MIDDLETON v. INSURANCE COMMISSIONER OF STATE OF CALIFORNIA (1982)

NATURE OF APPEAL:

Appeal from an order of the superior court denying appellants' petition to file claims beyond the statutory time with the California Insurance Commissioner as liquidator of an insolvent insurance company and with the California Insurance Guarantee Association.

OUR HOLDING:

There is no statutory or other authority for allowing the filing of a late claim as appellants seek and we affirm the judgment of the trial court.

FACTUAL BACKGROUND:

Appellants, medical doctors, had been insured by Imperial Insurance Co. (Imperial) for malpractice liability.   Imperial became insolvent and in accordance with Insurance Code sections 1010 et seq. the State Insurance Commissioner (Commissioner) was appointed liquidator of its assets.   He published notice of that and the statutory requirement that claims be filed within six months.  (Ins.Code, § 1021.)   Commissioner also sent written notice to Imperial policyholders, including those whose policies had terminated as far back as four years prior thereto.   Appellants were not in the latter category, their policy having expired more than four years prior to the notice.

Two years after the time to file claims expired, a malpractice claim was made against appellants and they in turn made claim against Commissioner and California Insurance Guarantee Association (CIGA).   The Commissioner did not accept, and CIGA rejected, the claim.   Appellants petitioned the superior court for an order that they be permitted to file the claims.   The petition was denied.   The following chronological chart helps illustrate the relation of the events:

DISCUSSION:

The chronology immediately discloses that three of appellants' contentions are without merit.   These contentions are that the Insurance Commissioner as liquidator, by not giving actual written notice to persons insured by Imperial other than persons insured in 1974 and thereafter, (1) contravened Insurance Code sections 1021 and 1063.7 and thus denied appellants opportunity to timely file a claim;  (2) denied them due process of law and;  (3) denied them the equal protection of law.

 Even if the Commissioner had given notice, the malpractice claim, for which appellants seek to file claim against Commissioner by reason of and under their insurance with Imperial, was not known nor made against appellants until nearly two years after the time to file claims had expired.   Thus, even if appellants had been given notice, they would not have filed on this claim because it did not exist, nor was there any potential or undetermined claim based thereon known of by appellants.   Logically and realistically, therefore, the reason for appellants' not filing the present claim under Insurance Code sections 1021 et seq. was not any failure of the Commissioner to give appellants notice.   The incongruity, irrelevance and specious nature of the entire ‘failure-to-file-this-claim-because-of-lack-of-notice” argument is self-evident.   Consequently, the only remaining issue is the primary one:  whether the superior court has jurisdiction to allow the filing of a claim which arises long after the statutory period for filing all claims has expired and where there is no statutory provision therefor.   It is established that the superior court has neither inherent nor statutory power to allow this filing as appellants claim.   The statute is specific.

The liquidation of an insurance company following the insurer's insolvency or delinquency is governed by the provisions of Insurance Code section 1010 et seq.   Under the statutory process title in all the insurer's assets is vested in the Insurance Commissioner for the purpose of winding up the business of the insolvent company.   The date of entry of the court's order of liquidation fixes the rights and liabilities of the insurer, its creditors, policyholders, members and others interested in the estate.   The Commissioner as liquidator assumes exclusive authority to manage the insolvent's affairs, acting as a trustee with the powers of a statutory receiver.  (Caminetti v. Guaranty Union Life Ins. Co. (1943) 22 Cal.2d 759, 141 P.2d 423.)

Insurance Code section 1021, subdivision (a) provides:  ‘Upon the making of an order to liquidate the business of [an insolvent insurer] the Commissioner shall cause to be published notice to its policyholders, creditors, shareholders, and all other persons interested in its assets.   Such notice shall require claimants to file their claims with the commissioner, together with proper proofs thereof, within six months after the date of first publication of such notice, in the manner specified in this article.”   Additionally, Insurance Code section 1024 provides:  “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.”

