Opinion
Whаt the heck?!? At one point, the trial court commented, “This is one of the most screwed up cases I’ve ever seen.” We heartily agree.
Essex then sought indemnity from Dr. Richard Heck, who had treated the plaintiff in the personal injury action, through equitable subrogation, for his proportionate liability for the amount Essex paid in settlement. Dr. Heck filed a motion for summary judgment, which the trial court granted on the basis that Essex had waived any claim for equitable subrogation. In a postjudgment order, the trial court also awarded Dr. Heck his expert witness costs. On appeal, Essex challenges both the judgment and the order. We agree with the trial court that Essex must lie in the bed it made, and affirm.
FACTUAL AND PROCEDURAL HISTORIES
Dompeling’s Personal Injury Action
John Dompeling was hired to move refrigeration units in a restaurant that was being refurbished. While on the premises, Dompeling stepped on a nail that was protruding through a piece of Sheetrock that other workers had left on the floor. Dompeling, a diabetic, sought treatment from his physician, Dr. Richard Heck. When the wound did not respond to outpatient treatment, Dr. Heck admitted Dompeling to the hospital. Within four days of his hospital discharge, the wound worsened. Dr. Heck readmitted Dompeling to the hospital and an orthopedic surgeon amputated Dompeling’s leg below the knee. Four months later, a second amputation was required due to an infection that developed on his stump.
Dompeling filed a lawsuit for his personal injuries in April 2002, naming as defendants “Robert Abraham” and Cindy’s Restaurant, which included a premises liability claim. Dompeling alleged that “Abraham” and the restaurant hired him to remove one of the refrigerators on the premises, they negligently managed, controlled and supervised the demolition being done on the premises, and they failed to take reasonable precautionary measures to protect him from a risk of harm, which caused his injuries (the personal injury action). “Robеrt Abraham” tendered the defense and indemnity of the personal injury action to Essex under Essex policy No. 2CC5660, which lists “Robert Lee Abraham” as the named insured. Essex agreed to defend “Robert
In August 2003, “Robert Abraham” filed a cross-complaint against Dr. Heck in the personal injury action alleging causes of action for implied equitable indemnity and contribution based on Dr. Heck’s alleged negligence in the medical care and treatment he provided Dompeling which contributed to Dompeling’s damages. While the trial court allowed the amendment, it severed the cross-complaint from the original complaint for purposes of trial.
The trial on Dompeling’s complaint took place in January 2004 and resulted in a jury verdict and judgment in favor of Dompeling and against “Robert Abraham” in the amount of $826,762.50 plus costs. The jury found “Robert Abraham” negligent in the “maintenance, use or repair” of the property and that he violated a California regulation, both of which were substantial factors in causing Dompeling harm. The jury further found Dompeling’s damages totaled $1,102,350, comprised of past economic loss of $470,000, future economic loss of $175,000, and noneconomic loss of $457,350. The jury assigned responsibility for Dompeling’s harm 75 percent to “Robert Abraham” and 25 percent to Dompeling. “Robert Abraham” appealed from the judgment, raising various claims of trial court error. We affirmed the judgment in an unpublished opinion. (Dompeling v. Abraham (Oct. 17, 2005, F045481).)
Essex’s Declaratory Relief Action
In June 2003, during the cоurse of the personal injury action, Essex filed a declaratory relief action, entitled Essex Ins. Co. v. Abraham (Super. Ct. Stanislaus County, 2005, No. 333668) (the declaratory relief action), by which it sought an adjudication of the parties’ respective rights, duties and obligations in the personal injury action. Essex named as defendants Robert Lee Abraham, Cindy’s Restaurant and John Dompeling, and alleged it had no duty to indemnify Robert Lee Abraham or anyone else in connection with the personal injury action.
