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Catholic Healthcare West v. California Insurance Guarantee Association

October 5, 2009

CATHOLIC HEALTHCARE WEST, PLAINTIFF, CROSS-DEFENDANT AND APPELLANT,
v.
CALIFORNIA INSURANCE GUARANTEE ASSOCIATION, DEFENDANT, CROSS-COMPLAINANT AND RESPONDENT.



APPEAL from a judgment of the Superior Court of Kern County. Sidney P. Chapin, Judge. (Super. Ct. No. CV260336)

The opinion of the court was delivered by: Ardaiz, P.J.

CERTIFIED FOR PARTIAL PUBLICATION*fn1

OPINION

In 1985, a nurse working at a hospital suffered a back injury in the course of her employment. By September 2004, approximately $1.6 million had been paid on the nurse's workers' compensation claim for wage indemnity, medical care, and vocational rehabilitation. The nurse's employer paid the first $150,000 under the self-insured retention on its excess workers' compensation insurance policy. By the time the retention was exceeded, the insurance company was insolvent and, consequently, the employer continued to pay for the nurse's medical care.

The employer or an affiliate requested the California Insurance Guarantee Association (CIGA) to reimburse it for amounts the insurance company would have paid under the policy had the insurance company remained solvent. The initial claims to CIGA may have been presented by the corporation that employed the nurse. Subsequent claims were presented by an affiliated corporation into which the employer corporation had merged.

This appeal concerns whether the CIGA is statutorily required to pay those claims. The trial court granted CIGA's motion for summary judgment on the ground that the claims were excluded from the definition of ―covered claims‖ that CIGA was obligated to pay.*fn2 The court relied upon section 1063.1, subdivision (c)(9)(B), which excludes ―any claim by any person other than the original claimant under the insurance policy in his or her own name ..‖ (§ 1063.1, subd. (c)(9)(B).)

In the published portion of this opinion we address two issues regarding the interpretation and application of section 1063.1, subdivision (c)(9)(B). First, we conclude that any claims presented by the corporation that employed the nurse were covered claims despite the fact that the corporation changed its name to a name not listed in the insurance policy. Second, we interpret the phrase ―original claimant under the insurance policy in his or her own name‖ to include the affiliated corporation into which the employer corporation was merged because the merger was an internal restructuring of a family of corporations, and did not expand or otherwise change the ownership or control of the operations, and because the surviving corporation continued the employer corporation's corporate activities as well as its hospital operations. We regard this interpretation as creating a narrow exception to the holding in Baxter Healthcare Corp. v. CIGA (2000) 85 Cal.App.4th 306 (Baxter) where the court concluded that the surviving corporation of a merger between unaffiliated entities was not an original claimant under an insurance policy in the name of the disappearing corporation. Based on our interpretation of section 1063.1, subdivision (c)(9)(B), we conclude that CIGA's motion for summary judgment should be denied.

In the unpublished portion of this opinion we address whether triable issues of material fact exist regarding equitable estoppel and the equitable defense of laches. We conclude that questions of fact exist concerning the application of these affirmative defenses to CIGA's cross-complaint. These questions of fact are another reason why CIGA should not have been granted summary judgment on its cross-complaint.

The judgment will be reversed and the matter remanded for further proceedings.

FACTS

MERCY HOSPITAL BAKERSFIELD

The accurate identification of the entity named Mercy Hospital Bakersfield is important to the issues raised in this appeal and is complicated by the fact that the entity changed its name twice and was involved in corporate reorganizations. Mercy Hospital Bakersfield was the name of a California nonprofit public benefit corporation until late 1991, when it changed its corporate name to ―Mercy Healthcare Bakersfield.‖*fn3 In March 1998, the corporation filed an amendment to its articles of incorporation that changed its name to ―Catholic Healthcare West Central California.‖ For convenience, we sometimes will refer to the nonprofit public benefit corporation successively named Mercy Hospital Bakersfield, Mercy Healthcare Bakersfield, and Catholic Healthcare West Central California as Hospital Corporation.

