Stonelight Tile, Inc. v. California Insurance Guarantee Association
(2007) __ Cal.App.4th __, 07 C.D.O.S. 4506

CIGA Not Obligated To Contribute Toward Payment Of Judgment Where Settlement Left "Other Insurance" Available

The California Court of Appeal, Sixth Appellate District, affirmed the decision of the trial court holding that the California Insurance Guarantee Association ("CIGA") was not obligated to contribute toward payment of a judgment that did not exhaust other available primary insurance. The Court held the subject claim was not a "covered claim" under Insurance Code section 1063.1(c)(9) because the unexhausted policies constituted "other insurance."

Stonelight Tile, Inc. ("Stonelight") brought an action against CIGA to collect the unfunded portion of a verdict against Diversified Recycling Services, Inc. ("Diversified). Stonelight claimed to have suffered damages due to repeated exposure of dust generated by Diversified's recycling operations.

Diversified tendered the claim to its insurance carriers Transamerica Insurance Company, CIGNA Property and Casualty Company, Continental Insurance Company (collectively "Solvent Insurers") and CIGA, which administered the claims of the insolvent insurer Superior National Insurance Company ("Insolvent Insurer"). Stonelight settled with the Solvent Insurers; however that settlement "neither exhausted each individual insurer's policy limits nor fully satisfied the underlying judgment" that had been entered against Diversified.

CIGA filed a motion for summary judgment, arguing that under section 1063.1, subdivision (c)(9), CIGA had no statutory duty to pay the judgment because Stonelight had not exhausted the other insurance available to it and because CIGA was prohibited by statute from paying claims that are not "covered claims." CIGA further argued that each of the Solvent Insurers was liable for the entire amount of the judgment because it was a continuous loss and, accordingly, each Solvent Insurer was responsible to pay the entire loss so long as some portion of the damage occurred during their policy period. The trial court agreed with CIGA and entered summary judgment.

On appeal, Stonelight argued that there was no other insurance available to cover losses incurred during the Insolvent Insurer's policy period because the Solvent Insurers did not have the same scope of coverage. Stonelight's contention was based on the fact that Diversified's tub grinding operations only occurred during the Insolvent Insurer's policy period, and that the damages due to tub grinding were unique from the other damages caused by Diversified's other operations and thus not covered by the Solvent Insurers. Stonelight further argued that there was no other insurance available for their trespass and nuisance claims asserted against Diversified. Specifically, Stonelight argued that the continuous injury trigger of coverage did not apply to the trespass and nuisance claims. The Court of Appeal disagreed, and affirmed the trial court's decision.

The Court first reviewed the history and purpose of CIGA, and recognized that CIGA itself is not an insurer and does not "stand in the shoes" of the insolvent insurer for all purposes. The Court recognized that CIGA is authorized by statute to pay only "covered claims" of an insolvent insurer, defined by Section 1063.1(c)(1) in relevant part as "the obligations of an insolvent insurer … imposed by law and within the coverage of an insurance policy of the insolvent insurer … which were unpaid by the insolvent insurer … for which the assets of the insolvent insurer were insufficient to discharge in full." The Court further noted that, pursuant to subdivision (c)(9) of section 1063.1, "covered claims" does not include "any claim to the extent it is covered by any other insurance of a class covered by this article available to the claimant or insured. . ."

Applying these principles, the Court noted that there was no evidence of damages to Stonelight that was distinct to a specific operation of Diversified. As a result, Stonelight's exposure to dust from Diversified's operations met the policy definition of an occurrence because they involved a "continuous exposure or repeated exposure to substantially the same general harmful conditions."

The Court of Appeal further held that Stonelight suffered from continuously triggered injury. The damage to Stonelight continued throughout successive policy periods, triggering all insurance policies in effect during those period. "Once a policy is triggered, the policy obligates the insurer to pay 'all sums' which the insured shall become liable to pay as damages for bodily injury or property damage." Therefore, "the insurer is responsible for the full extent of the insured's liability…not just for the part of the injury or damage that occurred during the policy period."

The Court recognized that when a continuous loss is covered by multiple policies, the insured may elect to seek indemnity under a single policy with adequate policy limits. The insurer called upon to pay the loss may seek contribution from the other insurers on the risk. However, no claim for contribution would lie against CIGA, since such claims are statutorily barred under section 1063.1(c)(5), which provides: "'Covered claims' does not include any obligations to insurers, insurance pools, or underwriting associations, nor their claims for contribution, indemnity, or subrogation, equitable or otherwise, except as otherwise provided in this chapter."

Applying these rules, the Court found that each of the Solvent Insurers was responsible for the full amount of the loss, up to its policy limits. Since the settlements "neither exhausted each Solvent Insurer's policy limits nor fully satisfied the underlying judgment," CIGA was not obligated to fund the difference between the verdict and the settlements.

The Court noted that prior to the settlements, CIGA advised Stonelight that claims covered by other insurance are excluded and that the Solvent Insurers' policy limits should be exhausted prior to seeking payment from CIGA. The Court further noted that Stonelight "cannot bootstrap [their] claim against CIGA by releasing [their] right to recover under an available policy and claiming that as a result there is no other coverage." Stonelight "chose to accept the risk of pursuing the claim against CIGA as part of their settlement with the Solvent Insurers. Their tactical choice cannot be used to increase the extent of CIGA's statutory liability."

Stonelight then argued that there was no other insurance available for the trespass and nuisance claims, contending that these claims were covered under the personal injury liability coverage and the CIGA was "uniquely" responsible for all trespass and nuisance claims that arose during Superior National's policy period. The Court of Appeal found it unnecessary to reach the issues relating to the personal injury liability coverage, since it already had concluded that there was other insurance available under the bodily injury and property damage liability coverages. This other insurance was available regardless of whether a portion of the judgment may be attributable to the nuisance or trespass causes of action. The general verdict upon which the judgment was based did not allocate damages between the claims. Thus, the Court concluded that the damages Stonelight sought were awardable under a variety of theories because the verdict was unclear in regards to the theory for which the amounts were awarded.

This opinion is not final. It may be withdrawn from publication, modified on rehearing, or review may be granted by the California Supreme Court. These events would render the opinion unavailable for use as legal authority.

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