Reliance on the policy's "other insurance" provision did not excuse the insurer from contributing to the defense of a common insured. Certain Underwriters at Lloyds v. Arch Specialty Ins. Co., 2016 Ca. App. LEXIS 275 (Cal. Ct. App. April 11, 2016).
Lloyds and Arch were both primary insurers of Framecon, Inc. Lloyds issued a CGL policy to Framecon effective October 28, 2000 to October 28, 2001, and another CGL policy effective October 28, 2001 to October 28, 2002. Arch issued a subsequent CGL policy to Framecon effective October 28, 2002 to October 28, 2003.
Between 1999 and April 2002, Framecon entered subcontracts to do carpentry and framing work on homes being developed by KB Home. In October 2006, owners of some of the homes sued KB Home for construction defects. Some of the defects were allegedly attributable to Framecon's work. KB Home filed a cross-complaint against Framecon, seeking a defense and indemnity under the subcontracts.
Framecon tendered the cross-complaint to Lloyds and Arch. Lloyds agreed to defend Framecon under a reservation of rights. Arch refused to defend, relying upon policy language that said it was excess if other coverage applied and Framecon was afforded a defense by another carrier. Lloyds' policy also had an "other defense" provision which stated "coverage provided under this policy is excess over any other collectible insurance . . ."
The underlying case settled, with indemnity contributions from both Lloyds and Arch. Lloyds then sued Arch for declaratory relief and equitable contribution for the defense costs incurred in the underlying litigation. The trial court granted summary judgment to Arch.
The appellate court reversed, finding that Arch also had a duty to defend despite its "other insurance" clause. Public policy disfavored "escape" clauses, where coverage purported to evaporate in the presence of other insurance. The modern trend was to require equitable contributions on a pro rata basis from all primary insurers regardless their "other insurance" clauses.
Therefore, Lloyds was entitled to receive equitable contribution from Arch. The trial court erred in granting summary judgment to Arch and in denying summary adjudication to Lloyds.