The opinion of the court was delivered by: BREWSTER
This matter came on regularly for hearing on the Court's order for defendant to show cause why it should not be required to retain independent counsel to represent the receivership estate. After careful consideration of the papers filed by both parties, the Court hereby declines to order the retention of independent counsel.
First National, plaintiff in this action, issued an insurance policy to Imperial Savings ("Imperial"), American Savings & Loan Association, and ICA Mortgage Corporation. This umbrella policy covered all real property on which Imperial was a mortgagee. General Accident Insurance Co. ("General") issued a builders risk commercial fire policy covering the El Cajon Garden Apartments on which Imperial was listed as the mortgagee. The General and First National policy limits were $ 8 million and $ 1 million, respectively. In 28 June of 1990, the federal government determined that Imperial was in unsound condition and appointed the Resolution Trust Corporation ("RTC") as receiver for Imperial. The FDIC, as the successor to the RTC, is the defendant in this action.
On February 27, 1991, fire destroyed the apartments. The RTC submitted claims for fire loss to First National and General. First National eventually paid its policy limit of $ 1 million, but General denied coverage on the ground that it had sent a notice of cancellation for nonpayment of premiums that was effective February 25, 1991.
Imperial could not determine from its records whether it had received notice of the cancellation or not, so it requested another copy of the cancellation notice from General. When Imperial received the copy, it noted that the Post Office Box number on the notice of cancellation was incorrect, and because of this fact, Imperial concluded that it had not received notification of cancellation for nonpayment of premiums.
II. Statement of the Case
A. The First Suit -- Civil Case No. 91-1533
General filed a declaratory relief suit against RTC on October 25, 1991, Civ. No. 91-1533, alleging that RTC forfeited its right to payment under the General policy due to its refusal to cooperate with General's investigation. RTC counterclaimed for bad faith and breach of contract, alleging that the fire loss at the El Cajon Garden Apartments was a covered occurrence under the General policy.
On August 17, 1992, RTC and First National reached a settlement in which First National agreed to advance the policy limit of $ 1,000,000 for the fire loss, but reserved subrogation rights should RTC receive any money from General.
General moved for summary judgment on RTC's bad faith claim and on its own claim for declaratory relief. On January 5, 1993, the court granted summary judgment for General on RTC's bad faith claim, and denied General's motion for summary judgment on the coverage claim on the ground that the General policy requiring examinations under oath was not applicable to the RTC.
On June 1, 1993, First National filed a complaint in intervention, seeking to recover a portion of the $ 1 million it paid to RTC from General pursuant to its subrogation rights. The suit eventually went to trial on the merits of whether the fire was an occurrence covered by General's policy and whether First National was entitled to recover some of the money it had paid to RTC. The trial court found that the fire loss was a covered occurrence under the General policy and that First National was entitled to recover a portion of the amount it had paid to RTC. The Court apportioned the fire loss between First National and General pro rata.
General appealed the trial court's denial of summary judgment on the issue of whether RTC's refusal to cooperate forfeited its rights to the insurance policy proceeds. RTC appealed the court's grant of summary judgment on its bad faith claim, and First National appealed the trial court's apportionment of the loss between First National and General. On May 30, 1995, the Ninth Circuit reversed the trial court's denial of General's summary judgment motion on its complaint for declaratory relief, holding that RTC had been required to submit Imperial's employees to examination under oath at General's request, and that RTC's failure to comply was prejudicial to General's resolution of the fire loss claim. As a result, the Ninth Circuit held that RTC had forfeited its rights under the General policy. The Ninth Circuit vacated the judgment entered after trial on the complaint, counterclaim and complaint in intervention, and remanded the matter to the district court. The district court entered judgment in favor of General on the complaint and counterclaim, but the court never entered judgment on the complaint in intervention, so it remains pending. On January 7, 1997, Case No. 91-1533 was transferred to this Court, and the Court consolidated it with the instant case (Civ. Case No. 96-1356).
B. The Second Suit -- Civil Case No. 96-1356
In July 1996, First National filed suit against the FDIC in its corporate capacity and as successor receiver for Imperial Savings, contending that RTC's refusal to comply with General's demands to examine Imperial employees under oath constitutes a material breach of the settlement agreement between First National and RTC because it jeopardized First National's subrogation rights. First National also claims that RTC's failure to cooperate with General caused its subrogation rights to be extinguished in violation of the covenant of good ...