San Diego Assemblers v. Work Comp for Less Ins.

• Court: California Court of Appeal
• Decided: October 28, 2013
• Docket: D062406
• Status: Published

Opinion

Filed 10/4/13; pub. order 10/28/13 (see end of opn.)

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

SAN DIEGO ASSEMBLERS, INC., D062406

Plaintiff and Appellant,

v. (Super. Ct. No. 37-2011-00051326- CU-PN-NC) WORK COMP FOR LESS INSURANCE SERVICES, INC.,

Defendant and Respondent.

APPEAL from a judgment of the Superior Court of San Diego County, Thomas P.

Nugent, Judge. Affirmed.

Edwards & Hunter, Richard P. Edwards and Ellen E. Hunter for Plaintiff and

Appellant.

Murchison & Cumming, Kenneth H. Moreno and Scott J. Loeding for Defendant

and Respondent. INTRODUCTION

San Diego Assemblers, Inc. (Assemblers) appeals from a judgment of dismissal

following the court's granting of summary judgment in favor of Work Comp for Less

Insurance Services, Inc. (Broker). Assemblers contends the court erroneously determined

Broker had no duty to procure a liability insurance policy for Assemblers covering

Assemblers's prior completed work. Assemblers additionally contends its claim is not

barred by the superior equities doctrine or the statute of limitations. It also contends that,

if Broker owed a duty to Assemblers, the court erroneously sustained Broker's objections

to the declaration of Assemblers's standard of care expert.

We conclude Assemblers's claim is barred by the superior equities doctrine. We

further conclude Broker owed no duty to procure prior completed work coverage for

Assemblers. We, therefore, affirm the judgment.

BACKGROUND

Broker procures insurance for businesses. Assemblers was a remodeling

contractor. In 2000, Assemblers contacted Broker seeking a basic liability policy.

Assemblers told Broker the policy limits its clients required, but never described the

types of coverage it wanted. Assemblers repeatedly told Broker to procure the least

expensive policy. Broker procured policies and provided them to Assemblers's president,

who read them. The president never had any questions for Broker after reading the

policies and never asked for a different policy or different coverage. Assemblers never

told Broker it did not want a policy with a manifestation endorsement or with a prior

completed work exclusion. In addition, Broker never misrepresented any coverage

2 contained in Assemblers's policies and never failed to obtain the coverage Assemblers

requested.

In April 2004 Assemblers performed work for a restaurant. In July 2008 an

explosion and resulting fire occurred at the restaurant, causing substantial property

damage. The restaurant's insurer, Golden Eagle Insurance (Golden Eagle), paid for the

damage under an insurance policy for which the restaurant paid premiums. Within a

month of the fire, Golden Eagle began pursuing Assemblers to pay for the damage.

Assemblers tendered Golden Eagle's claim to Lincoln General Insurance Company

(Lincoln General), the insurer who provided liability insurance for Assemblers in 2004,

and Preferred Contractors Insurance Company (Preferred), the insurer providing liability

insurance for Assemblers in 2008.

In an October 14, 2008, telephone conversation, a Preferred claims specialist

informed Assemblers's president that Assemblers's policy included a prior completed

work exclusion. Assemblers's president indicated he was aware of the exclusion and that

Lincoln General had also denied coverage. He told the claims specialist he had informed

Golden Eagle he had no coverage for the loss and Golden Eagle was welcome to sue him.

Preferred denied coverage in writing on October 23, 2008, asserting a prior

completed work exclusion. Lincoln General denied coverage on February 10, 2009,

asserting a manifestation endorsement limiting coverage to injury or damage first

manifested during the policy period.

After learning of the denial of coverage, Assemblers did not ask Broker why

Broker had not obtained a different type of policy for Assemblers and Assemblers had no

3 criticisms of Broker's failure to do so. Assemblers also did not ask Broker to change any

of Assemblers's policies to include the coverages excluded by the Lincoln General and

Preferred policies because the coverages were cost-prohibitive.

