City of South El Monte v. Southern Cal. Joint Powers Ins. Authority
Decision Date | 06 October 1995 |
Docket Number | No. B069051,B069051 |
Court | California Court of Appeals Court of Appeals |
Parties | , 95 Cal. Daily Op. Serv. 7920, 95 Daily Journal D.A.R. 13,563 CITY OF SOUTH EL MONTE, Plaintiff and Respondent, v. SOUTHERN CALIFORNIA JOINT POWERS INSURANCE AUTHORITY, Defendant and Appellant. |
Morgan, Wenzel & McNicholas and John A. Kaniewski, Irvine; Baker, Silberberg & Keener and Robert A. Cardwell, Irvine, for Defendant and Appellant.
Weissburg and Aronson, Inc., Gregory V. Moser and Bret J. Davis, San Diego; Greines, Martin, Stein & Richland, Kent L. Richland and Shelley Levine, Beverly Hills; Kronick, Moskovitz, Tiedemann & Girard, Edward J. Tiedemann and Robin Leslie Stewart, Sacramento; Farmer & Murphy and Craig E. Farmer, Rancho Cordova; Stephen D. Underwood, Rancho Cordova; Law Offices of Robert J. Feldhake and Robert J. Feldhake, Costa Mesa; Jackson Emerich Pedreira & Nahigian and Donald A. Jackson and David G. Hansen, Fresno; Liggett & Kemp-Williams and Margaret E. Kemp-Williams, Fresno, as Amici Curiae on behalf of Defendant and Appellant.
Richards, Watson & Gershon, Anthony B. Drewry, Quinn M. Barrow and John A. Belcher, Los Angeles, for Plaintiff and Respondent.
Freilich, Kaufman, Fox & Sohagi, Deborah J. Fox and Dawn R. Andrews, Los Angeles; Richards, Watson & Gershon and Quinn M. Barrow, Los Angeles; Adams, Duque & Hazeltine, Richard R. Terzian and Sara A. Culp, Los Angeles; Nelsen, Thompson, Pegue & Thornton, Romain Oliver Nelsen and Glenn M. White, Santa Monica; Parker, Covert & Chidester and Jonathan J. Mott, Tustin, as Amici Curiae on behalf of Plaintiff and Respondent.
This appeal involves issues of coverage for members of a joint powers insurance authority. The matter arises from a declaratory relief and breach of contract action seeking a determination of a joint powers authority's duty to defend and indemnify a member city against a lawsuit for damages caused by the enactment of an anti-noise ordinance.
Defendant and appellant Southern California Joint Powers Insurance Authority (Authority) appeals from the summary judgment entered in favor of plaintiff and respondent City of South El Monte (City) on City's action for declaratory relief and breach of contract.
The question this court must decide is whether the Authority, a self-insuring pool comprised of 35 member cities, must defend and indemnify City for damages that allegedly resulted from the passage of a municipal ordinance. Under the facts of this case, our answer is no.
We find the member cities of the Authority determined the risks of loss they agreed to cover from their pooled funds. The joint powers agreement and the intent of the cities which signed it governed the operation and interpretation of their Joint Liability Protection Program. The scope of coverage is defined in the memoranda and the excess insurance policies that comprise this self-insurance program. The member cities, through the Authority, adopted the definition of occurrence contained in the excess insurance policies to determine what claims they would cover.
We find coverage of City in the underlying lawsuit was precluded under the Joint Liability Program administered by the Authority because the adoption and enforcement of a municipal ordinance did not constitute an occurrence for which claims were pooled. Therefore, the Authority had no duty to defend or indemnify City. Accordingly, we reverse the judgment.
Joint powers authorities, in which two or more municipalities join together to exercise any power that each has the power to exercise individually, have been sanctioned by the Joint Exercise of Powers Act, Government Code Sections 6500, et seq., since 1949. 1 The municipalities have the power to insure, either through self-insurance or the purchase of a commercial policy, or both, against a broad range of liabilities. (§ 990, 990.4.) They can also insure through participation in joint powers pooling arrangements, such as the Authority. (§ 990.8, subd. (a).) To understand the rights and obligations of the signatory members of the Authority, we first look at the purpose and development of these joint powers pooling arrangements.
In the 1970's, California cities faced an insurance crisis. Many commercial carriers refused to provide liability insurance to governmental agencies. When insurance was available, the increased costs of coverage made it unaffordable. (Young, Peter C., "Survey Results: Pools a Significant Risk- In response to the crisis, the cities of Contra Costa County, in December 1975, undertook a study which showed the feasibility of a collective insuring arrangement, such as a self-insured liability pool, as an alternative to commercial insurance. 2 The concept of pooling, the sharing of risks by multiple entities through the use of joint self-insurance and excess insurance programs, was attractive to small and medium-size cities that did not have the financial capabilities to provide their own self-insurance programs. The study indicated the pools would provide a cost savings and create an internal administrative structure that would be responsive to claims and effectively manage the members' risk liability program. (Warren, McVeigh, Griffin & Huntington, "Joint Risk Management and Insurance Study.")
Financing Option," Public Risk (May/June 1988).)
The respective city attorneys who reviewed the study concluded, based upon discussions with legal counsel at the Department of Insurance, that although these municipal insurance pools would be constitutional, the Department would regard such arrangements as "a clear situation of transacting insurance." 3 However, subjecting the pools to the statutory requirements of the Insurance Code would place member entities in the position of having the same duties and obligations as commercial insurers. Such an arrangement would adversely affect the pool's ability to provide members cost-effective liability coverage and subsequently defeat the purpose and intent of these self-insuring groups. The attorneys recommended a legislative solution. 4
The legislative response to the municipal insurance crisis and implementation of the pooling arrangement was Senate Bill 2054. The purpose of this bill was to amend Section "Senate Bill 2054 amends that portion of the Government Code which authorizes a local governmental agency to insure itself for the following risk:
On October 1, 1976, Senate Bill 2054 became law and section 990.8 was amended to add a provision stating: "The pooling of self-insured claims or losses among entities as authorized in subdivision (a) of Section 990.4 shall not be considered insurance nor be subject to regulation under the Insurance Code." When Section 990.8 was again amended in 1982, the new provision became subdivision (c). 5 Subdivision (c) has two parts. First, it exempts self-insurance programs from Insurance Code regulation. Second, it declares that self-insurance programs "shall not be considered insurance."
Against this background, the Authority was formed.
In June 1977, 35 Southern California cities, including South El Monte, entered into a written Joint Powers Agreement (Agreement) creating the Authority. The Agreement delineates the powers and the limitations of the Authority. 6
Under terms of the Agreement, the Authority is a separate entity with responsibility The governing power of the Authority resides in a Board of Directors (Board), composed of one representative from each member city, specifically a city council member. (Article 7.) The Board elects a 5 to 9 member Executive Committee from among its members, to which it may give authority to make and implement any decisions, including those involving administration of the Authority. (Articles 8, 10.) The president of the Board sits on the Executive Committee. (Article 10.) The Board has the power to review, and/or modify or override, any decision or action of the Executive Committee. (Article 8.) The Executive Committee has the power to determine and select a joint liability protection program for the Authority, including all necessary...
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