Utah Power & Light Co. v. Federal Ins. Co.
| Decision Date | 21 April 1989 |
| Docket Number | No. 87-C-0043-S.,87-C-0043-S. |
| Citation | 711 F. Supp. 1544 |
| Court | U.S. District Court — District of Utah |
| Parties | UTAH POWER & LIGHT COMPANY, Plaintiff, v. FEDERAL INSURANCE COMPANY, et al., Defendant(s). |
Stephen B. Nebeker, Paul S. Felt, John A. Adams, Paul D. Newman, Ray, Quinney & Nebeker, Robert Gordon, David A. Westerby, Michael G. Jenkins, Utah Power & Light Co., Salt Lake City, Utah, for plaintiff.
Donald J. Purser, Barbara Barrett, Purser, Okazaki & Barrett, Salt Lake City, Utah, for Federal Ins. Co.
Carman E. Kipp, William W. Barrett, Kipp & Christian, Salt Lake City, Utah, for Twin City Fire Ins. Co. and First State Ins. Co.
Raymond J. Etcheverry, Kent O. Roche, Parsons, Behle & Latimer, Salt Lake City, Utah, James T. Jensen, Jensen Law Offices, Price, Utah, for Emery Min. Corp.
B. Lloyd Poelman, Kirton, McConkie & Poelman, Salt Lake City, Utah, George E. Sayre, Sedgwick, Detert, Moran & Arnold, San Francisco, Cal., for Allianz & Cal Union Ins.
Thomas P. Kane, Edward M. Laine, Bethany K. Culp, Oppenheimer, Wolff & Donnelly, St. Paul, Minn., for St. Paul Surplus Lines Ins.
Terry M. Plant, John Braithwaite, Hansen, Epperson & Smith, Salt Lake City, Utah, for Alexander and Alexander.
P. Keith Nelson, Michael P. Zaccheo, Gary L. Johnson, Richards, Brandt, Miller & Nelson, Salt Lake City, Utah, for defendant/third-party plaintiff Intern. Ins. Co.
DECISION
This declaratory judgment action to recover contribution of $22 million from insurers is before the court on the objection of plaintiff Utah Power and Light (Utah Power) to the magistrate's report and recommendation (R & R) denying Utah Power's motion for partial summary judgment. Utah Power seeks a determination that primary carrier defendant Federal Insurance Company (Federal) and excess carrier defendants International Insurance Company (International), Twin City Fire Insurance Company (Twin City) and First State Insurance Company (First State) may not refuse contribution to or challenge the settlement amount in Carter v. Utah Power & Light, Civil No. 68596 () on their asserted ground the settlement was excessive and unreasonable under the circumstances. Utah Power argues, unless the defendants can show Utah Power settled in bad faith or by collusion, they cannot now refuse contribution to or challenge the reasonability of the settlement because they abandoned the defense of Carter and refused to settle the claims against Utah Power within policy limits. Federal responds it exhausted its duty to defend by tendering its policy limit; the remaining defendants allege the defense was never tendered them and therefore assert they could not have abandoned because they had no duty to defend. The magistrate recommends, without analysis, Utah Power be denied summary judgment, because the issue whether the insurers abandoned Utah Power's defense raises a question of material fact.
On December 19, 1984 a large fire in the Wilberg Mine resulted in the deaths of 27 miners. The miners' heirs began filing suits against Utah Power (the owner of the mine) which were eventually consolidated in Carter. At the time of the fire, Emery Mining Corporation (Emery) operated the Wilberg Mine under an agreement requiring Emery to insure and indemnify Utah Power from claims arising from Emery's operation. Emery carried four layers of general liability insurance for total coverage of $50.5 million:
Federal Primary; first $500,000
International Umbrella; next $10 million
Twin City and Following form excess
First State next $20 million
Federal Following form excess
next $20 million
On February 19, 1985 David A. Westerby, counsel for Utah Power, sent all liability insurance carriers a letter that discussed the status of the claims against Utah Power and contained the following request for action:
Westerby's February 19, 1985 letter at 5 (emphasis added). Utah Power considers this letter a tender of defense to the Utah Power and Emery lines of insurers. Federal, the primary carrier in the Emery line, agreed to accept the defense under a reservation of rights:
Westerby kept all insurers apprised of action in the case as it progressed. By letter of January 14, 1986 Westerby informed the excess carriers Federal had not yet responded to Utah Power's demand for reimbursement of defense costs incurred to that date and Utah Power intended to seek apportionment among the excess carriers of the costs that exceeded Federal's policy limit of $500,000.
We understand that Federal Insurance may tender its $500,000 policy limits in an effort to shift the defense burden to another carrier and avoid further defense costs. Under the circumstances of this case and the minimal limits of liability of the primary carrier, it might be proper to apportion defense obligations under the equitable apportionment theory. The gist of the theory is that where the unliquidated claim clearly exceeds the primary insurer's policy limits, the vigorous defense of the action inures to the benefits of the excess insurers, thereby making it inequitable to force the primary insurer to bear the entire cost of defense. Cases appearing to support such a theory include Celina Mutual Insurance Co. v. Citizens Insurance Co., of America, 133 Mich.App. 655, 349 N.W.2d 547 (1984) and Aetna Casualty & Surety Co. v. Surgeon Underwriters at Lloyds of London, England, 55 56 Cal.App.3d 791, 129 Cal.Rptr. 47 (1976). Regardless of whatever arrangements the Emery Mining carriers make among themselves for defense costs, Utah Power claims that it is entitled to prompt reimbursement of defense costs as they are incurred.
Westerby's January 12, 1985 letter at 7.
During 1986 Utah Power began urging the Emery line to settle the litigation, and the Emery line insisted the Utah Power line become involved in the negotiations. Throughout the year Utah Power hosted several meetings in Salt Lake City at which Stephen Nebeker informed all carriers of Utah Power's settlement efforts. At one point Federal proposed using its $500,000 to settle two or three of the claims. Utah Power rejected Federal's proposal saying, inter alia, early settlement of some of the claims would result in piecemeal, unreasonable and inequitable distribution of the settlement funds. Federal again attempted to tender its limits by proposing the $500,000 be distributed on a pro rata basis among the 28 plaintiffs. Utah Power rejected that proposal saying the settlement offers would be so low as to offend the negotiation process.
On December 31, 1986 Federal sent all carriers a letter that set out its own settlement efforts rejected by Utah Power; tendered for a third time its $500,000 policy limit; and notified Federal would no longer make interim payments of the defense costs, because the costs had nearly reached its $500,000 policy limit.
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