TRAVELERS INDEMNITY COMPANY et al., Petitioners, v. ROXANI M. GILLESPIE, as Insurance Commissioner, etc., Respondent.
No. S008962
Supreme Court of California
Jan. 29, 1990.
82 | 48 Cal.3d 805 | 258 Cal.Rptr. 161 | 771 P.2d 1247
Barger & Wolen, Kent Keller, Robert W. Hogeboom, Steven H. Weinstein and Larry M. Golub for Petitioners.
Ronald A. Zumbrun, Anthony T. Caso and Sharon L. Browne as Amici Curiae on behalf of Petitioners.
John K. Van de Kamp, Attorney General, and Randall P. Borcherding, Deputy Attorney General, for Respondent.
OPINION
KAUFMAN, J.-Subdivision (c) of
As we shall explain, the conclusion that Proposition 103‘s mandatory renewal provision does not apply to nonrenewal notices sent by insurers who have commenced the statutory withdrawal process is supported by the legislative intent underlying the mandatory renewal provision as construed in our recent decision in Calfarm Ins. Co. v. Deukmejian (1989) 48 Cal.3d 805 [258 Cal.Rptr. 161, 771 P.2d 1247] (hereafter Calfarm), by the only
I. The Withdrawal Provisions
The procedure for withdrawing as an insurer in California is prescribed by sections 1070 through 1076. Provisions governing withdrawal by insur-ers have been part of the
Upon payment of a fee and costs, and surrender of its certificate of authority, an insurer may apply to withdraw. (
Before withdrawal is completed, the insurer must “discharge its liabilities to residents of this State“; it “shall cause the primary liabilities” under policies insuring residents of this state “to be reinsured and assumed by another admitted insurer,” but it may cancel the policies, if they are subject to cancellation, “in lieu of such reinsurance and assumption.” (
II. Facts and Proceedings
On November 7, 1988, the day preceding the election at which Proposi-tion 103 was adopted, five related insurance companies-The Travelers Indemnity Company, The Charter Oak Fire Insurance Company, The Travelers Indemnity Company of America, The Travelers Indemnity Com-pany of Rhode Island, and The Phoenix Insurance Company-together sent the Department of Insurance (Department) a packet of documents intended to constitute their applications to withdraw as insurers in this state. The documents included each insurer‘s certificate of authority, sur-rendered for cancellation, and an application to withdraw accompanied by a certificate attesting that each application was signed by the applicant‘s executive vice president. A check in the amount of $2,950, or $590 per applicant, was submitted to cover the statutory filing fees for withdrawal applications. (See
Each insurer stated in its application that it had entered into a contract with The Travelers Indemnity Company of Illinois in which the latter “agreed to assume all of the liabilities, losses, and obligations of [the appli-cant] under those insurance policies issued to residents of the State of California, which by the terms thereof are not cancelable or subject to non-renewal.”5 Each applicant also stated it would satisfy its liabilities, losses and obligations under all other policies issued to residents of this state. A cover letter stated that the applications were conditioned upon the passage of Proposition 103 and that the applicants reserved the right to withdraw the applications if Proposition 103 did not become law or was declared invalid in whole or in part.6
On the same day, November 7, the applicants orally notified the Depart-ment of their intention, in conjunction with the applications for withdrawal, not to renew any of their private passenger automobile insurance policies.
On November 17, 1988, the applicants sent the Department a letter outlining their proposed plan of withdrawal. In the letter, the applicants stated they intended “to run off8 all the business, including automobile, with the exception that group disability business will be reinsured and assumed by The Travelers Insurance Company.” The applicants requested that the Commissioner examine their books and records to confirm their solvency, waive the requirements of the discharge/reinsurance provision in regard to unexpired automobile policies, and cancel their certificates of authority. Attached to this letter was a copy of a form letter being used by the applicants to notify automobile insurance policyholders that their poli-cies would not be renewed.
