Because California imposes an obligation on each implicated insurer to defend “completely,” contribution actions by a defending insurer against non-defending insurers are common. Thus, a frequent question is when does the defending insurer’s right to reimbursement start, more specifically, from what date is the non-defending insurer obligated to start paying.
In OneBeacon America Ins. Co. v. Fireman's Fund Ins. Co., 175 Cal.App.4th 183 (2009), the appellate court answered the question thusly: “[A]n insurer's obligation of equitable contribution for defense costs arises where, after notice of litigation, a diligent inquiry by the insurer would reveal the potential exposure to a claim for equitable contribution, thus providing the insurer with the opportunity for investigation and participation in the defense in the underlying litigation.” Based on evidence that two non-defending insurers had inquiry or “constructive” notice of the litigation, the appellate court directed that judgment be entered for OneBeacon, represented by Susan Field, Jennifer Kokes and David Oken of Musick, Peeler & Garrett LLP.
The contribution case arose out a suit brought against an oil recycling company and several family members and an estate of a family member affiliated with the company. In 1999, the company and some of the family members and the estate tendered their defense to OneBeacon, which insured the company. OneBeacon accepted the defense under a reservation of rights.
That same year, in 1999, the estate tendered to ICW under umbrella policies. ICW denied a defense on the basis that there were underlying primary policies - the OneBeacon policies - that were not exhausted. Also in 1999, one of the family members tendered the suit to FFIC under policies allegedly issued to the company. FFIC denied a defense on “lost policy” grounds.
About three years later, in 2002, an ICW primary policy underlying one of the ICW umbrella policies was discovered, and the company, a family member and the estate tendered the defense to ICW. ICW accepted the defense under the ICW primary policy under a reservation of rights. Also in 2002, FFIC identified a policy issued to the company and agreed to defend under a reservation of rights. The underlying suit is still pending.
FFIC and ICW refused OneBeacon’s request for contribution for the defense fees paid from 1999 to 2002. In the suit that followed, the trial court denied contribution, finding that the earlier notices to the non-defending insurers were inadequate. The Court of Appeal reversed, holding that, for equitable contribution purposes, the notices were sufficient.
Expressly affirming that tender/notice is required under Truck Ins. Exchange v. Unigard Ins. Co., 79 Cal.App.4th 966 (2000) (Unigard), to give rise to a duty to defend, the Court of Appeal stated that the tender can be “formal” or “constructive” and that “Unigard acknowledges that an insured's lack of tender or compliance with a policy provision is not fatal to a coinsurer's right of equitable contribution; rather, adequate notice of the potential for contribution and the opportunity for investigation and participation in the defense in the underlying litigation will suffice.” [Emphases added.]
The Court of Appeal rejected the non-defending insurers’ arguments that the Court, in accepting a “notice” requirement, was straying from established law on “tender,” noting that the cases cited by those insurers were all “brought by insureds” and “none of the cases cited . . . addressed the issue of notice among coinsurers or the issue of constructive notice.” The Court of Appeal held that, on the facts presented, the information available to ICW and FFIC in 1999 was sufficient to put those insurers on notice of the potential exposure to OneBeacon for equitable contribution. The Court thus directed the trial court on remand to enter judgment for OneBeacon.
Insureds may be tempted to cite this decision to avoid the effects of their own failure to give notice. However, the Court of Appeal stressed that its decision was guided by the equitable nature of insurer contribution actions. Further, it bears noting that this case has unique facts, including an unusual family/corporate name, and its rule does not obviate the need for a non-defending insurer to have received information about a suit against its insured and its need for a defense. While this case clarifies the rules governing equitable contribution and provides additional support for equitable recovery available to a “targeted” insurer that accepts the defense of its insureds, a defending insurer must diligently continue its efforts to locate and notify any potential defense sharing “partners” to avoid disputes about the adequacy of notice.