Opinion ID: 1405990
Heading Depth: 2
Heading Rank: 2

Heading: Webster Should Have Been Allowed to Maintain His Action Against Enterprise.

Text: The fundamental purpose of section 1020 is to preserve the assets of an insolvent insurer for orderly distribution. (10a) Because Webster will be allowed to recover only from Enterprise's insurers and because they are responsible for defending Enterprise, Webster's action will neither deplete Enterprise's assets nor disrupt an orderly distribution. The claims of Enterprise and the commissioner to the contrary are untenable.
Enterprise does not dispute that it has $20.5 million of liability insurance coverage. Enterprise argues, however, that despite such coverage, its assets may be threatened because, if the stay of Webster's action is lifted, other parties who have initiated actions arising out of the 1982 shootings will be allowed to proceed with their actions, and cumulative judgments in excess of the total insurance coverage are possible. Enterprise speculates that the excess would have to be paid out of Enterprise's assets to the prejudice of other claimants. The answer to Enterprise's concern is simple. We hold that Webster must be allowed to maintain his civil damages action if he notifies the court supervising the insolvency that he unequivocally elects to recover payment of any judgment against Enterprise only from its insurers and that he shall not under any circumstances seek to recover from Enterprise's assets. Any other claimant wishing to maintain an action for damages must elect likewise. Such elections will negate the possibility of judgments that might affect Enterprise's assets, even if the total amount of all judgments exceeds the limit of Enterprise's insurance coverage. [9] We emphasize that Webster and the other personal injury plaintiffs must make a binding election before being allowed to proceed with their pending civil actions. Each plaintiff must choose either: (1) to participate in the statutory claims proceeding under the Insurance Code, or (2) to seek recovery in an ordinary civil damages action. (11) (See fn. 10.) A plaintiff cannot seek to recover in one forum and then, if displeased with the result, seek to recover in the other forum. [10]
(10b) Enterprise contends Webster is seeking to obtain an unfair preference over Enterprise's creditors whose claims are not covered by insurance. We are unable to find any logical premise for this argument. There is no inherent unfairness in the fact that some claims against Enterprise are covered by insurance and others are not. The only unfairness would lie in the result sought by Enterprise  arbitrarily denying Webster and the other similarly situated victims recovery from Enterprise's insurance proceeds merely so that all of Enterprise's creditors, tort or otherwise, would be equally disadvantaged by its insolvency. Such result would require a peculiar sense of egalitarianism. We also note that many, perhaps most, of Enterprise's other creditors, including policyholders and other businesses, entered into voluntary relationships with Enterprise. Webster did not ask to be shot in the back. We also find no factual support for Enterprise's claim of unfairness. Because Webster will recover, if at all, only from Enterprise's insurance rather than from its assets, recovery by creditors whose claims are not covered by Enterprise's insurance and thus will be paid from Enterprise's assets will not be diminished. Indeed, to the extent that other creditors seek to recover from those assets, their prospects for total recovery will be increased if Webster's claim is paid out of Enterprise's insurance rather than its assets. Webster will obtain no unfair advantage. Enterprise also ignores that the vast majority of claims against an insolvent insurer are made pursuant to insurance policies it has issued. Those claims are payable by the California Insurance Guarantee Association (CIGA), which provides insurance arising from the failure of an insolvent insurer to discharge its obligations under its insurance policies. (§§ 119.5, 1063 et seq.; Isaacson v. California Ins. Guarantee Assn. (1988) 44 Cal.3d 775, 784 [244 Cal. Rptr. 655, 750 P.2d 297].) The commissioner admits those claims are already being paid. This payment establishes that the CIGA claims have not been and will not be affected by Webster's possible recovery. We find no unfairness in allowing Webster and the other similarly situated tort victims from being allowed to maintain their actions to obtain payment from Enterprise's insurers.
The commissioner contends the prosecution of Webster's action will disrupt Enterprise's orderly liquidation. This contention is also not supported by fact or logic. Apparently, the commissioner means she cannot distribute Enterprise's assets until she knows whether Webster is entitled to a share of them and, if so, how much. This argument fails entirely in light of the requirement we have imposed on Webster that he forego any recovery from Enterprise's assets as the price of being allowed to maintain his civil action. Nor will the assets be depleted by the costs incurred in defending Webster's action. The commissioner admits Enterprise's defense is being provided and paid for by Enterprise's liability insurers. [11] Webster's action will not delay or disrupt the liquidation by interfering with Enterprise's assets. The commissioner, however, contends Webster's action and the others arising from the shootings will require the commissioner's substantial time and effort to defend and will thus disrupt the liquidation. This argument ignores that private counsel paid by Enterprise's insurers are responsible for its legal representation. The commissioner's role, if any, will be secondary. Recognizing this fact, the commissioner surmises that she may be asked to provide guidance to the insurance defense counsel and to comply with discovery demands. Aside from being speculative, this argument is contrary to the facts of this case and to the realities of litigation. Webster's action is to recover for personal injuries and is peripheral to the liquidation. The counsel hired by Enterprise's insurers are presumably competent in personal injury law and will not require legal advice from the commissioner, who is an expert in insurance matters but not in defending personal injury lawsuits. We also reject the notion that the commissioner will be much involved with discovery or other pretrial procedures. Webster's action is based entirely on events that occurred before the insolvency proceeding began. Thus, witnesses who may be called to testify will not be employees of the commissioner. The facts of this case also suggest it is not one requiring substantial document discovery as would an antitrust or business litigation case. There is no evidence to suggest that Enterprise's private counsel cannot adequately represent it in the actions by Webster and the other shooting victims. We believe the commissioner's involvement in Webster's action will be minimal at most. Indeed, allowing Webster to maintain his independent action will likely benefit the commissioner. Surely she does not mean to suggest that she would treat the claim of a grievously wounded victim in a cursory fashion. If Webster were forced to submit to the statutory claims procedure, the commissioner would have to conduct a thorough investigation of the claim to determine whether to pay it and, if so, how much, especially if Webster's claim is as complex as the commissioner contends. This would require a substantial involvement by her staff. The insolvency statutes also suggest the burden on the commissioner would be substantial. As enacted in 1935, section 1058 provided: In any proceeding pending under the provisions of this article, the court in which such proceeding is pending shall have jurisdiction to summarily hear and determine, in such proceeding, all actions or proceedings then pending or thereafter instituted by or against [the insolvent insurer].... (Stats. 1935, ch. 291, p. 1008, italics added.) In 1939, the Legislature amended section 1058 by deleting the word summarily from the phrase to summarily hear and determine. Although we need not decide in this case the effect of the amendment, it suggests that a full and fair determination of a claim is required. If Webster's independent action proceeds with private counsel doing the work, the commissioner conserves her valuable resources for the liquidation.
The parties disagree at length as to whether Webster has a right to a jury trial in the liquidation proceeding. In light of our holding that, assuming a proper election, he must be allowed to maintain an action outside that proceeding, we need not resolve the dispute on this issue. We do recognize, however, that before Enterprise's insolvency proceeding began, Webster had a right to a jury trial of his civil action for damages. (Cal. Const., art. I, § 16; Code Civ. Proc., § 592.) [12] We agree with the high court's observation in Foust v. Munson S.S. Lines, supra, 299 U.S. 77, 84 [81 L.Ed. 49, 54], decided on very similar facts, that Maintenance of the jury as a fact-finding body is of such importance and occupies so firm a place in our history and jurisprudence that any seeming curtailment of the right to a jury trial should be scrutinized with the utmost care. Scrutiny of the facts before us shows there is no basis whatsoever on which to deny Webster a jury trial.