Nowlon v. Koram Ins. Center, Inc.

• Decision Date: 18 December 1991
• Docket Number: No. B049035,B049035
• Citation: 2 Cal.Rptr.2d 683,1 Cal.App.4th 1437
• Court: California Court of Appeals
• Parties: Harold NOWLON, Plaintiff and Appellant, v. KORAM INSURANCE CENTER, INC., Defendant and Respondent.

Page 683

2 Cal.Rptr.2d 683

1 Cal.App.4th 1437

Harold NOWLON, Plaintiff and Appellant, v. KORAM INSURANCE CENTER, INC., Defendant and Respondent.

No. B049035.

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

Dec. 18, 1991.

Certified for Partial Publication. ¹

Review Denied March 26, 1992.

Yanz, Heyler & Hertz, and Robert A. Brock, Glendale, for plaintiff and appellant.

Meyers, Bianchi & McConnell, Martin E. Pulverman and Jacqueline Diamond, Los Angeles, for defendant and respondent.

OPINION ON REHEARING

BOREN, Associate Justice.

The trial court sustained demurrers to Harold Nowlon's first amended complaint without leave to amend. We conclude that Nowlon should be permitted to amend the complaint and reverse.

FACTS

Nowlon alleges that he was injured when he slipped and fell at his place of employment. He theorizes that his fall was caused by the negligent acts of Western Building Cleaning Company (Western), which is not a party to this action.

Western had a general liability insurance policy issued by Mutual Fire Marine and Inland Insurance Company, located in Pennsylvania (Mutual). Mutual, which is also not a party to this action, agreed to insure Western against liability to third parties for personal injuries arising out of Western's business activities. Respondent Koram Insurance Center, Inc. (Koram) brokered the policy to Western.

Nowlon brought suit against Western in 1984. In 1989, he discovered that Mutual, Western's insurer, had become insolvent. ² He also discovered that Mutual was not authorized to transact business in the state of California. As a result, Mutual was not a member of the California Insurance Guarantee Association (CIGA), which guarantees the obligations of insolvent insurers operating in California.

Nowlon then instituted this lawsuit against Koram, asserting that he was damaged by Koram's brokering of an insurance policy for an insurer which was not admitted to sell insurance in California and not a member of CIGA. His first amended complaint sets forth causes of action for breach of contract and negligence per se, although he appears to have abandoned his contract claim on appeal. His remaining theory of recovery, negligence per se, is based on a violation of various sections of the Insurance and Penal Codes. These statutes prohibit the sale of insurance for an insurer which is not authorized to sell insurance in California, unless such sales are made by a surplus line broker.

Nowlon appeals after the trial court sustained Koram's demurrers without leave to amend.

DISCUSSION

I Appealability of Order

An order sustaining demurrers without leave to amend is not an appealable order. (Code Civ.Proc., § 904.1; Munoz v. Davis (1983) 141 Cal.App.3d 420, 431, 190 Cal.Rptr. 400.) In this case, however, the substantive issues on appeal have been fully briefed by both parties. In the interests of justice and to prevent unnecessary delay, we deem the order sustaining the demurrer as incorporating a judgment of dismissal and treat Nowlon's notice of appeal as applying to the dismissal. (Ibid.; People ex rel. Rominger v. County of Trinity (1983) 147 Cal.App.3d 655, 658, 195 Cal.Rptr. 186.)

II Appellant's Negligence Per Se Theory of Recovery

Appellant seeks to proceed on a negligence per se theory. The statutes he relies upon--Insurance Code sections 703, 1761 and 1776, and Penal Code section 439--prohibit the sale of insurance for an insurance company which is not admitted to transact business in California, unless the sale is made through a surplus line broker. ³ He alleges that Koram sold insurance for Mutual, an insurer which is not admitted to transact business in California, in violation of these statutes. As a result of Koram's violation of these statutes, Nowlon's argument continues, he was deprived of his right to make a claim against CIGA when Mutual declared bankruptcy.

Disobedience of a statute for which criminal sanctions are imposed does not amount to civil negligence as a matter of law under all circumstances. However, a presumption of negligence may arise from the statutory violation. (Gallup v. Sparks-Mundo Engineering Co. (1954) 43 Cal.2d 1, 9, 271 P.2d 34.) Negligence may be presumed if (1) the defendant violated a statute; (2) the violation proximately caused injury to the plaintiff; (3) the injury resulted from an occurrence which the statute was designed to prevent; and (4) the plaintiff was one of the class of persons for whose protection the statute was adopted. (Evid.Code, § 669; Selger v. Steven Brothers, Inc. (1990) 222 Cal.App.3d 1585, 1590, 272 Cal.Rptr. 544.) ⁴ The issues of whether the injury resulted from an occurrence which the statute was designed to prevent and whether the plaintiff was one of the class of persons for whose protection the statute was adopted are questions of law. (Michael R. v. Jeffrey B. (1984) 158 Cal.App.3d 1059, 1066, 205 Cal.Rptr. 312.)

