California: The Binding Effect of Pre-liquidation Agreements on CIGA: The Latest Word

By Hon. Susan V. Hamilton, Former Assistant Secretary and Deputy Commissioner, California Workers’ Compensation Appeals Board

It is well understood that the California Insurance Guarantee Association (CIGA) is not an insurer that issues policies of insurance or assumes the contractual obligations under an insurance policy, nor does it collect premiums from insureds. Rather, it is a statutorily created association of insurance companies that serves as an insolvency insurer of last resort to provide limited financial protection for insureds and the public when an insurer becomes insolvent. (Ins. Code § 1063 et seq.). When a workers’ compensation claim is also covered by a solvent insurer, CIGA has no responsibility to pay and discharge the claim (Ins. Code § 1063.1(c)(9)(A)). That said, it is not always clear when CIGA might be bound by the actions of an insolvent insurer or, for that matter, when CIGA might be entitled to reimbursement from “other insurance.” A recent Appeals Board panel decision sheds new light on those issues. The decision is even more notable because it expresses disagreement with the Appeals Board’s en banc decision in Gomez v. Casa Sandoval; Nokes v. Placer Savings Bank (Gomez/Nokes) (2003) 68 Cal. Comp. Cases 753. The case is Dykstra v. Gilton Solid Waste Management, Incv. (ADJ1004210 et seq., June 7, 2024) 2024 Cal. Wrk. Comp. P.D. LEXIS 210.

The Facts

Billy Dykstra (applicant) sustained five industrial injuries. Two insurance carriers, State Compensation Insurance Fund (SCIF) and Superior National Insurance (Superior), had issued workers’ compensation insurance policies that provided coverage for the various injury claims. Applicant, SCIF, and Superior agreed to a settlement by Stipulations with Request for Award that encompassed all five dates of injury. The parties agreed that the injuries caused 70.25% permanent disability to the right knee, low back, and psyche. They also agreed that SCIF was responsible for 20% of the overall liability and Superior was responsible for 80% of the overall liability. An Award pursuant to the stipulations of the parties issued on December 16, 1996.

On September 26, 2000, Superior went into liquidation due to insolvency, and CIGA assumed the liabilities on its behalf.

On January 6, 2020, nearly 20 years after Superior went into liquidation, CIGA filed a petition seeking reimbursement from SCIF for post-liquidation benefits that it paid for medical treatment and life pension benefits. CIGA argued that liability for the Award was joint and several as between SCIF and Superior and that SCIF was “other insurance,” and as such, SCIF, not CIGA, is obligated to pay and discharge the Award.

SCIF objected, contending that the Award did not establish joint and several liability between it and Superior, but instead was a final allocation of liability between it (20%) and Superior (80%), and should not be disturbed. SCIF also argued that CIGA’s petition for reimbursement was barred by laches and/or estoppel.

The dispute could not be amicably resolved, and a trial was held. The only evidence presented at trial was the Stipulations with Request for Award and the medical reports which formed the basis for the settlement. Following the trial, the WCJ issued a Findings and Order (F&O) in which it was found that SCIF was responsible for administration of the future medical award, for payment of future medical benefits, and for reimbursement of any post-liquidation medical expenses paid by CIGA on behalf of Superior. The WCJ deferred the issues of the life pension and the amount of reimbursement.

SCIF sought reconsideration, contending that the Award issued in 2000 did not establish joint and several liability between it and Superior, but instead was a final determination of liability as between SCIF (20%) and Superior (80%), and should not be disturbed. SCIF further argued that CIGA’s claim of entitlement to reimbursement should also be denied as barred by laches and/or estoppel.

The Panel’s Analysis

The panel begins it discussion of the dispute by addressing the unique statutory role that CIGA plays in workers’ compensation matters. It acknowledges that Insurance Code section 1063.2(a) mandates CIGA to pay and discharge the covered claims of insolvent workers’ compensation insurers, which includes the provision of workers’ compensation benefits under California’s workers’ compensation laws. It emphasizes, that both statutory and case law make clear that CIGA is not an insurer or an insurance company as those terms are commonly understood, nor does it stand in the shoes of an insolvent insurer, and that CIGA’S duties are distinct and not co-extensive with those of the insolvent insurer, with reference to Isaacson v. California Ins. Guarantee Assn. (1988) 44 Cal. 3d 775, et seq.

