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Low, Ball & Lynch's

WEEKLY LAW RESUME

December 18, 2003 Issue By: Raymond Coates

Insurance - Insolvent Insurer - Liability for Indemnification

Black Diamond Asphalt, Inc. v. San Joaquin County Superior Court Court of Appeal, Third District (December 10, 2003)

The California Insurance Guarantee Association (CIGA) provides that an indemnity cause of action by an insured party may not be maintained against the insured of an insolvent insurer. This case considered whether that rule applies to the extent it is a claim made by a member of the public who has no insurance available to cover the loss.

Jesus Garcia Adames, the owner of a truck, leased two trailers from Black Diamond Asphalt, Inc. He contracted with Black Diamond to transport freight for the company. The contract required Adames to maintain liability insurance naming Black Diamond as an additional insured and to indemnify and hold it harmless for any liability arising out of his performance of the contracts. Adames was involved in an accident while hauling freight for Black Diamond that killed one person and injured another. After the accident, Adames' liability insurer was declared insolvent, and CIGA undertook the insurer's obligations. A wrongful death and personal injury action ensued which included Adames and Black Diamond as defendants. Black Diamond, which was self-insured for the cost of defense and the first $1 million in damages, filed a cross-complaint against Adames for indemnity. The trial court held that the cross-complaint could not be maintained against the insured of an insolvent insurer. A writ of mandate was taken to the Court of Appeal, which granted the petition.

The Court of Appeal concluded the trial court erred in making its determination. The Court noted that CIGA was created to protect members of the public against the insolvency of an insurance company. It was not created to protect insurance companies against the insolvency of its fellow members. CIGA has no obligation to make payments to fellow insurers. CIGA is not required to pay a subrogation action maintained by an insurer.

The Court stated this did not preclude an uninsured member of the public from maintaining an action against CIGA or the insured of an insolvent company when any damages paid will not inure to the benefit of an insurer. In this case, Black Diamond had excess insurance only. It was self-insured for the cost of defense and the first $1 million in damages awarded against it. It was not an insurer. Thus, to the extent of its personal liability, Black Diamond was not seeking any payment or benefit that would inure to the benefit of an insurer.

Furthermore, the Legislature in Insurance Code Section 1063.1(c)(5) provided that an insurer may make claim against the insured of an insolvent insurer, but only to the extent the claim is in excess of the policy limits carried by the insured's insolvent insurer. Thus, Black Diamond could make a liability claim in its own name for its own benefit. This was not precluded by California case law.

Thus, to the extent of its self-insured retention, Black Diamond could maintain an action against Adames for indemnity. Whether the claim was covered by CIGA would depend upon the theory of liability and whether it was covered by the insurance policy. Furthermore, the claim could be maintained against Adames to the extent the claims exceed the policy limits that Adames carried.

The Court of Appeal therefore concluded the trial court erred in concluding that the law precluded Black Diamond from seeking indemnification from Adames and in refusing to allow the filing of a cross-complaint.

COMMENT

This case settled while on appeal, yet the Court issued its decision. It concluded that this matter raised an issue of continuing public interest and required clarification.

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