Aetna Cas. & Surety Co. v. Certain Underwriters

• Decision Date: 30 March 1976
• Court: California Court of Appeals Court of Appeals
• Parties: The AETNA CASUALTY AND SURETY COMPANY, Plaintiff and Respondent, v. CERTAIN UNDERWRITERS AT LLOYDS OF LONDON, ENGLAND et al., Defendants and Appellants. Civ. 45823.

Page 47

129 Cal.Rptr. 47

56 Cal.App.3d 791

The AETNA CASUALTY AND SURETY COMPANY, Plaintiff and Respondent, v. CERTAIN UNDERWRITERS AT LLOYDS OF LONDON, ENGLAND et al., Defendants and Appellants.

Civ. 45823.

Court of Appeal, Second District, Division 2, California.

March 30, 1976.

Hearing Denied May 26, 1976.

Gibson, Dunn & Crutcher, Sherman Welpton, Jr., John L. Endicott, Los Angeles, certain other insurance companies (Lloyds).

Hancock, Rothert & Bunshoft, by Harlow P. Rothert, San Francisco, for defendants and appellants Anthony Charles Vanier Harden and Stronghold Ins. Co.

James E. Cusick, Los Angeles, for appellant, Harbor Ins. Co.

BEACH, Associate Justice.

Appellants ¹ and respondent Aetna Casualty & Surety Co. (Aetna) were insurers of Union Oil Company (Union) in January 1969, at the time of the Santa Barbara oil well blowout. Aetna defended Union to the exhaustion of the $50,000 monetary limit of its policy. The instant action for equitable subrogation and declaratory relief was filed because Aetna, although continuing to defend Union, believes its duty to defend ended at the exhaustion of the policy limit; that the other insurers should now take over defense of claims against Union; and that the legal fees and other expenses incurred by Aetna after the exhaustion of the policy limits should be paid to Aetna by the other insurers.

The trial court ordered that from the date of judgment Lloyds shall have the primary responsibility of defense; that Harbor has exhausted its policy limits so no longer shares this responsibility; and that the costs of defense should be apportioned based on a ratio of the amount paid by each insurer to the total amount of such indemnity payments paid by all insurers in the settlement of claims or the satisfactions of judgments. The trial court further ordered that Aetna recover from Harbor $242,974.20 plus interest, and $409,226.82 plus interest from the othr insurers. When all the litigation against Union has been determined, the various costs will be prorated; the court retained jurisdiction for that purpose. Harbor and Lloyds appeal.

FACTS:

On February 7, 1967, Aetna issued a Comprehensive Liability Policy to Union covering occurrences from November 1, 1966; there was a limit of liability to $50,000 for each occurrence. On November 1, 1966, Harbor issued a policy for excess liability, insuring 50% Of any loss after $50,000 to a liability limit of $475,000. Lloyds' insurance provided the other 50% Of that liability also amounting to a possible $475,000 liability, and in addition provided about $21 million in excess insurance.

The Aetna policy provided in part:

'INSURING AGREEMENTS

1. LIABILITY

To pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of:

(2) Injury to, or loss or destruction of property.

II. DEFENSE, SETTLEMENT, SUPPLEMENTARY PAYMENTS

With respect to such insurance as is afforded by this policy, the Company shall:

(a) defend any suit against the Insured alleging any such injury * * * and seeking damages on account thereof, even if such suit is groundless * * *;

(d) pay all expenses incurred by the Company (Aetna), all costs taxed against the Insured in any such suit * * * until the Company has paid or tendered or deposited in court such part of such judgment as does not exceed the limit of the Company's liability thereon;

(f) reimburse the Insured for all reasonable expenses, other than loss of earnings, incurred at the Company's request; and the amounts so incurred, except settlements of claims and suits, are payable by the Company in addition to the applicable limit of liability of this policy.

CONDITIONS

6. DEDUCTIBLE

Except with respect to damages on account of * * * use * * * of automobiles, the Company shall be liable, as respects each occurrence, only for the excess of all damages and allocated claim expense over $5,000. * * *

The Company shall have the * * * obligation * * * to settle any claim or suit against the Insured * * *, provided, with respect to * * * damages and allocated claim expense on account of injury to property * * * the Company shall be reimbursed by the Named Insured for all sums so incurred, but not for any amount in excess of $5,000.00 as respects any one occurrence.'

