Maryland Cas. Co. v. Nationwide Mut. Ins.
| Decision Date | 06 June 2000 |
| Docket Number | No. D032972.,No. D033116.,D032972.,D033116. |
| Citation | 81 Cal.App.4th 1082,97 Cal.Rptr.2d 374 |
| Court | California Court of Appeals Court of Appeals |
| Parties | MARYLAND CASUALTY COMPANY et al., Cross-complainants and Respondents, v. NATIONWIDE MUTUAL INSURANCE COMPANY, Cross-defendant and Appellant. National Union Fire Insurance Company of Pittsburgh, Pennsylvania et al., Cross-complainants and Respondents, v. Nationwide Mutual Insurance Company, Cross-defendant and Appellant. |
Daniels, Baratta & Fine and Lance Orloff, Los Angeles, for Cross-defendant and Appellant.
Branson, Brinkop, Griffith & Strong and John H. Podesta, for Cross-complainant and Respondent National Union Fire Insurance Company of Pittsburgh, Pennsylvania.
Haight, Brown & Bonesteel, Robert V. Closson and Terrell A. Quealy, San Diego, for Cross-complainant and Respondent Maryland Casualty Company.
This case involves the allocation of defense costs among insurers—two of which paid for the insured's defense (Maryland Casualty Company and National Union Fire Insurance Company) and one of which did not (Nationwide Mutual Insurance Company). The court shifted the entire defense burden to Nationwide under equitable subrogation principles. We conclude the court erred because the equitable contribution doctrine, not subrogation applies. We reverse and remand for the court to equitably allocate defense costs among these insurers.
Nielsen Construction Company, a general contractor, was hired to build a residential development. Nielsen retained numerous subcontractors to assist on the project, including West Coast Sheet Metal Inc. (West Coast) and R.W. Strang Mechanical, Inc. (Strang). The subcontract agreements required West Coast and Strang to name Nielsen "as an additional named insured and ... provide[ ] specifically that such policies are primary and non-contributing with any other insurance carried or available to [Nielsen]."
Pursuant to these agreements, West Coast and Strang obtained liability insurance coverage from Nationwide and purchased additional insured endorsements. The endorsements stated that Nielsen was an insured under the policy "but this insurance with respect to [Nielsen] applies only to the extent that [Nielsen] is held liable for your acts or omissions arising out of and in the course of operations performed for [Nielsen]...." The West Coast endorsement also contained the following typewritten language in capitalized letters: " "
Nielsen was also insured under its own commercial general liability policies issued by respondents Maryland and National Union. Although those policies are not part of the appellate record, it is undisputed these policies, as purchased by Nielsen, were primary policies.2
When the homeowners association sued Nielsen for construction defects, Nielsen tendered defense of the action to its own insurers (Maryland and National Union), and to each of the subcontractor insurers under the additional insured endorsements. Maryland and National Union ultimately paid for Nielsen's defense in the action.
Maryland and National Union brought claims against each subcontractor insurer for recovery of the defense costs under equitable subrogation and equitable contribution theories, asserting the subcontractor insurers were primarily responsible for Nielsen's defense under their additional insured endorsements. Although the other subcontractor insurers ultimately settled with Maryland and National Union, Nationwide denied it had a defense duty.
In Maryland Casualty Co. v. Nationwide Ins. Co., supra, 65 Cal.App.4th 21, 76 Cal.Rptr.2d 113, we determined Nationwide owed a defense duty based on the additional insured endorsements, and remanded for the court to determine the amount Nationwide owed to Maryland and National Union. We reasoned that, under the particular language of the additional insured endorsements, Nationwide's policies covered Nielsen's vicarious liability for the acts of West Coast and Strang, and that Nationwide had a corresponding duty to defend Nielsen against claims potentially alleging this liability.
On remand, Maryland and National Union moved for summary judgment against Nationwide solely on the basis of the equitable subrogation doctrine. Maryland and National Union sought to recover all of their remaining defense costs, including amounts pertaining only to Nielsen's own negligence. The court granted summary judgment in favor of Maryland and National Union, ruling that Nationwide was obligated to pay for these insurers' unreimbursed defense costs. The court awarded Maryland $725,260.30 and awarded National Union $721,750.3
Nationwide appeals, contending the trial court erred in applying the equitable subrogation doctrine to shift the entire remaining burden of Nielsen's defense to Nationwide. Nationwide maintains Maryland and National Union were entitled only to a portion of the defense costs under an equitable contribution theory. We agree, and remand for the court to apply the equitable contribution doctrine to determine an appropriate allocation of defense costs among Maryland, National Union, and Nationwide.
