Fireman's Fund Ins. Co. v. Maryland Cas. Co.

• Decision Date: 31 July 1998
• Docket Number: No. A079345,A079345
• Court: California Court of Appeals Court of Appeals
• Parties: , 98 Daily Journal D.A.R. 8339 FIREMAN'S FUND INSURANCE COMPANY, Plaintiff and Appellant, v. MARYLAND CASUALTY COMPANY et al., Defendants and Appellants.

Page 296

77 Cal.Rptr.2d 296

65 Cal.App.4th 1279, 98 Daily Journal D.A.R. 8339

FIREMAN'S FUND INSURANCE COMPANY, Plaintiff and Appellant, v. MARYLAND CASUALTY COMPANY et al., Defendants and Appellants.

No. A079345.

Court of Appeal, First District, Division 4, California.

July 31, 1998.

Ira David Goldberg and Harold A. Weston, Caron, McCormick, Constants & Goldberg, San Francisco, for Plaintiff and Appellant.

William F. Fitzgerald, San Jose, James C. Nielsen, Glendale, Wright, Robinson, Osthimer & Tatum, San Francisco, and Elizabeth M. Wee, for Defendants and Appellants.

McGUINESS, Associate Justice.

In this case, we address the question whether the equitable doctrines of contribution and subrogation are entirely distinct and independent concepts, or instead are merely different terms for the same legal principle. Maryland Casualty Company, The Maryland Insurance Company, and Northern Insurance Company of New York (hereinafter collectively referred to as Maryland) appeal from summary judgment entered in favor of Fireman's Fund Insurance Company (Fireman's Fund) on the latter's complaint for contribution and indemnification from Maryland for the costs of defending and settling an underlying lawsuit on behalf of a common insured. Maryland argues that Fireman's Fund's claims for indemnity and contribution are actually based on its equitable subrogation to the rights of the common insured against Maryland. Because those rights have been settled, released and dismissed with prejudice in previous litigation between Maryland and the insured, Maryland insists there are no longer any remaining rights against Maryland to which Fireman's Fund may be subrogated. Therefore, Maryland contends, the trial court erred in granting summary judgment against it on Fireman's Fund's lawsuit for equitable contribution. We disagree with Maryland, and therefore affirm the judgment in favor of Fireman's Fund. Both insurers have also appealed the trial court's allocation of defense and indemnification costs between them. We conclude the trial court did not err in this regard, and therefore affirm the court's equitable allocation.

I. FACTUAL AND PROCEDURAL BACKGROUND

The underlying facts are not in dispute. Maryland and Fireman's Fund issued several one-year liability insurance polices to the underlying insured, Horst Hanf and Horst Hanf Construction Corporation (Hanf) between 1975 and 1992. Coverage of Hanf under the two carriers' policies overlapped, with Maryland's policies in effect between 1975 and 1986, and those of Fireman's Fund in effect between 1984 and 1992.

Hanf participated in work on a condominium construction project completed in 1975. In 1993, Hanf and others involved in the project were sued on various claims arising from alleged defects in the construction of the condominium residences, with damage alleged to have commenced in September 1979. Hanf tendered defense of the lawsuit to both Maryland and Fireman's Fund, under their overlapping and consecutive policies dating from November 14, 1978, through November 14, 1992. Maryland declined tender. Fireman's Fund accepted under a reservation of rights, and ultimately settled the action on Hanf's behalf for $100,000.

In January 1995, Hanf sued Maryland for breach of contract and of the implied covenant of good faith and fair dealing for refusing to undertake the defense of the underlying construction defect lawsuit. In September 1996, Hanf settled its lawsuit against Maryland, releasing Maryland from all claims with respect to the tender of defense and its liability policy, and dismissing the lawsuit with prejudice. In consideration for this release, Maryland paid Hanf $33,000 as partial reimbursement for fees and costs incurred, and assumed responsibility for a $50,000 promissory note executed by Hanf in favor of Fireman's Fund as part of the settlement of the underlying construction defect lawsuit.

Fireman's Fund elected not to intervene or join in Hanf's suit against Maryland. Instead, it brought this separate lawsuit against Maryland in May 1995, seeking (1) a judicial determination of the issue whether Maryland had a duty to defend and indemnify Hanf; and (2) reimbursement, indemnification and contribution from Maryland of its pro rata share of the costs incurred by Fireman's Fund in the defense and settlement of the underlying construction defect action against Hanf. Fireman's Fund moved for summary judgment. Maryland opposed the motion on the ground that any equitable subrogation rights Fireman's Fund may have had as against Maryland were extinguished by Hanf's full release of Maryland from all claims arising from its refusal to defend and indemnify Hanf in the underlying action. In reply, Fireman's Fund argued that a claim for contribution is distinct from and independent of a claim based on subrogation, and its action against Maryland was based on the former and not the latter.