On January 28, 1969, an oil well operated by Union in the Santa Barbara Channel blew out, oil was discharged, and numerous suits were filed against Union. Aetna undertook the defense of the suits and the investigation, negotiation and settlement of the various claims. By August 25, 1969, Aetna had paid $50,000 in settlement of claims against Union as a result of that occurrence. Some time prior to August 25, 1969, Aetna advised Harbor and Lloyds that Aetna believed once it had paid out its $50,000 limit, it had fulfilled its duty to defend Union and should be relieved of that duty. Harbor and Lloyds disagreed. While reserving its rights to contend it had no further duty to defend and to seek reimbursement for defense expenses subsequent to its payment of $50,000, Aetna continued to defend Union against claims resulting from the blowout.

As of November 30, 1970, Harbor had paid its policy limits of $475,000 in settlement but refused to pay any portion of the legal and other fees and expenses connected with the defense of the pending suits and the investigation, negotiation and settlement of the remaining claims. As of August 31, 1973, Lloyds had paid over $800,000 in settlement of some of the many claims against Union. Like Harbor, Lloyds refused to pay any portion of the legal and other fees and expenses.

The Harbor and Lloyds policies provide in part:

'1. The insurers hereon * * * hereby agree, * * * to pay * * * all sums which the assured shall * * * become liable to pay * * * as damages * * * for damage to or destruction of property of others, as covered in the underlying policy/ies issued by The Aetna Casualty & Surety Company * * * hereinafter called the 'primary insurers'.

2. (A) Provided always that * * * liability shall attach to insurers only after the primary insurers have paid or have been held liable to pay the full amount of their respective ultimate net loss liability of $50,000.00 any one * * * occurrence * * *.

4. PAYMENT OF COSTS. 'Costs' incurred by the assured personally with the written consent of Insurers, and for which the assured is not covered by the said primary insurers, shall be apportioned as follows:

(A) In the event of * * * claims arising which appear likely to exceed the primary * * * limits, no 'costs' shall be incurred by the assured without the written consent of insurers.

(C) Should, however, the sum for which the said * * * claims may be so adjustable exceed the primary * * * limits, then insurers, if they consent to the proceedings continuing, shall contribute to the 'costs' incurred by the assured in the ratio that their proportion of the ultimate net loss as finally adjusted bears to the whole amount of such ultimate net loss.

(E) COSTS. The word 'costs' shall be understood to mean interest on judgments, investigation, adjustment and legal expenses, (excluding, however, all expenses for salaried employees and retained counsel of and all office expense of the assured).

7. MAINTENANCE OF PRIMARY INSURANCE. This contract is subject to the same warranties, terms, conditions, exclusions and definitions (except as regards the premium, the obligation to investigate and defend * * *) as are contained in * * * the policy/ies of the primary insurers * * *.'

Aetna retained the law firm of O'Melveny & Myers to defend Union in connection with the lawsuits filed as a result of the blowout. Through August 1969, Aetna paid the firm $48,740 plus $2,072.50 for disbursements. From September 1, 1969, through November 30, 1970, $128,005.05; and from November 30 to February 28, 1973, Aetna paid O'Melveny 3 Myers $230,164.40 in fees and disbursements. For adjustments of claims, Aetna paid Crawford and Company $27,860.15 through August 1969; for services rendered from September 1, 1969 through November 30, 1970, $8,241.23; and from November 30, 1970 to December 31, 1972, $926.56. For other expenses, Aetna has paid or is obligated to pay $231,884.40 as of March 31, 1973; $19,135.87 was reimbursed for expenses through August 1969; $54,445.56 for expenses from September 1, 1969, to November 30, 1970; and $158,302.97 for expenses after November 30, 1970.

Based on these facts, the trial court found all the insurers have a responsibility of furnishing defense for Union, but the primary responsibility rested with Aetna until the exhaustion of its policy limits. Then the defense would shift to the excess carriers (appellants) unless the position of Union would thereby be put in jeopardy. Since Harbor has exhausted its policy limits, its, the trial court concluded it no longer has a share in the primary responsibility of conducting such defense. After final judgment in the instant case, the primary responsibility will shift to Lloyds. As for the costs of defense, they should be apportioned among the insurers based upon a ratio of the amount paid by each insurer to the total amount paid by all insurers in the settlement of claims and the satisfaction of judgments; as of the date of judgment, that was 3.77% For Aetna, 35.85% For Harbor, and 60.38% For Lloyds; but the court noted that those percentages will change.

CONTENTIONS ON APPEAL:

1. Aetna has an obligation to defend Union even after its policy limits have been exhausted.

2. The costs incurred by Union are covered by the Aetna policy, and the excess insurers are not responsible therefor. Harbor additionally argues that if Aetna was no longer liable for costs after the exhaustion of its policy limits, that any obligation of Harbor to reimburse costs was similarly terminated upon exhaustion of its policy limits.

DISCUSSION:

Duty to defend after exhaustion of policy limits.

The question of whether an insurer must...