Low, Ball & Lynch’s
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LAW RESUME
Coverage
- CIGA - Covered Claims
Parkwoods
Community Association v.
Guarantee
Association
(
Court of Appeal, First
District
California Insurance
Guarantee Association (“CIGA”) commonly takes the position that where there is
other insurance that covers a claim, it is not
obligated to contribute to a settlement or judgment. This case considers that
issue in a construction defect context.
Parkwoods Community Association
(“Parkwoods”) sued the developer and general
contractor for the construction defects in a condominium development. Five
subcontractors were insured by Reliance Insurance Company. Reliance was placed
in liquidation, causing CIGA to assume their defense. The action was settled by
the developer and general contractor paying an amount that exhausted their
primary commercial general liability coverage, and included a contribution from
their excess insurance carrier that did not exhaust that coverage. The five
Reliance subcontractors had indemnity agreements with the developer and general
contractor that provided for Type I indemnity. The settlement was approved as in
good faith. A declaratory relief action was then brought to determine whether
CIGA was obligated to pay the amount that had been paid by the excess insurance
carrier. On cross-motion for summary judgment, the trial court found CIGA was
obligated to pay the disputed amount. CIGA appealed.
The Court of Appeal
reversed. The Court started with the purpose of CIGA, which is to provide a
limited form of protection for the public when an insurer becomes insolvent. It
is not a fund to protect other insurance carriers. The statutes establishing
CIGA provide that the claims it must pay do not include any claim to the extent
it is covered by any other insurance. CIGA contended the excess insurance policy
of the developer and contractor provided other insurance, and thus the claim was
not covered.
The trial court found
that CIGA was not exempt from paying because the Reliance insureds did not purchase the excess coverage, and had no
right to the coverage the developer and contractor had purchased. The Court of
Appeal did not find that dispositive. The Court stated
the issue was whether there was any other insurance that was available to cover
the claim. Here, since all parties were jointly and severally liable to the
claimants, the coverage provided by the excess coverage was available to satisfy
the Parkwoods claim.
The indemnity claim of
the developer and contractor was therefore not collectible from CIGA. To do so
would sanction an indirect recovery that could not be obtained directly. On the
stipulated facts, it was clear that there was other insurance available to
satisfy the Parkwoods claim. Because such insurance
was available, the claim was not a “covered claim.” Thus, CIGA was not liable for any
portion of the settlement. The judgment was reversed and remanded with
instructions to enter judgment in favor of CIGA.
COMMENT
In a multi-party case,
it is not uncommon that CIGA is a party. This decision will fortify the position
commonly taken by CIGA that, if there is any other coverage available to satisfy
the claim, CIGA does not need to contribute.
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