate court applied equitable comparative fault to claims both for indemnity and subrogation. In GEMDevelopers, the developer was held liable for more than $3 million to a homeowners' association (Association) for construction defects under theories of negligence, strict liability and breach of warranty. The developer's insurer paid approximately $1 million of this amount to the Association and assigned "all subrogation, indemnity and contribution rights against Hallcraft [the original owner] to the Association." (GEM Developers, supra, 213 Cal.App.3d at p. 424.) The appellate court held that the Association was entitled to proceed against Hallcraft on the claims assigned by the insurer. (Id. at pp. 433-434.)
In part of its holding, the decision concluded that a tortfeasor was entitled to pursue equitable indemnity against another tortfeasor not sued by the plaintiff. In doing so, the court spoke of the importance equitable comparative fault has come to play in ensuring that losses are shared in proportion to the relative culpability of all those bringing about the damages: "In light of the clear Supreme Court language favoring apportionment of loss among those responsible for the harm on a comparative fault basis, its language granting *Page 1125 
defendants a right to seek equitable indemnity from parties not named by the plaintiffs through filing a cross-complaint for equitable indemnification, and its language approving apportionment of loss when strict liability is involved, we conclude a defendant/indemnitee may in an action for indemnity seek apportionment of the loss on any theory that was available to the plaintiff upon which the plaintiff would have been successful. . . . To bar an action on a strict liability theory because of these technical distinctions in pleading and procedure demeans the purpose of comparative equitable indemnity, i.e., an equitable sharing of loss between multiple tortfeasors in proportion to their relative culpability. . . ." (GEM Developers, supra, 213 Cal.App.3d at p. 430.)
Given the growth of tort law over the last 30 years, it simply is no longer analytically possible to accommodate the doctrine in modern noncontractual subrogation. Only by applying comparative fault principles to tort-based subrogation can the law have the symmetry that courts engaged in the development of tort law over the years have sought to achieve. It is little wonder that other states, as well as modern commentators, have criticized the doctrine, or simply abandoned it.
 IV. CRITICISM AND ABANDONMENT OF THE DOCTRINE BY OTHER STATES
As set out in the majority decision, in Meyers the California Supreme Court used the doctrine to deny subrogation rights to a surety on a fidelity bond which sought to be subrogated to the rights of its principal, an employer who was the victim of a dishonest employee who forged checks, against the bank which had honored the forged checks. In applying the doctrine, the court reasoned that the paid surety was not entitled to be subrogated to the rights of its insured against a bank which did not actively participate in the fraud perpetrated by the forger. The Meyers court stated simply, "We cannot say that as between the bank and the paid indemnitor, the bank should stand the loss." (Meyers,supra, 11 Cal.2d at p. 103.)
Even in an era when the "all or nothing" rule was rigorously followed in tort cases, it was not long before Meyers
was subjected to critical academic comment voicing the same concerns that I believe merit abandoning the doctrine now. For example, one commentator questioned how the result inMeyers could possibly be considered equitable. "[T]here is little reason for putting the whole loss on the fidelity insurer. . . . [¶] Contribution, obviously an equitable solution . . ., suggests an answer to the problem presented by the principal case. Instead of throwing the entire loss on one or the other of the parties, a result more in keeping with the ideals of equity would be to *Page 1126 
hold that the equities of both are equal and so to invoke the doctrine of contribution as if the two were co-sureties." (Note (1938) 27 Cal. L.Rev. 88, 89-90, fn. omitted.) Another commentator echoed the sentiment that the "dilemma" of shifting the entire loss from one innocent party to another innocent party "might be resolved by enforcing contribution. Inasmuch as the law of suretyship is in the process of change, such a suggestion merits consideration, for, under it, equity would more nearly be approximated. It is suggested, as a corollary, that the amount of contribution be allotted in accordance with the respective equities." (Note (1939) 12 So.Cal. L.Rev. 490, 492.)
The doctrine has also received considerable criticism in the opinions of several courts. "[S]erious challenges have been leveled against the usefulness and practicality of the compensated surety defense. . . ." (S.C. Nat'l Bank v. LakeCity State Bank (1968) 251 S.C. 500 [164 S.E.2d 103,106].) One exasperated court has noted "[e]xhaustive research has disclosed little direction from other courts (or commentators) as to what factors should be considered in balancing the equities." (Mellon Bank v. National UnionIns. Co. (2001) 2001 PASuper 32 [768 A.2d 865, 872].) Another court proclaims, "[T]he phrase [superior equity] is mere language devoid of meaning." (Standard Accident Ins.Co. v. Pellecchia (1954) 15 N.J. 162 [104 A.2d 288, 303].)
Important to the case before us, the efficacy of the doctrine has been questioned in cases involving the defendant's alleged negligence. "[I]n these tort actions the insurer-subrogee steps into the shoes of his insured and is bound by the principles of the law of negligence which would control if the insured himself were bringing suit. To say that the subrogee in tort action recovers only if he proves superior equity is merely to complicate a simple situation at law by improperly applying to it the language of equity." (Standard Acc. Ins. Co. v.Pellecchia, supra, 104 A.2d at p. 296.)
