Nationwide Mut. Fire Ins. Co. v. Erie Ins. Exch.
| Decision Date | 18 July 2019 |
| Docket Number | Record No. 180572 |
| Citation | 829 S.E.2d 731 |
| Parties | NATIONWIDE MUTUAL FIRE INSURANCE COMPANY, et al., Appellants, v. ERIE INSURANCE EXCHANGE, Appellee. |
| Court | Virginia Supreme Court |
In Nationwide Mutual Fire Insurance v. Erie Insurance Exchange , 293 Va. 331, 798 S.E.2d 170 (2017) (" Nationwide I "), we resolved an insurance coverage dispute between two affiliated insurers (Nationwide Mutual Fire Insurance Company and Nationwide Mutual Insurance Company, collectively "Nationwide") and a third insurer (Erie Insurance Exchange, or "Erie").
After our ruling, Nationwide instituted an equitable contribution action against Erie seeking reimbursement for Erie’s share of a monetary settlement that Nationwide had paid to a tort claimant while the case was on appeal. The circuit court sustained Erie’s demurrer to the claim for equitable contribution. On appeal, Nationwide now contends that the circuit court erred as a matter of law and that the court should have denied Erie’s demurrer to the claim for equitable contribution based upon the coverage allocation that we had determined in Nationwide I . Agreeing with this view, we reverse and remand.
Nationwide I began as a declaratory judgment action in the circuit court. Both Nationwide and Erie had issued insurance policies allegedly covering a defendant sued in a wrongful death action arising out of an automobile accident. Nationwide had issued three policies: a commercial general liability policy with a $1 million coverage limit; a business automobile policy with a $1 million coverage limit; and a commercial umbrella liability policy with a $1 million coverage limit. Erie had issued two policies: a commercial automobile policy with a $1 million coverage limit and a business catastrophe policy with a $5 million coverage limit. In the original declaratory judgment action, the insurers disputed the policy coverages and priorities.
The circuit court in Nationwide I held that Nationwide had primary coverage for the first $3 million in liability and that Erie’s policies provided excess coverage beyond that amount. Shortly after this ruling, the tort claimant’s counsel in the wrongful death action offered to settle the claim with Nationwide for $2.9 million. The tort claimant’s counsel warned that if Nationwide were to refuse the settlement, he would seek $10 million in damages at trial. Nationwide requested that Erie contribute toward the $2.9 million settlement. After Erie had refused to do so, Nationwide paid the settlement in full and secured a full release of liability for its insured.
Thereafter, we granted an appeal to Nationwide and reversed the circuit court’s declaratory judgment holding. We held that Nationwide’s commercial general liability policy provided no coverage, that Erie’s commercial automobile policy provided primary coverage for up to $1 million, that Nationwide’s business automobile policy provided excess coverage for up to $1 million, and that Nationwide’s commercial umbrella policy and Erie’s business catastrophe policy provided excess coverage on a pro rata basis after that. See Nationwide I, 293 Va. at 340-43, 798 S.E.2d 170. Although we were aware of the underlying settlement of the tort claim at the time of our decision, we offered no opinion regarding whether Erie had any obligation to reimburse Nationwide for any part of the $2.9 million settlement given our reversal of the circuit court’s coverage determination.
Nationwide then filed suit against Erie and sought equitable contribution of $1.75 million for Erie’s alleged share of the $2.9 million settlement, which was calculated based upon our reordering of the coverages on appeal.1 Erie demurred, arguing that it had no common obligation with Nationwide to pay the settlement because Nationwide had made a unilateral and voluntary settlement payment and because a condition precedent to Erie’s obligation to pay under its insurance policies, namely, the existence of a judgment or Erie’s consent to settle, had not been satisfied. The circuit court sustained Erie’s demurrer and dismissed Nationwide’s complaint with prejudice.
The circuit court held that "Nationwide did not establish that it and Erie had a common obligation," J.A. at 339, for two reasons. First, Nationwide did not assert that its $2.9 million payment had been "forced upon it"; indeed, the court reasoned, Nationwide had "made the unilateral and voluntary decision to accept" the $2.9 million settlement. Id. Second, Nationwide’s complaint did not assert that either of the conditions precedent to Erie’s obligation to pay a claim (a judgment or Erie’s consent to settle) had been satisfied. Erie, moreover, "did not waive its consent-to-settlement provisions" because "[r]efusal to consent to a settlement by a co-insurer is not the same as denial of coverage overall to the [insured tortfeasor]." Id. at 339-40. The court thus held that Nationwide had failed to state a cause of action for equitable contribution against Erie.
