Court Cases



The following are the last five cases resolved in October 2002. These show the case against me, alleging that there was something illegal or improper done to resolve the Northrigde Earthquake claims. These claims were beyond the statute of limitations of one year when I took office, and my attempts to get the Legislature to extend this time period were not successful through then Chair of the Assembly Insurance Committee, Jack Scott. The Senate Insurance Committee Chair, Jackie Speier, "tabled" it until it was politically expedient, after I had resigned. She staged widely publicized and expensive "hearings" which resulted in fewer than 200 total "inquiries" from policyholders. If the Department sued the insurers, years of expensive ligtigation would follow, adding costs to taxpayers and policyholders. If some fines resulted (not at all certain), those fines would go to the "general fund", not the victims. The foundations forced the insurers to reopen the claims as well as provide additional funds for some who were underinsured or not insured. Though I had fined insurance companies $56 million, more than all previous commissioners combined, this was not the best path to get restitution for the policyholders in this case. The Judge decided the allegations against me were utterly groundless. Comments by the Judge show that the same methods were used, and even bragged about, by other regulators such as the Attorney General of California who brought this suit. The cross complaint filed by the Insurers who were also sued, were granted, and the agreements developed by the Quackenbush Administration that forced insurers to reexamine claims, and provided over a hundred million dollars more to victims, still stand today. The following chart shows the claims information before the suit: Supplied by the Personal Insurance Federation of California Northridge Earthquake Claims Reports as of December 1999 company total claims paid out pending Quake Premium Collected State Farm 117,000 $3.5 Bil .1 of 1% $1.2Billion SAFCO 8,293 $265 mil 10 claims $127.5 mil Farmers 36,700 $2.0 Bil .1 of 1% $500 mil 21st Century 46,400 $1.04 Bil 46 claims $48.7mil Progressive 75 $75,000 0 TOTALS 208,468 $7.2 Billion $1.8 Bil BILL LOCKYER Attorney General RICHARD M. FRANK, Chief Assistant Attorney General JAMES M. CORDI, Supervising Deputy Attorney General SONJA K. BERNDT Deputy Attorney General State BarNo. 131358 300 South Spring Street, Room 5212 Los Angeles, California 90013 Telephone: (213) 897-2179 Fax: (213) 897-7605 Attorneys for Respondent Harry Low, Insurance Commissioner IN THE SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE COUNTY OF LOS ANGELES DOROTHY A. MARTINEZ, ET AL. Plaintiffs, V. CHUCK QUACKENBUSH, ET AL. Defendants, and HARRY LOW, INSURANCE COMMISSIONER Respondent. Case No. BC272899 [coordinated with BC240146, BC246808, BC246809, BC246810, BC247592, BC272902] NOTICE OF RULING IN COORDINATED CASES Next Status Conference: Date: November 12, 2002 Time: 1:30p.m. Courtroom: Department 324 (The Honorable Victoria G. Chaney) TO ALL PARTIES, TO ALL INTERESTED PERSONS, AND) TO THEIR COUNSEL OF RECORD: PLEASE TAKE NOTICE THAT the Court has issued a ruling on the cross-motions for summary judgment filed in the following cases, which have been coordinated with this case: 21st Century Ins. Co. v. The People, et al. (case number BC240 146); The People, et al. v. State Farm General Ins. Co., et al. (case number BC246808); The People, et al v. Allstate Insurance Co., et al. (case number BC246809); The People, et al. v. Farmers Ins, Exchange, et al. (case number BC2468 10); and The People, et al. v. Fireman's Fund Ins. Co., et al. (case number BC247592). attached to this notice. DATED: October 16, 2002 Respectfully submitted, BILL LOCKYER, Attorney General of the State of California RICHARD M. FRANK Assistant Attorney General JAMES M. CORDI Supervising Deputy Attorney General SONJA K. BERNDT Deputy Attorney General By SONJA K.BERNDT Deputy Attorney General Attorney for Respondent ORIGINAL FILED SUPERIOR COURT OF CALIFORNIA OCT 1 0 2002 COUNTY OF LOS ANGELES LOS ANGELES SUPERIOR COURT 21st CENTURY INSURANCE COMPANY, Plaintiff, Vs. PEOPLE OF THE STATE OF CALIFORNIA ex rel. BILL LOCKYER, ATTORNEY GENERAL, et al., Defendants. Case No: BC 240146 RULING ON: (1) DEFENDANTS' MOTlON FOR SUMMARY JUDGMENT OR ALTERNATIVELY, FOR SUMMARY ADJUDICATION; (2)21 ST CENTURY'S CROSS-MOTION FOR SUMMARY JUDGMENT Hearing date: 9/18/02 Ruling date: 10/10/02 After considering the moving, opposing and reply papers and the arguments of counsel at the hearing, the court now rules as follows: The State Parties' motions for summary judgment, or in the alternative, for summary adjudication against State Farm, 21st Century, Allstate, Fireman's Fund and Farmers are denied. The cross-motions for summary judgment brought against the State Parties by State Farm, 21st Century, Allstate, Fireman's Fund and Farmers are granted. Plaintiffs The People of the State of California ex rel. Bill Lockyer, Attorney General, California Department of Insurance, and Insurance Commissioner Harry Low (the State Parties) move the Court for summary judgment in each of the actions against State Farm General Insurance Company (State Farm), 21St Century Insurance Company (21st Century), Allstate Insurance Company (Allstate), Fireman's Fund Insurance Company (Fireman's Fund) and Farmers Insurance Exchange (Farmers) with respect to the First Cause of Action for Declaratory Relief; and alternatively for summary adjudication of the following issues: Issue No. 1: That the Settlement Agreements, in order to be legally binding on the State, may not allow the contributions to the nonprofit organization to be used for non-earthquake insurance-related purposes. Issue No. 2: The Settlement Agreements are void and unenforceable on their face because they do not require the payment of funds to a non-profit organization to support only earthquake insurance-related purposes. State Farm, 21st Century, Allstate, Fireman's