JORDAN JONES AND ASSOCIATES INC v. DUBLIRER (1979)

Petitioner, a corporation, following denial of its motion for summary judgment on a cross-action seeking indemnity, seeks a peremptory writ of mandate ordering respondent court to dismiss the cross-complaint and to enter judgment in its favor. We conclude the trial court properly denied the motion for summary judgment.¹

The allegations of the petition are uncontroverted. Petitioner and real parties were codefendants in an action filed in respondent court wherein plaintiffs sought to recover medical costs pursuant to a major medical hospitalization insurance policy. After petitioner's demurrer to plaintiffs' first amended complaint was sustained, but prior to filing a second amended complaint, petitioner and plaintiffs entered into a settlement of the action, following which the action was dismissed as to petitioner.

Real parties thereafter filed a cross-complaint naming petitioner as a cross-defendant. The cross-complaint set forth three causes of action; the first and second sought full equitable indemnification from petitioner based upon (1) petitioner's primary negligence, and (2) petitioner's status as a principal; the third sought partial equitable indemnification upon a theory of apportionment of fault.

A brief summary of the facts disclosed by the cross-complaint and the first cause of action of plaintiffs' first amended complaint is helpful to an analysis of the posture in which the matter is presented to this court. The cross-complaint and plaintiffs' amended complaint indicate that real parties (cross-complainants) were licensed insurance agents and had entered into commission agreements with petitioner, an insurance broker, pursuant to which real parties were to receive commissions from petitioner in exchange for solicited applications for health insurance submitted to petitioner and placed by petitioner with another cross-defendant, National Multiple Employers Foundation. The agency agreement designated real parties subagents for petitioner as agent.

Real parties further allege that a unilateral decision was made by petitioner and other cross-defendants to change the placement of health insurance coverage originally placed with National Multiple Employers Foundation. Real parties argue that inasmuch as they had not participated in that decision, they should be indemnified by the named cross-defendants for any loss suffered by plaintiffs as a result of the subsequent insurance placement.

Petitioner moved for summary judgment on each cause of action, contending the decision in American Motorcycle Assn. v. Superior Court (1978) 20 Cal.3d 578, 146 Cal.Rptr. 182, 578 P.2d 899 establishes that a good-faith settlement between petitioner and plaintiffs forecloses any right of equitable indemnification in real parties. Respondent court granted the motion as to the third cause of action for partial equitable indemnity but denied the motion as to the first and second causes of action. This petition followed.

In light of the unique legal issue presented and the lack of a direct appeal from respondent's order, we issued an order to show cause. (See Vasquez v. Superior Court (1971) 4 Cal.3d 800, 807, 94 Cal.Rptr. 796, 484 P.2d 964; Treber v. Superior Court (1968) 68 Cal.2d 128, 131, 65 Cal.Rptr. 330, 436 P.2d 330; Whitney's at the Beach v. Superior Court (1970) 3 Cal.App.3d 258, 266, 83 Cal.Rptr. 237; 5 Witkin, Cal.Procedure (2d ed. 1971) Extraordinary Writs, § 104, pp. 3879-3880; § 106, pp. 3880-3882.)

Petitioner contends its good faith settlement with plaintiffs prohibits an action by real parties for any type of equitable indemnification, including the relief sought in the first and second causes of action of the cross-complaint. In support of its position petitioner first argues that American Motorcycle Assn., supra, abolished the traditional “all-or-nothing” rule of equitable indemnity in favor of a scheme of partial indemnity based upon relative fault, and further asserts that American Motorcycle Assn. includes within its newly enunciated doctrines, a prohibition of equitable indemnification whether total or partial, where a good faith release has been given. We conclude to the contrary.

The decision in American Motorcycle Assn. v. Superior Court, supra, 20 Cal.3d 578, 146 Cal.Rptr. 182, 578 P.2d 899 recognized and reaffirmed the long-standing common law doctrine of equitable indemnity, and modified it by expanding it to include the concept of partial indemnification based upon relative fault. (Id., at pp. 607-608, 146 Cal.Rptr. 182, 578 P.2d 899.) A careful examination of the American Motorcycle Assn. decision reveals that in evolving a theory of partial indemnity the court did not in any way derogate the equitable underpinnings of the traditional concept of total equitable indemnification. Instead, the court merely found the traditional “all-or-nothing” concept deficient in that its parameters precluded courts from fashioning remedies where the equities demanded something less than total indemnification, but something more than no indemnification. As the court stated: “In our view, … the principal difficulty with the current equitable indemnity doctrine.. lies … in the all-or-nothing nature of the doctrine itself. Although California cases have steadfastly maintained that the doctrine is founded upon ‘equitable considerations' [citation] and ‘is based on inherent injustice’ [citation], the all-or-nothing aspect of the doctrine has precluded courts from reaching a just solution in the great majority of cases in which equity and fairness call for an apportionment of loss between the wrongdoers in proportion to their relative culpability, rather than the imposition of the entire loss upon one or the other tortfeasor.” (Id., at p. 595, 146 Cal.Rptr. at p. 193, 578 P.2d at p. 910.)

The Supreme Court's refusal to attack the foundational basis of total equitable indemnification was well founded. The equities which justify traditional total indemnification and those justifying partial indemnification are fundamentally distinct and now coexist. (Id., at pp. 583-584, 146 Cal.Rptr. 182, 578 P.2d 899.)

In order to invoke the total equitable indemnity doctrine, two prerequisites must be met; first, the damages which a claimant seeks to shift are imposed as a result of some legal obligation to the injured party; and second, it must appear that the claimant did not actively nor affirmatively participate in the wrong. (Taggart v. State of California (1975) 45 Cal.App.3d 768, 770-771, 119 Cal.Rptr. 696.)

