What’s Good for the Goose is Good for the Subrogee: When Comparative Fault May Not Reduce Subrogation Recovery

Where comparative fault is attributable to a subrogation plaintiff, it may reduce recovery. But, just as a defendant might assert lack of foreseeability or failure of a plaintiff to meet its own obligations, a subrogation plaintiff may, in some circumstances, invoke these same concepts to defeat policyholder fault as a basis for reduction of its recovery.

Where A Manufacturer Warns Against The Conduct But Not The Particular Hazard

One interesting example is where a defendant manufacturer instructs a product user not to engage in the conduct that the user later engages in, but fails to warn about the particular hazard from such conduct that actually causes the loss. “The uncompensated consequences which [a] plaintiff must bear for failure to comply with instructions for use should at least be loosely commensurate with those against which warning was given….” Schwoerer v. Union Oil Co., 14 Cal. App. 4th 103, 114 (1993).

In Schwoerer, the manufacturer and/or distributor of a solvent warned of serious potential consequences (e.g., asphyxiation, unconsciousness, central nervous system depression) from exposure to the solvent, and provided specific instructions as to safety equipment to be used. The plaintiff, however, did not use any of this safety equipment. After long-term exposure he was diagnosed with chronic liver failure. The court observed that despite the warnings that were given, there was no warning of the consequence (vital organ damage resulting from unprotected use of the solvent) that actually occurred. It reversed summary judgment for the defendants. Under Schwoerer, a non-expert plaintiff cannot be denied compensation based on the defense of failure to comply with instructions in the absence of a warning that was at least “loosely commensurate” with the type of harm that actually occurred.

Please bear in mind that only an expert is charged with the knowledge of an expert. Victor v. Hedges, 77 Cal. App. 4th 229, 243 (1999) (since party was not shown to have “the specialized knowledge of an expert” his conduct was not judged by that standard). A litigant owes a negligence duty “only with respect to those risks or hazards whose likelihood made the conduct unreasonably dangerous, and hence negligent, in the first instance.” Dillon v. Legg, 68 Cal. 2d 728, 739 (1968).

In the world of subrogation, an insured company may employ engineers and have strong technical expertise as to its core business. The policyholder may even be a manufacturer itself. This same insured, however, may lack the expertise necessary to recognize all the hazards from the use of its equipment that the designer or manufacturer of that equipment should recognize. The defendant manufacturer may have provided instruction that its product be used in a certain way, but failed to warn of a particular hazard that could ensue if its instruction was not followed. Schwoerer suggests that where the particular hazard that caused the loss was not warned about, the user’s failure to follow an instruction might not support comparative fault-even though compliance with the instruction would have avoided the loss.

Where A Statute Or Code Was Promulgated For Another Reason

A plaintiff or defendant seeking to invoke the doctrine of negligence per se seeks to take advantage of a statute, code, regulation, or ordinance that prohibits conduct engaged in by the opposing party. Even where such conduct is proven, however, a necessary element of negligence per se is that “[t]he death or injury resulted from an occurrence of the nature which the statute, ordinance, or regulation was designed to prevent.” Cal. Evid. Code § 669.

In Capolungo v. Bondi, 179 Cal. App. 3d 346, 354 (1986), a bicyclist who swerved to avoid a parked car was then struck by a moving car. The bicyclist sued the owner of the parked car for negligence, citing an ordinance that restricted parking at yellow-painted curbs to a maximum of 24 consecutive minutes. The car had been parked at the yellow curb for most of the day. The court upheld summary judgment for the owner of the parked car. It observed that under the law “the zone may be legally in use by vehicle after vehicle so that traffic in that lane might be constantly obstructed.” As such, the purpose of the law was not to prevent the type of incident that occurred.

In subrogation matters, a building code might require the insured to use its premises or equipment in a certain way in order to avoid a particular hazard, such as seismic or wind damage. Potentially, the insured’s failure to comply with the code requirement could cause a loss via a separate mechanism of injury, such as fire, collapse or over-pressurization. If it can be demonstrated that the purpose of the code or regulation was to prevent a different mechanism of injury than what actually occurred, the subrogation plaintiff has a reasonable argument that the code or regulation is irrelevant and inadmissible before the jury.

Where Damage From The Policyholder’s Conduct Was Not Reasonably Foreseeable

Schwoerer (manufacturer’s failure to warn of the particular hazard that actually occurs) and Capolungo (ordinance enacted for purpose other than to prevent the loss that actually occurs) involved specific fact patterns. These cases support, however, the general concept that a subrogation plaintiff’s recovery should not be reduced for conduct of its insured that would not reasonably be expected to cause harm.

