In a Case of First Impression, District Court Finds an Insurer May Not Seek a Declaration as to Another Insurer’s Duty to Defend

by Collins & Lacy, P.C.
Contact

An insurance company may not seek to require another insurer to defend its insured via declaratory judgment according to the United States District Court for the District of South Carolina in Auto-Owners Insurance Company v. Travelers Casualty and Surety Company of America, No. 4:12-cv-3423-RBH, 2014 WL 3687338 (D.S.C. Jul. 22, 2014).

The plaintiff in the underlying litigation owned condominiums in the Hyperion Towers Horizontal Property Regime and brought suit against the Hyperion Towers HOA among others for the breach of various duties. Auto-Owners insured the HOA pursuant to a CGL policy. Travelers insured the HOA pursuant to a non-profit management and organization liability policy. Auto-Owners accepted the defense of the HOA in the underlying action; however, Travelers refused to defend.

Auto-Owners filed an action against Travelers seeking a declaration that Travelers had a duty to defend the HOA in underlying litigation, and asserted causes of action for contribution, unjust enrichment, and equitable subrogation. Travelers moved for summary judgment on the grounds that Auto-Owners could not compel it to defend the underlying suit.

Declaratory judgment claim:  The court first addressed the issue of whether it could order Travelers to defend the underlying action, basing its reasoning almost entirely on Sloan Construction v. Central National Insurance Company of Omaha, 269 S.C. 183, 236 S.E.2d 818 (1977). In Sloan, an insurer sought contribution from another for defense costs expended in defending a shared insured. The SC Supreme Court held that, “where two companies insure the identical risk and both policies provide for furnishing the insured with a defense, neither company, absent a contractual relationship, can require contribution from the other for the expenses of the defense where one denies liability and refuses to defend.” The court explained the insurer who defended “was not damaged by [the other’s] refusal to defend since it was a stranger to the contract” between the other insurer and its insured. The insurer who defended “was doing no more than it was obligated to do under its insurance contract.” Thus, based on the general principles of contract law, no right to recovery existed.

Noting Sloan concerned a situation where two insurers insured an identical risk and one sought contribution from the other, the district court acknowledged the SC Supreme Court has not addressed whether an insurer may seek to require another insurer to defend its insured via declaratory judgment while the underlying litigation is still pending, nor has it addressed whether the same principles apply where different risks are insured. Nonetheless, based on Sloan, the court concluded Auto-Owners was not entitled to declaratory judgment because it was not a party to the Travelers policy:

[T]he general principles set forth in Sloan dictate that the Supreme Court of South Carolina would find the present action to be inappropriate. Particularly relevant is the language from Sloan explaining that the insurer seeking to compel the other insurer to defend was not damaged: “since it was a stranger to the contract” between the other company and its insured. The Court finds that this language is equally applicable to a situation where the insurers insure different risks, and where a declaratory judgment is sought rather than contribution. Moreover, this Court’s rationale in Assurance [Co. of Am. v. Penn-America Ins. Co., No. 4:11-cv-03425-RBH, 2013 WL 1282141 (D.S.C. Mar. 27, 2013),] is also applicable here: the claims asserted by Auto-Owners arise out of a contractual or special relationship that does not exist between Auto-Owners and Travelers in this case.

Accordingly, the court granted Travelers motion for summary judgment on the declaratory judgment claim.

Contribution, unjust enrichment, and equitable subrogation claims:  The court also relied on broad language in Sloan in addressing Auto-Owners’ claims for contribution, unjust enrichment, and equitable subrogation:

[T]he Court notes that while the facts of Sloan differed from the present case, the broad language used by the Supreme Court of South Carolina indicates that it would not allow Auto-Owners to seek contribution in this case. In Sloan, the Supreme Court explicitly held that one insurer is not entitled to require contribution from another absent a specific contractual right. Although the policies in Sloan insured an “identical risk” the Court gave no indication that this principle would be any less valid in other contexts.

Thus, the court concluded Auto-Owners could not seek contribution from Travelers for defense costs.

The court also determined that Auto-Owners’ claims for equitable subrogation and unjust enrichment were merely attempts to plead around the Sloan rule: “At the heart of all of Auto-Owners’ equitable claims is a desire to have Travelers pay for part of the defense costs.” However, even if that were not the case, the unjust enrichment claim would still fail because Auto-Owners had simply done what was required of it under its contract with its insured. If the duty to defend is triggered, it requires defense of the entire suit. Thus, the court reasoned, Auto-Owners did not confer any benefit on Travelers as it was simply complying with South Carolina law and the terms of its contract with its insured. Likewise, the equitable subrogation claim would fail because Auto-Owners was simply complying with the terms of its contract; there was no evidence it paid a debt owed by Travelers or that it was secondarily liable for a debt owed by Travelers. Accordingly, the court found summary judgment was also appropriate as to the contribution, unjust enrichment, and equitable subrogation claims.

As an interesting side note, contrary to South Carolina law, a majority of courts permit an action by one co-insurer seeking contribution for defense costs from a co-insurer. In fact, in a case in which Travelers sought contribution from its co-insurer, just two weeks after the Auto-Owners opinion was released, the Connecticut Supreme Court held that an insurer has standing to bring a declaratory judgment action against a co-insurer even in the absence of a contractual relationship between the parties. See Travelers Cas. & Surety Co. of Am. v. Netherlands Ins. Co., 312 Conn. 714 (2014).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Collins & Lacy, P.C. | Attorney Advertising

Written by:

Collins & Lacy, P.C.
Contact
more
less

Collins & Lacy, P.C. on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.