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Dave Jones, As Insurance Commissioner, Etc v. Golden Eagle Insurance Corporation

November 28, 2011


Trial Court: San Francisco City and County Superior Court Trial Judge: Hon. Curtis E. A. Karnow (San Francisco City & County Super. Ct. No. 984502)

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


A series of individuals (hereafter plaintiffs) sued Calsol, Inc. (Calsol), an insured of defendant Golden Eagle Insurance Corporation (Golden Eagle), in separate but similar personal injury lawsuits. Although Calsol was in bankruptcy, the bankruptcy court granted the plaintiffs limited relief from the automatic stay, allowing them to pursue claims against Calsol on the condition any judgment could be enforced only against Calsol's insurers, not against Calsol itself.

Golden Eagle was itself in conservatorship. As part of its plan of rehabilitation, Golden Eagle had adopted a procedure for administering claims made under the insurance policies it had issued, and it notified the plaintiffs it would require them to pursue their covered claims against Golden Eagle in the conservatorship proceeding. When the plaintiffs failed to submit timely claims, the Insurance Commissioner declared their claims "denied" and refused demands by Calsol's other insurers to contribute toward the defense of the plaintiffs' lawsuits.*fn1 The insurers filed an unsuccessful application for an order to show cause (OSC) in the superior court challenging the commissioner's refusal to share costs of defense. We affirm the trial court's denial of the order to show cause.


The plaintiffs sued Calsol and other defendants in nine separate lawsuits, each alleging harm from exposure to Safety-Kleen 105 Solvent (hereafter Safety-Kleen 105), a product used in connection with mechanical repairs.*fn2 Safety-Kleen 105 consisted largely of "mineral spirits," a complex chemical mixture containing benzene. Calsol, which had since fallen into bankruptcy, supplied mineral spirits to the manufacturer of Safety-Kleen 105 between 1987 and 1998. The bankruptcy court granted the plaintiffs relief from the automatic stay to pursue their claims against Calsol, but the terms of the relief order allowed them to "enforce [a] final judgment only by . . . [¶] . . . [c]ollecting upon any available insurance in accordance with applicable non-bankruptcy law."

During a portion of the time Calsol supplied mineral spirits for use in Safety-Kleen 105, it was covered by comprehensive general liability insurance policies issued by Golden Eagle that ran noncontinuously from May 1986 through February 1995. Appellants, the claimants in this matter (claimants), are other insurers that issued general liability insurance policies to Calsol from 1975 through 2002.*fn3 Judged solely by the duration of coverage, Golden Eagle had by far the greatest exposure to the plaintiffs' claims; its period of coverage was more than double that of the next-longest insurer.

Golden Eagle was placed in conservatorship in 1997. (See generally Garamendi v. Golden Eagle Ins. Co. (2005) 128 Cal.App.4th 452, 459 (Garamendi v. Golden Eagle); Low v. Golden Eagle Ins. Co., supra, 101 Cal.App.4th 1354, 1359.) As provided in the Insurance Code, the commissioner established an administrative procedure to handle claims against the assets of Golden Eagle. (Garamendi v. Golden Eagle, at p. 459.) Pursuant to this procedure, counsel representing the commissioner sent a letter to the plaintiffs' counsel, informing counsel that "a company in liquidation, like Golden Eagle, is entitled to adjust claims of third-party claimants, and in conjunction with that adjustment process, is also entitled to require sworn statements from potential claimants . . . . Golden Eagle has elected to pursue your client's claim in that fashion." The letter enclosed a form referred to in the letter as a "Sworn Statement Proof of Loss" (SSPL) and requested each plaintiff complete an SSPL and return it to the commissioner within 30 days. Two and a half months later, a second letter was sent stating that although the commissioner had granted extensions of time to the plaintiffs to return the SSPL's, none had been returned. Accordingly, the letter stated, the plaintiffs' claims were "denied."

This approach represented a change of strategy by the commissioner with respect to the handling of similar claims against Calsol. Notwithstanding the conservatorship proceedings, the commissioner had litigated jointly with the claimants an earlier series of Safety-Kleen 105 lawsuits filed against Calsol, appearing in state court and sharing the costs of defense and settlement. Assuming the commissioner would do the same with the plaintiffs' lawsuits, the claimants sought from Golden Eagle a joint defense commitment for those lawsuits. Citing the plaintiffs' failure to file claims in the conservatorship proceeding and contending that failure "forever bars any coverage potential under [Golden Eagle] policies," the commissioner refused to participate further in the defense of the plaintiffs' lawsuits.

Claimants filed claims of their own in the conservatorship proceeding for the costs of defense and settlement of the plaintiffs' lawsuits, but the commissioner denied them. In the letter announcing the denial of the claims, counsel for the commissioner explained the rationale: "[The commissioner] attempted to resolve the above-referenced action directly with the third-party claimants [i.e., the plaintiffs] by providing those claimants with [an SSPL] form and requesting that that SSPL be completed by the claimants and returned to [the commissioner]. When they failed to do so, [the commissioner] advised that the claim was being denied for lack of sufficient information and for failure to comply with the Insurance Code. The claimants were given 30 days in which to seek relief before the Liquidation Court overseeing the liquidation of [Golden Eagle]. No such relief was sought by the Claimants within that 30-day period, and therefore, under the Insurance Code and the orders of the Liquidation Court, the Claimants' claim is now barred. Consequently, there is no potential for coverage under any [Golden Eagle] policy. [¶] A similar approach was adopted by [the commissioner] when you submitted the above-referenced claim. [The commissioner] issued an SSPL to you. . . . Unfortunately, the response which you provided provides little or no information which would allow [the commissioner] to properly adjust or pay the claim in question. We recognize that you are asserting a right to have [Golden Eagle] participate in the defense of these claims. However, in light of the fact that there is no coverage potential due to the Claimants' refusal to participate in the claim process, it follows that there is no duty to defend these actions on the part of [Golden Eagle]."

Claimants filed an application for an OSC in the court in charge of overseeing Golden Eagle's plan of rehabilitation, challenging the refusal to share in defense of the plaintiffs' lawsuits, as well as two other, similar lawsuits.*fn4 (See Ins. Code, § 1032; Garamendi v. Golden Eagle, supra, 128 Cal.App.4th at p. 461.) The court denied the OSC, holding, "The Legislature requires coverage issues arising under Golden Eagle's policies to be processed via the expedited procedures of Insurance Code § 1016 et seq. Those procedures have resulted in the determination that Golden Eagle owes no duty to indemnify, and hence none to defend, to the insureds here. Thus Golden Eagle may not be asked for equitable contribution."


Claimants contend Golden Eagle was required to share costs of defense of the plaintiffs' claims against Calsol, arguing (1) the plaintiffs' failure to return the claim forms did not extinguish Golden Eagle's obligation to defend Calsol because, at most, the failure extinguished the plaintiffs' rights to recover against Golden Eagle, not against Calsol; (2) the plaintiffs' failure to return the claim forms did not extinguish claimants' rights of equitable contribution against Golden ...

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