Hodge v. Kirkpatrick Development, Inc.

• Decision Date: 21 June 2005
• Docket Number: No. G034361.,G034361.
• Citation: 130 Cal.App.4th 540,30 Cal.Rptr.3d 303
• Court: California Court of Appeals Court of Appeals
• Parties: Douglas M. HODGE et al., Plaintiffs and Respondents, v. KIRKPATRICK DEVELOPMENT, INC., et al., Defendants and Respondents, State Farm General Insurance Company, Movant and Appellant.

30 Cal.Rptr.3d 303

130 Cal.App.4th 540

Douglas M. HODGE et al., Plaintiffs and Respondents, v. KIRKPATRICK DEVELOPMENT, INC., et al., Defendants and Respondents, State Farm General Insurance Company, Movant and Appellant.

No. G034361.

Court of Appeal, Fourth District, Division 3.

June 21, 2005.

Review Denied September 28, 2005.

Luce, Forward, Hamilton & Scripps, Charles A. Bird, Charles A. Danaher and Peter H. Klee, San Diego, for Movant and Appellant.

Irell & Manella, Richard J. McNeil and Mark S. Afrasiabi, Newport Beach, for Plaintiffs and Respondents.

No appearance for Defendants and Respondents.

OPINION

FYBEL, J.

I. INTRODUCTION

Did the trial court err in denying the motion of State Farm General Insurance Company (State Farm) for leave to intervene in a construction defect lawsuit brought by State Farm's insureds, Douglas M. Hodge and Kylie Schuyler Hodge (the Hodges), against third party tortfeasors? State Farm obtained partial subrogation rights against the third parties by paying a portion of the Hodges' claims for property damage to their house. We hold State Farm has a statutory right to intervene under Code of Civil Procedure section 387, subdivision (b) and therefore reverse.

II. FACTS AND PROCEEDINGS IN THE TRIAL COURT

State Farm issued the Hodges a homeowners insurance policy (the Policy) covering certain risks to their house in Laguna Beach. The Policy grants State Farm subrogation rights against third parties who cause losses for which the Policy provides benefits. The subrogation paragraph in the Policy's conditions states, in part: "An insured may waive in writing before a loss all rights of recovery against any person. If not waived, we may require an assignment of rights of recovery for a loss to the extent that payment is made by us."

In December 2002, the Hodges submitted a claim to State Farm under the Policy for water and mold damage to their house allegedly caused by the negligence of third parties. The Hodges contended the cost to repair the water damage was about $685,000. The Hodges made a total demand on State Farm for water and mold damage in the policy limits amount of $1,699,680. State Farm denied the Hodges' claim for mold damage and paid the Hodges about $150,000 on the claim for water damage. State Farm contended it is still adjusting the water damage claim.

In September 2003, the Hodges filed a construction defect lawsuit, Orange County Superior Court case No. 03CC00428 (the construction defect lawsuit), against the former owner, the developer, the general contractor, and one subcontractor who constructed the Hodges' house. The complaint in the construction defect lawsuit alleged defendants caused the water and mold damage by performing defective work, violating building codes, failing to comply with plans and specifications, using unauthorized or unqualified subcontractors, failing to repair defective work, conducting inadequate repair work, and negligently supervising construction of the house.¹

In November 2003, the Hodges filed a complaint for bad faith against State Farm, Orange County Superior Court case No. 03CC13890 (the bad faith lawsuit). The complaint in the bad faith lawsuit alleged water infiltration caused a covered loss to the Hodges' house and that State Farm in bad faith denied coverage under the Policy and refused to pay the Policy benefits. The trial court denied State Farm's motion to consolidate the construction defect lawsuit and the bad faith lawsuit.

State Farm moved for leave to intervene in the construction defect lawsuit to file a subrogation complaint. The Hodges, as well as three of the four defendants in the construction defect lawsuit, opposed State Farm's motion. One defendant (RESG, Inc.) filed nothing in response to State Farm's motion.

At the hearing on State Farm's motion for leave to intervene, the trial court announced a tentative ruling to deny the motion because "the diversion or complication of adding State Farm would outweigh any prejudice to State Farm by not allowing an intervention." On August 5, 2004, the trial court issued a minute order denying State Farm's motion for leave to intervene "for reasons as stated on the record."

State Farm timely appealed from the order denying its motion for leave to intervene. An order denying a motion for leave to intervene is directly appealable because it finally and adversely determines the moving party's right to proceed in the action. (Bame v. City of Del Mar (2001) 86 Cal.App.4th 1346, 1363, 104 Cal.Rptr.2d 183.)

III. AS A PARTIALLY SUBROGATED INSURER, STATE FARM HAS A RIGHT TO INTERVENE IN THE INSUREDS' LAWSUIT UNDER CODE OF CIVIL PROCEDURE SECTION 387, SUBDIVISION (b).

