R. J. Reynolds Co. v. California Ins. Guarantee Assn.

• Decision Date: 23 October 1991
• Docket Number: No. H006578,H006578
• Citation: 235 Cal.App.3d 595,1 Cal.Rptr.2d 405
• Court: California Court of Appeals Court of Appeals
• Parties: R.J. REYNOLDS CO. INC., Plaintiff and Appellant, v. CALIFORNIA INSURANCE GUARANTEE ASSOCIATION, Defendants and Respondents.

Page 405

1 Cal.Rptr.2d 405

235 Cal.App.3d 595

R.J. REYNOLDS CO. INC., Plaintiff and Appellant, v. CALIFORNIA INSURANCE GUARANTEE ASSOCIATION, Defendants and Respondents.

No. H006578.

Court of Appeal, Sixth District, California.

Oct. 23, 1991.

H.R. Lloyd, Jr. and James H. Anderson and Hoge, Fenton, Jones & Appel, Inc., San Jose, for plaintiff and appellant.

Frederick G. Hall and Clausen & Campbell and Black, Compean, Hall & Lenneman, Los Angeles, for defendants and respondents.

BAMATTRE-MANOUKIAN, Associate Justice.

Appellant R.J. Reynolds Co., Inc. (REYNOLDS) contracted for services from Multi-Marketing, Inc. (MMI). MMI purchased liability insurance from Mission Insurance Co. and Mission National Insurance Co. (MISSION), naming REYNOLDS as additional insured. While MISSION was engaged in defending a claim against MMI, REYNOLDS and others, MISSION became insolvent. REYNOLDS' own insurer, Aetna Life and Casualty Company (AETNA) took over the defense and negotiated and paid a settlement of the claim. The AETNA policy contained a retrospective premium endorsement. When the retrospective premium was calculated, in accordance with the terms of the AETNA policy, REYNOLDS' premium payment to AETNA included $200,000 of the incurred loss. REYNOLDS filed suit against the California Insurance Guarantee Association (CIGA), an association of member insurers formed to protect insureds from injury due to the insolvency of its members. REYNOLDS claims that CIGA had a duty to reimburse it the $200,000 it had paid to AETNA. The trial court granted summary judgment in favor of CIGA on the ground that the $200,000 retrospective premium payment was not a claim covered by CIGA, within the statutory definition of "covered claims." (Ins.Code, § 1063.1.) We agree with the trial court and affirm the judgment.

BACKGROUND

REYNOLDS hired MMI to develop and manage a marketing program for the "1985 Camel GT Special Events" racing tour. The purpose of the program was to promote REYNOLDS' product to a specific market segment. As part of the promotional contract, MMI agreed to provide liability insurance naming REYNOLDS as additional insured for incidents arising on the tour. MMI also agreed to indemnify and defend REYNOLDS against all personal injury claims relating to the execution of its duties during the tour. MMI procured the required insurance from the Mission Insurance Companies.

REYNOLDS provided MMI a 1983 Nissan pickup truck, leased by REYNOLDS from Nissan Motor Company, U.S.A., for MMI's use during the tour. In addition to the insurance provided by MMI, REYNOLDS was insured under a policy of commercial automobile liability insurance issued by AETNA, and NISSAN was insured under its own policy with Insurance Company of North America (INA).

On May 7, 1985, Tami Kay Hetke (HETKE) was injured while riding as a passenger in the Nissan truck, which was being driven by Matthew Alan Boyd (BOYD), an employee of MMI. On October 16, 1985, HETKE filed a personal injury action against BOYD, MMI (and its companion corporation Field Marketing, Inc.) REYNOLDS and NISSAN. MISSION accepted REYNOLDS' tender of defense on July 8, 1986. However, on February 24, 1987, MISSION was declared insolvent and the Insurance Commissioner of California was appointed to wind up MISSION's affairs.

The liquidation orders triggered certain statutory obligations of CIGA pursuant to AETNA took up the defense of HETKE's claim and eventually negotiated a structured settlement agreement as REYNOLDS' and NISSAN's liability insurer. The settlement agreement was executed December 28, 1987. It provided for an immediate lump sum payment to HETKE of $400,000 and the purchase of an annuity which would guarantee the payment of additional amounts monthly and at five-year intervals. AETNA paid the settlement, totalling $804,192.