Fund and Farmers each bring a Cross-Motion for Summary Judgment against the State Parties on the ground that there is no triable issue of fact and that the insurers are entitled to summary judgment because the State Parties cannot establish that the settlement agreements at issue between the California Department of Insurance (CDOI) and the insurance entities violated any law or public policy, and that as a result of such violation, the settlement agreements should be declared void and unenforceable. I. The Settlement Agreements The basic facts set forth below are undisputed by the parties. A. State Farm On April 21, 1999, State Farm and the California Department of Insurance (CDOI) entered into a Settlement Agreement (Complaint, Exh. 1; Lew DecI., Exh. A) as well as a related Stipulation, Waiver and Consent Order (Complaint, Exh. 1). These documents were intended to conclude all regulatory action with respect to State Farm's handling of policyholder claims arising from the 1994 Northridge earthquake. In the agreement,State Farm agreed to make a $2 million contribution to a California nonprofit public benefit corporation'named the California Research and Assistance Fund (CRAF). The agreement stated that: "The objectives of the Fund shall be determined by the Corporation, which may receive advice and counsel from [California seismic engineering organizations]. The objectives may address specific topics expected to be of material assistance to all Californians, including such topics as: "Recommended procedures for adjustment of residential earthquake claims..." "An update of ATC-13 ... to ensure that earthquake damage models incorporate the post-Nortbridge insights..." "A study of how [building materials] perform in earthquakes... "Similar matters addressing needed seismic studies, including improved seismic education." (Settlement Agreement, p. 1.) These facts, as set out in the State Parties' moving papers, are not in dispute. (See State Farm's Cross-Motion, pp. 2-3.) The State Parties and State Farm do, however, have differing interpretations of the Settlement Agreement and the law applicable to the power of an administrative agency to settle disputes. As a preliminaiy matter, the court finds that the Stipulation and the Letter Agreement constitute two separate and independent agreements. The Stipulation was intended to "conclude all regulatory action." The Letter Agreement deals with the contribution to CRAF. B. 21st Century On April 21, 1999, 21st Century and the CDOI, at the direction of former Insurance Commissioner Chuck Quackenbush, entered into a settlement agreement. (Complaint, Exh. A; Lew Decl., Exh. A.) The parties also entered into a related stipulation, waiver and consent order on the same date.(Complaint, Exh. A.) These documents were intended to resolve all disputes between 21st Century and the CDOI with respect to 21st Century's handling of claims made as a result of the Northridge earthquake. (Stipulation and Order, paragraph 1; Complaint, Paragraph 9.) Pursuant to the settlement agreement 21st Century agreed to make $6,550,000 in contributions to a California nonprofit public corporation named the California Research and Assistance Fund (CRAF). In consideration for this contribution, the CDOI "agreed to release all claims against plaintiffs" and "further agreed that it would (1) rescind the orders Prohibiting plaintiffs from paying dividends or writing new business and (2) not issue an order to show cause and statement of charges or accusation or take action against plaintiffs." (Complaint, paragraph 17.) The Stipulation and Order states that 21st Century "shall participate in the hardship and humanitarian fund to be established by [CRAF]...." (Stipulation and Order, par 7.) The settlement agreement provides that: 1. 20th Century Insurance Company ... will establish and contribute the sum of six million dollars ($6,000,000) to a fund... which will be a part of the California Research and Assistance Fund, a California nonprofit public benefit corporation ... to provide limited financial assistance to homeowners with earthquake insurance and uninsured or underinsured non-profit entities who suffered damage in the Northridge earthquake. (a) Purpose of the fund. To provide limited financial assistance to 1) homeowners with earthquake insurance who suffered property damage in the Nortbridge earthquake and who, due to special circumstances or hardships, uninsured earthquake losses beyond applicable deductible amounts, and 2) to provide grants to uninsured non-profit entities with Northridge earthquake property damage which has not been remedied. Any amounts remaining in the Fund after all payments of financial assistance and expenses shall be used for the general purposes of the Corporation. 2. 20th" Century shall also contribute $550,000 to the Corporation to be used for the general purposes of the Corporation. (Settlement Agreement, 1, 2.) C. Allstate On July 8, 1999, Allstate and the CDOI, acting at the direction of then California Insurance Commissioner Chuck Quackenbush, entered into the settlement agreement. (Complaint, Exh. I; Lew Decl., Exh. 1.) Allstate and the CDOI also entered into a related Stipulation, Waiver and Consent Order dated July 8, 1999. These documents were intended to "conclude the Commissioner's investigation of [Allstate's] handling of Northridge Earthquake claims and fully and finally resolve any and all regulatory actions relating thereto." (Stipulation and Order, 10.) In the settlement agreement, Allstate agreed to make a contribution to a California nonprofit public benefit corporation named the California Research and Assistance Fund (CRAF) in the amount of $2 million. The settlement agreement provided: [Allstate] agrees[s] to participate in a humanitarian public earthquake study and education fund... that will be established by a California nonprofit public benefit corporation.... [Allstate's] participation in the Fund will be in the form of a monetary contribution in the amount of two million