E. L. White, Inc. v. City of Huntington Beach

• Decision Date: 21 December 1982
• Parties: E.L. WHITE, INC., and Royal Globe Insurance Companies, Plaintiffs and Appellants, v. The CITY OF HUNTINGTON BEACH, Defendant, Respondent and Appellant. CALIFORNIA INSURANCE GUARANTEE ASSOCIATION, Plaintiff and Respondent, v. ROYAL GLOBE INSURANCE COMPANY, et al., Defendants and Appellants. Civ. 25416.
• Court: California Court of Appeals Court of Appeals

Page 879

187 Cal.Rptr. 879

138 Cal.App.3d 366

E.L. WHITE, INC., and Royal Globe Insurance Companies, Plaintiffs and Appellants, v. The CITY OF HUNTINGTON BEACH, Defendant, Respondent and Appellant.

CALIFORNIA INSURANCE GUARANTEE ASSOCIATION, Plaintiff and Respondent, v. ROYAL GLOBE INSURANCE COMPANY, et al., Defendants and Appellants.

Civ. 25416.

Court of Appeal, Fourth District, Division 2, California.

Dec. 21, 1982.

Hearing Denied Feb. 16, 1983.

[138 Cal.App.3d 369] Harrington, Foxx, Dubrow & Canter and Peter Abrahams, Los Angeles, for plaintiffs and appellants, E.L. White, Inc. and Royal Globe Ins. Companies.

Kinkle, Rodiger & Spriggs and Michael J. Logan, Santa Ana, for defendant, respondent and appellant, The City of Huntington Beach.

Clausen, Harris & Campbell and Kenneth H. Clausen, Los Angeles, for plaintiff and respondent, California Ins. Guarantee Ass'n.

OPINION

MORRIS, Presiding Justice.

E.L. White, Inc. and the City of Huntington Beach were unsuccessful codefendants in two lawsuits, a wrongful death action and a personal injury action, both of which arose from the same accident. After paying half of the judgments in both cases, Royal Globe Insurance Companies (White's insurer) and White filed suit against Huntington Beach for indemnity. Prior to trial on the indemnity action, however, Huntington Beach's excess insurer (Reserve Insurance Company), who would have been responsible for paying the approximately $140,000 sought by Royal Globe and White as indemnity for their portion of the wrongful death judgment, became insolvent. The California Insurance Guarantee Association (CIGA), which is statutorily required to pay some obligations of insolvent insurers, then filed suit against Royal Globe and White for declaratory and injunctive relief, claiming that Royal Globe and White could not proceed with their indemnity action against Huntington Beach. ¹ After consolidation of the two actions, the trial court awarded total indemnity of approximately $6,000 to Royal Globe and White for their portion of the personal injury judgment, which amount was still within the limits of Huntington Beach's policy with its primary, and solvent, insurer. However, the court enjoined Royal Globe from obtaining a judgment of indemnity against Huntington Beach in excess of that $6,000.

Two appeals have resulted. Royal Globe and White have both appealed, and claim that they should be indemnified for the wrongful death judgment as well as the personal injury judgment. They also ask for interest from the date they made payments in satisfaction of those judgments. Huntington Beach has also appealed, and claims that Royal Globe and White are not entitled to total indemnity. We believe that Royal Globe and White are entitled to prejudgment interest. Otherwise, we affirm.

CIGA AND THE SUBROGATED INSURER CLAIMANT

Because Royal Globe has paid White's share of the personal injury and wrongful death judgments, Royal Globe's position in this indemnity action is one of a subrogee. Additionally, because its excess insurer is insolvent, Huntington Beach has no insurance coverage for any further payments it might have to make in the wrongful death action. Thus, if Royal Globe obtains a judgment of indemnity against Huntington Beach for the wrongful death action, one of two things will occur--either CIGA will assume the obligation of Huntington Beach's insolvent insurer and pay Royal Globe; or Huntington Beach will be forced to pay the judgment. CIGA and Huntington Beach claim that the former is expressly prohibited by statute and the latter is contrary to the primary purpose of the legislation that created CIGA. We agree and also reject the contention that denying Royal Globe indemnity will result in an unconstitutional denial of equal protection.

CIGA was established by the Legislature in 1969 to provide each member insurer with "insurance against loss arising from the [member's] failure ... [as] an insolvent insurer to discharge its obligations under its insurance policies." (Ins.Code, §§ 1063, subd. (a), 119.5.) ² CIGA's membership includes numerous types of insurers admitted to transact insurance in California. Their authority to transact insurance is dependent upon their membership in CIGA. (§ 1063, subd. (a).) Membership responsibilities include making premium payments to CIGA when another insurer becomes insolvent. CIGA is then required to pay the obligations of that insolvent insurer. (§ 1063.5.) However, while CIGA does provide insurer insolvency insurance, it "does not 'stand in the shoes' of the insolvent insurer for all purposes." (Biggs v. California Ins. Guarantee Assn. (1981) 126 Cal.App.3d 641, 645, 179 Cal.Rptr. 16.) Royal Globe is a member of CIGA.