                Insurance Code section 1063 et seq. 1  CIGA is an unincorporated association of insurers licensed to do business in California.  Each liability insurer transacting business in this state is required to participate in the association.  (§ 1063.)  The statutory duty of CIGA is to provide insolvency insurance for each member by paying claims on policies with insolvent members.  (Interstate Fire & Casualty Ins. Co. v. California Ins. Guarantee Assn.  (1981) 125 Cal.App.3d 904, 908, 178 Cal.Rptr. 673.)   CIGA is not authorized, however, to pay all claims, but only "covered claims," as defined by statute.  (§ 1063.1, subd.  (c).)  Section 1063.1, subdivision (c), specifically enumerates those claims which are not "covered claims."   Those include any claim which is "covered by any other insurance."  (§ 1063.1, subd.  (c)(9).) 2  On the basis that the HETKE claim was not a covered claim since both REYNOLDS and NISSAN had "other insurance" available to them, CIGA declined to take over MISSION's obligation to defend REYNOLDS and NISSAN
                

REYNOLDS' insurance policy with AETNA included a "Retrospective Premium Endorsement" under which insurance premiums were rated retrospectively based on actual loss experience during the rating plan period. At the end of the period during which the HETKE claim was settled, the retrospective premium was calculated based in part on the total loss incurred in settlement of that claim. Under the terms of the policy, REYNOLDS was obliged to pay $200,000 of the incurred loss in its premium due to AETNA.

Because of CIGA's refusal to defend, and anticipating its obligation to AETNA for $200,000, REYNOLDS, joined by AETNA, filed a complaint for declaratory relief on October 19, 1987, against CIGA and others. In its complaint REYNOLDS alleged that CIGA had a duty to fully defend and indemnify REYNOLDS by virtue of succeeding to the indemnity obligations of the insolvent MISSION. REYNOLDS alleged further that it was not insured for the first $200,000 of loss under its policy with AETNA and thus was entitled to a reimbursement of this amount from the CIGA fund.

On October 7, 1988, CIGA cross-complained against AETNA, REYNOLDS, and others, for declaratory relief. Eventually cross-motions for summary judgment were filed by CIGA and by REYNOLDS and AETNA and both motions were argued on August 28, 1989. In an order filed September 22, 1989, the trial court granted summary judgment in favor of CIGA on the ground that the $200,000 was not a "covered claim." It found that REYNOLDS' insurance policy with AETNA constituted "other insurance" as that term is used in section 1063.1, subdivision (c)(9) and that CIGA had no duty to reimburse REYNOLDS for amounts paid pursuant to the terms of the retrospective rating plan contained in that policy. The court found further that the $200,000 paid to AETNA by REYNOLDS under the retrospective premium provisions of its policy was "an obligation to an insurer" as that term is used in section 1063.1, subdivision (c)(4), and was therefore specifically excluded from the statutory definition of "covered claims."

AETNA and REYNOLDS appealed from the summary judgment order. AETNA subsequently dismissed its appeal.

ISSUE

REYNOLDS does not contend that there are any triable factual issues. Its appeal presents only a legal question, whether $200,000 of the retrospective premium REYNOLDS paid AETNA is a claim covered by CIGA. After reviewing the statutory scheme, in particular section 1063.1, subdivision (c) which defines "covered claims," and the retrospective premium endorsement contained in REYNOLDS' insurance policy with AETNA, we conclude that the premium paid by REYNOLDS was not a covered claim.

CIGA was created in 1969 as a compulsory association of state-regulated insurance companies. (Central National Ins. Co. v. California Ins. Guarantee Assn. (1985) 165 Cal.App.3d 453, 458, 211 Cal.Rptr. 435; §§ 1063.14; 1063, subd. (a).) Its purpose is "to provide insurance against loss arising from the failure of an insolvent insurer to discharge its obligations under its insurance policies." (Middleton v. Imperial Ins. Co. (1983) 34 Cal.3d 134, 137, 193 Cal.Rptr. 144, 666 P.2d 1.) CIGA assesses its members when another member becomes insolvent, thereby establishing a fund from which insureds whose insurers become insolvent can obtain financial and legal assistance. (Isaacson v. California Ins. Guarantee Assn. (1988) 44 Cal.3d 775, 784, 244 Cal.Rptr. 655, 750 P.2d 297.) Member insurers then recoup assessments paid to CIGA by means of a surcharge on premiums to their policy holders. (§ 1063.14, subd. (a).) In this way the insolvency of one insurer does not impact a small segment of insurance consumers, but is spread throughout the insurance consuming public, which in effect subsidizes CIGA's continued operation.

While CIGA's general purpose is to pay the obligations of an insolvent insurer, it is not itself an insurer and "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.) "CIGA is not in the 'business' of insurance.... CIGA issues no policies, collects no premiums, makes no profits, and assumes no contractual obligations to the insureds." (Isaacson v. California Ins. Guarantee Assn., supra, 44 Cal.3d at pp. 786-787, 244 Cal.Rptr. 655, 750 P.2d 297.) Rather it is authorized by statute to pay only "covered claims" of an insolvent insurer, those determined by the Legislature to be in keeping with the goal of providing protection for the insured public. (§ 1063.2, subd. (a).)

Section 1063.1, subdivision (c)(1) defines "covered claims" as "the obligations of an insolvent insurer ... (i) imposed by law and arising out of an insurance policy of the insolvent insurer ..." ³ The statute then specifically enumerates certain types of claims which are not "covered claims." Subdivision (c)(9) provides that " 'Covered claims' shall not include (i) any claim to the extent it is covered by any other insurance ... available to the claimant or insured." Cases interpreting this language have established...