dollars. Such monetary contribution will be [Allstate's] sole responsibility and obligation with respect to the Fund. The objectives of the Fund shall be determined by the Corporation, which may receive advice and counsel for such professional California seismic engineering organizations as the Applied Technology Council (ATC), the California Universities for Research in Earthquake Engineering (CUREe), and similar bona fide academic and professional engineering organizations. The objectives may address specific topics expected to be of material assistance to all Californians, including such topics as: "Recommended procedures for adjustment of residential earthquake claims..." "An update of ATC- 13... to ensure that earthquake damage models incorporate the post-Northridge insights..." "A study of how [building materials] perform in earthquakes... "Similar matters addressing needed seismic studies, including improved seismic education" (Settlement Agreement pp.1-2) The Stipulation and Order provide: [Allstate] voluntarily agree[s] to participate in a humanitarian public earthquake study and education find.., that will be established by a California nonprofit public benefit corporation.... The Corporation shall establish the specific benefits of the Fund, which may include: education and research activities relating to: (a) earthquake preparedness; (b) earthquake damage mitigation; (c) earthquake damage prevention; (d) earthquake damage assessment, and/or (e) earthquake damage repair. [Allstate's] participation in the Fund shall be in such a manner as [Allstate] and the Commissioner shall mutually agree. Such participation shall be [Allstate's] sole responsibility and obligation with respect to the fund. (Stipulation and Order, 3.) D. Fireman's Fund On March 13, 1999, Fireman's Fund and the CDOI, acting at the direction of former Insurance Commissioner Chuck Quackenbush, entered into a settlement agreement. (Complaint, Exh. 1; Lew Decl., Exh. I.) In the agreement, Fireman's Fund agreed to make a contribution of $550,000 to a "Not for Profit, Education Project that the [GDOI] oversees for the benefit of the public." (Settlement Agreement, 2.C.) The contribution was made to a California nonprofit public benefit corporation named the California Research and Assistance Fund (CRAF). (See Fireman's Fund's Verified Amended Answer, 16.) In consideration for this contribution, the CDOI agreed "not to conduct a market conduct examination of Fireman's Fund's Northridge earthquake claims files" and "not to undertake other regulatory actions including fines or other sanctions relative to Fireman's Fund's Northridge earthquake claims." (Settlement Agreement, 1 .D.) The Settlement Agreement provides: C. Education Project Within ninety (90) days of execution of this Agreement, Fireman's Fund agrees to contribute $550,000 to the Not for Profit, Education Project that the [CDOI] oversees for the benefit of the public. The Education Project administrators shall use their discretion concerning the use of these funds, with due consideration of Fireman's Fund's request that the earthquake insurance and seismic event preparedness education receive the majority of these funds. (Settlement Agreement, 2.C.) D. Farmers On June 22, 1999, Farmers and the CDOI, acting at the direction of then California Insurance Commissioner Chuck Quackenbush, entered into two settlement letters, a seven page Long Settlement Letter and a single page Short Settlement Letter. (Complaint, Exh. 1; Lew Decl., Exh. 1.) The two letters were intended to: (1) resolve policyholder concerns arising out of [sic] Northridge earthquake; (2) resolve and conclude the pending market examination concerning earthquake claims; and (3) promote charitable causes as they relate to earthquake relief efforts. (Long Settlement Letter, p. 2.) In the two letters, Farmers agreed to make a $1 million contribution to a nonprofit charitable foundation to be established by the Commissioner. (Long Settlement Letter, pp.4,7; Short Settlement Letter.) The contribution was made to a California nonprofit public benefit corporation named the California Insurance and Education Project (CIEP). (Farmers' Verified Answer, 10.) II. Summary Judgment Standard A defendant is entitled to summary judgment as to each cause of action where one or more of the elements cannot be established. (Code Civ. Proc., 437c(a).) The party moving for summary judgment bears the initial burden of production to make a prima facie showing of the nonexistence of any triable issue of material fact. (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850.) The burden shifts to plaintiff when a summary judgment motion prima facie justifies a judgment for the defendant. (Zuckerman v. Pacific Savings Bank (1986) 187 Gal.App.3d 1394, 1401.) in moving for summary judgment, a defendant "has met his burden of showing that a cause of action has no merit if he has shown that one or more elements of the cause of action... cannot be established, or that there is a complete defense to that cause of action. Once the defendant... has met that burden, the burden shifts to the plaintiff. . . to show that a triable issue of one or more material facts exists as to that cause of action or a defense thereto. The plaintiff... may not rely upon the mere allegations or denials of his pleadings to show that a triable issue of material fact exists but, instead, must set forth the specific facts showing that a triable issue of material fact exists as to that cause of action or a defense thereto." (Aguilar, 25 Cal.4th at p. 849, internal quotations omitted.) The defendant need not conclusively negate such an element, but need only show that the plaintiff does not possess, and cannot reasonably obtain, needed evidence. (Id. at pp. 853-854.) Once the defendant carries this burden, the burden shifts to plaintiff to make a prima facie showing of the existence of a triable issue of material fact. (Id. at p. 849.) There is a triable issue of material fact if the evidence would allow a