Transp. Ins. Co. v. Tig Ins. Co.

• Decision Date: 28 March 2012
• Docket Number: No. A122573.,A122573.
• Citation: 136 Cal.Rptr.3d 315,202 Cal.App.4th 984,12 Cal. Daily Op. Serv. 653,2012 Daily Journal D.A.R. 587
• Court: California Court of Appeals Court of Appeals
• Parties: TRANSPORT INSURANCE COMPANY, Plaintiff and Appellant, v. TIG INSURANCE COMPANY et al., Defendants and Respondents.

202 Cal.App.4th 984
136 Cal.Rptr.3d 315
12 Cal. Daily Op. Serv. 653
2012 Daily Journal D.A.R. 587

TRANSPORT INSURANCE COMPANY, Plaintiff and Appellant,
v.
TIG INSURANCE COMPANY et al., Defendants and Respondents.

No. A122573.

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

Jan. 13, 2012.
As Modified on Denial of Rehearing Feb. 2, 2012.
Review Denied Mar. 28, 2012.

[136 Cal.Rptr.3d 317]Eisenberg and Hancock, William N. Hancock, San Francisco, and Jon B. Eisenberg, Oakland; Cotkin & Collins, Los Angeles, Joan M. Cotkin, Terry L. Kesinger, James R. Carty; Cotkin Law Group, Joan M. Cotkin; Nossaman, Los Angeles, Joan M. Cotkin, for Plaintiff and Appellant.

Sidley Austin, Mark E. Haddad, Los Angeles, and Robert B. Martin III, San Francisco, James Harris; Lewis Brisbois Bisgaard & Smith, Los Angeles, Linda M. Lasley, Caroline E. Chan, or Defendants and Respondents.

RICHMAN, J.

[202 Cal.App.4th 986]

This appeal involves the esoteric subject of reinsurance. We resolve it on well-known principles of appellate review.

Appellant Transport Insurance Company (Transport) insured Aerojet–General Corporation (Aerojet) under a liability policy issued in 1973, and that

[202 Cal.App.4th 987]

same year entered into the three reinsurance contracts pertinent here. Numerous suits were brought against Aerojet, and as early as 1980 it begin submitting claims for property damage to Transport, which it denied based on a policy exclusion. Notwithstanding that denial, Transport began paying some investigative expenses, and began to submit claims to the reinsurers. A December 1997 decision by the California Supreme Court held that site investigative expenses could be covered, and in late 1999 Transport finalized a settlement with Aerojet, agreeing to pay $26.6 million. Transport claimed that over $12 million of this was the responsibility of the reinsurers, and in December 1999 submitted its billing and final proof of loss to them.

Years went by without resolution, and in 2006 Transport filed separate lawsuits against each reinsurer, which lawsuits were consolidated. Following an 17–day trial, the jury quickly answered “No” to special verdict questions whether the lawsuits were timely filed, and judgment was entered against Transport.

Transport appeals, an appeal that has generated over 8,000 pages of appendices, 35 volumes of reporter's transcripts, and 425 pages of well-written briefing, including a 180–page appellant's reply brief. And, Transport tells us, the appeal presents two issues of first impression in California, issues “that when decided by this court, will have an impact far beyond the confines of the specific dispute in this case.... [T]his court's opinion is likely to become the lead authority on issues involving the statute of limitations in reinsurance claims, not only in California, but possibly throughout the nation”—apparently inviting us to publish some lengthy opinion [136 Cal.Rptr.3d 318]addressing the claimed issues. We decline the invitation, and resolve the appeal under well-settled principles of appellate review, most fundamentally the doctrine of invited error. And we affirm.

BACKGROUND The Insurance Contracts

In July 1973, Transport's predecessor, Transport Indemnity Company, issued to Aerojet a blanket excess liability insurance policy, providing coverage from July 15, 1973 to July 15, 1976. The pertinent limit of liability was “the difference between $1,000,000.00 as a result of any one occurrence or in the aggregate and underlying self-insured retention of $50,000.00 each occurrence.” Transport also agreed to defend Aerojet and pay litigation expenses, a defense obligation that had no policy limit.

[202 Cal.App.4th 988]

Following issuance of the policy to Aerojet, Transport entered into three contracts of reinsurance, the contracts pertinent here. The first two reinsurance contracts were with International Surplus Lines Insurance Co., a predecessor to TIG Insurance Company (TIG), one of the two respondents here; the third reinsurance contract was with Unigard Mutual Insurance Co., a predecessor to Seaton Insurance Co. (Seaton), the other respondent. For consistency with the proceedings below and the briefing, we will refer to TIG and Seaton.

