St. Paul Mercury Ins. Co. v. Mountain West Farm Bureau Mutual Ins. Co.
Court of Appeal, Second District (October 25, 2012)
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 further considered the respective burdens of proof for the carrier seeking contribution as well as the carrier opposing it.
St Paul Mercury Insurance Company issued general liability policies to Jacobsen Construction Company, a general contractor involved in building high-end condominium units for the Four Seasons resort at Jackson Hole, Wyoming. Mountain West issued two successive policies to Teton Builders, Inc., the framing subcontractor on the project. Pursuant to contract, Jacobsen was named an additional insured on the Mountain West Policies, “but only with respect to liability arising out of ‘your [Teton’s] work’…”
Teton stopped work on the project in February of 2003, after completing approximately 90% of its framing work. The Four Seasons terminated Jacobsen in February of 2004. Jacobsen sued for recovery for alleged breach of contract, and The Four Seasons filed a cross-complaint for alleged construction defects, including a number of framing-related claims. Jacobsen tendered its defense to its own carrier, St. Paul, which defended it, and to Mountain West, which did not. Mountain West did defend its named insured, Teton Builders, ultimately contributing $100,000 to the $1,600,000 settlement of some of the “roofing-related claims. It did not contribute separately on behalf of either Teton or Jacobsen to the settlement of the “siding-related claims.” On behalf of Jacobsen, St. Paul had contributed more than $1,000,000 each to the siding and roofing settlements.
St. Paul then brought an action for equitable contribution against Teton and Mountain West. Prior to trial, it was determined that Mountain West owed Jacobsen a duty to defend, and that the duty to defend was “triggered by the allegations of framing deficiencies.” At trial, Jacobsen’s architects described how the interior and exterior framing and roof damage alleged by Four Seasons was caused by Teton’s defective framing work for which Jacobsen was allegedly liable. The trial court ruled that Mountain West improperly refused to participate in the defense of Jacobsen and that Mountain West did not prove the absence of actual coverage. Using a time-on-the-risk method of allocation, the court ordered Mountain West to contribute $767,071.50 to the defense costs and $1,320,100 to the settlement. The amounts equated to 43 percent of each cost. The trial court also ordered Mountain West to pay prejudgment interest of $372,731.73. Mountain West Appealed.
On appeal, Mountain West argued that St. Paul had failed to show that there was any coverage under Mountain West’s policy for the damages claimed. On the other hand, St. Paul argued that it met its burden, which was to show that Mountain West had the potential for coverage, and that Mountain West then failed to do so. St. Paul argued that the burden then shifted to Mountain West, the non-participating carrier, to show an absence of coverage.
The Court of Appeal agreed with St. Paul, relying on Safeco Ins. Co. of America v. Superior Court (2006) 140 Cal.App.4th 874 (Weekly Law Resume June 29, 2006). Safeco held that when one insurer seeks contribution from a second insurer who had a duty to defend the same insured but failed to do so, the first carrier only needs to show the potential for coverage, and the burden then shifts to the second carrier to show an absence of actual coverage. Here, Mountain West did not dispute that it had a duty to defend. Rather, it argued that in defending Teton, and in contributing to the defense of the claim on behalf of Teton, it “participated in the defense.” Because of that, it argued that the burden remained with St. Paul to show that the claims raised were actually covered under the Mountain West policy.
The Court of Appeal disagreed with Mountain West. Defending its own named insured did not extinguish the separate duty to defend that Mountain West owed to Jacobsen as its additional insured. Further, although coverage might have been limited to claims “arising out of” Teton’s work, because Mountain West had failed to participate in the actual defense of Jacobsen, the burden was on Mountain West to show that the claims settled were not covered under the policy.
The Court of Appeal noted that the term “arising out of” was consistently given a broad interpretation, and that all that needed to be shown was a “minimal causal connection or incidental relationship.” Here, the trial court had made a determination that the siding and roofing related settlements were causally connected to the framer’s work, and although Mountain West offered some evidence contradicting this connection, that did not negate the trial court’s findings. Mountain West did not carry its burden of showing any limitation on coverage.
The Court of Appeal also upheld the trial court’s apportionment of liability at 43% on Mountain West, but struck down the prejudgment interest. Because the trial court had been asked to arrive at an apportionment, the amount in dispute was undetermined prior to trial, and did not warrant an award of interest. The judgment was affirmed in all other respects.
This case affirms the prior ruling of Safeco, and makes clear that where a carrier disputes coverage for the additional insured and does not participate in its defense, it will then carry the burden of showing that there is no actual coverage for any claims when faced with a contribution claim. A wiser path may be to reach an agreement to participate in the defense, without waiving any right to dispute actual coverage.
For a copy of the complete decision see: http://www.courts.ca.gov/opinions/documents/B229345.PDF