reasonable trier of fact to find the underlying fact in favor of the party opposing the motion in accordance with the applicable standard of proof. (IA. at p. 850.) This Court can and will only entertain competent evidence. (Biljac Associates v. First Interstate Bank (1990) 218 Cal.App.3d 1410,1419 & fn. 3.) Ill. Rich Vision and Government Code Section 11415.60 In Rich Vision Centers, Inc. v. Board of Medical Examiners (1983) 144 Cal.App.3d 110, the Court of Appeal determined the scope of a licensing agency's power to settle cases. The court concluded that agencies "only have the power conferred upon them by statute and an act in excess of these powers is void;" however, an "agency's powers are not limited to those expressly granted in the legislation; rather, '[it] is well settled in this state that [administrative] officials may exercise such additional powers as are necessary for the due and efficient administration of powers expressly granted by statute, or as may fairly be implied from the statute granting the powers."' (Id. at p. 114.) The court further held that: Permitting the Board to settle disputes over present or continuing fitness for a license helps to achieve the legislature's purpose. Settlement negotiations provide the Board greater flexibility. Importantly, settlements provide the means to condition the issuance or renewal of licenses in order best to protect the public. Because settlement is administratively efficient and furthers the purpose f6r which the Board was created, we hold that the Board has the implied power to settle licensing disputes. [Citation.] This holding is consistent with the general policy of favoring compromises of contested rights.(Id. at p. 115.) Regarding the terms of the settlement, the Rich Yision court stated "we see no limitations on the conditions that may be included in a settlement except that such conditions must not violate public policy." (Id. at pp. 115-116.) "There is no reason to handicap those members of the Attorney General staff who represent licensing ageincies in performing their duty by limiting their ability to propose and include any settlement term beneficial to the public." (Id. at p. 116.) The holding in Rich Vision has been codified as Government Code section 11415.60, which provides: (a) An agency may formulate and issue a decision by settlement, pursuant to an agreement of the parties, without conducting an adjudicative proceeding. Subject to subdivision (c), the settlement may be on any terms the parties determine are appropriate. (b) A settlement may be made before or after issuance of an agency pleading, except that in an adjudicative proceeding to determine whether an occupational license should be revoked, suspended, limited, or conditioned, a settlement may not be made before issuance of the agency pleading. A settlement may be made before, during, or after the hearing. (c) A settlement is subject to any necessary agency approval. An agency head may delegate the power to approve a settlement. The terms of a settlement may not be contrary to statute or regulation, except that the settlement may include sanctions the agency would otherwise lack power to impose. The State Parties' reading of Rich Vision is that, under this factual situation, [a]s a matter of law, the Settlement Agreement, to be valid and enforceable, must have required the funds contributed to a charitable organization to support only activities related to the CDOI's enforcement powers and responsibilities in the enforcement action giving rise to the Settlement Agreement, i.e., for earthquake-related purposes only." (State Parties' Motion, p. 1 [Each of the five motions brought by the State, apart from the initial statement of facts, consist of identical language in the section arguing the State's position regarding Rich Vision. For simplicity's sake, the court uses "State Parties Motion" to refer to identical language found in each of the five motions brought by the People].) This reading is based on the language in Rich Vision stating that "[b]ecause settlement ... furthers the'purpose for which the Board was created, we hold that the Board has the implied power to settle licensing disputes." (Rich Vision, supra, 144 Cal.App.3d atp. 115.) Based on this language, the State Parties contend that the scope of an agency's-power to settle administrative actions is limited to "settlements that further the purposes for which the regulatory agency was created." (State Parties' Motion, p. 5; see also Cal. Attorney General Opinion. No. 00-51(1 (July 25,2000) [nonpub. opn.], pp. 3,4. In other words, some settlements further the purposes for which the agency was created and some do not; those that do not are invalid. The language relied upon by the State Parties appears in the section of the Rich Vision opinion dealing with whether agencies have the implied power to settle, titled "The Board has implied power to settle licensing disputes." (See Rich Vision, supra, 144 Cal.App.3d at pp. 114-115.) The scope of such power was delineated in the next section, titled "Settlement terms are limited only by public policy." (Id. at pp. 115-116.) This part of the analysis holds that the court saw "no limitations on the conditions that may be included in a settlement except that such conditions must not violate public policy." (Ibid.) "There is no reason to handicap those members of the Attorney General staff who represent licensing agencies in performing their duty by limiting their ability to propose and include any settlement term beneficial to the public." (Id. at p. 116.) A reasonable reading of this language implies that a settlement term may be included which benefits the public but might not be directly within the immediate purview of the agency's powers. That is, Rich Vision does not prohibit a settlement calling for a payment to a charitable organization unless the settlement agreement expressly provides that the settlement fund be used exclusively to support activities related to the underlying enforcement action.

