Scorched Earth Strategy Fail …

Applied Underwriters’ Anti-SLAPP Motion Rejected

A San Mateo Superior Court judge denied Applied Underwriters’ latest attempt to strike key portions of the California Department of Insurance’s rehabilitation plan for California Insurance Company. The order denying Applied’s anti-SLAPP motion leaves intact the Department’s proposal for resolving Applied’s voluminous litigation with insureds surrounding the EquityComp program.

During oral arguments, CIC’s counsel focused mostly on the proposed rehabilitation plan and whether it violates a settlement agreement between Applied and CDI. The judge repeatedly reminded the attorney, Shand Stephens of DLA Piper, that it was not the issue of the day.

“It is well-established that the Insurance Commissioner, when acting as the conservator of an insurer, has broad powers ‘to settle claims against’ that insurer…”       –– Judge Danny Chou

The issue was whether or not an anti-SLAPP motion can be brought in an insurance company conservation case. The ruling holds that it clearly cannot.

“At the hearing, CIC argued that section 425.16 should apply because the Rehabilitation Application is a ‘continuation’ of an earlier writ proceeding. But this argument is flawed,” says Judge Danny Chou. “Although a writ proceeding is subject to an anti-SLAPP motion, this is not a writ proceeding. It is a conservatorship proceeding under Insurance Code section 1011.”

Additionally, the court noted that allowing anti-SLAPP motions in such cases “would defeat the purpose” behind the conservatorship provisions – i.e., the conservation of the carrier’s assets and the rapid resolution of the conservatorship. Judge Chou notes that CIC’s attempt to use the anti-SLAPP statute, in this case, is illustrative of the point.

“It is well-established that the Insurance Commissioner, when acting as the conservator of an insurer, has broad powers ‘to settle claims against’ that insurer under Insurance Code section 1037, subdivision (c),” the order notes. “If, as CIC contends, every action taken in court by the Commissioner to settle a claim against the insurer – such as the filing of a motion to enter judgment pursuant to Code of Civil Procedure section 646.6 – subjects the Commissioner to an anti-SLAPP motion and the risk of significant delay and an attorney fees award, then the ability of the Commissioner to prevent the dissipation of the conserved insurer’s assets through settlement would be significantly compromised, if not destroyed.”

Preview Of What’s To Come

While many of the points DLA Piper raised at the hearing were irrelevant, they likely shed light on what CIC will be arguing when the rehabilitation plan comes up for review later this spring. A key focus looks to be the interaction of the rehabilitation plan’s provisions for resolving the litigation and an earlier settlement agreement between Applied and former Insurance Commissioner Dave Jones in the Shasta Linen case.

CIC is arguing that the Department is attempting to undo the earlier settlement agreement with the rehabilitation plan’s litigation provisions. These provisions allow three paths for resolving existing litigation as well as claims not yet filed in court. The rehabilitation plan includes proposed formulas for calculating what is owed:

  •   under the California Insurance Company guaranteed cost policy
  •   the terms of the reinsurance participation agreement,
  •   “the reasonable value of the coverage it was afforded” based on the cost of a commercially available retrospective rating policy.

Aggrieved policyholders also have the option of continuing to litigate their claims.

The earlier settlement stems from the original Shasta Linen dispute over the EquityComp program. CIC filed a petition for writ of mandate to overturn the Shasta Linen decision but ultimately reached a settlement with CDI and dropped the petition.

CIC attorney Stephens repeatedly referenced the settlement agreement and its statement that “there is a good faith dispute between the Parties as to the Shasta Order, specifically as to the remedy authorized by the California Insurance Code and whether the RPA is void as a matter of law under the California Legislature’s comprehensive regulatory scheme and relevant case law (the ‘Dispute’).” The settlement holds that this dispute is ultimately for the courts to decide.

“I’m suggesting that this motion, the motion to confirm the rehab plan, is a continuation of this writ of mandate proceeding,” Stephens told the court. “It’s a continuation and it actually violates the agreement.”

Judge Chou interrupted Stephens noting that he was “getting pretty far afield” with an argument that pertained to the rehabilitation plan’s merits and whether there was an abuse of discretion by the Commissioner, not the anti-SLAPP issue that was before the court. “I don’t disagree with you in the sense that I’m going to have to determine whether the rehabilitation plan somehow is an abuse of discretion because of this settlement agreement and the writ of mandate,” Judge Chou noted. “Certainly, my ruling on the anti-SLAPP motion doesn’t go to the merits in any way of your argument” about the rehabilitation plan and the settlement agreement.

The hearing on the merits of the rehabilitation plan is currently slated for late May. The hearing date has already been pushed back several times and maybe delayed again in the future.

Copies of the court’s ruling denying the anti-SLAPP motion are available in our Resources section or by clicking here.