Next, the panel points out that CIGA’s statutory duty to pay and discharge an insolvent carrier’s obligations is limited to “covered claims.” It further observes that Insurance Code section 1063.1(c)(9)(A) defines the term, “covered claims,” and clearly states that a “covered claim” does not include any claim to the extent that such claim is covered by any other insurance of a class covered by the article that is available to the claimant or insured. Thus, in a workers’ compensation claim, if there is also coverage by a solvent workers’ compensation insurer, CIGA has no duty to pay or discharge the claim.

The panel then turns to SCIF’s contentions regarding the effect of the 1996 Stipulations with Request for Award. First, SCIF argues that per the Appeals Board’s en banc decision in Gomez/Nokes, supra, the 1996 Award was an allocation of liability as between SCIF and Superior and not a finding of joint and several liability. Second, that since the 1996 Stipulations with Request for Award is final and cannot be altered, CIGA must step into the shoes of Superior and assume liability for 80% of the ongoing medical treatment and life pension payments.

It is not a surprise that in response to these arguments, the panel again emphasizes that CIGA is not an insurer, that it does not stand in the shoes of an insolvent insurer, and where other insurance is available, CIGA has none of the duties it would otherwise have to pay and discharge covered claims. Moreover, CIGA is entitled to seek reimbursement from the other insurer for any benefits it paid after insolvency. What is a bit of a surprise, however, is the panel’s acknowledgement that Gomez/Nokes, supra, is no longer an accurate reflection of the current state of the law.

In this regard, the panel confirms that contrary to the holding in Gomez/Nokes, the WCAB cannot apportion liability for medical treatment and temporary disability indemnity benefits between CIGA and insurers, citing California Ins. Guarantee Assn. v. Workers’ Comp. Appeals Bd. (Weitzman) (2005) 128 Cal. App. 4th 307 [70 Cal. Comp. Cases 556] and California Ins. Guarantee Assn. v. Workers’ Comp. Appeals Bd. (Hooten) (2005) 128 Cal. App. 4th 569 [70 Cal. Comp. Cases 551]. Additionally, the panel discusses a more recent appellate decision that provides further support for their conclusion that Gomez/Nokes is out of sync with current controlling authority. The case is California Ins. Guarantee Assn. v. Workers’ Comp. Appeals Bd. (Lopez) (2016) 245 Cal. App. 4th 1021 [81 Cal. Comp. Cases 317].

In Lopez, supra, applicant Rosa Lopez and two insurers, Care West and Ullico, entered a Compromise and Release agreement to resolve Ms. Lopez’ injury claim. The settlement also provided an allocation of liability as between Care West and Ullico. Sometime after the Compromise and Release agreement had been approved and was final, Ullico became insolvent and CIGA was joined in the case. CIGA petitioned for dismissal, arguing that since Care West was other insurance coverage, Care West was jointly and severally liable for all outstanding payments. Care West disagreed, contending that it was only liable for 50% of medical-legal expenses and 52% of medical treatment benefits, and that CIGA was liable for 50% of medical-legal expenses and 48% of medical treatment benefits, based on the allocation of liability set forth in the Compromise and Release. A WCJ denied CIGA’s petition, and the denial was affirmed by the Appeals Board, consistent with Gomez/Nokes. The appellate court summarily denied review, but the Supreme Court granted review and remanded the matter to the appellate court for further proceedings.

In those proceedings the Appeals Board argued that once the Compromise and Release agreement was approved by the WCJ, liability as between Care West and Ullico was no longer joint and several. The appellate court disagreed, holding that Care West and Ullico were jointly and severally liable for Rosa Lopez’ workers’ compensation benefits, and that when Ullico became insolvent, Care West was properly characterized as other insurance, and CIGA was relieved of its statutory duty to pay and discharge benefits in the matter. The appellate court’s opinion explains that the nature of “several liability” is not a rule of liability at all, but a rule of joinder. That is, several liability is a procedural rule that is intended to facilitate a claimant’s recovery from multiple obligers (Lopez, supra, 81 CCC at p. 321). In the workers’ compensation context, several liability serves the important public policy that favors the expeditious and inexpensive resolution of work injury claims by enabling an injured worker to obtain workers compensation benefits without having to join multiple co-obligers in a case. The appellate court then concludes that although the approved Compromise and Release agreement is a final judgment, it merely apportioned liability but did not change the joint and several character of that now apportioned liability. It ordered the Appeals Board to dismiss CIGA from the proceedings.