Intervention is governed by Code of Civil Procedure section 387. Subdivision (a) of section 387 states in relevant part, "[u]pon timely application, any person, who has an interest in the matter in litigation, or in the success of either of the parties, or an interest against both, may intervene in the action or proceeding."

Intervention is mandatory (as of right) or permissive. A nonparty has a right under Code of Civil Procedure section 387, subdivision (b) to intervene in a pending action "if the person seeking intervention claims an interest relating to the property or transaction which is the subject of the action and that person is so situated that the disposition of the action may as a practical matter impair or impede that person's ability to protect that interest, unless that person's interest is adequately represented by existing parties."²

A. THE REQUIREMENTS FOR INTERVENTION AS OF RIGHT UNDER CODE OF CIVIL PROCEDURE SECTION 387, SUBDIVISION (b)

1. Interest Related to the Property or Transaction That is the Subject of the Underlying Lawsuit

State Farm, as a partially subrogated insurer, has an interest "relating to the property or transaction" that is the subject of the construction defect lawsuit. Under the doctrine of subrogation, when an insurer pays money to its insured for a loss caused by a third party, the insurer succeeds to its insured's rights against the third party in the amount the insurer paid. (Rossmoor Sanitation, Inc. v. Pylon, Inc. (1975) 13 Cal.3d 622, 633-634, 119 Cal. Rptr. 449, 532 P.2d 97.) Upon subrogation, the insurer steps into the shoes of its insured. (Allstate Ins. Co. v. Mel Rapton, Inc. (2000) 77 Cal.App.4th 901, 908, 92 Cal.Rptr.2d 151 (Mel Rapton).) "`Subrogation is the insurer's right to be put in the position of the insured, in order to recover from third parties who are legally responsible to the insured for a loss paid by the insurer.'" (Plut v. Fireman's Fund Ins. Co. (2000) 85 Cal.App.4th 98, 104, 102 Cal.Rptr.2d 36 (Plut).) Partial payment to the insured results in partial subrogation; the insurer is subrogated in the amount of the insurance proceeds. (Ferraro v. Southern Cal. Gas Co. (1980) 102 Cal.App.3d 33, 43, 162 Cal.Rptr. 238 (Ferraro).)

Deutschmann v. Sears, Roebuck & Co. (1982) 132 Cal.App.3d 912, 183 Cal.Rptr. 573 (Deutschmann) supports the position that State Farm has an interest in the litigation sufficient to support intervention as a matter of right. In that case, the insured sued the retailer Sears, Roebuck & Company for personal injury and property damages resulting from a fire caused by a defective television set. (Id. at p. 914, 183 Cal.Rptr. 573.) The insurer became subrogated to the insured by paying policy proceeds for property damage and intervened in the insured's lawsuit. (Ibid.) The trial court dismissed the action, including the insurer's complaint in intervention, on the ground the insured had failed to file the proof of service of summons in a timely manner. (Id. at pp. 914-915, 183 Cal.Rptr. 573.)

The Court of Appeal reversed. The court held dismissal of the insurer's intervention complaint was erroneous because the insurer, having timely intervened, was entitled to proceed with the lawsuit notwithstanding the insured's failure to timely file the proof of service of summons. (Deutschmann, supra, 132 Cal.App.3d at p. 915, 183 Cal.Rptr. 573.) The court stated that to intervene under Code of Civil Procedure section 387, the proposed intervener must have a direct interest in the success of one of the parties to the litigation or an interest against both of them. (Deutschmann, supra, at p. 915, 183 Cal. Rptr. 573.) "It is clear under the facts of this case," the court concluded, "that [the insurer] has a direct pecuniary interest in the outcome of the litigation between plaintiff and respondent." (Ibid.) The insurer was subrogated to the rights of the insured in the amount the insurer had paid the insured for the loss suffered, and "[a]s such subrogee, [the insurer] may intervene in a pending action for damages brought by the insured." (Ibid.)

While Deutschmann does not state whether such intervention would be permissive or as of right, the case supports the proposition a subrogated insurer has an interest related to the transaction that is the subject of the underlying lawsuit. Indeed, the Deutschmann court recognized a subrogated insurer has "a direct pecuniary interest" in the outcome of the litigation between the insured and the responsible third party. (Deutschmann, supra, 132 Cal.App.3d at p. 915, 183 Cal. Rptr. 573.)

Relying on California Physicians' Service v. Superior Court (1980) 102 Cal. App.3d 91, 162 Cal.Rptr. 266 (California Physicians' Service), the Hodges contend subrogation does not give the insurer an interest in the property or transaction that is the subject of the lawsuit in which intervention is sought. We disagree. In California Physicians' Service, the trial court denied the motion of a health insurer to intervene in its insured's medical malpractice action. The appellate court denied the insurer's petition for writ of mandate, stating "[a] cause of action in tort would not qualify as `property'" under Code of Civil Procedure section 387. (California Physicians' Service, supra, at p. 96, 162 Cal....