Judge Richard S. Whitney, Case Number: 37-2020-00003343-CU-IC-CTL, Date: 2024-05-10 Tentative Ruling

Judge: Richard S. Whitney, Case: 37-2020-00003343-CU-IC-CTL, Date: 2024-05-10 Tentative Ruling

SUPERIOR COURT OF CALIFORNIA,

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HALL OF JUSTICE

TENTATIVE RULINGS - May 09, 2024

05/10/2024 10:30:00 AM C-68 COUNTY OF SAN DIEGO

JUDICIAL OFFICER:Richard S. Whitney

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Civil - Unlimited Insurance Coverage Motion Hearing (Civil) 37-2020-00003343-CU-IC-CTL MOUSSAVIAN VS STATE FARM GENERAL INSURANCE COMPANY [E-FILE] CAUSAL DOCUMENT/DATE FILED:

TENTATIVE RULING: PLAINTIFF'S MOTION TO DISGORGE TENTATIVE SETTLEMENT BETWEEN DEFENDANT CITY OF SAN DIEGO AND CROSS-COMPLAINANT STATE FARM GENERAL INSURANCE COMPANY is DENIED.

Plaintiff Dr. Mehran Moussavian's ('Plaintiff') seeks disgorgement of the tentative settlement funds from Defendant CITY OF SAN DIEGO ('City') to Defendant State Farm General Insurance Company ('Defendant') based on the 'made whole doctrine.' 'Subrogation is an equitable doctrine that permits an insurance company to assert the rights and remedies of an insured against a third party tortfeasor.' (Chandler v. State Farm Mut. Auto. Ins. Co. (9th Cir. 2010) 598 F.3d 1115, 1117.) 'The doctrine's purpose is 'to prevent the insured from obtaining a double recovery (and thus being unjustly enriched) and to place the responsibility for paying the loss on the party who caused the loss.'' (Id. at 1117.) 'When an insurance company pays out a claim on a first-party insurance policy to its insured, the insurance company is subrogated to the rights of its insured against any tortfeasor who is liable to the insured for the insured's damages.' (Progressive West Ins. Co. v. Superior Court (2005) 135 Cal.App.4th 263, 272.) 'The made-whole rule is a common law exception to insurer's right of subrogation.' (Chandler, supra, 598 F.3d at 1118.) '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.' (Sapiano v. Williamsburg Nat. Ins. Co. (1994) 28 Cal.App.4th 533, 536.) 'The applicability of the doctrine generally depends on whether the insured has been completely compensated for all the elements of damages, not merely those for which the insurer has indemnified the insured.' (Chandler, supra, 598 F.3d at 1118 [Citation omitted].) The doctrine does not apply where: (1) an insurer has disclaimed 'the made-whole rule in an insurance contract by using clear and specific language that indicates the parties' intent to permit the insurer to seek reimbursement even if the insured has not been made whole' and (2) 'the insurer participates in prosecuting the claim against the third-party tortfeasor.' (Id.) '[I]nsureds are entitled to be 'made whole' from the insurance proceeds and tort recovery, but they are not entitled to a double recovery.' (21st Century Ins. Co. v. Superior Court (2009) 47 Cal.4th 511, 515.) Here, Defendant is participating in the prosecution of the claim against the third-party tortfeasor, the City.

Indeed, the settlement between Defendant and the City arises out of the payments Defendant has made Calendar No.: Event ID: TENTATIVE RULINGS

3097759 53 CASE NUMBER: CASE TITLE: MOUSSAVIAN VS STATE FARM GENERAL INSURANCE COMPANY 37-2020-00003343-CU-IC-CTL to Plaintiff as a result of the City's actions (or inactions). At best, the 'made-whole rule' could apply to the claims for which Plaintiff has not been paid and after Defendant is no longer participating in prosecuting the claim against the City. But Plaintiff is seeking all of the approximately $7 million settlement from the City to Defendant. This would, at a minimum, amount to a partial double recovery as Plaintiff has already been paid almost $7 million by Defendant. While there are some remaining issues in this action that do not relate to the amounts already paid to Plaintiff, Plaintiff is seeking the entire settlement amount that relates to much more than what remains at issue in this case.

