SAN FRANCISCO -- Applying the “statutory repeal rule,” the First District California Court of Appeal held May 10 that statutory changes mandated by Proposition 64 mean that three insurers lack standing to pursue an action against Insurance Company of North America (INA) alleging violations of the unfair competition law in its 1996 restructuring of asbestos and environmental liabilities (AICCO Inc., et al. v. Insurance Company of North America, et al., No. A110367, Calif. App., 1st Dist., Div. 5).
AICCO Inc., Granite State Insurance Co. and Northwestern Pacific Indemnity Co. brought their action against INA, CIGNA, INA Financial, Century Indemnity and ACE Property Casualty Insurance Co. after INA sought to shed its asbestos and environmental (A&E) liabilities by dividing into two entities. Using Pennsylvania statutes that permit corporate “division,” INA and its parent companies, CIGNA Corp. and INA Financial, divided the company into two entities. INA retained the profitable lines of insurance and transferred its obligations under all A&E policies to a second entity, CCI Insurance Co. According to the court, because CCI was not authorized to conduct insurance business in Pennsylvania, CCI then merged with Century Indemnity Co., another CIGNA entity.
As part of the approval process, the Pennsylvania insurance commissioner required INA to send written notice to all policyholders. According to the appeals court, INA did so in a form letter on CIGNA letterhead that “did not tell policyholders that INA had transferred its obligations under the A&E policies to Century Indemnity or that it disclaimed any further responsibility under the transferred policies.”
In their suit, AICCO, Granite State and Northwestern Pacific allege that INA violated the unfair competition law (UCL), Business and Professions Code Section 17200, in two ways. First, they argue that INA violated Civil Code Section 1457 by transferring policyholder obligations without their consent. Second, the insurers argue that the notices INA sent its California policyholders were “deceptive and misleading because they did not describe the true nature of the restructuring.”
Proposition 64 was enacted on Nov. 2, 2004, amending the UCL by adding a provision that a private action can be prosecuted only by a person “who has suffered injury in fact and has lost money or property as a result of such unfair competition” and providing that a private party may pursue “representative claims” under the UCL only if it meets the standing requirements of the class action statute. On Nov. 12, 2004, INA successfully moved for summary judgment on the grounds that the insurers lacked standing to pursue the suit under the new language of the UCL.
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