Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court No. SC087528 of Los Angeles County. Allan J. Goodman, Judge. Affirmed.
Westlake Law Group and Julian A. Simonis for Plaintiff and Appellant.
Crandall, Wade & Lowe, James J. Crandall and Edwin B. Brown for Defendants and Respondents.
PERLUSS, P. J.
After paying its insured Malibu Broadbeach, L.P. the full amount due under a property indemnity policy, a sum less than Malibu Broadbeach’s total loss, State Farm General Insurance Co. (State Farm) proceeded independently against the third party tortfeasors responsible for the loss and thereafter settled its subrogation claim before its insured had been made whole by the tortfeasors. Malibu Broadbeach then sued State Farm and Bartholomew & Associates, its subrogation lawyers, alleging they had improperly impaired its rights to further recovery from the tortfeasors. The trial court sustained without leave to amend State Farm and its attorneys’ demurrer to the first amended complaint. Finding no impairment to Malibu Broadbeach’s rights under the circumstances presented here, we affirm.
FACTUAL AND PROCEDURAL BACKGROUND
1. The Underlying Claim
In February 2002 Malibu Broadbeach purchased beachfront property that included a two-story structure adjacent to Pacific Coast Highway. The building consisted of a downstairs garage and two upstairs apartments, which, apparently unbeknownst to Malibu Broadbeach, did not comply with current local building codes. While the property was in escrow, Malibu Broadbeach obtained a rental dwelling insurance policy from State Farm that did not include a “building ordinance or law” endorsement to ensure, following damage or loss, reconstruction and upgrade of the premises in accordance with applicable building codes.
On June 7, 2002 a pickup truck, driven by Jaime Rivero and owned by Leopoldo Flores, swerved off Pacific Coast Highway and crashed through the garage beneath the apartments. Shortly after commencing repairs, a City of Malibu building inspector issued an order to stop work on the property until Malibu Broadbeach had obtained all necessary permits to repair the structure. While work on the structure was halted, Malibu Broadbeach submitted a claim to State Farm for its loss. In December 2002 State Farm estimated the cost of returning the property to its pre-loss condition as $17,188 and sent Malibu Broadbeach a check for that amount. State Farm subsequently delivered a second payment of $31,500 to cover lost rents associated with the damage and ongoing repairs.
2. State Farm’s Subrogation Action
On April 14, 2003, after State Farm’s final payment on the claim, a representative of State Farm’s subrogation department wrote Malibu Broadbeach, “We will attempt to collect the monies paid by State Farm and your deductible. [¶] Collection could take an extended period of time, especially if we have to take legal action against the person responsible for the loss. We will advise you when our efforts have been concluded.”
The policy’s subrogation clause provides, “Any insured may waive in writing before a loss all rights of recovery against any person. If not waived, we may require an assignment of rights against recovery for a loss to the extent that payment is made by us. [¶] If an assignment is sought, any insured shall sign and deliver all related papers and cooperate with us in any reasonable manner.” There is no indication in the record that Malibu Broadbeach signed a pre-loss waiver of its right of recovery against the tortfeasors or that State Farm required Malibu Broadbeach to execute an assignment following the loss.
The record does not include any response from Malibu Broadbeach to State Farm’s letter. On March 9, 2004 State Farm’s retained counsel filed an action against Rivero and Flores, alleging State Farm had paid Malibu Broadbeach $48,688.00 to repair the damaged structure and had become subrogated to the rights of its insured for that amount. (State Farm General Insurance Co. v. Jaime Rivero et al. (Super. Ct. L.A. County, 2004, No. SC080906).)
In November 2004 State Farm settled its action against Rivero and Flores for $23,125 and dismissed the lawsuit. As part of the settlement agreement State Farm executed a release in favor of the tortfeasors that provided, “I release and forever discharge Jamie Rivero and Leopoldo Flores dba Leopoldo Flores Landscape their principals, agents and representatives from any and all rights, claims, demands and damages of any kind, known or unknown, existing or arising in the future, and accordingly hereby does expressly, voluntarily, knowingly and advisedly WAIVE any and all rights granted to him/her under California Civil Code § 1542 resulting from or related to property damage arising from an accident that occurred on or about 06/08/02 at [address] Pacific Coast Highway in Malibu, California. . . . [¶] . . . [¶] This release shall not destroy or otherwise affect the rights of persons on whose behalf this payment is made, or persons who may claim to be damaged by reasons of the accident other than the undersigned to pursue any legal remedies they may have against the undersigned or any other person.” The release was signed by an “authorized representative” for State Farm. State Farm subsequently notified Malibu Broadbeach it had settled the lawsuit “seeking reimbursement for compensation paid to you by State Farm” and enclosed the release and a $2,000 check in reimbursement of the deductible on the claim. Again, the record does not indicate any response from Malibu Broadbeach.