On November 29, 1988, the Department sent the applicants a letter acknowledging receipt of the withdrawal application packet and the letter of November 17. The Department advised the applicants that the fee for a withdrawal application had been increased from $590 to $787 per appli-cant,9 and that the amount tendered by applicants was therefore deficient by a total of $985. The letter further stated that the Department would require certain additional documents before it could process the applications. The Department asserted, however, that there was “a prima facie fatal legal defect common to all five applications,” that “no withdrawal would be permissible if the insurer intended, after withdrawal, to continue doing acts which constitute transacting insurance,” and that the applicants therefore “should not seek to withdraw as long as they have insurance business with California policyholders on their books.” The Department explained that a waiver of the reinsurance and assumption requirement, as requested by the applicants, would “exceed the Commissioner‘s discretion” because it would result in the illegal transaction of business by a nonadmitted insurer and, further, that it would “leave California policyholders with no avenue of
Applicants responded by letter dated December 8, 1988. Enclosed with the letter was a check for $985 to cover the balance of the statutory filing fees. The letter contained an analysis of the legislative history of the with-drawal statutes (
On December 12, 1988, following discussions with Department represen-tatives, applicants notified the Department in writing that one of them, The Travelers Indemnity Company of Rhode Island (Travelers Rhode Island), wanted to withdraw its application. The remaining applicants (hereafter petitioners) reaffirmed their intent to withdraw and proposed two alterna-tive plans to satisfy the statutory requirements for withdrawal. Under the first plan, petitioners would issue notices of nonrenewal on all their private passenger automobile policies, after which they would enter into reinsur-ance and assumption agreements with Travelers Rhode Island or another insurer acceptable to the Commissioner. Under this first plan, the Commis-sioner would cancel petitioners’ certificates of authority immediately upon execution of the reinsurance and assumption agreements. Under the second plan, petitioners would immediately enter into reinsurance and assumption agreements with Travelers Rhode Island, or another acceptable insurer, covering all policies except private passenger automobile policies, and would issue notices of nonrenewal at an appropriate time before the anni-versary date of each policy. Thereafter, on December 31, 1989, all remain-ing business of petitioners would be reinsured and assumed by Travelers Rhode Island or another acceptable company, at which time the Commis-sioner would cancel petitioners’ certificates of authority. Petitioners submit-ted that both plans satisfied all legal requirements for withdrawal and, accordingly, that neither required a waiver by the Commissioner of the requirements of the discharge/ reinsurance provision. Petitioners requested that the Department indicate which plan was acceptable to the Commis-sioner.
On December 23, 1988, the Department served petitioners with notices of noncompliance pursuant to
On the same day, December 23, petitioners responded to the Department by letter, observing that the issues presented by the notice of noncompliance were matters of great public importance, agreeing to a public hearing, waiving the normal time requirements, and requesting that the hearing be held on December 29. The Commissioner set the hearing for January 4, 1989, and it was held on that date.
The hearing officer at the administrative hearing was the Department‘s chief counsel, who announced at the outset that after the hearing he would “take the matter under submission and in due course render his decision.” The Department rested its case on exhibits and a stipulation establishing the following facts: (1) on November 7, 1988, petitioners announced that in conjunction with applications for withdrawal from the California insurance market they would issues notices of nonrenewal for all their policies of private passenger automobile insurance, (2) petitioners began to issue the nonrenewal notices pursuant to this announced intention on or about No-vember 9, 1988, (3) the Commissioner issued a notice of noncompliance on December 23, 1988, alleging that the nonrenewal notices violated the man-datory renewal provision, and (4) petitioners made a timely response to the notice of noncompliance as required by
The Department objected to exhibits offered by the petitioners relating to their applications to withdraw from the California insurance market and their subsequent correspondence with the Department. The Department argued that the exhibits were not relevant, stating: “This proceeding is a very narrowly drawn one dealing specifically with the issue of the Notices of Nonrenewal[,] and the intimacies [sic: intricacies?] of the withdrawal appli-cation and the correspondence back and forth with regard to that process, are not relevant to this proceeding. [¶] The department has acknowledged in its Notice of Noncompliance that [petitioners] have made applications for withdrawal.” (Italics added.)10 The hearing officer overruled the objection and admitted all exhibits offered by petitioners, observing that he might later disregard the exhibits if he found them lacking in relevance.
After all written briefs had been submitted, the Commissioner issued her decision, which recited that she had “reviewed and considered all the evi-dence and entire record in these proceedings, together with the briefs and a decision by the designated hearing officer . . . .” The Commissioner deter-mined that the mandatory renewal provision applied to all policies in force on the effective date of Proposition 103, regardless of any steps an insurer may have taken to withdraw from the California insurance market and, accordingly, that petitioners had violated the mandatory renewal provision by issuing notices of nonrenewal on a blanket basis. The Commissioner conceded, however, that a withdrawing insurer would eventually be re-leased from the renewal obligation: “Prior to withdrawal the insurer must renew automobile policies as required by [the mandatory renewal provi-sion], but that obligation is among those discharged by reinsurance and assumption, and ceases when the withdrawal becomes formally effective.” (Italics added.) Petitioners were ordered to renew all automobile insurance policies, and to rescind all notices of nonrenewal previously issued, unless valid grounds for cancellation or nonrenewal existed pursuant to the man-datory renewal provision. A penalty of $10,000 was provided for each day each petitioner failed to comply with these directives after the order‘s effective date.
After receiving the Commissioner‘s decision, petitioners requested that she disclose the decision of the hearing officer but the Commissioner has declined to do so.
