I dissent. In my view the majority, pursuing a course intended to assure the highest possible in-hand recovery to the negligent victims of automobile accidents, have intruded into the legislative domain in a manner which can only lead to confusion and perplexity. Proceeding under the twin banners of “equity” and “public policy,” they have not only ignored the clear purport of existing statutory provisions but, in so doing, have placed upon our trial courts the task of carrying *144forward the burden of their creation in the myriad of cases—possibly including this one—which will fail to fit the exemplar they delineate. Finally, their holding contemplates the fixing of obligations on nonparty insurers in excess of those provided for by contract—all apparently in the absence of appearance or argument by the very entities so affected. It is my view, in short, that if rules are to be announced which take explicit account of the presence and effect of liability insurance in the comparative negligence context—and which operate in that context to alter the ex contractu nature of the insurance relationship—it is the Legislature which should announce them. I would affirm the judgment.
I
I am of the opinion that the provisions of Code of Civil Procedure1 sections 431.70 and 666, reasonably construed, clearly require setoff and the entry of net judgment in the circumstances revealed by the instant record.
Section 431.70 was based upon former section 440, which provided: “When cross-demands have existed between persons under such circumstances that, if one had brought an action against the other, a counterclaim could have been set up, the two demands shall be deemed compensated, so far as they equal each other....” (Italics added.) This language was held by us in Jones v. Mortimer (1946) 28 Cal.2d 627 [170 P.2d 893] to “mean nothing more or less than that each of the claimants is paid to the extent that their claims are equal.” (Id., at p. 633; original italics.) There was no necessity that the cross-demands be liquidated at the time of filing. (Hauger v. Gates (1954) 42 Cal.2d 752, 755 [269 P.2d 609].)
Section 431.70, enacted in 1971, “continues the substantive effect of” the former section. (Sen. Legis. Com. comment foil. § 431.70.) The new section provides: “Where cross-demands for money have existed between persons at any point in time when neither demand was barred by the statute of limitations, and an action is thereafter commenced by one such person, the other person may assert in his answer the defense of payment in that the two demands are compensated so far as they equal each other. . . . ” Although the new section is limited in its application to cross-demands “for money,” this limitation does not imply that such claims be liquidated. (See Sen. Legis. Com. comment, supra.) An unli*145quidated demand for money damages for injury to person or property is in my view a demand “for money” within the meaning of the statute.
The parties urge, however, that section 431.70 cannot be held to require an offset in the instant circumstances because Herrmann in setting up her cross-demand did not do so by setting up “the defense of payment” in her answer as the section requires but rather did so by way of a cross-complaint seeking affirmative relief. I cannot agree. Not only would such a result exalt form over substance, it would clash with what I believe to be the correct interpretation of section 666 as it was amended in the same revision of the Code of Civil Procedure which produced section 431.70.
Section 666 now provides: “If the claim asserted in a cross-complaint is established at the trial and the amount so established exceeds the demand established by the party against whom the cross-complaint is asserted, judgment for the party asserting the cross-complaint must be given for the excess; or if it appears that the party asserting the cross-complaint is entitled to any other affirmative relief, judgment must be given accordingly. [11] When the amount found due to either party exceeds the sum for which the court is authorized to enter judgment, such party may remit the excess, and judgment may be rendered for the residue.” (Italics added.) Prior to the 1971 amendment to the code this section spoke in terms of counterclaim rather than cross-complaint. Its primary purpose was to insure that a defendant seeking relief by counterclaim who established liability against a plaintiff in an amount in excess of that established by the latter against such defendant could obtain judgment for the excess without the necessity of filing a separate action. (See 3 Witkin, Cal. Procedure (2d ed. 1971) p. 2592.) In 1971, with the abolition of the counterclaim and the institution of the requirement that all claims formerly asserted thereby be asserted by cross-complaint (§ 428.80)—which was to be a separate document rather than a part of the answer as the counterclaim had been (§§ 428.10, 428.40)—it became necessary to amend section 666. In so doing the Legislature simply substituted terms appropriate to cross-complaint for those which had concerned counterclaim. The result, the parties hereto seem to argue, was to render setoff mandatory in a situation of cross-demands by complaint and cross-complaint only when the amount established under the latter exceeds the amount established under the former, precluding such action in the opposite situation.
