Low, Ball & Lynch’s

WEEKLY LAW RESUME

June 29, 2006 Issue  By: Ray Coates

 

Coverage - Contribution Action - Burden of Proof

 

Safeco Insurance Company of America v. Superior Court

(June 22, 2006)

 

Court of Appeal, Second District

 

When an action for equitable contribution is brought by a settling insurer against a non-participating insurer, the issue arises as to what must be proven in order to prevail. This case answers that question.

 

This case arose out of a construction defect lawsuit. Thirteen construction companies had purchased commercial general liability policies from Safeco Insurance Company of America or American States Insurance Company and later purchased policies from Century Surety Company. All policies were primary for the relevant time and provided coverage for property damage that occurred within the policy period and was in the scope of the contractors’ work. In seventeen separate lawsuits, the insureds were sued for property damage allegedly arising from their work during the periods of time they were covered by the relevant policies. In each case after tender Safeco and American State accepted and defended but Century rejected all tenders. Century relied on an “other insurance” clause to contend it was excess to other coverage. Century alleged that since it provided only excess coverage it had no duty to defend or indemnify.

 

Safeco and American States sued Century for equitable contribution alleging breach of the duty to defend and indemnify. By way of summary adjudication motion, the trial court determined the other insurance clause did not make Century excess to other coverage. Safeco then moved for a summary judgment on the remainder of the case. The trial court denied the motion holding that Safeco had a duty to prove coverage by Century.

 

Safeco filed a petition for a writ of mandate in the Court of Appeal challenging the court ruling. The Court granted the petition in part and denied it in part. The Court stated a defending insurer seeking equitable contribution from a non-participating co-insurer need only establish a potential for coverage under the non-participating insurer’s policy in order to obtain contribution for the cost of defense. The court also held that once a prima facie case is made of coverage the participating carrier has met its burden of proof and the burden then shifts to the non-participating insurer to prove an absence of actual coverage.

 

The reasoning of the court was that once a duty to defend is shown a non-participating insurer is presumptively liable for both the costs of defense and settlement. By refusing to participate, the non-participating insurer waived its right to challenge the reasonableness of defense costs and amount paid in settlement. The settlement is therefore presumptive evidence of the insurer’s liability and the amount thereof. This presumption can only be overcome by proof to the contrary. Coverage defenses become affirmative defenses to the contribution action. As affirmative defenses, they became part of the burden of proof that rest with the non-participating insurer. Thus, while Century only had a duty to participate in settlements where it had coverage, once its duty to defend was established, and where by law the settlements were presumptively reasonable, the burden was on Century to establish there was in fact no coverage.

 

The court held that in an action for equitable contribution by a settling insurer against a non-participating insurer, the settling insurer has met its burden of proof by   making a prima facie showing of coverage under the non-insurer’s policy and then the burden of proof shifts to the non-participating insurer to prove the absence of actual coverage. Thus, the petition was granted holding that Safeco and American States had met their burden of proof in each of these cases. The burden then shifted to Century to prove the absence of actual coverage.

 

COMMENT

 

This decision makes sense in light of the principles cited by the court regarding equitable contribution. It will ease the ability of carriers to obtain such contributions by easing their burden of proof.

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