Aicco, Inc. v. Ina, A092096.

CourtCalifornia Court of Appeals
Citation109 Cal.Rptr.2d 359,90 Cal.App.4th 579
Decision Date10 July 2001
Docket NumberNo. A092096.,A092096.
PartiesAICCO, INC. et al., Plaintiffs and Appellants, v. INSURANCE COMPANY OF NORTH AMERICA et al., Defendants and Respondents.
109 Cal.Rptr.2d 359
90 Cal.App.4th 579
AICCO, INC. et al., Plaintiffs and Appellants,
INSURANCE COMPANY OF NORTH AMERICA et al., Defendants and Respondents.
No. A092096.
Court of Appeal, First District, Division 5.
July 10, 2001.
Rehearing Denied July 31, 2001.
Review Denied October 10, 2001.

[109 Cal.Rptr.2d 362]

[90 Cal.App.4th 583]

Barger & Wolen, Irvine, Roxani M. Gillespie, Kent R. Keller, Los Angeles,

[109 Cal.Rptr.2d 363]

Steven H. Weinstein, Los Angeles, Ethan A. Miller, Cahill Gordon & Reindel, Floyd Abrams, for Plaintiffs and Appellants.

Chavez & Gertler, Mark A. Chavez and Kim E. Card, San Francisco, for United Policyholders, Consumer Federation of America, Consumers Union and the National Consumer Law Center, as Amicus Curiae on behalf of Plaintiffs and Appellants.

O'Melveny & Myers, Irvine, Mark Wood, Martin S. Checov, Thomas M. Riordan, Laura C. Bremer, Orrick, Herrington & Sutcliffe, Los Angeles, Steven A. Brick, Laura Grad, San Francisco, for Defendants and Respondents.


AICCO, Inc., Granite State Insurance Company, and Northwestern Pacific Indemnity Company appeal, contending the trial court erred

90 Cal.App.4th 584

when it sustained a demurrer and dismissed the complaint in which they alleged respondent Insurance Company of North America (INA) and various related entities had violated the unfair competition law (hereafter UCL). (Bus. & Prof.Code, § 17200 et seq.) Appellants are entities transacting insurance-related business. Their complaint sought declaratory and injunctive relief on the issue of whether respondent INA could shed all liability under a class of policies providing asbestos and environmental coverage, by restructuring itself and assigning its liabilities to another company, without obtaining the consent of affected California policyholders.

We agree the court erred when it sustained the demurrer and abused its discretion when it dismissed the complaint for lack of a justiciable controversy. We will reverse the judgment in favor of INA.


It is well settled that on review of an order sustaining a demurrer without leave to amend, we presume all material allegations of the complaint to be true. (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966-967, 9 Cal.Rptr.2d 92, 831 P.2d 317; Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal.Rptr. 718, 703 P.2d 58.) "We do not, however, assume the truth of contentions, deductions, or conclusions of fact or law." (Moore v. Regents of University of California (1990) 51 Cal.3d 120, 125, 271 Cal.Rptr. 146, 793 P.2d 479.) Appellants' complaint alleges the following material facts.

INA is the oldest stock insurance company in the United States. Over the course of its 200-year history, INA has sold billions of dollars of asbestos and environmental (A & E) insurance to consumers in California and elsewhere.

INA's A & E coverage was unprofitable for the company. Thus INA's corporate parents, CIGNA Corporation, and INA Financial, developed a plan for INA to shed its obligations under the A & E policies it had written. This was accomplished in the following manner.

INA was incorporated under the laws of Pennsylvania. That state has a statute that permits corporate "division." (See 15 Pa. Cons.Stats. §§ 1951-1957.) Thus, utilizing the "division" statute, INA divided into two entities. The first was (and still is) known as INA. It consists of the lines of insurance that had proved profitable for the pre-division INA. The post-division INA continues to write insurance under the INA name.

The second entity was CCI Insurance Company (CCI), a subsidiary of CIGNA. Pursuant to the division, INA "transferred" its obligations under the

90 Cal.App.4th 585

A & E

109 Cal.Rptr.2d 364

policies to CCI. Because CCI was not authorized to conduct insurance business in Pennsylvania, CCI then merged with another CIGNA subsidiary, Century Indemnity. Century Indemnity exists solely to handle and to pay pending and future claims, including A & E claims, out of a limited pool of assets provided to it by CIGNA. Century Indemnity does not write any new insurance or collect any new premiums.