It is the character or kind of wrong of each joint tortfeasor that is the essential foundation for the shift in liability between them accomplished by means of total indemnification. This transfer in liability is not done simply because the two tortfeasors are not in pari delicto or because the negligence or wrong of one is greater than that of the other as is now permitted in pure comparative negligence. Total equitable indemnity is not a sharing in liability in proportion to fault as in pure comparative negligence; it is instead a total and complete transfer of liability that is equitably justified by the difference in character or kind of wrong of the two tortfeasors. (Gardner v. Murphy (1975) 54 Cal.App.3d 164, 168, 126 Cal.Rptr. 302.)

Realistically construed, the court in American Motorcycle Assn. simply seized upon and used the doctrine of equitable indemnity as an available vehicle to achieve the result of implementing comparative liability among joint tortfeasors. We find nothing within the language or reasoning of the decision, nor do we independently find deficiencies in the traditional concept of total equitable indemnification, to warrant discard of that well established principle of law. The Supreme Court in American Motorcycle Assn. did not reject the concept of total indemnification where it is traditionally applicable, but instead “modified” the doctrine to include comparative liability among joint tortfeasors. (See E. L. White, Inc. v. City of Huntington Beach (1978) 21 Cal.3d 497, 506-508, 146 Cal.Rptr. 614, 579 P.2d 505.)

Contemporaneous with its modification of the doctrine of equitable indemnity to include comparative liability among joint tortfeasors, the court in American Motorcycle Assn. precluded claims for partial or comparative equitable indemnity where the alleged indemnitor has made a good faith settlement with plaintiff. However, this “common law” limitation is limited to partial indemnity only, and is not applicable to traditional total equitable indemnity.

While Code of Civil Procedure section 877,² by its terms, only releases a settling tortfeasor from liability for contribution,³ and not for partial indemnity, the Supreme Court concluded that the legislative policy underlying that section dictates that a tortfeasor who has entered into a “good faith” settlement with the plaintiff must be discharged from any claim for partial or comparative indemnity pressed by a concurrent tortfeasor. (American Motorcycle Assn., supra, 20 Cal.3d at p. 604, 146 Cal.Rptr. 182, 578 P.2d 899.) We fail to discern any reason why this limitation should be construed or extended to include within its scope traditional total equitable indemnification. Stated legislative policy is to the contrary. The operation of Code of Civil Procedure section 877 is expressly limited by section 875, subdivision (f), which provides “[t]his title [which includes section 877] shall not impair any right of indemnity under existing law, …” As both sections 875 and 877 were enacted in 1957 (Stats.1957, ch. 1700, pp. 3076-3077, § 1), well before the birth of partial indemnity (1978), the “right of indemnity” referred to in section 875, subdivision (f), refers to traditional applications of total contractual or equitable indemnity. The clear legislative intent in enacting section 877 was not to interfere with a party's right to traditional equitable indemnity even where a good faith settlement has been achieved. The distinctly different equities underlying partial and total indemnity call for differing treatments tailored to the needs of each concept. (See e.g. Sears, Roebuck & Co. v. International Harvester Co. (1978) 82 Cal.App.3d 492, 496, 147 Cal.Rptr. 262.)

We conclude that the traditional concept of total equitable indemnification has not been abrogated by the decision in American Motorcycle Assn., but merely modified to provide for partial indemnity; and traditional indemnification is not precluded by a good faith settlement between a plaintiff and the alleged indemnitor.

The first cause of action of the cross-complaint seeks equitable indemnity based upon a theory of secondary or passive negligence on the part of real parties vis-a-vis petitioner's primary or active negligence. The cause of action states a claim for relief under traditional total equitable indemnity (see Gardner v. Murphy, supra, 54 Cal.App.3d at pp. 168-169, 126 Cal.Rptr. 302) and is not barred by the good faith settlement of petitioner with the plaintiffs.

The second cause of action seeks relief pursuant to Labor Code section 2802,⁴ which requires an employer to indemnify its employee for losses occasioned by the discharge of the employee's duties. The second cause of action differs from the first in that it is founded upon a statutory, as distinguished from a judicially evolved, right of total equitable indemnification. Even in the absence of such a statute, our analysis and affirmance of the trial court's denial of summary judgment as to the first cause of action is equally applicable to the second.

The petition for writ of mandate is denied, the order to show cause is hereby discharged, and the stay previously imposed is dissolved upon finality of this opinion.

FOOTNOTES

1.  Petitioner concedes that the affidavits presented to the trial court present the identical legal questions in the summary judgment motion and the motion for judgment on the pleadings. Petitioner does not separately argue the two motions. We accordingly deal only with the summary judgment motion, aware that our resolution thereof resolves the propriety of the court's order denying a judgment on the pleadings.

2.  Section 877 provides:“Where a release, dismissal with or without prejudice, or a covenant not to sue or not to enforce judgment is given in good faith before verdict or judgment to one or more of a number of tortfeasors claimed to be liable for the same tort—“(a) It shall not discharge any other such tortfeasor from liability unless its terms so provide, but it shall reduce the claims against the others in the amount stipulated by the release, the dismissal or the covenant, or in the amount of the consideration paid for it whichever is the greater; and“(b) It shall discharge the tortfeasor to whom it is given from all liability for any contribution to any other tortfeasors.”

3.  Contribution is a statutory concept wholly distinct from either partial or total equitable indemnity.

4.  Labor Code section 2802 provides:“An employer shall indemnify his employee for all that the employee necessarily expends or loses in direct consequence of the discharge of his duties as such, or of his obedience to the directions of the employer, even though unlawful, unless the employee, at the time of obeying such directions, believed them to be unlawful.”

EVANS, Associate Justice.

REGAN, Acting P. J., and PARAS, J., concur.