Coverage Analysis
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CALIFORNIA INSURANCE GUARANTEE ASSOCIATION

The California Insurance Guarantee Association is only authorized by statute to pay “covered claims.” (California Insurance Code Section 1063.1).  “CIGA is an insurer of last resort and does not assume responsibility for claims where there is any other insurance available.  R.J. Reynolds Company v. California Insurance Guarantee Association, 235 Cal. App. 3d 595, 600 (1991).  Accordingly, equitable and legal claims for contribution, indemnity and subrogation by solvent insurers are prohibited.  Section 1063.1(c)(4).

The California Court of Appeal has ruled in Baxter Healthcare Corporation v. California Insurance Guarantee Association, No. B132317 (Cal. App. December 7, 2000) that a breast implant manufacturer could not obtain reimbursement from CIGA for sums that would otherwise have been owed to it by the insolvent insurers of a predecessor company.  The Second Appellate District declared that the protection of CIGA only extends to the original insureds under an insolvent policy and therefore did not cover Baxter, which was claiming under an “assignment and assumption” agreement with the original insured. 

The California Court of Appeal has ruled that the normal rules of priority concerning the distribution of the assets of an insolvent insurance company are not changed by the fact that the claimant insured also happens to be an insurance company.  In American National Ins. Co. v. Low, B137765 (Cal. App. November 8, 2000), the Second District declared that even though the definition of “covered claims” excludes insurers that language is only meant to preclude claims for subrogation, contribution or indemnity, as distinguished from an insurer’s claims under a policy issued directly to it by the insolvent carrier.

Statutory Provisions:

1063.1(c)(1) “Covered claims” means the obligations of an insolvent insurer…(i) imposed by law and within the coverage of an insurance policy of 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.

1063.1(c)(4) “Covered claims” does not include any obligations of the insolvent insurer…to any state or to the federal government.

1063.1(c)(5) “Covered claims” does not include any obligations to insurers, insurance pools, or underwriting associations, nor their claims for contribution, indemnity, or subrogation, equitable or otherwise, except as otherwise provided in this chapter.

An insurer, insurance pool, or underwriting association may not maintain, in its own name or in the name of its insured, any claim or legal action against the insured of the insolvent insurer for contribution, indemnity or by way of subrogation, except insofar as, and to the extent only, that the claim exceeds the policy limits of the insolvent insurer’s policy.  In those claims or legal actions, the insured of the insolvent insurer is entitled to a credit or setoff in the amount of the policy limits of the insolvent insurer’s policy, or in the amount of the limits remaining, where those limits have been diminished by the payment of other claims.

1063(c)(7) ”Covered claims” does not include that portion of any claim, …that is in excess of five hundred thousand dollars ($500,000.00).

1063.1(c)(8) ”Covered claims” does not include any amount awarded as punitive or exemplary damages.

1063.1(c)(9) ”Covered claims” does not include (i) any claim to the extent it is covered by any other insurance…available to the claimant or insured nor (ii) any claim by any person other than the original claimant…in his or her own name…and does not include any claim asserted by an assignee or one claiming by right of subrogation…”

1063.2(a) The association shall pay and discharge covered claims.

1063.2(e) Any person having a claim or legal right under any governmental or guaranty program which is also a covered claim, shall be required to first exhaust his or her right under the program.  Any amount payable on a covered claim shall be reduced by the amount of the recovery under the program.

1063.2(g) ”Covered claims” shall not include any judgments adjacent or obligations or liabilities of the insolvent insurer or the commissioner, as liquidator, or otherwise resulting from alleged or proven torts, nor shall any default judgment or stipulated judgment against the insolvent insurer, or against the insured of the insolvent insurer, be binding against the association.

CIGA can only pay statutorily defined covered claims. Any claim covered by any other insurance is not covered under CIGA statute. Therefore, CIGA is not authorized to disperse its fund by statute.

CIGA Cases:

Industrial Indemnity Company v. Workers' Compensation Appeals and CIGA
The award was required to be joint and several by case law and by statute.
It is unequivocally clear the scope of CIGA's rights and duties turns on the definition of 'covered claim.

