Dobbas v. Vitas

• Citation: 191 Cal.App.4th 1442,11 Cal. Daily Op. Serv. 375,119 Cal.Rptr.3d 798,2011 Daily Journal D.A.R. 45
• Decision Date: 01 February 2011
• Docket Number: No. C061494.,C061494.
• Court: California Court of Appeals Court of Appeals
• Parties: James DOBBAS et al., Plaintiffs, v. Fred VITAS et al., Defendants, Cross-Complainants and Respondents; CalFarm Insurance Company, Cross-Defendant and Respondent; American Guarantee and Liability Insurance Company, Movant and Appellant.

191 Cal.App.4th 1442 119 Cal.Rptr.3d 798 11 Cal. Daily Op. Serv. 375 2011 Daily Journal D.A.R. 452 James DOBBAS et al., Plaintiffs, v. Fred VITAS et al., Defendants, Cross-Complainants and Respondents; CalFarm Insurance Company, Cross-Defendant and Respondent; American Guarantee and Liability Insurance Company, Movant and Appellant. No. C061494. Court of Appeal, Third District, California. Jan. 7, 2011. As Modified on Denial of Rehearing Feb. 1, 2011.

Kutak Rock, J. David Bournazian, Paul F. Donsbach and Robin Zukin; Kutak Rock, Patrick W. Kennison, Jr., Julie Dean Larsen for Movant and Appellant.

No appearance for Plaintiff.

Cresswell, Echeguren, Rodgers & Noble, Ronald D. Echeguren, Elsa S. Baldwin, for Defendant, Cross-Complainant and Respondent.

Foran, Glennon Palandech Ponzi & Rudloff; Rudloff, Wood & Barrows, G. Edward Rudloff, Jr., and Edward P. Murphy for Cross-Defendant and Respondent.

BLEASE, J.

This case reviews the denial of American Guarantee and Liability Insurance Company's motion to intervene in an action between James Dobbas and Fred Vitas and Fred Vitas Insurance Agency. The action is based on Vitas's failure to obtain excess insurance to cover an injury for which Dobbas was liable and for which American Guarantee was obligated to pay as an excess insurer. American Guarantee's claimed interest in the action is as a subrogee to Dobbas for Vitas's liability for failing to provide insurance to cover the injury.

The issue arises in the following way.

James Dobbas (Dobbas), the owner of a bull that escaped its pasture and caused a fatal automobile accident, sued his insurance agent, Fred Vitas and Vitas Insurance Agency (Vitas), because the agent either failed to procure or cancelled excess liability insurance from CalFarm Insurance Company (CalFarm) to cover the owner's ranching operations.

The claims of the injured parties were eventually paid pursuant to an excess policy issued by American Guarantee and Liability Insurance Company (American Guarantee), that listed Dobbas as a named insured. Dobbas assigned his rights against Vitas to the accident victims, and the victims assigned their interests to American Guarantee. American Guarantee, as Dobbas' assignee, sought reimbursement of the amounts paid, not from the party responsible for the automobile accident, but from the agent, Vitas, who failed to procure excess insurance to cover the accident. Thus, American Guarantee sought to recover its payment to the injured parties from the broker, Vitas, who failed to provide excess insurance to Dobbas.

An insurer's right to subrogation is delimited by the application of equitable principles and not by the law of assignments. "[O]ne who asserts a right of subrogation, whether by virtue of an assignment or otherwise, must first show a right in equity to be entitled to such subrogation, or substitution[.]" ( Meyers v. Bank of America National Trust & Savings Association (1938) 11 Cal.2d 92, 96, 77 P.2d 1084 ( Meyers ).) Equitable subrogation requires an insurer to establish that its equitable position is superior to the position of the party to be charged.

The trial court denied American Guarantee's request to intervene in the negligence and breach of contract action against Vitas on the ground that the insurer was not entitled to equitable subrogation because the agent had not caused the accident. We agree with the result for the following reasons.

Code of Civil Procedure section 387 ¹ allows a person to intervene in an action if that person "has an interest in the matter in litigation, or in the success of either of the parties...." American Guarantee's claim of an interest is based on the erroneous assumption that it would have had no responsibility to pay the injured parties had Vitas fulfilled his obligation to procure excess insurance to cover the loss. In fact, American Guarantee would have been responsible for its share of the injury even if the policy promised by Vitas had been in place. That being the case, American Guarantee is not entitled to reimbursement.

For that reason we shall conclude that the trial court correctly concluded the insurer has no interest in the action against the insurance agent because the insurer cannot establish the elements of a claim for equitable subrogation.