3. Malibu Broadbeach’s First Action Against State Farm
Construction was finally completed on the damaged structure in July 2004, and Malibu Broadbeach wrote to State Farm submitting a claim totaling $268,452.66. When State Farm rejected the claim because it included the cost of repairs and upgrades to bring the structure into code compliance, Malibu Broadbeach sued State Farm for breach of contract and breach of the covenant of good faith and fair dealing. (Malibu Broadbeach, L.P. v. State Farm General Insurance Co. (Super. Ct. L.A. County, 2004, No. SC080563) (Malibu I).)
In August 2005 State Farm moved for summary judgment in Malibu I. The motion was granted in March 2006 on the basis “[Malibu Broadbeach] received all the benefits of the policy which it was entitled to receive.” Division Five of this court affirmed the trial court’s decision in Malibu I, concluding “there is no evidence that the insurer’s payout for property loss was inadequate to restore the damaged structure to its pre-accident condition.” (Malibu Broadbeach, L.P. v. State Farm General Insurance Co. (Sept. 14, 2007, B191919) at p. 9 [nonpub. opn.].)
4. Malibu Broadbeach’s Second Lawsuit Against State Farm
In November 2004 Malibu Broadbeach filed the instant action against State Farm and Bartholomew & Associates (Malibu II), the gist of which alleged State Farm’s unilateral settlement of its subrogation claim against the tortfeasors had impaired Malibu Broadbeach’s own claims against the tortfeasors. In particular, Malibu Broadbeach challenged State Farm’s failure to give it notice of the pending settlement and its failure to name Malibu Broadbeach as a party in the subrogation action. State Farm and Bartholomew & Associates demurred to the First Amended Complaint. A month after entering summary judgment against Malibu Broadbeach in Malibu I, the trial court sustained the demurrer without leave to amend on the ground Malibu Broadbeach had failed to identify any prejudice to its right to pursue the tortfeasors in a separate action.
DISCUSSION
1. Standard of Review
On appeal from an order dismissing a complaint after the sustaining of a demurrer, we independently review the pleading to determine whether the facts alleged state a cause of action under any possible legal theory. (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967; Berger v. California Ins. Guarantee Assn. (2005) 128 Cal.App.4th 989, 998.) “‘“We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed.” [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context.’” (Zelig v. County of Los Angeles (2002) 27 Cal.4th 1112, 1126.) Finally, we liberally construe the pleading with a view to substantial justice between the parties. (Code Civ. Proc., § 452; Kotlar v. Hartford Fire Ins. Co. (2000) 83 Cal.App.4th 1116, 1120.)
“‘Where the complaint is defective, “[i]n the furtherance of justice great liberality should be exercised in permitting a plaintiff to amend his [or her] complaint.”’” (Aubry v. Tri-City Hospital Dist., supra, 2 Cal.4th at p. 970.) We determine whether the plaintiff has shown “in what manner he [or she] can amend [the] complaint and how that amendment will change the legal effect of [the] pleading.” (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349.) “‘[L]eave to amend should not be granted where . . . amendment would be futile.’” (Davaloo v. State Farm Ins. Co. (2005) 135 Cal.App.4th 409, 414-415.)
