Self Storage Investors v. North Bay Construction

Filed 3/7/07 Self Storage Investors v. North Bay Construction CA4/2

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION TWO

APPEAL from the Superior Court of San Bernardino County. Frederick A. Mandabach, Judge. Reversed.

Law Offices of Adrienne D. Cohen, Adrienne D. Cohen, Philip G. Dorn; Graves & King, Michael G. Martin and Dennis J. Mahoney for Defendants and Appellants.

Law Office of Ralph W. Peters and Ralph W. Peters for Plaintiff and Respondent.

Defendants North Bay Construction (NBC), Fred Hottenroth, John Pulliam Masonry (JPM) and John Pulliam (collectively Defendants) appeal from a judgment entered against them and in favor of plaintiff Self Storage Investors, LLC (SSI) on December 15, 2005. They claim that the trial court erred because it entered judgment before allowing them to have a trial on their affirmative defenses based upon the California Insurance Guarantee Association (CIGA) Act (Ins. Code, 1063 et seq.).^[1] We agree, and reverse the judgment.

Facts and Procedural History

On March 4, 2004, SSI filed a complaint against NBC, JPM and others seeking damages for construction defects. The complaint alleged that SSI owned a self-storage facility that had been defectively constructed, resulting primarily in water intrusion and consequent damages for which it sought to recover. Four months later, S.R. Sievers Company (SRSC), the general contractor responsible for the construction of the SSI facility, filed a cross-complaint for comparative negligence, breach of contract, contribution, indemnity and declaratory relief against NBC, JPM and others. It also filed a notice of demand for arbitration of its dispute with NBC and JPM, pursuant to its contracts with them.

On September 22, 2004, SSI filed a second amended complaint containing essentially the same allegations of construction defects against NBC and JPM. NBC filed its answer to the second amended complaint on October 15, 2004, generally denying the allegations of the complaint and asserting affirmative defenses, which included the assertion that its insurer was insolvent and it was therefore subject to the protections of the CIGA act. Four days later NBC filed its answer to the SRSC cross-complaint, again incorporating a general denial and the affirmative defense that it was subject to the protections of the CIGA act. Similarly, on November 1, 2004, JPM filed answers to both the complaint and the SRSC cross-complaint, generally denying their claims and asserting numerous affirmative defenses, including that recovery against it was barred by the CIGA act.

On November 23, 2004, the second amended complaint was amended to insert Fred Hottenroth and John Pulliam in place of Does one and two. Fred Hottenroth filed his answer to the second amended complaint on December 13, 2004, including an affirmative defense that he was protected under the CIGA act. On March 4, 2005, SRSC followed suit and amended its cross-complaint to insert John Pulliam and Fred Hottenroth as Roes one and three. On the same date SRSC filed a petition to compel NBC and JPM to arbitrate the claims made against them in its cross-complaint, based upon provisions of the contracts between them. John Pulliam filed his answer to SRSCs cross-complaint on March 11, 2005, again including an affirmative defense based upon the CIGA act.

Defendants opposed the petition to compel arbitration on the ground that the CIGA act issues were not subject to arbitration and could make arbitration by them unnecessary. The trial court granted the petition to compel arbitration in spite of Defendants claims regarding the CIGA act defenses. The arbitrator issued his award on September 12, 2005, awarding SSI a total of $538,991.66 plus costs and interest. Of that amount $390,689.21 was assessed against SSI, JPM and NBC jointly and severally, including a proportionate share of the costs, with the balance been assessed solely against SSI. The arbitrator specifically noted that each of the Defendants asserted they were the insureds of insolvent insurers, however, he also stated that the award would not address any CIGA act issues, but would reserve and leave those to a separate forum.

On September 22, 2005, Defendants filed a petition to vacate the arbitration award against them based upon the provisions of the CIGA act. Attached to this petition were interrogatory responses from SRSC indicating that it had sufficient insurance to cover the entire award to SSI. The following day, SSI filed an ex parte application seeking an order shortening time to enter the arbitrators award as a judgment, seeking the date of November 9, 2005, for its motion to be heard. The ex parte motion was taken off calendar by SSI and a hearing on its motion to enter the arbitrators award as the judgment was set for November 30, 2005. SSI filed its motion for entry of judgment, seeking to confirm the arbitrators award, as well as a memorandum of costs, on November 7, 2005. SRSC filed an opposition to Defendants motion to vacate the arbitration award on the grounds that there was no legal basis to vacate the award, that the award concerned liability and not insurance coverage, that the CIGA act did not apply, that Defendants were collaterally estopped from voiding the arbitration award, that their petition to vacate was premature and because of a failure of evidence to demonstrate the applicability of the CIGA act. SSI also opposed the motion to vacate the arbitration award on the grounds that there were no statutory grounds to vacate the award, that any claim under the CIGA act was premature as SSI had not yet sought to execute any judgment against Defendants, and that Defendants had failed to provide any evidence to demonstrate the applicability of the CIGA act.