“Reinsurance contracts are classified as either ‘facultative’ or ‘treaty.’ Reinsurance is facultative if it covers the reinsured's risk on an individual policy. The majority of reinsurance contracts are placed under a treaty, which covers the reinsured's risk for an entire class of policies.” ( Prudential Reinsurance Co. v. Superior Court (1992) 3 Cal.4th 1118, 1126, 14 Cal.Rptr.2d 749, 842 P.2d 48.) As Justice Croskey's treatise explains, “Facultative and treaty reinsurance agreements may be further classified as to the distribution of risk between the original insurer and reinsurer.” (Croskey et al., Cal. Practice Guide: Insurance Litigation (The Rutter Group 2011) [¶] 8:365, p. 8–73.) “Under pro-rata reinsurance, the reinsurer assumes a specified percentage of the risk (and premiums) associated with the particular percentage of the risk (and premiums) associated with the particular policy or class of policies covered.” ( Ibid.) “Under excess-of-loss reinsurance, the reinsurer pays losses only after they exceed a specified amount (the ‘retention’).” ( Ibid.)

The coverage details of the reinsurance contracts are not germane to our discussion and will not be set forth in detail. Suffice it to say that the classification of coverage as “pro rata” or “excess of loss” was germane to some of the issues between Transport and the reinsurers, and the subject of much testimony at trial.

One provision in each of the reinsurance contracts is germane, however: when loss was to be paid. As to this, the TIG contracts stated that “Payment of its proportion of loss and expense paid by [Transport] will be made by [TIG] to [Transport] promptly following receipt of proof of loss.” The Seaton contract stated that “[p]ayment of [Seaton's] proportion of loss and expense incurred by [Transport] will be made to [Transport] promptly upon receipt and approval by [Seaton] of proof of loss in form satisfactory to [Seaton].”

Transport represents that “reinsurance issues ... are rarely seen in appellate courts,” and its lengthy briefing refers to the claimed dearth of authority pertinent to what it claims are the issues here. We thus digress to discuss reinsurance, and some of the features attendant to it.

[136 Cal.Rptr.3d 319]

[202 Cal.App.4th 989]

Reinsurance

Reinsurance is defined in Insurance Code section 620: “A contract of reinsurance is one by which an insurer procures a third person to insure him against loss or liability by reason of such original insurance.” As described in a leading insurance treatise, reinsurance is a contract by which one insurer transfers to another insurer “all or part of the risk it has assumed under a separate ... policy or group of policies in exchange for a portion of the premium. In essence, reinsurance is insurance for insurance companies. Reinsurance provides insurers with the ability to spread the risk they have assumed, thereby preventing any one insurer from suffering a catastrophic loss.” (1A Couch on Insurance 3d (2010 revised ed.) Reinsurance, § 9.1, pp. 9–3–9–5 (Couch).) The insurer obtaining the reinsurance is called the “ceding insurer.”

Our colleagues in Division Four described it this way: “ ‘Reinsurance is a special form of insurance obtained by insurance companies to help spread the burden of indemnification. A reinsurance company typically contracts with an insurance company to cover a specified portion of the insurance company's obligation to indemnify a policyholder in the event of a valid claim.... When a valid claim is made, the insurance company pays the first level insured, and the reinsurance company pays the insurance company. The reinsurance company's obligation is to the insurance company, and the insurance company vis-à-vis the reinsurer is thus the insured, or more appropriately the “reinsured.” ’ ” ( Ascherman v. General Reinsurance Corp. (1986) 183 Cal.App.3d 307, 311–312, fn. 5, 228 Cal.Rptr. 1; accord, Catholic Mutual Relief Society v. Superior Court (2007) 42 Cal.4th 358, 368, 64 Cal.Rptr.3d 434, 165 P.3d 154.)

One aspect of reinsurance that distinguishes it from other insurance is that reinsurance contracts have no limitation provision, no reference to when suit has to be brought on the reinsurance contract. According to Couch, “[A]s there is typically no special statute of limitations for reinsurance contracts, the statute of limitations for contracts generally will apply.” (Couch, supra, § 9.33, p. 9–135.)

Among the other distinguishing attributes of reinsurance are the sophistication and expertise of the insured—more accurately, reinsured—which are themselves insurance companies. Another is that the reinsurer does not itself investigate or adjust claims, but relies on the ceding insurer to do that. So, as Transport's briefing repeatedly tells us, the parties are essentially aligned—not adverse. This passage is illustrative: “[R]einsurers must treat their reinsureds with ‘utmost good faith.’ [Citation.] This duty of extreme good faith arises out of ‘the traditional mores of the industry’ under which reinsurance is

[202 Cal.App.4th 990]

seen as ‘an honorable engagement’ where ‘gentlemen's agreements' were often secured by a handshake. [Citation.] Indeed, case law has referred to reinsurers and their cedents as ‘partners' rather than adversaries. [Citation.] Because of this venerable history, ‘ [d]efences [ sic ] based on available periods of limitation usually have not been taken by insurers in the London [reinsurance] market, and some participants in the market feel that it is a custom not to assert them.’ [Citation.] Moreover, this duty of utmost good faith does not terminate when litigation commences. [Citation.].” Indeed, Transport asserts, “Seaton and TIG can hardly feign ignorance of their duty to treat Transport ...