These same sections and the same contentions presented in the case at bench were considered in Kinder v. Pacific Public Carriers Co-op, Inc. (1980) 105 Cal.App.3d 657, 164 Cal.Rptr. 567.   There the court said:  ‘Far from providing for the late filing of claims, section 1024 of the Insurance Code does just the opposite and in mandatory language states that a late filed claim ‘shall not be entitled to filing or allowance.’ ”  (Id. at p. 663, 164 Cal.Rptr. 567.)   The court in Kinder, cited with approval Carpenter v. Eureka Casualty Co. (1936) 14 Cal.App.2d 533, 58 P.2d 682, in which that court construed a predecessor to sections 1021 and 1024, wherein the court stated ‘․ when the legislature has, by statute, prescribed the mode and manner in which a right may be exercised, the courts are without authority to make a change․”  The Kinder court also observed that when a statute does not create an exception, there shall be none.  (Kinder, supra, 105 Cal.App.3d at p. 661, 164 Cal.Rptr. 567.)

Analogy may be made to a probate proceeding.   In Nathanson v. Superior Court (1974) 12 Cal.3d 355, 115 Cal.Rptr. 783, 525 P.2d 687, petitioners sought to compel the trial court's acceptance of a late probate claim.   The State Supreme Court there said:  “․ the executor or administrator occupies a fiduciary relationship in respect to all parties having an interest in the estate ․  It is the clear duty of the executor or administrator, as well as of the probate judge, to protect the estate against the collection of a claim which if not filed or presented as required by statute ‘is barred forever’ ․  [¶] Secondly, the statutory period for filing or presenting creditor's claims is designed to promote a speedy and amicable distribution of the assets of the estate while allowing the executor or administrator to keep them intact for the beneficiaries to the extent permitted by law․  (Id. at pp. 364–365, 115 Cal.Rptr. 783, 525 P.2d 687.)  [¶] In summary when a creditor's claim has been filed or presented within the statutory period, the probate court has the jurisdiction and power under proper circumstances to permit its amendment after the expiration of such period.   But there must be a timely claim in the first place․”  (Id. at p. 366, 115 Cal.Rptr. 783, 525 P.2d 687.)   The court further stated:  “[T]he probate court lacked any authority to permit a claim to be filed after the statutory period had run.”   (Ibid., emphasis added.)   The filing exceptions which have been permitted in the probate claims system have been made legislatively (e.g. Probate Code, § 721;  see Romo v. Estate of Bennett (1979) 97 Cal.App.3d 304, 308, fn. 2, 158 Cal.Rptr. 635).

The applicability of this analogy was recognized at bench by superior court judges Weil and Foster.   In the words of the latter:  “Equivalent considerations exist in liquidating the estate of an insolvent insurer.   Normally, the estate of the insurer is extensive and the claimants numerous.   Inclusion of additional claimants after the six-months cut-off period prolongs the period during which the estate must be kept undistributed, so that all other claimants must suffer delay in realizing distributions.   Although it might be thought simplistically that the claims under consideration here create no such burden since, presumably, they will be satisfied by CIGA if proved, such idea overlooks the fact that CIGA is entitled to participate in the assets of the insolvent insurer to the extent of payment and expense of claims, so that the impact of present claims will ultimately be felt in the liquidation proceeding.”

On the other hand, claim filing requirements under the Government Tort Claims Act cited by appellants are not analogous to those in an insurer insolvency proceeding.   Again, the court in Kinder v. Pacific Public Carriers Co-op, Inc., supra, 105 Cal.App.3d 657, 164 Cal.Rptr. 567 specifically rejected the attempted analogy to the government claims filing system.   As it stated:  “Furthermore, appellant's cited cases involved the tort claims law in which provisions are made for late filing of claims under certain circumstances.   (Gov.Code, §§ 911.2 and 911.4.)   In direct contrast, the insurance liquidation laws make no provision for the late filing of claims.   Far from providing for the late filing of claims, section 1024 of the Insurance Code does just the opposite and in mandatory language states that a late filed claim ‘shall not be entitled to filing or allowance.’ ”  (Id. at p. 663, 164 Cal.Rptr. 567.)