Petitioners sought review of the Commissioner‘s decision by petitioning this court for a writ of mandate (
III. The Mandatory Renewal Provision Applies to All Policies in Force on the Effective Date of Proposition 103
Petitioners contended in their mandate petition that the mandatory renewal provision applies only to policies issued or renewed on or after the provision‘s effective date. As petitioners now acknowledge, this issue was subsequently decided against them in Calfarm, supra, 48 Cal.3d 805, 826-831, in which we concluded that the mandatory renewal provision was intended to and does apply to all policies in force when the measure took effect, and that this application to preexisting policies does not violate the state or federal Constitution.
IV. The Mandatory Renewal Provision Does Not Apply to Insurers Withdrawing From the California Market
We emphasize at this juncture that the decision under review is a decision by the Commissioner on notices of noncompliance pursuant to
We do, however, take issue with the Commissioner‘s characterization of the withdrawal process in her decision as “lengthy and detailed.” We find nothing in the language of the withdrawal statutes suggesting that in the normal case the withdrawal process is to be other than simple and expedi-tious. Although
As we have noted, the statutory provisions governing withdrawal of insurers were enacted long before the advent of Proposition 103 and its mandatory renewal provision. Of particular significance here is the dis-charge/reinsurance provision, which states that when an insurer applies to withdraw, it “shall cause the primary liabilities under such policies to be reinsured and assumed by another admitted insurer” but that “in lieu of such reinsurance and assumption” the insurer may cancel “such policies as are subject to cancellation.”
The mandatory renewal provision was added in 1988 by Proposition 103, an initiative measure making numerous fundamental changes in the system by which various forms of insurance, including automobile insurance, are regulated in this state. It provides that a notice of cancellation11 or nonrene-wal of a policy of automobile insurance shall be effective only if based on certain specified grounds. (See fn. 1, ante.) The mandatory renewal provi-sion does not refer to the withdrawal statutes, nor does Proposition 103 in any way purport to alter or amend those statutes.
The Calfarm Opinion. In Calfarm, supra, 48 Cal.3d 805, we considered challenges to various provisions of Proposition 103, including the mandato-ry renewal provision. In reaching the conclusion that the mandatory renew-al provision could constitutionally be applied to policies in force on its effective date, we relied in part on the ability of insurers adversely affected by the provision to quit the California market: “Proposition 103 does not prevent an insurer from discontinuing its California business. Sections 1070 through 1076 spell out the procedure by which an insurer may withdraw from California by surrendering its certificate of authority. The initiative did not repeal those sections, and indeed recognizes the possibility that insurers may withdraw from some insurance markets by authorizing the commissioner to establish a joint underwriting authority to serve such mar-kets.” (Calfarm, supra, 48 Cal.3d 805, 831.)
That language plainly implied that the mandatory renewal provision does not apply to insurers who employ the statutory procedure for withdrawing
Proposition 103. As we noted in Calfarm, supra, 48 Cal.3d 805, 831, Proposition 103 contemplates the possibility of insurers terminating their California business by withdrawal from the automobile insurance market. Proposition 103 added
Other Jurisdictions. We are aware of only one other judicial decision that has addressed the issue whether a statute restricting an insurer‘s ability not to renew insurance policies applies to a withdrawing insurer. In that case, People ex rel. Lewis v. Safeco (1978) 98 Misc.2d 856 [414 N.Y.S.2d 823], two insurers who had experienced business losses in New York attempted to surrender their New York licenses. The Superintendent of Insurance advised them they did not have the right to surrender or not renew their licenses as they were obligated by statute to renew automobile insurance policies. As the court observed, “the Superintendent‘s interpretation creates an unreasonable ‘Catch 22‘, which would prevent any insurer from ever terminating its business in this State in spite of the fact that there is no
The Withdrawal Statutes. The Commissioner argues that under Califor-nia law an insurer‘s withdrawal is governed by statute, and that under the statutory procedure the “Catch 22” situation which concerned the New York court simply does not arise. The Commissioner‘s argument, as we understand it, is that the withdrawal statutes provide a mechanism-the reinsurance and assumption agreement-whereby a withdrawing insurer can be released from its obligations to automobile policyholders in this state while at the same time providing continuation of coverage for the with-drawing insurer‘s policyholders through the reinsurer. The Commissioner thus apparently views the reinsurance and assumption agreement as a means by which the withdrawing insurer can transfer its policy obligations to another insurer and be completely and finally released from them. Ac-cording to this view, the reinsurer steps into the shoes of the withdrawing insurer, assuming all policy obligations-both contractual and statutory-and the withdrawing insurer, having stepped out of its shoes, is fully and finally released from those same obligations.
