|
The Court of Appeal, fourth district, division three, affirmed the trial court's decision upholding the constitutionality of Insurance Code section 11580.9(g) allowing a primary borrower's contribution claim against an excess insurer and prohibiting discovery related to an insurer's involvement in the passage of that statute.
Mercury Casualty Co. and Scottsdale Insurance Company each issued automobile liability policies to the same insured. Mercury's policy was primary and Scottsdale's was excess. Scottsdale had no duty to defend the insured unless "no other insurer has an obligation to do so."
While covered under both policies, the insured was involved in an accident and a lawsuit followed. Mercury defended and the lawsuit settled. Mercury paid the limits of its policy towards the settlement and Scottsdale paid the balance. Pursuant to Section 11580.9(g), Mercury demanded Scottsdale reimburse it for part of the costs expended in providing the insured's defense. Scottsdale refused and Mercury filed an action for declaratory relief against Scottsdale. Scottsdale contended it had no duty to defend under its policy, that Section 11580.9(g) violated the United States and California Constitutions and was unenforceable.
Scottsdale served Mercury with discovery to ascertain "the extent of Mercury's involvement in the passage of Section 11580.9(g). It also sought to establish the Legislature's true motive in passing the legislation was to serve the private interest of a small and favored group, which included Mercury and other insurers who provide primary automobile liability coverage to individual consumers." Mercury objected contending the discovery was irrelevant.
Mercury moved for summary judgment and Scottsdale moved to compel further discovery responses. Scottsdale's discovery motions were denied and it served additional discovery on Mercury.
Scottsdale opposed Mercury's summary judgment motion, alleging: "(1) Mercury sponsored and wrote the legislation that ultimately became Section 11580.9(g), and the Legislature conducted no independent analysis of the contentions raised by Mercury in support of it; (2) Mercury itself refused to disclose whether it had lowered rates in the wake of the legislature's passage, while Scottsdale's level of participation in settlements involving its excess policies was unaffected both of which suggested the legislation had been ineffective in achieving its alleged purpose; and (3) the legislation actually serves no public interest, was unnecessary, and was designed to operate as a 'windfall' for Mercury." Scottsdale also argued the trial court's consideration of Mercury's motion was improper prior to Scottsdale completing its discovery, which would have enabled Scottsdale to show Section 11580.9(g) was a "sham."
The trial court granted Mercury's motion and entered judgment against Scottsdale. Scottsdale appealed and the appellate court affirmed.
The Court held Section 11580.9(g) did not violate the equal protection clause of the U.S. Constitution. The statute does not "favor those insurers who sell primary automobile liability policies" or distinguish between "similarly situated groups of excess insurers." The Court held Section 11580.9(g) "regulates only a category of insurance, and affects only those insurers who choose to sell the policies that fall within its purview."
The Court found the Legislative history showed Mercury sponsored the bill which ultimately became Section 11580.9(g). However, the bill Mercury initially sponsored was markedly different from the one that was ultimately passed. This undermined Scottsdale's claim the Legislature did not undertake independent analysis of Mercury's promotion of the bill. The Court found nothing sinister in Mercury's promotion of the bill. Mercury was "entitled to petition the Legislature in support of any proposed legislation it chose to favor."
The Court held Section 11580.9(g) did not violate Scottsdale's constitutional right to contract because the disputed Scottsdale policy was issued in 2003, after Section 11580.9(g) had been enacted. The contracts clause limits a State's power to erode existing contractual relationships.
The Court rejected Scottsdale's request for further discovery. It found Scottsdale's claims were "based upon unsupported assertions about the insurance industry and a flawed analysis of the effect Section 11580.9(g)." Thus, Scottsdale's assertions were not "dependent upon information obtainable only from Mercury" via discovery.
Click here for opinion.
| 
