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Controlling Shareholder of Insured Corporation Does Not Have "Standing" to Seek Declaratory Relief Against Corporation's Insurers

The controlling shareholder of an insured corporation did not have sufficient legal "standing" to pursue a claim for declaratory relief against the corporation's liability insurers. (D. Cummins Corporation v. United States Fidelity & Guaranty Company (2016) WL 1726079)

Facts

For many years, D. Cummins Corporation (Cummins Corp.) installed asbestos containing products in California. Later, hundreds of persons filed lawsuits against Cummins Corp. alleging bodily injury based on exposure to asbestos containing products.

Cummins Corp. was the named insured on primary and excess insurance policies issued by United States Fidelity & Guaranty Company (USF&G) for the period of July 1969 through January 1987 and United States Fire Insurance Company (US Fire) for the period of February 1988 through January 1992. Cummins Corp. thus tendered the defense of the asbestos lawsuits to USF&G and US Fire. Later, various disputes arose between Cummins Corp., on the one hand, and USF&G and US Fire, on the other hand, regarding defense and indemnity for the asbestos lawsuits.

On January 17, 2014, D. Cummins Holding LLC (Cummins Holding) was formed and became the parent and controlling shareholder of Cummins Corp. Six days later, on January 23, 2014, Cummins Corp. and Cummins Holding jointly filed a declaratory relief action against USF&G and US Fire in order to obtain rulings regarding USF&G's and US Fire's obligations to defend and indemnify Cummins Corp. in the underlying asbestos lawsuits.

USF&G and US Fire demurred to Cummins Holding's cause of action for declaratory relief, asserting that Cummins Holding was not an "insured" under the policies and thus did not have "standing" to sue the insurers for declaratory relief. The trial court sustained the insurers' demurrers without leave to amend and dismissed Cummins Holding from the case. Cummins Holding appealed.

Holding

The California Court of Appeal affirmed. California Code of Civil Procedure section 1060 provides that "[a]ny person interested under a written instrument … or under a contract … may, in cases of actual controversy relating to the legal rights and duties of the respective parties, bring an original action … for a declaration of his or her rights and duties …." A related statute, Code of Civil Procedure section 1061, provides that "[t]he court may refuse to exercise the power granted by this chapter in any case where its declaration or determination is not necessary or proper at the time under all the circumstances." Italics added.

Here, Cummins Corp. as named insured was a "person interested" who had legal standing to sue the insurers for a declaration of rights under the insurance policies. By contrast, Cummins Holding as controlling shareholder of Cummins Corp. did not qualify as a "person interested" who had sufficient standing to sue for a declaration of rights under the policies. Even if Cummins Holding was the sole entity responsible for managing the affairs of Cummins Corp., that indirect interest did not translate into "a legally cognizable theory of declaratory relief." Cummins Corp. could pursue its own rights, and Cummins Holding as shareholder would profit indirectly. Thus, the trial court did not abuse its discretion in ruling that Cummins Holding had failed to state a claim for declaratory relief against USF&G and US Fire.

Comment

Here, Cummins Holding was not an insured, did not have an assignment from an insured, and was not a judgment creditor of an insured. As such, Cummins Holding could not demonstrate the existence of any actual controversy between it and the insurers. The only party who had standing to pursue a declaratory relief action was the actual insured, Cummins Corp.

This case is consistent with prior California appellate cases holding that a corporation's shareholders generally do not have standing to sue the corporation's insurer. (See, e.g., Seretti v. Superior Nat. Ins. Co. (1999) 71 Cal.App.4th 920, 922-924; C & H Foods Co. v. Hartford Ins. Co. (1984) 163 Cal.App.3d 1055, 1068.)

 

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