Construction Law E-Alert (April 2012)
The dispute involved an equitable contribution claim between two carriers, Axis Surplus Insurance Company ("Axis") and Glencoe Insurance Ltd. ("Glencoe"). Axis provided commercial general liability coverage to Pacifica Pointe L.P. (developer). At the same time, Glencoe provided an owner-controlled insurance policy (i.e.
, OCIP wrap policy) to Pacifica. Both policies included provisions requiring co-carriers to split defense and indemnity obligations equally. A construction defect lawsuit was brought against Pacifica, involving a condominium conversion project. Pacifica tendered the claim to both Axis and Glencoe. While Axis agreed to defend Pacifica, subject to a reservation of rights, Glencoe declined to participate until Pacifica satisfied its $250,000 SIR. Glencoe continued to monitor the litigation from the sidelines. Axis and Pacifica eventually settled the underlying lawsuit for $1 million. Pacifica advised Glencoe of the settlement, and received Glencoe's approval to contribute its $250,000 SIR towards the settlement and Axis contributed $750,000. Afterwards, Axis sued Glencoe for declaratory relief and equitable contribution, to recover a portion of the defense and indemnity payments it made on Pacifica's behalf during the lawsuit. The trial court found in favor of Axis and allocated 60% to Glencoe. Glencoe appealed. The Court of Appeal scrutinized whether Glencoe, as a non-participating carrier, had a legal duty to participate, regardless of when Pacifica satisfied its SIR. The Court concluded that the timing of when the SIR was satisfied is inconsequential to determining when the obligation to participate begins, especially when the underlying claims trigger actual coverage. The Court also pointed out that Glencoe had full notice of the claim, and admitted coverage existed. Because of these reasons, Glencoe was precluded from arguing that it had no obligation to participate until the SIR was satisfied. This case is important because carriers often argue they will not participate in a case until the SIR is satisfied. However, there does not seem to be any hard and fast rules any longer. Carriers may be obligated to participate from the beginning of a case, regardless of when an SIR is eventually satisfied. By Stephen A. Sunseri
and Aarti Kewalramani
for Gatzke Dillon & Ballance LLP