The California Court of Appeal, Second District, affirmed the judgment of the Los Angeles County Superior Court against two insured residential nursing home operators, and in favor of the California Insurance Guaranty Association ("CIGA"). The Court of Appeal held that the insureds' failure to file claims by the deadline set by their insolvent insurer's Pennsylvania liquidator precluded payments by CIGA, even if Pennsylvania law allowed for certain late-filed claims for "good cause."
HCM Healthcare, Inc. ("HCM") and Madera Convalescent Hospital, Inc. ("Madera") were covered by three insurance companies which had issued them consecutive nursing home liability policies. Legion Insurance Company ("Legion") issued the last policy, covering the period 2000 to 2001. In July 2003, the State of Pennsylvania declared Legion insolvent and placed it into liquidation. The liquidation order required that "[a]ll claims against the estate of Legion, together with proper proof thereof, shall be filed on or before June 30, 2005." However, Title 40 of Pennsylvania Consolidated Statutes, section 221.37, permits late filing of a claim for "good cause."
In October 2003, Legion's Pennsylvania liquidator mailed a notice of Legion's insolvency and a proof of claim form to HCM and Madera, indicating the insureds had until June 30, 2005, to file any claims.
In April 2005, a former resident of one of the insured nursing homes sued for elder abuse allegedly suffered at the facility. After tendering to their first two insurers, on October 20, 2005, HCM and Madera notified CIGA of their demand for coverage under Legion's policy. About two months later, HCM and Madera then submitted a proof of claim to Legion's Pennsylvania liquidator. All insurers denied coverage and in 2006, the insureds settled the elder abuse lawsuit for $250,000.
In November 2005, a second elder abuse lawsuit was filed against HCM and Madera in connection with one of their nursing homes. The insureds also submitted this claim to CIGA on November 21, 2005, and then filed a proof of claim with Legion's Pennsylvania liquidator in February 2006. Again HCM and Madera's insurers denied coverage. The insureds settled the second lawsuit for $250,000.
HCM and Madera then brought a coverage action against their three insurers, including CIGA, for wrongful denial of defense and indemnification of the two elder abuse actions. The first two insurers settled for a total of $400,000, but CIGA refused to participate. CIGA contended it was statutorily barred from paying anything other than "covered claims." CIGA noted Insurance Code section 1063.1 limits covered claims to those timely filed with CIGA by "the last date fixed for the filing of claims in the domiciliary [Pennsylvania] liquidation proceedings."
As noted, the Pennsylvania liquidation order set June 30, 2005, as the deadline for filing a timely proof of claim. CIGA contended that because the insured nursing homes notified CIGA of the two elder abuse lawsuits in October and November 2005 and later filed proofs of claim in December 2005 and February 2006, the tenders were not "covered claims." The Superior Court agreed.
On appeal, the Court noted the statutorily limited conditions under which CIGA pays claims: "While CIGA's general purpose is to pay the obligations of an insolvent insurer, it is not itself an insurer and does not stand in the shoes of the insolvent insurer for all purposes." The Court of Appeal emphasized that CIGA "is expressly forbidden to pay claims except . . . 'covered claims.'" The Court concluded that claims filed after the Pennsylvania fixed deadline simply do not qualify as timely, and therefore are not covered claims.
The insureds asserted that the June 30, 2005 deadline did not apply here because Pennsylvania law allows for the late filing of a claim for good cause, such as, "that [the] existence of claim was not known to the claimant and that he filed his claim as promptly thereafter as reasonably possible after learning of it. . . ." Rejecting this argument, the Court of Appeal explained that no authority was presented for Pennsylvania's statute trumping California's statutory requirement that a policyholder file its claim by the date fixed for the filing of claims. The Court observed that other states concur, having found that a liquidating jurisdiction may as a matter of discretion permit late filed claims, but that does not in turn extend the filing period for the local guarantor agency, such as CIGA.
Given its conclusion that California may reasonably enforce a different deadline for CIGA claims than a liquidating jurisdiction, the Court did not reach CIGA's alternative argument that availability of "other insurance" (Insurance Code section 1063.1(c)(9)(A)) also precluded relief here.
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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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