In October 2004, after judgment was entered in the personal injury action, Essex moved for leave to amend its complaint for declaratory relief to add Robert Lincoln Abraham as a defendant. For the first time, Essex asserted Robert Lincoln Abraham, not Robert Lee Abraham, was the party in the personal injury action against whom judgment was rendered and for whom it had provided a defense. Leave to amend was granted and Essex filed an amended complaint in November 2004 against both Robert Lee Abraham and
In April 2005, Essex filed a motion for summary judgment in its declaratory relief action, in which it asserted it was entitled to judgment as a matter of law on its declaratory relief claim because (1) Robert Lincoln Abraham was the defendant in the personal injury action and he was not insured under the policy, (2) even if Robert Lincoln Abraham was an insured, Dompeling’s claims were not covered by the policy, and (3) a default judgment had already been entered against Robert Lee Abraham, the sole named insured on the policy. The motion was denied on August 12, 2005.
Dompeling’s Bad Faith Action
After Essex refused to pay the judgment in the personal injury action, Dompeling filed a lawsuit in August 2004 against Essex, entitled Dompeling v. Essex Ins. Co. (Super. Ct. Stanislaus County, 2004, No. 349807) (the bad faith action), which was later consolidated with the declaratory relief action. The complaint stated causes of action for direct payment of policy benefits, bad faith, declaratory relief and breach of contract.
In a subsequent amendment to the complaint, Dompeling added as defendants Robert Lincoln Abraham, Robert Lee Abraham, and the law firm that Essex retained to represent the premises owner in the personal injury action. Dompeling also added a direct cause of action for fraud and misrepresentation against both Essex and the law firm, alleging they knew, but did not disclose, that (1) Robert Lincoln Abraham was not Robert Lee Abraham, (2) Robert Lincoln Abraham appeared and acted as Robert Lee Abraham during the personal injury action, (3) Robert Lee Abraham owned record title to the premises but Robert Lincoln Abraham purchased, managed and controlled it, (4) the person acting as Robert Lee Abraham was not the named insured under the policy but an additional insured, and (5) they would contend any judgment entered against “Robert Abraham” was entered against Robert Lincoln Abraham in a fraudulent attempt to deny coverage and their legal obligation to satisfy the judgment. In the second amended complaint, Dompeling sought attorney fees as well as punitive and exemplary damages in addition to coverage for his judgment against “Robert Abraham.”
The Settlement Agreement
On October 26, 2005, a mediation was held before a retired judge. On November 9, 2005, Dompeling and Essex executed a settlement agreement. In exchange for receipt of $700,000, Dompeling released and discharged Essex, Robert Lee Abraham, Robert Lincoln Abraham, and “their respective partners, partnerships, attorneys, executives, administrators, trustees, successors, companies, affiliated companies, trusts, officers, directors, shareholders, employees, representatives, agents, insurers, reinsurers, and all of those claiming by, through or under them, of and from any and all claims, demands, actions or causes of action, known оr unknown, arising out of or in any way connected with”: (1) the incident involving Dompeling which occurred at the restaurant on or about May 21, 2001; (2) “the manner in which the insurance claims arising out of that incident were handled or adjusted”; and (3) “any and all claims that were, or could have been, asserted in Stanislaus County Superior Court Action Nos.: Dompeling v. Abraham, CV 309919 and Dompeling v. Essex, CV 349807 and Essex v. Dompeling, CV 333668.” Dompeling and Essex agreed to “dismiss with prejudice all causes of action against the specified parties growing out of these claims, casualties or events,” including the three superior court actions.
Essex’s Subrogation Claim
Nearly two years later, in October 2007, “Robert Abraham” filed a motion to amend his cross-complaint in the personal injury action seeking to substitute Essex in his place as the cross-complainant. While Dr. Heck opposed the motion, the trial court granted it. In November 2007, Essex served an amended сross-complaint, which named Essex as the cross-complainant and contained a single cause of action for equitable subrogation, in which Essex sought to recover from Dr. Heck the $700,000 it paid Dompeling pursuant to the settlement agreement.