*146What this position fails to recognize, however, is that the statute as amended also now provides, as it provided formerly with respect to counterclaims, that “if it appears that the party asserting the cross-complaint is entitled to any other affirmative relief, judgment must be given accordingly.” This language, when viewed in the light of the statutory history adverted to above, must in my view be interpreted to contemplate and require setoff and the entry of one net judgment in all cases in which reciprocal cross-demands for money are raised and established by complaint and cross-complaint.2 This interpretation is wholly consistent with what has been the undoubted common law in this jurisdiction for at least three-quarters of a century. (Langford v. Langford (1902) 136 Cal. 507, 508-509 [69 P. 235]; see 40 Cal.Jur.3d, Judgments, § 66, p. 418; 28 Cal.Jur.2d, Judgments, § 68, p. 704; 14 Cal.Jur., Judgments, § 47, p. 944.)
There is no reason why this rule should not be applied when reciprocal cross-demands for money are made in the context of an action to be determined under the doctrine of comparative negligence. It is of course true that the indicated statutory provisions were all enacted prior to the institution of comparative negligence as the law of this jurisdiction in the 1975 Li case. At that time, therefore, contributory negligence was a complete defense, and the possibility of two negligent parties recovering against one another did not exist. It is manifest, however, that the application of setoff in the circumstances we here consider is wholly in accord with the general purpose and intent of setoff provisions, which is “to avoid multiplicity of suits and to have all conflicting claims between the parties settled in a single action....” (Terry Trading Corp. v. Barsky (1930) 210 Cal. 428, 435 [292 P. 474]; see also Buckman v. Tucker (1937) 9 Cal.2d 403, 408 [71 P.2d 69].) Accordingly, the fact that the Legislature may not have anticipated the advent of comparative negligence at the time of its 1971 revision of the Code of Civil Procedure cannot in my view operate to preclude application of the setoff provisions when adopted to the case before us.3
*147Finally, I see nothing in the case of Kruger v. Wells Fargo Bank (1974) 11 Cal.3d 352 [113 Cal.Rptr. 449, 521 P.2d 441, 65 A.L.R.3d 1266] which would justify the reliance placed on it by the majority. We there held that a banker’s setoff could not be applied against deposits derived from unemployment and disability benefits because “to permit [such setoffs would] frustrate the Legislature’s objectives in providing such benefits and in protecting them from seizure by creditors [see § 690.175; Unemp. Ins. Code, § 1342].” (11 Cal.3d at p. 367.) In other words, there we simply harmonized the provisions of the mandatory setoff statutes with applicable exemption statutes, concluding that the legislative objectives of the latter should prevail in order to prevent their “practical repeal.” (See 11 Cal.3d at p. 368.) Such considerations are simply not relevant to the instant case, for no clash of legislative objectives is here involved.
II
The majority opinion, as I understand it, although it remains largely silent in the face of the above-discussed contentions of the parties, appears to reflect fundamental agreement with my analysis in all cases in which liability insurance is not a factor. Insofar as the record here indicates, this is just such a case. The majority, however, eschewing normal principles of appellate procedure, prefer to launch out upon an expedition of surmise and hypothesis. Positing a situation in which “each of the parties—like most California drivers—carries adequate automobile insurance to cover the damages” (majority opn., ante, p. 134),4 they conclude that “at least” in such a case “both the public policy of California’s financial responsibility law and considerations of fairness clearly support a rule barring a setoff of one party’s recovery against the other” (Id., p. 142). I am at a loss to understand, however, how such a rule may be announced in a case where the record does not even indicate whether the parties are insured, let alone the particulars of any policy which may be applicable. Clearly the principles stated by the majority will be of scant assistance to the trial court herein if upon remand it is found that even the instant case does not fit the majority’s paradigm; this eventuality, it appears, is far from unlikely.5
*148It is suggested by the majority, however, that the awesome silence of the record on the question of insurance is simply an inevitable byproduct of our statutory provisions precluding direct suit by an injured party against the tortfeasor’s insurer (Ins. Code, § 11580, subd. (b)(2)) and forbidding the admission of evidence of insurance “to prove negligence or other, wrongdoing (Evid. Code, § 1155). I do not share in this pessimistic assessment of the avenues available to resourceful counsel under our law. Neither of these statutes, in my view, would preclude an action for declaratory or other relief (whether by cross-complaint bifurcated for trial or by separate action after judgment) brought by an injured party against his own insurer to recover any “windfall” which that insurer may have reaped due to the operation of statutory setoff. Nor do I consider it entirely clear that such an action, if pursued by cross-complaint, would be precluded against the opposing insurer by the provisions of Insurance Code section 11580, subdivision (b)(2).6 In any event efforts of this kind—none of which were pursued in the instant case—would result in an orderly determination of the issues raised. To conclude in these circumstances, as do the majority, that it would not “be appropriate to rely on the absence of evidence of insurance in the present record as a basis for barring the parties from obtaining relief..., (majority opn., ante, p. 142, fn. 6) is in my view wholly unjustified.