Nationwide contends the court erred in granting summary judgment on respondents' equitable subrogation claims.
In the insurance context, equitable subrogation and equitable contribution doctrines each pertain to the allocation of costs when there is more than one potentially responsible insurance company. But the two doctrines are "entirely different" concepts. (Fireman's Fund Ins. Co. v. Maryland Casualty Co. (1998) 65 Cal. App.4th 1279, 1293, 77 Cal.Rptr.2d 296 (Fireman's Fund).)
Equitable subrogation allows an insurer that paid coverage or defense costs to be placed in the insured's position to pursue a full recovery from another insurer who was primarily responsible for the loss. (Fireman's Fund, supra, 65 Cal. App.4th at p. 1291, 77 Cal.Rptr.2d 296.) Because this doctrine shifts the entire cost burden, the moving party insurer must show the other insurer was primarily liable for the loss and that the moving party's equitable position is inferior to that of the second insurer. (Id. at pp. 1291, 1296, 77 Cal.Rptr.2d 296; see Fireman's Fund Ins. Co. v. Wilshire Film Ventures, Inc. (1997) 52 Cal.App.4th 553, 556, 60 Cal.Rptr.2d 591.) This doctrine commonly applies to shift defense costs between primary and excess insurers. (See Signal Companies, Inc. v. Harbor Ins. Co. (1980) 27 Cal.3d 359, 367-368, 165 Cal.Rptr. 799, 612 P.2d 889; Reliance Nat. Indemnity Co. v. General Star Indemnity Co., supra, 72 Cal. App.4th at pp. 1080-1081, 85 Cal.Rptr.2d 627.) As between those two insurers, the primary insurer is obligated to defend the insured and must bear 100 percent of the defense costs until the primary limits have been exhausted. (See Signal Companies, Inc. v. Harbor Ins. Co., supra, 27 Cal.3d at p. 368, 165 Cal.Rptr. 799, 612 P.2d 889; Hartford Accident & Indemnity Co. v. Superior Court (1994) 23 Cal.App.4th 1774, 1779-1780, 29 Cal.Rptr.2d 32.) Thus, an excess insurer that pays defense costs will frequently obtain a full recovery against the primary insurer on an equitable subrogation theory.
Equitable contribution, on the other hand, applies to apportion costs among insurers that share the same level of liability on the same risk as to the same insured (Fireman's Fund, supra, 65 Cal. App.4th at pp. 1293-1294, 77 Cal.Rptr.2d 296.) It "arises when several insurers are obligated to indemnify or defend the same loss or claim, and one insurer has paid more than its share of the loss or defended the action without any participation by the others." (Id. at p. 1293, 77 Cal.Rptr.2d 296.) "The purpose of this rule of equity is to accomplish substantial justice by equalizing the common burden shared by coinsurers, and to prevent one insurer from profiting at the expense of others." (Ibid.; see American Continental Ins. Co. v. American Casualty Co. (1999) 73 Cal. App.4th 508, 513, 86 Cal.Rptr.2d 560.)
Respondents recognize the distinction between these contribution and subrogation theories, and concede that their policies were primary and covered the same insured (Nielsen) and the same risks as did Nationwide's policy. They nonetheless argue they were entitled to recover all of their remaining defense costs under the equitable subrogation doctrine because the typewritten language in West Coast's Nationwide policy converted their policies into excess policies, eliminating any defense duty on their part.
We agree that courts generally enforce the terms of insurance policies pertaining to allocation issues and the characterization of a policy as "primary" or "excess." (See Reliance Nat. Indent. Co. v. General Star Indemnity Co., supra, 72 Cal.App.4th at p. 1075, 85 Cal. Rptr.2d 627.) But respondents' interpretation of Nationwide's insurance policies is not reasonable. As with other types of contracts, the goal of insurance contract interpretation (Maryland Casualty Co. v. Nationwide Ins. Co., supra, 65 Cal.App.4th at p. 28, 76 Cal.Rptr.2d 113.) But where the language is in any respect ambiguous or uncertain, the court must determine the interpretation that is most "`consistent with the insured's objectively reasonable expectations.'" (Id. at p. 30, 76 Cal. Rptr.2d 113.) In so doing, ...
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