WEBSTER v. BUNNER (1987)

In this original proceeding, petitioners Robert L. Webster, et al., plaintiffs in a superior court action against real party Enterprise Insurance Co. (Enterprise), seek relief from an injunction imposed in connection with the conservatorship and subsequent liquidation proceedings of Enterprise, the effect of which was to stay the prosecution of all actions against Enterprise.   We granted an alternative writ at the direction of the Supreme Court pursuant to an order made by the court on November 26, 1986.   We now hold that the respondent court did not abuse its discretion in denying petitioners' request to lift the stay, and that petitioners must seek relief through the claims procedures provided by the California Insurance Code.

FACTS

On January 28, 1982, petitioner Robert Webster was employed by Enterprise at its offices in the One Market Plaza building in San Francisco.   On that date, Ricardo Contawe (Contawe), the estranged husband of another Enterprise employee, entered the offices of Enterprise, pulled a shotgun from a white flower box, and proceeded to shoot his wife Erlinda and others.   He continued to run through the 17th and 18th floors of the building, continuing his shooting spree and shouting obscenities.

Mr. Webster, who had taken cover under his desk, managed to call the “911” emergency number.   While Webster was on the telephone undergoing extensive questioning by the emergency operator, Contawe rounded the corner by Webster's office, cursed Webster for calling the police and proceeded to shoot Webster in the small of the back at close range.   Webster, who had already lost a leg and the sight in one eye while serving in Vietnam, suffered severe internal injuries as a result of the shooting, spent almost eight months in the hospital, and lost the use of his remaining leg.

Webster, his wife and daughter, filed an action in San Francisco Superior Court against the owners of One Market Plaza (The Equitable Life Assurance Society of the United States, et al.), Erlinda Contawe, the Estate of Ricardo Contawe, and numerous Doe defendants.¹  The defendants cross-complained against Mission Insurance Company (the parent company of Enterprise), Enterprise, Erlinda Contawe, the Estate of Ricardo Contawe, and Doe defendants.

Although the Websters did not initially name Enterprise as a defendant in their action, Enterprise was later named as a Doe defendant after discovery allegedly revealed that Enterprise had been warned about the dangerous propensities of Ricardo Contawe (including threats that included his wife's coworkers), and had failed to take any precautions or warn its employees of the threats.

During the pendency of these actions, Enterprise and its parent company, Mission, became insolvent.   In November 1985, the Insurance Commissioner of the State of California (Commissioner) sought an order in Los Angeles Superior Court placing Enterprise under a conservatorship, pursuant to California Insurance Code section 1011.   The superior court entered its “Order Appointing Conservator and Restraining Order” on November 26, 1985.   The order provided, inter alia, “[t]hat all persons are hereby enjoined from maintaining or instituting any action at law or suit in equity, including but not limited to matters in arbitration, against [Enterprise] or against [the Insurance Commissioner] ․”

In May 1986, the Websters filed a “Motion for Relief from Stay” in Los Angeles Superior Court.   The Websters alleged in their motion that Enterprise carried primary liability insurance in the amount of $500,000 and excess coverage in the amount of $20 million.   They further alleged that until the stay had been imposed by the Los Angeles Superior Court, the litigation had been defended by counsel employed by Enterprise's liability insurance carriers.   It was the Websters' position that any judgment obtained by them would not affect the assets of Enterprise, since the judgment would be covered by liability insurance.

The Commissioner (through the Attorney General) and Enterprise (through special counsel) opposed the motion on the grounds that (1) a lifting of the stay would interfere with the Commissioner's administration of Enterprise, (2) the Websters should not be given an unfair advantage over other claimants,² and (3) the Websters were required to utilize the statutory claims procedures set forth in Insurance Code sections 1021 through 1027.   The Commissioner and Enterprise also asserted that the uninsured assets of Enterprise were in fact threatened, since the Websters had not agreed to waive their claim for punitive damages (which are not covered by insurance).

The superior court denied the Websters' motion without prejudice to their filing a new motion if new facts were discovered.   Without a showing of new facts, the Websters renewed their motion.   The court denied the motion with prejudice and this petition followed.

During the pendency of this proceeding, the superior court entered an order initiating liquidation proceedings for Enterprise.  (Ins.Code, § 1016.)

When the matter came before this court for oral argument, we questioned the Websters' counsel about the Websters' failure thus far to waive their claim for punitive damages.   Counsel stated that the Websters would waive their claim for punitive damages and agreed to put that representation in writing.   Counsel thereafter prepared a stipulation providing the following in addition to the Websters' waiver of any right to punitive damages:  (1) the Websters would not proceed against any assets of Enterprise without seeking leave of court, (2) real parties warranted that Enterprise was covered by liability insurance (the policies are listed), (3) the stay would be lifted to allow the Websters to proceed with their action, (4) lifting of the stay as to the Websters would not affect the plaintiffs in any of the other actions,³ (5) this court would enter a writ of mandate directing that the terms of the stipulation be carried out, and (6) a party which had to seek relief in court to enforce the terms of the stipulation would be entitled to reasonable attorneys' fees and costs.   Real parties declined to sign the stipulation.

