California Court of Appeals Interprets Anti-Subrogation Doctrine
April, 2002
In a case of first impression, the California Court of Appeals recently reviewed the anti-subrogation doctrine in Truck Ins. Exchange v. County of Los Angeles, 95 Cal. App. 4th 13, 115 Cal. Rptr. 2d 179 (2002)1, holding that, under certain circumstances, an insurer may enforce equitable subrogation rights against its own insured. While the facts of this case are quite unique and the court clearly relied on several key contractual provisions between the subrogee and the defendant, the court clarified the anti-subrogation doctrine which prohibits an insurer from bringing a subrogation action against its own insured.
Facts
The plaintiff subrogee, Truck Insurance Exchange, had issued an insurance policy to Santa Marta Hospital providing medical malpractice coverage. Santa Marta had previously entered into a contract with the County of Los Angeles whereby the County would refer obstetrical cases which presented a low risk of medical complications to Santa Marta. In the referral agreement, the County agreed to indemnify Santa Marta for claims for damages arising out of services performed by the County prior to the referral. Shortly after issuing its policy of insurance, Truck Insurance Exchange added the County as an additional named insured pursuant to an endorsement. However, this endorsement provided that coverage extended to the County only for legal liability arising out of the acts or omissions of the named insured (Santa Marta) and that the policy did not extend coverage to the acts or omissions of the County. In essence, Truck agreed to indemnify the County for vicarious liability associated with the care of patients referred to Santa Marta by the County.
Pursuant to the referral agreement, a patient was referred to Santa Marta for prenatal care, delivery and postnatal care. Contrary to the referral agreement, however, the patient presented with a high risk pregnancy. Upon delivery, the infant patient suffered serious injuries. The patient brought a medical malpractice action against Santa Marta, the County and the obstetrician. After a jury trial, the jury found that the County and the obstetrician were solely liable for the plaintiff’s injuries and that Santa Marta was not negligent and bore no responsibility for the claimed injuries. Throughout the pendency of the medical malpractice case, Truck continued to tender the defense of the Santa Marta case to the liability carrier for the County. However, the County refused the tender of the defense. Upon entry of judgment in favor of Santa Marta, Truck sought recovery from the County for the cost of defending Santa Marta, citing the indemnity provision in the referral agreement. The County refused, once again, to accept the tender.
Analysis
The anti-subrogation rule has been well established under California law. See, e.g., St. Paul Fire & Marine Ins. Co. v. Murray Plumbing and Heating Corp., 65 Cal. App. 3d 66 (1976). Generally, California law provides that an insurer has no right of equitable subrogation against its own insured with respect to a loss or liability for which the insured is covered under the policy in question because, as between the insurer and the insured, the insurer assumes responsibility for the loss or liability. For the insurer to recover from its insured for a covered loss or liability would undermine the insured’s coverage and would be inequitable. California courts had not yet addressed, however, the question of equitable subrogation in the event that the liability of the insured was one which was not covered under the subject policy. The court in Truck held that if the policy does not cover the insured for a particular loss or liability, it would neither undermine the insured’s coverage nor be inequitable to impose the loss or liability on the insured, if the insured caused or was otherwise responsible for the loss or liability. The court cited, with approval, authority from other jurisdictions holding that the rule prohibiting an insurer’s subrogation against an insured applies only for a claim arising from the very risk for which the insured was covered.
The court further held that, since the endorsement naming the County as an additional insured specifically excluded coverage for liability arising out of the acts or omissions of the County itself (as opposed to vicarious liability arising out of the relationship between the County and Santa Marta), Truck’s policy did not cover the County for the liability sought to be recovered by Truck. Accordingly, the court found that it would neither undermine the County’s coverage afforded under the Truck policy nor be inequitable to impose the liability for indemnity under the referral agreement upon the County.
Practice Pointer:
While the facts presented in the Truck case are quite unique, it is clear that courts will consider arguments limiting the import of the anti-subrogation rule where sophisticated parties have considered the scope of various insurance coverages and have developed a contractual scheme for the apportionment of that liability.
1 First reported in 2002 CM Report, Vol. 1 “Case Notes.”
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