Gemini Ins. Co. v. Delos Ins. Co.
Court of Appeal, Second District (December 5, 2012)
Many policies have exclusions for coverage or defense of actions between insureds. This case considered such an exclusion where one of the insureds was covered under an Additional Insured Endorsement as a landlord.
Delos Insurance Company insured a restaurant called Bobby’s Focsle and its owners Helen and Bobby Boyett (“Bobby’s”). Bobby’s was located in the Loch Lomond Marina, in San Rafael, and its landlord was San Rafael Marina, LLC, dba Loch Lomond Marina (“Loch Lomond”). Bobby’s lease with Loch Lomond required Bobby’s to have Loch Lomond named as an additional insured on its insurance policy with Delos Insurance Company. The endorsement obtained from Delos made Loch Lomond an additional insured with respect to the landlord's liability arising from the restaurant's acts, undertaken in the course of the restaurant's operations on the leased premises. Delos’ insurance policy also had an exclusion for claims or suits between insureds, providing that “liability coverage afforded by this policy does not apply to any claim or 'suit' for damages by any 'insured' against another 'insured'. We have no obligation to defend or indemnify any 'insured' as to any such claim or 'suit' by another 'insured'."
A fire started at Bobby’s, caused by Bobby’s negligence. This caused damage to both Loch Lomond’s property as well as the property of Arena Yacht, another tenant. Both Loch Lomond and Arena Yacht were insured by Gemini Insurance Company. They submitted claims for property damage to Gemini, which paid $65,088 and $288,259, respectively, for repairs to their properties. Gemini then filed a subrogation action against Bobby’s, which settled based on a stipulated judgment on behalf of Gemini for the amount it paid on behalf of its insureds. Delos paid for the amount of the judgment reflecting the payments made on behalf of Arena Yacht, but refused to pay the claimed amount for repairs to Loch Lomond’s premises. Gemini proceeded with a direct action against Delos.
At trial, the parties stipulated to facts for the trial and agreed that the only issue for the court to resolve was whether the provision in Delos’ policy excluding coverage for suits between insureds barred the claim by Gemini for Loch Lomond’s property damage. Delos's position was that Loch Lomond was an insured on Bobby's policy, and that the exclusion barred the claim. Gemini argued that Loch Lomond was not an insured under the Delos policy, and that there was no bar to the claim. The trial court agreed with Gemini, finding that "pursuant to the plain language of the Delos policy, including the additional insured endorsement to the Delos policy, Loch Lomond was never an 'insured' under the Delos policy." The court entered judgment in Gemini's favor in the amount of $288,259, the amount Gemini had paid to Loch Lomond for the damage caused by the Bobby's fire. Delos appealed.
The Court of Appeal agreed with the trial court. The policy defined an “insured” to include an entity “designated in the declarations as . . . an organization other than a partnership, joint venture, or limited liability company, you are an insured." Further, the Additional Insured endorsement to the policy listed Loch Lomond as an additional insured. However, the Court noted that the additional insured endorsement for the landlord further defined an insured with regard to that endorsement, stating that the additional insured was an “insured” under the policy, but only with respect to such person or organization's liability” which arose out of the named insured’s negligent act or omission in the use of the leased property.
As the Court pointed out, an additional insured provision is designed to protect parties who are not named insureds from exposure to vicarious liability for acts of the named insured. Here, no one was seeking to hold Loch Lomond liable. To the contrary, it was Loch Lomond who was damaged, and it was Bobby’s who was negligent. Landlords (and others) typically will obtain such additional insured endorsements to protect themselves from liability caused by the other party, not to prevent them from recovering their own damages from that other party. Hence, according to the Court of Appeal, the additional insured endorsement was to be interpreted as providing that Loch Lomond was only an additional insured for purposes of liability against it based on the acts of Bobby’s, not based on its own claims against Bobby’s.
The Court of Appeal ruled that Delos’ exclusion was not applicable to the claim for damages to Loch Lomond’s property, and affirmed the trial court’s ruling in Gemini’s favor on the subrogation claim.
This determination makes clear that an additional insured added by an endorsement is not necessarily an insured for all purposes, particularly when the party named or included in the additional insured endorsement is not subject to liability from others, but has its own claims against the named insured. In such situations, exclusions against claims or suits between “insureds” will not be applicable.
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