State Farm Ins. v. Wells Fargo Bank

• Decision Date: 10 October 2006
• Docket Number: No. A111643.,A111643.
• Citation: 143 Cal.App.4th 1098,49 Cal.Rptr.3d 785
• Court: California Court of Appeals Court of Appeals
• Parties: STATE FARM GENERAL INSURANCE COMPANY, Plaintiff and Appellant, v. WELLS FARGO BANK, N.A., et al., Defendants and Respondents.

49 Cal.Rptr.3d 785

143 Cal.App.4th 1098

STATE FARM GENERAL INSURANCE COMPANY, Plaintiff and Appellant, v. WELLS FARGO BANK, N.A., et al., Defendants and Respondents.

No. A111643.

Court of Appeal, First District, Division 4.

October 10, 2006.

Law Offices of Rodney A. Marraccini, Rodney A. Marraccini, Walnut Creek; Law Office of Stephen M. Tamchin, Stephen Michael Tamchin, Walnut Creek, for Appellant State Farm General Insurance Company.

Murphy, Pearson, Bradley & Feeney, Timothy J. Halloran, Summer Michelle Smith, San Francisco, for Respondent Wells Fargo Bank, N.A.

Carr & Ferrell LLP, Jeffrey M. Capaccio, Ilene H. Goldberg, James W. Lucey, Palo Alto, for Respondent Sunset Scavenger Company.

Spencer Law Firm, John Stanley Spencer, for Respondents Estate of Sherwood J. Allen, deceased, Wells Fargo Bank, N.A., as Executor of the Estate of Sherwood J. Allen, deceased, Keynote Properties, Robert Camozzi, Astrid Lacitis, Mary Williams.

SEPULVEDA, J.

INTRODUCTION

In this subrogation action, State Farm General Insurance Company (State Farm) seeks to recover sums it paid to its insureds, a condominium association and one of the condominium owners, following a fire loss. The fire started in an adjacent apartment building, after an ignition source was placed in a trash can, and the resultant fire spread to the insureds' condominium complex. State Farm sued the neighboring apartment building's owner and trustee, property managers, and refuse company (collectively respondents). It is undisputed that respondents did not place the ignition source in the trash can. Rather, State Farm contends respondents' negligent failure to provide for the safe disposal of fireplace ashes caused the fire, which spread to its insureds' property.

The trial court granted summary judgment in favor of respondents on the ground that State Farm's claims were barred by the doctrine of superior equities, which requires a balancing of the respective equities of the parties in order to determine who should bear the loss. (See Meyers v. Bank of America etc. Assn. (1938) 11 Cal.2d 92, 101, 77 P.2d 1084 (Meyers); Golden Eagle Ins. Co. v. First Nationwide Financial Corp. (1994) 26 Cal. App.4th 160, 171, 31 Cal.Rptr.2d 815 (Golden Eagle).) In so ruling, the trial court relied on Fireman's Fund Ins. Co. v. Morse Signal Devices (1984) 151 Cal. App.3d 681, 688, 198 Cal.Rptr. 756 (Morse) [insurer not entitled to subrogation against alarm companies for insureds' theft and fire loss, where alarm system failure not primary cause of insureds' loss], and concluded that because respondents did not place the ignition source in the trash can, they were not the primary cause of the fire. The trial court concluded that since respondents were not the primary cause of the fire, the equities of State Farm as the subrogating insurer were not superior to those of respondents. On appeal, State Farm contends that the trial court improperly interpreted and applied the doctrine of superior equities. We agree and reverse.

FACTUAL AND PROCEDURAL BACKGROUND

The Estate of Sherwood J. Allen (the Allen Estate) owned a three-unit apartment building (the Allen Property) in San Francisco. Wells Fargo Bank, N.A. (Wells Fargo), as executor of the Allen Estate, contracted with Keynote Properties (Keynote) to manage the Allen Property. In the course of its management duties, Keynote contracted with Sunset Scavenger to provide waste management services for the Allen Property.

On January 5, 2002, a fire started in a trash can in the light well¹ area of the Allen Property and spread to the neighboring condominium complex. Reggie Cabal² was a tenant at the Allen Property at the time of the fire. Mr. Cabal's unit had an operable wood-burning fireplace.³ As the furnace in his unit had not worked since 1994, Mr. Cabal relied on his fireplace as a source of heat.

On January 4, 2002, Mr. Cabal cleaned out his fireplace and placed 20 pounds of ashes in a white plastic bag. He did not check the ashes for the presence of hot embers. Mr. Cabal brought the plastic bag outside and threw it into one of the plastic garbage cans located in the light well of the Allen Property. Metal receptacles were not provided for the disposal of fireplace ashes, and the tenants were not given any instructions regarding the manner in which they were to dispose of such ashes.

At his deposition, Mr. Cabal testified that he would have used a metal can to dispose of his fireplace ashes had one been provided. Mr. Cabal further testified that he would have utilized a metal can even in the absence of safety instructions directing him to do so.

The fire caused substantial damage to both the Allen Property and the condominium complex. As a result of the fire loss, State Farm paid approximately $2 million to its insureds. In its subrogation action, State Farm sued, among others, the Allen Estate, Wells Fargo, individually and as executor of the Allen Estate, Keynote,⁴ and Sunset Scavenger.

