Low, Ball & Lynch’s
WEEKLY
LAW RESUME
Coverage
- Contribution
Employers
Ins. Co. of
(
Court of Appeal, First
District
The principle that an
insurer who has defended an action may pursue a non-defending insurer for
contribution is well established. This case concerns whether such an action can
be brought where the insured has released the non-defending
insurer.
The insurers to this
action sequentially insured a succession of companies that had allegedly
released hazardous contaminants from a manufacturing plant. In 1997 and 1998,
the insured settled with a number of insurers, including the defendants to this
action, to resolve disputed coverage claims as part of the litigation known as
the “Jensen-Kelly” action. The settlement included a release from defense or
indemnification of any past, present, or future environmental actions, and an
indemnification agreement by the insured to the carriers against any claims
under their policies, including claims for
contribution.
The present action was
triggered by two additional cases filed against the insured for different
plaintiffs for bodily injury and property damage due to environmental
contamination.
The Court of Appeal
affirmed. The Court rejected the notion that an insurer could avoid contribution
to other insurers by settling with the policyholder. This is because
contribution rights are based on equitable principles, which exist independent
of the rights of the insured. This duty to share in the cost of defense and
indemnification does not depend on whether the prior actions were settled or
not. This is because the rights are grounded in equity, not contract. Further,
since there was no evidence that the settlements exhausted coverage, there was
no bar to seeking contribution.
The Court also refused
to give the settling insurers an offset for the amount that they had paid. There
was no showing that anything paid to settle the prior action had any effect on
the amount owing under the current action.
As to the amount of
liability, the Court agreed with the trial court that defense costs should be
apportioned based on the “time on the risk” approach. The Court concluded that
the trial court’s method of allocation was within its broad discretion. The
judgment was therefore affirmed.
COMMENT
In trying to analyze
ways in which the settling insurers could have been protected against
future contribution actions, the Court hints at various ways, including
exhaustion of policies, rescission of policies, or perhaps, a buy-back of
coverage. However, the Court indicated that the actual effect of the agreements
will be looked at, rather than their characterization, as exhausting,
rescinding, or cancelling the
policy.
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