If this is indeed the Commissioner‘s argument, it is based on a completely mistaken understanding of the purpose and effect of reinsurance and assumption agreements. Execution of such an agreement does not in any way release the original insurer from its policy obligations; rather, it results in both the original insurer and the assuming insurer being obligated to the insured.
A reinsurance contract is “one by which an insurer procures a third person to insure him [i.e., the insurer] against loss or liability by reason of such original insurance.” (
A contract by which a reinsurer assumes the policies of the original insurer does result in the reinsurer being directly liable to the original insureds (Sawyer v. Sunset Mutual Life Ins. Co. (1937) 8 Cal.2d 492, 496 [66 P.2d 641]), but it does not release the original insurer, which remains
Legislative history submitted by the Commissioner shows that the dis-charge/reinsurance provision was never intended to provide a mechanism for releasing withdrawing insurers from policy obligations. The Commis-sioner has provided us with two letters sent to then-Governor Earl Warren concerning the legislation (i.e., Stats. 1945, ch. 1041, § 2, pp. 2030-2031) by which the discharge/reinsurance provision was enacted. These letters, of which we take judicial notice, indicate that this provision was enacted in response to the case of People v. Alliance Life Ins. Co. (1944) 65 Cal.App.2d 808 [151 P.2d 868], and that its purpose was to protect California residents by requiring that any insurer withdrawing from the California insurance market follow the statutory withdrawal procedure, so that the primary liabilities of any unexpired and uncancelled policies will be reinsured and assumed by another admitted insurer.13 (See also 17 Ops.Cal.Atty. Gen. 28.) Nothing in the letters or in the discharge/reinsurance provision itself sug-gests an intent to bar any of the policyholders’ remedies against the original insurer or to release the original insurer from any of its policy obligations.
The Commissioner may be understood to make a somewhat different argument,14 as follows. The effect of execution of the reinsurance and as-sumption agreement is that the reinsurer and the original insurer are jointly obligated to the automobile insurance policyholder. These joint obligations, so the argument runs, include not only contractual duties but also the statutory duty to renew automobile policies in accordance with the manda-tory renewal provision. Once the original insurer completes the statutory withdrawal process, however, and its certificate of authority has been can-celled by the Commissioner, it no longer is required to renew automobile policies, but the renewal obligation, according to this argument, continues to be enforceable against the reinsurer.
The discharge/reinsurance provision requires only that a withdrawing insurer with policies insuring residents of this state “cause the primary liabilities under such policies to be reinsured and assumed by another ad-mitted insurer.” While the term “primary liabilities under such policies” is not defined, it cannot reasonably be construed to include a statutory renew-al obligation. Moreover, as applied to policies of automobile insurance “renewal” means “to continue coverage with either the insurer which issued the policy or an affiliated insurer . . . for an additional policy period upon expiration of the current policy period of a policy . . . .” (
The Commissioner‘s reasoning, under either of these arguments, is incon-sistent with our previous interpretation of
Since, as we recognized in Calfarm, supra, 48 Cal.3d 805, 831, Proposition 103 does not prevent an insurer from discontinuing its Califor-nia business, and since nonrenewal and cancellation are the only methods by which a withdrawing insurer can terminate its existing automobile poli-cies, the conclusion is inescapable that the mandatory renewal provision does not apply to insurers who withdraw from the California market by use of the statutory withdrawal procedures. Nothing in the withdrawal statutes is inconsistent with this conclusion. Indeed, the withdrawal statutes mani-fest a legislative intent that insurers electing to withdraw be permitted to wind up their affairs and leave the state in an orderly and expeditious manner.
V. The Mandatory Renewal Provision Does Not Apply to an Insurer Who Has Complied With Statutory Requirements for a Withdrawal Application
The Commissioner argues that even if, as we have concluded, the mandatory renewal provision does not apply to insurers who withdraw by following the statutory withdrawal procedure, the provision applies throughout the withdrawal process and it is only upon approval of the withdrawal application and cancellation of the insurer‘s certificate of au-thority that the renewal obligation no longer applies.
The Commissioner‘s argument rests on a mistaken understanding of the withdrawal process. The Commissioner appears to argue that because an insurer remains an admitted insurer until its certificate is cancelled, an insurer applying to withdraw must therefore be subject to all our state laws governing insurers, including the mandatory renewal provision. Conversely, the Commissioner apparently assumes that because an insurer becomes a nonadmitted insurer upon cancellation of its certificate, the insurer cannot thereafter service any remaining policies.
