Fort Bragg Unified School District v. Colonial American Casualty & Surety Co., 194 Cal. App. 4th 891

Background

District sued Solano, Sterling, and Colonial for breach of contract and negligence to recover $389,968 in rain-damage repairs to Redwood Elementary School.
Phase II involved Solano reroofing; Sterling had performed asbestos abatement in Phase I; both contracts required protection of the building from weather and coordination to prevent damage.
NCSIG, NCR, and ICW funded the District’s damages under a self-insured pooling arrangement with subrogation rights; pooling was described as not insurance and not subject to Insurance Code regulation.
Colonial issued a $713,999 performance bond on Solano’s contract; Solano carried a Villanova liability policy that later became insolvent, with CIGA handling Villanova claims.
Trial court found Solano and Sterling liable for most damages, but reduced Solano’s exposure because ICW paid $150,493.45; Colonial was held liable for the remainder; prejudgment interest was awarded against Solano and Colonial.
Solano sought summary judgment arguing subdivision (c)(5) and (c)(9)(B) of Insurance Code 1063.1 barred actions by JPAs or subrogees; district and court treated JPAs as subrogees under subrogation.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Are JPAs insurers or insurance pools under §1063.1(c)(5)?	District/JPA subrogation claims fall within subrogation rights of pools, not insurers.	JPAs are self-insured pools, not insurance, thus barred by §1063.1(c)(5).	JPAs are not insurers or insurance pools under §1063.1(c)(5); subdivision does not bar the subrogation claims.
Does §1063.1(c)(9)(B) bar subrogation by non-original-claimants regardless of insurer status?	Subrogation would be allowed only for the original claimant; subrogees are barred.	Subrogation by any non-original claimant is barred, regardless of pool status.	Section §1063.1(c)(9)(B) plainly bars subrogation by any person other than the original claimant or by one claiming by right of subrogation.
May Colonial obtain Solano’s CIGA defenses or collateral defenses under Civil Code 2810/2825?	Solano’s arguments under the Guarantee Act defenses should not be available to Colonial.	Colonial should benefit from Solano’s CIGA defenses via Civil Code provisions.	Colonial is not entitled to Solano’s CIGA defenses; §2810/2825 defenses are not transferable to the surety.
Do Civil Code sections 2845 and 2849 apply to award rights between the District’s sureties and the principal?	District may trigger 2845/2849 protections to secure recovery from principal/guarantors.	These sections do not apply to third-party subrogation or to self-insured pools.	Civil Code §§2845 and 2849 do not apply to extend relief to Colonial; the court properly limited those defenses.

Key Cases Cited

Black Diamond Asphalt, Inc. v. Superior Court, 114 Cal.App.4th 109 (Cal. Ct. App. 2003) (holds self-insurers are not insurers for purposes of the Guarantee Act)
Laguna Beach v. California Ins. Guarantee Assn., 182 Cal.App.4th 711 (Cal. Ct. App. 2010) (workers’ compensation self-insurance treated differently under CIGA)
Argonaut Ins. Co. v. California Ins. Guarantee Assn., 227 Cal.App.3d 624 (Cal. Ct. App. 1991) (subrogation exclusions under §1063.1(c)(9)(B) explained)
Meyers v. Bank of America etc. Assn., 11 Cal.2d 92 (Cal. 1938) (superior equities doctrine governs insurer-subrogee recoveries)
State Farm General Ins. Co. v. Wells Fargo Bank, N.A., 143 Cal.App.4th 1098 (Cal. Ct. App. 2006) (superior equities doctrine discussed; applicability limited)
Gottschalk v. Draper Companies, 23 Cal.App.3d 828 (Cal. Ct. App. 1972) (gottschalk on exoneration when discharge occurs by operation of law)
Cates Construction, Inc. v. Talbot Partners, 21 Cal.4th 28 (Cal. 1999) (construction bonds construed with underlying contract)
Pacific Employers Ins. Co. v. City of Berkeley, 158 Cal.App.3d 145 (Cal. Ct. App. 1984) (bond coverage and overlap with insurance policies)