Putative Insured Can Assign Case Against Agent Who Did not Obtain Insurance Ordered
For centuries it has been impossible to assign a cause of action against a professional, like a lawyer, because of the personal relationship between the client and the professional. The California Court of Appeal was faced, in AMCO Insurance Company v. All Solutions Insurance…, 244 Cal.App.4th 883, 198 Cal.Rptr.3d 687, 16 Cal. Daily Op. Serv. 1521, 2016 Daily Journal D.A.R. 1383 (February 8, 2016) with the question whether a putative insured could assign his cause of action against the insurance agent who failed to obtain the insurance ordered.
The trial court granted summary judgment in favor of the agent and the parties appealed.
Neighbors who owned a restaurant and the insurer for a second neighbor sued an insurance broker for the building owner who had negligently caused fire which damaged neighboring properties and who had assigned claims against broker to neighbors and insurer, alleging negligence and breach of contract based on broker’s failure to procure fire insurance for building. Following consolidation, the Superior Court, granted summary judgment for broker, and neighbors and insurer appealed.
The plaintiffs—neighboring business owners and an insurance company that paid for damages to a neighboring building—pursued the assigned causes of action by filing a lawsuit against the insurance broker. The insurance broker moved for summary judgment, which the trial court granted. The plaintiffs’ appeal of the summary judgment presents three legal issues.
Plaintiffs Hideyo Ogawa and Myong Echols (Restauranteurs) owned and operated a restaurant at 293 South Washington Street, in Sonora, that did business as Koto Japanese Restaurant. For purposes of this opinion, “plaintiffs” refers to AMCO and Restauranteurs collectively.
First, are a client’s causes of action against an insurance broker or agent assignable?
Second, does the rule of superior equities from California’s equitable subrogation doctrine apply to the contractual assignments in this case?
Defendant All Solutions Insurance Agency, LLC (Broker) is an insurance broker authorized to do business in California.
The Loss and Claims
On December 15, 2009, a fire started at 301 South Washington Street, a two-story building with an apartment above a restaurant, owned by Amarjit Singh (Singh). The fire started in an electrical panel box and was caused by Singh’s negligence.
Singh suffered $491,088.47 in property damage. In addition, the fire damaged the neighboring properties owned by Saari and Restauranteurs. Singh tendered his first party claim and plaintiffs’ third party claims to his insurance company, but the claims were denied because there was no policy in effect on the date of the fire.
In 2010, Restauranteurs sued Singh for their property and business losses. Singh eventually stipulated to a judgment for $194,200.71, representing the damage to Restauranteurs’ property and business interests. Singh also assigned to Restauranteurs his rights against Broker for failing to obtain fire insurance coverage for Singh’s Property.
AMCO paid its insured, Saari, $371,326 and then filed a subrogation action against Singh. In November 2011, AMCO obtained a stipulated judgment against Singh for the amount paid. Singh also assigned to AMCO his rights against Broker for failure to obtain insurance.
The Failure To Obtain Insurance
Before the fire, Singh received a notice of nonrenewal from his existing insurer. It is undisputed that Singh communicated with Broker’s personnel—namely, Harish Kapur and Rajni Kapur—after receiving the notice and before the fire. Singh asserts that he requested Rajni Kapur to obtain insurance before the fire and he believed the property was insured at the time of the fire. In contrast, Broker contends that Singh did not request Broker to obtain either first party property or third party liability insurance for the property.
Broker contends that (1) two different quotations for insurance were communicated to Singh on December 10, 2009; (2) Singh was told that Broker would wait for his response before obtaining a policy; (3) Singh understood that he did not have insurance until he called Broker back with his decision; (4) Singh informed Broker that he would call back the following day with a decision; and (5) Singh did not provide Broker with his decision before the fire occurred.
California recognizes the general rule that an agent or broker who intentionally or negligently fails to procure insurance as requested by a client—either an insured or an applicant for insurance—will be liable to the client in tort for the resulting damages. Also, a breach of contract cause of action arises where the agent or broker breaches an oral agreement to obtain insurance as requested by the client.
At common law, California followed the English and American approach that, as a general rule, causes of action were assignable and that nonassignability, the exception, was confined to wrongs done to the person, the reputation, or the feelings of the injured party, and to contracts of a purely personal nature, like promises of marriage. These common law principles are not the final word on the subject because the Legislature has addressed the assignment of causes of action.
Civil Code section 954 addresses assignability by stating: “A thing in action, arising out of the violation of a right of property, or out of an obligation, may be transferred by the owner.” The term “obligation” is defined to mean “a legal duty, by which a person is bound to do or not to do a certain thing.” (Civ.Code, § 1427.)
Under California law, the exceptions to the general rule favoring assignability of causes of action include tort causes of action for wrongs done to the person, the reputation or the feelings of an injured party. Exceptions include legal malpractice claims and certain types of fraud claims. The rule that a cause of action for legal malpractice is not assignable is based on a number of public policy reasons, including protecting the attorney-client relationship. This view is predicated on the uniquely personal nature of legal services and the contract out of which a highly personal and confidential attorney-client relationship arises. The court did not recognize that the relationship between an insurance broker and putative insured is as uniquely personal as the attorney client relationship.
The Court of Appeal held that its conclusion that a client’s causes of action against an insurance broker are assignable found that it is consistent with the majority view.
In summary, Singh’s negligence cause of action against Broker is assignable under California law. Therefore, the summary judgments granted in favor of Broker cannot be affirmed on the ground that Singh’s cause of action was not assignable.
In this appeal, the pertinent overlapping relationship involves the terms “subrogation” and “assignment.” Subrogation has been called a sort of assignment by operation of equity and the equivalent of an equitable assignment. Conversely, voluntary assignment has been deemed a kind of subrogation. Thus, the broadest usage of the term “subrogation” includes transfers of causes of action that are implemented by either (1) contract, which is a consensual arrangement, or (2) operation of law without the consent of the owner of the cause of action.
Here, Restauranteurs were not sureties and no payments, akin to the type of payment a surety would make on behalf of another, were made. Therefore, they had no possibility of pursuing a claim for equitable subrogation, much less an equitable subrogation claim that replicated the contractually assigned cause of action against Broker. Consequently, the limitation on contractual assignments does not apply to Restauranteurs.
The judgment is reversed. The trial court is directed to vacate its July 2014 orders granting the motions for summary judgment and enter a new order denying those motions.
There should be no question that the putative insured stated a cause of action against the broker for negligence. Allowing the negligent person to, by assignment of a cause of action against the insurance broker he claimed failed to purchase the insurance he ordered, to assign that right to others allows the person responsible for the fire to escape liability for his error. The trial may prove there was no negligence by the agent and the injured parties will get nothing. A potential right assigned is not a right – the parties still must prove the agent was negligent – and may get nothing more than large attorneys fee bills.
Barry Zalma, Esq., CFE, practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide
The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972
The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.