Truck Ins. Exchange v. Superior Court (Transco Syndicate No. 1)

• Decision Date: 22 December 1997
• Docket Number: No. B114035,B114035
• Court: California Court of Appeals Court of Appeals
• Parties: , 97 Cal. Daily Op. Serv. 9626, 97 Daily Journal D.A.R. 15,345 TRUCK INSURANCE EXCHANGE, Petitioner, v. The SUPERIOR COURT of Los Angeles County, Respondent; TRANSCO SYNDICATE # 1 et al., Real Parties in Interest.

Page 255

70 Cal.Rptr.2d 255

60 Cal.App.4th 342, 97 Cal. Daily Op. Serv. 9626,

97 Daily Journal D.A.R. 15,345

TRUCK INSURANCE EXCHANGE, Petitioner, v. The SUPERIOR COURT of Los Angeles County, Respondent TRANSCO SYNDICATE # 1 et al., Real Parties in Interest.

No. B114035.

Court of Appeal, Second District, Division 4, California.

Dec. 22, 1997.

Cummings & Kemp, APC, Thomas B. Cummings, Everett L. Skillman, and Christine Baran, Santa Ana, for Petitioner.

No appearance for Respondent.

Hahn, Bolson & Mendelson, Jeffrey T. Bolson and Karen-Denise Lee, Los Angeles, for Real Parties in Interest.

CHARLES S. VOGEL, Presiding Justice.

Petitioner Truck Insurance Exchange ("Truck"), an insurer of RCS Equities, Inc. ("RCS"), filed this proceeding to challenge the denial of its motion to intervene in this action for rescission filed by real parties in interest, Transco Syndicate # 1 ("Transco") and Alpine Insurance Company ("Alpine"), two other insurers of RCS, on the ground that it has a direct interest in the outcome of the present matter.

FACTUAL AND PROCEDURAL BACKGROUND

RCS is a roofing contractor, incorporated under the laws of the State of California. Policies of general comprehensive liability insurance were issued to RCS by Truck, Transco, and Alpine for the successive policy periods of August 24, 1987, to August 24, 1988, October 1, 1991, to October 1, 1992, and October 1, 1992, to October 1, 1993, respectively. On August 1, 1994, the Franchise Tax Board suspended RCS pursuant to Revenue and Taxation Code section 23301 for failing to file tax returns for 1992, 1993, and 1994. RCS has not been revived and has not made a general appearance in this matter.

During a time frame coinciding with the periods of coverage provided by the policies issued by Truck, Transco, and Alpine, a number of actions were filed against RCS alleging that it installed defective roofing resulting in damages to third persons. These claims were tendered to Truck and it accepted the defense of them, asserting a reservation of rights.

On January 28, 1993, Transco and Alpine filed the present action, alleging fraudulent misrepresentation and seeking to rescind their policies of insurance. Initially, only Far West Roofing Corporation ("FWRC") was named as a defendant, even though RCS is the named insured on the policies issued by the real parties in interest. FWRC was served and failed to appear resulting in the entry of a default judgment against both FWRC and RCS on April 19, 1995.

On September 24, 1996, RCS made a special appearance and moved to amend the judgment to delete any reference to RCS on the ground it had not been served with the summons and complaint and had not appeared. On October 29, 1996, the trial court granted the motion and amended the judgment deleting any reference to RCS. By leave of court, Transco and Alpine were allowed to file a second amended complaint adding RCS as a defendant. RCS was served pursuant to Corporations Code section 1702 on May 23, 1997.

In January 1997, Truck and another insurer filed an action for declaratory relief against Transco and Alpine in the Orange County Superior Court for a determination that Transco and Alpine are obligated to contribute to the costs of defense and/or indemnification of RCS in the underlying third party construction defect cases. Transco and Alpine have answered alleging, among other things, rescission.

On May 22, 1997, Truck filed a motion for leave to intervene "on behalf" of RCS. The motion was opposed and on June 20, 1997, it was denied. Truck petitioned this court for a writ of mandate to order the trial court to vacate its order of denial and to grant its motion to intervene.

ISSUES

To determine if the trial court abused its discretion under the applicable standard of review, we must resolve the following issues: (1) does Truck have a sufficiently direct interest in Transco's and Alpine's action to judicially rescind the insurance policies issued

to RCS to justify intervention, and (2) does the suspension of RCS's corporate powers preclude Truck's intervention in any event.

