Insurance companies often seek subrogation after they paid a claim, even at times squeezing their insureds for first place in line to recover their respective damages from a tortfeasor.
The law has imposed certain restrictions on insurers’ rights in this area, basically limiting insurers’ subrogation rights to cases where the third party’s “equitable position is inferior to that of the insurer” (Meyers v. Bank of America Ass’n (1938) 11 Cal. 2d 92); but a recent decision can be read to challenge the rule of equity in such cases because Civil Code section 954, unchanged since 1872, provides that “a thing in action, arising out of a right of property, or out of an obligation, may be transferred by the owner,” creating a legal right to assert an assigned claim.
The facts of that new case, Amco Insurance Company v. All Solutions Insurance Agency LLC, 16 DJDAR 1383, were complex: one landowner negligently caused a fire which spread to two adjoining properties and caused damages there. The landowner’s own insurance had lapsed days earlier and he claimed that his broker was responsible for that lapse. He assigned his right to sue the broker to the other victims of the fire and, in one case, to the victim’s insurer.
These facts created an opportunity for the court to examine this rarely visited subject with great scholarship. It found that the law of insurance subrogation had essentially ignored section 954, a point which leaves us with questions whether, if this legal right of assignment controls over the rule of equity in insurance subrogation, policyholders and third party victims of negligence may be made to cade their positions, in whole or in part, to insurers claiming subrogation rights.