Opinion
B159769.
7-17-2003
JOHN GARAMENDI, as Insurance Commissioner, etc., Plaintiff and Respondent, v. MISSION INSURANCE COMPANY, Defendant; GREEN VALLEY DISPOSAL COMPANY, Claimant and Appellant.
Willoughby, Stuart & Bening, Bradley A. Bening and Bruce D. MacLeod for Claimant and Appellant. Wisener Nunnally and Robert H. Nunnally, Jr., for Plaintiff and Respondent. No appearance for Defendant.
After appellant Green Valley Disposal Company filed a claim as an insured of the Mission Insurance Company (Mission), then in liquidation, respondent John Garamendi, Insurance Commissioner of the State of California (Commissioner), acting as liquidator, rejected the claim as untimely. The trial court subsequently rejected appellants application for an order to show cause why its claim should not be allowed. We affirm.
FACTUAL AND PROCEDURAL BACKGROUND
On February 24, 1987, the superior court granted the Commissioners application to liquidate Mission, and directed the Commissioner to act as liquidator.
A. Appellants Application For an Order to Show Cause
On October 25, 2001, appellant applied for an order to show cause why its claim against Mission should not be allowed under Insurance Code section 1032. Appellant contended that the Commissioner had deemed the claim at issue to be timely before rejecting it as untimely. In addition, appellant argued that it had complied with all filing requirements of which it had been given notice.
Appellant submitted evidence supporting the following version of the underlying events. In May 1983, a truck owned and operated by appellant collided with a car occupied by several teenagers, including Richard Long. The accident seriously injured Long, who sued appellant. In 1986, Mission, which was one of appellants insurers, participated in a structured settlement of Longs action against appellant. This settlement involved an annuity provided by Executive Life Insurance Company (ELIC).
ELIC subsequently became insolvent, and the annuity that ELIC had provided for the Long settlement was restructured so that it paid only 60 percent of its original benefits. Long initiated an action in 1994 against appellant, seeking to recover this shortfall in benefits. In July 1996, the superior court in that action granted summary judgment in Longs favor, concluding that appellant was liable for the shortfall because Mission had not obtained a written guaranty from ELIC concerning the annuity benefits. Appellant subsequently challenged this ruling by an appeal.
In November 1996, Karen Marcus, who represented appellant in Longs action to recover the shortfall in annuity benefits, received a package of documents from the Commissioner, including notices regarding amendments to the final liquidation dividend plan for Mission, and a form entitled "Late Filed Proof of Claim." According to a declaration from Marcus, the documents in the package did not specify any requirements for the timely filing of claims that were contingent or unliquidated.
In December 1996, appellant filed a claim with the Commissioner regarding Longs action to recover the shortfall in annuity benefits. The claim described the amount at issue as "contingent/undetermined."
In January 1997, the Commissioner issued a notice to appellant indicating that this claim had been "deemed to be timely filed." The Commissioner subsequently rejected the claim. On August 17, 1998, the Commissioner withdrew this rejection and restored the claim to the status of neither approved nor rejected.
Appellants appeal in Longs action regarding the annuity shortfall was unsuccessful, and in May 1999, appellant filed an amended claim with the Commissioner, indicating that its liability to Long was estimated to be $ 424,684. On October 9, 2001, the Commissioner disallowed the claim in full, citing two grounds for this decision. First, appellant never filed any claim regarding Long by September 12, 1987, the deadline for filing proofs of claims against Mission, even though appellant apparently knew of the claim before that date. Second, appellant had filed a claim for an unliquidated or undetermined amount after August 18, 1995, the date for converting all such claims to claims for determinate amounts, as required by the amended final liquidation dividend plan for Mission.
B. Opposition
The Commissioner challenged appellants showing regarding the sequence of events described above (see pt. A., ante), contending that it was incomplete and inaccurate in two areas.
First, the Commissioner argued that appellant knew of Missions liquidation and the initial claims bar date of September 12, 1987, before this date had passed. The Commissioner pointed to six proofs of claims that appellant had submitted against Mission before the initial claims bar date on matters not involving Long. Each proof of claim identified the Commissioner as the liquidator for Mission, stated the bar date, and described a claim for a contingent and undetermined amount. One proof of claim was signed by an attorney for appellant, and the remaining proofs of claim were unsigned. According to the Commissioner, the claims were rejected for a variety of reasons, none of which was challenged by appellant.
Second, the Commissioner submitted evidence that a notice of the amended final liquidation dividend plan was mailed to appellant in January 1995. This notice stated that all contingent and unliquidated claims filed prior to the initial claims bar date were required to be converted to claims for determinate amounts before August 18, 1995.
