In Los Angeles Federal Credit Union v. Madatyan (2012) 2012 WL 4830255, the customer purchased a 2000 Bentley, financed by his credit union.   The RISC required the customer to insure the car against collision damage and name the credit union as a loss payee.  The car was damaged.  The customer’s repair shop estimated repair costs at $39,000.  The insurer paid that sum by check jointly payable to the customer and to the body shop.  The body shop endorsed the check and gave it to the customer, who absconed with the proceeds, did not repair the car, and made no additional payments on the RISC. The Court of Appeal held that the body shop was liable to the credit union for conversion for having endorsed the check over to the customer.  Even if the body shop was not aware the car was financed, it interfered with the credit union’s property interest in the car and the insurance proceeds and so became liable for conversion.  

Substantial evidence supports the trial court’s finding that the credit Union had an interest in the insurance proceeds represented by the Allstate check. When a party that is contractually obligated to purchase insurance for the mutual benefit of itself and another party breaches that obligation by purchasing insurance solely for its own benefit, an equitable lien is created in the uninsured party’s favor on any resulting insurance proceeds. ( Gordon v. J.C. Penney Co. (1970) 7 Cal.App.3d 280, 285.) Khachikian’s loan agreement with the Credit Union obligated him to purchase insurance naming the Credit Union as a loss payee to protect the Credit Union’s interest in the car. Khachikian breached that contractual obligation by failing to name the Credit Union on the Allstate insurance policy thereby creating an equitable lien in the Credit Union’s favor on the proceeds from that policy. (See ibid.)  ¶  Substantial evidence also supports the trial court’s finding that defendants wrongfully interfered with the Credit Union’s interest in the insurance proceeds. An equitable lien is a property interest that can be converted. ( McCafferty v. Gilbank (1967) 249 Cal.App.2d 569, 574–576 ( McCafferty ). In McCafferty, the former wife settled a judgment against her former husband for child support pursuant to an agreement that established an equitable lien on one half of any recovery the husband received from a pending action arising from an automobile accident. ( Id. at pp. 571–575 .) The former husband’s attorney in the automobile action, knowing of the plaintiff’s equitable lien, endorsed two bank drafts that were made payable jointly to the attorney and the former husband in settlement of the automobile action, the settlement proceeds were distributed, and no payment was made to the former wife for her interest in the settlement proceeds. ( Id. at p. 574.) The Court of Appeal held that the attorney converted the former wife’s equitable lien in the settlement proceeds by endorsing the bank drafts. ( Id. at p. 576.) Here, defendants converted the Credit Union’s equitable lien in the insurance proceeds when Edgar endorsed the Allstate check. ( Ibid.) ¶ Because the Credit Union had an equitable lien in the insurance proceeds, with which defendants interfered when Edgar endorsed the Allstate check, defendants are liable for conversion. ( Burlesci v.. Petersen, supra, 68 Cal.App.4th at p. 1066; Gordon v. J.C. Penney Company, supra, 7 Cal.App.3d at p. 285; McCafferty, supra, 249 Cal.App.2d at pp. 574–576.) That defendants did not know that the Credit Union had an interest in the car or in the insurance proceeds is immaterial to a conversion action as “ ‘neither good nor bad faith, neither care nor negligence, neither knowledge nor ignorance, are the gist of the action.’ “ ( Burlesci v. Petersen, supra, 68 Cal.App.4th at p. 1066.) Accordingly, we affirm the judgment.