Insolvent Insurer Off the Hook in Benzene Actions

Jones v. Golden Eagle Ins. Co. (Cal. Ct. App. Nov. 28, 2011)

A California appellate court recently ruled that an insolvent insurer was not obligated to share in the defense or indemnity of its bankrupt insured where multiple personal injury claimants failed to comply with the Insurance Commissioner’s directives requiring submittal of a proof of loss.

Several individuals sued Calsol, Inc. and other defendants in separate lawsuits, alleging harm from exposure to Safety-Kleen 105 Solvent, a product used in connection with mechanical repairs. Safety-Kleen 105 consisted largely of mineral spirits, a chemical mixture containing benzene. Calsol supplied the mineral spirits to the manufacturer of Safety Kleen, but had since fallen into bankruptcy. The bankruptcy court granted the plaintiffs relief from the automatic stay to pursue their claims against Calsol, but only to the extent any judgment could be enforced only against Calsol’s insurers, not Calsol itself.

Golden Eagle insured Calsol for several years before it was placed in conservatorship in 1997. As provided in California’s Insurance Code, the insurance commissioner established an administrative procedure to handle claims against the assets of Golden Eagle. Per this procedure, counsel representing the commissioner sent a letter to the plaintiffs’ counsel, advising them to complete and return a sworn proof of loss. The commissioner denied the plaintiffs’ claims after they failed to complete and return the proofs of loss within the time allotted.

Several insurers that also insured Calsol during the relevant exposure period filed claims in Golden Eagle’s conservatorship proceeding, seeking a joint defense commitment with respect to the plaintiffs’ claims. The commissioner denied the request. The insurers then filed an application for an order to show cause in the court in charge of supervising Golden Eagle’s plan of rehabilitation.

The appellate court affirmed the lower court’s denial of the order to show cause. In so ruling, the appellate court rejected the insurers’ argument that while the plaintiffs’ claims against Golden Eagle may have been extinguished, their claims against Calsol were not. According to the insurers, because Calsol continued to be liable to the plaintiffs on the claims that were covered by Golden Eagle policies, Golden Eagle’s obligation under its Calsol policies to provide a defense to those claims was not extinguished by the plaintiffs’ failure to file their proofs of loss. The court noted that the plaintiffs’ claims were only nominally against Calsol because the bankruptcy court permitted the actions only to the extent the plaintiffs could recover against the insurers. As a result, the court held that Golden Eagle was not obligated to defend or indemnify Calsol and, therefore, did not have to share in the insurers’ defense costs.

For a copy of the decision, click here

Carrie Appler and Joanna Roberto

Add a Comment

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.