Lumbermens Mutual Casualty Co. v.
Superior Court



















Filed 3/8/13 Lumbermens Mutual Casualty Co. v. Superior
Court CA1/1

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>NOT TO BE PUBLISHED IN OFFICIAL REPORTS

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California
Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or
relying on opinions not certified for publication or ordered published, except
as specified by rule 8.1115(b). This
opinion has not been certified for publication or ordered published for
purposes of rule 8.1115.





IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA



FIRST
APPELLATE DISTRICT



DIVISION
ONE




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LUMBERMENS MUTUAL CASUALTY COMPANY, Petitioner, v. THE SUPERIOR COURT OF MARIN COUNTY, Respondent; MARIN CLEANERS, Real Party in Interest.

A137141 (Marin County Super. Ct. No. CIV 1105680)

By the Court:href="#_ftn1" name="_ftnref1" title="">[1]

Lumbermens
Mutual Casualty Company (Lumbermens) seeks a writ of mandate directing the
superior court to stay or dismiss proceedings in a lawsuit involving Lumbermens
and its insured, Marin Cleaners.
Lumbermens asserts stay or dismissal is warranted because it is
presently subject to an “Agreed Order of
Rehabilitation” (rehabilitation order) issued by the Cook County Circuit
Court, Illinois, which enjoins all persons from prosecuting any lawsuits
against Lumbermens, and the rehabilitation order is effective in California
under the Uniform Insurers Liquidation Act (UILA; Ins. Code,href="#_ftn2" name="_ftnref2" title="">[2]
§ 1064.1 et seq.). Finding merit in
Lumbermens’ contention, we grant the petition.

I. Background

In
April 2012, Lumbermens filed a first amended complaint for href="http://www.fearnotlaw.com/">declaratory relief and equitable contribution
against Insurance Company of the West (ICW) and Marin Cleaners, real party in
interest in this writ proceeding. The
complaint alleged Marin Cleaners operated a dry cleaning business at certain
real property in San Rafael for over 50 years and in 2007, the California
Regional Water Quality Control Board (RWQCB) identified Marin Cleaners as a
possible source of a chemical contaminant in the groundwater near the
property. As a result of RWQCB
directives, Marin Cleaners retained environmental consultants, began
investigation and remediation work at the property, and tendered claims to
Lumbermens and ICW for defense and indemnity under policies of insurance issued
by them to Marin Cleaners. Lumbermens
agreed to defend under a reservation of rights, but stated it would not pay
remediation costs. ICW refused to
participate in the defense. In its
complaint, Lumbermens requested, among other things, the court declare it had
no duty to defend or indemnify Marin Cleaners for costs associated with the
RWQCB action. In September 2012, Marin
Cleaners filed a first amended cross-complaint against Lumbermens, seeking damages
for breach of contract, breach of the implied covenant of good faith and fair
dealing, and declaratory relief.

In
July 2012, the Circuit Court of Cook County, Illinois entered a rehabilitation
order, placing Lumbermens into rehabilitation pursuant to article XIII of the
Illinois Insurance Code. (215 Ill. Comp.
Stat. 5/187 et seq. [Ill. Ins. Code, art. XIII].) The rehabilitation order appointed the
Director of Insurance of the State of Illinois as the rehabilitator of
Lumbermens, and directed him to take immediate possession of its property,
business and affairs, and vested authority in him to “take such actions as the
nature of the cause and the interests of Lumbermens, . . . [its]
policyholders, claimants, beneficiaries, creditors, or the public may
require. . . .” The
rehabilitation order also issued mandatory and prohibitive injunctions,
including the following: “[A]ll other
persons and entities having knowledge of this Order are restrained and enjoined
from bringing or further prosecuting any claim, action or proceeding at law or
in equity or otherwise, whether in this State or elsewhere, against Lumbermens
. . . , or their property or assets, or the Director or
Rehabilitator, except insofar as those claims, actions or proceedings arise in
or are brought in the rehabilitation proceedings prayed for herein; or from
obtaining . . . judgments . . . against Lumbermens
. . . .”

In
July 2012, Lumbermens filed a motion to stay or dismiss the entire action in
light of the above rehabilitation order.
Lumbermens argued the action should be stayed or dismissed on the
grounds the Illinois court order enjoining proceedings against Lumbermens is
enforceable in the California Superior Court under the UILA. Subsequently, the trial court denied the
motion, ruling the Illinois court lacked in personam jurisdiction over Marin
Cleaners and California’s UILA statutes did not preclude Marin Cleaners’ in
personam action for breach-of-contract damages against Lumbermens.