 Appellants urge that equitable considerations require the court to exercise its inherent power and permit late filing.   The statutory scheme precludes the exercise of any such alleged “inherent judicial power” to allow a late claim filing.   The term “inherent judicial power” describes the concept that a court possesses some powers independent of any statutory provision therefor.  (1 Witkin, Cal. Procedure (2d ed. 1971) Courts, § 116, p. 385.)   “The inherent powers of a court do not increase its jurisdiction;  they are limited to such powers as are essential to the existence of the court and necessary to the orderly and efficient exercise of its jurisdiction.”  (20 Am.Jur.2d., Courts, § 78.)

 The inherent power of a court to conduct its proceedings is not a legislative power in competition with conflicting statute, but a power to implement and exercise the jurisdiction conferred upon the court.  (Union etc. Co. v. Superior Court (1906) 149 Cal. 790, 87 P. 1035.)   Where a statute directs that jurisdiction be exercised in a prescribed manner, or that a particular procedure be followed, or that a procedure be subject to certain limitations, the court's act beyond these limits is in excess of its jurisdiction.  (Denham v. Martina (1962) 206 Cal.App.2d 30, 23 Cal.Rptr. 757.)

The issue of the trial court's ability to use its inherent judicial power to permit a late filing was also, and in our view correctly, decided by Kinder v. Pacific Public Carriers Co-op, Inc., supra, 105 Cal.App.3d 657, 164 Cal.Rptr. 567 which is dispositive of the case at bench.   As the Kinder court stated at pages 663–664:  “We disagree with appellant's argument that, pursuant to section 1032 of the Insurance Code, the trial court has inherent judicial power to permit the filing of a late claim․  “[S]ince the language of section 1024 of the Insurance Code is clearly mandatory, the court has no power to use its discretion to allow for a late claim.”

Alternatively, appellants contend that the statutory power of the court to permit late filing can be devined from an interpretation of the statutes applicable to claims made by CIGA.   Appellants first observe that Insurance Code section 1021, subdivision (b) provides:  “The six-month period specified in subdivision (a) shall not apply to the California Insurance Guarantee Association provided it files with the commissioner a notice of possible claim within such six-month period and files actual claim or claims within such periods of time as may be permitted by order of court.”   Appellants next observe that the statutes also allow a person to assign his claim to CIGA and the commissioner may allow CIGA to file one claim combining all such assigned claims.  (Ins.Code, § 1025.5.)   As discussed below, these provisions (relating to claims to CIGA) are contained in a subsequently adopted amendment to the Insurance Code and designated Article 14.2.  (Ins.Code, § 1063 et seq.)

Appellants argue that reading the foregoing sections together “the amendments clearly demonstrate a legislative intent to modify the strict effect of 1021, subdivision (a) and allow for the filing of late claims ‘within such periods of time as may be permitted by order of court.’  [¶] The only requirement placed upon the insured is the necessity to ‘elect to proceed’ under Article 14.2 [Insurance Code].  No express limitation is placed, however, upon the time for such election.”   Appellants further contend:  “It appears that only one reasonable interpretation can be obtained from the reading of these sections.   That is, the Legislature sought to provide a method by which the Association could notify the Insurance Commissioner of the ‘possibility’ of future claims (section 1021(b)).   This would be done within six months.   However, thereafter, the Association could file actual ‘claims' within such ‘periods' of time as the court allows.   The plural form of these words indicating a clear intent to allow claims to be filed as they developed.”

Appellants' conclusion that this allows appellants individually to file late is a non sequitur.   This particular procedure of Article 14.2 of the Insurance Code applies only to CIGA in a representative capacity.   Further, CIGA did not accept but in fact rejected appellants' late claim.   CIGA made no claim against the Commissioner on appellants' behalf as one of the possible future claims.   It did not represent appellants.   Nothing in the statutory scheme implies or says that an insured seeking reimbursement through or from CIGA may additionally file an independent late claim.   To the contrary, section 1063.4, subdivision (b) rejects the idea that any person who elects to proceed through CIGA has thereafter a separate individual right to file a claim.   Such person is deemed to have assigned any claim to CIGA.

For the foregoing reasons, the trial court correctly denied the petition to file a late claim with the commissioner as liquidator.   For the same reasons and for additional statutory grounds, the claim against CIGA was correctly rejected.