Ill
The majority vacate the judgment below and remand the case to the trial court for further proceedings consistent with the views expressed in their opinion. In the course of such proceedings, it would appear, the court is to consider the insurance coverage of the respective parties before determining whether setoff should be ordered. Setoff should not be ordered, the trial court is advised, “in cases in which such a setoff will *149defeat the principal purpose of California’s financial responsibility law and will provide an inequitable windfall to an insurance carrier at the expense of the carrier’s insured.” (Majority opn., ante, p. 143.)
It is apparent of course that the question whether any particular case does or does not meet the majority’s standard (and therefore whether a setoff will or will not be ordered) is a matter of concern not only to the injured parties themselves, but to any insurers which may have issued applicable policies. Such insurers, however, are not parties to the action—nor can they be brought in by the existing parties under the majority’s reading of section 11580, subdivision (b)(2) of the Insurance Code. Several questions arise: (1) Is it contemplated that the indicated determination is to be made without giving the affected insurers an opportunity to appear and be heard—even though the insurers are presumably to be bound by the collateral estoppel effects of the judgment? (2) If not, are insurers to be permitted to themselves join the action in some fashion when there appears to be a possibility of setoff? (3) If so, will their obligation to defend in such actions have the effect of requiring them to engage two attorneys—one to defend the insured and the other to represent their own interests, which are diametrically opposed to those of the insured insofar as setoff is concerned?
The majority answer none of these questions, although their resolution will, I suggest, be of signal importance on remand in the instant case and in all future cases of this kind.7
IV
The basic obligation undertaken by an insurer in an automobile liability policy is to pay on behalf of the insured all sums, up to the stated policy limit, which the insured becomes legally liable to pay as damages arising out of an automobile accident. (See generally 1 Long, The Law of Liability Insurance (1978 ed.) §§ 1.02, 1.03, pp. 1-4, 1-5; *150Melnick, Cal. Automobile Insurance Guide, supra, §§ 2.1-2.2, pp. 27-28.)8 “This means that the insurer must discharge the liability of the insured, within the policy limits, even though the claim could not have been collected from the insured by reason of his insolvency.” (Shapero v. Allstate Ins. Co. (1971) 14 Cal.App.3d 433, 438 [92 Cal.Rptr. 244], italics added.)
The indicated “liability,” of course, is that which, following a determination pursuant to applicable legal principles, the insured would himself be obliged to discharge if he were not protected by insurance. In the instant case there is only one party subject to such “liability.” That is defendant Herrmann; her “liability” is in the sum of $54,400. If she is not protected by insurance, she will be liable to pay that amount herself. If she is fully protected by insurance—i.e., if she has paid premiums supporting an insurer’s promise to discharge liability of that amount—it is the insurer’s contractual obligation to pay it, whether or not she could have done so herself. If she is protected by insurance, but not in an amount sufficient to pay the whole “liability,” the insurer is under a contractual obligation to pay up to the policy limits, leaving her liable for the remainder.
The majority propose to work a radical change in the above-described contractual relationship in all automobile accident cases involving mutual injury to insured parties. This they do largely in the name of public policy, invoking the principle announced in Barrera v. State Farm Mut. Automobile Ins. Co. (1969) 71 Cal.2d 659 [79 Cal.Rptr. 106, 456 P.2d 674] and related cases—a principle which they, quoting from a noted commentator, summarize as one seeking “‘to assure that the victim be actually compensated for his tort loss instead of having merely an empty claim against a judgment-proof defendant....’” (Majority opn., ante, p. 139 ) Such “actual compensation,” they reason, does not occur if setoff is applied in the case of fully insured parties who have both suffered injury in an automobile accident, for the party having the lesser amount of fault-discounted damages will recover nothing, while the oth*151er party will receive only the difference between his fault-discounted damages and those of the first party. Each party’s insurer, it is concluded, reaps a “windfall” in an amount equal to the fault-discounted damages which the less damaged party would have recovered absent setoff—i.e., the amount by which each party’s recovery is “reduced.”