In absolving CIGA from any liability, the Board concluded (1) CIGA was only required to pay "covered claims"; (2) "covered claims" did not include claims covered by other insurance available to the claimant or insured (Ins. Code, § 1063.1, subd. (c)(9)); and (3) Garcia's claim was covered by other insurance since all carriers during Garcia's period of exposure were jointly and severally liable for benefits to an employee for cumulative trauma.

Proposition 51 would not absolve CIGA as to non-economic damages.

Biggs, Gina vs. CIGA
(1981) 126 Cal.App.3d 641
Affirmation that default judgments are not binding on CIGA
http://login.findlaw.com/scripts/callaw?dest=ca/calapp3d/126/641.html

E. L. White vs. The City of Huntington Beach
(1982) 138 Cal.App.3d 366
CIGA’s statutory protection from subrogation claims is extended to insured’s of insolvent carriers.
http://login.findlaw.com/scripts/callaw?dest=ca/cal3d/21/497.html

CIGA vs. Liemsakul
(1987) 193 Cal.App.3d 443
CIGA entitled to 100% credit for claimant’s uninsured motorist coverage limits.
http://login.findlaw.com/scripts/callaw?dest=ca/calapp3d/193/433.html

Isaacson vs. CIGA
(1988) 44 Cal.App 3d 775
CIGA is immune from bad faith claims. However, CIGA “may be subject to liability for reimbursement to insureds if it breaches its statutory duty under the guarantee act to pay and discharge covered claims.” And that an insured’s contribution to a settlement “does not create a presumption that they are liable, … , in the underlying claim.”
http://login.findlaw.com/scripts/callaw?dest=ca/cal3d/44/775.html

Collins-Pine Co. vs. Tubbs Cordage Co.
(1990) 221 Cal.App.3d 882
The trial court granted Tubbs's summary judgment motion in Collins-Pine's cross-action for indemnity. It ruled that since Tubbs's insurer was insolvent, Insurance [221 Cal.App.3d 884] Code section 1063.1, subdivision (c) barred the indemnity claim. 
Collins-Pine sought to distinguish E. L. White as barring only subrogation claims, not indemnity claims. CIGA’s statutory protection from indemnity claims is extended to insured’s of insolvent carriers.
http://login.findlaw.com/scripts/callaw?dest=ca/calapp3d/221/882.html

CIGA vs. Argonaut
(1991) 227 Cal.App.3d 624
Workers’ compensation carrier’s subrogation claims in not a covered claim.
http://login.findlaw.com/scripts/callaw?dest=ca/calapp3d/227/624.html

CD Investment Company v. California Insurance Guarantee Association
CD Investment Company’s solvent insurance carriers exhausted all policy limits in the resolution of City of Anaheim v. Ertzan, leaving CD Investment Company left to pay approximately $963,000 in out-of-pocket expenses.

The Court of Appeal ruled in C.D. Investment Company v. California Insurance Guarantee Association, B134895 (Cal. App. November 27, 2000) that the $500,000 statutory cap for “covered claims” against insolvent insurers applies separately to each triggered policy.  Further, payments that a policyholder may have received from solvent insurers do not offset the amount that CIGA is obligated to pay under the policies of the insolvent insurers. (Caselaw)
http://login.findlaw.com/scripts/callaw?dest=ca/caapp4th/84/1410.html

Phoenix Insurance Co. v. United States Fire Insurance Company
(1987) 189 Cal.App.3d 1511 
Phoenix decision has little precedential force since it has been effectively legislatively overruled. In Phoenix, the court allowed a solvent carrier, Phoenix, to recover from CIGA, under the theory of equitable indemnification, the amount that the solvent carrier paid to settle a malpractice action against the insured of the insolvent carrier, Signal Insurance Company ("Signal"). The court allowed Phoenix to recover in the face of CIGA's contention that section 1063.1 barred "obligations to insurers" or claims asserted by way of subrogation.  At that time, then section 1063.1(c)(4) [currently 1063.1(c)(5)] provided "Covered claims" shall not include any obligations to insurers, insurance pools, or underwriting associations, except as otherwise provided in this chapter."  The court ruled that Phoenix's claim against CIGA was for equitable indemnification and, as such, was not based on "an obligation to an insurer" nor a "right of subrogation."  Thus, Phoenix' claim was not barred by the statute.