The month after Lincoln General denied coverage in writing, Golden Eagle sued

Assemblers and subsequently obtained a default judgment. Assemblers assigned to

Golden Eagle any claims Assemblers had against Broker and then petitioned for

bankruptcy relief.

Golden Eagle brought the instant lawsuit against Broker in Assemblers's name

alleging Broker negligently failed to procure Assemblers insurance coverage adequate to

cover the restaurant fire. Broker moved for summary judgment asserting among its

arguments that it had no legal duty to provide Assemblers with different or additional

coverages, Assemblers's claim was barred by the superior equities doctrine and

Assemblers's claim was barred by the statute of limitations.

Assemblers opposed each of these points. As part of its opposition, it submitted a

declaration from an insurance expert. Broker objected to the declaration on, among other

grounds, the declaration lacked foundation and failed to established expertise in the

standard of care for brokers providing insurance to contractors in Southern California.

The court granted Broker's motion, agreeing Broker owed no legal duty to provide

Assemblers with a different insurance policy that would have covered the subject loss.

The court also sustained Broker's objections to the declaration of Assemblers's expert on

the grounds the declaration failed to establish the expert possessed expertise on the

standard of care for brokers for contractors in Southern California. The court further

4 noted, "the scope of the legal duty of care is established by the courts, not by expert

testimony." The court declined to rule on any of Broker's other asserted grounds for

summary judgment.

DISCUSSION

" 'Because this case comes before us after the trial court's grant of summary

judgment, we apply these well-established rules: " ' "[W]e take the facts from the record

that was before the trial court when it ruled on that motion," ' " and we " ' " ' "review the

trial court's decision de novo, considering all the evidence set forth in the moving and

opposing papers except that to which objections were made and sustained." ' " ' "

[Citation.] We also " ' "liberally construe the evidence in support of the party opposing

summary judgment and resolve doubts concerning the evidence in favor of that

party." ' " ' [Citation.] 'We need not defer to the trial court and are not bound by the

reasons in its summary judgment ruling; we review the ruling of the trial court, not its

rationale.' " (Hartnett v. Crosier (2012) 205 Cal.App.4th 685, 689-690.)

I

Superior Equities Doctrine

Although the trial court declined to address this issue below, Broker contends

Assemblers's claim is barred by the superior equities doctrine. We agree.

The record shows and the parties do not dispute the restaurant's insurer, Golden

Eagle, filed this action against Broker as Assemblers's assignee. "An insurer's right to

subrogation is delimited by the application of equitable principles and not by the law of

assignments. '[O]ne who asserts a right of subrogation, whether by virtue of an

5 assignment or otherwise, must first show a right in equity to be entitled to such

subrogation, or substitution[.]' (Meyers v. Bank of America National Trust & Savings

Association (1938) 11 Cal.2d 92, 96 (Meyers).) Equitable subrogation requires an insurer

to establish that its equitable position is superior to the position of the party to be

charged." (Dobbas v. Vitas (2011) 191 Cal.App.4th 1442, 1446.)

An insurer cannot establish its position is equitably superior to the party to be

charged if the party is not the wrongdoer whose act or omission caused the underlying

loss or is not otherwise legally responsible for the underlying loss. (Dobbas v. Vitas,

supra, 191 Cal.App.4th at p. 1454; State Farm General Ins. Co. v. Wells Fargo Bank,

N.A. (2006) 143 Cal.App.4th 1098, 1112 ["the aim of equitable subrogation is to shift a

loss for which the insurer has compensated its insured to one who caused the loss, or who

is legally responsible for the loss caused by another and whose equitable position is

inferior"].) Here, there is no evidence Broker caused the restaurant fire. There is also no

evidence Broker agree to indemnify Assemblers for causing the restaurant fire. Golden

Eagle, therefore, cannot establish its position is equitably superior to Broker's. (Dobbas

v. Vitas, at p. 1454 [an insurer is not in a equitably superior position to a third party who

agreed to procure insurance for a loss, but did not cause the loss or agree to indemnify for

the loss].)

