The federal district court found that the D&O carrier had a duty to defend despite the insurer's argument that its policy was excess to the employment practices policy. TriPacific Capital Advisors, LLC v. Federal Ins. Co., 2021 U.S. Dist. LEXIS 222497 (D. Calif. Nov. 15, 2021).
Geoffrey Fearns was President of TriPacific (Tripac), a financial services company that managed institutional capital for residential construction projects. Tom Mahathirath, a former executive at TriPac, sued his former employer and Fearns seeking compensatory damages of not less than $8.9 million. The suit was tendered to Chubb and Travelers Casualty and Surety Company of America.
Chubb issued an Asset Management Protector Policy, which included a Directors and Officers Liability Coverage Part. The maximum aggregate limit of liability for all loss was $5,000,000. The D&O Coverage had aggregate limits of liability of $5,000,000 with a retention of $150,000. The policy included a duty to defend. The policy also had an Other Insurance Provision which stated if any loss was insured under another policy, the other policy would cover such loss until the policy was exhausted.
Travelers issued a Wrap policy which included an Employment Practices Liability coverage section. Travelers also had a duty to defend.
Travelers agreed to defend under a full reservation of rights, but never paid anything towards the defense. Chubb declined coverage because the Travelers policy applied based upon the Other Insurance provision, making the Chubb policy excess.
Fearns moved for summary judgment, seeking a ruling that Chubb's obligation to defend and indemnify was primary. Chubb argued, among other things, that the self-insured retention had not been met. Under California law, however, the duty to defend was not impacted by a self-insured retention. The duty to defend arose immediately upon tender of the claim to the insurer. While a self-insured retention had to be paid before the existence of coverage, it did not impact the immediacy of the duty to defend. Further, nothing in the Chubb policy required the insured to satisfy any retention as a condition of the duty to defend. Therefore, the duty to defend existed regardless of whether or not the self-insured retention had been met.
Next, the court held that, under California law, the Other Insurance clause did not change Chubb's obligation to Fearns to provide a defense against Mahathirath's action. Such clauses had no bearing on the insurers' obligation to the policyholder and were limited to governing obligations amongst the insurers. While Chubb's Other Insurance provision may control the ultimate allocation of costs between the insurers, it was not relevant to a dispute between the insured and the insurer. The Other Insurance provision did not change Chubb's duty to defend, which attached immediately upon tender and required a full defense of the action.
Accordingly, Chubb breached its duty to defend and no longer controlled the defense. Summary judgment was granted to the insured.