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Insurers Seeking Contribution Are Not Bound by Insured's Agreement To Arbitrate

In Crowley Maritime Corp. v. Boston Old Colony Ins. Co., __ Cal.Rptr.3d __, 2008 WL 110098 (1/11/2008), the Court examined whether insurers were required to arbitrate their claims for equitable contribution against other insurers to recover on a settlement paid on behalf of their mutual insured.  The Court answered “no,” because the suing insurers had not signed the arbitration agreement and equitable contribution does not arise out of contract but from equity.

In Crowley, two insurers had settled suits brought against their insured, Crowley Maritime Corp. Those settling insurers sued for equitable contribution against non-settling co-insurers of Crowley. The non-settling insurers sought to compel arbitration of the contribution claim on the grounds that the insurance policies they issued to Crowley had arbitration clauses. The trial court refused to compel arbitration.

On appeal, the non-settling insurers argued that the settling insurers “stood in the shoes of” the insured, and as such, the settling insurers were bound by the original arbitration agreement made by the insured with the non-settling insurers.

The Court of Appeal rejected the argument, stating that insurers suing for equitable contribution, as opposed to equitable subrogation, are not bound by the insured’s contractual obligations. Citing Fireman’s Fund Ins. Co. v. Maryland Cas. Co.,65 Cal.App.4th 1279, 1291 (1998) and Maryland Casualty Co. v. Nationwide Mutual Ins. Co.  81 Cal.App.4th 1082, 1088 (2000), the Court reiterated the difference between equitable subrogation and equitable contribution, noting that equitable subrogation generally involves the substitution of the insurer in the position of its insured in order to seek reimbursement from responsible third parties (i.e., tortfeasors) for the loss paid by the insurer to the insured.

The Court emphasized that the contribution right “has nothing to do with subrogation to the rights of the insured – indeed, it exists independently of subrogation and is meant to facilitate an equitable distribution of liability for the loss.” The Court thus concluded that the settling insurers were not required to arbitrate their contribution claim against the non-settling insurers.

The Crowley decision is yet another case following Fireman’s Fund that holds that unlike equitable subrogation, co-insurers seeking equitable contribution from other insurers are not limited by the contractual limitations that might otherwise apply to the insured.
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