Big Shoes to Fill: Insurer Barred from Bringing Subrogation Claim on Behalf of Suspended Corporation

Big Shoes to Fill: Insurer Barred from Bringing Subrogation Claim on Behalf of Suspended Corporation

The California Court of Appeals recently affirmed a trial court ruling denying an insurer’s leave to amend its complaint after a motion for judgment on the pleadings was granted in favor of the defense.  In Travelers Property Casualty Company of America v. Engel Insulation, Inc. (2018) WL6259032, Travelers, the contractor’s insurer, sought leave to amend its complaint against subcontractor Engel Insulation for defense fees and costs.  The trial court denied Traveler’s request to amend.  The Court of Appeals affirmed the trial court’s ruling and held an insurer may not “may not pursue a subrogation recovery if the insured is itself barred from filing suit.”  (See Low v. Golden Eagle Ins. Co.(2002) 101 Cal.App.4th 1354, 1363.)

A homeowner’s association brought a construction defect action against Westlake, a suspended corporation.  Travelers agreed to provide Westlake a defense based on an insurance policy it issued to contractors.  Travelers filed an action to recover attorney’s fees and costs for equitable and contractual subrogration against subcontractors including Engel.

The trial court granted Engel’s motion for judgment on the pleadings without leave to amend holding an insurer is prohibited from asserting and prosecuting the affirmative claims of a suspended corporate insured as a subrogee.  The Appeal Court clarified an insurer cannot acquire by subrogration anything to which the insured has no rights, and may claim no rights which the insured does not have.”  (See Fireman’s Fund Ins. Co. v. Maryland Casualty Co. (1998) 65 Cal.App.4th 1279, 1292)  Subrogation is available to an insurer only if the insured has an existing, legally enforceable cause of action against a tortfeasor.  (See Low v. Golden Eagle Ins. Co., supra, 101 Cal.App.4that 1362-1363.)

The Court of Appeals affirmed the trial court’s denial of leave to amend and held Travelers could not pursue a subrogration recovery since Westlake, a suspended corporation, was barred from filing suit.

The Court noted Travelers did not present any evidence of a certificate of revivor or paid taxes on behalf of Westlake.  Based on the Court’s reflection on the lack of evidence of Westlake’s change in status as a suspended corporation, it seems as if the Court may have considered Traveler’s claim if the evidence of change of status was presented.

Takeaway

If representing a suspended corporation, provide evidence to the court of the efforts made by the corporation to pay the taxes and/or pursute of a certificate of revivor which may allow the insured to proceed with a subrogation claim.

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