FACTUAL AND PROCEDURAL BACKGROUND

In May 2002, James Dobbas was a rancher living in Sierra County. Prior to that time, he contracted with Vitas to procure primary and umbrella, or excess insurance on his property, including his property in Sierra County. Through Vitas, Dobbas obtained a CalFarm primary liability policy that provided $1 million coverage for Dobbas's livestock-husbandry activities. Vitas also procured a CalFarm excess policy for Dobbas that provided $3 million per occurrence, but it was not in effect at the time of the accident.²

Dobbas was also a named insured under policies by the two other insurance companies issued to James Dobbas, Inc. (JDI), a railroad contractor with operations including railroad salvage and emergency response to train derailments. These policies included a primary coverage policy issued by Steadfast Insurance Company (Steadfast) in the amount of $1 million per occurrence, and an excess policy issued by American Guarantee in the amount of $7 million per occurrence. Both policies expressly provided that Dobbas as an individual was insured "only with respect to the conduct of a business of which [the individual] is a sole owner."

On May 27, 2002, an Angus bull belonging to Dobbas escaped from the pasture in which it had been confined. A vehicle (the Turner vehicle) collided with the bull and with another vehicle (the Mancini vehicle). Two fatalities resulted, and four other occupants were injured.

The victims filed suit against Dobbas in the United States District Court for the district of Nevada. It was discovered that Dobbas's insurance agent, Vitas, had either cancelled or failed to renew the CalFarm excess policy, so that at the time of the subject accident, the CalFarm excess policy was not in effect.

In settlement of the federal action, CalFarm agreed to pay the $1 million primary policy limit to the Mancinis and Turners. The parties agreed to binding arbitration to determine Dobbas's liability and to apportion the recovery between the Turner and Mancini plaintiffs. Dobbas assigned to the Mancinis and Turners his claims against Vitas for cancellation and non-renewal of the CalFarm excess policy, and the Turners and Mancinis agreed never to execute on any judgment against Dobbas's personal assets. At the time of this settlement the parties were unaware of coverage from the policies issued by Steadfast and American Guarantee.

The binding arbitration resulted in a $5 million award against Dobbas, and the Nevada District Court confirmed the award and entered judgment against Dobbas.

Pursuant to the agreement of the parties, the judgment was not appealable.

Thereafter, the Turners and Mancinis were informed of the Steadfast and American Guarantee policies. Steadfast and American Guarantee filed an action in the United States District Court for the Eastern District of California seeking declaratory relief with respect to their rights and obligations under their policies. In that case, the court granted the summary judgment of Steadfast declaring the Steadfast policy did not provide coverage for the accident. However, the court denied the summary judgment motion of American Guarantee, finding Dobbas's ranching activities were covered by American Guarantee's excess liability policy.

American Guarantee then entered into a settlement with the Mancinis and Turners for $2.8 million, and as part of the settlement the Mancinis and Turners assigned their claims (previously assigned to them by Dobbas) against Vitas to American Guarantee. The settlement occurred in April 2008.

Within one year of the accident, in May 2003, Dobbas filed this insurance broker malpractice action against Vitas, alleging professional negligence, breach of contract, and declaratory relief.³ Vitas cross-complained against CalFarm for indemnity, apportionment of fault and implied contractual indemnity. The Mancinis and Turners brought motions to intervene in the action based upon the assignment to them of Dobbas's claims against Vitas. The trial court granted the Turners' motion to intervene, but denied the motion of the Mancinis without prejudice because their attorney had not been granted permission to appear pro hac vice. The trial court also stayed the action pending the determination of coverage under the Steadfast and American Guarantee policies.

Subsequent to the settlement between American Guarantee and the Mancinis and Turners, American Guarantee, now the owner of Dobbas's claims against Vitas, filed a motion to intervene in this action, originally filed by Dobbas. The trial court denied the motion to intervene, stating merely that American Guarantee was not entitled to equitable subrogation against Vitas because its loss was not caused by Vitas's failure to maintain the CalFarm policy, but by the accident, the accident being the very risk American Guarantee assumed.

DISCUSSION

The trial court's order denying leave to intervene is directly appealable because it finally and adversely determines the moving party's right to proceed in the action. ( Hodge v. Kirkpatrick Development, Inc. (2005) 130 Cal.App.4th 540, 547, 30 Cal.Rptr.3d 303 ( Hodge ).) As noted section 387 allows a person to intervene in an action if that person "has an interest in the matter in litigation, or in the success of either of the parties...." The parties agree that the standard of review for denying permissive intervention under section 387, subdivision (a) is abuse of discretion. However, the parties disagree whether the proper standard of review for denying mandatory intervention is de novo, or abuse of discretion.

We shall conclude that the denial of mandatory intervention was proper under either standard, and denial of permissive...