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HCM Healthcare, Inc. v. California Insurance Guarantee Association

August 30, 2010

HCM HEALTHCARE, INC., ET AL., PLAINTIFFS AND APPELLANTS,
v.
CALIFORNIA INSURANCE GUARANTEE ASSOCIATION, DEFENDANT AND RESPONDENT.



APPEAL from a judgment of the Superior Court of Los Angeles County. Alan S. Rosenfield, Judge. Affirmed. (Los Angeles County Super. Ct. No. BC353553).

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

CERTIFIED FOR PUBLICATION

HCM Healthcare, Inc., and Madera Convalescent Hospital, Inc., appeal from the judgment for California Insurance Guarantee Association rejecting their claim for insurance coverage. We affirm.

FACTS AND PROCEEDINGS

Appellants HCM Healthcare, Inc., and Madera Convalescent Hospital, Inc., operate residential nursing homes. Between 1997 and 2001, three insurance companies issued nursing home liability policies to appellants. American International Specialty Lines Insurance Company (AISLIC) issued a policy covering 1997 to 1998; Pacific Insurance Company Limited (Pacific) issued policies covering 1998 to 2000; and, Legion Insurance Company (Legion) issued a policy covering 2000 to 2001.

In July 2003, the State of Pennsylvania, the domiciliary state for Legion, declared Legion insolvent and placed it into liquidation. Pennsylvania's liquidation order imposed a June 30, 2005 deadline for policyholders to file claims against Legion. The order stated:

"All claims against the estate of Legion, together with proper proof thereof, shall be filed on or before June 30, 2005. No person shall participate in any distribution of the assets of Legion unless his, her or its claim has been filed with the Liquidator in accordance with the time limit established by the Liquidator, subject to the provisions for the late filing of claims pursuant to Section 537 of Article V, 40 P.S. §221.37." (Title 40 of Pennsylvania Consolidated Statutes, section 221.37, which we discuss below, permits late filing of a claim for "good cause" as defined by that statute.)

In October 2003, Legion's liquidator mailed to appellants notice of Legion's insolvency and a proof of claim form. The form stated appellants had until June 30, 2005, to file claims against Legion.

In April 2005, the family of Lupe Barela, a former resident of one of appellants' nursing homes, sued appellants and others for elder abuse that Barela allegedly suffered at appellants' facility. Because Barela was a resident during years covered by the AISLIC, Pacific, and Legion policies, appellants tendered Barela's claim to AISLIC and Pacific and demanded coverage under their policies. Additionally, appellants notified respondent California Insurance Guarantee Association (CIGA) on October 20, 2005, of appellants' demand for coverage under Legion's policy. More than two months later on December 23, 2005, appellants signed and later submitted to Legion's Pennsylvania liquidator a proof of claim for the Barela suit. The insurers denied coverage. In August 2006, appellants settled the Barela lawsuit for $250,000.

In November 2005, the family of Carl Fulsom, another former resident of one of appellants' nursing homes, sued appellants and others for elder abuse, alleging Fulsom suffered personal injuries while living at appellants' facility. On November 21, 2005, appellants notified CIGA of the Fulsom lawsuit. And on February 6, 2006, appellants signed and later submitted to Legion's liquidator a proof of claim for the Fulsom suit. The insurers denied coverage. In January 2006, appellants settled the Fulsom lawsuit for $250,000.

In December 2006, appellants sued AISLIC, Pacific, and CIGA for breach of contract and for violating the Insurance Code. Appellants alleged the insurers wrongfully refused to provide appellants with defense counsel and indemnification for the Fulsom and Barela lawsuits. In settlement of appellants' lawsuit, Pacific and AISLIC paid appellants $400,000.

CIGA did not settle. Instead, it pressed as an affirmative defense the Insurance Code's statutory bar to CIGA's paying anything other than "covered claims." CIGA noted Insurance Code section 1063.1 limited a covered claim, to among other things, a claim timely filed with CIGA by "the last date fixed for the filing of claims" in the Pennsylvania liquidation proceeding. Insurance Code section 1063.1, subdivision (c)(1)(C) states:

" 'Covered claims' means the obligations of an insolvent insurer... that satisfy all of the following requirements: [¶]... [¶] (C) Which are presented as a claim to [CIGA]... on or before the last date fixed for the filing of claims in the domiciliary liquidating proceedings."

The Pennsylvania liquidation order set June 30, 2005, as the last day for filing a timely proof of claim in the "domiciliary liquidating proceedings." Appellants' notification to CIGA of the Barela lawsuit in October 2005 and the Fulsom lawsuit in November 2005 did not meet the June deadline, nor, even more plainly, did ...


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