California Ins. Guarantee Assn. v. Argonaut Ins. Co.

• Decision Date: 06 February 1991
• Docket Number: No. C006743,C006743
• Citation: 227 Cal.App.3d 624,278 Cal.Rptr. 23
• Parties: CALIFORNIA INSURANCE GUARANTEE ASSOCIATION, Plaintiff and Appellant, v. ARGONAUT INSURANCE COMPANY, Defendant and Respondent.
• Court: California Court of Appeals Court of Appeals

Page 23

278 Cal.Rptr. 23

227 Cal.App.3d 624

CALIFORNIA INSURANCE GUARANTEE ASSOCIATION, Plaintiff and Appellant, v. ARGONAUT INSURANCE COMPANY, Defendant and Respondent.

No. C006743.

Court of Appeal, Third District, California.

Feb. 6, 1991.

Certified for Partial Publication ^*

Frederick G. Hall, Clausen & Campbell, Los Angeles, for plaintiff and appellant.

George E. Murphy, Debora K. Dragland, Andrea G. Stern, Bolling, Walter & Gawthrop, Sacramento, for defendant and respondent.

MARLER, Acting Presiding Justice.

California Insurance Guarantee Association (CIGA) appeals from the judgment of dismissal entered after the trial court sustained

Argonaut Insurance Company's demurrer without leave to amend. CIGA sought a declaration that it owed no duty to reimburse Argonaut for amounts Argonaut paid in workers' compensation benefits to an injured employee. CIGA became involved in the proceedings after a tortfeasor's insurer became insolvent. Although Insurance Code section 1063.1 provides that claims by an insurer and claims by right of subrogation are not "covered claims" which CIGA is required to pay, the trial court felt bound by the decision in Burrow v. Pike (1987) 190 Cal.App.3d 384, 235 Cal.Rptr. 408, which created an exception for workers' compensation benefits. We disagree with the Burrow decision and reverse the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

The underlying facts are not in dispute. Since this is the review of the sustaining of a demurrer, we take the facts from the allegations in the complaint. (Perdue v. Crocker National Bank (1985) 38 Cal.3d 913, 922, 216 Cal.Rptr. 345, 702 P.2d 503.) In January of 1984 John McNabb, an employee of Hexadyne Energy Corporation, was injured when he was struck by a car driven by Edward Gaudet, an employee of Capitol Oil Corporation. The accident occurred while both men were acting within the scope of their employment. Argonaut had issued a workers' compensation policy to Hexadyne and paid benefits to McNabb; Cal Farm had issued a liability policy to Capitol, but Cal Farm became insolvent before any claim regarding this accident was paid. McNabb brought suit against Gaudet and Capitol (the McNabb litigation) and Argonaut intervened in the suit, claiming a lien of $69,999.27 for the workers' compensation benefits paid to McNabb. McNabb's suit was settled for $24,999.99 in May of 1988, but the settlement did not include the complaint-in-intervention. Argonaut continued to prosecute the McNabb litigation and filed a motion for summary adjudication of the issue that it was entitled to reimbursement from CIGA for the benefits it paid to McNabb.

On November 21, 1988, CIGA filed a complaint for declaratory relief, a temporary restraining order and a preliminary and permanent injunction, seeking a declaration that it had no duty to reimburse Argonaut and to restrain Argonaut from further prosecution of its complaint-in-intervention. Argonaut demurred, contending that CIGA's complaint failed to state a cause of action and that the issue had already been decided in the McNabb litigation. Argonaut requested the court to take judicial notice of its motion for summary adjudication in the McNabb litigation and the resulting order granting the motion and declaring that Argonaut is entitled to reimbursement from CIGA. ¹ CIGA opposed the demurrer, arguing it was not a party to the McNabb litigation.

At the first hearing on the demurrer the court indicated its tentative ruling was to sustain the demurrer. However, realizing CIGA had not had the opportunity to brief the court on the applicability of the Burrow decision, the court allowed the parties to submit additional points and authorities on that issue. CIGA then argued that it was permitted to pay only covered claims, not the claims of an insurer. CIGA claimed the language in Burrow v. Pike that Argonaut relied on was dicta; if it was not dicta, then the decision did not survive scrutiny. Argonaut responded Burrow v. Pike was dispositive.

At the second hearing on April 28, 1989, the court agreed with Argonaut. The court stated it was bound by the Burrow decision and adopted its tentative ruling. The court clarified that it was not basing its decision on the existence of the McNabb litigation and resolution of the issue therein.

CIGA then appealed. ²

DISCUSSION

Before turning to the merits of this case, we first address two procedural points raised by the parties as to whether the trial court acted properly in sustaining the demurrer without leave to amend and dismissing CIGA's action for declaratory relief.

I-II ^**

III

CIGA contends it has no obligation to reimburse Argonaut because such claim for reimbursement is not a "covered claim" under Insurance Code section 1063.1.

