Webster v. Superior Court

• Decision Date: 22 August 1988
• Docket Number: No. S001335,S001335
• Citation: 46 Cal.3d 338,250 Cal.Rptr. 268,758 P.2d 596
• Court: California Supreme Court
• Parties: , 758 P.2d 596 Robert L. WEBSTER, Jr., et al., Petitioners, v. The SUPERIOR COURT of Los Angeles County, Respondent; Roxani E. GILLESPIE, as Insurance Commissioner, etc., et al., Real Parties in Interest.

Page 268

250 Cal.Rptr. 268

46 Cal.3d 338, 758 P.2d 596

Robert L. WEBSTER, Jr., et al., Petitioners, v. The SUPERIOR COURT of Los Angeles County, Respondent Roxani E. GILLESPIE, as Insurance Commissioner, etc., et al., Real Parties in Interest.

No. S001335.

Supreme Court of California.

Aug. 22, 1988.

[758 P.2d 597] Conrad G. Tuohey, Teresa M. Ferguson, Gene R. Prasse, Tuohey & Prasse, Santa Ana, Richard C. Bennett, and Bennett & Johnson, for petitioners

No appearance for respondent.

John K. Van de Kamp, Atty. Gen., Edmond B. Mamer and Raymond B. Jue, Deputy Attys. Gen., Royal F. Oakes, John C. Holmes, Barger & Wolen, Los Angeles, Jane A. Corning and Lynch, Loofbourrow, Helmenstine, Gilardi & Grummer, San Francisco, for real parties in interest.

EAGLESON, Associate Justice.

The issues in this case are whether an insurance company's insolvency proceeding under the California Insurance Code requires a stay of a personal injury action against the company, even when the company itself is insured by another carrier for the claim and, if not, whether the stay of petitioners' personal injury action against an insolvent insurer was an abuse of the trial court's discretion. We hold that a stay is not mandated by the governing statutes but that a personal injury claimant must make a binding election as to whether he is seeking to recover from the insolvent's own assets or from the proceeds of its insurance coverage. If he elects to recover only from the insurance proceeds, he must be allowed to maintain an independent civil action for damages. If, however, he elects to seek recovery in whole or in part from the insolvent's assets, his action may be stayed and his claim resolved by the Insurance Commissioner under the insolvency claims procedures set forth in the Insurance Code. Because petitioners offered to stipulate that they would seek no recovery from the insolvent's assets, we find the stay of their action was an abuse of the trial court's discretion, and we reverse the judgment of the Court of Appeal, 237 Cal.Rptr. 664.

FACTS

Petitioner Robert L. Webster, Jr. (Webster) was critically wounded in a shooting rampage in January 1982 at the San Francisco offices of his employer, Mission Insurance Company (Mission). Mission shared offices with Enterprise Insurance Company (Enterprise). The estranged husband of an Enterprise employee entered the offices, pulled a shotgun from a flower box, and shot his wife and several other persons. Webster sought refuge under his desk and called an emergency assistance telephone operator. The gunman spotted Webster, cursed him for calling the police, and blasted him in the back at close range. Police arrived and killed the gunman.

Webster suffered severe internal injuries and was confined to a hospital for almost eight months. He lost the use of his only leg. He had already lost his other leg and Webster, his wife, and daughter filed suit in San Francisco Superior Court against the owners of the office building where the shootings occurred, the gunman's estate, his wife, and numerous Doe defendants. (For convenience, we refer collectively to plaintiffs as Webster.) Other victims of the shootings filed similar lawsuits in San Francisco Superior Court, which consolidated all the actions for pretrial discovery and trial on the issue of liability. Webster served Enterprise as one of the Doe defendants in his action after pretrial discovery allegedly revealed that Enterprise had been warned of the gunman's potential dangerousness, including threats against his wife's coworkers, but had failed to take any precautions or to warn its employees of the threats.

his sight in one eye while serving in the United States armed forces in Vietnam.

Enterprise had liability insurance coverage for Webster's suit. Great American Insurance Company provided Enterprise with primary coverage of $500,000. First State Insurance Company provided Enterprise with excess coverage of $20,000,000. Enterprise's insurers provided and paid for the defense of Webster's action. ¹

While Webster's action was proceeding, the Insurance Commissioner of the State of California (commissioner) obtained an order from the Los Angeles Superior Court placing Enterprise under the commissioner's conservatorship pursuant to the Insurance Code. The order stated, "... all persons are hereby enjoined from maintaining or instituting any action at law or suit in equity...." against Enterprise or the commissioner.

