Company name changes may not prevent reimbursement claim

In California, the phrase "original claimant under the insurance policy" can be interpreted broadly enough to include a successor entity that is the continuation of an original insured.

Case name: Catholic Healthcare West v. California Insurance Guarantee Association, No. F055842 (Cal. Ct. App. 10/05/09).

Ruling: In a partially published opinion, the California Court of Appeal reversed summary judgment for the California Insurance Guarantee Association. The court remanded the case, concluding there were factual questions regarding whether the claims for coverage were made by an "original insured."

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What it means: In California, the phrase "original claimant under the insurance policy" can be interpreted broadly enough to include a successor entity that is the continuation of an original insured.

Summary: In 1985, a hospital nurse suffered a back injury in the course of her employment. By 2004, $1.6 million had been paid on her workers' compensation claim. The employer paid out the first $150,000 in benefits. It had excess coverage with a carrier that became insolvent before the payments exceeded the retention. The employer continued to pay and requested that the California Insurance Guarantee Association reimburse it for the amount the excess carrier should have paid. CIGA paid the employer $186,000. When CIGA reviewed the excess policy, it discovered the hospital had changed names several times and had reorganized with other corporations. It sued to recover the funds, arguing California's law excludes any claim by any person or entity other than the named insured under the policy.

The Court of Appeal reversed summary judgment for CIGA, interpreting the language "original claimant under the insurance policy" to include the employer as a continuation of the original insured.

CIGA contended that the case was analogous to Baxter Healthcare Corp. v. CIGA, where the court determined the surviving corporation of a merger between unaffiliated entities was not an original claimant in the name of the absorbed corporation. The Court of Appeal drew a number of factual distinctions between this case and Baxter.

The court pointed out that where a corporation merges into another corporation as part of internal restructuring of a family of corporations, does not expand the ownership or control of the operations, and the surviving corporation continues the original activities, the corporation may be considered an original claimant. In this case, the corporations merged were part of the same family, and the mergers were merely restructuring. The surviving corporation continued to operate the same business: a hospital. Therefore, the court concluded the surviving corporation was equivalent to one of the original insured entities.

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November 2, 2009

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