CIGA was established to provide insolvency insurance for certain insurers. (Ins.Code, § 1063, subd. (a).) "Shortly after the creation of the association in 1969, the then Commissioner of Insurance wrote, 'The creation of the California Insurance Guarantee Association provides the insured public of the State of California with an additional protection by which those persons injured now have the assurance their claims will be paid, notwithstanding the fact that their claims may be against an insolvent company. Granted, the record in California of insolvencies is exemplary, but this record should not deter the State from protecting even a minute segment of the public from losses occasioned by insurance company insolvencies. The creation of the California Insurance Guarantee Association fulfills this purpose.' " (California Union Ins. Co. v. Central National Ins. Co. (1981) 117 Cal.App.3d 729, 734, 173 Cal.Rptr. 35, quoting Barger, California Insurance Guarantee Association (1970) 45 State Bar J. 475, 482.)

CIGA is required to pay all "covered claims" (Ins.Code, § 1063.2, subd. (a)), and is limited to payment of "covered claims." (Isaacson v. California Ins. Guarantee Assn. (1988) 44 Cal.3d 775, 787, 244 Cal.Rptr. 655, 750 P.2d 297; In re Imperial Ins. Co. (1984) 157 Cal.App.3d 290, 293, 203 Cal.Rptr. 664.) "Covered claims" are the obligations of insolvent insurers (Ins.Code, § 1063.1, subd. (c)(1)), with certain exceptions. Among these exceptions are "obligations to insurers, insurance pools, or underwriting associations, [and] their claims for contribution, indemnity, or subrogation, Y(3)27" (Ins.Code, § 1063.1, subd. (c)(4)) and "any claim by any person other than the original claimant under the insurance policy in his or her own name, his or her executor, administrator, guardian or other personal representative or trustee in bankruptcy and shall not include any claim asserted by an assignee or one claiming by right of subrogation, ..." (Ins.Code, § 1063.1, subd. (c)(9)(ii)).

CIGA asserts that under this statutory scheme it is precluded from reimbursing the insurer Argonaut for its claim for amounts spent in providing workers' compensation benefits to McNabb, a claim by an insurer by right of subrogation against Capitol and Gaudet, the insureds of the insolvent insurer Cal Farm. Therefore, for two independent reasons, it is not a "covered claim."

In California Union Ins. Co. v. Central National Ins. Co., supra, 117 Cal.App.3d 729, 173 Cal.Rptr. 35, the court rejected an insurer's claim against CIGA for an insolvent insurer's contribution to a legal malpractice judgment. The court found such claim not to be a "covered claim." (Id. at p. 733, 173 Cal.Rptr. 35.) The court found the exclusion of claims of insurers both rational and constitutional. "The Legislature chose to provide a limited form of protection for the public, not a fund for the protection of other insurance companies from the insolvencies of other members." (Id. at p. 734, 173 Cal.Rptr. 35.) The court found the reasoning for the exclusion in comments by the drafters of the National Association of Insurance Commissioners Insurance Guarantee Association Model Bill, which stated coverage should not be extended to elements of the insurance industry The issue of CIGA's obligation to an insurer arose again in E.L. White v. City of Huntington Beach (1982), supra, 138 Cal.App.3d 366, 187 Cal.Rptr. 879. White and the City were unsuccessful co-defendants in an action for wrongful death and a related personal injury action. White's insurer paid half of the judgment. The City's excess insurer became insolvent. CIGA filed a suit for declaratory and injunctive relief against White's insurer; the court enjoined White and his insurer from seeking indemnity from CIGA or the City. (Id. at p. 369, 187 Cal.Rptr. 879.) The appellate court affirmed. It found CIGA was forbidden by statute from standing in the shoes of the insolvent excess insurer because the claim was both by an insurer (Ins.Code, § 1063.1, subd. (c)(4)) and a claim by right of subrogation (Ins.Code, § 1063.1, subd. (c)(7)(b) [now subd. (c)(9) ] ). Accordingly, the insurer could not seek payment from CIGA. "Such is the clear and unambiguous language of the statute." (E.L. White, supra, at p. 371, 187 Cal.Rptr. 879.) The court also found the insurer could not recover from the City. If CIGA paid the City, which in turn paid the insurer, the artifice of using the City as a conduit for CIGA's payment to the insurer would not sanitize the transaction. Requiring the City to pay the insurer on its own would defeat the purpose of creating CIGA to protect insureds when their insurer becomes insolvent. (Ibid.)

which should know the financial condition of fellow insurers. (Ibid.)

An exception to the statutory rule that CIGA will not reimburse a claim by right of subrogation was declared by the Fifth District in Burrow v. Pike, supra, 190 Cal.App.3d 384, 235 Cal.Rptr. 408, when the claim relates to workers' compensation benefits. The facts in Burrow are similar to those of the instant case. The plaintiff was struck by a truck while working for the State of California, Department of Transportation (DOT). DOT filed and then dismissed a ...