Prudential Reinsurance Co. v. Superior Court , 3 Cal. 4th 1118 ( 1992 )

KENNARD, J., Dissenting.

I concur in Justice Kline’s excellent dissenting opinion. I write separately, however, to make one additional point: the majority’s interpretation of Insurance Code section 1031 renders part of that statute meaningless, contrary to accepted principles of statutory construction.

Insurance Code section 1031¹ (section 1031) gives creditors of insurers in liquidation a general right of setoff subject to specified exceptions. The first paragraph of section 1031 states that, as between the insolvent insurer and any other person, mutual debts and credits shall be set off except in the situations described in subdivisions (a), (b), and (c). Only subdivision (a) of section 1031 is relevant here.

Subdivision (a) of section 1031 prohibits a setoff if the entity claiming the setoff is not entitled “to share as a claimant in the assets” of the insolvent insurer. In other words, only those entities that are entitled to share in the insolvent insurer’s assets may exercise the right of setoff. What, then, does the statute mean by an entitlement “to share as a claimant in the assets” of the insolvent insurer?

According to the majority, subdivision (a) of section 1031 means only that a reinsurer (or any other party seeking to exercise a setoff) must possess a claim against the insolvent insurer. The reinsurer does not, under the majority’s view, have to actually receive, or share in, any portion of the insolvent insurer’s assets. As the majority readily acknowledges, this interpretation makes subdivision (a) merely a restatement of the conditions of setoff—that is, the existence of “mutual debts and credits” between the insolvent insurer and the party seeking to exercise a setoff. As the majority puts it, “In sum, section 1031(a) is nothing more than a restatement of the mutuality requirement that is a prerequisite to the assertion of a section 1031 setoff.” (Maj. opn., ante, p. 1139.) Under the majority’s view, subdivision (a) of section 1031 is redundant and superfluous.

The majority’s conclusion violates these precepts of statutory construction: to give independent meaning and significance whenever possible to each word, phrase, and sentence in a statute (see, e.g., Dyna-Med, Inc. v. Fair Employment & Housing Com. (1987) 43 Cal.3d 1379, 1386-1387 [241 Cal.Rptr. 67, 743 P.2d 1323]); to avoid an interpretation that makes any part of a statute meaningless (id. at p. 1387; accord, Woods v. Young (1991) 53 Cal.3d 315, 323 [279 Cal.Rptr. 613, 807 P.2d 45]; California Mfrs. Assn. v. Public Utilities Com. (1979) 24 Cal.3d 836, 844 [157 Cal.Rptr. 676, 598 P.2d 836]); and to harmonize statutes both internally and with each other (Woods v. Young, supra, at p. 323).

It is not necessary, as the majority has done, to read subdivision (a) of section 1031 as having the identical meaning as the general rule to which it is an exception. There is, as the Insurance Commissioner correctly notes, another construction of section 1031 that gives independent meaning and purpose to subdivision (a) and harmonizes section 1031 both internally and with other components of the statutory scheme. Under this construction, subdivision (a) bars setoff by those entities that have claims against the insolvent insurer but do not actually share in the insolvent insurer’s assets.

Reading section 1031 this way gives its words—particularly the phrase “to share as a claimant in the assets”—their ordinary and traditional meaning. It recognizes that subdivision (a) prohibits setoffs in a clearly defined situation. Finally, it harmonizes section 1031 both internally and, as ably demonstrated by Justice Kline (dis. opn., post, pp. 1145-1150), with the statutory scheme of which it is a part. In brief, this reading of section 1031 is preferable to the majority’s when judged by the neutral criteria traditionally used for statutory construction. I perceive no sound basis for rejecting it.

Mosk, J., concurred.

1 Section 1031 states in full: “In all cases of mutual debts or mutual credits between the person in liquidation under Section 1016 and any other person, such credits and debts shall be set off and the balance only shall be allowed or paid, but no set-off shall be allowed in favor of such other person where any of the following facts exist: fi[] (a) The obligation of the person in liquidation to such other person does not entitle such other person claiming such set-off to share as a claimant in the assets of such person in liquidation. [1] (b) The obligation of the person in liquidation to such other person was purchased by, or transferred to, such other person. [5] (c) The obligation of such other person to the person in liquidation is to pay an assessment levied against such other person or to pay a balance upon a subscription for shares of the capital stock of the person in liquidation.” (Italics added.)