The Summary Judgment Motion
In January 2009, Dr. Heck filed a motion for summary judgment on the grounds that Essex had no right to equitable indemnity or subrogation as a matter of law for the following reasons: (1) Essex may not use subrogation to assert its own right of equitable indemnity to recover amounts it paid to settle the claims Dompeling made against it, such as the fraud, misrepresentation and bad faith claims; (2) Essex’s subrogation claim fails because Essex did not compensate an insured for the same loss for which Dr. Heck is liable, since the settlement agreement states that Essex paid Dompeling $700,000 to settle all of the pending claims, including Dompeling’s claims against Essex for bad faith, breach of contract, fraud and misrepresentation; (3) Essex cannot recover the amounts it paid to settle claims other than the personal injury action because any independent claim for equitable indemnity is barred by the statute of limitations; and (4) the doctrine of superior equities bars Essex’s subrogation claim.
Essex opposed the motion. Essex argued it had a valid right of subrogation because (1) the insurance policy covered the loss involving Dompeling’s injury and (2) it had paid the loss by satisfying Dompeling’s judgment against its insured. Essex asserted Dr. Heck did not offer any admissible evidence to show that Essex paid any of the $700,000 settlement to satisfy valid claims of bad faith or fraud against Essex, such as evidence that Essex acted improperly or committed bad faith or fraud, and instead the evidence showed Essex met all of its obligations to the insured by defending him and ultimately indemnifying him for the full amount of the judgment against him. Finally, Essex asserted the statute of limitations did not bar its action, as it is one for subrogation, not an independent suit for equitable indemnity or contribution. Essex also filed objections to Dr. Heck’s separate statement and evidence.
Judgment was subsequently entered in favor of Dr. Heck and against Essex, with Essex taking nothing by way of its cross-complaint against Dr. Heck and Dr. Heck being awarded his costs of suit.
DISCUSSION
Summary Judgment
We note at the outset that the parties disagree as to the applicable standard of review. Although Dr. Heck recognizes that a trial court’s decision to grant summary judgment is normally subject to de novo review on appeal, he asserts we should review the trial court’s ruling for abuse of discretion because the judgment was rendered on an equitable theory.
1
We need not resolve whether the trial court here was entitled to exercise discretion in
The sole cause of action in Essex’s second amended cross-complaint is one for indemnity based on equitable subrogation. Essex alleges Dr. Heck is liable for his proportionate share of the $826,762.50 judgment Dompeling obtained against “Abraham” due to his medical negligence, and “[h]aving paid damages to Dompeling on behalf of its insured, Abraham,” Essex is subrogated to “Abraham’s cross-claim for equitable indemnity” against Dr. Heck.
“Equitable subrogation permits a party who has been required to satisfy a loss created by a third party’s wrongful act to ‘step into the shoes’ of the loser and pursue recovery from the responsible wrongdoer. [Citation.] In the insurance context, the doctrine permits the paying insurer to be placed in the shoes of the insured and to pursue recovery from third parties responsible to the insured for the loss for which the insurer was liable and paid.”
(Fireman’s Fund Ins. Co.
v.
Maryland Casualty Co.
(1994)
There are six elements essential to an insurer’s cause of action based on equitаble subrogation: “ ‘(1) [t]he insured has suffered a loss for which the party to be charged is liable, either because the latter is a wrongdoer whose act or omission caused the loss or because he is legally responsible to the insured for the loss caused by the wrongdoer; (2) the insurer, in whole or in
As pertinent here, in order to prevail on its subrogation claim, Essex must prove that it compensated its insured for the same loss for which Dr. Heck is liable. Dr. Heck’s liability turns on whether he committed medical malpractice when he treated Dompeling. If he did, the loss he would be liable for is the portion of Dompeling’s personal injury judgment attributable to his negligence. Since Dompeling and Essex settled the personal injury action, however, there is no longer a judgment in that case. Instead, Essex paid Dompeling $700,000 pursuant to the settlement agreement to settle not only the personal injury action, but also the declaratory relief action and the bad faith action. Thus, to prevail, Essex must prove that its settlement included payment to Dompeling for his personal injury damages on behalf of its insured (the second element), and the amount it paid (the sixth element).
