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Insurer Waived Subrogation Against Treating Physician By Failing To Apportion Damages In Settlement


In a case of mistaken identity and other mix-ups, the Court of Appeal began Essex Ins. Co. v. Heck, 186 Cal.App.4th 1513 (2010), with “What the heck?!?” and agreed with the trial court that this case is “one of the most screwed up cases [we’ve] ever seen.” Like many cases involving subrogation, the insurer, in settlement, failed to adequately protect its interests.

John Dompeling sued “Robert Abraham” for injuries he suffered from stepping on a nail at a restaurant. Upon tender, Essex Insurance Company agreed to defend “Robert Lee Abraham” under a reservation of rights under a policy issued to “Robert Lee Abraham.” In deposition, it was revealed that “Robert Lincoln Abraham” had purchased the restaurant property in his son’s name, “Robert Lee Abraham.”

Then, “Robert Abraham” filed a cross-complaint for indemnity against Dr. Heck, who had treated Dompeling, alleging that Dr. Heck’s negligence contributed to Dompeling’s injuries. The cross-complaint was severed. Trial on Dompeling’s Complaint resulted in a jury verdict of over $800,000 against “Robert Abraham.”

Concurrently, Essex filed a declaratory relief suit asserting that it owed no coverage for Dompeling’s claim and refused to pay the judgment on the claim. Essex contended, for the first time, that Robert Lincoln Abraham was the defendant in Dompeling’s suit and that he was not an insured. Dompeling sued Essex for bad faith and fraud and also named Robert Lincoln Abraham, Robert Lee Abraham and the defense firm for “Robert Abraham.”

Thus, there were four actions and many claims.  A mediation resulted in a settlement, which provided that Essex pay Dompeling $700,000 and that Dompeling release Essex, “Robert Lee Abraham,” “Robert Lincoln Abraham” and their attorneys, from all claims related to the accident and the insurance claims. After the dismissals, what remained was the severed “Robert Abraham’s” indemnity cross-complaint against Dr. Heck.

Nearly two years later, the trial court allowed “Robert Abraham” to be substituted by Essex on the cross-complaint. Asserting a cause of action for “equitable subrogation,” Essex sought to recover from Dr. Heck the $700,000 settlement paid to Dompeling. Essex later amended the cross-complaint to assert a single cause of action for “comparative indemnity,” asserting that Essex was subrogated to “Abraham’s” indemnity cross-complaint against Dr. Heck and that Essex was entitled to any amount it paid “in excess of the proportionate fault of its insured, ‘Robert Abraham’ after the respective liabilities of Dr. Heck and ‘Abraham’ are determined.”

Dr. Heck moved for summary judgment on the grounds that Essex had no right to equitable indemnity or subrogation. Among other things, Heck argued that (1) Essex’s subrogation claim failed because Essex did not compensate a party for the same loss for which Dr. Heck was liable; (2) Essex’s claim was statute-barred; and (3) Essex’s subrogation claim was barred by the doctrine of “superior equities.” Both the trial court and Court of Appeal agreed.

The Court of Appeal stated that Essex’s claim was for “subrogation.” Citing Fireman’s Fund Ins. Co. v. Maryland Cas. Co., 21 Cal.App.4th 1586, 1595-96 (1994) (“Fireman’s I”) for the basic elements that the insurer pursuing subrogation must prove, the Court noted that two of the elements were missing: that the insurer compensated its insured (or the claimant) for the same loss for which the alleged wrongdoer is liable and that the damages in the stated sum were reasonable and not a voluntary payment. The problem was that the settlement settled multiple claims in three different actions (Dompeling’s personal injury action, Dompeling’s bad faith action and Essex’s own coverage action) between multiple parties. Since the settlement agreement did not apportion the damages between the various claims, the Court could not determine what amount of the settlement payment was made on behalf of Essex’s insured that was attributable to Dr. Heck and what was paid for other reasons. The Court concluded that Essex’s failure to apportion payment impliedly waived Essex’s right to subrogation.

Although not cited by the Essex Court, it may be helpful to refer to Fireman’s Fund Ins. Co. v. Maryland Casualty Co., 65 Cal.App.4th 1279, 1292-1293 (1998) (“Fireman’s II”) for its explanation of subrogation. To summarize Fireman’s II’s discussion, subrogation places the insurer “in the position of the insured in order to pursue recovery from third parties legally responsible to the insured for a loss which the insurer has both insured and paid.” The insurer’s position must be equitably superior to the third party and the loss is “entirely shifted” from the insurer to the defendant. Subrogation is entirely derivative and the insurer acquires by subrogation only those rights the insured had.

Fireman’s II’s discussion of subrogation as different from contribution is also useful:

The aim of equitable subrogation is to place the burden for a loss on the party ultimately liable or responsible for it and by whom it should have been discharged, and to relieve entirely the insurer or surety who indemnified the loss and who in equity was not primarily liable therefor. [Citations.] On the other hand, the aim of equitable contribution is to apportion a loss between two or more insurers who cover the same risk, so that each pays its fair share and one does not profit at the expense of the others. [Citations.]

Equitable contribution is the right, between insurers, to share liability with the party seeking contribution. The right of equitable contribution is individual to the insurer and is not based on subrogation to the rights of the insured. It is purely equitable and recovery may be partial.[FN1]

 The Fireman’s II Court commented that “[i]t is hard to imagine another set of legal terms with more soporific effect than indemnity, subrogation, contribution, co-obligation and joint tortfeasorship.”  However, Essex reminds us that insurers should stay wide awake in crafting settlements if they wish to later seek recovery.


[FN1] A third concept, indemnity, involves the question of whether to impose liability on a third party for the claimant’s damages and the allocation of responsibility for such damages. In short, indemnity is the insured’s right to recover against a third party.



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