In the light of this criticism, various jurisdictions have significantly eroded or entirely discarded the doctrine. Some jurisdictions have rejected it outright, and allow insurers to subrogate whether or not they can demonstrate superior equities. (See, e.g., American Liberty Ins. Co. v. AmsouthBank (Ala. 2002) 825 So.2d 786, 791-793; Hartford FireIns. Co. v. Riefolo Const. Co. (1980) 81 N.J. 514
[410 A.2d 658, 662]; Federal Ins. Co. v. Arthur Andersen Co. (1990) 75 N.Y.2d 366 [552 N.E.2d 870, 876,553 N.Y.S.2d 291].)
Other courts have employed a rather ingenuous ratio decidendi to circumvent the doctrine. These courts have concluded the doctrine has no application to conventional subrogation, which derives from a contractual agreement between insurer and insured to subrogate. This line of authority reasons that *Page 1127 
when the subrogation is based on contractual provisions, it is not equitable in nature and consequently is not subject to the doctrine's equitable restraints. (See, e.g., Riggs,supra, 646 A.2d at pp. 971-972; Liberty Mutual Ins.Co. v. Thunderbird Bank (1976) 113 Ariz. 375
[555 P.2d 333, 336-337]; Mutual Service Cas. Ins. v. Elizabeth StateBank (7th Cir. 2001) 265 F.3d 601, 628; First Nat.Bank v. American Surety Co. (1944) 71 Ga.App. 112
[30 S.E.2d 402, 407].)
Still other jurisdictions have held that in cases involving commercial transactions, the enactment of the Uniform Commercial Code (U. Com. Code) has abrogated or modified the superior equities doctrine because the U. Com. Code establishes the insured's rights (to which the insurer succeeds) and the third parties' defenses. (See, e.g., General Ace. Ins. Co.v. Fidelity Deposit Co. (E.D.Pa. 1984)598 F.Supp. 1223, 1240 [after the adoption of the U. Com. Code, "the `superior equity' analysis of the past may be obsolete"];Hanover Ins. Companies v. Brotherhood State Bank
(D.Kan. 1979) 482 F.Supp. 501, 509.)
The techniques used by some courts to avoid the bite of this clearly obsolete principle has prompted at least one commentator to observe: "[W]hen courts are willing to allow the defense to be circumvented . . . they in reality are seizing upon these devi[c]es only as convenient methods of shattering the fossilized forms which surround a right founded in and at the same time restricted unnecessarily by equity." (O'Malley,Subrogation Against Banks on Forged Checks (1966) 83 Banking L.J. 659, 688, fn. omitted.) The time has come to remove this temptation from the reach of California courts.
 V. CONCLUSION
Sixty-eight years after the Meyers decision was issued, the doctrine is still being applied, albeit haphazardly, in California subrogation cases. However, there clearly has been an erosion of support for the doctrine among courts and commentators that weighs heavily against its continuing vitality. While our Supreme Court has not as yet had an opportunity to revisit Meyers, the high court's adoption of comparative fault principles in virtually every other tort context justifies the court's intervention in this case. Indeed, our Supreme *Page 1128 
Court has been cognizant in the past of the need that established principles of nonstatutory common law undergo evolutional change in appropriate circumstances. (See, e.g.,Green v. Superior Court (1974) 10 Cal.3d 616, 640
[111 Cal.Rptr. 704, 517 P.2d 1168]; Dillon v. Legg (1968)68 Cal.2d 728, 734 [69 Cal.Rptr. 72, 441 P.2d 912]; Willardv. First Church of Christ, Scientist (1972) 7 Cal.3d 473,476 [102 Cal.Rptr. 739, 498 P.2d 987].) Because the "all or nothing" approach embodied in the doctrine clashes with modern concepts of comparative fault, and because the doctrine has been inconsistently applied in the context of secondarily liable tortfeasors, I believe the time has come for its reexamination. I concur.
1 The Supreme Court has already determined that, in workers' compensation subrogation, comparative fault principles must be applied to determine the amount of an employer's credit towards future compensation benefits where the employee has recovered damages against a third party tortfeasor. (Associated Construction Engineering Co. v. Workers'Comp. Appeals Bd. (1978) 22 Cal.3d 829, 832-833
[150 Cal.Rptr. 888, 587 P.2d 684].)
2 The Alisal court noted that the Legislature amended then Code of Civil Procedure section 875 allowing contribution between joint tortfeasors accruing after January 1, 1958. (Alisal Sanitary Dist. v. Kennedy, supra,180 Cal.App.2d at p. 74.) The court then went on to hold that a right of contribution potentially existed because the plaintiff's complaint alleged that the defendant's conduct was negligent and it "created the condition which caused the injury." (Id. at p. 79.) *Page 1129