DISCUSSION

We preface our discussion of this case by noting that we have, with some difficulty, resisted the temptation to be “result-oriented” in this case.   Only the most heartless individual could fail to empathize with the Webster family, whose lives have been plagued by misfortune.   However, no matter where our sympathies lie, we must be guided by the law.   In this case, the law clearly mandates a result favoring real parties.

The Insurance Code ⁴ provides a comprehensive scheme for the rehabilitation or liquidation of insolvent insurance companies such as Enterprise.   Under that scheme, the Commissioner “has broad powers and duties to administer the affairs of those companies for the benefit of creditors, policyholders and the general public.”  (Rosen and Barger, California Insurance Law & Practice, Matthew Bender & Co. 1986, § 7.01.)   Section 1058 confers upon the liquidation court jurisdiction over all actions arising not only between the Commissioner and the insurer, but between the insurer and third parties.

Section 1020 provides that “upon the issuance of an order either under Section 1011 [conservatorship] or 1016 [liquidation], or at any time thereafter, the court shall issue such other injunctions or orders as may be deemed necessary to prevent any or all of the following occurrences:  * * * (c) The institution or prosecution of any actions or proceedings.  (d) The obtaining of preferences, judgments, attachments, or other liens against such person or assets.”  (Emphasis added.)

Thus, once a liquidation order has been entered, all litigation against the insolvent company is stayed, and the parties to that litigation must proceed by way of the claims procedure set forth in section 1021 et seq.   The claim must be filed within six months of the date the Commissioner gives notice of the liquidation order.   If the claim is denied by the Commissioner, the claimant may apply to the liquidation court for an order to show cause why the claim should not be allowed.  (§ 1032.) ⁵

As real parties correctly point out, this is not simply a procedural plan designed to thwart petitioners.   Rather, it reflects the vital interests of this state in regulating the insurance industry in general and insolvent or “delinquent” insurance companies in particular.   The stay of litigation which is authorized (in fact compelled) by the Insurance Code serves a twofold purpose.   First, it allows all of the claims against the insolvent company to be resolved in one proceeding, and second, it allows the Commissioner to concentrate his efforts on the effective operation of the insolvent company, rather than on defending a multiplicity of actions.

Petitioners recognize the policies to be served by the statutory scheme, but argue that they should be disregarded here because the burden of defending the action would be borne by outside defense counsel, not by the Commissioner, and because petitioners do not seek to reach any of the uninsured assets of Enterprise.   We disagree.

At the outset, we note that we cannot ignore the fact that if the stay is lifted as to petitioners, the plaintiffs in the remaining actions will seek, and most likely will receive, the same relief as petitioners.   It is inconceivable that the defense of complex actions such as these could proceed without the involvement of the Commissioner and the employees of Enterprise.   Discovery demands alone would require a significant investment of time and impede the Commissioner's efforts to administer the operations of Enterprise and to bring the insolvency proceedings to a close.

Secondly, it is by no means certain that the uninsured assets of Enterprise would be untouched, even if the stay were lifted and petitioners ultimately prevailed in their action.   If we assume, as we must, that a lifting of the stay would ultimately affect the remaining San Francisco actions as well, verdicts which cumulatively exceed the insured amounts are not inconceivable, even if all plaintiffs waived their claims to punitive damages.   It is for precisely this reason that we believe petitioners should not be permitted to circumvent the statutory scheme here.

Petitioners urge us to analogize this case to a bankruptcy proceeding, in which bankruptcy courts routinely grant litigants relief from the automatic stay imposed by the bankruptcy proceeding.   Such relief is in fact contemplated by the statutes governing such proceedings.  (11 U.S.C. § 362(d).)   In contrast, the Insurance Code provisions with which we are concerned here contain no similar provisions, nor is there any case law which is supportive of the position advanced by petitioners.

Petitioners rely heavily on the argument that the equities are in their favor.   In fact, in the absence of statutory or case authority, the relief sought herein can be obtained only through the court's inherent equitable powers.   Where the court has exercised its discretion in a particular way, its ruling will not be reversed on appeal unless the court has abused its discretion, that is, where its ruling has “exceeded the bounds of reason or contravened the uncontradicted evidence.”  (Continental Baking Co. v. Katz (1968) 68 Cal.2d 512, 527, 67 Cal.Rptr. 761, 439 P.2d 889.)   We cannot say as a matter of law that the court abused its discretion here.

The petition for writ of mandate is denied and the alternative writ is hereby discharged.   This opinion is made final forthwith.

FOOTNOTES

1.   Similar lawsuits were filed by other victims of the shooting.   All of the suits were consolidated for trial in the San Francisco Superior Court.

2.   This was really a “non-issue”;  had the Websters prevailed, the remaining claimants would presumably have sought similar relief.

3.   This provision was obviously unrealistic, since the parties herein had no control over the other plaintiffs, who were sure to follow suit once the stay was lifted as to the Websters.

4.   All further statutory references are to the Insurance Code unless otherwise indicated.

5.   However, because a proceeding in the liquidation court is considered a “special proceeding,” the claimant is not entitled to a jury trial as a matter of right, nor are findings of fact and conclusions of law required.  (Kinder v. Superior Court (1978) 78 Cal.App.3d 574, 581, 144 Cal.Rptr. 291.)

FEINERMAN, Presiding Justice.

ASHBY and HASTINGS, JJ., concur.