I have some difficulty with this line of reasoning. It is important to recognize, I think, that the application of setoff in a situation involving full insurance coverage yields to the respective parties the same ultimate recovery as each would receive in a situation of mutual solvency where no insurance is involved; how it is possible to speak of a “reduction” of recovery in these circumstances quite frankly eludes me. The true difference in the situation involving full insurance, of course, is that each party is not required to resort to his own assets in order to pay what is due. This is the very protection which a party purchases by buying liability insurance.9
The majority, however, would essentially convert what is protection against liability to third parties into protection against injury to the insured himself-—i.e., would essentially convert liability coverage into first party coverage—to the extent of any possible setoff.10 Public policy, we are told, requires us to look beyond the contractual arrangements of the parties in order to assure that “the victim be actually compensated for his tort loss.” What we are not told, however, is why the same public policy, if applied in this fashion, should not carry us further still. Jess, after all, has suffered damages of $100,000, not merely $60,000, as a result of an automobile accident of which the negligence of Hermann was a proximate cause. If Herrmann is fully insured, does not the reduction of Jess’s recovery to $60,000 result in a “windfall” to Herrmann’s insurer in the amount of $40,000? Why indeed should the insurer be permitted to take advantage of the fact that the party injured due to the insured’s negligence was himself at fault to some degree?
*152The answer to this line of reasoning is of course clear: The insurer undertakes, to the extent of policy limits, to protect the insured from liability, not to make whole any person who may be damaged by the insured’s negligence. The question of whether such liability exists is one for the courts, to be determined in light of established legal principles applicable to the parties inter se. Because the system of tort liability in this jurisdiction is one based upon fault (see generally Li v. Yellow Cab Co. (1975) 13 Cal.3d 804 [119 Cal.Rptr. 858, 532 P.2d 1226, 78 A.L.R.3d 393]; cf. Daly v. General Motors Corp. (1978) 20 Cal.3d 725 [144 Cal.Rptr. 380, 575 P.2d 1162]), the liability of the insured is subject to discount to the extent that a portion of total fault for the injury-producing occurrence is attributable to the injured party himself —and the insurer’s obligation, being tied to liability, is accordingly limited. No one, I venture to say—at least no one not committed to the judicial imposition of a system of liability without fault—would seriously suggest that the insurer thereby reaps a “windfall.” The insurer simply awaits the determination of liability, then fulfills its obligation to discharge that liability to the extent of policy limits.
I have great difficulty understanding why any different reasoning should apply in the instant case. The insurer undertakes to discharge its insured’s liability to the extent of policy limits. Under present law that liability is determined after the application of mandatory setoff. To suggest that a “windfall” thereby accrues to the insurer is in my view to say that whenever the application of established legal principles to determine the respective liabilities of insured parties results in a saving to the insurer, any gain it derives thereby is in some sense undeserved, if not ill-gotten. With this I cannot agree.
V
None of the foregoing, of course, forecloses proper legislative' action. If the Legislature in its wisdom should determine that parties injured in automobile accidents are entitled to protections in addition to those afforded them by their own or other applicable insurance contracts—or indeed that tort liability is to be assessed in some fashion other than that presently obtaining—it lies within the power of that body to act accordingly. The legislative body is peculiarly fitted not only to assess the equity and wisdom of present law as compared with all alternative approaches, but also to include in its consideration the effects, both immediate and long range, which the adoption of any such alternative *153might have on such matters as insurance rates and costs; such efforts, it appears, are presently ongoing.11 This court, on the other hand—limited in its proper institutional function to the consideration of individual cases brought before it—is denied such breadth of vision and its concommitant range of available solutions. As the opinion of the majority so eloquently demonstrates, to stray beyond our proper sphere is to invite confusion and uncertainty into the law.
I would affirm the judgment.
Clark, J., and Richardson, J., concurred.
Hereafter all section references, unless otherwise indicated, shall be to the Code of Civil Procedure.
It would appear that a cross-demand in an amount less than that claimed in the complaint can be made in the answer as well as by cross-complaint. (See § 431.70, discussed ante.)
Although no inference can properly be drawn from legislative inaction in the circumstances here before us, I note in passing that on two occasions subsequent to our Li decision the Legislature has declined to amend section 666 to preclude its application in comparative negligence cases. (Assem. Bill No. 586 (1975-1976 Reg. Sess.) § 1; Sen. Bill No. 1269 (1977-1978 Reg. Sess.) § 1.) On the other hand, a bill which would have explicitly provided for setoff in such case has also failed to secure passage. (Sen. Bill No. 1959 (1977-1978 Reg. Sess.).)
