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The procedural convolutions of this 15-year-old case have resulted in what appears to be a question of first impression in insurance subrogation law: When the amount of an insured’s recovery from a tortfeasor is capped due to an error in the insured’s complaint, does this cap also limit the recovery of an insurer that intervenes to claim subrogation? While we recognize the long-standing rule that a subrogated insurer stands in the shoes of its insured and is subject to all defenses that may be asserted against the insured’s claim, under the unique circumstances of this case we conclude the insurer’s default judgment against a tortfeasor for subrogation may not be reduced in a later proceeding under Insurance Code section 11580, subdivision (b)(2) because of a pleading error that limited amounts the insured parties could recover.

In this appeal, claimants Fred Gluckman and Dr. Margot Aiken seek relief from a judgment denying their application for an order to show cause against the California Insurance Commissioner, as conservator of Golden Eagle Insurance Company (Golden Eagle). Claimants contend the trial court erred in limiting the amount of their recovery on one…