New Plumbing Contractors, Inc. v. Nationwide Mutual Ins. Co.

• Decision Date: 29 June 1992
• Docket Number: No. G010671,G010671
• Citation: 7 Cal.App.4th 1088,9 Cal.Rptr.2d 469
• Court: California Court of Appeals Court of Appeals
• Parties: NEW PLUMBING CONTRACTORS, INC., Plaintiff and Appellant, v. NATIONWIDE MUTUAL INSURANCE CO., Defendant and Respondent.

Page 469

9 Cal.Rptr.2d 469

7 Cal.App.4th 1088

NEW PLUMBING CONTRACTORS, INC., Plaintiff and Appellant, v. NATIONWIDE MUTUAL INSURANCE CO., Defendant and Respondent.

No. G010671.

Court of Appeal, Fourth District, Division 3, California.

June 29, 1992.

[7 Cal.App.4th 1091] Arthur J. Levine, Fullerton, for plaintiff and appellant.

Bronson, Bronson & McKinnon, Ralph S. LaMontagne, Jr., John D. Boyle, Eric A. Amador and Stuart D. Hirsch, Los Angeles, for defendant and respondent.

OPINION

WALLIN, Associate Justice.

In this case we are asked to consider whether an employer who has assigned its subrogation rights to its workers' compensation insurance carrier has a cause of action against the carrier for negligence or breach of the implied covenant of good faith and fair dealing when the carrier does not actively pursue those subrogation rights. We conclude it does not.

* * *

New Plumbing Contractors, Inc. appeals a judgment dismissing its complaint against its workers' compensation insurance carrier, Nationwide Mutual Insurance Co., following the trial court's order sustaining Nationwide's demurrer without leave to amend. ¹ It contends it stated causes of action for breach of the implied covenant of good faith and fair dealing and negligence arising out of Nationwide's failure to pursue its subrogation rights against a third party.

Nationwide issued a workers' compensation insurance policy to New Plumbing for a term from September 1, 1985, to September 1, 1986. The policy provided that New Plumbing's employer subrogation rights were granted to Nationwide stating, "We [Nationwide] have your rights, and the rights of persons entitled to the benefits of this insurance to recover our payments from anyone liable for the injury. You [New Plumbing] will do everything necessary to protect those rights for us and to help us enforce them." Under Department of Insurance regulations, New Plumbing's workers' compensation premiums for the policy years 1987 to 1988, 1988 to 1989, and 1989 to 1990, were in part based on its claims experience during the 1985 to 1986 policy period. Under the same regulations, if Nationwide recovered subrogation money for a claim made against New Plumbing during the 1985 to 1986 policy year, New Plumbing's "experience modification" for that year would have declined resulting in lower premiums for the subsequent years. The regulations also provide that if the insurer receives subrogation money, the resulting reduction of experience modification applies only to the current and immediately preceding policy years. ²

With this as background, New Plumbing based its breach of the implied covenant of good faith and fair dealing cause of action on the following allegations: In July 1986, an employee of New Plumbing, Peter Legro, was injured during the course and scope of his employment by a negligent third party. Nationwide paid the claim. In May 1987 Legro filed a complaint for damages against the negligent third party. The Legro complaint was served on New Plumbing and Nationwide as required by statute. ³ Nationwide failed to properly investigate or pursue its subrogation rights on the Legro complaint. It also failed to file a timely intervention, facilitate settlement or move the case towards trial. As a result, New Plumbing lost the opportunity to have its "experience modification" reduced and receive a refund of policy premiums for any of the 1987 to 1988, 1988 to 1989, or 1989 to 1990 policy years. Nationwide, however, still may recover subrogation money on the Legro complaint, which money will solely benefit Nationwide. Nationwide, as insurer, had a "quasi-fiduciary or fiduciary-type relationship" with New Plumbing in which Nationwide "had a duty not to place its own interests above those of New Plumbing."

New Plumbing's complaint also contained a negligence cause of action alleging Nationwide had a "fiduciary-type" duty to protect the interests of New Plumbing by recovering through subrogation the monies paid to New Plumbing's injured employee so as to cause a revision of New Plumbing's "experience modification" and a reduction of its premiums. This duty was breached when Nationwide did not diligently pursue its subrogation rights.

The trial court sustained Nationwide's demurrer to the complaint on the grounds that it failed to state a cause of action. (Code Civ.Proc., § 430.10, subd. (e).) New Plumbing did not request an opportunity to amend and the demurrer was sustained without leave to amend.

I

New Plumbing contends it stated causes of action for negligence and breach of the covenant of good faith and fair dealing. Both are premised on New Plumbing's belief that Nationwide had a duty to diligently pursue its subrogation rights against the third party and failed to do so.