Appellant reasons that Koram's violation of the statutes in the Insurance and Penal Codes making it a misdemeanor to sell the insurance of nonadmitted insurers gives rise to a cause of action for negligence per se. He asserts that the misdemeanor statutes, in combination with the CIGA statutes (Ins.Code, § 1063 et seq.), create "a statutory scheme to protect California claimants from insurer insolvencies by requiring participation of all admitted insurers and imposing liability on those who, for a commission, would wrongfully transact insurance with nonadmitted insurers." He concludes that his injury (i.e., his lack of recourse against a financially responsible party) proximately resulted from an occurrence (i.e., Koram's sale of Mutual's insurance) which this statutory scheme was designed to prevent. Appellant also argues that as a member of the public, he is one of the class of persons the statutory scheme was designed to protect and to whom Koram owed a presumptive duty of care.

A. Has appellant properly alleged that respondent violated Insurance Code section 703?

Nowlon admits that if Koram is a surplus line broker, or if Koram obtained the insurance through a surplus line broker, then Koram's procurement of insurance from a nonadmitted out-of-state insurer was not prohibited by Insurance Code sections 703, 1761 or 1776, nor by Penal Code section 439. Koram contends that Nowlon's failure to allege in the first amended complaint that Koram was not a surplus line broker or that Koram did not procure the insurance through a surplus line broker means that appellant failed to sufficiently allege a cause of action for negligence per se. While Koram did alert the trial court that it was not illegal under all circumstances to obtain insurance from a nonadmitted insurance company, Koram failed to precisely raise this issue in the court below. From the record, the appellate briefs and what has been stated at oral argument, we find that it is possible Nowlon could further amend the complaint to allege specifically that Koram neither was nor utilized a surplus line broker. Under these circumstances, we believe the fairest procedure upon remand of this case is to permit Nowlon the opportunity to amend the complaint, if he can, to allege that the insurance policy at issue was not obtained by or through a surplus line broker. The proof on that factual question should be readily available, and, should such an allegation be untrue, the case may easily be decided on a motion for summary judgment. However, while this case is still in the pleadings stage, we cannot resolve the question of whether or not Koram is or utilized the services of a surplus line broker. We shall examine the other issues pertaining to the negligence per se question with the assumption that no surplus line broker was involved in this insurance transaction.

B. Did appellant suffer injury by loss of CIGA benefits?

We requested additional briefing on the question of whether CIGA was designed to cover the claims of third parties such as Nowlon. After considering the parties' arguments and examining the legislative history of the controlling statutes, we are satisfied that Nowlon would have been entitled to make a claim for CIGA benefits had Mutual been a member of CIGA when its insurance was sold in California by Koram.

Insurance Code section 1063.1 defines covered claims under CIGA. At the time the CIGA statutes were introduced, the digests accompanying the proposed legislation, Assembly Bill 1310, stated that "Covered claims eligible for payment by the guarantee association are defined as those arising out of policies issued to residents of this state or payable to residents of this state, which are unpaid by the insolvent insurer, and are presented as a claim to the liquidator and were timely filed with him." (Undated legislative memorandum regarding Assembly Bill No. 1310 as amended June 19, 1969.) A letter from the bill's author conveying the legislation to then-Governor Ronald Reagan for his signature on August 11, 1969, stated that the effect of CIGA was to guarantee that "all members of the public in California can be assured that their claims will be paid despite the fact that a company may become insolvent." The letter goes on to note that "the bill immediately gives relief to claimants and policyholders" of a small insurance company which had declared bankruptcy.

Despite these statements regarding the scope of CIGA, section 1063.1 as enacted was ambiguous as to third party claimants. Accordingly, an attempt to clarify the statute was made in 1983 with Senate Bill 350, whose stated purpose was to "make[ ] clear that 'claimant' as used in the statute includes both first and third party claimants." (Memorandum from Senate Finance, Insurance, and Commerce Committee, June 23, 1983.) This task was supposedly accomplished by changing then-subdivision (7) (now subdivision (9)) to read that " 'Covered claims' shall not include (i) any claim to the extent it is covered by any other insurance of a class covered by...