First, the provision authorizing the Commissioner to waive the require-ments of the discharge/reinsurance provision necessarily contemplates that solvent insurers in appropriate cases may withdraw with policies in force-policies not reinsured and assumed by another admitted insurer and thus that these insurers can validly service their policies after cancellation of their certificates. This conclusion is reinforced by
Moreover, an insurer‘s status as admitted or nonadmitted17 is not the universal litmus test the Commissioner apparently supposes it to be. Some provisions of the
As we have observed, the withdrawal statutes were in effect long before enactment of Proposition 103 and were not modified by it. Before the effective date of the mandatory renewal provision, an insurer seeking to withdraw from the California market could run off its automobile business by cancelling those policies subject to cancellation and by issuing notices of nonrenewal on the remaining automobile policies and allowing them to expire. The insurer could do this either before making application to with-draw or while its withdrawal application was pending. Having in this man-ner terminated its automobile policies, the remaining liabilities to be rein-sured would be relatively few and the Commissioner‘s task in determining what liabilities remained outstanding would be relatively light.
Proposition 103, as already pointed out, left the going-out-of-business provisions intact and an intent to fundamentally alter the withdrawal pro-cess cannot reasonably be implied. But that would be precisely the result if a withdrawing insurer were required to renew automobile policies while its withdrawal application was pending. The liabilities it would be required to reinsure would be not merely those remaining after termination of its auto-mobile policies, but all its automobile policies in force and each future policy resulting from compelled renewal during the pendency of its with-drawal application. Finding a reinsurer willing to assume such a large and relatively ill-defined bundle of present and future liabilities, particularly in the uncertain insurance market which followed enactment of Proposition 103, would be no simple matter. The burden on the Commissioner to deter-mine the extent of the insurer‘s outstanding liabilities, and whether all had been reinsured, would be similarly increased. Nothing in the language of Proposition 103 suggests the voters intended to impose these substantially increased burdens on the Commissioner and on the withdrawing insurers. Because renewal of automobile policies is fundamentally inconsistent with the act of withdrawing and would greatly burden and complicate the with-drawal process, and because the Commissioner has adequate powers to protect the rights of California residents during the winding-up process
The statutory requirements for an application to withdraw as an insurer are (1) surrender of the certificate of authority for cancellation, (2) payment of the statutory application fee, (3) submission of a written and duly execut-ed withdrawal application, and (4) submission of evidence that the party who executed the application had authority to do so. (
The withdrawing insurer‘s act of surrendering the certificate of authority for cancellation is not purely symbolic, nor is it merely so that the certificate will be conveniently at hand when the time comes for its cancellation. Rather, the act of surrender effects a change in the insurer‘s status. In this regard, an analogy may be drawn to a voluntary proceeding for winding up a corporation. The proceeding commences with the adoption of a resolution of the shareholders or directors electing to wind up and dissolve (
In similar fashion an insurer, by the act of surrendering its certificate for cancellation, has committed itself to the orderly winding up of its affairs in this state and may not thereafter write new business in this state while its certificate remains in the Commissioner‘s possession.18 Consequently, a withdrawing insurer differs from other admitted insurers in at least one highly significant respect: it may not write new business. Given our previous conclusion that the mandatory renewal provision was not intended to and does not apply to insurers who withdraw by the statutory procedure, it is most reasonable to conclude that a withdrawing insurer-i.e., one who has surrendered its certificate of authority for cancellation and submitted a facially sufficient application to withdraw-is not required to renew auto-mobile policies.
VI. The Commissioner Need Not Disclose the Hearing Officer‘s Decision or Recommendation in This Case
Petitioners maintain that the Commissioner is required by “traditional notions of fair play and substantial justice” to disclose the hearing officer‘s decision. Although they initially argued that the Administrative Procedure Act (
Nor do petitioners contend that the procedure by which the Commissioner reviewed and rejected the hearing officer‘s decision denied them due process of law. They do not argue, for example, that the Commissioner‘s review of the administrative record prepared by the hearing officer was an inadequate basis for decision (see generally, Cooper v. State Bd. of Medical Examiners (1950) 35 Cal.2d 242, 246 [217 P.2d 630, 18 A.L.R.2d 593] [personal presence of administrative decision maker at hearing not required]), or that the failure to disclose the hearing officer‘s decision in itself denied them due process or violated any other constitutional or statutory right.
The basic defect in petitioners’ argument, apart from the absence of supporting authority, is their inability to explain what relevant and useful purpose disclosure would serve in this case. As the case was decided on documentary evidence and stipulated facts, witness credibility issues were not presented, so there is no occasion to decide whether the hearing officer‘s
Under these circumstances, the hearing officer‘s recommended decision, once rejected, ceased to have any legal significance in this case. (Cf. Compton v. Board of Trustees (1975) 49 Cal.App.3d 150, 158 [122 Cal.Rptr. 493] (per Kaus, P. J.) [failure to include copy of proposed decision in administrative record did not prevent running of limitations period for seeking judicial review of administrative decision].)