C. Reply
In reply, appellant did not dispute that it had submitted the six proofs of claim prior to the initial claims bar date. It conceded that at least four of these proofs of claim had been submitted with the help of the insurance brokerage firm of McMurtry & Bell, which appellant had hired to assist with claims against it.
Instead, appellant contended that the Commissioner had not given appellant notice of the initial claims bar date of September 12, 1987 by first-class mail, as required by section 1063.7, and thus the Commissioner was estopped from applying this bar date to appellants claim under Middleton v. Imperial Ins. Co. (1983) 34 Cal.3d 134, 193 Cal. Rptr. 144, 666 P.2d 1 (Middleton). In support of this contention, appellant submitted evidence that neither it nor McMurtry & Bell ever received statutory notice of the initial claims bar date and related matters. Furthermore, appellant argued that its claim was not subject to the bar date of August 18, 1995, which was applicable only to claims for contingent and unliquidated amounts filed before the initial claims bar date.
D. Hearing and Ruling
At the hearing on the order to show case on April 26, 2002, the trial court heard oral argument on two issues. First, appellants counsel contended that McMurtry & Bell knew of Missions liquidation only because it had handled "a lot of . . . claims" regarding Mission as an insurance brokerage firm. Appellants counsel thus argued that there was no evidence that appellant had any knowledge of these matters, given that it never received the statutory notice under section 1063.7. On this issue, the trial court indicated that McMurtry & Bells knowledge was properly imputed to appellant as McMurtry & Bells principal.
Second, appellants counsel contended that even if appellant and McMurtry & Bell knew of the liquidation and initial claims bar date, the Commissioners failure to comply with section 1063.7 nonetheless worked an estoppel under Middleton. On this matter, the trial court observed: "Well, Middleton basically says, look, when the liquidator screws up and doesnt give notice, we are going to allow an out because they messed up. . . . Here, it is not clear whether notice has been given or not with the exception that there is certainly evidence of constructive notice that they must have known. . . ."
The trial court rejected appellants second contention, stating: "The Insurance Code in this area is very strict. It sets forth certain parameters that must be followed by both liquidator and the claimants in order to recover. There is one exception. The exception is the Middleton case which allows for an estoppel argument to be made quite justifiably where the liquidator fails to give statutory notice. This is really not truly a Middleton situation . . . . Notice really is not an issue. It appears that the evidence is clear that [appellant] had constructive notice of that claim. That being the case, I dont believe that the Middleton argument of estoppel applies. I am going to deny the petition."
The pertinent minute order states: "Application is denied. It appears that the evidence is clear that [appellant] had constructive notice of claim. This is not a Middleton situation." This appeal followed.
DISCUSSION
Appellant contends that the trial court erred in determining that its claim was untimely. We disagree.
A. Statutory Scheme
The statutory scheme governing this contention is found in section 1010 et seq. "Section 1011 provides that the superior court in the home county of an insurance company shall order the Commissioner to take title as conservator to the assets of the company under enumerated circumstances, including the circumstance that the company is in such a condition that the further transaction of its business would be hazardous to its policyholders, creditors or the public." (Garamendi v. Executive Life Ins. Co. (1993) 17 Cal.App.4th 504, 513-514.) Section 1016 provides that when the Commissioner determines it would be futile to proceed as a conservator for an insurance company, the superior court may order the Commissioner to liquidate the company.
Pertinent to appellants contention are the provisions concerning timely claims against the assets of an insurance company to be liquidated. In 1987, when the liquidation of Mission was ordered, subdivision (a) of section 1021 required the insurance commissioner to publish notice to the companys "policyholders, creditors, shareholders, and all other persons interested in its assets" that they must file a proof of claim "within six months after the date of first publication of such notice . . . ." Section 1024 further provides that "unless such claim is filed in the manner and within the time provided in section 1021, it shall not be entitled to filing or allowance, and no action may be maintained thereon."
The statutory scheme contains two provisions regarding the adequacy of notice. First, section 1022 states in pertinent part: "Such notice shall be published in a newspaper of general circulation, published in the county in which the proceeding is pending . . . . A copy of the notice, accompanied by an affidavit of due publication, including a statement of the date of first publication, shall be filed with the clerk of the court." Second, section 1063.7 states that when a liquidator is appointed, "the liquidator shall promptly give notice of his or her appointment" and related matters by first-class mail to enumerated classes of individuals, including "all persons known or reasonably expected to have or be interested in claims against the insurer," and "all insureds of the insurer . . . ."
