Reinsurance Focus

The California Court of Appeal reversed a trial court’s judgment dismissing a subsidiary insurer’s complaint against its parent company. The subsidiary insurer, Fremont Indemnity, (by and through the Insurance Commissioner as its liquidator) sued Fremont General, the parent company, alleging the defendants misappropriated net operating losses of its predecessor in interest and misappropriated other assets of its former subsidiary. Fremont Indemnity also asserted a claim for conversion of the net operating losses, in addition to alleging improper distributions in violation of the California Insurance Code.

The defendants demurred to the complaint. In support of the demurrer, the defendants sought judicial notice of a letter that provided for the Insurance Commissioner to supervise and provide regulatory oversight of Fremont Indemnity. Defendants alleged that the letter allowed Fremont General to use the net operating losses in the manner alleged. They also argued the conversion claim failed because the unauthorized taking of an intangible property interest in not an actionable conversion.

The appellate court held that it was improper for the trial court to take judicial notice of the letter. Specifically, the court stated “[a]lthough the existence of a document may be judicially noticeable, the truth of statements contained in the document and its proper interpretation are not subject to judicial notice if those matters are reasonably disputable.” Additionally, the court concluded conversion is not restricted to tangible property and held a net operating loss and the owner’s alleged right of ownership and exclusive possession to this loss are sufficiently definite to support a conversion claim. Poizner v. Fremont General Corporation, No. BC320766 (Ct. App. Cal., Feb. 28, 2007).