In the present case, CIGA is expressly forbidden from standing in the shoes of Reserve, Huntington Beach's insolvent excess insurer, for the purpose of making payments to Royal Globe. CIGA is only authorized to pay the "covered claims" of an insolvent insurer. (§ 1063.2, subd. (a).) But, "covered claims" do not include "any obligations to insurers, insurance pools, or underwriting associations ..." (§ 1063.1, subd. (c)(4)), nor do they include "any claim by any person other than the original claimant under the insurance policy in his own name ... [or] any claim asserted by an assignee or one claiming by right of subrogation ...." (§ 1063.1, subd. (c)(7)(b).) Because Royal Globe is an insurer and because its claim is by right of subrogation, it may not seek payment from CIGA. Such is the clear and unambiguous language of the statute.

White and Royal Globe contend, however, that regardless of whether Royal Globe's claim is a "covered claim," there is nothing in the CIGA legislation that prevents them from obtaining a judgment of indemnity against Huntington Beach. The "covered claim" question, they argue, is an issue solely between Huntington Beach and CIGA. This argument is unpersuasive.

If Huntington Beach was required to indemnify Royal Globe for the wrongful death judgment and CIGA assumed Reserve's insurance obligation to Huntington Beach, the result would be the same as if CIGA made direct payment to Royal Globe, an action expressly proscribed by section 1063.1. The fact that the payment would go from CIGA to a subrogated insurer through the conduit of an insured of an insolvent insurer does not sanitize the transaction. Such is merely an artifice aimed at circumventing the clear command of the Legislature.

On the other hand, if CIGA did not pay Huntington Beach after it had been ordered to indemnify Royal Globe, Huntington Beach would be forced to satisfy the judgment from its own assets. This is equally objectionable, because the overriding purpose of the Legislature in creating CIGA was to protect just such a party as Huntington Beach, the insured of an insolvent insurer.

Allowing Royal Globe to recover in this case, whether the judgment ultimately be satisfied by CIGA or by Huntington Beach, would undermine the CIGA system. We fully agree with the conclusion that "[t]he 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 fellow members." (California Union Ins. Co. v. Central National Ins. Co. (1981) 117 Cal.App.3d 729, 734, 173 Cal.Rptr. 35; see also Interstate Fire & Casualty Ins. Co. v. California Ins. Guarantee Assn. (1981) 125 Cal.App.3d 904, 909-910, 178 Cal.Rptr. 673.) Indeed, this view has recently been adopted by the California Supreme Court. (Reserve Insurance Co. v. Pisciotta (1982) 30 Cal.3d 800, 814, fn. 7, 180 Cal.Rptr. 628, 640 P.2d 764.) Support for this conclusion is found in an often-cited article written by the then California Insurance Commissioner shortly after the enactment of the CIGA legislation. "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 that 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." (Barger,California Insurance Guarantee Association (1970) 45 State Bar J. 475, 482, emphasis added.)

White and Royal Globe make much of the fact that the CIGA legislation does not expressly prohibit all lawsuits by subrogated insurers against insureds of insolvent insurers. Additionally, they note that a part of the legislation dealing with automobile insurance claims does expressly limit an insurer's right to sue the insured of an insolvent insurer. ³ If all subrogated insurer lawsuits are in fact prohibited, it is argued, then it was pointless for the Legislature to specifically proscribe one particular class of such suits; therefore, the Legislature only intended to bar a subrogated insurer from suing the insured of an insolvent insurer when it expressly so stated. We disagree. Although the statutory language cited by White and Royal Globe may be technically unnecessary in light of our interpretation of the CIGA legislation as a whole, the existence of this language is not sufficient to overcome the result which the Legislature clearly intended in this case. Instead, we view this language as reinforcing the Legislature's intent that protection be afforded to insureds of insolvent insurers rather than to other insurance companies.

White and Royal Globe's only case authority is a Louisiana Court of Appeal case (Hickerson v. Protective Nat. Ins. Co., etc. (1979) 375 So.2d 969), which was subsequently disregarded by another Louisiana Circuit Court of Appeal (Billeaudeau v. Lemoine (1979) 377 So.2d 1344, 1347) and reversed, although on another ground, by the Louisiana Supreme Court (Hickerson v. Protective...