Court Opinion

ID: 9750210
Source: CourtListenerOpinion
Date Created: 2023-08-28 14:35:45.187191+00
Date Added: 2024-06-11T07:26:04.499192
License: Public Domain

ZEBROWSKI, J.,
Dissenting. — As respondent insurers note: “Even in a shell game, there is only one pea.” The respondent insurers contracted to defend and indemnify only one insured. The majority now extends respondents’ duty to a second party, a noninsured. I therefore respectfully dissent. I would hold that the trial court ruled correctly on all issues, and would affirm.
*644Respondent insurers issued policies insuring only Westoil Corporation. Westoil Partnership is a different legal entity and is not a named insured. Although Westoil Corporation long ago dissolved, it remains subject to suit. (Peñasquitos, Inc. v. Superior Court (1991) 53 Cal.3d 1180 [283 Cal.Rptr. 135, 812 P.2d 154].) The Supreme Court in Peñasquitos, in a unanimous decision, expressly noted that a motivation to sue a dissolved corporation could be provided by liability insurance. (Id. at p. 1191.) Hence the named insured, Westoil Corporation, could have been sued at the time that Westoil Partnership was sued, and can still be sued. Respondent insurers hence remain exposed to the possibility of being required to defend and possibly to indemnify Westoil Corporation. Granted, it might appear odd to speak of “indemnifying” a defunct corporation, since a defunct corporation without assets cannot really be damaged. However, if respondent insurers refused to defend their insured, Westoil Corporation, and if a third party plaintiff obtained a judgment against Westoil Corporation on a claim within the scope of the coverage, that judgment could then be enforced against respondent insurers. (See, e.g., Croskey et al., Cal. Practice Guide: Insurance Litigation (The Rutter Group 1998) 1:27.) Under Peñasquitos and the laws regarding enforcement of judgments, therefore, respondent insurers remain exposed to the possible liabilities of Westoil Corporation.
Appellant’s opening brief does not mention Peñasquitos until page 50 (the last page allowed). However, it then acknowledges that dissolution of a corporation does not terminate an insurer’s obligation to defend and indemnify the dissolved corporation. Appellant thus concedes that Westoil Corporation remains subject to suit, and that respondent insurers thus remain liable to defend and indemnify Westoil Corporation. However, appellant’s brief proceeds to draw from these factual concessions the seeming nonsequitur that if respondent insurers must defend and indemnify the named insured, they should also have to defend noninsured Westoil Partnership as well. Although the conclusion does not follow from the premise, the argument does confirm that appellant is overtly arguing that respondent insurers’ defense and indemnification obligations should be judicially expanded from one insured to two.
The potential for suit against a dissolved corporation is not merely a remote theoretical possibility. By way of example, substantial litigation has proceeded against Montrose Chemical Corporation in recent years arising out of Montrose’s long-closed DDT manufacturing operations in Torrance. The insurers which issued policies to Montrose covering the relevant periods have expended considerable sums responding to these suits, and this litigation has produced several appellate opinions. Although Montrose Chemical Corporation may not have dissolved, its insurers would have to respond *645under Peñasquitos even if Montrose were dissolved, and would have to incur the significant costs involved. Similarly, respondent insurers in this case will have to respond should Westoil Corporation be sued.
In view of the allegations in this case, Westoil Partnership itself has (unless it contracted it away) a claim for indemnity against Westoil Corporation. As Westoil Partnership itself states in its brief, it “seeks coverage under those policies for events that occurred during the policy periods.” During the policy periods referenced, the site was operated by named insured Westoil Corporation. The interests of Westoil Partnership and Wes-toil Corporation hence appear to be adverse. This adversity should preclude representation of both these entities by the same counsel. It would be more expectable to find appellant’s counsel representing Westoil Partnership in a suit against Westoil Corporation, in order to trigger Westoil Corporation’s insurance coverage under Peñasquitos, rather than attempting to represent both of these diverging interests. Even after conclusion of the instant litigation in the trial court, Westoil Partnership could have sued Westoil Corporation for indemnity, and perhaps still can (the record does not reveal precisely when the statute of limitations on such an indemnity claim would expire). Hence no party was deprived of the opportunity to seek the benefits of the insurance policy; all that was required was a suit against the named insured.