INA contends that as a result of the restructuring, it is now free of any obligation to its California policyholders under the A & E policies it had written. According to INA, if Century Indemnity is unable to satisfy all those obligations, the owners of the transferred policies will have no recourse against INA as it currently exists.

The restructuring plan was approved by the Pennsylvania Insurance Commissioner in February 1996 without the consent of California policyholders, and without a requirement that consent be obtained. In July 1999, the Pennsylvania Supreme Court ruled that the procedures followed by the Insurance Department when approving the restructuring were adequate and that the plan could take effect. (See LaFarge Corp. v. Com., Ins. Dept. (1999) 557 Pa. 544, 735 A.2d 74, 79.) The court said, however, that policyholders were not foreclosed from asserting any legal rights they might have. (Id. at p. 77.)

The California Department of Insurance also approved the restructuring plan. That approval was expressly conditioned on the right of affected policyholders to challenge the impact of the reorganization in the courts.

The division of INA had immediate negative consequences for INA's California policyholders. Prior to the division, owners of the transferred policies were protected from the risk of INA's insolvency by the California Insurance Guarantee Association. Coverage under the guarantee fund is, however, only available when the claimant's insurer actually issued the policy under which a claim is made. Since Century Indemnity did not issue the transferred policies, those policies were no longer entitled to guarantee fund protection.

Under the order entered by the Pennsylvania Insurance Commissioner, INA was required to provide written notice to its policyholders regarding the allocation of INA's liabilities to Century Indemnity. INA did so in a form letter on CIGNA letterhead that was signed by Gerald Isom, the president of CIGNA and INA. The letter did not tell policyholders that INA had transferred its obligations under the A & E policies to Century Indemnity, or that it disclaimed further responsibility under the transferred policies. Instead the

90 Cal.App.4th 586

Letter stated "[g]enerally, INA policy claims with a date prior to January 1, 1996, are now handled by Century and claims on or after January 1, 1996, will be handled by INA.... [¶] There will be no change in the manner in which your claim is serviced. No additional action on your part is required."

In December 1999, two competitors of INA, appellants AICCO, Inc. and Granite State Insurance Company, filed the present action against INA and CIGNA. In January 2000, AICCO and Granite State, joined by another competitor of INA, appellant Northwestern Pacific Indemnity Company,1 filed an amended complaint naming INA Financial, Century Indemnity

109 Cal.Rptr.2d 365

Company and ACE Property Casualty Insurance Company as additional defendants.2 The amended complaint contained a single cause of action. Appellants sought a declaration that INA had violated the UCL in two respects. First appellants relied on Civil Code section 1457 which states, "The burden of an obligation may be transferred with the consent of the party entitled to its benefit, but not otherwise...." Appellants alleged INA had violated Civil Code section 1457 when it transferred the A & E policies held by its California policyholders to Century Indemnity without their consent. Appellants sought a declaration that INA remained liable under the transferred policies. Alternately, appellants alleged that the notices INA had sent to its California policyholders were deceptive and misleading because they did not describe the true nature of what had occurred as a result of the restructuring. Appellants asked that INA be required to take "appropriate corrective action to alleviate the harm [its] previous misleading conduct has caused...."

INA demurred to the complaint. It argued it was entitled to prevail as a matter of law because its conduct was not illegal under the UCL. INA supported its demurrer with numerous documents including orders issued by the Pennsylvania and California insurance departments when approving INA's corporate division.

The trial court sustained the demurrer without leave to amend. The court did not discuss whether Civil Code section 1457 had been violated or whether the notice provided by INA to its California policyholders was misleading. Instead, the court ruled that assessing the ability of Century Indemnity to satisfy the obligations undertaken by INA was "speculative" and "premature." The court also concluded that the Pennsylvania and California insurance departments alone possessed the expertise needed to determine whether California policyholders might suffer harm as a result of the transfer.

90 Cal.App.4th 587

After the trial court entered judgment in favor of INA, appellants filed the present appeal.


A. The Complaint States a Cause of Action

Appellants contend the trial court erred when it sustained the demurrer to their complaint.

"In reviewing a dismissal following the trial court's sustaining of a demurrer, we take the properly pleaded material allegations of the complaint as true; our only task is to determine whether the complaint states a cause of action." (Snyder v. Michael's Stores, Inc. (1997) 16 Cal.4th 991, 995, 68 Cal.Rptr.2d 476, 945 P.2d 781.) We must "`give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.]' [Citation.] [¶] If the complaint states a cause of action under any theory, regardless of the title under which the factual basis for relief is stated, that aspect of the complaint is good against a demurrer." (Quelimane Co. v. Stewart...

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