In September 2001, Hospital Corporation's parent corporation, Catholic Healthcare West, reorganized its subsidiary corporations. As part of the reorganization, Hospital Corporation was merged with Catholic Healthcare West North State, another nonprofit public benefit corporation. In the merger, Hospital Corporation was the disappearing corporation and Catholic Healthcare West North State was the surviving corporation. Shortly after the merger, the surviving corporation was renamed Catholic Healthcare West II. In December 2001, Catholic Healthcare West II merged with its parent corporation, Catholic Healthcare West. Catholic Healthcare West II was the surviving nonprofit public benefit corporation and changed its name to Catholic Healthcare West.

THE INSURANCE POLICY AND EMPLOYEE CLAIM

Mission Insurance Company issued Specific Excess Workers' Compensation Insurance Policy No. RWS 31293A to Sisters of Mercy Health Systems on January 28, 1985. The policy period was from January 1, 1985, through July 1, 1986. The employer's retention amount for each occurrence was $150,000. Endorsement A1, dated March 20, 1985, changed the name of the employer covered by the policy to ―Mercy Health System; St. Joseph's Hospital & Medical Center; Mercy Hospital & Medical Center; St. Mary's Hospital & Medical Center; St. John's Regional Medical Center; and Mercy Hospital, Bakersfield.‖

On May 30, 1985, Suzanne Bonham injured her back in the course and scope of her employment as a registered nurse at Mercy Hospital Bakersfield. Within 60 days following Bonham's injury, Mercy Hospital Bakersfield began making payments to her in satisfaction of its obligation under the Labor Code to pay workers' compensation benefits.

On August 22, 1985, endorsement A2 to the policy was issued. The endorsement set forth the agreement that the insurance company for the policy was changed from Mission Insurance Company to Mission American Insurance Company. (Italics added.) Endorsement A2 became effective on September 1, 1985, at 12:01 a.m.

Two months later, on October 31, 1985, Mission Insurance Company was ordered into conservation by the courts. The attempt to rehabilitate Mission Insurance Company was not successful and it was ordered into liquidation on February 24, 1987.

In December 1987, Self Insurers Service, Inc., a third party administrator for Catholic Healthcare West, the Sisters of Mercy Hospitals and Mercy Hospital Bakersfield sent Mission American Insurance Company a notice of the potential workers' compensation excess claim regarding Bonham. This notice was followed by supplemental reports in March and June 1988. All three documents estimated the total loss at under $78,000.

In September 1989, International Surplus Adjusting Services (International Surplus) sent a letter to Applied Risk Management, the administrator then handling the Bonham matter for Catholic Healthcare West and its affiliates. The letter stated (1) International Surplus was handling the matter for CIGA, (2) CIGA was assuming the obligation of Mission Insurance Company, (3) Mission Insurance Company had been placed in liquidation by the California Department of Insurance, and (4) Mission Insurance Company recently had been notified that Bonham's claim might exceed the insured's retention. The letter directed Applied Risk Management to send all further correspondence to the undersigned and requested additional information on the status of Bonham's claim.

Applied Risk Management sent International Surplus a report dated November 2, 1989, indicating the status of settlement negotiations with Bonham and estimating the total loss on the claim at approximately $127,000. The report listed the assured as ―Sisters of Mercy Health System.‖

In late 1989, Bonham and Mercy Hospital Bakersfield entered an amended stipulation with request for award and filed it with the Workers' Compensation Appeals Board. The stipulation stated that Bonham's injury caused permanent disability of 31.5 percent and that she might need further medical treatment to cure or relieve the effects of the injury.

Based on the stipulation, the Workers' Compensation Appeals Board issued an award on January 5, 1990, in favor of Bonham and against ―Mercy Hospital‖ that entitled Bonham to both disability indemnity compensation and future medical care.

In August 1990, Applied Risk Management sent International Surplus a report stating $6,685 was left to be paid on the settlement for permanent disability and estimating future medical care at approximately $38,000. The estimate of the total loss on the claim was about $149,000. The report listed the assured as Catholic Healthcare West and Mercy Hospital Bakersfield.