DISCUSSION

A. Standard of Review

A party is entitled to summary judgment when there is no triable issue of material fact and the party is entitled to judgment as a matter of law. (Code Civ. Proc., § 437c, subd. (c).) "If a party moving for summary judgment in any action . . . would prevail at trial without submission of any issue of material fact to a trier of fact for determination, then he should prevail on summary judgment." (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 855, 107 Cal.Rptr.2d 841, 24 P.3d 493 (Aguilar).) A defendant moving for summary judgment must show that one or more elements of the cause of action cannot be established or that there is a complete defense. (Code Civ. Proc., § 437c, subd. (o)(1), (2); Aguilar, supra, 25 Cal.4th at p. 849, 107 Cal.Rptr.2d 841, 24 P.3d 493.) Once the defendant meets its burden, the burden shifts to the plaintiff to set forth "specific facts" showing that a triable issue of fact exists. (Code Civ. Proc., § 437c, subd. (p)(2); Aguilar, supra, at p. 849, 107 Cal.Rptr.2d 841, 24 P.3d 493.)

On appeal, we independently review the trial court's ruling and apply the same legal standard that governs the trial court. (Silva v. Lucky Stores, Inc. (1998) 65 Cal.App.4th 256, 261, 76 Cal.Rptr.2d 382.)

B. Principals of Subrogation and the Doctrine of Superior Equities

"Subrogation is defined as the substitution of another person in place of the creditor or claimant to whose rights he or she succeeds in relation to the debt or claim." (Fireman's Fund Ins. Co. v. Maryland Casualty Co. (1998) 65 Cal.App.4th 1279, 1291, 77 Cal.Rptr.2d 296.) It provides a "`"method of compelling the ultimate payment by one who in justice and good conscience ought to make it—of putting the charge where it justly belongs."'" (Meyers, supra, 11 Cal.2d at p. 101, 77 P.2d 1084, italics original; see also Morse supra, 151 Cal.App.3d at p. 686, 198 Cal. Rptr. 756.)

In the insurance context, subrogation takes the form of an insurer's right to be put in the position of the insured for a loss that the insurer has both insured and paid. (Fireman's Fund v. Maryland Casualty Co., supra, 65 Cal.App.4th at pp. 1291-1292, 77 Cal.Rptr.2d 296; see also Jones v. Aetna Casualty & Surety Co. (1994) 26 Cal.App.4th 1717, 1723, 33 Cal. Rptr.2d 291.) When an insurance company pays out a claim on a property insurance policy, the insurance company is subrogated to the rights of its insured against any wrongdoer who is liable to the insured for the insured's damages. (See Progressive West Ins. Co. v. Superior Court (2005) 135 Cal.App.4th 263, 272, 37 Cal.Rptr.3d 434 (Progressive); see also Plut v. Fireman's Fund Ins. Co. (2000) 85 Cal.App.4th 98, 104, 102 Cal.Rptr.2d 36 ["`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. [Citation.]' [Citation.]"]; Hodge v. Kirkpatrick Dev., Inc. (2005) 130 Cal. App.4th 540, 548, 30 Cal.Rptr.3d 303.)

"Subrogation has its source in equity and arises by operation of law⁵ (legal or equitable subrogation). [Citation.] It can also arise out of the contractual language of the insurance policy (conventional subrogation). [Citation.] The subrogation provisions of most insurance contracts typically are general and add nothing to the rights of subrogation that arise as a matter of law. [Citation.]" (Progressive, supra, 135 Cal.App.4th at p. 272, 37 Cal.Rptr.3d 434.) For example, the standard form fire insurance policy, contained in Insurance Code section 2071, includes a provision for subrogation, with the effect that the insurer may require from the insured an assignment of all rights of recovery against any loss to the extent that payment is made in full by the insurer.

"Subrogation places the insurer in the shoes of its insured to the extent of its payment. [Citation.]" (Progressive, supra, 135 Cal.App.4th at p. 272, 37 Cal. Rptr.3d 434.) When standing in the insured's shoes, the insurer has no greater rights than the insured would have, and for that reason is subject to the same defenses assertable against the insured. (Allstate Ins. Co. v. Loo (1996) 46 Cal. App.4th 1794, 1799, 54 Cal.Rptr.2d 541.)

While the insurer by subrogation steps into the shoes of the insured, that substitute position is qualified by a number of equitable principles. For example, an insurer cannot bring a subrogation action against its own insured. (See Truck Ins. Exchange v. County of Los Angeles (2002) 95 Cal.App.4th 13, 21, 115 Cal.Rptr.2d 179 [an insurer that has also issued a liability policy to the tortfeasor responsible for causing the insured's loss cannot enforce subrogation rights].) An insurer also cannot seek subrogation of personal injury claims in the absence of a statutory authority. (See Fifield Manor v. Finston (1960) 54 Cal.2d 632, 639-640, 7 Cal.Rptr. 377, 354 P.2d 1073; see also Lab.Code, § 3852; Ins.Code, § 11580.2, subd. (g).) Additionally, before...