APPEAL and CROSS-APPEAL from a judgment of the Superior Court of San Diego County, Joan M. Lewis, Judge. Reversed with instructions. (Super. Ct. No. GIC826769)
The opinion of the court was delivered by: Benke, Acting P. J.
CERTIFIED FOR PUBLICATION
This is an action alleging violations of the Unfair Competition Law (UCL; Bus. & Prof. Code,*fn1 § 17200 et seq.) predicated on violations of the Insurance Code. M&F Fishing, Inc. (M&F), and C&F Fishing, Ltd. (C&F) (together, respondents), owned and operated commercial fishing companies. Between 1996 and 2003, respondents purchased commercial marine insurance from Sea-Pac Insurance Managers, Inc., dba Sea-Pac Insurance Services (Sea-Pac), Raleigh, Schwartz & Powell, Inc., Brown & Brown of Washington, Inc. (B&B Washington), a subsidiary wholly owned by Brown & Brown, Inc. (B&B), and Sharon Edmondson (Edmondson; together, appellants).
Respondents sued appellants in 2004 claiming they violated certain provisions of the Insurance Code in connection with the sale of such insurance because, among other allegations, appellants lacked a special lines' surplus lines broker license to sell insurance issued by a "nonadmitted" insurer (e.g., a carrier that has not submitted to California regulation and supervision) and because appellants failed to provide respondents with a "disclosure statement" required for each placement of nonadmitted coverage. Respondents alleged these as well as other violations of the Insurance Code constituted unlawful conduct under the UCL. Following a bench trial, the trial court awarded respondents $3.5 million in restitution.
Appellants contend: (1) the trial court erred as a matter of law in its liability findings because (a) at least part of the restitution awarded respondents was for insurance legally placed by appellants with an "admitted" carrier, and (b) respondents failed to establish injury in fact and/or loss of money as a result of any unfair business practice; (2) the trial court's restitution award is not supported by substantial evidence; and (3) as to B&B only, the trial court erred in refusing to grant its motion for non-suit because there was no evidence that Edmondson, the broker primarily involved in the sale of marine insurance to respondents, was employed by B&B, that B&B was in an agency relationship with the other appellants and that B&B did anything wrong in connection with respondents' UCL claim.
As we explain, respondents are not entitled to restitution of premiums and/or commissions for admitted coverage because that insurance was lawfully placed by appellants. Respondents also are not entitled to restitution of premiums paid for nonadmitted coverage because there is undisputed evidence in the record that appellants fulfilled their duty as brokers and transferred all premiums paid by respondents to the nonadmitted insurers that issued the valid and enforceable marine policies.
However, respondents may be entitled to a return of the commissions/broker fees appellants received when placing marine insurance with a nonadmitted carrier. We say may because on remand the trial court must decide the threshold issue of whether respondents released their claim to recover such commissions/fees in the instant action in settlement of a related action with appellants. Depending on the outcome of that issue, respondents' entitlement to restitution of commissions/broker fees they paid appellants for placement of coverage with a nonadmitted carrier is limited, as we discuss, by the four-year statute of limitations in section 17204.
Finally, we conclude the trial court erred in denying B&B's motion for non-suit.
In connection with respondents' cross-appeal, the trial court acted well within its discretion when, shortly before trial and the five-year cutoff to bring an action to trial, it denied the motions of respondents to add dozens of new parties to their action. We also conclude in the cross-appeal that on remand the trial court should exercise its discretion and determine whether respondents are entitled, if at all, to an award of prejudgment interest on commissions/broker fees, if any, returned to respondents as restitution in accordance with this opinion.
FACTUAL AND PROCEDURAL OVERVIEW*fn2
M&F and C&F at all times relevant in this case owned tuna seiners that fished in American Samoa. Edmondson first started working as a broker selling marine insurance in 1963. Edmondson was initially introduced to respondents in 1996 in connection with the placement of marine insurance. During the period Edmondson placed marine insurance for respondents, she was employed by at least three different entities, each of which was named as a defendant in the case.
From 1996 to 2003, Edmondson placed at least*fn3 153 policies for M&F and C&F, providing numerous, different types of insurance coverage for their businesses including: protection and indemnity (P&I), which insures the vessel owner against third party claims; hull and machinery; war risk; cargo; electronics; fishing nets; skiff; and aviation (e.g., helicopter).