The trial court agreed with Fireman's Fund on the distinction between equitable subrogation and contribution. On this basis, it determined that Maryland was required to share in the costs of defending and settling the construction defect action against Hanf. It therefore entered summary judgment in favor of Fireman's Fund and against Maryland in the amount of $366,506.70, or one-half of the expenses of defending and settling the underlying lawsuit plus prejudgment interest. Maryland timely filed a notice of appeal. Fireman's Fund has cross-appealed, alleging that the trial court erred in its calculation of the two carriers' pro rata shares of the costs of defending and settling the underlying action.

II. EQUITABLE CONTRIBUTION

The principal issue raised by Maryland's appeal is whether one insurer's claim against another for contribution of the costs of defending and settling a claim against the insured is based on the theory of equitable subrogation, and is therefore dependent on and limited by the underlying rights of the insured, to which both insurers may be subrogated; or whether instead an insurer possesses a direct cause of action for equitable contribution entirely independent of the rights of the insured. The parties to this appeal agree that if subrogation applies, the judgment for Fireman's Fund should be reversed and judgment entered instead for Maryland; if not, then the judgment must be affirmed as it stands. ¹

We conclude that where two or more insurers independently provide primary insurance on the same risk for which they are both liable for any loss to the same insured, the insurance carrier who pays the loss or defends a lawsuit against the insured is entitled to equitable contribution from the other insurer or insurers, without regard to principles of equitable subrogation. As a corollary to this principle, we hold that one insurer's settlement with the insured is not a bar to a separate action against that insurer by the other insurer or insurers for equitable contribution or indemnity.

Maryland's arguments are based on a misreading of dicta in the California Supreme Court's decision in Continental Cas. Co. v. Zurich Ins. Co. (1961) 57 Cal.2d 27, 17 Cal.Rptr. 12, 366 P.2d 455, a leading opinion on the obligation of coinsurers for equitable contribution to the costs of an insured's defense. In Continental, three different insurance carriers separately issued liability polices to a timber company, an independent contractor hired by the company to log and haul timber for it, and another company from whom the independent contractor hired trucks to haul the logs. An employee of the trucker was injured and sued the independent contractor for damages. The independent contractor tendered the defense of the action to all three insurance carriers, but only one undertook the defense. Thereafter, that insurer filed an action for declaratory relief to determine the respective liabilities of the three contesting insurance companies with respect to both indemnification of the judgment in the underlying personal injury suit and the costs of defense. (Id. at p. 31, 17 Cal.Rptr. 12, 366 P.2d 455.)

The Supreme Court held that all three liability insurance polices covered the independent contractor as an "additional insured," the liability policy covering the trucker provided primary coverage for the injured party, and the carriers for the timber company and the independent logger were liable on a pro rata basis for the excess balance of the personal injury liability judgment against the independent contractor over and above the amount of the primary coverage. (Continental Cas. Co. v. Zurich Ins. Co., supra, 57 Cal.2d at pp. 34-35, 17 Cal.Rptr. 12, 366 P.2d 455.) However, the Supreme Court held that all three insurance carriers were liable on a pro rata basis for the costs of defense. In language cited by both parties to this appeal, the Supreme Court stated: "Under general principles of equitable subrogation, as well as pursuant to the rule of prime importance--that the policy is to be liberally construed to provide coverage to the insured--it is our view that all obligated carriers who have refused to defend should be required to share in costs of the insured's defense, whether such costs were originally paid by the insured himself or by fewer than all of the carriers. A contrary result would simply provide a premium or offer a possible windfall for the insurer who refuses to defend, and thus, by leaving the insured to his own resources, enjoys a chance that the costs of defense will be provided by some other insurer at no expense to the company which declines to carry out its contractual commitments.... '[T]here are ... compelling reasons for allowing recovery when the other insurer has not entered the case at all or has refused to defend the insured against suit by the injured party.... [T]his view represents the current trend and better rule in the "volunteer" situations.' " (Id. at p. 37, 17 Cal.Rptr. 12, 366 P.2d 455.)

Relying on the Supreme Court's reference...