For example, the Attorney General's own website praises the public benefits of settlement funds distributed to charitable organizations or purposes unrelated to the underlying actions. The Attorney General announced that $2.9 million form the antitrust settlement with the Nine-West Group will be used to support California domestic violence shelters, the prevention and prosecution of domestic violence against women, and information and legal assistance to women with gynecological or breast cancer under a court-approved plan." (State Farm RJN, Exh. I; see also Exh. H [$2 million of proceeds from settlement of antitrust case against Levi-Strauss given to charitable organization to "research important issues of consumer protection, affordability and access to health care, health care choice and the concentration, regulation and competition in the health care sector"].) In neither the Nine-West nor the Levi-Strauss settlements, were the settlement funds directly related to the underlying antitrust law enforcement action. Yet the Attorney General boasted that "[i]t is extemely gratifying and appropriate that we put these funds to use to help consumers and improve health care quality through enhanced research and grants. (State Farm RJN, Exh. H.)

Morever, the Rich Vision court recognized that the act of settlement itself furthers the purposes of an administrative agency. (Rich Vision, 144 CaI.App.3d at p. 115.) In Frankel V. Board of Dental Examiners (1996)46 Cal.App.3d 534, 544, the court cited Rich Vision for this proposition: "Provided that they do not include conditions that violate public policy, settlements are administratively efficient, further the purpose for which the [agency] was created, and are consistent with the general policy of favoring compromises of contested rights." Given the broad grant of authority in settling administrative actions delegated to an agency by Rich Vision and Government Code section 11415.60, as well as the recognition of the courts in Rich Vision and Frankel that settlement itself furthers the purposes of the agency, these authorities, and indeed, the Attorney General's own actions in similar cases, do not support the State's attempt to restrict an agency's settlement authority to only those settlements that "further the purposes" for which the agency was created. Therefore, unless the settlement agreement violates statute or public policy, it is valid and enforceable. The insurers' settlement agreements are valid and enforceable unless the terns of the agreements are "contrary to statute or regulation" (Gov. Code, 11415.60, subd. (c)), or do not "violate public policy" (Rich Yision, supra, 144 Cal.App.3d at pp. 115-116). The State Parties do not contend that the settlement agreements are contrary to any statute or regulation. Rather, the State Parties argue that the settlement agreements violate public policy because the terms of the agreements were not sufficiently beneficial to the public. In support of this public policy argument, the State Parties rely upon the Insurance Code's penalty provisions, the Attorney General's Opinion No.00-510, and the legislative reaction to the settlement. The party opposing enforcement of a contract has the burden of showing that enforcement would be in violation of the settled public policy of this state as it existed at the time the contract was made. (Moran v. Harris (1982) 131 Cal.App.3d 913, 919-920.) Courts "may not encroach upon the lawmaking branch of government in the guise of public policy unless the challenged transaction is contrary to a statute or some well-established rule of law." (Id. at p. 921.) First, the State Parties cite provisions of the Insurance Code specifying how monetary penalties and sanctions imposed by the CDOI may be used. (See State Parties' Motion, pp. 8-12, citing Insurance Code 707.4 and 12975.7.) The State Parties seem to argue that because the letter agreement "sidestepped" these Insurance Code sections, it allowed State Farm to avoid statutory penalties and sanctions in violation of public policy. This argument ignores the broad grant of discretion of Government Code section 11415.60, subdivision (a), which permits an agency to settle, or "sidestep" adjudication, and subdivision (c), which provides that "the settlement may include sanctions the agency would otherwise lack power to impose," as long as they are "not contrary to statute or regulation." Since the settlement agreement was not subject to the provisions of Insurance Code sections 704.7 and 12975.7 (State Parties' Motion, p. 12), the settlement agreement was not contrary to statute. In light of Government Code section 11415.60, the State Parties' contention that public policy was violated when the CDOI and State Farm "sidestepped" the penalty provisions is unpersuasive and falls far short of a '"well-established rule of law." (Moran, Supra, 131 Cal.App.3d at p. 921.) Further, it is common for parties to avoid admissions of liability in settlement agreements. The payment of monies as "penalties" implies an admission of liability. To require settlement funds to be labeled as penalties would hamstring the settlement process and is contrary to the policy of encouraging settlement. Second, the State parties argue that Attorney General Opinion No. 00-510 demonstrates that the letter agreement was in violation of public policy. Opinion No. 00-510 addressed the question: May the Insurance Commissioner include as a term of settlement of a regulatory enforcement