2. An Insurer’s Right To Seek Subrogation from a Third Party Tortfeasor
Traditionally, an insurer that pays its insured’s claim is entitled to take over the rights and remedies of the insured and to recover any sums paid to the insured from the third party who caused the insured’s covered loss, a doctrine known as subrogation. Subrogation can arise by contract, statute or equitable principles. (See Hodge v. Kirkpatrick Development, Inc. (2005) 130 Cal.App.4th 540, 548 (Hodge); Sapiano v. Williamsburg Nat. Ins. Co. (1994) 28 Cal.App.4th 533, 537-538 & fn. 1 (Sapiano); Travelers Indem. Co. v. Ingebretsen (1974) 38 Cal.App.3d 858, 864.) “Subrogation advances an important policy rationale underlying the tort system by forcing a wrongdoer who helped to cause a loss to bear the burden of reimbursing the insurer for payments made to its insured as a result of the wrongdoer’s acts and omissions.” (State Farm General Ins. Co. v. Wells Fargo Bank, N.A. (2006) 143 Cal.App.4th 1098, 1119.) In addition, subrogation “prevent[s] the insured from obtaining a double recovery (and thus being unjustly enriched).”
State Farm’s subrogation right in this case arises from both the policy’s standard subrogation clause (conventional subrogation) and its payment of Malibu Broadbeach’s covered loss (legal or equitable subrogation). As is true in this case, the subrogation provisions of most insurance contracts are general and add nothing to the rights of subrogation that arise as a matter of law. (Progressive West Ins. Co. v. Superior Court (2005) 135 Cal.App.4th 263, 272.)
There are eight essential elements of an insurer’s cause of action for subrogation: “(a) the insured suffered a loss for which the defendant is liable, either as the wrongdoer whose act or omission caused the loss or because the defendant is legally responsible to the insured for the loss caused by the wrongdoer; (b) the claimed loss was one for which the insurer was not primarily liable; (c) the insurer has compensated the insured in whole or in part for the same loss for which the defendant is primarily liable; (d) the insurer has paid the claim of its insured to protect its own interest and not as a volunteer; (e) the insured has an existing, assignable cause of action against the defendant which the insured could have asserted for its own benefit had it not been compensated for its loss by the insurer; (f) the insurer has suffered damages caused by the act or omission upon which the liability of the defendant depends; (g) justice requires that the loss be entirely shifted from the insurer to the defendant, whose equitable position is inferior to that of the insurer; and (h) the insurer’s damages are in a liquidated sum, generally the amount paid to the insured.” (Fireman’s Fund Ins. Co. v. Maryland Casualty Co. (1998) 65 Cal.App.4th 1279, 1292; State Farm General Ins. Co. v. Wells Fargo Bank, N.A., supra, 143 Cal.App.4th at pp. 1111-1112.)
Upon subrogation, “the insurer succeeds to its insured’s rights against the third party in the amount the insurer paid.” (Hodge, supra, 130 Cal.App.4th at p. 548; Low v. Golden Eagle Ins. Co. (2002) 101 Cal.App.4th 1354, 1361.) If an insurer’s payment on the claim compensates the insured for its entire loss, the insurer becomes the real party in interest as to any claim against the responsible party and may sue the tortfeasor directly. (See Croskey et al., Cal. Practice Guide: Insurance Litigation (The Rutter Group 2007) ¶ 9:111.21, p. 9-46 (Rutter Guide).) Partial payment to the insured, however, results in partial subrogation in which the insurer is subrogated only in the amount of the insurance proceeds paid. (Ferraro v. Southern Cal. Gas Co. (1980) 102 Cal.App.3d 33, 43 (Ferraro).) “When, as here, the insurer partially compensates the insured for the loss, thereby becoming partially subrogated, the subrogation doctrine ‘results in two or more parties having a right of action for recovery of damages based upon the same underlying cause of action.’ [Citations.] The insured can sue the responsible party for any loss not fully compensated by insurance, and the insurer can sue the responsible party for the insurer’s loss in the amount paid on the insurance policy.” (Hodge, at p. 551; Allstate Ins. Co. v. Mel Rapton, Inc. (2000) 77 Cal.App.4th 901, 908 (Mel Rapton).)
