California Union Ins. Co. v. Central National Ins. Co.

• Decision Date: 03 April 1981
• Citation: 173 Cal.Rptr. 35,117 Cal.App.3d 729
• Court: California Court of Appeals Court of Appeals
• Parties: CALIFORNIA UNION INSURANCE COMPANY, Plaintiff, Cross-Defendant and Appellant, v. The CENTRAL NATIONAL INSURANCE COMPANY OF OMAHA, Defendant, Cross-Complainant and Appellant, CALIFORNIA INSURANCE GUARANTEE ASSOCIATION, Cross-Defendant and Respondent, Civ. 57822, 59316.

Page 35

173 Cal.Rptr. 35

117 Cal.App.3d 729

CALIFORNIA UNION INSURANCE COMPANY, Plaintiff, Cross-Defendant and Appellant, v. The CENTRAL NATIONAL INSURANCE COMPANY OF OMAHA, Defendant, Cross-Complainant and Appellant CALIFORNIA INSURANCE GUARANTEE ASSOCIATION, Cross-Defendant and Respondent,

Civ. 57822, 59316.

Court of Appeal, Second District, Division 5, California.

April 3, 1981.

Hearing Denied May 27, 1981.

Greenberg, Bernhard, Weiss & Karma, Arthur Karma and Ralph R. Blair, Los Angeles, for defendant, cross-complainant and appellant.

Bolton, Hemer & Dunn and Donald H. Moore, Los Angeles, for plaintiff and appellant.

Clausen, Harris & Campbell, and Lon Harris, Los Angeles, for defendant and respondent.

ASHBY, Associate Justice.

Appellants Central National Insurance Company of Omaha (Central) and California Union Insurance Company (Cal Union) appeal from orders of dismissal following the sustaining of demurrers to their complaints against respondent California Insurance Guarantee Association (CIGA).

CIGA is a compulsory association of insurers created by statute (Ins.Code, § 1063 et seq.) ¹ whose purpose is to provide insurance against loss arising from the failure of an insolvent insurer to discharge its obligations under its insurance policies. (§§ 1063, subd. (a), 119.5; see Barger, California Insurance Guarantee Association (1970) 45 State Bar J. 475, 482; Trunk v. Orr, 94 Cal.App.3d 761, 763, 156 Cal.Rptr. 662.) The trial court held that appellant insurers had stated no cause of action against CIGA. ²

Central, Cal Union, and Signal Insurance Company (Signal) all wrote policies of insurance against legal malpractice by a certain law firm (the insured). Central's policy, on an "occurrence" basis, was for the policy years 10-1-69 to 10-1-71. Signal's policy, on an occurrence basis, was for the policy years 10-1-71 to 10-1-73. Cal Union's policy, on a "claims made" basis, was for the policy years 10-1-73 to 10-1-76. In January 1974, former clients of the insured filed a malpractice action which was defended by Central. Judgment was rendered against the insured in May 1976 for $337,000. Central requested Signal and Cal Union to contribute to the judgment but they refused, except that Signal contributed approximately $24,000. Central then caused the entire judgment to be satisfied, intending to pursue its own remedies against Signal and Cal Union.

In January 1977, Cal Union filed a complaint for declaratory relief against Signal and Central. Cal Union sought a declaration that it had no liability on its policy because it was never notified of the action until the verdict was returned.

In November 1977 Central cross-complained against Signal and Cal Union. Central claimed that although it had caused the judgment to be satisfied, actually none of the alleged errors or omissions of the insured occurred during Central's policy period, and that Signal and Cal Union were liable to Central for the amounts paid by Central on the judgment.

On January 10, 1978, Signal was adjudicated to be insolvent and the insurance commissioner was appointed to liquidate the affairs of Signal. (§ 1011 et seq.) An order restraining prosecution of proceedings against Signal was issued.

Central and Cal Union amended their cross-complaint and complaint in order to allege a cause of action against CIGA in place of a cause of action against Signal. Central contends that its claim against Signal is a covered claim (§ 1063.1, subd. (c)(1)) which CIGA is obligated to pay (§ 1063.2 subd. (a)). Central alleges that questions of coverage of the three insurance policies should have been negotiated and settled by the insurers, but since Signal and Cal Union refused, Central satisfied the full judgment to protect the insured from execution on its property and to protect Central from any possible claim of bad faith failure to settle. Central also alleges Signal violated an agreement with Central under which Signal was obligated to pay seven-eighths of the judgment against the insured. Central contends that if Central had not satisfied the judgment, the insured would have had a claim against Signal and CIGA; that by Central's payment of the judgment it is subrogated to the rights of the insured under the Signal and Cal Union policies and against CIGA; and further that Central holds an equitable right against CIGA for reimbursement of monies expended in satisfaction of the judgment. Central seeks declaratory relief and damages against CIGA.

Cal Union did not pay out any money in satisfaction of the malpractice judgment and therefore does not claim monetary damages against CIGA, but Cal Union does seek a declaration that it has no liability to any of the parties. Insofar as CIGA is concerned, the thrust of Cal Union's complaint seems to be that if Cal Union should have any cause of action against Signal, it would be a covered claim against CIGA.

Central and Cal Union also seek a declaration that if their claims are not "covered claims" against CIGA because they are specifically excluded by section 1063.1, subdivisions (c)(4) and (c)(7), then those sections are unconstitutional.

DISCUSSION

The trial court correctly held that appellants' claims are not covered claims against CIGA because they are specifically excluded by section 1063.1, subdivisions (c)(4) and (c)(7), and that such exclusions are not unconstitutional.

The definition of "covered claims" in section 1063.1, subdivision (c)(1), ³ is modified by subdivisions (c)(4) and (c)(7) to exclude a claim of the type made by appellants. Those sections provide: "(4) 'Covered claims' shall not include any obligations to insurers, insurance pools, or underwriting associations, except as otherwise provided in this chapter. (P) (7) 'Covered claims' shall not include (a) any claim to the extent it is covered by any other insurance of a class covered by the provisions of this article available to the claimant nor (b) any claim by any person other than the original claimant under the insurance policy in his own name, his 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, except as otherwise provided in this chapter."

Appellants are insurers and the claims they seek are "obligations to insurers." (§ 1063.1, subd. (c)(4).) Appellants are not "the original claimant under the insurance policy in his own name." (§ 1063.1, subd. (c) ...