Opinion
This declaratory relief action construes a subrogation clause in a commercial vehicle insurance policy. The trial court held the insurer cannot assert its contractual right to repayment from the insured’s recovery against the third party tortfeasor, because the total amount available from the insurance and the third party is insufficient to compensate the full loss suffered by the insured. We affirm.
Factual and Procedural Background
The facts were stipulated below. Plaintiff and respondent Anthony R. Sapiano is the insured under a vehicle insurance policy issued by defendant and appellant Williamsburg National Insurance Company. The policy provided extended collision coverage on Sapiano’s 1975 Peterbilt truck and trailer combination in the stated amount of $15,000, minus a $500 deductible. On January 10, 1989, Sapiano’s vehicle was ‘totalled” in a collision with an automobile negligently stopped on the freeway by one Gamaliel Valdepena. Just prior to the collision Sapiano’s vehicle was worth more than $20,000; it had been purchased for $25,000.
On February 13, 1989, Williamsburg paid Sapiano $14,500 for the property damage to his vehicle, which was the maximum policy coverage of $15,000 minus the $500 deductible.
Section V-A-5 of the policy provides: “Transfer of Rights of Recovery Against Others to Us: If any person or organization to or for whom we make *536 payment under this Coverage Form has rights to recover damages from another, those rights are transferred to us. That person or organization must do everything necessary to secure our rights and must do nothing after ‘accident’ or ‘loss’ to impair them.”
On December 22, 1989, Sapiano filed an action against Valdepena and others for personal injuries and property damage. Valdepena had insurance with liability limits of $15,000 per person, $30,000 per occurrence, and $10,000 property damage. Valdepena settled Sapiano’s personal injury claim for $15,000. Valdepena was willing to settle Sapiano’s property damage claim for $10,000.
A dispute arose as to the interests of Sapiano and Williamsburg in the $10,000 available from Valdepena’s insurance for property damage. Sapiano contended that Williamsburg’s subrogation rights were subordinate until Sapiano was fully compensated for his property loss exceeding $20,000. Williamsburg asserted that it had the right to the whole $10,000 pursuant to the transfer of rights clause in Sapiano’s insurance policy. Williamsburg would not waive its subrogation rights to facilitate the proposed settlement of the property damage claim.
This action for declaratory relief followed. The trial court ruled in Sapiano’s favor, concluding that Williamsburg must relinquish any claim to the Valdepena payment until Sapiano is fully compensated for the fair market value of his vehicle. The judgment recites that “The fair market value of the insured vehicle in question exceeded the total amount paid by defendant Williamsburg and the amount tendered by or on behalf of Mr. Valdepena . ... [¶] [Defendant Williamsburg has no right to assert its contractual repayment provisions unless and until its insured, Plaintiff Sapiano, is fully compensated for all property damage incurred from the loss of his insured vehicle. [¶]... Plaintiff Sapiano has priority to collect and retain any proceeds received from any third party as payment for said property damage and any conflicting claim by defendant is unenforceable.”
Discussion
“The general rule is that an insurer that pays a portion of the debt owed to the insured is not entitled to subrogation for that portion of the debt until the debt is fully discharged. In other words, the entire debt must be paid. Until the creditor has been made whole for its loss, the subrogee may not enforce its claim based on its rights of subrogation.” (2 Cal. Insurance Law & Practice (1988 rev.) § 35.1 l[4][b], p. 35-47, fns. omitted;
Chase
v.
National Indemnity Co.
(1954)
This established California rule is consistent with the treatises. Discussing automobile collision insurance specifically, Couch states, “Where a collision insurer settles with the insured and the latter recovers from the wrongdoer in an action of which the insurer has knowledge but in which it does not participate, the insured is not entitled to receive more than indemnity for his loss, but if the total amount received does not exceed his actual loss he may retain the full amount so received, and the insurer is not entitled to any return.” (16 Couch, Insurance (2d ed. 1983) § 61:241, p. 300, fn. omitted.) Appleman states, “But where the loss was greater than the insurance, and the insured settled with the wrongdoer for damages which, when added to the insurance, were less than the loss, the insurer could recover nothing from the insured.” (6A Appleman, Insurance Law and Practice (1972) § 4094, p. 265, fn. omitted; id., § 4095, p. 275.) Keeton states that the rule reimbursing the insured first “has the greatest support. . . among the more recent judicial precedents. The application of this rule maximizes the prospect of ‘making the insured whole,’ which is consonant with the equitable origins of the subrogation doctrine.” (Keeton & Widiss, Insurance Law (Practitioner’s ed. 1988) § 3.10, p. 236.)
Under the California Uninsured Motorist Law (Ins. Code, § 11580.2, subds. (a)(1), (g)), it is well settled that an insurer that has paid uninsured motorist benefits is not entitled to be reimbursed by a concurrent tortfeasor until the injured insured has been completely made whole. (Eisler, Cal. Uninsured Motorist Law (4th ed. 1989 rev.) § 17.10, p. 17-5;
Security Nat. Ins. Co.
v.
Hand
(1973)
Williamsburg attempts to avoid all this authority by arguing that this rule is peculiar to the uninsured motorist law or applies only to equitable subrogation which arises solely by operation of law in the absence of contract. 1 Williamsburg argues that well-developed rules interpreting subrogation in light of its equitable origins should be ignored, and that the contractual language of its insurance policy, according to its terms, gives Williamsburg a priority in the proceeds available from Val depena without regard to whether Sapiano is first made whole. Neither contention is persuasive.
*538
In
Chase
v.
National Indemnity Co., supra,
129 Cal.App.2d at pages 861-862, the court stated, “ ‘It is a general rule, applicable to actions based on the ground of subrogation, that such right does not exist, unless the whole debt involved has been paid. . . . This rule applies to conventional as well as legal subrogation, unless the contract by which such right is created provides otherwise.’ ” Although insurers may place subrogation clauses in their policies (Ins. Code, § 2071;
Century Indemnity Co.
v.
London Underwriters, supra,
We assume, as contended by Williamsburg, that the parties
could, explicitly,
provide in their contract that the insurer has a priority regardless whether the insured is first made whole.
(Samura
v.
Kaiser Foundation Health Plan, Inc.
(1993)
The instant clause does not do so. It provides only in
general terms
that the rights to recover damages from another “are transferred to us.” Although it substitutes plain language (“transferred”) for legalistic jargon (“subrogated”), it is no more specific or explicit than language used in older policies stating that the insurer “shall be subrogated” to the insured’s rights against another. The clause does not
specifically
address the issue in this case. This general language contrasts with that in
Samura
v.
Kaiser Foundation Health Plan, Inc., supra,
Finally, Williamsburg misplaces reliance on
Travelers Indem. Co.
v.
Ingebretsen
(1974)
The facts are different here. As noted by the trial court, here Williamsburg sat back without assisting while Sapiano prosecuted the suit against Valdepena, then, after Sapiano negotiated a proposed settlement, demanded all the proceeds for itself.
Disposition
The judgment is affirmed.
Epstein, Acting P. J., and Hastings, J., concurred.
A petition for a rehearing was denied October 14, 1994.
Notes
“Legal” or “equitable” subrogation has its source in equity and arises by operation of law. “Conventional” subrogation arises by contract of the parties.
(Century Indemnity Co.
v.
London Underwriters
(1993)
Keeton says that the justification for applying the general rule in the absence of contract “is fortified by the fact that ordinarily there is no barrier to the use of explicit subrogation terms that provide either for proration or for a disposition of recoveries from third persons that is even more favorable to the insurer’s interests.” (Keeton & Widiss, Insurance Law, supra, § 3.10, p. 236.)