We recognize that disclosure of the hearing officer‘s decision is common practice in administrative proceedings and that giving affected parties an opportunity to review and comment on the hearing officer‘s decision before final action by the agency may improve the agency‘s decisionmaking process. As disclosure of the hearing officer‘s decision in a proceeding under section 1858.1 is not compelled by any recognized legal authority and would not serve any useful purpose in this case now that the Commissioner has issued her decision, we conclude petitioners have no present right to disclosure of the hearing officer‘s recommended decision.
VII. Conclusion
Because insurers have the right to discontinue their business activities in this state, and because nonrenewal of existing automobile policies is a logical and integral part of the orderly winding up of a withdrawing insurer‘s affairs, we have determined that Proposition 103‘s mandatory renewal provision does not apply to an insurer who has commenced the process of withdrawing as an insurer in this state by complying with statutory application requirements, including surrender of its certificate of authority for cancellation. Because petitioners have failed to demonstrate that the hearing officer‘s recommended decision, which was apparently rejected by the Commissioner, would have any utility in this case for purposes of our review of the Commissioner‘s decision, we have also concluded that petitioners have no present right to disclosure of the hearing officer‘s recommended decision in this matter.
The petition for peremptory writ of mandate is granted. Let a writ of mandate issue commanding the Commissioner to set aside her decision and
Lucas, C. J., Panelli, J., and Eagleson, J., concurred.
KENNARD, J., Concurring and Dissenting.—I concur with the majority opinion insofar as it concludes that the mandatory renewal provision (
If one concludes that the mandatory renewal provision applies prior to the commissioner‘s decision, then its applicability after the commissioner‘s decision should also be addressed. Otherwise, uncertainties could arise as to the validity of the statute itself because its unlimited application would prevent insurers from ever discontinuing business in California. This result, in turn, could give rise to a substantial doubt regarding the provision‘s validity. (See Calfarm Ins. Co. v. Deukmejian (1989) 48 Cal.3d 805, 826-831 [258 Cal.Rptr. 161, 771 P.2d 1247].) Given the circumstances, the failure to address the legal issue of the applicability of the mandatory renewal provision after a decision by the commissioner approving a withdrawal application could perpetuate the uncertainty and “exacerbate the burdens of the litigation.” (Sokol v. Public Utilities Commission (1966) 65 Cal.2d 247, 257 [53 Cal.Rptr. 673, 418 P.2d 265].)
I disagree with the majority opinion‘s conclusion that the mandatory renewal provision does not apply before a decision by the commissioner approving an application to withdraw. As to this issue, I agree fully with the views set forth in Justice Broussard‘s dissenting opinion.
BROUSSARD, J.—I dissent. Proposition 103, in
The majority opinion, however, does not limit itself to the narrow issue on which the commissioner‘s decision was based—whether an insurer is relieved of its statutory duty to renew simply by submitting an application to withdraw, before the commissioner has approved the application. Instead, it also addresses a distinct and much broader question: whether an insured‘s right to renew, with the original insurer or a reinsurer, remains in effect after the commissioner has approved the insurer‘s application. That broader question, however, was not before the commissioner and should not be decided in this proceeding. Even if we assume that Proposition 103‘s protection of an insured‘s right to renew evaporates once the commissioner has approved the insurer‘s application to withdraw, that assumption would not affect the validity of the commissioner‘s decision that the insurer may not unilaterally repudiate any of its statutory obligations before the commissioner has approved the application.
The majority contend that the voters who enacted Proposition 103 intended that an insurance company which had merely applied to withdraw from California, and had not yet received permission to do so, would be exempt from the renewal requirement of
In Calfarm we observed that
This argument may support the majority‘s assertion that when an insurer has received permission to withdraw it is no longer required to renew policies, a question which we are not required to decide today, but it undermines their assertion that a company which has merely applied to withdraw is relieved of its statutory duty to renew. Market assistance plans and joint underwriting authorities require advance planning. If the commissioner could count on a period of time between the insurer‘s application to withdraw and its refusal to renew policies, she could determine whether such measures are necessary to assure continued coverage and put them into effect. But if, as the majority hold, the insurer can file its application and immediately send its nonrenewal notices, both the commissioner and the policyholders can be taken by surprise, and some may be left without protection before the commissioner can act.