II. Discussion

California’s
version of the UILAhref="#_ftn3" name="_ftnref3"
title="">[3] governs proceedings
against any insurer subject to a “delinquency proceeding” in a “reciprocal
state.” (See § 1064.1, subds. (b) &
(f).) Here, the proceedings involving Lumbermens
are subject to the UILA because Illinois is a reciprocal state. (See “Table of Jurisdictions Wherein Act Has
Been Adopted,” 42A West’s Ann. Ins. Code (2005 ed.) preceding § 1064.1, p.
347.) Where the UILA applies, the
Legislature has deemed it “shall be so interpreted and construed as to
effectuate its general purpose to make uniform the law of those states that
enact it.” (§ 1064.12,
subd. (b).) Moreover, where the
UILA’s provisions conflict with other sections of the Insurance Code, the UILA
controls. (§ 1064.12, subd. (b).)>

In
pertinent part, the UILA provides, “Controverted
claims belonging to claimants residing in this state may >either (1) be proved in the domiciliary
state as provided by the laws of that state, or (2), if ancillary
proceedings have been commenced in this state, be proved in those
proceedings. In the event that any such
claimant elects to prove his or her claim in this state, he or she shall file
his or her claim with the ancillary receiver in the manner provided by the law
of this state for the proving of claims against insurers domiciled in this state,
and he or she shall give notice in writing to the receiver in the domiciliary
state, either by registered mail or by personal service at least 40 days prior
to the date set for hearing. The notice
shall contain a concise statement of the amount of the claim, the facts on
which the claim is based, and the priorities asserted, if any. If the domiciliary receiver, within 30 days
after the giving of notice, shall give notice in writing to the ancillary
receiver and to the claimant, either by registered mail or by personal service,
of his or her intention to contest that claim, he or she shall be entitled to
appear or to be represented in any proceeding in this state involving the
adjudication of the claim. The final
allowance of the claim by the courts of this state shall be accepted as
conclusive as to its amount, and shall also be accepted as conclusive as to its
priority, if any, against special deposits or other security located within
this state.” (§ 1064.5,
subd. (b), italics added.)

Because
no ancillary delinquency proceedings have been commenced against Lumbermens in
California, Lumbermens contends Marin Cleaners’ remedy under section 1064.5 is
to file and prove its claims in the rehabilitation action in Illinois, and
therefore, the California action should be stayed or dismissed. Lumbermens’ contention accords with a plain
reading of the statute and is also consistent with out-of-state cases that
interpret the UILA to require claimants to file claims against an insolvent
insurer in the state where delinquency proceedings are initiated unless an
ancillary receiver has been appointed in their state. (See Rose
v. Fidelity Mut. Life Ins. Co. (E.D.N.Y. 2002) 207 F.Supp.2d 50, 53 [where
no ancillary receiver was appointed in New York, the UILA requires New York
residents to file claims with domiciliary receiver in Pennsylvania rehabilitation proceeding]; Integrity Ins. Co. v. Martin (Nev. 1989) 769 P.2d 69, 70 [absent
appointment of an ancillary receiver in Nevada, the UILA requires “claimant
prove his claim in the domiciliary state”]; G.
C. Murphy Co. v. Reserve Ins. Co. (N.Y. 1981) 429 N.E.2d 111, 115 (>Murphy) [“in the absence of an ancillary
receiver in New York, [plaintiff] must pursue its claim against the liquidator
in Illinois”].)

Marin
Cleaners acknowledges the UILA precludes any action against a delinquent
insurer in the nature of an attachment, garnishment or execution. (See § 1064.9 [“During the pendency of
delinquency proceedings in this or any
reciprocal state, no action or proceeding in the nature of an attachment,
garnishment, or execution shall be commenced or maintained in the courts of
this state against the delinquent insurer or its
assets. . . .”] (Italics
added.).) However, Marin Cleaners
asserts the UILA does not preclude its in personam, breach-of-contract action
because it is not an attachment, garnishment, or execution against Lumbermens’
assets.

Marin
Cleaners relies on two cases from the federal courts, Hawthorne Savings v. Reliance Ins. Co. (9th Cir. 2005) 421 F.3d 835> (Hawthorne)
and Wallis v. Centennial Ins. Co.
(E.D.Cal. Jan. 31, 2012, CIV. 08-02558 WBS GGH) 2012 U.S. Dist. LEXIS
11655 (Wallis). The Hawthorne
court addressed the issue of whether “[u]nder California law, . . .
California state courts must defer to rehabilitation and liquidation
proceedings commenced in Pennsylvania” in plaintiff’s contract action against
insurer. (Hawthorne, at p. 852.)
Noting an absence of California precedent, the court adopted the
principle enunciated in Hoiness-LaBar
Ins. Co. v. Julien Const. Co. (Wyo. 1987) 743 P.2d 1262 and >Fuhrman v. United America Insurors
(Minn. 1978) 269 N.W.2d 842—“reciprocity does not apply to the determination of
in personam legal rights, as opposed to the enforcement of any resulting
judgment against the estate of an insolvent company in state court
proceedings,” since “an action in personam to establish the extent of an
insolvent’s liability on a claim is held not to interfere with the receivership
res.” (Hawthorne, at pp. 854–855.)