In this case, the panel follows Weitzman, Hooten, and Lopez. Since one or more of the injuries during SCIF’s liability period contributed to applicant’s need for medical treatment, the panel finds SCIF jointly and severally liable for such treatment, and further acknowledges that SCIF is liable for reimbursement of any reasonable and necessary medical treatment expenses paid by CIGA after Superior became insolvent.

Turning next to the issue of CIGA’s entitlement to reimbursement for permanent disability indemnity and life pension benefits, both past and ongoing, the panel quotes from the decision in Baker v. Workers’ Comp. Appeals Bd. (2011) 52 Cal. 4th 434 [76 Cal. Comp, Cases 701] wherein the Supreme Court explained the nature and purpose of those benefits. The Supreme Court explained that permanent disability indemnity and life pension benefits are intended to compensate the injured worker for the long-term residual consequences of an industrial injury. It characterizes the life pension benefit as a form of supplemental partial permanent disability that is paid to a class of seriously injured workers. Consistent with the explanation provided in Baker, supra, the panel concludes that in cases involving CIGA, life pension benefits should be treated in the same manner as permanent disability indemnity. It then affirms the WCJ’s order deferring the issue of CIGA’s entitlement to reimbursement for life pension payments previously made and the issue of future responsibility for ongoing life pension payments in recognition that the record may require further development on this issue.

Finally, the panel addressed SCIF’s contention that CIGA’s claims should be barred by laches and/or estoppel. The panel finds the doctrine of estoppel inapplicable because CIGA was not a party to the agreement made by SCIF and Superior to resolve applicant’s injury claim. Regarding the issue of laches, the panel notes that laches is an affirmative defense (Lab. Code § 5705), which means that SCIF had the burden of demonstrating that CIGA unreasonably delayed in filing its petition for reimbursement and that SCIF was prejudiced by the filing nearly 20 years after Superior became insolvent and CIGA began to administer and make payments on the claim. While SCIF argued that this 20-year delay was unreasonable, the panel found that it did not present any evidence other than the 20-year delay to demonstrate how it was prejudiced. The panel then affirms the WCJ’s finding that SCIF failed to carry its burden of proof on this issue.

Why This Opinion Is Important

Admittedly Dykstra is simply a panel decision without any special designation as a “significant panel” or “en banc opinion.” As such, its precedential authority is limited. Nonetheless, the decision shines a bright spotlight on the panel’s understanding of the current state of the law vis-à-vis the binding effect on CIGA of pre-liquidation stipulations allocating liability for an injury claim(s) as between co-defendant insurers. Contrary to the holding in Gomez/Nokes, supra, if CIGA and an insurer are jointly and severally liable for non-permanent disability benefits, the Appeals Board cannot apportion liability between CIGA and an insurer as agreed to by the parties because CIGA is not bound by a pre-liquidation agreement apportioning liability. Moreover, medical treatment expenses are not apportionable. (Granado v. Workmen’s Comp. Appeals Bd. (1968) 69 Cal. 2d 399 [33 Cal. Comp. Cases 647].

However, since life pension benefits are a form of supplemental partial permanent disability, the panel decision strongly suggests that CIGA cannot transfer liability to a co-defendant. That is, where CIGA has liability for permanent disability indemnity benefits, it will also have liability for life pension benefits. It is important to note that the panel did not provide any specific authority for this conclusion, but it does make logical sense in view of CIGA’s unique role. Since the issue of CIGA’s liability for life pension benefits was deferred pending further development of the record, it is doubtful that Dykstra is the last word on the matter. Stay tuned.

Finally, the panel’s opinion makes clear that the party raising the affirmative defense of laches must present evidence substantiating how it was prejudiced by the unreasonable delay, and that prejudice will not be presumed from the mere passage of time.

Reminder: Board panel decisions are not binding precedent.

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