As shown in both the declaratory relief and bad faith actions, disputes had arisen between Essex, Dompeling and the two Robert Abrahams regarding Essex’s obligation to pay the judgment in the personal injury action. In the declaratory relief action, Essex asserted it was not obligated to pay the judgment because the judgment was against Robert Lincoln Abraham, who is not a named insured on Essex’s policy. In the bad faith action, in which Dompeling named Essex, both Robert Abrahams, and insurance defense counsel as defendants, Dompeling asserted Essex and the law firm committed fraud by allowing Robert Lincoln Abraham to appear at trial in the personal injury action despite knowing he was not a named insured on the policy and did not hold record title to the property, and then contending they had no legal obligation to satisfy the judgment on the ground it was entered against Robert Lincoln Abraham. Dompeling sought damages in the bad faith action beyond the personal injury judgment, including fees and costs incurred in defending the declaratory relief action and prosecuting the bad faith action.
It is undisputed that to resolve these claims, Essex entered into a settlement agreement with Dompeling which released not only its named insured, Robert Lee Abraham, but also Robert Lincoln Abraham, Essex, and their attorneys, in exchange for a $700,000 payment to Dompeling. The settlement agreement
The settlement agreement shows that the loss Essex incurred, namely the $700,000 payment to Dompeling, is not the same loss incurred by “Robert Abraham” (against whom the judgment was rendered), as the payment was made to settle claims apart from the personal injury judgment. Because it is impossible to tell from the settlement agreement whether payment was made on behalf of an insured, what portion, if any, of the $700,000 was paid to compensate Dompeling for his personal injury claim and what portion, if any, was paid to settle the other claims, in order for Essex to prove that it compensated an insured for Dompeling’s personal injury damages and the amount of such compensation, Essex necessarily must resort to evidence outside the settlement agreement.
Essex contends it can do that by producing “evidence of its intent in entering into the settlement agreement.” Assuming such evidence is even admissible,
2
Dr. Heck would not be able to present his own evidence of Dompeling’s and Essex’s intent in entering into the settlement without resort to communications between these two parties, or their respective attorneys, that occurred during the mediation, which Essex claims are inadmissible or
Essex’s failure to resolve the issue regarding the identity of its insured and to apportion the amount paid Dompeling among his various claims placed Dr. Heck in the inequitable position of having to show that Essex did not stand in its insured’s shoes without access to the evidence necessary to do so. Accordingly, the trial court found Essex had impliedly waived its subrogation rights when it failed to enter into separate settlement agreements or otherwise apportion the amount paid among the three lawsuits.
Although there is apparently no case directly on point, the doctrine of implied waiver has been applied in the insurance context in
United Services Automobile Assn. v. Alaska Ins. Co.
(2001)
The appellate court concluded that “when an insured agrees to an insurer’s settlement of a third party claim, the insured waives any right to maintain a bad faith action against the insurer based on the settlement, unless the insured’s agreement to the settlement was procured by coercion, duress, fraud or some other improper means.”
(United Services, supra,
94 Cal.App.4th
Applying the principle of implied waiver here, Essex’s act of entering into a settlement of the three lawsuits without identifying its insured or apportioning the payment is so inconsistent with an intent to enforce its right to subrogation so as to induce a reasonable belief it had relinquished that right. While subrogation gives Essex the right to step into the shoes of its insured and assert whatever rights the insured could, since Essex never settled the issue of who its insured was nor allocated damages between Dompeling’s various claims, or even between Dompeling’s economic and noneconomic damages, Dr. Heck reasonably could believe Essex did not intend to seek subrogation. To conclude otherwise places Dr. Heck in the inequitable position of having to establish something that cannot be proven.