General tort principles of duty and causation also support this conclusion. “The foreseeability of a particular kind of harm plays a very significant role” in the evaluation of duty. Ballard v. Uribe, 41 Cal. 3d 564, 573, fn. 6 (1986). The court’s task is to “evaluate … whether the category of negligent conduct at issue is sufficiently likely to result in the kind of harm experienced that liability may appropriately be imposed on the negligent party.” Id. (emphasis added). The proximate cause requirement “limits [a litigant’s] liability to those foreseeable consequences that [the litigant’s] negligence was a substantial factor in producing.” Mendoza v. City of Los Angeles, 66 Cal. App. 4th 1333, 1342 (1998).

Where The Defendant Breached A Warranty

Lastly, the subrogation plaintiff should keep in mind that “the same wrongful act may constitute both a breach of contract and an invasion of an interest protected by the law of torts.” North American Chemical Co. v. Superior Court, 59 Cal. App. 4th 764, 774 (1997). Pleading both contract and tort theories of recovery may allow the subrogation plaintiff to defeat defenses that apply to one but not the other. In California, for example, negligent use of a product is not a defense to breach of warranty. Young v. Aeroil Products Co., Inc., 248 F.2d 185, 191 (9th Cir. 1957) (“We have not been referred to, nor could independent research find, any California case holding that negligence on the part of the person injured is a defense to an action based on breach of warranty.”); Shaffer v. Debbas, 17 Cal. App. 4th 33, 42 (1993) (“[C]omparative negligence is not a defense to a breach of express warranty action.”).

This creates an incentive for the subrogation plaintiff to examine not just the “legal” terms and conditions of the quotation or purchase order, but rather all of the manufacturer’s representations as to the product’s dimensions, components, constituent materials, features, operation, quality, safety, and performance. Under California Commercial Code section 2313, any “affirmation of fact or promise,” “description,” or “sample or model” may suffice to create an express warranty. There is no need for the seller to “use formal words such as ‘warrant’ or ‘guarantee,'” or to even “have a specific intention to make a warranty.” Cal. Comm. Code § 2313(2).

“[T]he Uniform Commercial Code contemplates that affirmations, promises and descriptions about the goods contained in product manuals and other materials that are given to the buyer at the time of delivery can become part of the basis of the bargain, and can be ‘fairly … regarded as part of the contract,’ notwithstanding that delivery occurs after the purchase price has been paid.” Weinstat v. Dentsply Intern., Inc., 180 Cal. App. 4th 1213, 1230 (2010). “[T]he legal formation of the contract need not be the final resting point beyond which affirmations can no longer become part of the basis of the bargain.”

To understand why comparative fault may not be a defense to breach of warranty, it is helpful to consider the differences between contract law and tort law. “Contract law exists to enforce the intentions of the parties to an agreement while tort law is designed to vindicate social policy.” North American Chemical Co. v. Superior Court, 59 Cal. App. 4th 764, 774 (1997). The express and implied warranty provisions in sections 2313 and 2314 of the California Commercial Code codify the purchaser’s contractual rights to expect that the product will comply with the seller’s affirmations of fact and custom and practice in the trade. A purchaser would reasonably expect to receive the same features, materials, and dimensions that were described in the fabricator’s literature and drawings. It would also expect an appropriate level of quality. Even assuming the user negligently misused the product, this would not defeat its reasonable expectation of receiving what it paid for.

Notably, where evidence exists in support of product modification, a court might find that “the thing being used” was something other than “the thing sold,” and that this constitutes a defense to breach of warranty. Young v. Aeroil Products Co., Inc., 248 F.2d 185, 190-191 (9th Cir. 1957) (plaintiffs could not rely on representations that a portable elevator was simple to operate and move, and lacked hazards, since owner had added sheets of iron that shifted the center of gravity). In Young, the plaintiffs pursued both breach of warranty and negligence claims. The court took care to explain that it affirmed the judgment against the plaintiffs as to the breach of warranty claim based on the owner’s modification of the product, and not on the undisputed evidence that the user had negligently misused the product.

Learning Point

Many perceived obstacles to pursuing and obtaining a subrogation recovery may be overcome by appropriately employing the principles and precedents described above. To discuss these issues in more detail, please contact Jay directly at jharker@clausen.com.