As our Supreme Court explained in Middleton, the second notice provision stems from the role played by the California Insurance Guarantee Association (CIGA) in insolvency proceedings. (Middleton, supra, 34 Cal.3d at pp. 136-137.) "CIGA was created by statute in 1969 as a compulsory insolvency insurer. [Citations.] Most state-regulated insurance companies are required to be members of CIGA. [Citation.] Its purpose is to provide insurance against loss arising from the failure of an insolvent insurer to discharge its obligations under its insurance policies. . . . [P] . . . [P] The statutes governing liquidation proceedings require only published notice ( § 1021 et seq.), but the CIGA legislation ( § 1063 et seq.) requires the liquidator . . . to give notice by prepaid first class mail . . . . ( § 1063.7.) In addition to providing information about the liquidation, the written notice must provide a brief description of the nature and function of CIGA." (Middleton, at p. 137.)
B. Section 1063.7
Here, there is no dispute that the Commissioner gave proper notice by publication under section 1022, and appellants key contention thus concerns the adequacy of notice under section 1063.7. On this matter, appellant argues that (1) the Commissioner did not give the requisite notice under section 1063.7, and (2) this failure cannot be cured by "constructive notice," that is, appellants possession of the information that the Commissioner was obliged to supply under section 1063.7.
Although no court has squarely confronted the issues presented here, we find guidance in Middleton, the leading case on section 1063.7. In Middleton, two doctors had malpractice insurance with an insurer until January 1, 1973. (Middleton, supra, 34 Cal.3d at p. 136.) Their policies had "a long tail," that is, they covered occurrences within the policy period, regardless of when a claim was made. (Ibid .) Their insurer became insolvent after the end of their policy period, and in 1978, the Commissioner was authorized to act as liquidator. (Ibid.) Notices under section 1063.7 were sent to insureds whose policies were issued in 1974 and afterwards, but not to the doctors. (Middleton, at p. 136.) Two years after the claims bar date, the doctors filed proofs of claim based on occurrences within their policy period. (Ibid.) The Commissioner rejected these claims as untimely. (Ibid.)
Our Supreme Court concluded that because the doctors were entitled to notice by mail, the Commissioner was estopped from rejecting their claims. (Mddleton, supra, 34 Cal.3d at p. 137.) In support of this conclusion, the court in Middleton cited several cases, including Driscoll v. City of Los Angeles (1967) 67 Cal.2d 297, 61 Cal. Rptr. 661, 431 P.2d 245.
In Driscoll, the court observed that "the doctrine of equitable estoppel may be applied against the government where justice and right require it. [Citations.]" (Driscoll v. City of Los Angeles, supra, 67 Cal.2d at p. 306.) The Driscoll court further stated: "Generally speaking, four elements must be present in order to apply the doctrine of equitable estoppel: (1) the party to be estopped must be apprised of the facts; (2) he must intend that his conduct shall be acted upon, or must so act that the party asserting the estoppel had a right to believe it was so intended; (3) the other party must be ignorant of the true state of facts; and (4) he must rely upon the conduct to his injury. [Citations.] The existence of an estoppel is generally a question of fact for the trial court whose determination is conclusive on appeal unless the opposite conclusion is the only one that can be reasonably drawn from the evidence. [Citation.]" (Id. at p. 305.)
Here, the trial court declined to find an estoppel, reasoning that even if the Commissioner did not give proper notice under section 1063.7, McMurtry & Bell knew all the information supplied by any such notice, and this knowledge was properly imputed to appellant. Generally, "in order for estoppel principles to apply, the party invoking estoppel . . . must be ignorant of the true facts. [Citation.]" (Friedman v. Friedman (1993) 20 Cal.App.4th 876, 885.) Furthermore, a principal is properly charged with knowledge that its agent "has notice of, and ought, in good faith and the exercise of ordinary care and diligence, to communicate to the other." (Civ. Code, § 2332 ; 2 Witkin, Summary of Cal. Law (9th ed. 1987) Agency and Employment, § 99, pp. 97-98.)
In view of these principles, the trial courts determination is amply supported by the record. Notwithstanding any defect in statutory notice, appellant was aware of Missions liquidation through its insurance broker, which submitted several claims on appellants behalf prior to the initial claims bar date. Accordingly, there was no ignorance of the facts or detrimental reliance, two elements essential to equitable estoppel. (Cal. Cigarette Concessions v. City of L. A. (1960) 53 Cal.2d 865, 871, 3 Cal. Rptr. 675, 350 P.2d 715.)
Citing Bunner v. Imperial Ins. Co. (1986) 181 Cal. App. 3d 14, 225 Cal. Rptr. 912 (Bunner), appellant disagrees, arguing that section 1063.7 mandates actual compliance with its notice requirements. The crux of appellants contention is that the phrase "the liquidator shall promptly give notice" in section 1063.7 must be understood as mandatory, rather than directory, in nature.