The purpose of the statutory creation of CIGA was to provide a compulsory system of insolvency insurance to insurance companies.  (Ins.Code, § 1063.)   This 1969 amendment to the Insurance Code (Art. 14.2) §§ 1063 et seq. provides protection additional to that provided by the liquidation provisions of Article 14, sections 1010 et seq.

Insurance Code section 1063.2 states that CIGA “․ shall pay and discharge covered claims․”  This is the statutory basis of the obligation under which appellants seek recourse against CIGA.   However, the statute does not obligate CIGA for all possible liability for which the defunct original insurer would have been or might have been contractually liable.   The statute itself restricts liability of CIGA to “covered claims.”  Insurance Code section 1063.1, subdivision (c)(1) defines covered claims as the “․ obligations of an insolvent insurer, (i) imposed by law and arising out of an insurance policy of the insolvent insurer;  (ii) which were unpaid by the insolvent insurer;  (iii) which are presented as a claim to the liquidator in this state or to the association on or before the last date fixed for the filing of claims in the domiciliary liquidating proceedings;  (iv) which were incurred prior to, on, or within 30 days after the date the liquidator was appointed; ․”

It is beyond dispute that the claim against CIGA involved here fails to meet that part of the definition contained in part (iii) of subdivision (c)(1) of section 1063.1, supra.   Appellants argue that their claim was not presented to the liquidator or filed with CIGA on or before the last date fixed for filing because the liquidator failed to mail notice to appellants personally.   Appellants claim such right to notice under Insurance Code section 1063.7, the pertinent part of which reads:  ‘When a liquidator, domiciliary or ancillary, is appointed in this state for any member insurer, the liquidator shall promptly give notice of his appointment and a brief description of the contents of this article and of the nature and functions of the association by prepaid first-class mail, to:  (a) all persons known or reasonably expected to have or be interested in claims against the insurer, at the last known address within this state;  (b) all insureds of the insurer, at the last known address within this state, accompanied by a notice of the date of termination of insurance; ․”  However, as we noted earlier, even if appellants had received notice from the liquidator under the provisions of section 1063.7, it would have been of no use concerning this claim.   The notice had no proximate relation to the filing of the claim.   Failure to receive any notice was not the cause of the failure of appellants to file this claim with CIGA within the statutory period because the claim simply did not exist during the liquidation.

Appellants' arguments and contentions in support of their effort to make CIGA responsible for their claim are based on (a) recognizing a broader liability of CIGA than the statute allows, namely a liability for all possible claims valid against the now insolvent insurer and whether past, present or future, and (b) an absolute duty by the liquidator to notify all policyholders rather than those “reasonably expected to have or be interested in claims against the insurer,” as now limited by the statute.  (Ins.Code, § 1063.7.)

Accepting appellants' arguments would result in impermissible judicial expansion of the statute designating the persons to be given notice, thereby expanding the scope of CIGA's obligation to honor all claims whenever made—provided simply that the claim would have been good against the original but now insolvent insurer.

 It is not the function of a court to rewrite legislation to conform to ideas of what would have been a better statute in order to avoid hardship in the particular case before it.   Here appellants' claim does not constitute a ‘covered claim” described by the statute.   Liquidator's limiting the mailed notice to holders of policies expiring no earlier than four years previously seems a reasonable exercise of the discretion granted the liquidator by the statute.  (Ins.Code, § 1063.7.)   But even if it was not reasonable, the notice is truly an immaterial factor.   To now decide that if notice had been given to appellants many years before, appellants would have made a claim which would have somehow covered this present claim requires a conjecture that strains credulity.   Appellants then had no cause for making a claim other than to say that they had once (1971 through 1973) been insured by the insolvent.   But the statute does not permit CIGA to accept claims simply because the claimant was once insured by the insolvent.

