Low, Ball & Lynch’s

WEEKLY LAW RESUME

March 3, 2005  Issue      By: Raymond Coates

Coverage ‑ Proration Between Excess Insurers

Carmel Development Company v. RLI Insurance Company

Court of Appeal, Sixth District

(February 3, 2005)

Disputes between excess insurers over competing "other insurance" clauses are rarely reported.  This case considers that issue.

Carmel Development Company (Carmel) was a general contractor on a golf and residential site.  Carmel subcontracted with Largo Concrete, which in turn subcontracted with CAB Concrete for work to be done.  Abel Vargas, a CAB employee, was severely injured on the site.  He and his wife sued Carmel and Largo.  Carmel eventually was held liable for over $10 million in damages.

Carmel had a primary CGL policy with Reliance Insurance Company and a $10 million excess liability policy from Fireman's Fund.  Largo had a primary CGL policy with Acceptance Insurance Company and a commercial umbrella policy with RLI Insurance Company.  Reliance and Fireman's Fund settled the Vargas action.

Carmel then sued Acceptance and RLI contending it was an additional insured.  Fireman's Fund intervened in the action, and RLI filed a cross-complaint.  The trial court found Carmel was an additional insured and that Fireman's Fund and RLI were obliged to provide coverage when Reliance and Acceptance had exhausted policy limits.  The court prorated payments between Fireman's Fund and RLI in proportion to policy limits.  RLI appealed.

The Court of Appeal reversed.  The Court noted the proper approach to determining equitable contribution rights between carriers is by comparing "other insurance" clauses.  However, this rule depends on the language of the "other insurance" clauses.  In this case, the Fireman's Fund policy indicated it was excess of any other insurance, which was defined as insurance purchased by the named insured.  RLI provided that it was excess over any other insurance, whether primary, excess or excess contingent.

The Court indicated that reading these two clauses together would have resulted in a decision affirming proration.  However, the Court read the remainder of the policies and determined that they were not insuring the same risk at the same level of coverage.  The Fireman's Fund policy was specifically written to be excess of the Reliance policy.  The RLI policy was specifically written to be excess of scheduled underlying insurance plus any unscheduled underlying insurance.  Thus, RLI was excess of Acceptance and any other available coverage.  When all of the relevant provisions were read in context, the Court felt it was clear that the language of the RLI agreement placed it on a different level of coverage than the Fireman's Fund policy.  Thus, it was unnecessary to resort to proration based upon competing "other insurance" clauses.  The Court held that RLI had no duty to contribute to the settlement.  The judgment against RLI was reversed.

COMMENT

This rather interesting opinion turns on the specific policy language involved in this case.  It reinforces the importance of comparing policy language when evaluating the priority of coverage.

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