McConnell v. All-Coverage Ins. Exchange Auto. and Fire
| Decision Date | 16 September 1964 |
| Docket Number | ALL-COVERAGE |
| Citation | 229 Cal.App.2d 735,40 Cal.Rptr. 587 |
| Court | California Court of Appeals Court of Appeals |
| Parties | F. Britton McCONNELL, Insurance Commissioner of the State of California, Applicant and Appellant v.INSURANCE EXCHANGE AUTOMOBILE AND FIRE, and All-Coverage Underwriters, Inc., Defendants and Respondents. Civ. 27739, 27740. |
Stanley Mosk, Atty. Gen., Thomas C. Lynch, Atty. Gen., and Arthur C. DeGoede, Deputy Atty. Gen., for applicant and appellant.
Neil Cunningham, San Francisco, Wright, Wright, Goldwater & Mack, Loyd Wright, Edgar R. Carver, Jr., and Rodney R. Buck, Los Angeles, for defendants and respondents.
Appeals have been taken by the Insurance Commissioner from two separate orders of the superior court awarding attorneys' fees, auditors' fees and advances against costs pending a hearing on the merits of a conservatorship proceeding initiated by the commissioner pursuant to section 1011 of the Insurance Code. 1 By stipulation of counsel and permission of this court, both appeals have been consolidated for briefing and decision.
All-Coverage Insurance Exchange Automobile and Fire is an organization composed of persons who exchange reciprocal insurance contracts with each other. All-Coverage Underwriters, Inc., has been the attorney-in-fact for the Exchange whereby it solicits and processes applications for the exchange of insurance contracts for the subscribers of the Exchange, and receives and collects for and in the name of the Exchange all premiums for insurance and membership fees.
On November 21, 1962, the commissioner, pursuant to section 1011, filed with the court below his verified 'Application for Order Appointing Conservator.' The application alleged that an examination of the affairs of the respondents had been made, and that sundry conditions had been found to exist as grounds for conservatorship. The application also requested that the commissioner be allowed to take possession of all property and assets of respondents, and to conduct so much of the business as the commissioner might deem appropriate. An order to this effect was granted on November 21, 1962. 2
On January 7, 1963, respondents filed their verified answer to the commissioner's application for order appointing conservator. The answer also embodied a petition, pursuant to section 1012, for termination of the order appointing conservator. On January 10, 1963, respondents obtained an order to show cause directed to the commissioner why allowance of attorneys' fees and costs on account should not be granted. Concurrently filed with the order to show cause was an application for an order directing the commissioner to release to respondents a reasonable amount for attorneys' fees and costs in connection with the preparation for hearing of the petition to terminate the order of conservatorship.
The order to show cause came on for hearing on January 29, 1963, and the court, on March 1, 1963, made its order allowing counsel for respondents attorneys' fees on account as follows: $2,500 from the funds of the Exchange and $2,500 from the attorney-in-fact. The order also recites the receiving into evidence of twenty-one different documents, affidavits and declarations, exclusive of points and authorities, plus the testimony of counsel for respondents, and found that the retention of counsel by respondents was made in good faith and was necessary for the assertion and adjudication of respondents' rights. The order further stated that the employment of the auditors, Joseph Froggatt & Co., Inc., was made in good faith and was reasonably necessary.
On April 4, 1963, respondents filed a motion for an order directing the commissioner to pay out of the assets of respondents, reasonable sums for the Froggatt audit, for costs and expenses, and for additional attorneys' fees. On April 11, 1963, the court, following a hearing on April 9, 1963, made its order allowing counsel for respondents the sum of $2,500 on account of costs theretofore incurred, and allowing Joseph Froggatt & Co., Inc., the sum of $3,843.60 for the reasonable value of its services theretofore rendered, finding that such services were rendered in good faith and were reasonably necessary to enable respondents to defend themselves. The court also retained jurisdiction to make such additional allowances as the court might later find reasonably necessary for respondents' defense.
It is the commissioner's primary contention that the superior court lacked all jurisdiction to award respondents attorneys' fees, expenses or costs from the assets of the respondent Exchange or attorney-in-fact in a conservatorship proceeding of this nature. The commissioner places strong emphasis upon the fact that the conservatorship proceeding instituted under section 1011 is a special proceeding, the court having only those powers which are expressly granted to it by statute (Caminetti v. Imperial Mut. L. Ins. Co. (1943) 59 Cal.App.2d 476, 492, 139 P.2d 681), and since a comprehensive statutory scheme for handling the affairs of delinquent insurers has been set forth in sections 1010-1062, which do not provide for attorneys' fees or costs of suit, the logical conclusion is that the court below was wholly without jurisdiction to make such an award.
The commissioner further argues that, because of the nature of the insurance business and the vital public interest therein, the legislative determination of the necessity of prompt, efficient, and economical administration of the estates of delinquent insurers makes it apparent that the Legislature did not intend to permit the depletion of the assets available for creditors and for the indemnification of insureds by the payment of fees to counsel for services rendered in resisting the conservatorship. While the commissioner's arguments are persuasive, such is not the law in California.
The argument that the court is without jurisdiction to grant attorneys' fees in a conservatorship of an alleged delinquent insurance company was advanced by the commissioner in Anderson v. Great Republic L. Ins. Co. (1940) 41 Cal.App.2d 181, 106 P.2d 75. Although the Anderson opinion was rendered after the passage of the present Insurance Code in 1935, the case itself was initiated under the prior 1931 act. However, we believe that Anderson is controlling as to the issue presented here. As was pointed out in the Anderson case, the initiation of conservatorship proceeding under the old act or under the present code is exactly the same. The following quotation from Anderson (pp. 187-188, 106 P.2d p. 79) more fully sets forth this point:
'The proceeding against the insurance company was instituted under the provisions of the act of the legislature entitled 'An act to provide for proceedings against and liquidation of delinquent insurance corporations and associations', (Stats.1919, p. 265; amended 1921, p. 1017; 1931, p. 2375; Act 3739, Deering's Gen.Laws 1931), which act was supplanted in 1935 by the applicable sections of the Insurance Code. (Secs. 1010-1061, art. 14, ch. 1, pt. 2, div. 1, St. 1935, pp. 540-552.) Such a proceeding is so instituted by the insurance commissioner as an officer of the state acting in the public interest. [Citations.] The insurance commissioner's status in this respect was clearly the same under the former act as under the present code. However, it is to be noted that in either case the duties of the commissioner as conservator are in the nature of those of a receiver or trustee. Both the former act and the code expressly so provide. Secs. 6 and 10. Act 3739, Deering's [Gen.Laws], 1931; sec. 1057, Insurance Code. * * *
'As far as the question here presented is concerned [the jurisdiction of the court to grant attorneys' fees in a conservatorship proceeding] it makes little difference whether the proceeding was governed by the new law or the old, * * *.' (Emphasis added.)
In reaching its conclusion that the court, in a conservatorship proceeding, had jurisdiction to award attorneys' fees, the above noted decision (at pp. 188, 189, 190, 191, and 193, 106 P.2d at pp. 79, 80, 81, and 82) analyzed the problem as follows:
'There is no express statutory provision for the allowance of fees for the attorneys of a delinquent insurance company in a proceeding of this nature. However, appellants concede that there are some instances in which attorney's fees are allowed by courts of equity in the absence of a contract and in the absence of a statute authorizing such allowance, but argue also that a proceeding of this kind instituted by the insurance commissioner is a special proceeding of a statutory nature and that the jurisdiction of the court is limited by the provisions of the statute governing the proceeding. There can be no doubt as to the validity of such contention, but as pointed out above, under the act by which the said proceeding was instituted the insurance commissioner became a receiver of the assets of the delinquent insurance company with the powers and duties of such receivers within this state. * * * There is nothing in the act to indicate that the jurisdiction of the court over the commissioner in the exercise of his duties and powers are any different from the jurisdiction ordinarily exercised over receivers of corporations generally. There is but one excepiton to be noted, namely, that the court is without power to appoint a receiver, the insurance commissioner taking over that office under the act by virtue of his authority as an officer of the state. It is clear that once the duties are thus assumed the commissioner is subject to the jurisdiction of the court to the same extent generally as are all receivers of corporations. * * *
'Appellants also argue in effect that because the said proceeding is an exercise of the police power of the state the liquidation proceeding...
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