The statutes relating to liquidation and the establishment of CIGA to provide insolvency insurance do not purport to cover every conceivable loss or claim and provide every claimant a source of payment even if based on honest loss.   The statutory scheme is in the nature of an effort to minimize the extent of loss and to protect insureds within a reasonably definable or describable scope.   The Legislature described this scope in terms of “covered claims” and in turn described “covered claims” as discussed above.   If the Legislature had intended that all persons ever insured by the insolvent were to be covered, it could easily have said so.   Instead, the Legislature used particular definitions significantly omitting expressions such as ‘all prior and presently insureds”, thus clearly evidencing an intention not to attempt to guarantee a perfect system of recovery for all possible claims no matter when or how they arose.

The judgment (order appealed from) is affirmed.

I respectfully dissent.

The issue presented by the instant appeal is a narrow one, and in my view, one that is readily resolved.   The California Insurance Guarantee Association (CIGA) is an entity that acts as an ‘insurer of insurers,” i.e., it provides insolvency insurance to its member insurers.   To this end it is authorized to raise funds that are separate, distinct and additional to, the assets of any individual insolvent carrier.  (See generally Barger, California Insurance Guarantee Association (1970) 45 State Bar J. 475.)   Its primary function is to protect from loss those persons who have active coverage under a policy issued by an insolvent insurance company.¹  (Cf. Reserve Insurance Co. v. Pisciotta (1982) 30 Cal.3d 800, 814, fn. 7, 180 Cal.Rptr. 628, 640 P.2d 764.)

It is undisputed and indisputable that appellants paid Imperial Insurance Company for protection against malpractice claims arising during a policy period, and that Imperial would have honored appellants' present demands were it not for its insolvency.   As a consequence, appellants were entitled to personal notice under the terms of Insurance Code section 1063.7 since they came within both the definition of (1) ‘insureds” (subd. (b)), i.e., persons still covered by a policy of an insolvent insurer, and (2) “persons known or reasonably expected to have or be interested in claims against the insurer.”  (Subd. (a).)

Respondents having voluntarily elected not to give such mandated notice, certainly should not be now heard to speculate that it is possible that even if they had done their duty, appellants might have lacked the good sense to file the customary ‘contingent” or ‘hypothetical” claims that respondents during oral argument conceded would have ensured appellants continuing protection by CIGA.²

We are, of course, not here concerned with any right appellants may have had to share in the assets of their insolvent carrier, Imperial, nor the Commissioner's understandable desire to terminate any insolvent's liquidation proceeding as promptly as possible.   As a consequence, decisions such as Kinder v. Pacific Public Carriers Co-op, Inc. (1980) 105 Cal.App.3d 657, 164 Cal.Rptr. 567, and Carpenter v. Eureka Casualty Co. (1936) 14 Cal.App.2d 533, 58 P.2d 682, which treat with the considerations underlying Insurance Code sections 1024, 1025, or their predecessors, are not in point.   Furthermore, unlike the present instance, the notifying authorities in Kinder and Carpenter fully complied with, rather than intentionally failed to honor, their statutory duties.

I would direct the trial court to issue its order requiring CIGA to include appellants in its coverage without the now needless formality of filing a belated claim.

FOOTNOTES

1.   “Shortly after the creation of the association in 1969, the then Commissioner of Insurance wrote, ‘The creation of the California Insurance Guarantee Association provides the insured public of the State of California with an additional protection by which those persons injured now have the assurance that their claims will be paid, notwithstanding the fact that their claims may be against an insolvent company.   Granted the record in California of insolvencies is exemplary, but this record should not deter the State from protecting even a minute segment of the public from losses occasioned by insurance company insolvencies.   The creation of the California Insurance Guarantee Association fulfills this purpose.’   (Barger, supra, 45 State Bar J. at p. 482.)”  (California Union Ins. Co. v. Central National Ins. Co. (1981) 117 Cal.App.3d 729, 734, 173 Cal.Rptr. 35.)  (Emphasis added.)

2.   In fact, although the question is not presently before us, it would seem that in the case of ‘occurrence” policies, such as appellants' malpractice insurance, the notice required should include a warning to the insured that the filing of such ‘contingent” or ‘hypothetical” claims is necessary to guarantee his continued protection.

BEACH, Associate Justice.

COMPTON, Acting P. J., concurs.