Moreover,
the Hawthorne court opined that
“[t]he text of the UILA manifests this principle” and distinguishes between in
personam actions against the insurer and those directed against the
receivership res. (Hawthorne, supra, 421 F.3d at p. 855.) On this point, the court focused on section
1064.9, reasoning that because the section precludes only actions or
proceedings “in the nature of an
attachment, garnishment, or execution” against the delinquent insurer or
its assets in California courts, it permits
any other type of action or proceeding.
(Hawthorne, at p. 855, italics
added.) On that basis, the >Hawthorne court concluded “a California
state court would not stay its proceedings but would decide the merits of this
dispute, as did the district court.” (>Id. at p. 856.)

However,
in making that determination, Hawthorne
looked only to that portion of the UILA prohibiting a garnishment, attachment
or execution under section 1064.9. For
reasons unexplained in the opinion, Hawthorne
failed to discuss section 1064.5, which, as noted above, specifically
governs controverted claims belonging to claimants residing in this state and
provides only two options for such claims—either prove the claim in Illinois or
prove it in California, if ancillary
proceedings have been commenced in this state. Because Hawthorne
ignored section 1064.5, it does not advance Marin Cleaners’ cause.

Marin
Cleaners fares no better in its reliance on Wallis. In Wallis,
the federal district court addressed an insurer’s motion to stay an action on
account of liquidation proceedings in New York.
The Wallis court rejected the
insurer’s argument that pursuant to section 1064.5 California residents must
file claims against a delinquent New York insurer in New York if no ancillary
proceedings had been commenced in California.
Rather, the Wallis court
reasoned section 1064.5 is a permissive statute that allows claimants to file
their claims with the receiver and section 1064.9 is a mandatory statute that
limits the type of actions that can be filed in court against a delinquent
insurer. (Wallis, supra, 2012 U.S. Dist. LEXIS 11655 at pp. *8–*9.) Thus,
according to the Wallis court,
“Section 1064.5 . . . qualifies as an alternative remedy to claimants
who would prefer to not pursue their in personam action in court or who are
barred from pursuing their in rem action in court pursuant to section
1064.9.” While “the law . . .
requires that in rem claims be filed with the appropriate receiver,
. . . in personam actions may either proceed in court or be filed
with the receiver.” (>Wallis, at p. *10.)

The
Wallis court’s interpretation does
not accord with the purpose of section 1064.5 or with the intent of the UILA as
a whole. Section 1064.5 addresses the
filing and proving of claims by residents of this state against delinquent
insurers domiciled in reciprocal states. Specifically, section 1064.5 states residents
may file their claims “either with the ancillary receiver, if any, appointed in
this state, or with the domiciliary receiver.”
(§ 1064.5, subd. (a).) Also,
residents may prove any controverted claims in the domiciliary state or in
ancillary proceedings in California, if ancillary proceedings have been
commenced. (See § 1064.5, subd.
(b).) Accordingly, section 1064.5
governs all claims by California
residents against a delinquent insurer domiciled in a reciprocal state, both
controverted and uncontroverted; its sweep is comprehensive and permits no
exception for an “in personam
action,” as asserted by Marin Cleaners.

Furthermore,
the public policy behind the UILA favors issuance of the writ. As the New York Court of Appeals explained,
“By enacting the Uniform Insurers Liquidation Act, our Legislature has
determined that such occasional instances of adversity [to state residents] are
outweighed by the paramount interest of the various States in seeing that
insurance companies domiciled within their respective boundaries are liquidated
in a uniform, orderly and equitable manner without interference from external
tribunals.” (Murphy, supra, 429 N.E.2d at p. 117.)

For
these reasons, we grant the writ relief requested by Lumbermens.

III.
Disposition

In
accordance with our prior notification to the parties that we might do so, we
will direct issuance of a peremptory writ in the first instance. (Palma
v. U.S. Industrial Fasteners, Inc. (1984) 36 Cal.3d 171, 177–180.) Petitioner’s right to relief is obvious, and
no useful purpose would be served by issuance of an alternative writ, or by
further briefing and oral argument. (>Ng v. Superior Court (1992) 4 Cal.4th
29, 35; see also Lewis v. Superior Court
(1999) 19 Cal.4th 1232, 1236–1237, 1240–1241; Brown, Winfield & Canzoneri, Inc. v. Superior Court (2010) 47
Cal.4th 1233, 1240–1244.)

Let
a peremptory writ of mandate issue commanding respondent the Superior Court of
Marin County, in its case No. CIV 1105680, to vacate the order of October 10,
2012, denying petitioner’s motion to dismiss or stay the action and, in the
exercise of its discretion, to issue a new and different order either staying
or dismissing the action. Petitioner is
entitled to costs incurred in these writ proceedings. (See Cal. Rules of Court, rule
8.493(a)(1).) Our decision is final in
this court immediately. (Cal. Rules of
Court, rule 8.490(b)(3).)