On July 26, 1991, Applied Risk Management sent International Surplus a report stating the permanent disability had been paid in full, estimating future medical care at approximately $34,000, again estimating the total loss on the claim at about $149,000, and listing the assured as Catholic Healthcare West and Mercy Hospital Bakersfield.

Less than two weeks later, CIGA became directly involved. It sent a letter to Applied Risk Management that referenced the Bonham claim and identified the assured as ―Catholic Health Care-West.‖ The letter, dated August 8, 1991, stated in full:

―This Association has assumed administration of the Mission excess claim. Do not communicate further with International Surplus. [¶] It appears it will be many, many years before the retention is exceeded, if ever. Therefore, we are closing our file. No further reports will be needed unless the retention is exceeded.‖

The next communication in the record between Applied Risk Management and CIGA occurred almost seven years later in May 1998 when Applied Risk Management sent a supplemental workers' compensation report to CIGA. The report advised CIGA that Bonham's condition had deteriorated. An implanted neuro-stimulator and a morphine pump had been tried to reduce her pain. Both failed. Also, each resulted in complications and caused home health care to be provided. Spinal fusion was discussed and Bonham continued with counseling. The total amount paid at that point was $292,589.63 and the future medical care was estimated at $100,000.

Because the amount paid on Bonham's claim exceeded the $150,000 retention amount, CIGA audited the payments made to determine the appropriate reimbursement. In September 1998, CIGA informed Applied Risk Management of the results of its audit, which showed indemnity payments of $72,662.32 and medical care payments of $200,312.89. Based on these figures and the $150,000 retention, CIGA determined a total reimbursement of approximately $123,000 was warranted. CIGA indicated that a completed W-9 Form would ―allow us to initiate proper reimbursements to the insured in this case‖ and included the form with its letter.

In November 1998, CIGA made three checks payable to Catholic Healthcare West for the excess workers' compensation liability of Mission Insurance Company on the Bonham claim. The checks covered medical care reimbursement ($90,240.44), expense reimbursement ($2,874.88), and indemnity reimbursement ($32,734.77). On April 5 and 29, 1999, CIGA issued additional reimbursement checks to Catholic Healthcare West. All of the checks listed ―Sisters of Mercy Health Serv.‖ as the insured and referenced policy No. RWS 031293. The seven reimbursement checks from CIGA totaled $186,093.51. CIGA made no further payments relating to the Bonham claim.

From 2001 through 2004, Catholic Healthcare West's third party claims administrator continued to send requests for reimbursement to CIGA. The record does not show if CIGA responded to each request, but does establish that the requests were not paid.

In October 2004, CIGA sent a letter to Catholic Healthcare West's third party administrator requesting a copy of the complete excess policy as soon as was reasonably possible. In November 2004, the administrator provided CIGA a copy of the policy and endorsements A1 and A2.

In July 2005, CIGA advised Catholic Healthcare West that (1) National American Insurance Company of California (NAICC) had purchased the assets and liabilities of Mission American Insurance Company, (2) those liabilities included the liability on the policy covering Bonham's workers' compensation claim, and (3) CIGA was demanding the return of the $186,093.51 it previously paid to Catholic Healthcare West. Catholic Healthcare West did not return the money to CIGA.

PROCEEDINGS

In March 2007, Catholic Healthcare West filed a complaint against CIGA and NAICC seeking declaratory relief and indemnity of amounts paid in excess of its $150,000 self-insured retention.

Both CIGA and NAICC filed answers that denied liability and asserted various affirmative defenses. In addition, CIGA filed a cross-complaint against Catholic Healthcare West and NAICC seeking the recovery of the $186,093.51 it paid on the Bonham claim. In its first cause of action, CIGA alleged its payments relating to the Bonham claim satisfied obligations of Mission American Insurance Company and NAICC and, therefore, it was entitled to indemnification from them. CIGA's second cause of action alleged the alternate theory that Catholic Healthcare West was obligated to return the $186,093.51 paid because the claims were not ―covered claims‖ within the meaning of section 1063 et seq.