case brought against a regulated insurance company a requirement that the insurance company pay funds directly to a private charitable foundation? The opinion concluded that the Commissioner may include as a term of settlement a requirement that the insurance company pay funds directly to a private charitable foundation "in furtherance of purposes for which the Department of Insurance was created and related to the enforcement responsibilities of the Commissioner in the regulatory proceeding," but that the Commissioner may not include a settlement term requiring payment of funds to a charitable foundation "for the purpose of supporting activities unrelated to the regulatory enforcement responsibilities of the Department of Insurance in the proceeding." (Opinion No. 00-510 at p. 1.) The opinion states that such a settlement provision "would be against public policy by exceeding the scope of the statutory duties and regulatory powers of the Commissioner." (Id. at p. 6.) This informal letter opinion is dated July 25, 2000, over a year after the April 21, 1999 settlement agreement and stipulation entered into by State Farm and the CDOL (Complaint, Exh. 1; Lew Decl., Exh. A.) This Court would be hard-pressed to find that this after the fact opinion constituted a "well-established rule of law" of this state as it existed at the time the contract was made (Moran, supra, 131 Cal.App.3d at pp. 913, 919-921.) Not only was this opinion drafted after the Attorney General announced potential litigation against the insurance company defendants (See State Farm's RJN, Exh. G), such informal opinions are not entitled to the usual weight given opinions of the Attorney General (Koire v. Metro Car Wash (1985) 40 Cal.3d 24, 30. ["While opinions of the Attorney General are not controlling authority, they are entitled to consideration"] California Coastal Coin. v. Quanta Investment Corp. (1980) 113 CaLApp.3d 579, 593, fh. 11 [indexed letter opinion differs from formal opinion, in that it is not published and widely dissemimated; rather they are kept by Attorney General and made available to the public by request] ; Rideout Hospital Foundation, Inc. v. County of Yuba (1992)8 Cal.App.4th 214, 226, fn. 4 [letters, including unpublished and informal Attorney General letter to Governor "not the type of extrinsic aids that courts can meaningfully use in discerning legislative intent"]). Moreover, the opinion advances an interpretation of Rich Vision similar to the State Parties' arguments in this case. As the above analysis points out, Rich Yision does not impose a restriction that the Commissioner may not include a settlement term requiring payment of funds to a charitable foundation "for the purpose of supporting activities unrelated to the regulatory enforcement responsibilities of the Departnient of Insurance in the proceeding." Rather, the only limitation imposed by Rich Vision is that the terms "may not violate public policy." (Rich Vision, supra, 144 ~al.App.3d at pp. 115-116.) Finally, the State Parties are unable to establish a consistent standard under their various interpretations of Rich Yision. The Attorney General first states in the letter opinion that the Commissioner may not include a settlement term requiring payment of funds to a charitable foundation "for the purpose of supporting activities unrelated to the regulatory enforcement responsibilities of the Department of Insurance in the proceeding." (Opinion No. 00-510 at p.1, emphasis added.) Next, the Attorney General argues that the agreement must require that settlement funds be used "for earthquake-related purposes only." (State Parties'...Motion, p. 1, lines 19-22, emphasis added.) On the very same page, the'Attomey General insists that the settlement agreement must require "funds contributed to a charitable organization to support only earthquake-insurance-related activities." (State Parties' Motion, p. 1, lines 23-25, emphasis added.) Not one of these three positions can be squared with the Attorney General's actions in the Nine-West and Levi-Strauss settlements, which would also be invalid under the State Parties' reading of Rich Vision. Third, the State Parties rely on the reaction of the Legislature to the CDOI settlements. Following the settlement agreements between the CDOI and insurers handling Northridge earthquake claims, legislative hearings critical of the settlements were held (See State Parties' RJN, EThs. 1, 2), and the Insurance Code was amended to prohibit settlements by the Insurance Commissioner that provide for a respondent to contribute or deposit any money to a nonprofit entity or to pay any fine or assessment except in accordance with Insurance Code section 12975.7 (Stats. 