Forgetting About the Existence of An Insurance Policy
In Casualty Indem. Ins. v. Liberty Nat. Fire Ins. Co. (D.Mont. 1995) 902 F. Supp. 1235, two insurers provided liability coverage for the owners of a motel.
A guest at the motel (Miller) suffered injuries and brought suit against the owners.
The summons and complaint were forwarded to one insurer (Casualty Indemnity) but not the other (Liberty National), due in part to the fact that the owners had forgotten about the Liberty National policy.
Casualty Indemnity retained defense counsel and settled the case by paying the policy limits.
After the settlement was completed, the owners of the motel discovered the Liberty National policy and demanded that Liberty National contribute to the settlement.
That demand was rejected, and Casualty Indemnity filed suit against Liberty National for contribution. In granting summary judgment for Liberty National, the court, applying Montana law, concluded:
"Equity dictates that Casualty not be allowed to obtain contribution from Liberty National. First, the demand made by the insureds occurred after a settlement of the Miller action had effectively been negotiated by Casualty on behalf of the insureds.
Consequently, the demand must, under the unique circumstances presented, be viewed not as a demand to defend the Miller action, but as a demand to contribute to a settlement. . . .. . . Casualty must be charged with the duty to exercise due diligence in determining the existence of 'other insurance' . . . . Where the insurer does not satisfy this affirmative obligation . . ., the insurer may not seek equitable contribution from a coinsurer." (902 F. Supp. at pp. 1239-1240.)
In State of N.Y. v. Blank (2d Cir. 1994) 27 F.3d 783, the Second Circuit Court of Appeals, applying New York law, explained: "Although the duty to provide notice rests primarily upon the insured, a co-insurer hoping to benefit from the presence of another insurer, must ensure that . . . the second insurer receives notice.
That is, if the insured fails to give notice to one co-insurer, the co-insurer that received notice must give notice to the co-insurer that did not. . . . If the insured provided notice to only one co-insurer and if the co-insurer who received notice fails to give prompt notice to the co-insurer that did not, the co-insurer who received notice may not seek contribution from the other co-insurer . . . ." (Id. at p. 794, citation omitted.)
In Aydin Corp. v. First State Ins. Co. (1998) 18 Cal. 4th 1183, 1191 77 Cal. Rptr. 2d 537, 959 P.2d 1213, the Supreme Court criticized State of N.Y. v. Blank on another point.
As the Missouri Supreme Court has recognized, an insurer seeking contribution "must meet a test of reasonableness. In determining this issue the trier of fact may consider, among other things, . . . the presence or absence of notice to other carriers, and the discussions among the carriers . . . ." ( State Farm Mut. Auto. Ins. v. MFA Mut. Ins. (Mo. 1984) 671 S.W.2d 276, 279.)
And in United National Ins. v. Admiral Ins. (U.S. Dist. Ct., E.D.Pa., Aug. 19, 1992, Civ. A. No. 90-7625) 1992 WL 210000, the court denied contribution, stating:
"A venerable maxim holds that 'he who seeks equity must do equity.' . . . In this regard, the courts have stated that the right to contribution is not absolute; it depends on an analysis of several factors, including 'the presence or absence of notice to other carriers.' . . .
"Consideration of notice in a contribution action . . . comports with the ever present specter of fairness subsumed in equity. It is unfair to ask co-insurers to contribute to a completed settlement when they have been given absolutely no prior opportunity to participate in or simply monitor the lawsuit or the settlement proceedings, regardless of the participation of counsel for . . . the settling insurer." (1992 WL 210000)
Nothing in Meritplan Ins. Co. v. Universal Underwriters Ins. Co. (1966) 247 Cal. App. 2d 451 55 Cal. Rptr. 561 compels a contrary result. the question there was whether an insurer could ever obtain contribution from a coinsurer.
When Meritplan was decided, some courts were applying an overly broad "volunteer" rule to deny contribution. Under that rule, " '. . . where two insurance companies cover a risk of loss with "pro rata insurance," neither company may be forced to pay more than its share. If it does, the excess payment is purely voluntary and contribution cannot be claimed from the other. . . .' " (Id. at p. 463.)
In permitting contribution, the Meritplan court made a number of observations about the adverse consequences of such a broad rule.
For example, the court noted that "failure to grant contribution unjustly enriches the unknown as well as the recalcitrant insurer." (247 Cal. App. 2d at p. 467.) And, "failure to grant contribution would encourage a coinsurer to deny liability." (Ibid.)
Plainly, those observations are no longer pertinent in light of the subsequent demise of the broad volunteer rule at issue in Meritplan. (See Fireman's Fund Ins. Co. v. Maryland Casualty Co., supra, 65 Cal. App. 4th at pp. 1289-1290, 1293-1295 & fn. 5 insurer has right of contribution against coinsurers where it has paid more than its share of loss; State Farm Fire & Casualty Co. v. East Bay Municipal Utility Dist. (1997) 53 Cal. App. 4th 769 62 Cal. Rptr. 2d 72 finding volunteer rule inapplicable; California Food Service Corp. v. Great American Ins. Co. (1982) 130 Cal. App. 3d 892, 901, fn. 4 182 Cal. Rptr. 67 "Numerous decisions over the past 25 years have cast considerable doubt on the logic of the volunteer rule.".)