GuideOne Mutual Insurance Company v. Utica National Insurance Group
Court of Appeal, Fourth District (February 28, 2013)
Equitable contribution is available when several insurers are obligated to indemnify or defend the same loss or claim, and one insurer has paid more than its share of the loss or defended the action without any participation by the others. This case considered whether equitable contribution was available by an employee’s insurer against the vicariously liable employer’s insurer.
Christian Evangelical Assemblies (“CEA”) is a religious organization that trains, licenses and ordains ministers, promotes mission activities, and establishes and oversees churches. Crosswinds Community Church (“Crosswinds”) is one of the churches operating under CEA's oversight and control. Gary West was employed by CEA as Crosswind's pastor. On April 8, 2007, while driving in his own 2002 Hyundai Elantra with his wife and another couple on church business, West made a left turn and struck and severely injured a motorcyclist, Robert Jester. Jester and his wife sued West, Crosswinds and CEA.
At the time of the accident, West had a $100,000 automobile liability policy with State Farm which listed the Hyundai as a covered vehicle. Crosswinds had a $1,000,000 commercial general auto liability policy and a $1,000,000 commercial liability umbrella policy, both through plaintiff GuideOne Mutual Insurance Company (“GuideOne”). CEA had a $1,000,000 commercial auto liability policy as well as a $5,000,000 commercial liability umbrella policy, both with Utica National Insurance Group (“Utica”). The lawsuit by Jester was settled for $4.5 million, including the policy limits from State Farm and the policy limits of both the auto liability policies of GuideOne and Utica, as well as $400,000 from GuideOne’s umbrella policy and $2,000,000 from Utica’s umbrella policy.
GuideOne subsequently brought an equitable contribution action against Utica, contending that it had overpaid, and that a greater portion of the settlement should have come from the Utica umbrella policy. GuideOne argued that after the initial payment by State Farm, the remaining four policies had to contribute on a pro rata basis. Since it had a total of $2,000,000 in limits and Utica had $6,000,000 in its 2 policies, GuideOne argued it should have paid one quarter of the remaining $4.4 million settlement, or $1,100,000. GuideOne argued it had overpaid by $900,000.
GuideOne brought a summary judgment motion. The trial court found that all five policies provided coverage, and that under section 11580.9(d) of the Insurance Code, since the State Farm policy was the only one that named or described West’s vehicle, it was primary and had to pay first. In determining how to prorate the remainder, the trial court ordered both primary policies to pay next, leaving a balance of $2.4 million to split between the $6,000,000 of excess coverage. Since GuideOne had 1/6 of the total excess, the trial court held it was liable for paying 1/6 of the remaining settlement of $2.4 million, or $400,000. The trial court ruled that Utica thus had to reimburse GuideOne $600,000 of the $1,000,000 excess monies GuideOne had paid. Utica appealed.
The Court of Appeal reversed. First, the court noted that Section 11580.9(d) of the Insurance Code provides that any policy which “describes or rates” an owned vehicle shall be primary, and all others excess. This meant that the State Farm policy indeed exhausted first. Under the statute, all other policies were excess to the State Farm policy. However, the Court of Appeal also noted that Section 11580.9(d) provided no method of how to prorate the remaining policies, and determined that the appropriate analysis would turn on vicarious liability principles, rather than proration principles.
Here, CEA as the employer was only vicariously liable for West’s actions. The Court noted that California law provides that where a judgment has been rendered against an employer for damages for the negligent act of its employee, the obligation of the employee is primary and that of the employer secondary. Similarly, the Ninth Circuit had found that a policy covering an employee was primary and the policy covering the employer was excess. Finally, prior case law held that a vicariously liable party has the right to pursue indemnity against the primary tortfeasor and/or any insurance policy that covers the primary tortfeasor.
Based on all of the above, the Court of Appeal held that both of the policies issued by GuideOne which covered West had to be exhausted before either of the policies of Utica that insured the employer. After GuideOne’s liability and excess were exhausted, then Utica’s liability policy would contribute until exhaustion, and only then would Utica’s excess policy contribute.
The Court noted that this made sense under the definition of insured in GuideOne’s policy, which included “anyone else who is not otherwise excluded under paragraph b above and is liable for the conduct of an ‘insured’ but only to the extent of that liability.” This would have made CEA an insured under GuideOne’s liability policy, as did the definition of insured in GuideOne’s umbrella policy. The Court held that the reason for this language was clearly to protect those who were only vicariously liable.
The Court of Appeal reversed the judgment, and held that GuideOne was not entitled to contribution.
This case may have ramifications beyond auto accident cases, as it can be argued in any pro-rata contribution case that the primarily liable tortfeasor’s policies should be exhausted before those of the vicariously liable defendant.
For a copy of the complete decision see: