State Farm General Ins. Co. v. Wells Fargo Bank, N.A.

The Doctrine of Superior Equities Allows Insurer’s Subrogation Action against Third Party Joint Tortfeasor

Submitted by Brian J. Colombana

In State Farm General Ins. Co. v. Wells Fargo Bank, N.A. (No. A111643, 1^st Dist. Oct. 10, 2006), the Court of Appeal questioned but affirmed the doctrine of superior equities and held that State Farm has superior equity to Wells Fargo. Wells Fargo was not entitled to judgment as a matter of law.

State Farm sued Wells Fargo for subrogation to recover sums it paid to its insureds following a fire. The fire started when hot embers in a plastic garbage can ignited, setting fire to a neighboring property managed by Wells Fargo. The fire spread to a condominium complex insured by State Farm. Wells Fargo moved for summary judgment on the ground that State Farm’s claim was barred by the doctrine of superior equities because Wells Fargo did not start the fire, and therefore, was not the primarily liable tortfeasor. The trial court granted the motion. State Farm appealed contending the trial court improperly interpreted and applied the doctrine of superior equities. The Court agreed and reversed.

State Farm first argued that the doctrine of superior equities does not apply because Wells Fargo’s alleged liability lies in tort. According to State Farm, the doctrine only applies where a subrogating insurer seeks to enforce the terms of a separate contract between its insured and a third party. The Court dismissed the argument as there is “no authority … supporting the proposition that the doctrine of superior equities is contingent on the nature of [the] underlying cause of action against the third party. Thus, the doctrine applies whether the insurer’s right to subrogation arises by operation of law or by contract.

Lastly, the Court analyzed the doctrine of superior equities as it applies to State Farm’s subrogation action against Wells Fargo. State Farm argued that a proximate cause is always a primary cause, and that any degree of fault on the part of a third party is sufficient to tip the scales in favor of an innocent insurer. Wells Fargo maintained that they have “superior equity” because they were not the “primary cause” of the fire. The Court disagreed with both contentions.

State Farm’s assertion is only plausible when an insurer seeks recovery solely from the direct cause of the loss and “[t]he mere fact that [Wells Fargo] did not start the fire does not automatically mean that they have a superior equitable position over State Farm.” Contrary to the positions advanced by the parties, the Court concluded that the real issue is “whether respondents were in a better position to avoid the loss than State Farm or its insureds.” The Court hinted that the failure to provide for the safe disposal of ashes could be characterized as promoting the spread of fire; but failed to rule on the issue as the trial court never addressed it.

Accordingly, the trial court’s judgment was reversed and the case remanded for further proceedings consistent with this opinion.

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