"As a general rule, . . . a "directory" or "mandatory" designation . . . denotes whether the failure to comply with a particular procedural step will or will not have the effect of invalidating the governmental action to which the procedural requirement relates. [Citation.] If the action is invalidated, the requirement will be termed mandatory. If not, it is directory only." (California Correctional Peace Officers Assn. v. State Personnel Bd. (1995) 10 Cal.4th 1133, 1145, 899 P.2d 79, quoting Morris v. County of Marin (1977) 18 Cal.3d 901, 908, 136 Cal. Rptr. 251, 559 P.2d 606.)
"There is no mechanical test for determining whether a provision should be given mandatory or directory effect. (Morris v. County of Marin, supra, 18 Cal.3d at p. 909.) Rather, "in order to determine whether a particular statutory provision . . . is mandatory or directory, the court, as in all cases of statutory construction and interpretation, must ascertain the legislative intent. In the absence of express language, the intent must be gathered from the terms of the statute construed as a whole, from the nature and character of the act to be done, and from the consequences which would follow the doing or failure to do the particular act at the required time. [Citation.] When the object is to subserve some public purpose, the provision may be held directory or mandatory as will best accomplish that purpose [citation]. . . ." (Id . at p. 910, quoting Pulcifer v. County of Alameda (1946) 29 Cal.2d 258, 262, 175 P.2d 1 . . ., fn. omitted, italics added.)" (In re Lamonica H. (1990) 220 Cal. App. 3d 634, 642, 270 Cal. Rptr. 60.)
As the court indicated in Middleton (34 Cal.3d at pp. 136-137), the intent of notice requirement in section 1063.7 is to apprise insureds and other interested persons of the insurers liquidation, the claims bar date, and the role of CIGA. When, as here, the insured has this information independently of the section 1063.7 notice and makes use of it prior to the claims bar date, it makes little sense to set aside the bar date due to defects in the section 1063.7 notice. We therefore conclude that the notice requirements in section 1063.7 are directory, rather than mandatory.
Bunner is factually distinguishable. In Bunner, a doctor obtained medical malpractice coverage from an insurer that became insolvent. (Bunner, supra, 181 Cal. App. 3d at pp. 17-18.) After the Commissioner was appointed liquidator, notice of the claims bar date was published and sent by mail to the doctor, albeit to an incorrect address. (Id . at p. 18.) The doctor did not receive the notice by mail, and he submitted a claim after the claims bar date, which the Commissioner rejected as untimely. (Id. at pp. 18-19.) The court in Bunner concluded that the doctor was properly permitted to file a late claim because he was entitled by statute to notice by mail, and his correct address was readily ascertainable by the Commissioner. (Id . at p. 23.) By contrast with the doctor in Bunner, appellant was aware of Missions liquidation, the claims bar date, and related matters through McMurtry & Bell, who submitted several proofs of claim on appellants behalf prior to the claims bar date.
In sum, the trial court properly denied appellants application for an order to show cause, notwithstanding any failure by the Commissioner to issue an adequate section 1063.7 notice.
C. Late Discovery of Claim
Finally, appellant contends that the initial bar date is inapplicable because it had no reason to file a proof of claim regarding Long prior to the initial bar date. It argues that the structured settlement concerning Long was arranged in 1986, and it was unaware of deficiencies in this settlement until 1994, when Long sued to recover the shortfall in the settlement. Citing the Legislatures intent in creating CIGA, namely, "to provide insurance against loss arising from the failure of an insolvent insurer to discharge its obligations" (Middleton, supra, 34 Cal.3d at p. 137), appellant contends that the initial bar date should be set aside under the circumstances of this case.
We are not persuaded. Legislative intent is determined in the first instance by the language of the statute in question. (City of Sacramento v. Public Employees Retirement System (1994) 22 Cal.App.4th 786, 793-795.) Here, section 1024 precludes the filing of a claim not made "within the time provided in section 1021," which fixes the initial bar date by reference to notices issued by the Commissioner. Sections 1021 and 1024 thus bar untimely claims unless there is an estoppel due to defects in statutory notice or "some action by the Commissioner which induces the claimant to delay filing a claim . . . ." (Abraugh v. Gillespie (1988) 203 Cal. App. 3d 462, 467, 468, 250 Cal. Rptr. 21.)
As we have explained (see pt. B, ante), there is no material defect in notice. Moreover, nothing suggests conduct by the Commissioner that prevented appellant from submitting a claim (albeit for an uncontingent and indeterminate amount) regarding Long prior to the initial claims bar date, as appellant did regarding other matters.
DISPOSITION
The order is affirmed.
We concur: VOGEL (C.S.), P.J. and HASTINGS, J. --------------- Notes: All further statutory citations are to the Insurance Code, unless otherwise indicated. Section 1032 provides: "When a claim is rejected by the commissioner, written notice of rejection shall be given by mail, addressed to the claimant at the address set forth in his claim. Within 30 days after the mailing of the notice the claimant may apply to the court in which the liquidation proceeding is pending for an order to show cause why the claim should not be allowed."