The fact Golden Eagle is acting as Assemblers's assignee in this case does not alter

our analysis. "[W]here by the application of equitable principles, a surety has been found

not to be entitled to subrogation, an assignment will not confer upon him the right to be

so substituted in an action at law upon the assignment. His rights must be measured by

6 the application of equitable principles in the first instance, his recovery being dependable

upon a right in equity, and not by virtue of an asserted legal right under an assignment."

(Meyers, supra, 11 Cal.2d at p. 97; accord, Dobbas v. Vitas, supra, 191 Cal.App.4th at

p. 1455.)

II

Duty

Even if Assemblers's claim was not barred by the superior equities doctrine,

Broker contends Assemblers cannot establish Broker owed a duty to Assemblers to

procure liability insurance with prior completed work coverage. We agree with this

contention as well.

As we recently explained, under well-settled law, "[i]Insurance brokers owe a

limited duty to their clients, which is only 'to use reasonable care, diligence, and

judgment in procuring the insurance requested by an insured.' [Citations.] Accordingly,

an insurance broker does not breach its duty to clients to procure the requested insurance

policy unless '(a) the [broker] misrepresents the nature, extent or scope of the coverage

being offered or provided . . . , (b) there is a request or inquiry by the insured for a

particular type or extent of coverage . . . , or (c) the [broker] assumes an additional duty

by either express agreement or by "holding himself out" as having expertise in a given

field of insurance being sought by the insured.' " (Pacific Rim Mechanical Contractors,

Inc. v. Aon Risk Ins. Services West, Inc. (2012) 203 Cal.App.4th 1278, 1283 (Pacific

Rim).)

7 Here, Assemblers does not assert and has not produced evidence Broker breached

its limited duty to Assemblers in any of the above respects. Rather, Assemblers seeks to

hold Broker accountable for breaching a previously unrecognized implied contractual

duty to investigate Assemblers's coverage needs and procure the requisite coverage to

meet those needs, even if Assemblers did not request the coverage and, as appears from

the record, probably could not have afforded it.

Assemblers touts many policy reasons for recognizing this implied contractual

duty. These reasons revolve around Assemblers's assertion that recognizing the implied

contractual duty would ensure fairness and equity by holding insurance brokers to the

same standards as other professionals. Whatever the merits of these policy arguments, it

is not difficult to conceive of countervailing policy considerations, including the

likelihood such an implied contractual duty might cause brokers to oversell insurance to

their clients in an effort to avoid the prospect of later professional liability.

We are also mindful that a decision to imply a duty here would effectively

mandate prior completed work coverage in all contractor general liability policies, which

could appreciably increase the cost of the policies without directly benefitting the

insureds. This case presents such an example as it appears the only party who would

have directly benefited from the prior completed work coverage is Golden Eagle. The

restaurant would not have directly benefited from the coverage because its losses were

already covered by the policy it purchased from Golden Eagle. Assemblers also would

not have directly benefited from the coverage because it was essentially insolvent at the

time of the loss and had no assets to protect.

8 As we explained in Pacific Rim, balancing these types of considerations is

properly the function of the Legislature, not the courts. (Pacific Rim, supra, 203

Cal.App.4th at p. 1285.) If imposing a broad duty on brokers to affirmatively determine

and procure insurance to meet an insured's coverage needs, or mandating prior completed

work coverage in all contractor general liability policies, " 'is in the interest of the

public . . . , the people of California, by initiative or through the Legislature, can create

that duty . . . .' [Citation.] 'We may not legislate on the subject in their stead.' " (Id. at

p. 1287.)

Given our conclusions that Assemblers's claim is barred by the superior equities

doctrine and Broker owed no legal duty to Assemblers to procure insurance with prior

completed work coverage, we need not address Broker's contention Assemblers's claim is

barred by the statute of limitations. We also need not address Assemblers's contention

the court erred by sustaining Broker's objections to the declaration of Assemblers's

standard of care expert.

DISPOSITION

The judgment is affirmed. Respondent is awarded its appeal costs.

MCCONNELL, P. J.

WE CONCUR:

HUFFMAN, J.

O'ROURKE, J.