An employer who becomes obligated to pay workers' compensation benefits to an employee injured by a third party has a right to recover the total amount of compensation paid in addition to "damages for which [the employer] was liable including all salary, wage, pension, or other emolument paid to the employee...." (Lab.Code, § 3852.) If the employer is insured for workers' compensation liability the carrier becomes subrogated to the employer's right of action. (Lab.Code, § 3850, subd. (b); Ins.Code, § 11662.) "[T]he insurer's subrogated right is its right to be put in the position of its insured against third parties legally responsible to its insured for the loss which the insurer has both insured and paid." (Commercial Union Assurance Co. v. City of San Jose (1982) 127 Cal.App.3d 730, 733, 179 Cal.Rptr. 814; see also Kardly v. State Farm Mut. Auto. Ins. Co. (1989) 207 Cal.App.3d 479, 488, 255 Cal.Rptr. 40.)

The statutory scheme provides the carrier with three options for enforcing its right of action to recover compensation benefits from a negligent third party. It may file suit against the third party in its own name. (Lab.Code, § 3852.) It may intervene in an action filed by the employee against the third party. (Ibid.) It may take no action and claim a lien against any judgment recovered by the employee. (Lab.Code, § 3856, subd. (b). See also Burum v. State Compensation Ins. Fund (1947) 30 Cal.2d 575, 581, 184 P.2d 505; Smith v. Trapp (1967) 249 Cal.App.2d 929, 936, 58 Cal.Rptr. 229.)

Here, Nationwide, paid Legro's compensation claim pursuant to the 1985 to 1986 policy. New Plumbing does not allege that payment of the claim was in any way improper. Pursuant to the policy and Insurance Code section 11662, Nationwide was subrogated to New Plumbing's rights as employer to recover the amounts paid on the claim.

The trial court correctly sustained the demurrer on New Plumbing's negligence cause of action. "Actionable negligence involves a legal duty to use due care, a breach of such legal duty, and the breach as the proximate or legal cause of the resulting injury." (United States Liab. Ins. Co. v. Haidinger-Hayes, Inc. (1970) 1 Cal.3d 586, 594, 83 Cal.Rptr. 418, 463 P.2d 770.) New Plumbing's position is that if Nationwide had recovered compensation benefits from the third party by 1990, New Plumbing would have received a refund of some of the increased premiums paid for the 1987 to 1988, 1988 to 1989 or 1989 to 1990 policy years. Nationwide, therefore, had a legal duty to actively pursue its subrogation rights. We conclude that because the workers' compensation law does not impose a duty on the carrier to pursue its subrogation rights in any particular manner, New Plumbing cannot state a cause of action for negligent performance of that duty.

Nothing in the statutory scheme suggests a duty on the part of the carrier to select a particular method of pursuing its subrogation rights. ⁴ Nonetheless, New Plumbing urges the statute should be interpreted as imposing on the carrier a duty to select the method of pursuing its subrogation rights which will be most expeditious and best protect the insured.

New Plumbing makes much of what it terms the Legislature's intent in enacting Labor Code section 3852 to allow the employer to recover from third party tortfeasors all of the compensation benefits paid to the injured employee and all of the damages suffered by the employer as a proximate result of the third party's conduct. (See State Comp. Ins. Fund v. Williams (1974) 38 Cal.App.3d 218, 222, 112 Cal.Rptr. 226.) It suggests that this intent imposes a duty on the carrier possessing the employer's subrogation rights to make sure that the employer recovers all of its damages, including increased premium costs. However, in Fischl v. Paller & Goldstein (1991) 231 Cal.App.3d 1299, 282 Cal.Rptr. 802, the court held that increased workers' compensation insurance premiums were not damages to which the employer is entitled under the statute.

Were we to accept New Plumbing's argument, we would have to conclude that while the statutory scheme specifies several options for pursuing subrogation rights, the carrier must always file an action in its own behalf. If the carrier allowed the employee to pursue the third party action and impose a lien on a judgment, the lien might not be satisfied until it was too late for the carrier's recovery to have any impact on the employer's premiums. The same risk applies to intervention in the employee's action. An intervenor has no right to control the underlying litigation. (Rhode v. National Medical Hosp. (1979) 93 Cal.App.3d 528, 538, 155 Cal.Rptr. 797; Bosch v. Standard Oil Co. of Cal. (1961) 193 Cal.App.2d 426, 430, 14 Cal.Rptr. 247.) Therefore, by intervening, the insurer could not necessarily recover the compensation benefits any sooner.

New Plumbing's argument would render the intervention or lien options inapplicable to a carrier. However, since the sections are specifically made applicable to the carrier (Lab.Code, § 3850, subd. (b)), we cannot adopt such a rule. Rather than impose a duty on the carrier to proceed in a specific manner, the statutory scheme gives the carrier its...