What Does Equitable Subrogation Mean ?
Equitable subrogation allows an insurer that paid coverage or defense costs to be placed in the insured's position to pursue a full recovery from another insurer who was primarily responsible for the loss. (Fireman's Fund Ins. Co. v. Wilshire Film Ventures, Inc. (1997), 65 Cal. App. 4th at p. 1291.)
Because this doctrine shifts the entire cost burden, the moving party insurer must show the other insurer was primarily liable for the loss and that the moving party's equitable position is inferior to that of the second insurer. (Id. at pp. 1291, 1296; see Fireman's Fund Ins. Co. v. Wilshire Film Ventures, Inc. (1997) 52 Cal. App. 4th 553, 556 60 Cal. Rptr. 2d 591.)
This doctrine commonly applies to shift defense costs between primary and excess insurers. (See Signal Companies, Inc. v. Harbor Ins. Co. (1980) 27 Cal. 3d 359, 367-368 165 Cal. Rptr. 799, 612 P.2d 889, 19 A.L.R.4th 75; Reliance Nat. Indemnity Co. v. General Star Indemnity Co., supra, 72 Cal. App. 4th at pp. 1080-1081.)
As between those two insurers, the primary insurer is obligated to defend the insured and must bear 100 percent of the defense costs until the primary limits have been exhausted. (See Signal Companies, Inc. v. Harbor Ins. Co., supra, 27 Cal. 3d at p. 368; Hartford Accident & Indemnity Co. v. Superior Court (1994) 23 Cal. App. 4th 1774, 1779-1780 29 Cal. Rptr. 2d 32.)
Thus, an excess insurer that pays defense costs will frequently obtain a full recovery against the primary insurer on an equitable subrogation theory.
Equitable contribution, on the other hand, applies to apportion costs among insurers that share the same level of liability on the same risk as to the same insured. (Fireman's Fund, supra, 65 Cal. App. 4th at pp. 1293-1294.)
It "arises when several insurers are obligated to indemnify or defend the same loss or claim, and one insurer has paid more than its share of the loss or defended the action without any participation by the others." (Id. at p. 1293.)
"The purpose of this rule of equity is to accomplish substantial justice by equalizing the common burden shared by coinsurers, and to prevent one insurer from profiting at the expense of others." (Ibid.; see American Continental Ins. Co. v. American Casualty Co. (1999) 73 Cal. App. 4th 508, 513 86 Cal. Rptr. 2d 560.)