DISCUSSION

Under Code of Civil Procedure section 387, subdivision (a), "Upon timely application, any person who has an interest in the matter in litigation, or in the success of either of the parties, or an interest against both, may intervene in the action or proceeding." "If proper procedures are followed [citation], the court has discretion to permit a nonparty to intervene in litigation pending between others, provided: [p] The nonparty has a direct and immediate interest in the litigation; and [p] The intervention will not enlarge the issues in the case; and [p] The reasons for intervention outweigh any opposition by the existing parties. [Citations.]" (Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial (Rutter, rev.# 1, 1996) § 2:414, p. 2-55, emphasis in original.)

Truck's Direct Interest

It is undisputed that Truck, Transco, and Alpine all issued general comprehensive liability policies of insurance to RCS, albeit for different policy periods. Accordingly, they all have a potential right to equitable contribution from each other. Where insurers provide the same level of coverage for the same risk, they may settle or defend the claim against their common insured and then seek reimbursement from the nonparticipating insurers. "Where, as here, [three] insurance companies insure the same risk and one company pays the loss ..., it may seek contribution from the other [s]." (Fire Ins. Exchange v. American States Ins. Co. (1995) 39 Cal.App.4th 653, 660, 46 Cal.Rptr.2d 135.)

Truck has provisionally accepted the defense of RCS in the defective construction claim disputes. At some point, it may have the right to assert claims for contribution from Transco and Alpine for the cost of defending and/or indemnifying RCS, but that eventuality has not occurred because the underlying claims have not been resolved. However, Transco's and Alpine's present action for rescission of the policies issued to RCS threatens to bar any claim Truck may have for equitable contribution in the future. The threat is substantial since RCS is a suspended corporation and is prohibited from appearing to defend against the rescission action. In such circumstances, the outcome of the present action will have a direct and substantial effect on Truck's right to seek equitable contribution, even though such right may not have ripened.

In Fireman's Fund Ins. Co. v. Gerlach (1976) 56 Cal.App.3d 299, 128 Cal.Rptr. 396, Affiliated Vendors sold vending machines to Gerlach who stored them on premises insured by Fireman's Fund. A fire broke out in Gerlach's building, destroying and damaging vending machines for which Gerlach had not paid Affiliated. Gerlach made a claim against Fireman's for loss, which was denied on the ground that Gerlach had himself started the fire. Fireman's filed an action for a judicial declaration that it was not liable for any part of the loss. Although served with the summons and complaint, Gerlach failed to appear and his default was taken.

In a separate action, Affiliated filed an action against Gerlach for the destroyed and damaged vending machines and obtained a judgment for $84,998. However, Gerlach was judgment proof and the only potential source from which to satisfy the judgment was the Fireman's Fund policy. Consequently, Affiliated applied to intervene in the action filed by Fireman's. The obvious purpose for Affiliated to seek intervention was to put Fireman's to its proof, anticipating that it could satisfy its judgment from the proceeds of the policy if such proof failed.

The trial court concluded that Affiliated had only " 'consequential interest, rather than a direct interest, in the pending lawsuit' " and denied the application for intervention. (56 Cal.App.3d at p. 302, 128 Cal.Rptr. 396.) The Court of Appeal reversed explaining, "While ordinarily a debtor who has a claim for money against another in a pending action may be expected to make reasonable efforts to enforce his claim, here Gerlach has defaulted. And while ordinarily intervention by a party's creditor would frustrate the original parties' purpose to 'conduct All Truck wants to do is prevent the default of its disabled insured from allowing Transco and Alpine to obtain the cancellation of their policies on their own terms. Since RCS has defaulted, Truck's right to ultimately pursue equitable contribution ought not to vanish simply because of the disability (suspension of corporate status due to failure to file state tax returns) preventing a defense by RCS.

                their lawsuit on their own terms,' here Affiliated Vendors seeks only to prevent Fireman's Fund from obtaining cancellation of the insurance policy on its own unilateral terms."  (Id. at p. 303, 128 Cal.Rptr. 396.)   Here the situation is substantially similar
                

Insurers have no control over the solvency or corporate viability of their insureds. It would be wholly capricious if some insurers could avoid liability for contribution by exploiting the corporate suspension of an insured by way of an action for rescission, leaving other insurers to bear the loss, but barred from recovering equitable contribution from insurers who have obtained default judgments rescinding their policies. This is not to say Transco and Alpine may not obtain judicial validation of their purported rescissions, but there is no reason why they should not be put to their proof and otherwise demonstrate the merit of their claims.

If Truck is not allowed to intervene, it would ultimately be confronted with default judgments of rescission in any action for equitable contribution. Such judgments would bar Truck from pursuing equitable contribution from Transco and Alpine. (Barrera v. State Farm Mut. Automobile Ins. Co. (1969) 71 Cal.2d 659, 665-666, 79 Cal.Rptr. 106, 456 P.2d 674, fn. 4 ["Thus, under the present interpretation of the Insurance Code, an insurer may...