When an insurer reimburses its insured for only a portion of the losses sustained, the insured retains the right to sue the wrongdoer for any uncompensated loss. (See Kardly v. State Farm Mut. Auto. Ins. Co. (1989) 207 Cal.App.3d 479, 487-488.) The partially subrogated insurer, in turn, is entitled to seek recovery of the sums it paid in several different ways. First, if the insured independently initiates a lawsuit against the tortfeasor, an insurer may seek to intervene in the insured’s lawsuit. (Hodge, supra, 130 Cal.App.4th at pp. 550-551 [analyzing insurer’s options and concluding insurer may intervene as a matter of right in insured’s pending action against tortfeasor]; Deutschmann v. Sears, Roebuck & Co. (1982) 132 Cal.App.3d 912, 915 [reversing trial court’s denial of insurer’s petition to intervene in insured’s action against tortfeasor].) Alternatively, the insurer may elect to wait to recover the funds from its insured once the insured has resolved its claim with the tortfeasor. (Plut v. Fireman’s Fund Ins. Co. (2000) 85 Cal.App.4th 98, 104 (Plut) [subrogated insurer’s options include recoupment of payment “from the proceeds of the insured’s action against a tortfeasor”].)
As a third option, the insurer itself may initiate an action against the tortfeasor, as State Farm did in this case. Without question, the better practice in this situation is for the insurer to join its insured as a coplaintiff in the action, or as a defendant or “involuntary plaintiff,” if necessary, assuming, of course, the insured has not already filed his or her own claim against the tortfeasor. (See Rutter Guide, supra, ¶ 9.111.27, p. 9-49; see also ¶¶ 9:90 to 9:91, p. 9-38.) If the insured has previously sued the third party, however, the insurer’s separate action may be challenged on the ground the insured and insurer have impermissibly split a single cause of action. The rule against splitting a cause of action, which prohibits a plaintiff from turning a single cause of action into the basis for more than one lawsuit, was applied in Mel Rapton to bar an insurer’s subrogation claim after the insured had won a small claims judgment against the tortfeasor. (Mel Rapton, supra, 77 Cal.App.4th at p. 913.) As the court cautioned, “To avoid a violation of the rule against splitting a cause of action, the insured and insurer ‘should join in a single suit against the tortfeasor.’” (Id. at p. 909, citing Ferraro, supra, 102 Cal.App.3d at p. 43 and Bank of the Orient v. Superior Court (1977) 67 Cal.App.3d 588, 595; see also Hodge, supra, 130 Cal.App.4th at pp. 550-551 [recommending intervention as “the safest course” for insurer to protect its rights].)
“The violation of one primary right constitutes a single cause of action, though it may entitle the injured party to many forms of relief. . . .” (Wulfjen v. Dolton (1944) 24 Cal.2d 891, 895-896.) Because “[s]ubrogation places the insurer in the shoes of its insured to the extent of its payment” (Progressive West Ins. Co. v. Superior Court, supra, 135 Cal.App.4th at p. 272), the insurer has no greater rights than the insured would have, and for that reason is subject to the same defenses assertable against the insured. (Employers Mutual Liability Ins. Co. v. Tutor-Saliba Corp. (1998) 17 Cal.4th 632, 639.) Thus, in partial subrogation cases, “operation of the subrogation doctrine ‘results in two or more parties having a right of action for recovery of damages based upon the same underlying cause of action.’” (Mel Rapton, supra, 77 Cal.App.4th at p. 908, quoting Ferraro v. Southern Cal. Gas Co., supra, 102 Cal.App.3d at p. 41.)
The risk associated with splitting a cause of action extends both ways: The defense was invoked recently by the Ninth Circuit to affirm the trial court’s dismissal of an insured’s lawsuit against a tortfeasor when the insured knew the insurer had already sued the tortfeasor but failed to intervene before the insurer settled with the tortfeasor and dismissed its case with prejudice. (Intri-Plex Technologies, Inc. v. Crest Group, Inc. (9th Cir. 2007) 499 F.3d 1048, 1053-1055 (Intri-Plex).) The Intri-Plex court relied on the decisions in Mel Rapton and Ferraro to conclude the burden fell on the insured to protect its own rights against the tortfeasor once the insurer had met its coverage obligation. (Intri-Plex, at pp. 1053-1055.)
Although a partially subrogated insurer would be prudent to include its insured in an action against the third party tortfeasor, nearly 20 years ago this court confirmed the insurer’s right to proceed independently. “Both the subrogee (insurer) and the subrogor (insured) have a right of action against the tortfeasor. [Citation] A subrogated insurer is not limited to an action in intervention; he may bring a separate independent action to recover directly from the third-party tortfeasor.” (Basin Construction Crop. v. Department of Water & Power (1988) 199 Cal.App.3d 819, 825; accord, Pacific Gas & Electric Co. v. Superior Court (2006) 144 Cal.App.4th 19, 23 [quoting Basin Construction Corp.].)