A. Admitted versus Nonadmitted Carriers and Surplus Lines Coverage
With limited exceptions, an insurer seeking to transact insurance business in California must be "admitted" for that purpose.*fn4 To become admitted, an insurer must obtain a "certificate of authority" from the insurance commissioner.*fn5 Historically, most marine insurance coverage is sold out of London and is placed by "nonadmitted" insurers (e.g., those insurers not entitled to transact business in California).*fn6 The record shows that when Edmondson began placing marine insurance for respondents in 1996, there were no United States based companies, much less companies admitted in California, that wrote P&I insurance coverage for a tuna seiner.
Relevant to the case at hand, a nonadmitted insurer may offer particular types of insurance coverage not offered in the admitted market. Because nonadmitted or "surplus lines" carriers*fn7 do not have a license to transact insurance business in California,*fn8 placements by nonadmitted carriers are effected by a class of specially licensed insurance brokers who are regulated by California's surplus line law.*fn9
In light of the marketplace, marine insurance coverage is underwritten by a mixture of admitted and nonadmitted carriers. The marine insurance Edmondson placed for respondents was consistent with this model. As one of respondents' experts testified in his deposition that was read into the record at trial, the marketplace for marine insurance "is very restricted" and thus if a broker obtains "some admitted [coverage], that's sort of a miracle."
From the perspective of the surplus lines broker, one difference between admitted and nonadmitted marine insurance is the licensing required for a broker to sell such coverage. To sell marine insurance by admitted carriers in California, a broker must possess a property/casualty insurance license. Edmondson possessed the requisite license to sell admitted coverage in California.
Relevant to the instant case, to sell marine insurance in California issued by nonadmitted carriers a broker also must have a special lines' surplus lines license. (See Ins. Code, § 1760.5, discussed post.) However, neither Edmondson nor the brokerage firms where she worked possessed such a license during most times relevant in this case.
For years during the relevant time period, Edmondson placed without incident marine insurance for respondents with both admitted and nonadmitted carriers. M&F and C&F each had claims that were paid by both admitted and nonadmitted carriers while Edmondson acted as their broker. In addition, the insurance obtained by Edmondson for respondents satisfied National Marine Fishery Service, the entity which held a first preferred ship mortgage on three of the vessels owned by respondents.
In 1997 Edmondson brokered on behalf of C&F a P&I policy (No. 97/09012) issued by FAI, an Australian company (FAI). The following year, Edmondson placed a P&I policy (No. 98/05066/01) issued by FAI for M&F. Although FAI was a nonadmitted carrier in California, it was on a list of acceptable nonadmitted carriers--called LESLI, an acronym for "List of Eligible Surplus Lines Insurers"--maintained by the Surplus Line Advisory Association (SLA), an organization that performs certain duties delegated to it by the Insurance Commissioner.*fn10
Edmondson first learned she needed such a license in late March 2003, during a deposition in another case. Until that time, Edmondson generally had been relying on her employer to do her "licensing investigation" and satisfy all licensing requirements in various states where she placed coverage, including in California. Edmondson on her own obtained a special lines' surplus lines license in mid-September 2003 and Edmondson's employer paid the premium on the surety bond--about $100--that was a condition for licensure.
B. Claims Made on Nonadmitted Coverage Issued by FAI and Lloyds Underwriters
In 1998, Jaoa Virrissimo, a seamen working on the seiner owned by C&F, was injured while lifting salt bags. At about the same time, John Alves was injured while working on a seiner owned by M&F when his foot got caught in a fishing net. Both seamen made claims against the FAI policies, and both of those claims were paid by FAI for about three years. However, in March 2001, FAI became insolvent and payments on both claims stopped.
Virrissimo subsequently sued C&F in the United States District Court for the Southern District of California, case No. 01 CV 0776 B (LAB). C&F settled that case in March 2003 by paying Virrissimo $200,000 within certain time parameters and by giving Virrissimo a promissory note secured by a mortgage and lien in the principal amount of $600,000. Thereafter, C&F sued Sea-Pac, Raleigh, Schwartz & Powell, Inc., B&B Washington and Edmondson for professional negligence in San Diego County Superior Court, case No. GIC 826768, as a result of the FAI insolvency and the Virrissimo claim settled by C&F (Virrissimo professional negligence action).
