American Auto. Ins. Co. v. Seaboard Sur. Co.

• Decision Date: 13 November 1957
• Citation: 318 P.2d 84,155 Cal.App.2d 192
• Parties: AMERICAN AUTOMOBILE INSURANCE COMPANY, a corporation, Plaintiff, Cross-Defendant and Respondent, v. SEABOARD SURETY COMPANY, a corporation, and Republic Productions, Inc., a corporation, Defendants, Cross-Complainants and Appellants. Associated Indemnity Corporation, a corporation, and Joseph Kaufman Productions, Inc., a corporation, Cross-Defendants and Respondents. Civ. 22294.
• Court: California Court of Appeals Court of Appeals

Page 84

318 P.2d 84

155 Cal.App.2d 192

AMERICAN AUTOMOBILE INSURANCE COMPANY, a corporation, Plaintiff, Cross-Defendant and Respondent, v. SEABOARD SURETY COMPANY, a corporation, and Republic Productions, Inc., a corporation, Defendants, Cross-Complainants and Appellants Associated Indemnity Corporation, a corporation, and Joseph Kaufman Productions, Inc., a corporation, Cross-Defendants and Respondents.

Civ. 22294.

District Court of Appeal, Second, District, Division 2, California.

Nov. 13, 1957.

Hearing Denied Jan. 6, 1958.

Joseph F. Rank, Los Angeles, for appellants.

Parker, Stanbury, Reese & McGee, A. P. G. Steffes, Los Angeles, for respondents.

ASHBURN, Justice.

This is a controversy between two insurance companies as to responsibility for a judgment obtained by one Frances L. Whaley against Republic Rpoductions, Inc. based upon injuries caused by negligence of said Republic. That company was protected by two liability insurance policies covering the Whaley accident. One was issued by Seaboard Surety Company, appellant herein, and the other by American Automobile Insurance Company, respondent. ¹ The trial court held that each insurance company must bear and discharge half of the obligation and rendered judgment accordingly.

In the latter part of 1951 Joseph Kaufman Productions, Inc., being about to produce a motion picture entitled 'Sudden Fear' rented studio facilities belonging to Republic under a written agreement. The scope of the rental is described in paragraph 2 of the instrument: 'We agree to furnish you such of our studio facilities, services and equipment as may be available and reasonably required for the production of said photoplay, including reasonable stage and office space, physical facilities and equipment, sound recording equipment, all crews and production personnel (excluding producers, writers, actors, actresses, composers, directors and similar professional employees), and the reasonable use of all studio departments including the right to consult with heads of departments, and you agree to use said facilities, personnel and equipment (the foregoing being hereinafter referred to as 'studio facilities') for the production of said photoplay.' The present controversy grows out of paragraphs 10 and 11 of that agreement and their application to liability insurance policies which were in force at the time of the accident.

Republic was covered by a Seaboard policy. Kaufman had an American policy which named it as assured and also named Republic as an additional insured; Republic was added to an existing policy at the instance of Kaufman and pursuant to the terms, or supposed terms, of paragraph 11 of the agreement. Kaufman had in its employment as an extra said Whaley who was injured on February 28, 1952, while in the performance of her duties as an employee of Kaufman. She received workmen's compensation from Kaufman's compensation carrier, Associated Indemnity Corporation (hereinafter designated as Associated), and then sued Republic as a third party tort feasor, obtaining a judgment for $4,443.70, upon which Associated fastened a lien for compensation payments made by it exceeding the amount of the judgment. The action was defendant by both American and Seaboard under an agreement that same should be done without prejudice to their respective rights and obligations. After judgment was rendered American paid half of same to Associated and called upon Seaboard to discharge the other half. It having declined to do so, this action was brought for declaratory relief. The court held the two insurers equally liable to pay the judgment and obligated to prorate the loss equally between them, and judgment was awarded in favor of cross-defendant Associated against Seaboard for the sum of $2,221.85, representing half of the Whaley judgment. Seaboard appeals.

Appellant contends that it is not liable for any portion of the judgment because Kaufman had agreed to indemnify Republic against such a loss as the one in question and to that end had caused American to add Republic to its existing liability policy as an additional insured. Inferentially the argument is that Republic thereby acquired a right to collect from Kaufman anything it might pay upon the judgment, hence its insurer after discharging the debt would have a right of subrogation against Kaufman and its insurer, American, and therefore American must bear and discharge the entire obligation.