In some circumstances, the partially subrogated insurer’s right to recover the sums it paid to its insured is limited by the made-whole rule, a common law exception to an insurer’s subrogation right that precludes an insurer from recovering any third party funds unless and until the insured has been made whole for the entire loss, not just the covered portion of the loss. (Progressive West Ins. Co. v. Superior Court (2005) 135 Cal.App.4th 263, 274 (Progressive West), citing Plut, supra, 85 Cal.App.4th at p. 104 [“‘[i]t is a general equitable principle of insurance law that, absent an agreement to the contrary, an insurance company may not enforce a right to subrogation until the insured has been fully compensated for [his or] her injuries, that is, has been made whole’”]; see also Sapiano, supra, 28 Cal.App.4th at p. 536 [contractual provision that purports to waive insured’s protection under this rule must “clearly and specifically [give] the insurer a priority out of proceeds from the tortfeasor regardless whether the insured was first made whole”].) The made-whole rule is inapplicable, however, when the insurer funds or actively participates in the prosecution of the claim against the third party. (Travelers Indemnity Co. v. Ingebretsen, supra, 38 Cal.App.3d at p. 866; see Progressive West, at p. 273.)
“The common law made whole doctrine is an equitable principle which generally limits the ability of an insurer to exercise its right of subrogation until the insured has been fully compensated or made whole. Under this conceptualization, in the event of a subrogation dispute between the insurer and its insured, the insured has priority or rights to collect from the responsible third party. Thus, where the insured’s recovery from both the insurer and tortfeasor is less than or equal to its loss the insurer forfeits its right to subrogation.” (Parker, The Made Whole Doctrine: Unraveling the Enigma Wrapped in the Mystery of Insurance Subrogation (2005) 70 Mo. L.Rev. 723, 737.)
3. Malibu Broadbeach Has Failed To Adequately Allege Any Impairment of Its Right To Proceed Against the Tortfeasors
a. The tortfeasors have likely waived any equitable defenses barring a suit by Malibu Broadbeach
Although Malibu Broadbeach’s first amended complaint asserts a variety of different causes of action, each of its claims is premised on the contention its right to recover the uncovered portion of its loss from the third party tortfeasors was improperly impaired by State Farm’s failure to include it in the subrogation lawsuit State Farm filed and then settled with the tortfeasors. We need not decide whether this theory of liability may support a claim in an appropriate case, for here it is plain -- based on Malibu Broadbeach’s own conduct (that is, inaction) -- State Farm is not responsible for any impairment of Malibu Broadbeach’s rights.
Initially, with respect to Malibu Broadbeach’s contention State Farm’s subrogation action precludes its own separate action to enforce its rights because of the prohibition against splitting a cause of action, the record in this case supports the inference the tortfeasors who settled with State Farm knew Malibu Broadbeach’s losses exceeded the amount of State Farm’s subrogation claim, not least because the release executed in favor of the tortfeasors by State Farm, albeit inartfully drafted, clearly conveyed State Farm’s intent to preserve any claim by Malibu Broadbeach for its additional losses. Their consent to those terms of settlement could easily be construed as an implied waiver of their right to assert the equitable defense against splitting a cause of action (or for that matter, compulsory joinder) against State Farm’s insured. That is the precise rule that governs when the reverse situation occurs and an insured settles with a tortfeasor who knows of the existence of the insurer’s outstanding subrogation claim. (See Griffin v. Calistro (1991) 229 Cal.App.3d 193, 196.) “‘“[W]here the tortfeasor obtains a release from the insured with knowledge that the latter has already been indemnified by the insurer, such release of the tortfeasor does not bar the right of subrogation of the insurer.”’” (Mel Rapton, supra, 77 Cal.App.4th at p. 912, quoting Conservatorship of Edwards (1988) 198 Cal.App.3d 1176, 1184.) We see no principled way to distinguish between an insurer and its insured on this point; and it would seem eminently reasonable to grant the insured the same rights its insurer would have vis á vis the tortfeasor. (Cf. Fireman’s Fund Ins. Co. v. Maryland Casualty Co., supra, 65 Cal.App.4th at p. 1292 [element of subrogation right includes finding “justice requires that the loss be entirely shifted from the insurer to the defendant, whose equitable position is inferior to that of the insurer”].)