Essex contends the trial court failed to consider that the settlement agreement is subject to an inference that the $700,000 payment was intended to compensate Dompeling solely for his personal injury claim. Essex contends the following evidence creates a triable issue of fact on whether it paid money to settle anything other than the personal injury claim: (1) the amount paid pursuant to the settlement agreement was significantly less than the jury’s verdict; (2) Essex did not act in bad faith in handling the claim because it provided “its insured” with a defense of the personal injury action and paid the mediated settlement before the judgment became final; and (3) Essex had not assigned any significance to the bad faith claims when it determined $700,000 should be paid to settle the entire litigation. 5
Essex asserts it clearly had an obligation to pay the judgment against “its insured.” This statement, however, flies in the face of the position it took throughout the personаl injury action, as well as in the ensuing declaratory relief and bad faith actions, that it was not obligated to pay such a judgment in part because it was not rendered against its insured, Robert Lee Abraham, and even if it were, policy exclusions applied that precluded coverage. Essex had even obtained a default judgment in the declaratory relief action against its named insured, Robert Lee Abraham, and the clerk had entered default against Robert Lincoln Abraham. Essex’s obligation to pay the judgment is far from clear, since its named insured apparently did not appear in the personal injury action.
Essex also asserts the record contains no evidence that it engaged in any misconduct that would have subjected it to bad faith liability. Essex admits, however, the relevant issue “is whether any value was paid to settle the claims at the time of the settlement agreement, not whether there are now valid and provable claims of bad faith against Essex by Dr. Heck—who has no standing to assert such claims.” Thus, by Essex’s own admission, whether it actually committed misconduct is irrelevant here.
Essex contends the trial court “appears to have granted Dr. Heck’s motion to penalize Essex for putting the superior court in the position of having to preside over a jury trial that would be more complicated, and involve more evidence, than the court felt was necessary.” Even if the trial court was concerned with the complexities of the case and the burdens it would place on the jury, however, we review the result of the trial court’s ruling, not its reasoning.
(Home Ins. Co. v. Zurich Ins. Co.
(2002)
The Section 998 Award to Dr. Heck
In March 2008, Essex made a settlement demand to Dr. Heck under Code of Civil Procedure section 998 (section 998) of $857,000. In June 2008, Dr. Heck made a settlement offer to Essex under section 998, which Essex did not accept. 7 The offer was for a waiver of both costs and the right to proceed with a malicious prosecution action in exchange for dismissal of Dr. Heck with prejudice, with both sides bearing their own costs and attorney fees. After granting the summary judgment motion, the trial court awarded Dr. Heck $28,588 in expert witness fees based on section 998. On appeal, Essex contends the award must fail because the offer was not made in good faith.
To be valid, a section 998 offer must be made in good faith, which requires that the offer of settlement be “ ‘realistically reasonable under the circumstances of the particular case. . . .’ ”
(Jones
v.
Dumrichob
(1998)
“ ‘Whether a section 998 offer was reasonable and made in good faith is left to the sound discretion of the trial court.’
(Nelson v. Anderson
(1999)
Essex failed to satisfy its burden of demonstrating a clear abuse of discretion in this case. Essex first asserts the section 998 offer was presumptively unreasonable because it was a “less than nominal ‘no money’ offer.” The case he cites,
Colbaugh
v.
Hartline
(1994)
Essex’s reliance on
Pineda v. Los Angeles Turf Club, Inc.