2000, ch. 1091). "Where changes have been introduced to a statute by amendment it must be assumed the changes have a purpose; by substantially amending a statute the Legislature demonstrates an intent to change the pre-existing law in all areas where there is a material change in the language of the act" (Louisiana-Pacific Corp V. Humboldt Bay Mun. Water Dist. (1982) 137 Cal.App.3d 152, 159.) "[C]ourts will not infer that the Legislature intended only to clarify the law unless the nature of the amendment clearly demonstrates that its intent was to be declaratory of the existing law." (Verreos v: City and County of San Francisco (1976) 63 Cal.App.3d 86, 99.) Under the foregoing authorities, it must be presumed that the amendment of Insurance Code section 12975.7 was intended to change pre-existing law and public policy, rather than to be declaratory of existing law. When the Legislature in essence codified the holding in Rich Vision by enacting Government Code section 11415.60, it had the opportunity to limit the scope of an administrative agency's settlement authority as it did when enacting Insurance Code section 12975.7. The fact that it chose not to, as well as the fact that it later chose only to limit the settlement powers of the CDOI, supports a finding that Insurance Code section 12975.7 represented a change in the law, not simply a clarification of existing law. The legality of an agreement is determined as of the time of its making. (Moran, supra, 131 Cal.App.3.d at p. 918.) The letter opinion and the after the fact expressions of public policy by the legislature are not evidence of public policy at the time the settlement agreements were made, but rather, reflect a reaction and later change in the law and public policy. Because the settlement agreements were within the scope of the CDOI's implied powers under Rich Vision, and because the settlement agreements were not contrary to statute and did not violate public policy, the settlement agreements are valid and enforceable. IV. Contract Law Principles Settlement agreements with government agencies are governed by contract principles. (Frankel, supra, 46 Cal.App.4th at p. 544.) "A contract must receive such an interpretation as will make it lawful.., reasonable, and capable of being carried into effect, if it can be done without violating the intention of the parties." (Civ. Code, 1643; Service Employees International Union Local 18 v. American Building Maintenance Co. (1972)29 Cal.App.3d 356, 359 ["where two interpretations are reasonably permissible, courts will adopt that which renders a contract valid and effectual"].) The settlement agreements requiring contributions to CRAF (all except Farmers' settlement agreement, which provided for a contribution to CIEP) have been interpreted by the insurers and the State Parties (in the CRAF action) as restricting the funds to earthquake-related purposes. (State Farm PJN, Exhs. A-D, Exh. F, pp. 5, 8,11, fn.3.) The Sacramento Superior Court has granted injunctive relief based on theallegations that CRAF's funds were restricted. (State Farm RJN, Exh. E, pp. 3-4.) Because there are two reasonably permissible interpretations of the letter agreement, this court will adopt the interpretation which renders the contract valid, i.e., that the letter agreement restricts the funds to earthquake-related purposes. (Service mployees International Union Local 18 v. American Building Maintenance Co., supra, 29 Cal.App.3d at p. 359.) This interpretation finds support in the accompanying language in the letter agreement, which all deals with earthquake related matters. (Civ. Code, 1641 ["The whole of a contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other"].) Each of the settlement agreements is replete with language that the funds are to used for earthquake-related purposes. Any language that appears to give the directors of CRAF or CIEP discretion to spend the settlement funds in any manner they wished must be read in context with the earthquake-related provisions. (See People v. Parmar (2001) 86 Cal.App.4th 781, 78 8-789 [agreement stated District Attorney would assign a deputy who "will...seek all legal and equitable remedies available" against individuals in violation of nuisance statute; Court of Appeal decided "will" was sufficiently qualified by other language that it did not divest District Attorney's office of discretion to bring cases, therefore contract did not violate public policy].) The inclusion of language which appears to give the directors some discretion in how to spend settlements funds does not automatically render the agreements void. (Redke v. Silvertrust (1971) 6 Cal.3d 94, 102 ["if a contract can be performed legally, a court will presume that the parties intended a lawful mode of performance"]; see also Environmental Protection Information Center, Inc. v. Maxxam Corp. (1992)4 CaLApp.4th 1373, 1382 [presumption should be afforded extra weight because "It must be presumed that the Department will obey and follow the law"]; Roth v. Dept.of Veteran Affairs (1980) 110 CaLApp.3d 622, 628 [the rule that any "uncertainty in the contract must be construed against the drafter" applies equally to "public body"].) Further, Califomia presumes that its public officials will follow the law--because there was no express provision in any agreement requiring the Insurance Commissioner to act contrary to statute, it must be presumed that he would follow the law in effect at the time the contract was made. (Environmental Protection Info Ctr., Inc. v. Maxxam Corp. (1992)4 Cal.App.4th 1373, 1382; Miller v. McKenna (1944)23 Cal.2d 774, 786.) Another factor warrants against invalidating the settlement agreements. The State Parties have left unanswered the question of what happens if these settlement agreements are invalidated. Ordinarily, guilty parties to an illegal contract may not recover in restitution any consideration paid. (See 1 Witkin, Summary of Cal. Law (9th ed. 1987) Contracts, 446, pp.398-399.) However, where, as here, the insurers are innocent parties to the illegality, and the potentially illegal use of the funds occurred subsequent to the formation and performance of the contract, courts will allow such an innocent party to obtain restitution of the consideration