The basic purpose of Proposition 103, seen in the setting in which it was adopted, indicates that its renewal provision should apply during the withdrawal process. The express purpose of the initiative is to ensure that “insurance is fair, available, and affordable for all Californians.” (Calfarm, supra, 48 Cal.3d at p. 813.) We relied on that statement of purpose in Calfarm to uphold the constitutionality of applying
Yet this is exactly what the Travelers Indemnity Company (hereafter Travelers) did. The day after Proposition 103 was enacted Travelers began sending notices of nonrenewal to its policyholders. There was considerable uncertainty in the insurance market and many insurers were not accepting new customers. If the commissioner‘s investigation later disclosed that Travelers had not complied with the requirements of the withdrawal statutes—or if Travelers later changed its mind and decided not to withdraw, as did several other companies—Travelers’ unilateral repudiation of the
Furthermore, Travelers attached two conditions to its application to withdraw. Its letter of November 7, 1988, enclosing the application to withdraw, expressly reserved the right to withdraw the application if Proposition 103 either did not become law or was declared invalid in whole or in part. Then on November 9, 1988, without waiting to see if the second condition was fulfilled, Travelers began sending notices of nonrenewal. If a company can refuse to renew policies after submitting a conditional application to withdraw, or one which reserves a right to recall the application, Proposition 103‘s protection against nonrenewal has a gaping hole.4
But the pernicious effect of the majority position is not limited to its effect on persons insured by Travelers or other companies which sought to withdraw from California immediately after the enactment of Proposition 103. As of the date of this opinion, more than one year later, the Insurance Commissioner still has not fixed rates under that measure. When she does so, according to the majority, there is nothing to prevent an insurer, or many insurers, from filing an application to withdraw from California, and immediately sending their policyholders a notice of nonrenewal. Indeed, there is nothing to prevent a company today from submitting an application to withdraw while reserving the right to recall that application if it is satisfied with future rate decisions, and then sending its nonrenewal notices without waiting for that rate decision. Thus, the majority‘s construction of
The majority also rely on our statement in Calfarm that “Proposition 103 does not prevent an insurer from discontinuing its California business.”5 (48 Cal.3d 805, 831.) An insurer “discontinues” its business, they reason, by cancelling policies or letting them expire, so an insurer required to renew policies cannot “discontinue” its California business. They conclude that therefore Proposition 103 does not require a withdrawing insurer to renew policies.
But this reasoning says nothing about whether an insurer can refuse to renew policies when it has applied to withdraw, or must wait until it has
The majority, however, go on to claim not only that Proposition 103 does not prevent a company from discontinuing its California business, which is what we said in Calfarm, but that it does not fundamentally alter the way in which it discontinues that business. But that assertion is clearly incorrect, as the majority opinion demonstrates.
Before Proposition 103, an insurer could “run off” its automobile business by cancelling policies subject to cancellation, and letting its other policies expire. Having in this manner terminated its automobile policies, its remaining liabilities to be reinsured would be few and the commissioner‘s burden in determining what liabilities remained would be light. (Maj. opn., ante, at p. 100.) The company could begin this process before applying to withdraw and, in fact, would have to do so in order to make sure that most of its policies expired before the commissioner ruled.
Even under the majority view, however, Proposition 103 fundamentally alters this process by preventing an automobile insurer from refusing to renew a policy until the insurer has applied to withdraw. If the approval process is “simple and expeditious” (maj. opn., ante, at p. 92), when the insurer receives that approval most of its policies will still be in force, and subject to a reinsurance requirement. Thus, the insurer will still be compelled to reinsure most of its policies. In such a case, the timing of the withdrawal process is not very different under the majority view and the dissent—but is substantially different from the practice prior to Proposition 103. It is in the case where the commissioner disapproves the withdrawal application that the majority and dissenting views would have very different results. But the majority do not take that case into account in their analysis.
In sum, both majority and dissent agree that Proposition 103 fundamentally alters the way in which an automobile insurer can discontinue its
We begin our explanation by reviewing the statutes relating to the withdrawal of insurers.
Looking first to the language of these provisions, we note that the term “withdrawal,” as used in these sections, refers to actions by the insurer done after the commissioner has cancelled the company‘s certificate of authority. Thus the initial surrender of the certificate is described not as “withdrawal,” but as part of an application to withdraw. After applying, but before the actual withdrawal, the insurer is required to take action to assure that its obligations to California residents are discharged or protected. Finally, when the commissioner verifies that residents are protected, she cancels the certificate “and . . . shall permit the insurer to withdraw.” (
Looking next to the purpose of these provisions, we find a clear legislative policy to protect California residents against any loss occasioned by the insurer‘s withdrawal. (Baer v. Associated Life Ins. Co. (1988) 202 Cal.App.3d 117, 123 [248 Cal.Rptr. 236].) Under these statutes, it is the insurer‘s duty, before withdrawing, either to discharge or to secure all obligations to California residents, and the commissioner‘s duty to make sure this has been done before she approves the application to withdraw. The insurer may terminate its obligations to the insureds by cancelling the contract, when that is permitted under
The commissioner decides whether to approve an application to withdraw only after examining the outstanding liabilities, the reinsurance and assumption agreement, and the solvency of the insurer. The examination process may be lengthy and detailed, as the commissioner claims, or simple and expeditious, as the majority assert (maj. opn., ante, at p. 92), depending on the circumstances of the case. If the liabilities are few, the reinsurance agreement comprehensive, and the reinsurer‘s ability to perform unquestioned, the process may indeed be brief. If, on the other hand, liabilities are uncertain or extensive, the reinsurance agreement limited in scope, and the reinsurer‘s solvency or status questionable, one could expect a lengthy proceeding which might lead to denial of approval. An even lengthier proceeding might occur if an insurer of doubtful solvency applied to withdraw without a reinsurance agreement.