The majority does not indicate the source upon which it relies for the quoted dictum. (See and cf. Brown v. Merlo (1973) 8 Cal.3d 855, 868, fn. 10 [106 Cal.Rptr. 388, 506 P.2d 212, 66 A.L.R.3d 505].)
Remarks made at oral argument by counsel for one of the amici curiae indicate that defendant Herrmann is “underinsured.” I understand this to mean that the insurance carried by her is insufficient to cover the $60,000 damages awarded by the jury to Jess. In this circumstance Herrmann can likely expect no in-hand recovery whether or not setoff is ordered, for in the absence of setoff the amount recovered by her from Jess’s insurer will be subject to levy and execution by Jess.
Although I, like the author of a recent practical work on the subject, have discovered “[n]o California case.. .that permits the personal injury plaintiff to bring a declaratory relief action [against a defendant’s insurer] before judgment or settlement” (Melnick, Cal. Automobile Insurance Law Guide (Cont.Ed.Bar 1973) § 1.29, p. 24), I have difficulty concluding that today, in the atmosphere created by American Motorcycle Assn. v. Superior Court (1978) 20 Cal.3d 578 [146 Cal.Rptr. 182, 578 P.2d 899], a cross-complaint of the indicated variety—to be tried in bifurcated proceedings—would be rejected out of hand. An injured party’s right to discover the existence and limits of a defendant’s insurance is, of course, well-established. (Laddon v. Superior Court (1959) 167 Cal.App.2d 391, 395 [334 P.2d 638]; see generally Witkin, Cal. Evidence (2d ed. 1966) pp. 900-902.)
It is significant to note in this respect that the case of Stuyvesant Ins. Co. v. Bournazian (Fla. 1977) 342 So.2d 471, so heavily relied upon by the majority, involved none of these problems. Not only were the insurers joined as parties under a specific statutory provision permitting the injured parties to proceed directly against them (Fla. Stat. (1975) § 624.605 (l)(b)), but the rule announced, whatever its failings in other respects, was purely mechanical in operation, precluding setoff in all cases involving insurance to the extent of coverage. Such a rule, of course, does not involve the insurer in the questions of public policy and fairness which will concern the court under the majority’s standard.
Although there is no statutory policy language, the insuring clause in all policies of automobile liability insurance is substantially the same. The Insurance Commissioner, in his amicus curiae brief, sets forth the following typical policy provisions: (1) “To pay all damages the insured becomes legally obligated to pay because of: (a) Bodily injury to any person.... ” (2) “... if you become legally obligated to pay damages resulting from [enumerated risks] we will pay for such damages.” (3) “The company will pay on behalf of the insured all sums which the insured will become legally obligated to pay as damages because of bodily injury or property damage arising out of.... ” (4) “We will pay damages for bodily injury or property damage for which any covered person becomes legally responsible because of an auto accident.”
I consider here only the basic liability aspect of an automobile policy, not those aspects of the normal policy (such as medical payments and uninsured motorist) which are designed to provide first-party protection.
Thus, if no setoff is ordered, Herrmann’s insurer (assuming full coverage) will pay Jess $60,000—rather than the $54,400 for which Herrmann herself would be responsible in an action between her and Jess in which each was uninsured but solvent. Jess’s insurer will pay $5,600—even though its insured would be wholly without liability if she were uninsured. The out-of-pocket payment of each insurer, then, is precisely equal to the sum of (1) the amount of liability which would otherwise attach to its insured, plus (2) the amount by which its insured’s own damages would be uncompensated due to the application of setoff in the determination of such liability.
Among the measures pending before the Legislature is a bill which, if enacted, would add a new section to the Code of Civil Procedure incorporating the provisions of section 3 of the Uniform Comparative Fault Act. (Assem. Bill No. 1783 (1979-1980 Reg. Sess.) § 3; see 12 West’s U.Laws Ann. (1979 Supp.) Civ. Proc. & Remedial L., U.Comparative Fault Act, § 3, p. 31.) The adoption of this section, which approaches the problem through affording the insured a right to recover from his own insurer the amount by which its obligation has been reduced by setoff, was recommended in a recent report prepared under the auspices of the Joint Committee on Tort Liability. (Fleming, Report to the Joint Committee of the California Legislature on Tort Liability on the Problems Associated with American Motorcycle Association v. Superior Court (1979) 30 Hastings L.J. 1464, 1470-1471.)