Unreported / Non-Citable
Background
Desoto Cab Company, a California taxicab operator, sued Onyx Insurance Company, Inc., a Tennessee risk retention group, and its successor Texas Insurance Company (TIC), alleging breach of contract, breach of the implied covenant of good faith and fair dealing, and fraudulent concealment. Onyx issued Desoto a $1 million business-auto policy in 2013. In 2021, while a personal-injury suit by nonparty Carissa Copeland was pending against Desoto, TIC, a Texas corporation based in Nebraska, assumed Onyx's policies under an agreement treating TIC as if it had originally issued them. TIC holds no California certificate of authority.
The Copeland case produced a judgment of about $10.86 million against Desoto in November 2021. The insurers lost their appeal, paid the $1 million limit and a $5 million appellate bond, and left roughly $7.8 million unpaid; in February 2024 TIC wrote that it did not intend to pay the balance. Desoto sued in January 2026 and the defendants removed on diversity grounds. After Desoto demanded a certificate or bond under Insurance Code section 1616 and TIC answered, citing federal preemption, the defendants settled Copeland's claims at mediation, though Desoto's own claims did not settle and the Copeland docket showed only partial satisfaction as of September 29. When the defendants filed an amended answer adding a satisfaction defense, Desoto moved to strike it.
The Court’s Holding
The court granted the motion and struck the amended answer as to TIC. Section 1616 requires a nonadmitted foreign insurer to procure a California certificate of authority or post a bond sufficient to secure any final judgment before filing any pleading in an action against it. Following Hawthorne, the court held the statute turns on the insurer that was sued, not the insurer that issued the policy. The defendants did not dispute that TIC is foreign, nonadmitted, was sued, and answered without a certificate or bond. The Liability Risk Retention Act exempts risk retention groups, and TIC, a stock insurer owned through corporate parents, is not one. The court found no authority that a successor inherits the exemption, and the act preserves state laws of general application. It also rejected the argument that Desoto falls outside the statute's protected class.
TIC did not establish a section 1620 exception. The policy was not effected in accordance with section 1760, because that chapter's definition of a nonadmitted insurer excludes risk retention groups and Onyx issued the policy as one. Section 1620(b)'s discretionary bond provisions apply only in actions already covered by section 1620(a), so the court did not decide whether TIC is an eligible surplus line insurer. The Copeland settlement may bear on the bond amount but not the obligation, because the bond secures any judgment in this action, where Desoto seeks additional damages, and the Copeland judgment was not shown to be fully satisfied.
This is not a final judgment and does not reach the merits. The answer is stricken only as to TIC, remains operative as to Onyx, and is reinstated automatically once TIC files proof of a bond or certificate. TIC may continue in discovery and motion practice, and no default may be entered while the compliance period is open. The parties must confer by October 21, 2026, then file a stipulation by October 22 or a joint letter brief by October 26 on the bond amount; the court will fix the amount and posting deadline later. Desoto's alternative $20 million request was not pursued.
Key Takeaways
- Section 1616 looks to the insurer actually sued, so a nonadmitted insurer that assumes a policy cannot rely on the original issuer's status.
- The Liability Risk Retention Act exemption belongs to the risk retention group and was not extended to a stock insurer that assumed its policies.
- A policy issued by a risk retention group does not qualify for the section 1620(a) exception tied to section 1760.
- A settlement of the underlying judgment may affect the size of the bond but does not excuse it.
- Striking the answer is conditional: it is reinstated automatically on proof of compliance, and the bond amount remains open.
Why It Matters
The order addresses how California's bond requirement for nonadmitted insurers interacts with the federal risk retention statute when a stock insurer takes over a risk retention group's policies. It treats the assumption as no escape from state law, a point that matters to insureds seeking security for judgments against out-of-state carriers.
It is a magistrate judge's order on a pleading-compliance motion, not a published appellate precedent, and it does not decide the underlying bad-faith claims or the bond amount. Further proceedings on the amount remain.