In sum, the purpose and function of the withdrawal statutes (
The majority opinion, however, does not treat these statutes as important protective legislation, enacted to safeguard the public interest. To the contrary, the opinion seems to consider the statutory procedures as pointless formalities. If a company applies to withdraw, the majority expect the commissioner to say “yes,” and to say it quickly. (See maj. opn., ante, at p. 92.) The majority opinion never even considers the possibility that the commissioner may have the authority, even the duty, to say “no.”
But the case in which the commissioner says “no” is the one which demonstrates the mischief in the majority‘s holding. Since under the majority opinion a company which applies to withdraw need not, and indeed must not, renew policies,8 by the date of the commissioner‘s ruling the insurer will have refused to renew some of its expiring policies. When the commissioner rejects the application, must the company renew those expired policies? If not, insurers have discovered an easy way to evade Proposition 103‘s restriction on nonrenewal while remaining in business in California—the company simply submits an inadequate application to withdraw, and starts sending out nonrenewal notices.9 But if the insurer must renew its expired
That ruling rests on the undisputed proposition that an insurer remains an admitted insurer until the commissioner has approved the application for withdrawal. It follows from that conclusion that the insurer remains subject to all laws governing the practices of admitted insurers. As the commissioner said in her decision below, “[d]uring the pendency of these lengthy and detailed [withdrawal] proceedings, insurers necessarily must continue to comply with all California statutes. No insurer can place itself above the law by the mere act of filing papers to withdraw.”11
No one would question this conclusion as applied to statutes other than
The majority respond that “an insurer‘s status as admitted or nonadmitted is not [a] universal litmus test” (maj. opn., ante, at p. 99); there are some provisions which apply to some admitted insurers and not others.
The majority in effect create by judicial decision a new category of insurance company—one which is admitted, and bound by all laws governing admitted insurance companies of that type, except that it cannot issue new policies and has no right or statutory duty to renew policies.12 No statute and no prior decision recognize the existence of such a category. The statutes governing the rights and duties of insurers admitted to California are detailed and comprehensive, and not in need of judicial amendment.
Indeed the only statutory support the majority offer for their innovation is a false analogy to the winding up of a corporation. When a corporation adopts a resolution to dissolve, they point out, it “shall cease to carry on business except to the extent necessary for the beneficial winding up thereof . . .” (
The only decisional authority the majority cite is a New York trial court decision, People ex rel. Lewis v. Safeco (1978) 98 Misc.2d 856 [414 N.Y.S.2d 823], but that decision in fact supports this dissent. In the New York case, the Superintendent of Insurance had prohibited two insurers from surrendering their licenses because they were obliged by statute to renew no-fault insurance policies. The court held that the superintendent could not require the insurer to renew policies and remain in business indefinitely. Since New York had no statute governing when and how companies could withdraw, the court sought to fashion a remedy itself. It concluded that the superintendent could require the insurers to service existing policies and “to renew certain other policies for a short period so that during such periods, those presently insured may be able to obtain follow-up coverage[.]” (414 N.Y.S.2d at p. 830.) At the expiration of that period the insurers would be permitted to surrender their licenses. The decision thus supports the majority opinion‘s position on the broader issue which we need not decide—that once an insurer has withdrawn it is not statutorily required to renew policies. On the issue before us, however, its holding that an insurer may be required to renew policies after it has applied to withdraw is inconsistent with the position of the majority opinion, and consistent with the views of the Insurance Commissioner and this dissent.
My conclusion is simple: Travelers remains an admitted insurer until the commissioner permits it to withdraw and cancels its certificate. As an admitted insurer, it must obey all laws regulating such insurers. Nothing in
This conclusion is the only one consistent with the spirit, as well as the letter, of Proposition 103. That initiative was not enacted to make it easy for insurers to terminate coverage, but to make insurance more available to Californians and to protect them against loss of coverage. I would deny the petition for a peremptory writ of mandate.
Mosk, J., concurred.