The court determined that an umbrella carrier was obligated to assist the general liability insurer in defending the insured. Am. States Ins. Co. v. Insurance Company of the State of Pennsylvania, 2016 U.S. Dist LEXIS 38128 (E.D. Cal. March 23, 2016).
Sierra Pacific Industries obtained rights to timber harvesting operation on a parcel of land in northern California. Sierra hired Howell's Forest Harvesting to perform certain timber harvest operations under the terms of a logging agreement. The logging agreement required Howell to obtain a CGL policy and to name Sierra as an additional insured.
In September 2007, a fire ignited while Howell was working in the area, and eventually burned 65,000 acres of land. Sparks caused by Howell's bulldozers allegedly caused the fire. Multiple lawsuits were filed against both Sierra and Howell.
American States issued a CGL policy to Howell which included Sierra as an additional insured. Coverage was afforded to Sierra, however, "only to the extent Sierra is held liable due to: . . . Howell's ongoing operations for Sierra." Therefore, coverage was limited to Sierra's vicarious liability as to Howell, and Sierra's independent liability was not covered.
Sierra also hds an umbrella policy with Pennsylvania. The policy provided excess insurance when Sierra was vicariously liable with Howell and American States' policy limits were exhausted by payment of claims. Further, Pennsylvania's policy provided umbrella, or primary, coverage when property damage arose from Sierra's non-vicarious liability with Howell pursuant to American State's CGL policy.
After the underlying suits were filed, Sierra tendered to both American States and Pennsylvania. American States accepted the defense. Pennsylvania did not defend Sierra.
The fire-related suits against Sierra settled, exhausting both American State's and Pennsylvania's respective policy limits.
American States then sued Pennsylvania for equitable contribution of defense costs paid to Sierra. The parties filed cross-motions for summary judgment.
The court found that Pennsylvania had a primary duty to defend Sierra. Under the CGL policy, American States was required to defend Sierra only to the extent Sierra was vicariously liable with Howell. Conversely, Pennsylvania's umbrella policy covered Sierra for any suit seeking damages for property damage which was not covered by American State's policy. Pennsylvania's policy therefore dropped down and became primary coverage for suits in which Sierra was independently liable for property damage.
In the underlying cases, plaintiffs alleged that Sierra could have been independently liable for the fire because of Sierra's responsibility to suspend operations in certain weather conditions. Thus, Pennsylvania's duty to drop down and defend as a primary insurer under the umbrella policy could have been triggered by claims in the underlying lawsuits.
Therefore, American State's motion for summary judgment was granted while Pennsylvania's motion was denied.