Curiously, the Ninth Circuit rejected this contention in Intri-Plex on the ground the “rule exists to protect the insurer from fraud.” (Intri-Plex, supra, 499 F.3d at p. 1056, citing Mel Rapton, supra, 77 Cal.App.4th 901.) We find this distinction unpersuasive. An insurer can collude just as readily with the tortfeasor as can the insured to enhance its own recovery.
In an analogous context, California courts have not hesitated to infer a waiver of the one action rule, which limits the number of lawsuits a tortfeasor must face, in wrongful death cases. Under this rule “there may be only a single action for wrongful death, in which all heirs must join. There cannot be a series of such suits by individual heirs.” (Gonzales v. Southern Cal. Edison Co. (1999) 77 Cal.App.4th 485, 489.) In Gonzales the decedent’s wife sued the defendants for wrongful death on behalf of her daughter and, at her deposition, disclosed the existence of her husband’s parents who lived in Mexico. The defendants settled the action and later resisted the parents’ lawsuit citing the one action rule, which, in effect, is a corollary of the prohibition against splitting a cause of action. The Court of Appeal reversed the trial court’s dismissal of the parents’ lawsuit, explaining, “The one action rule . . . is not jurisdictional, and its protections may be waived. . . . [I]f the defendant settles an action that has been brought by one or more of the heirs, with knowledge that there exist other heirs who are not parties to the action, the defendant may not set up that settlement as a bar to an action by the omitted heirs.” (Ibid.; see Valdez v. Smith (1985) 166 Cal.App.3d 723, 731.) In finding waiver, the court expressly rejected the defense contention the parents had been aware of the original wrongful death claim and should have sought to intervene in the previous action. (Gonzales, at p. 491.)
In short, under the circumstances of this case a court would be fully justified in rejecting the tortfeasors’ assertion an action by the insured was precluded by the rule against splitting a cause of action. (See Hodge, supra, 130 Cal.App.4th at p. 552 [“defendant may waive the defense of splitting a cause of action”].) Were we reviewing a dismissal of Malibu Broadbeach’s complaint against the tortfeasors, we would likely reach that conclusion. (See id. at pp. 553-554 [settlement between insured and third party wrongdoers would not bar insurer’s recovery from wrongdoers because wrongdoers knew of insurer’s subrogation clause].) But our task is quite different because there simply is no allegation or evidence in the record Malibu Broadbeach ever filed a lawsuit against the tortfeasors. To the contrary, it appears Malibu Broadbeach vested its litigation hopes in pursuit of State Farm. In other words, once notified of State’s Farm’s intent to proceed against the tortfeasors, Malibu Broadbeach not only failed to monitor or request inclusion in State Farm’s action, but also sat on its rights while the clock ticked. Even after learning of State Farm’s settlement with the tortfeasors, Malibu Broadbeach filed suit against State Farm alone instead of perfecting its claim against the tortfeasors. In the absence of any effort whatsoever by Malibu Broadbeach to protect its rights against the tortfeasors, we are reluctant to conclude State Farm’s decision to proceed without Malibu Broadbeach was actionable.
The statute of limitation for actions related to injury to real property is three years. (Code Civ. Proc., § 338, subd. (b).) The accident occurred in June 2002; absent any ground for tolling (which does not appear in the record), the statute on Malibu Broadbeach’s claims against the tortfeasors ran in June 2005, six months after Malibu Broadbeach filed this action against State Farm.