Webster filed a motion in the Los Angeles Superior Court for relief from the stay. He argued that any judgment he might obtain against Enterprise would not affect its assets because the judgment would be paid by its liability insurers. The commissioner and Enterprise opposed the motion on the grounds that: (1) lifting the stay would interfere with the commissioner's administration of Enterprise; (2) Webster should not be given an unfair advantage over other claimants; and (3) Webster was required to resort to the statutory claims procedures of the Insurance Code. The court denied Webster's motion without prejudice to the filing of a second motion if new facts were discovered. Webster renewed his motion without showing new facts. He did offer, however, to stipulate that he would not seek to recover from Enterprise's assets without prior court approval. The court denied the second motion with prejudice.

Webster petitioned the Court of Appeal for a writ of mandate setting aside the denial of his motion to lift the stay. The Court of Appeal summarily denied relief. We granted Webster's petition for review and transferred the matter to the Court of Appeal with directions to issue an alternative writ. While the action was before the Court of Appeal, the San Francisco Superior Court vacated the scheduled trial date for the consolidated actions, including Webster's, and ordered that the plaintiffs file a new at-issue memorandum if and when the Los Angeles Superior Court's stay was lifted.

In February 1987, the commissioner applied for an order allowing her to liquidate Enterprise based on her determination that further efforts to rehabilitate the company would be futile. The Los Angeles Superior Court appointed the commissioner as liquidator, authorized her to liquidate the company, and continued the stay of actions against Enterprise.

The Court of Appeal held the Los Angeles Superior Court did not abuse its discretion

in denying Webster's request to lift the stay of his action against Enterprise. We granted review a second time.

DISCUSSION

A. Insurance Code Section 1020 Does Not Mandate a Stay of Webster's Action.

1. The statutory language and context do not mandate a stay.

We reject the contention of Enterprise and the commissioner that section 1020 mandates a permanent stay of Webster's action against Enterprise. ² Section 1020 states that, either with or after the issuance of an order of conservatorship or liquidation, "... the court shall issue such other injunctions or orders as may be deemed necessary to prevent any or all of the following occurrences [including] ... the institution or prosecution of any actions or proceedings." (Italics added.) Enterprise relies on the mandatory character of the word "shall" to support its argument that a court must permanently stay all actions against an insolvent insurer. Enterprise reads section 1020 too broadly and out of context. As we will explain, the more reasonable conclusion is that courts have discretion whether to stay pending actions. When two statutory constructions appear possible, this court's policy has long been to favor the construction that leads to the more reasonable result. (Metropolitan Water Dist. v. Adams (1948) 32 Cal.2d 620, 630-631, 197 P.2d 543.)

We begin with the words of section 1020. It provides that a court shall issue such injunctions or other orders as may be deemed necessary to prevent "any or all" of certain enumerated occurrences, including interference with the commissioner or the insolvency proceedings, waste of the insolvent's assets, the institution or prosecution of actions, the obtaining of preferences, and the making of a levy against the insolvent or its assets. Enterprise's reliance on the word "shall" in section 1020 ignores the principle that " 'The mere literal construction of a section in a statute ought not to prevail if it is opposed to the intention of the legislature apparent by the statute....' " (Friends of Mammoth v. Board of Supervisors (1972) 8 Cal.3d 247, 259, 104 Cal.Rptr. 761, 502 P.2d 1049 quoting In re Haines (1925) 195 Cal. 605, 613, 234 P. 883.) We agree with Justice Frankfurter that statutes "are not inert exercises in literary composition. They are instruments of government, and in construing them 'the general purpose is a more important aid to the meaning than any rule which grammar or formal logic may lay down.' " (United States v. Shirey (1959) 359 U.S. 255, 260, 79 S.Ct. 746, 749, 3 L.Ed.2d 789 quoting United States v. Whitridge (1905) 197 U.S. 135, 143, 25 S.Ct. 406, 408, 49 L.Ed. 696.) That legislative intent must prevail over literal interpretation is reflected in section 16, which states: "As used in this code the word 'shall' is mandatory and the word 'may' is permissive, unless otherwise apparent from the context." (Italics added.) Neither the context of section 1020 nor its purpose requires a permanent stay of all actions against an insolvent insurer.

Section 1020 reflects a legislative intent to preserve an insolvent insurer's assets for orderly disposition by the commissioner. ³ For example, section 1020 provides that the court shall issue injunctions and orders as deemed necessary to prevent: "(a) Interference with the commissioner or the [insolvency] proceeding. (b) Waste of assets of such person.... (d) The obtaining of preferences, judgments, attachments, or other liens against such person or its assets." The statute does not suggest the Legislature intended that a court must...