Claims For P/C Broker Negligence Assignable and Enforcement by Assignee Doesn’t Depend Upon Superior Equities

A California intermediate appellate court has reaffirmed that a client’s professional negligence claim against his or her property/casualty insurance broker is freely assignable. It held, also, that the assigned rights are enforceable in court by the assignee without proof that its “equities” – the justice of its position – are superior to the broker’s, unless the assignee, as insurer, paid the assignor’s loss under its insurance policy, thereby invoking the doctrine of equitable subrogation. The decision, filed by the court on February 8, 2016 is entitled AMCO Insurance Company v. All Solutions Insurance Agency, LLC. It is reported at 2016 Cal.App. LEXIS 96.

The case arose from events occurring in Sonora, a California town located in the western Sierra Nevada foothills. Insurer AMCO, one of the plaintiffs in the case, insured commercial property of one David Saari. The other plaintiffs were individuals (called the “Restauranteurs” by the court) who owned and operated a restaurant on the same street as Saari’s property. Amarjit Singh owned a third building on the street. Due to Singh’s negligence, a fire started in his electrical panel and spread to the other two properties.

Defendant All Solutions Insurance Agency (“All Solutions”) was Singh’s insurance broker. Singh presented to his former insurer his own building loss claim and the third party liability claims for fire damage asserted against him by Saari and the Restauranteurs. The claims were denied because Singh had no policy in force at the time of the fire. Singh contended this was because All Solutions failed to carry out his request that the broker replace his insurance, which had been non-renewed by the insurer before the fire. The broker disputed that Singh requested it to obtain property or liability insurance for his property.

The Restauranteurs sued Singh for the property and business losses they sustained from the fire. Singh stipulated to a judgment in their favor and assigned to them his rights against All Solutions for failing to obtain replacement insurance.

Under its policy, AMCO compensated Saari for his fire loss and filed a subrogation action against Singh to recover what it had paid. Singh stipulated to a judgment for AMCO for the amount it had paid Saari, and Singh assigned to AMCO, too, his rights against broker All Solutions for its failure to obtain insurance for Singh. Based on their status as assignees of Singh, the Restauranteurs and AMCO filed two separate lawsuits against All Solutions. The cases were consolidated.

The broker, as defendant, moved for summary judgment against all plaintiffs in both cases, contending that Singh’s professional negligence claim against All Solutions was not assignable. Alternatively, the broker argued, enforcement of the broker negligence claim in plaintiffs’ hands as assignees was precluded based on the principles of equitable subrogation because the assignees’ “equities” were not superior to the broker’s.

The trial judge granted summary judgment for the broker against all plaintiffs, based on a 2011 California Court of Appeal decision, because their losses were caused by the fire, not by the broker’s failure to insure Singh. Consequently, the trial court ruled, the plaintiffs’ “equities” were not superior to those of the broker. The trial court did not address the non-assignability argument.

The Court of Appeal reversed all summary judgments. Based on a 1984 California Court of Appeal decision, and two California statutes originating in 1872, it held that California law does not prohibit the assignment of a client’s right to sue his or her insurance broker or agent for professional negligence. In this regard, it distinguished cases holding that legal malpractice claims are not assignable because of the fiduciary nature of the attorney-client relationship, and no such relationship exists in the insurance broker context.

Furthermore, the Court of Appeal rejected the broker’s argument that in order to prevail in their lawsuits against the broker, the Restauranteurs and AMCO must proceed by way of equitable subrogation, proving their equities were superior to those of All Solutions. In this regard, the Court found that the doctrine of equitable subrogation did not apply to any of the plaintiffs in the case, because the relationships among the parties did not trigger, by operation of law, a transfer to plaintiffs of the rights against the broker. The only basis on which the plaintiffs could assert the claims of Singh against his broker was by way of voluntary, contractual assignment of those rights to the plaintiffs. At no time were the Restauranteurs an insurer or surety of Singh’s losses, so they never became equitable subrogees of such losses.

AMCO, as Saari’s insurer, was an equitable subrogee, but only of Saari’s claims against Singh, whose negligence caused the fire. AMCO was not an equitable subrogee of Singh’s professional negligence claim against the broker. Therefore, the appellate court concluded, the principles of equitable subrogation that would govern AMCO’s relationship with Saari did not extend to Singh’s contractual assignment of his cause of action against broker All Solutions. Accordingly, AMCO, too, need not establish a superior equitable position to the broker in order to prevail against it on Singh’s assigned claim against the broker for professional negligence.

Going further, the Court of Appeal held that as an alternate and separate ground for reversing the summary judgment against AMCO, even if superior equities were required for AMCO to succeed in its case against All Solutions, as the moving party on summary judgment, the broker failed to establish that its equitable position was equal or superior to AMCO’s.