Further, Plaintiff has not demonstrated this is case represents a situation where the tortfeasor, the City, could not pay for all of Plaintiff's damages. 'California courts recognize a made-whole rule when-typically due to underinsurance-the tortfeasor could not pay his or her 'entire debt' to the insured.' (21st Century, supra, 47 Cal.4th at 519.) Plaintiff has not cited to any case that involves a settlement just prior to trial.

The cases cited by the parties involve judgments. This case has not yet gone to trial. Plaintiff has not demonstrated a risk that he will not be made whole before Defendant. Rather, Plaintiff is essentially asking that this Court determine that part, or all, of the settlement is for damages for which Defendant has not yet been found liable. Otherwise, Plaintiff is seeking a double recovery. The Court cannot determine, before a trial on the issue, whether Plaintiff incurred more damages than the settlement amount. In sum, the Court finds the 'made-whole rule' does not apply in the circumstances at issue.

Plaintiff also asserts the unclean hands doctrine bars Defendant from recovering anything from the City.

Unclean hands is an affirmative defense to unjust enrichment. (See Federal Deposit Ins. Corp. v. Dintino (2008) 167 Cal.App.4th 333, 355, fn. 10; see also Ghirardo v. Antonioli (1996) 14 Cal.4th 39, 54.) The 'doctrine of unclean hands may apply to legal as well as equitable claims,' including 'tort and contract remedies,' to preclude relief by the party guilty of unclean hands. (Camp v. Jeffer, Mangels, Butler & Marmaro (1995) 35 Cal.App.4th 620, 638.) To support an affirmative defense of unclean hands the defendant must show '(1) analogous case law, (2) the nature of the misconduct, and (3) the relationship of the misconduct to the claimed injuries.' (Kendall-Jackson Winery, Ltd. v. Superior Court (1999) 76 Cal.App.4th 970, 979.) 'Any conduct that violates conscience, or good faith, or other equitable standards of conduct is sufficient cause to invoke the doctrine.' (Id. at 979.) 'The misconduct 'must relate directly to the transaction concerning which the complaint is made, i.e., it must pertain to the very subject matter involved and affect the equitable relations between the litigants.'' (Id.) '[T]he covenant of good faith and fair dealing' does not 'extend beyond the terms of the insurance contract in force between the parties.' (New Plumbing Contractors, Inc. v. Nationwide Mutual Ins. Co. (1992) 7 Cal.App.4th 1088, 1096.) The unclean hands Plaintiff alleges as to Defendant's conduct with handling Plaintiff's claim does not directly relate to the City's conduct and Defendant's subrogation claim against the City. At best, the unclean hands doctrine could potentially apply to misconduct by Defendant that violates conscience as to claims of unjust enrichment by Defendant against Plaintiff or the City since it is an affirmative defense. Such assertions do not exist in this action. Rather, Plaintiff is seeking to use an affirmative defense as a sword against Defendant to prevent Defendant from recovering on a subrogation claim. Defendant's subrogation rights against the City arise from the City's conduct. Such conduct does not directly relate to Defendant's purported bad faith claims handling as to Plaintiff. The Court finds the unclean hands doctrine inapplicable.

Finally, Plaintiff asserts disgorgement is the appropriate remedy. As the Court finds Plaintiff is not entitled to a remedy under the circumstances in this case at this stage, the issue is moot. However, the Court notes that Plaintiff did not allege a cause of action that calls for disgorgement in the complaint.

'Under the long established rule, a party is not entitled to recovery upon a cause of action not pleaded, even if disclosed by the evidence.' (Tri-Delta Engineering, Inc. v. Insurance Co. of North America (1978) 80 Cal.App.3d 752, 760.) In sum, the motion is denied.

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