On November 30, 2005, the trial court heard oral argument regarding the motion to vacate and the motion to confirm the arbitration award and to enter judgment and took the matters under submission. On December 15, 2005, it issued a ruling denying the motion to vacate the arbitration award and granting SSIs motion for entry of judgment, without explanation. A judgment against Defendants as indicated in the arbitration award was entered on the same date. This appeal followed.

Discussion

Essentially there is but a single issue raised by Defendants. They claim that the trial court erred when it entered judgment against them based upon the arbitration award when the issue of their affirmative defense under the CIGA act was never litigated. The arbitration award specifically stated that [t]he Award specifically and by intent does not address matters pertaining to the [CIGA] and its governing statutes set forth in the provisions of Insurance Code Section 1063 et seq. It is further understood by the parties that issues pertaining to CIGA and the insured status of defendants and cross-defendants, [SRSC, JPM and NBC] are reserved and will be addressed in another forum. The Defendants claim that they were never provided with a forum in which to litigate these specifically reserved issues prior to the entry of judgment against them.

CIGA is only authorized to pay the covered claims of an insolvent insurer. ( 1063.2, subd. (a).) But, covered claims do not include any obligations to insurers, insurance pools, or underwriting associations . . . . ( 1063.1, subd. (c)(4)), nor do they include any claim by any person other than the original claimant under the insurance policy in his own name . . . [or] any claim asserted by an assignee or one claiming by right of subrogation . . . . ( 1063.1, subd. (c)(7)(b).) (E. L. White, Inc. v. City of Huntington Beach (1982) 138 Cal.App.3d 366, 370 (E. L. White).) In addition, [c]overed claims does not include (i) any claim to the extent it is covered by any other insurance of a class covered by this article available to the claimant or insured nor (ii) any claim by any person other than the original claimant under the insurance policy in his or her own name, his or her assignee . . . , executor, administrator, guardian or other personal representative or trustee in bankruptcy and does not include any claim asserted by an assignee or one claiming by right of subrogation, except as otherwise provided in this chapter. ( 1063.1, subd. (c)(9).) The insurance policy of a third party jointly and severally liable to a claimant is other insurance available to the claimant under the CIGA act. (Parkwoods Community Assn. v. California Ins. Guarantee Assn. (2006) 141 Cal.App.4th 1362, 1366-1368.) Further the CIGA act, if applicable, operates to prevent a judgment from being entered against the insured of an insolvent insurer where there is other insurance available to satisfy the original claim. (E. L. White, supra, at pp. 371-372.) Based upon these rules, Defendants argue that it was imperative that their affirmative defenses under the CIGA act be litigated prior to the entry of any judgment against them.

In its respondents brief SSI contends simply that Defendants had many opportunities to raise the issue whether the CIGA act applied in this case and merely failed to produce any evidence to establish the defense. In essence, SSI claims that the trial court did, in fact, consider Defendants affirmative defense, when presented in its motion to vacate the arbitration award, and rejected it for lack of proof. Although this contention has some superficial appeal, we are not persuaded.

Defendants unnecessarily complicated matters by appearing to argue the applicability of the CIGA act in their motion to vacate the arbitration award. We are not convinced that the potential applicability of the CIGA act rendered erroneous the trial courts refusal to vacate the arbitration award. In and of itself, the arbitration award was not offensive to Defendants rights, but could become so if judgment was entered thereon as sought by SSI. Consequently, Defendants would have been better served by simply opposing the entry of judgment based upon the arbitration awards clear language that the CIGA act issue was yet to be litigated. Still, at the hearing on the motions, counsel repeatedly argued that the problem was with confirming the arbitration award when there had been no opportunity to litigate the applicability of the CIGA act. And, on appeal, Defendants do not challenge the arbitration award, nor do they challenge the trial courts denial of their motion to vacate that award. Rather, they challenge the trial courts decision to enter judgment without resolving the issue whether the CIGA act applies in this case. The trial courts order contains the barest statement that the motion to vacate the arbitrators award was denied and the motion for entry of judgment was granted. Thus, there is simply no indication in the record that, despite the arguments presented at the hearing, the trial court construed the Defendants motion to vacate as the equivalent of their presentation of their affirmative defenses as SSI would have us believe.

Under the circumstances presented by the record in this appeal, we cannot conclude that Defendants were offered the opportunity to litigate the applicability of the CIGA act to this action, an issue reserved for resolution by the trial court according to the arbitration award, prior to the entry of judgment. Defendants were entitled to this opportunity. (See Maxwell v. Powers (1994) 22 Cal.App.4th 1596, 1608 [defendant has right to prove properly pleaded affirmative defenses].) If, indeed the CIGA act applies, then the entry of judgment against the Defendants is not permitted. (E. L. White, supra, 138 Cal.App.3d at pp. 371-372.)

Disposition

The judgment is reversed as to North Bay Construction, Fred Hottenroth, John Pulliam Masonry and John Pulliam. The trial court is directed to allow them to litigate the issue whether the CIGA act applies in this case. Appellants to recover their costs on appeal.

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

RAMIREZ

P.J.

We concur:

McKINSTER

J.

RICHLI

J.

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^[1] All further statutory references are to the Insurance Code.