If it be assumed that Republic had indemnity against the Whaley judgment (a matter later discussed), the subrogation doctrine of Continental Cas. Co. v. Phoenix Const. Co., 46 Cal.2d 423, 429, 296 P.2d 801, would become applicable. That decision rejected the view, expressed in certain decisions of district courts of appeal, that there is no primary and secondary liability in the law of torts in California and held that, as between master and servant and their respective insurers, the master has a right of indemnification against the servant who has negligently caused an injury for which the master has had to pay and that principles of subrogation afford this same right to the master's insurer against that of the servant. The court said, 46 Cal.2d at page 428, 296 P.2d at page 804: 'Where a judgment has been rendered against an employer for damages occasioned by the unauthorized negligent act of his employe, the employer may recoup his loss in an action against the negligent employe [citations]; that is, as between employer and employe in such a situation, the obligation of the employe is primary and that of the employer secondary. Respondents cite Consolidated Shippers, Inc., v. Pacific Emp. Ins. Co., 1941, 45 Cal.App.2d 288, 293, 114 P.2d 34; Air Transport Mfg. Co. v. Employers' Liab. Assur. Corp., 1949, 91 Cal.App.2d 129, 132, 204 P.2d 647; Employers Liab. Assur. Corp. of London, Eng. v. Pacific Emp. Ins. Co., 1951, 102 Cal.App.2d 188, 192, 227 P.2d 53; and Traders & General Ins. Co. v. Pacific Emp. Ins. Co., 1955, 130 Cal.App.2d 158, 165-166, 278 P.2d 493, as supporting a contrary view; such cases are broadly distinguishable on their facts but it would unduly extend this opinion and serve no useful purpose to individually discuss and differentiate them as any implications therein contrary to the long established rule above stated must be deemed disapproved.'

The rationale of the ruling is plain. The reciprocal rights and duties of several insurers who have covered the same event do not arise out of contract, for their agreements are not with each other. See Offer v. Superior Court, 194 Cal. 114, 118, 228 P. 11; Fireman's Fund Ins. Co. v. Palatine Ins. Co., 150 Cal. 252, 256, 88 P. 907. Their respective obligations flow from equitable principles designed to accomplish ultimate justice in the bearing of a specific burden. As these principles do not stem from agreement between the insurers their application is not controlled by the language of their contracts with the respective policy holders. The Minnesota Supreme Court, dealing with policies covering two insured persons whose liability for an accident was primary and secondary between themselves, said in Commercial Casualty Ins. Co. v. Hartford Accident & Indemnity Co., 190 Minn. 528, 252 N.W. 434, 435, 253 N.W 888: 'The two contracts of insurance and their interpretation must be the factual basis of decision. But there was no contract and so no contractual relation between the insurers. Neither was beneficiary of the other's contract. Neither having any contract right against the other, but both being under contractual obligations in respect to the same risk, it remains only to determine the respective equities. If they are concurrently liable for the same risk, it is but obvious equity that there should be contribution. Equally plain it is that, if the one paying the whole loss is primarily liable, and the other obligated only secondarily and not otherwise, there should be no contribution. In such case, the position of the defendant is the stronger, and there can be no recovery.' The principle of equitable subrogation overrides the terms of the insurance policies.

If Republic had a right to indemnification from Kaufman the Continental case, supra, would be controlling. The fact that the right arose from agreement rather than tort would be immaterial. One who has a superior equity growing out of contract may enforce it by way of subrogation although that contract was made with a third party. F. H. Vahlsing, Inc., v. Hartford Fire Ins. Co., Tex.Civ.App., 108 S.W.2d 947, 950; Standard Acc. Ins. Co. v. Pellecchia, 15 N.J. 162, 104 A.2d 288, 296-297; Consolidated Freightways v. Moore, 38 Wash.2d 427, 229 P.2d 882, 885; 6 Appleman on Insurance Law and Practice, § 4051, p. 521; 46 C.P.S. Insurance § 1209, pp. 154-155.

Respondent argues that this rule is inapposite because of the specific terms of the indemnity agreement. In effect counsel contend that Republic (whose negligence gave rise to the Whaley judgment) was not indemnified against its own negligence.

[155 Cal.App.2d 197] Paragraph 10 of the agreement provides that all equipment, services and facilities furnished to Kaufman by Republic shall be accepted and used by the former at its own risk. Then follows this: '10. * * * You [Kaufman]...