North River Ins. Co. v. American Home Assurance Co.

• Citation: 257 Cal.Rptr. 129,210 Cal.App.3d 108
• Decision Date: 15 March 1989
• Docket Number: No. B034656,B034656
• Court: California Court of Appeals
• Parties: NORTH RIVER INSURANCE COMPANY, Plaintiff and Respondent, v. AMERICAN HOME ASSURANCE COMPANY, a New York Corporation, Defendant and Appellant.

Page 129

257 Cal.Rptr. 129

210 Cal.App.3d 108

NORTH RIVER INSURANCE COMPANY, Plaintiff and Respondent, v. AMERICAN HOME ASSURANCE COMPANY, a New York Corporation, Defendant and Appellant.

No. B034656.

Court of Appeal, Second District, Division 7, California.

March 15, 1989.

Nelsen, Tang, Thompson, Pegue & Thornton, and Jaymeson Pegue, Los Angeles, for defendant and appellant.

Cotkin, Collins & Franscell, Bruce A. Friedman, and Andrew W. Vorzimer, Los Angeles, for plaintiff and respondent.

FRED WOODS, Associate Justice.

This appeal follows a judgment of the Los Angeles County Superior Court, the Honorable David A. Thomas, judge presiding, rendered in an action for declaratory relief in favor of plaintiff and respondent North River Insurance Company (hereafter "North River") against defendant and appellant American Home Assurance Company (hereafter "American Home"). The judgment is affirmed in all respects with the exception that prejudgment interest at the rate of 10 percent per annum is reversed, and the judgment is modified so that prejudgment interest is calculated at 7 percent per annum per respondent's concession.

INTRODUCTION

Both North River and American Home filed cross-motions for summary judgment in the trial court. The factual foundation for these motions for summary judgment was undisputed and was based upon a stipulation of facts filed with the lower court. As a result, there are no issues of fact presented by this appeal, only issues of law. The trial court ruled in favor of North River finding that the North River policy was excess to American Home's primary claim's made policy. Since the American Home policy had not been exhausted, North River's contingent excess policy was not invoked. Judgment was entered on May 18, 1988. As a result thereof, American Home timely filed this appeal.

FACTUAL SYNOPSIS

The underlying declaratory relief action arose out of a settlement of a malpractice claim ¹ by the estate of Howard Hughes and Summa Corporation against the law firm of Davis & Cox. In 1979, in several actions filed in various courts, Davis & Cox was named as a defendant or counter-defendant by Summa Corporation for alleged legal malpractice and breach of fiduciary duties.

In October of 1985, all litigation involving Summa Corporation and Davis & Cox was settled. Pursuant to the settlement agreement, North River contributed $2,000,000, although this payment was made under a reservation of rights to claim that the payment was the sole responsibility of American Home under the policies which it issued to Davis & Cox.

The essence of the underlying action was to determine the priority of payment of the insurance coverage provided by North River and American Home. The four policies involved were:

1. American Home Professional Liability Policy No. LPL 2539613 which provided primary "occurrence" coverage and was in effect between January 15, 1970 and January 15, 1977;

2. American Home First Layer Excess Policy No. CE 356630 which provided "specific excess" insurance over American Home's own primary occurrence policy No. LPL 2539613, and was in effect between January 15, 1970 and January 15, 1976;

3. American Home Primary "Claims Made" Policy No. LPL 6164815 which provided coverage between January 15, 1979 and January 15, 1980 on a claims made basis; ² and

4. North River policy No. DCL 009035 which provided "contingent excess" insurance and was in effect between January 15, 1973 and January 15, 1976.

There is no controversy as to the coverage afforded by American Home's primary policy No. LPL 2539613 and First Layer Excess Policy CE 356630. The issue involved in this appeal is the priority of payment between American Home's "claims made" policy LPL 6164815 and North River's "contingent excess" policy No. DCL 009035.

On January 15, 1979, American Home issued a primary "claims made" policy to Davis & Cox which replaced their earlier "occurrence" policies. This primary "claims made" policy was effective from January 15, 1979 until January 15, 1980 and provided for $2,000,000 in primary coverage. The policy covered any claim asserted against Davis & Cox during the policy period, regardless of when the acts which constituted the legal malpractice occurred. This policy was in effect at the time the malpractice claims were made against Davis & Cox, although the event triggering the malpractice claim occurred on January 15, 1975, a date preceding the issuance of the policy.

North River issued a "contingent excess" policy No. DCL 009035 to Davis & Cox. This policy provided $2,000,000 in excess coverage and was effective from January 15, 1973 to January 15, 1976. The liability of the North River policy was contingent upon the exhaustion of the total of the applicable limits of the underlying coverage listed in Schedule A of the North River policy and the applicable limits of any other underlying insurance collectible by the insured.