One possible explanation for why Westoil Partnership did not simply sue Westoil Corporation might be the fact that different counsel would then be appointed by respondent insurers to defend Westoil Corporation. It thus appears at least plausible that the litigation strategy pursued in this case was motivated by a desire to have the same counsel represent both entities, and that the law of insurance, contracts or corporations was not the motivation. A possible alternative explanation for why Westoil Partnership did not simply sue Westoil Corporation in order to reach the insurance coverage under Peñasquitos is the contractual arrangements between Westoil Partnership and Westoil Corporation. The record reflects that Westoil Partnership agreed to assume all of Westoil Corporation’s liabilities. Whether this agreement would operate to exonerate respondent insurers from defending and indemnifying their named insured, Westoil Corporation, is not determinable from this record. Nor does the record reflect the precise reason for Westoil Partnership’s agreement to assume liabilities, but the reason may have been to obtain tax benefits for the Westoil Partnership partners or to avoid the necessity of cash payments to Westoil Corporation, or both. The reason does not matter in any event, for whatever contractual arrangements might have been agreed to between Westoil Corporation and Westoil Partnership cannot have magnified respondent insurers’ obligations under their policies. Nor is *646there is any legal basis on which respondent insurers’ contractual obligations can be expanded in order to relieve the Westoil Partnership partners from the possibly adverse effects of the manner in which they chose to structure their business operations, for tax purposes or otherwise.
The majority’s observation that “[t]he transfer of the policies to Westoil Partnership in 1986 was well after the loss and after the [government] issued its order . . . ordering Western Fuel to investigate hydrocarbon pollutants at its facility . . .” is not a reason for reversal. (Maj. opn., ante, at p. 641.) By this observation, the majority makes the point that the right to recover under the policies for covered events that had already occurred may have been assignable in 1986, when Westoil Partnership was created. That may be true, but the fact remains that the policies were not then assigned. If they had been, then perhaps there would be only one named insured to be defended and indemnified (the assignee), or perhaps there would be an agreement by respondent insurers to assume obligations to a second insured (possibly after the payment of an additional premium). But there was no assignment. Whether the policies could be assigned now, assuming respondent insurers would consent to assignment, is problematic, since Westoil Corporation now has no officers to effect an assignment. With the policies still covering Westoil Corporation, Westoil Corporation remains a solvent target defendant for environmental claims. As noted above, should Westoil Corporation be sued, respondent insurers will be forced to respond on behalf of Westoil Corporation. Respondent insurers have never agreed to expand their reponse obligations to encompass Westoil Partnership. Hence there was no impropriety in respondent insurers’ refusal to agree to defend and indemnify nonin-sured Westoil Partnership.
As the trial court noted, Westoil Corporation was simply not sued, either directly by a third party or by Westoil Partnership in a cross-complaint. Westoil Partnership, the entity which was sued by a third party, is not a named insured. By ruling that the policies issued by respondent insurers cover not only the named insured, but also Westoil Partnership, the majority has imposed upon respondent insurers a duty to defend and indemnify an entity with whom respondent insurers never contracted and from whom respondent insurers never received a premium. I find no legal basis for this uncompensated expansion in respondent insurers’ duties, and no basis for exposing respondent insurers’ to a bad faith claim merely for denying coverage to an uninsured entity. There was no de facto “merger” here. A merger causes two independent entities to become one, leaving only one entity to be defended and indemnified. In the instant situation, there are quite clearly still two different entities — Westoil Corporation, which can still be sued pursuant to Peñasquitos, and Westoil Partnership, which still owns the *647terminal and administers the lease and was in fact sued. These two entities never “merged” into one on the facts in this record.
Appellant Westoil Partnership accuses respondent insurers of attempting to “cloud the issues,” and advances such contentions as “[t]he undisputed facts provide the clarity [that the respondent insurer] fears and compel reversal of the trial court’s ruling. Appellant paid premiums . . . .” Such passages indicate that it is appellant Westoil Partnership that is attempting to “cloud the issues.” Quite clearly, appellant never paid a premium. Statements such as this in appellant’s briefing simply cannot be correct. Appellant Westoil Partnership did not even exist at the time the premiums were paid. The premiums were paid by Westoil Corporation, not by Westoil Partnership. For reasons such as this, Westoil Partnership’s briefing must be read with “a grain of salt,” and I fear this style of briefing may have misled the majority.
Nor can thoughts that a defense of noninsured Westoil Partnership might achieve res judicata render this a “no harm, no foul” situation. Since Westoil Partnership and Westoil Corporation are different legal entities, a successful defense of Westoil Partnership would not render res judicata a similar suit against Westoil Corporation. Nor would an unsuccessful defense, followed by payment of a judgment, or a settlement, render res judicata a possible future suit against Westoil Corporation. A plaintiff who litigated to judgment against, or settled with, Westoil Partnership would not be barred from advancing the same claims against Westoil Corporation, or at least not obviously so. Hence the majority’s finding that respondent insurers owed defense duties to Westoil Partnership, coupled with the Supreme Court holding in Peñasquitos, means that respondent insurers have now been charged with a duty to defend the same claims not merely once, as they contracted to do, but twice. This is a substantial uncompensated modification of respondent insurers’ contractual duties. I therefore dissent.
A petition for a rehearing was denied April 19, 1999. Zebrowski, J., was of the opinion that the petition should be granted.