The errors and omissions (E&O) carrier for B&B Washington, Philadelphia Indemnity Insurance Company (PIIC), settled the Virrissimo professional negligence action by paying C&F $895,000 for a partial release of all claims. In return for the payment, C&F agreed to release C&F and its agents and assigns, among other related entities/parties, "from all claims, causes of action and damages, alleged in [the Virrissimo professional negligence action], including the claim for return of the premium for policy No. 97/09012 . . . ." Allegedly carved out of the partial release were any claims made in the instant action.
Alves also sued M&F, which in turn settled with him after Alves's claim caused the seiner owned by M&F to be "arrested" in American Samoa as security pursuant to the Jones Act (46 U.S.C.App. § 688). At the time of its arrest, the vessel was fully provisioned and ready to go to sea.
M&F initially sued, among others, the carrier, Lloyds Underwriters (Lloyds) that had issued port risk coverage for the vessel after it had been arrested and placed under the care of a substitute custodian.*fn11 When that suit and others ultimately proved unsuccessful, M&F sued Sea-Pac, Raleigh, Schwartz & Powell, Inc., B&B Washington and Edmondson for professional negligence in San Diego County Superior Court, case No. GIC 826767 (Alves professional negligence action). PIIC also settled the Alves professional negligence action, paying M&F $4 million for a partial release of all claims. Similar to the C&F release, the M&F release included within its scope "all claims, causes of action and damages, alleged in [the Alves professional negligence action]" but unlike the C&F release it did not include the premium paid for the nonadmitted coverage issued by FAI.
C. Premiums and Commissions Paid by Respondents
C&F paid $87,993 in premium and $8,799 in commission for the FAI policy that partially covered the Virrissimo claim. In contrast, C&F paid $783,556 in premiums and $120,693 in commissions for all of the admitted coverage, and $972,009 in premiums and $113,747 in commissions for nonadmitted coverage, procured through Edmondson and appellants, for a total of $1,755,565 in premiums and $234,440 in commissions.
M&F paid $85,000 in premium and $8,500 in commission for the FAI policy that covered in part the Alves claim and $23,700 in premium and $2,370 in commission for the Lloyd's port risk coverage. M&F paid $845,664 in premiums and $126,808 in commissions for all of the admitted coverage, and $914,292 in premiums and $112,617 in commissions for nonadmitted coverage placed by appellants, for a total of $1,759,956 in premiums and $239,425 in commissions.
Respondents sued appellants in March 2004. Respondents in their complaint asserted a section 17200 claim on their own behalf and on behalf of all others similarly situated based on appellants' alleged violations of various provisions of the Insurance Code, and asserted causes of action for negligence per se and declaratory relief. Respondents subsequently dismissed their negligence per se cause of action.
At trial, respondents' accounting expert opined C&F was entitled to $3,134,584 and M&F to $1,992,063, or a total of $5,126,647, in restitution. This amount was comprised of all premiums and commissions respondents paid for the 153 (or more) polices of both nonadmitted and admitted coverage appellants had placed for them from 1996 to 2003.
After 11 days of trial, the court issued its tentative decision finding appellants liable for unfair business practices under section 17200. The trial court initially awarded respondents $3.5 million in restitution without dividing the award between C&F and M&F. After appellants objected to the lump sum award and various other findings made by the trial court, the court issued its statement of decision (SOD), entered judgment and adopted the allocation of the $3.5 million restitution award suggested by respondents, which was based on the relative proportion of the total premiums each paid during the relevant time period. As a result, the court awarded C&F $2,140,003 and M&F $1,359,997 in restitution. The trial court subsequently denied appellants' motion for new trial and respondents' request for prejudgment interest in excess of $5 million.
A. Restitution for Violation of Section 17200
Appellants claim the trial court erred as a matter of law in awarding restitution to respondents because respondents were not entitled to an award based on premiums and/or commissions paid for insurance lawfully placed and because the award was not supported by the law or the evidence.
After several objections to the preliminary SOD, the trial court in the SOD*fn12 found respondents violated section 17200 resulting in injury in fact and ...