CONTENTIONS ON APPEAL

American Home has appealed the judgment in favor of North River and contends as follows:

1. The trial court erred in failing to conclude that American Home's primary "claims made" policy is transformed into an excess policy due to its "other insurance" provision; and

2. The trial court erred in awarding prejudgment interest at the rate of 10 percent per annum. ³

DISCUSSION

General Distinction Between Primary And Excess Insurance

The focus of this litigation highlights the distinction between a primary and an excess insurance policy. There are two levels of insurance coverage--primary and excess. Primary insurance is coverage under which liability "attach[es] to the loss immediately upon the happening of the occurrence." (Oil Base, Inc. v. Transport Indem. Co. (1956) 143 Cal.App.2d 453, 467, 299 P.2d 952.) Liability under an excess policy attaches only after all primary coverage has been exhausted. (Olympic Ins. Co. v. Employers Surplus Lines Ins. Co. (1981) 126 Cal.App.3d 593, 600, 178 Cal.Rptr. 908.) The effect of the "other insurance" clause in the American Home policy.

American Home concedes in the appellant's opening brief that its "claims made" policy No. LPL 6164815 provides primary coverage. American Home, however, contends that the presence of the "other insurance" provision, ⁴ in the American Home primary "claims made" policy No. LPL 6164815, transforms that policy into an excess policy. The argument has been considered and rejected consistently in California courts. The presence of an "other insurance" provision in a primary policy does not transform that primary policy into an excess policy vis a vis a secondary carrier with excess coverage. (Olympic Ins. Co. v. Employers Surplus Lines Ins. Co., supra, 126 Cal.App.3d 593, 599, 178 Cal.Rptr. 908; Oil Base, Inc. v. Transport Indem. Co., supra, 143 Cal.App.2d 453, 467-468, 299 P.2d 952.)

In essence, American Home contends that its policy does not provide coverage for acts or omissions which occur prior to its policy period if other insurance existed. American Home relies upon Chamberlin v. Smith (1977) 72 Cal.App.3d 835, 140 Cal.Rptr. 493 for the proposition that the "other insurance" provision contained in the American Home policy makes American Home's primary policy excess to the North River policy.

American Home's reliance upon Chamberlin v. Smith is misplaced. Chamberlin is distinguishable for several reasons.

                First, the policy at issue in Chamberlin v. Smith (that of Reserve Insurance Company) was determined to be an "occurrence" policy within the meaning of its insuring agreement as to the particular claim of legal malpractice, not a "claims made" policy as is the American Home policy.  (Id., at pp. 849, 850, 140 Cal.Rptr. 493.)   Second, the Chamberlin court was confronted with three legal malpractice policies which were issued ab initio as primary policies with provisions which could make the policies involved "excess" to the others if certain conditions transpired.  The dispute in this instance involves a conflict between a policy (North River's) issued ab initio as an "excess" policy and a policy (American Home's) issued ab initio as a "primary" policy
                

An "other insurance" provision in an insurance policy only becomes an issue when two or more policies apply at "the same level of coverage." (Olympic Ins. Co. v. Employers Surplus Lines Ins. Co., supra, 126 Cal.App.3d 593, 598, 178 Cal.Rptr. 908.)

An "other insurance" dispute can only arise between carriers on the same level, it cannot arise between excess and primary insurers. (Ibid.) American Home argues that the American Home claims made "other insurance" provision requires that the North River policy be exhausted, or at the very least pro rated with the American Home policy. American Home further contends this "other insurance" provision makes its policy excess to North River's policy. Olympic addressed this precise issue, holding that an "other insurance" provision applies only to policies at the same level.

The effect of the "other insurance" clause in the North River policy.

American Home next asserts that the "other insurance" provision ⁵ in the North River policy would have the effect of at least causing a proration of required payments as to any excess exposure over the two American Home occurrence policies which were in effect on the date of the stipulated event triggering the malpractice claim, should this court determine in the first instance that North River is excess to American Home. For this proposition, American Home cites Olympic Ins. Co. v. Employers Surplus Lines Ins. Co., supra, 126 Cal.App.3d 593, 178 Cal.Rptr. 908 as authority. A careful reading of Olympic, however, reveals that the decision does not stand for the proposition for which American Home contends. The effect of Olympic is to prorate between two "primary" carriers whose policies contain competing "other insurance" provisions but to deny a claim for proration against the secondary carrier involved whose policy also contained an "other...