In January 2008, CIGA filed a motion for summary judgment. On June 3, 2008, the trial court issued a minute order granting CIGA's motion for summary judgment on Catholic Healthcare West's first amended complaint. The sole basis for the order was the trial court's conclusion that the claim was excluded from coverage by section 1063.1, subdivision (c)(9)(B), as interpreted by the court in Baxter, supra, 85 Cal.App.4th 306.

The trial court also granted CIGA's motion for summary judgment on its cross-complaint for reimbursement.*fn4 The court concluded the undisputed facts showed that Catholic Healthcare West could not establish the defense of estoppel or laches. In particular, the court stated Catholic Healthcare West could not show it was ignorant of the true state of the facts, which was an element of estoppel, and it made no showing of prejudice, which was essential for laches.

On July 8, 2008, the trial court filed a judgment that awarded CIGA $186,093.51, plus its costs of suit. Catholic Healthcare West filed a timely notice of appeal.

DISCUSSION

I. Standard of Review

Appellate courts independently review a motion for summary judgment using the same legal standards that governed the trial court's determination of the motion. (Millard v. Biosources, Inc. (2007) 156 Cal.App.4th 1338, 1346.) Code of Civil Procedure section 437c contains these standards, which courts apply using a three-step analysis. (Brantley v. Pisaro (1996) 42 Cal.App.4th 1591, 1601 (Brantley); see Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850-851 (Aguilar).)

First, a court must identify the issues framed by the allegations in the pleadings. (Brantley, supra, 42 Cal.App.4th at p. 1602.) Second, a court must determine whether the moving party has satisfied its initial burden of producing evidence ―to make a prima facie showing of the nonexistence of any triable issue of material fact ..‖ (Aguilar, supra, 25 Cal.4th at p. 850; Brantley, supra, 42 Cal.App.4th at p. 1602.) Third, if the moving party has made the requisite showing, a court must examine the opposition and determine whether it demonstrates the existence of a triable issue of material fact. (Aguilar, supra, 25 Cal.4th at p. 850)

A triable issue of fact exists when the evidence reasonably would permit the trier of fact, under the applicable standard of proof, to find the purportedly contested fact in favor of the party opposing the motion. (Aguilar, supra, 25 Cal.4th at p. 850.)

II. CIGA's Cross-complaint for Return of the 1998 and 1999 Payments

A. Background

CIGA's cross-complaint for indemnity alleged that (1) CIGA had mistakenly believed that the claims made by or on behalf of Catholic Healthcare West were covered claims for purposes of section 1063.1, (2) the claims were not covered claims and CIGA was not authorized to pay them, and (3) Catholic Healthcare West was legally obligated to return the $186,093.51 paid by CIGA, but had refused to return the payment as demanded by CIGA.

CIGA's motion for summary judgment asserted, among other things, that the claims it paid were not covered because the statute excludes ―any claim by any person other than the original claimant under the insurance policy in his or her own name ..‖ (§ 1063.1, subd. (c)(9)(B).) In Baxter, supra, 85 Cal.App.4th 306, the Court of Appeal interpreted this statutory language to mean a claim for coverage must be made by an original insured. (Id. at p. 313.)

Catholic Healthcare West contends summary judgment on CIGA's cross-complaint is inappropriate because triable issues of material fact exist regarding (1) what entity or entities made the claims paid by CIGA, (2) whether CIGA is estopped from denying that Catholic Healthcare West was an original insured, and (3) whether the doctrine of laches bars CIGA's cross-complaint.

The trial court reached three conclusions in granting summary judgment to CIGA on its cross-complaint for the return of the $186,093.51. First, CIGA was not authorized to pay the claims because the claims were excluded from the definition of ―covered claims‖ by section 1063.1, subdivision (c)(9)(B). Second, there was no triable issue of fact regarding Catholic Healthcare West's estoppel defense because an essential element had been negated. ...


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