(1980)
Essex next contends the offer was unreasonable because it did not know any facts that would have justified its acceptance of Dr. Heck’s оffer when it was made, since his malpractice liability was clear. But Dr. Heck had been contending since Essex sought to assert a subrogation claim in November 2007 that Essex could not maintain such a claim because the settlement agreement encompassed claims other than Dr. Heck’s liability for Dompeling’s injuries, including the discovery of the two Robert Abrahams, and the ensuing confusion and litigation over that, and whether Essex had a legal obligation to pay on behalf of either Robert Abraham given the default judgment against the only named insured under the policy. Dr. Heck also contended that the settlement agreement could not be used to show that Essex had a right of subrogation because the agreement did not show that Essex paid money for any specific reason. During argument on Essex’s motion to amend the cross-complaint, the trial court noted Dr. Heck’s position as “this case is so screwed up in its original form, that you’re out of court.” While the trial court ultimately decided Essex could not maintain its subrogation claim based on a theory of waiver, which was not specifically raised in Dr. Heck’s motion, the facts underlying that theory and Dr. Heck’s argument were the same, i.e., that the settlement agreement precluded Essex from bringing a subrogation claim.
In short, Essex was well aware that Dr. Heck was contending that its settlement of the three lawsuits precluded it from maintaining a subrogation action. Essex complains that Dr. Heck offered no evidence during the hearing on its motion to tax costs to show the offer was reasonable when made. It was Essex’s burden, however, to show unreasonableness. It failed to do so. Accordingly, we conclude the trial court did not abuse its discretion in awarding expert witness fees under section 998 as a discretionary cost item.
The judgment is affirmed. Costs on appeal are awarded to Dr. Heck.
Wiseman, Acting P. J., and Hill, J., concurred.
Notes
In
Hartford Casualty Ins. Co. v. Travelers Indemnity Co.
(2003)
The court in
Hartford,
however, did not acknowledge language in
Johnson v. City of Loma Linda
(2000)
For example, Essex’s unexpressed subjective intent with respect to allocation of the settlement payment is irrelevant to the proper interpretation of the settlement agreement. (See
Brant v. California Dairies, Inc.
(1935)
An extensive statutory scheme governing mediation confidentiality is set forth in Evidence Code section 1115 et seq.
(Simmons v. Ghaderi
(2008)
As Dr. Heck’s attorney explainеd in his declaration in support of the motion, he and his law firm had attempted to obtain discovery regarding the settlement of the underlying actions and the trial court had ordered production of documents pursuant to motions to compel, but Essex refused to turn over the documents, claiming they were subject to the attorney-client and attorney work product privileges, and filed a petition for writ of mandate with this court challenging the trial court’s discovery order.
Essex asserts that Carl Bebber, who signed the settlement agreement for Essex, “categorically deniefd]” in his deposition that any part of the $700,000 was paid to settle a potential bad faith claim against Essex. The cited testimony, however, does not support Essex’s assertion. Bebber’s testimony shows only that during the handling of the premises liability action, Bebber formed his own opinion of the damages, taking into consideration liability, injury, comparative fault, lost wages, future lost wages, pain and suffering, special damages, the experts’ testimony, the venue, counsel’s relative strengths and weaknesses, and the potential exposure. The testimony further shows that Bebber considered all of these factors when deciding whether to make a settlement offer before trial in the premises liability action, and that he also considered these factors in determining the settlement value of the direct action on the policy, and the bad faith, fraud, and misrepresentation claims. Bebber also testified that before the mediation, he reassessed whether the premises liability action was a covered claim and was concerned it might be considered covered. None of this testimony shows that Bebbеr did not place any value on the claims arising from the declaratory relief and bad faith actions.
Since we conclude the trial court correctly granted summary judgment on this ground, we do not address the other grounds upon which Dr. Heck brought the motion.
Essex brought its motion to tax the expert witness fees Dr. Heck was claiming as costs in part on the ground that Dr. Heck never served Essex with a section 998 offer to compromise. After Dr. Heck brought his section 998 offer to the court’s attention in his opposition to the motion, Essex’s attorney stated in a declaration submitted with Essex’s reply that he viewed Dr. Heck’s offer as having been made in retaliation for Essex’s section 998 offer for the full amount of the personal injury judgment, and because the offer was so disingenuous and made no impression on him, its existence completely slipped his mind when he drafted the motion to tax costs.