Attempt to Avoid Reimbursement of Excess Insurer Fails
No Good Deed Goes Unpunished
In Western World Insurance Company v. Federal Insurance Company, Defendant, 2d Civ. No. B311994, California Court of Appeals, Second District, Sixth Division (September 8, 2022) two insurers disputed about the priority of coverage arising from a single incident.
In May 2014, Elliot Roger murdered his two roommates and their friend at the Capri Apartments (Capri) in Isla Vista, California. The victims’ heirs brought an action for wrongful death (Chen v. Hi-Desert Mobile Home Park (Super. Ct. Santa Barbara County, 2015, No. 15CV04163) (Chen action) against the owner of the apartments, Hi-Desert Mobile Home Park, LP (Hi-Desert) and the manager, Asset Campus Housing, Inc. (ACH). The action alleged that ACH and Hi-Desert had notice of Roger’s violent propensities but assigned him to be the victims’ roommate.
Associated Industries Insurance Company (AIIC) provided general liability coverage for both Hi-Desert and ACH. Federal Insurance Company (Federal) provided coverage in excess of AIIC’s coverage for both Hi-Desert and ACH. Western World Insurance Company (Western) provided excess general liability coverage for ACH, but not Hi-Desert.
The insurers did the right thing by their insureds. They each contributed funds for a settlement of the underlying action, leaving the question of priority of coverage to separate litigation among the insurers.
Western filed a complaint against AIIC and Federal seeking a declaration that Western’s coverage was in excess of both AIIC and Federal’s coverages. Western’s first amended complaint added causes of action for equitable subrogation and equitable indemnity against Federal. Western sought the return of all of its contributed funds on the ground that the settlement of the underlying action was not in excess of Federal’s coverage.
AIIC filed a cross-complaint seeking a declaration that Western’s coverage was co-primary for ACH. Federal cross complained against Western seeking a declaration that Federal’s coverage for ACH is in excess of Western’s coverage and granted Western’s motion for summary judgment.
The trial court found that Western’s coverage of ACH is in excess of both AIIC’s and Federal’s coverage. The court’s grant of summary adjudication in favor of Western resolved all claims against Federal. Federal appeals.
Western’s Coverage Is Not Primary
Western’s policy provides two kinds of general liability coverage. One is for 54 locations specifically designated by their names and addresses. It is undisputed that this is primary liability coverage. But Capri is not one of those properties.
Western’s other coverage is by an endorsement to the policy under the heading “Real Estate Property Managed-Contingent.” It provides coverage for property managed but not owned by ACH. The contingency is that the property owner must maintain personal injury insurance with limits equal to or greater than $1 million.
The endorsement provides that Western’s coverage is excess to any other insurance ACH has whether primary or excess. The language in Western’s endorsement could not be clearer.
Here Western is not using its other insurance clause to transform its policy from primary to excess. Instead, it is using the clause to show that its policy is ab initio excess over all other insurance. That is the bargain Western made with its insured.
The only insurer named in the Schedule of Underlying Insurance is AIIC with underlying limits of $1 million.
Thus, the only contingency for Federal’s liability under its policy is the exhaustion of AIIC’s primary $1 million policy limits. Federal’s liability was not contingent on the exhaustion of limits under Western’s policy. Instead, Federal undertook to provide coverage immediately upon exhaustion of AIIC’s policy limits, whereas Western obligated itself to provide coverage only when the limits of all other available coverage, both primary and excess, were exceeded.
Western’s coverage is in excess of Federal’s coverage.
Federal is attempting to stitch together an argument gathered from bits and pieces of its policy. Its needlework has failed to create even a plausible ambiguity. Any such ambiguity would be interpreted against Federal in any event. Had Federal intended that its coverage not attach until the exhaustion of all other insurance, it could have easily said so. It did not. The trial court correctly concluded that Western’s coverage is in excess of Federal’s coverage.
The elements of an insurer’s cause of action for equitable subrogation are:
- the insured suffered a loss for which the defendant is liable, either as the wrongdoer whose act or omission caused the loss or because the defendant is legally responsible to the insured for the loss caused by the wrongdoer;
- the claimed loss was one for which the insurer was not primary liable;
- the insurer has compensated the insured in whole or in part for the same loss for which the defendant is primarily liable;
- the insurer has paid the claim of its insured to protect its own interest and not as a volunteer;
- the insured has an existing, assignable cause of action against the defendant which the insured could have asserted for its own benefit had it not been compensated for its loss by the insurer;
- the insurer has suffered damages caused by the act or omission upon which the liability of the defendant depends;
- justice requires that the loss be entirely shifted from the insurer to the defendant, whose equitable position is inferior to that of the insurer; and
- the insurer’s damages are in a liquidated sum, generally the amount paid to the insured.
Prior to the settlement of the Chen action, ACH had an assignable cause of action against Federal because Federal refused to acknowledge its duty to indemnify that ACH was primary to Western’s coverage. It would be absurd to allow Federal to use Western’s money to settle Federal’s debt to ACH, and hold the settlement deprived Western of the right to recover the money from Federal. Perhaps the most bizarre of Federal’s arguments is that Western did not suffer any damages caused by Federal. Federal is preventing money that rightly belongs to Western from being returned to it.
Western’s coverage is in excess to Federal’s coverage; the settlement of the Chen action did not exhaust the limits of Federal’s coverage; therefore, Western is entitled to the return of its money.
The trial court awarded Western prejudgment interest at the rate of 10 percent pursuant to Civil Code section 3287, subdivision (a). The court has no discretion in awarding interest under Civil Code section 3287, subdivision (a).
Federal is wrong for two reasons: Western is subrogated to ACH’s breach of contract against Federal, and Western and Federal entered into a written contract giving each party the right to litigate priority of coverage in the Chen action and reimbursement.
Western World Insurance Company did the right thing when a dispute arose between the various insurers about which insurer was primary, which excess, and which – of two excess insurers – must exhaust before the other must pay. It turned out Western was the last in line and needed reimbursement from the others of the money it paid subject to this later suit to determine who was on first, second and third. Federal tried to avoid doing the right thing only to have the Court of Appeal slap their cobbled together arguments down. Western World acted fairly and in good faith the insured and the other insurers only to have Federal try to not pay what it owed.
022 Barry Zalma & ClaimSchool, Inc.
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and firstname.lastname@example.org.
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