Nationwide argues on appeal that its allegations were sufficient to state a claim against Erie for equitable contribution.2 We agree.
In an appeal of an order sustaining a demurrer, "we accept as true all factual allegations expressly pleaded in the complaint and interpret those allegations in the light most favorable to the plaintiff," Sweely Holdings, LLC v. SunTrust Bank , 296 Va. 367, 370-71, 820 S.E.2d 596 (2018) (citation omitted), but "we review all conclusions of law de novo," Coward v. Wellmont Health Sys. , 295 Va. 351, 359, 812 S.E.2d 766 (2018) (citation omitted).
Equitable principles, not common-law precedents, govern whether Erie is obligated to contribute toward Nationwide’s settlement with the tort claimant. Equitable contribution "does not arise out of any express contract or agreement between the parties to indemnify each other, but is based on the broad principles of equity that where two or more persons are subject to a common burden it shall be borne equally, since the law implies a contract between them to contribute ratably towards the discharge of the obligation ." Midwest Mut. Ins. v. Aetna Cas. & Sur. Co. , 216 Va. 926, 929, 223 S.E.2d 901 (1976) (emphases in original) (citation omitted). "But in order to enforce contribution the payment must have been made by one obligated to pay the whole, as between himself and the payee, but only bound to pay a proportionate part as between himself and his co-obligors." Id. (emphases in original) (citation omitted).
We find that Nationwide’s complaint alleges facts that, if proven, justify an award of equitable contribution. Nationwide settled with the tort claimant for an amount for which it was then wholly liable, based upon the circuit court’s holding that Nationwide was liable to cover the first $3 million. We later reversed the circuit court’s holding, finding that Erie was responsible for primary coverage of up to $1 million, that Nationwide was responsible for excess coverage of up to $1 million after that, and that both parties shared, pro rata, responsibility for excess coverage over that amount (here $900,000) under their respective umbrella and catastrophe policies. Our holding reconfigured their respective obligations.
The purpose of equitable contribution is to spread the ultimate liability in a fair proportion among the jointly liable obligors. Midwest Mut. Ins. , 216 Va. at 929, 223 S.E.2d 901 (); see also Briggs v. Barnett , 108 Va. 404, 410, 61 S.E. 797, modified on reh’g , 108 Va. 404, 411, 61 S.E. 797 (1907). Even when a payor misapprehends the law governing the payment, we need "not mechanically apply the rule of voluntariness based on mistake of law where to do so would lead to a ‘wholly inequitable result.’ " Williams v. Consolvo , 237 Va. 608, 614, 379 S.E.2d 333 (1989) (citation omitted).
Erie seeks refuge in our decision in Allstate Insurance v. United Services Automobile Ass’n , 249 Va. 9, 452 S.E.2d 859 (1995). We find it inapplicable. In that case, the primary insurer had paid its policy limits to settle a tort claim and later sought equitable contribution from an excess insurer. Both insurers had accepted coverage for the insureds’ liability for an automobile accident. See id. at 11, 452 S.E.2d 859. The excess insurer, however, defended against contributing toward the settlement of a covered claim, see id. at 14, 452 S.E.2d 859, because of a provision in its policy stating that it would not "make payment for any occurrence covered by this policy until [its] liability has been determined" by either the insurer’s agreement to pay or by the entry of a final judgment against the insured, id. at 12, 452 S.E.2d 859 (alteration in original) (emphases omitted). We held that these conditions precedent to payment of the policy proceeds — which had not been met in that case — would have been enforceable against the insured, and thus, they were equally enforceable against the primary insurer seeking equitable contribution. See id. at 14-15, 452 S.E.2d 859. The claim for equitable contribution, therefore, did not arise out of a "common obligation" because at the time of the settlement, the excess insurer had a right under its policy to deny payment to the insured on the covered claim. Id.
The present case is quite different. Here, Erie refused to contribute toward the settlement because, armed with a circuit court order confirming its view, it took the position that Nationwide was exclusively responsible for the first $3 million in coverage. The settlement amount, $2.9 million, was within that amount of Nationwide’s exclusive coverage, and thus, Erie was not responsible to contribute anything toward the settlement. For this reason, Erie effectively denied any...
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