California Court Clarifies the Assignability of Negligence Claims Against an Insurance Broker and the Superior Equities Defense to an Insurer’s Subrogation Claim

By Alan Jampol, Esq. of Jampol Zimet LLP

In Amco Insurance Company et al. v. All Solution Insurance Agency, LLC (2016) 244 Cal.App.4th 883, the California Court of Appeal for the fifth District held that an assignment of a negligence claim against an insurance broker is valid and that unless the assignee is also the insurer of the policyholder and paid the policyholder’s claim, the superior equities rule does not bar the claim. These are two contentious issues that have not been settled by the Supreme Court.

In Amco, a client of the defendant insurance broker negligently caused a fire on his premises that spread and injured two neighboring properties. When the client’s insurer denied coverage of the loss, the client settled the claims against him by assigning his rights against the insurance broker (which he claimed was negligent in failing to procure insurance) to the owners of one of the neighboring properties (“the Restauranteurs”) and to Amco, the insurer that paid the loss of the other neighboring property owner. The Restauranteurs and Amco sued the broker under the assignments.

The broker’s principle defenses to the claims were that (i) a claim against an insurance broker is not assignable and (ii) the assignment to Amco does not enlarge Amco’s equitable subrogation rights, which are barred by the doctrine of superior equities. The broker also denied any negligence. Summary judgment was granted to the broker on both principal grounds, but was reversed on appeal.

The appellate court noted that the California Supreme Court had held that, “A cause of action is transferrable, that is, assignable, by its owner if it arises out of a legal obligation or a violation of a property right. (Civ.Code, § 954.)” Amalgamated Transit Union, Local 1756, AFL–CIO v. Superior Court (2009) 46 Cal.4th 993, 1003. While there are some exceptions to the rule of assignability, the general rule is that if a cause of action survives death, it is assignable.

The broker attempted to analogize to legal malpractice claims, which for public policy reasons are generally deemed not assignable. The dissimilarities between the attorney-client relationship and insurance broker-client relationship were, the court held, too great to justify equal application. While the attorney-client relationship is personal in nature, the insurance broker-client relationship is innately impersonal due to the standardization of forms and policies. Thus, the court held that a client’s causes of action against an insurance broker are assignable and the Restauranteurs could proceed against the broker on their assigned claims.

The rights of Amco were different; they were based on the equitable doctrine of subrogation. When an insurer pays its policyholder’s loss, it has the equitable right to seek reimbursement from the cause of the loss. This is subrogation, and an assignment does not enlarge those rights, which continue to be governed by the rules of subrogation. One of those equitable rules is the “superior equities” doctrine, which holds that as between those of equal equities, the law will not interpose. Thus, in order to recover from another for breach of duty to the same person (the policyholder), the insurer must prove that the other person was the actual cause of the loss. In Amco, that person was the broker.

The appellate court held that only the insurer for the policyholder is subject to the superior equities rule. Since Amco had not paid the client’s loss, but the loss of the neighboring property owner, it had subrogation rights, but was not subject to the superior equities rule. Thus, Amco was entitled to pursue its equitable subrogation claim (in effect its assigned claim) against the broker without regard to superior equities.

The Amco case must be distinguished from San Diego Assemblers, Inc. v. Work Comp For Less Insurance Services, Inc. (2013) 20 Cal.ap.4th 1363 (“Assemblers”). In Assemblers, a contractor caused a fire loss, which was uninsured due to a claimed error on the part of the broker. Another insurer paid the loss and sued the contractor, which settled by assigning to that insurer its claim against the broker. The insurer sued the broker for negligence pursuant to the assignment. The trial court granted summary judgment to the broker, which was affirmed by the appellate court.

The appellate court ruled that an assignment to the insurer added nothing to the insurer’s equitable subrogation rights. It then ruled that the insurer’s claim against the broker was barred by the superior equities rule, whether characterized as one in subrogation or by an assignment from the contractor/policyholder, because the equities of the insurer were no greater than those of the broker (both had a duty to the policyholder). This was because the broker was not the “cause” of the fire. This holding was based upon the California Supreme Court’s ruling in Meyers v. Bank of America etc. Assn. (1938) 11 Cal.2d 92 (“Meyers”).

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