Case Briefs

An Insurer Can Recover Equitable Contribution Only When That Insurer Pays More Than Its Fair Share

Under the California Court of Appeal's new decision written by Judge H. Walter Croskey, an insurer can recover equitable contribution only when that insurer pays more than its fair share. If an insurer does not pay more than its fair share of defense and/or indemnity costs of a shared insured, that insurer cannot recover equitable contribution from another insurer. This rule applies even if the non-participating insurer has paid nothing. Scottsdale Ins. Co. v. Century Surety Co., No. B204521 (Cal. Ct. App. March 10, 2010).

In the published portion of its decision, the court examined the amount of damages Scottsdale was seeking. Rather than framing the issue of how much Scottsdale could recover from Century Surety as a factual one, the two insurers presented the issue to the Court of Appeals as a legal one. Scottsdale sought equitable contribution from Century Surety because, while other insurers had contributed to costs of the shared insured, Century Surety paid nothing.

Scottsdale argued that it should receive one half of the costs that Scottsdale paid for their common insured from Century Surety. Scottsdale asserted it should recover this amount from Century Surety even if other insurers participated in the defense and indemnity of the insured. Under Scottsdale's argument, if four insurers had paid an insured's defense costs, Scottsdale's share would be 25% of the defense costs. Scottsdale would then recover one half of that amount ' 12.5% of the defense costs ' from Century Surety.

The latter argued that the costs should be recalculated according to the method of allocation that Scottsdale agreed to with the other paying insurers with Century included. Under Century Surety's formula, there would be five insurers so both Scottsdale's and Century Surety's shares would be 20% of the defense costs. Since the four other insurers participated, Century Surety would owe each other insurer the amount that it paid in excess of its fair share. As each paying insurer paid 25% of the total costs when their fair share is 20%, Century Surety would owe the amount in excess of the fair share ' 5% ' to each paying insurer.

Scottsdale and Century Surety were the only parties in the litigation; the other insurers that were arguably entitled to equitable contribution from Century Surety were not represented. The court noted that the absence of the other insurers is advantageous for both Scottsdale and Century Surety regardless of the ultimate allocation. If Scottsdale won, it would be reimbursed for half of its costs without interference from the others. If Century Surety prevailed, it would only have to pay 5% to Scottsdale rather than 5% to each paying insurer.

The court outlined its view of the basics of equitable contribution in California. Generally, the law of equitable contribution permits reimbursement to an insurer for an amount that it paid in excess of its proportionate share for the defense or indemnification of a common insured. The policy reason behind equitable contribution is to prevent one insurer from profiting at the expense of others.

Because the court could not find controlling authority in California regarding equitable contribution actions that do not involve all of the insurers, it looked to non-insurance equitable contribution cases. According to the court, those cases hold that a person that has not paid more than his or her equal share cannot obtain equitable contribution ' even from a party that has paid nothing. Therefore, one must pay more than its proportion of the costs to obtain equitable contribution from others. The court elected to apply the same principle in the insurance context.

The resulting burden of proof is that the insurer seeking equitable contribution must prove that some of the amount that it paid to the shared insured is allocable to the non-paying insurer's fair share. Because Scottsdale agreed to an allocation method with the other paying insurers, it was bound to apply that same allocation method to its equitable contribution action against Century Surety. The court remanded the case to the trial court to determine the damages under the allocation method agreed on by Scottsdale and the other insurers for underlying claims for which Scottsdale can prove that it has paid more than its fair share.

In the unpublished portion of the opinion, the Court of Appeals concluded that the trial court was correct on two issues. The first is that an “unclear” prior work exclusion in Century Surety's policy should not be enforced. The second is that the statute of limitations barred Scottsdale's right to recover with respect to many of the underlying actions.

An Insurer Can Recover Equitable Contribution Only When That Insurer Pays More Than Its Fair Share

Under the California Court of Appeal's new decision written by Judge H. Walter Croskey, an insurer can recover equitable contribution only when that insurer pays more than its fair share. If an insurer does not pay more than its fair share of defense and/or indemnity costs of a shared insured, that insurer cannot recover equitable contribution from another insurer. This rule applies even if the non-participating insurer has paid nothing. Scottsdale Ins. Co. v. Century Surety Co., No. B204521 (Cal. Ct. App. March 10, 2010).

In the published portion of its decision, the court examined the amount of damages Scottsdale was seeking. Rather than framing the issue of how much Scottsdale could recover from Century Surety as a factual one, the two insurers presented the issue to the Court of Appeals as a legal one. Scottsdale sought equitable contribution from Century Surety because, while other insurers had contributed to costs of the shared insured, Century Surety paid nothing.

Scottsdale argued that it should receive one half of the costs that Scottsdale paid for their common insured from Century Surety. Scottsdale asserted it should recover this amount from Century Surety even if other insurers participated in the defense and indemnity of the insured. Under Scottsdale's argument, if four insurers had paid an insured's defense costs, Scottsdale's share would be 25% of the defense costs. Scottsdale would then recover one half of that amount ' 12.5% of the defense costs ' from Century Surety.

The latter argued that the costs should be recalculated according to the method of allocation that Scottsdale agreed to with the other paying insurers with Century included. Under Century Surety's formula, there would be five insurers so both Scottsdale's and Century Surety's shares would be 20% of the defense costs. Since the four other insurers participated, Century Surety would owe each other insurer the amount that it paid in excess of its fair share. As each paying insurer paid 25% of the total costs when their fair share is 20%, Century Surety would owe the amount in excess of the fair share ' 5% ' to each paying insurer.

Scottsdale and Century Surety were the only parties in the litigation; the other insurers that were arguably entitled to equitable contribution from Century Surety were not represented. The court noted that the absence of the other insurers is advantageous for both Scottsdale and Century Surety regardless of the ultimate allocation. If Scottsdale won, it would be reimbursed for half of its costs without interference from the others. If Century Surety prevailed, it would only have to pay 5% to Scottsdale rather than 5% to each paying insurer.

The court outlined its view of the basics of equitable contribution in California. Generally, the law of equitable contribution permits reimbursement to an insurer for an amount that it paid in excess of its proportionate share for the defense or indemnification of a common insured. The policy reason behind equitable contribution is to prevent one insurer from profiting at the expense of others.

Because the court could not find controlling authority in California regarding equitable contribution actions that do not involve all of the insurers, it looked to non-insurance equitable contribution cases. According to the court, those cases hold that a person that has not paid more than his or her equal share cannot obtain equitable contribution ' even from a party that has paid nothing. Therefore, one must pay more than its proportion of the costs to obtain equitable contribution from others. The court elected to apply the same principle in the insurance context.

The resulting burden of proof is that the insurer seeking equitable contribution must prove that some of the amount that it paid to the shared insured is allocable to the non-paying insurer's fair share. Because Scottsdale agreed to an allocation method with the other paying insurers, it was bound to apply that same allocation method to its equitable contribution action against Century Surety. The court remanded the case to the trial court to determine the damages under the allocation method agreed on by Scottsdale and the other insurers for underlying claims for which Scottsdale can prove that it has paid more than its fair share.

In the unpublished portion of the opinion, the Court of Appeals concluded that the trial court was correct on two issues. The first is that an “unclear” prior work exclusion in Century Surety's policy should not be enforced. The second is that the statute of limitations barred Scottsdale's right to recover with respect to many of the underlying actions.