paid. (Id., 447, 451, pp. 399-400, 401-402.) To return the parties to the status quo would be difficult. Each contract has been fully executed, and each insurer has paid in settlement an amount ranging from $550,000 to $6,550,000. These funds have, for the most part, been spent by the CRAF and CIEP, neither of whom are parties to this action and not under this court's jurisdiction; the return of these funds to the insurers is extremely doubtful, as conceded by the State Parties at oral argument. Further, Fireman's Fund agreed to conduct an internal audit of its claims handling; to pay any payments that it determined were due as a result of the audit; to conduct a telephone survey of its earthquake damage claimants; and to review and reevaluate the files of dissatisfied customers. (Fireman's Fund Settlement Agreement, 3,4.) Similarly, Farmers agreed to survey more than 25,000 claimants, and negotiate or mediate any disagreement regarding the claims. (Farmers' Settlement Agreement, pp. 4-5.) As a result, these two carriers have paid funds, as part of the settlement agreements, beyond their contributions to the charitable organizations. it is clear that should a court find the agreements void, the insurance carriers will not be returned to the status quo; on the other hand, the CDOI would be free to resume its market conduct examinations. The State Parties argue that the court should find that the settlement agreements are invalid, so that the CDOI may resume its market conduct examination of the various insurance carriers. At oral argument, the State Parties raised the spectre of thousands of policyholders whose mishandled claims for earthquake damages will go without a remedy should this court grant summary judgment in favor of the insurance carriers. However, the Legislature has already addressed this concern by enacting Code of Civil Procedure section 340.9, which revived insurance claims for damages arising out of the Northridge earthquake which were barred by the statute of limitations. Today, eight years after the Northridge earthquake, what more can be done by a market conduct examination to help the public with claims for damages arising from the earthquake? V. Judicial Estoppel Finally, the State Parties' summary judgment and summary adjudication motions against the carriers who contributed to the CRAF fund are properly denied under principles ofjudicial estoppel. The elements of judicial estoppel are: "(1) the same party has taken two positions; (2) the positions were taken in judicial ... proceedings; (3) the party was successful in asserting the first position (i.e., the tribunal adopted the position or accepted it as true); (4) the two positions are totally inconsisteht and (5) the first position was not taken as a result of ignorance, fraud or mistake." (Jackson v. County of Los Angeles (1998) 60 Cal.App.4th 171, 183.) The State Parties have taken two positions in these actions and the CRAF action. In CRAF, the State Parties have interpreted the settlement agreements as restricting the funds to earthquake-related purposes. (State Farm RIN, Exhs. A-D, Exh. F, pp. 5, 8,11, fii.3.) In the actions here against the insurers, the State Parties assert that the settlement agreements are invalid because they do not restrict use of the funds to earthquake-related purposes. These positions, both taken in judicial proceedings, are totally inconsistent. The Sacramento Superior Court has granted injunctive relief based on the allegations that CRAF's funds were restricted. (State Farm RJN, Exh. E, pp. 3-4.) Thus, the State Parties were successful in asserting the first position. Finally, the position taken by the State Parties in CRAF was not taken as a result of ignorance, fraud or mistake. In opposing the demurrer, the State admitted it was pursuing both theories out of uncertainty as to how the court would rule. (State Farm RJN, Exh. F, p. 11, fri. 3.) Because all of the elements required to establish the defense ofjudicial estoppel are present, the State Parties motions for summary judgment against the carriers who contributed to the CRAF fund are properly denied. VI. Conclusion For the reasons set forth above, the settlement agreements at issue between the insurance carriers and the CDOI are valid and enforceable under Rich Vision, the Civil Code and the common law of contracts. Accordingly, the State Parties' motions for summary judgment, or in the alternative, for summary adjudication against State Farm, 21st Century, Allstate, Fireman's Fund and Farmers are denied. The cross-motions for summary judgment brought against the State Parties by State Farm, 21st Century, Allstate, Fireman's Fund and Farmers are granted. By this ruling on summary adjudication, the court does not intend to express any opinion, and has no opinion, as to the propriety of the settlement agreements. This court has only ruled on the issue of whether the agreements were lawful. Neither is the court judging the propriety of the insurers' claims handling following the Northridge earthquake. In sum: The State Parties' motions for summary judgment, or in the alternative, for summary adjudication against State Farm, 21st Century, Allstate, Fireman's Fund and Farmers are denied. The cross-motions for summary judgment brought against the State Parties by State Farm, 21st Century, Allstate, Fireman's Fund and Farmers are granted. IT IS SO ORDERED. Dated: 10/10/02 Victoria Gerrard Chaney Judge

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