Later that same year, the California Legislature amended then section 1063.1(c)(4) to expressly exclude equitable indemnity claims of insurers from the statutory "covered claims" payable by CIGA.  As amended Insurance Code section 1063.1(c)(4) [now codified as (c)(5)] provided "Covered claims" does not include any obligations to insurers, insurance pools, or underwriting associations, nor their claims for contribution, indemnity, or subrogation, equitable or otherwise, except as otherwise provided in this chapter." (Italics added.)  In so doing, the Legislature acted swiftly to close the "loophole" that the Phoenix court created and unequivocally express the Legislative intent to protect CIGA.

Phoenix involved an equitable indemnification claim by Phoenix, a solvent excess carrier, against CIGA to recover indemnity payments Phoenix made to settle a malpractice action against the insured of the insolvent carrier, Signal.

The court found that the Phoenix policy simply did not cover the claims against the insured on an excess basis over the Signal primary policy.  In effect, the court found that there was no "other insurance," pursuant to then Insurance Code section 1063.1 (c)(7)(i) [currently subdivision (c)(9)(i)].

The opinion in Ross vs. Canadian Indemnity Insurance Company (1983) 142 Cal.App.3rd 396 [191 Cal.Rptr.99] requires Lyon's direct insurers to defend and indemnify on a primary basis, vis-à-vis CIGA, even if their policies provide that their insurance is excess over any other insurance available to Lyon. In Ross, the court held that a solvent secondary insurer had the primary obligation to defend and indemnify its insured where the insured's primary insurer had become insolvent. (Caselaw)
http://login.findlaw.com/scripts/callaw?dest=ca/calapp3d/189/1511.html

ISRAEL P. CHAMBI, vs. THE REGENTS OF THE UNIVERSITY OF CALIFORNIA (1/9/2002)
Regents, a self insured governmental entity, are not an insurer and their agreement to indemnify employees for claims arising in the course and scope of their employment is not insurance.  Thus, they are not bound by Business and Professions Code section 801, subdivision (e)’s requirement that an insurer obtain the insured’s consent before settling an action against the insured. (Caselaw)

Aloha Pacific, Inc., et. al. vs. CIGA
In this case we consider whether California Insurance Guarantee Association (CIGA) is barred from contesting whether a claim is “within the coverage of an insurance policy of [an] insolvent insurer,” as used in Insurance Code section 1063.1, subdivision (c)(1), where a third-party claimant has obtained a judgment declaring that the insurer (now insolvent) had no basis to deny coverage for the claim. Interpreting the statute so as to leave no part of it useless or deprived of
meaning, we hold that the statute permits CIGA to contest whether the claim is within policy coverage, and CIGA is not bound by the prior judgment against the insolvent insurer. (Caselaw)

Serena Community Association vs. Brehm  Communities
Unpublished decision by 4th Appellate District on 6/5/2003
Cross-defendant MJS was being defended by CIGA. Because the Settlement Agreement called for a guaranteed amount to be paid by Brehm’s insurers to Serena, Insurance Code section 1063 barred any claims against MJS seeking to recoup some of that money. There was no coverage under the CIGA statute because Brehm and Serena’s claims were for subrogation of amounts paid by Brehm’s insurers, and there was other insurance available to Brehm and Serena. The court concluded that Brehm and Serena’s actions against MJS, after the Settlement Agreement was executed, were barred by CIGA as they constituted actions on behalf of an insurer for subrogation, claims expressly prohibited by the CIGA statute.

The CIGA statute does not limit the type of insurance that must be available, but rather includes “any” other insurance within its ambit. All that is required is that the insurance is “available” to pay the claim by Serena against MJS.

The CD Investment case does not support Brehm and Serena’s position. The settlement agreement in CD Investment exceeded the policy limits of the solvent insurers, leaving CD Investment’s only recourse a claim against CIGA for amounts covered under the insolvent insurer’s policies.

For complete code, please go to California web site at:
INSURANCE CODE SECTION 1063-1063.16

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