b. State Farm’s decision to separately enforce its subrogation claim against the tortfeasors did not violate the made-whole rule
Malibu Broadbeach also argues State Farm’s unilateral action violated the made-whole rule, which is intended to protect the insured even when the insurer has already met its coverage obligation. As discussed, that exception to the common law rule of subrogation does not preclude reimbursement if the insurer has cooperated and assisted the insured in the recovery process. (See Travelers Indem. Co. v. Ingebretsen, supra, 38 Cal.App.3d at p. 866; Progressive West, supra, 135 Cal.App.4th at p. 273 [acknowledging exception to made-whole rule].) Even assuming the doctrine applies in the current situation -- where the insurer itself is fully responsible for the recovery from the third party tortfeasors while the insured, aware of the insurer’s efforts, made no attempt to participate -- the rule is properly viewed as a principle of priority. (See Rutter Guide, supra, ¶¶ 9.96, 9.00, pp. 9.39 to 9.40.) That is, when the wrongdoer has only limited assets, it is fair that the insured has priority to collect the full amount of compensation before the insurer recovers from the wrongdoer. In the case at bar Malibu Broadbeach has not alleged the tortfeasors are now judgment proof or would otherwise be unable to respond in damages had Malibu Broadbeach timely filed an action against them. Thus, even if State Farm’s settlement with the tortfeasors did constitute a technical violation of the made-whole rule, its premature pursuit of its subrogation rights did not in any way actually impair Malibu Broadbeach’s ability to fully recover its uncovered losses. Rather, Malibu Broadbeach’s current plight is wholly attributable to its own decisions neither to intervene in State Farm’s action nor to initiate its own suit against the tortfeasors.
State Farm incorrectly argues Division Five’s affirmance in Malibu I establishes Malibu Broadbeach was fully compensated for its loss. That decision determined only that State Farm’s payment met its indemnity obligation under the terms of the policy, which excluded from coverage necessary code upgrades. We have no reason to engage in an inquiry, nor could we on this record, whether that payment included all losses Malibu Broadbeach could have recovered from the tortfeasors.
Had Malibu Broadbeach intervened in State Farm’s action against the tortfeasors, State Farm’s direction and funding of the litigation would have avoided any application of the made-whole rule.
Although we have found no California authority directly on point, faced with similar facts, the New York Court of Appeals rejected as premature the contention an insurer’s separate settlement with the tortfeasor violated the made-whole rule. (See Winkelmann v. Excelsior Ins. Co. (1995) 650 N.E.2d 841 [85 N.Y.2d 577] (Winkelmann). In Winkelmann the tortfeasor’s carrier entered into settlement negotiations with both the insureds and the insurer and made separate offers to resolve their potential claims. The insurer accepted the offer; the insureds rejected it and proceeded to litigation. (Id. at pp. 841-843.) In affirming the lower court’s entry of summary judgment against the insureds in their subsequent action against their insurer, the court acknowledged the made-whole rule but reasoned “an insurer’s action based on partial subrogation through its insured will not necessarily interfere with the insured’s right to be made whole by the tortfeasor and . . . the insurer need not delay its subrogation claim against the third party to avoid impairing the insured’s rights.” (Id. at p. 844.) Over the insureds’ contention their own interests should prevail as a matter of equity and public policy, the court stated: “We are not persuaded that such inequality exists, or that it requires a different result in this case even if it does. . . . [I]n a similar context, we noted the harm that may be suffered by an insurer if its action against the tortfeasor in equitable subrogation is delayed [citation]. If the insurer is required to forego [sic] its rights while the insured delays in asserting its claim against the third party, as plaintiffs did here, the delay may compel the insurer to litigate a stale claim, or worse, may result in its action being time barred [citation].” (Id. at p. 845.) As the court pointed out in conclusion, the insureds could yet proceed against the tortfeasor, and there “will be time enough to determine [the insureds’] rights vis-à-vis [the insurer] when and if it is determined that the third-party tortfeasor is unable to pay the remainder of their loss.” (Id. at p. 845.)
The same reasoning applies here. On the facts as set forth in the first amended complaint, we conclude Malibu Broadbeach’s right to be made whole following the accident was not impaired by State Farm’s independent pursuit of its subrogation claim.
c. Malibu Broadbeach failed to identify any basis for leave to amend its complaint
Finally, Malibu Broadbeach challenges the trial court’s denial of leave to file an amended complaint. As discussed above, Malibu Broadbeach is required to demonstrate “in what manner [it could] amend [the] complaint and how that amendment [would] change the legal effect of [the] pleading.” (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349.) It has failed to do so. Consequently, the trial court did not err in denying Malibu Broadbeach leave to further amend its complaint.
DISPOSITION
The judgment is affirmed. State Farm is to recover its costs on appeal.
We concur: ZELON, J. WILEY, J.
Judge of the Los Angeles County Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.