National Indem. Co. v. St. Paul Ins. Companies

• Decision Date: 07 May 1985
• Docket Number: CA-CIV,No. 1,1
• Citation: 724 P.2d 578,150 Ariz. 492
• Parties: NATIONAL INDEMNITY COMPANY, a Nebraska corporation, Plaintiff-Appellant, v. The ST. PAUL INSURANCE COMPANIES, a Minnesota corporation, Defendant-Appellee. 7142.
• Court: Arizona Court of Appeals

Page 578

724 P.2d 578

150 Ariz. 492

NATIONAL INDEMNITY COMPANY, a Nebraska corporation, Plaintiff-Appellant, v. The ST. PAUL INSURANCE COMPANIES, a Minnesota corporation, Defendant-Appellee.

No. 1 CA-CIV 7142.

Court of Appeals of Arizona,

Division 1, Department B.

May 7, 1985.

Renaud, Cook & Videan, P.A. by Robert M. Geiger, Phoenix, for plaintiff-appellant.

Jones, Skelton & Hochuli by Edward G. Hochuli and Donald L. Myles, Jr., Phoenix, for defendant-appellee.

OPINION

GREER, Judge.

The issue in this case is whether one insurer may recover from a second insurer for contribution for the costs of defense of their mutual insured. We find that such contribution is proper and reverse the granting of summary judgment in favor of the non-contributing insurer.

The facts are not in dispute. Long's Portable Stalls, Inc., leases portable horse stalls. Long's was insured by appellant National Indemnity Company (National). Long's leased portable barns to the Aid to Zoo National Horse Show and the Phoenix Zoo Auxiliary (PZA). Pursuant to the lease agreement, the lessees obtained a policy of insurance with appellee St. Paul Insurance Companies (St. Paul), for general liability from February 18, 1980 to February 25, 1980. Long's was named as an additional insured and as the certificate holder. On February 19, 1980, two horses, named "The Omen" and "Lady Doc," were accidentally electrocuted in portable stalls supplied by Long's.

The owners of Omen sued Long's and others in Cause No. C-413027; while the owners of Lady Doc sued Long's and others in No. C-417358. National defended Long's in both actions, but St. Paul refused to participate in the defense. The claim in C-413027 was settled by National for $1,000. St. Paul later agreed to pay one-half of the settlement, but refused to pay one-half of the $7,807.90 defense costs.

Later, C-417358 was settled. Once again, St. Paul agreed to reimburse National for one-half of the settlement costs, but refused to reimburse National for one-half of the costs of defense. The cost of defense to National in C-417358 was $9,974.89.

The present appeal began as a declaratory judgment action filed by National against St. Paul for contribution for the costs of defense in C-413027 and settlement and defense in C-417358. After St. Paul contributed to the costs of settlement in C-417358, that claim became moot.

National then filed a motion for summary judgment on the issue of whether or not it could obtain contribution for the costs of defense in the two actions. St. Paul responded, and also filed a cross-motion for summary judgment. The trial court granted St. Paul's cross-motion and entered a declaratory judgment dismissing National's complaint.

In short, National argues on appeal that since St. Paul failed to defend, it should be required to reimburse National for one-half of the expenses of the defense of their mutual insured. Appellant acknowledges that an opinion of division two of this court, Arizona Joint Underwriting Plan v. Glacier General Ins. Co., 129 Ariz. 351, 631 P.2d 133 (App.1981), is precisely on point, although contrary to its position. Appellant urges this division to reject the conclusion reached by division two.

While it is true that one division of the Court of Appeals is not bound by a decision of the other division, only the most cogent of reasons will justify a divergence between the two. Neil B. McGinnis Equipment Co. v. Henson, 2 Ariz.App. 59, 406 P.2d 409 (1965). Therefore, a decision by division two, although not controlling, is certainly persuasive authority. Scappatici v. Southwest Savings and Loan Ass'n, 135 Ariz. 456, 662 P.2d 131 (1983).

Appellant argues that previous division one opinions suggest that the rule of reimbursement for defense costs would be followed in this division. In Rocky Mountain Fire & Cas. Co. v. Allstate Ins. Co., 13 Ariz.App. 31, 474 P.2d 38 (1970), we held under similar facts that the non-defending insurer was liable for a pro rata share of whatever loss was determined and further found that:

[E]ach [insurer] has an obligation to defend, ... the cost of such defense to be borne on the same pro rata basis as liability.

13 Ariz.App. at 37, 474 P.2d 38. This opinion, however, was vacated on other grounds by the Arizona Supreme Court at 107 Ariz. 227, 485 P.2d 552 (1971). Once an opinion of the Court of Appeals has been vacated by the Arizona Supreme Court, it is of no force and effect and is not authority. Stroud v. Dorr-Oliver, Inc., 112 Ariz. 403, 542 P.2d 1102, rehearing denied, 112 Ariz. 574, 544 P.2d 1089 (1976).

In Industrial Indem. Co. v. Beeson, 132 Ariz. 503, 647 P.2d 634 (App.1982), this court again recognized the rule that where two insurers insure the same risk, and one insurer pays the loss, the paying insurer is entitled to a pro rata contribution from the non-paying insurer. However, we did not, at that time, readopt the portion of Rocky Mountain requiring contribution for defense costs.

After again considering this question, we choose to readopt the portion of the Rocky Mountain opinion requiring contribution by the non-defending insurer to the defense costs incurred by the defending insured. We recognize contrary authority from other jurisdictions, e.g., Transamerica Ins. Group v. Empire Mut. Ins. Co., 31 Conn.Supp. 235, 327 A.2d 734 (1974), but agree with the position stated in Pacific Power & Light Co. v. Transport Indem. Co., 460 F.2d 959 (9th Cir.1972): "[W]here a question of proration as between companies is concerned, there appears little reason to distinguish between the defense costs and the principal liability under the policy coverage." 460 F.2d at 963.

In adopting the rule requiring contribution for defense costs, the California Supreme Court stated in Continental Cas. Co. v. Zurich Ins. Co., 57 Cal.2d 27, 17 Cal.Rptr. 12, 366 P.2d 455 (1961):

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 ... In our view, ... no insurer which deliberately breaches its obligation to the insured should be permitted thereby to profit, whether at the expense of the insured, or of an insurer which faithfully discharges its obligation.

366 P.2d at 461-62. See also, Marwell Constr., Inc. v. Underwriters at Lloyd's, 465 P.2d 298 (Alaska 1970).

Arizona Joint Underwriting, supra, and other decisions contrary to ours proceed on the theory that each insurer has an independent obligation to defend and that, absent an agreement between the insurers, there is no right to contribution for the costs of the defense. However, this reasoning has been the subject of strong criticism. For instance, 7C...