Insurance Law Hawaii

Res Judicata Does Not Bar Insurer From Pursuing Subrogation

    The appellate division reversed the lower court's dismissal of the subrogation action, deciding res judicata was not applicable. Cincinnati Ins. Co. v. Acadia Ins.Co., 2021 N.Y.App. Div. LEXIS 7272 (Dec. 23, 2021). 

    Irene Frey slipped and injured herself on property owned by 60 LBC. 60 LBC had retained Red Cedar Arborits & Landscapers, Inc. to clear snow and ice from the area where Frey fell. Under the contract. Red Cedar was required to defend and indemnify 60 LBC for any injuries caused by Red Cedar's actions or omissions. Red Cedar was also required to name 60 LBC as an additional insured under Red Cedar's policy with Acadia. 

    Frey sued 60 LBC for negligence and 60 LBC requested a defense and indemnification from Red Cedar. Arcadia denied coverage on the grounds that 60 LBC was not an additional insured. 60 LBC was defended in the Frey action by its own insurer, Cincinnati Insurance Company. 60 LBC commenced a third-party action against Red Cedar, asserting breach of contract based on Red Cedar's failure to defend and indemnify. The third-party complaint further alleged that Red Cedar breached the contract by failing to obtain coverage for 60 LBC as an additional insured. 

    Thereafter, the Frey action and the third-party action settled in a global agreement. Frey received $350,000 from Red Cedar and $50,000 from 60 LBC. Arcadia paid Frey on behalf of Red Cedar and Cincinnati paid on behalf of 60 LBC. 

    Cincinnati, as subrogee of 60 LBC, then sued Arcadia asserting a cause of action for breach of contract. The Supreme Court granted Arcadia's motion to dismiss. 

    The appellate division reversed. Cincinnati, as subrogee of 60 LBC, stood in the shoes of 60 LBC and was subject to whatever rules of estoppel would apply the insured. The Supreme Court determined that plaintiff was barred by res judicata from pursuing 60 LBC's coverage claim against Arcadia because it was resolved in the global settlement. Cincinnati, however, was not a party to the underlying personal injury action or the third-party action, and the release resulting from the settlement of those actions made no mention of any claims directly against Arcadia by 60 LBC or anyone else. The breach of contract claim asserted by 60 LBC against Red Cedar in the third-party action was separate and distinct from Cincinnati's breach of contract cause of action against Arcadia.

    60 LBC's coverage claim against Arcadia was not barred by res judicata because it was not encompassed in the global settlement. If 60 LBC still had a valid coverage claim against Arcadia, Cincinnati, having paid $50,000 on 60 LBC's behalf to settle the Frey action, could proceed against Arcadia on the coverage claim as subrogee of 60 LBC. 

Insurers Litigate Subrogation, Contribution Dispute

    The court largely denied one insurer's motion to dismiss subrogation and contribution claims raised by another insurer. Zurich Am. Ins. Co. v. Aspen Spec. Ins. Co., 2021 U.S. Dist. LEXIS 148739 (D. Nev. Aug. 6, 2021).

    Both Zurich and Aspen issued policies to Cosmopolitan Hotel and Casino for an incident that occurred at the hotel's nightclub. Two guests sued Cosmopolitan when they were attacked by employees. Cosmopolitan tendered to Aspen. Aspen controlled the defense, including the handling of settlement negotiations with the underlying plaintiffs. An offer of $975,000 was made by the underlying plaintiffs. Zurich insisted that Aspen settle within the available limits, but Aspen refused. The lawsuit later settled for $1.4 million, with Aspen contributing $988,000 and Zurich contributing $323,187.66 under a reservation of rights. Cosmopolitan also contributed to $88,812.34 to the settlement. 

    Zurich then sued Aspen for subrogation and contribution. Aspen moved to dismiss. Regarding Zurih's claim for equitable subrogation, the federal district court determined that Nevada would follow California law. Zurich plausibly alleged that Cosmopolitan suffered a loss for which Aspen was liable. Zurich alleged that Aspen breached its duty to accept a reasonable settlement demand, thereby causing a later settlement that exceeded Aspen's policy limits by over $300,000. Cosmopolitan would have been liable for this amount had Zurich not stepped in.

    Zurich next argued that the claimed loss was not one for which Zurich was primarily liable  because (1) Zurich's policy responded after Aspen's and (2) Aspen's bad faith conduct caused the increased settlement amount. The court noted that Zurich's policy was not in excess of Aspen's policy. But Aspen could still be primarily liable because it caused the loss. 

    Zurich plausibly alleged that it compensated Cosmopolitan for the loss for which Aspen was primarily liable because ti contributed $323,187.66 to the settlement after Aspen rejected a lower, reasonable settlement demand. Zurich also plausibly alleged that Cosmopolitan had existing, assignable claims against Aspen that Cosmopolitan could have asserted on its own benefit had it not been compensated by Zurich for its loss.

    Zurich plausibly alleged it suffered damages due to Aspen's bad faith refusal to settle for a lower amount. Zurich plausibly alleged that justice required its $323,187.66 loss be shifted to Aspen. Finally, Zurich plausibly alleged its damages were liquidated: $323,187.66. Therefore, Zurich's claim for equitable subrogation survived Aspen's motion to dismiss.

    Zurich's claims for contractual subrogation and equitable indemnity also survived the motion to dismiss. The claim for equitable contribution was dismissed, however, with leave to amend. Because Zurich did not allege the amount of coverage its policy provided, it had not plausibly alleged it paid a disproportionate share. 

Sorting Insurers' Obligations in Light of Competing Other Insurance Provisions

    The court determined that the non-participating insurer must reimburse the insurer who defended. Steadfast Ins. Co. v. Greenwich Ins. Co., 2019 Wisc. LEXIS 9 (Wis. Jan. 25, 2019). 

    Historic rains hit Milwaukee in June 2008, overwhelming the Milwaukee Metropolitan Sewage District's (MMSD) sewage system. Raw sewage backed up into 8,000 homes. Lawsuits were filed against MMSD and two companies who MMSD contracted with the operate and maintain the sewage system, Veolia Water Milwaukee and United Water Services Milwaukee. 

    MMSD's Operating Agreement with United Water required United Water to maintain comprehensive liability insurance, naming MMSD as an additional insured. United Water secured a policy with Greenwich Insurance Company, with the last policy period beginning July 24, 2007 and ending July 24, 2008. The policy named MMSD as an additional insured United Water maintained that it last provided services to MMSD on February 29, 2008.

    Beginning on March 2, 2008, and continuing through the June 2008 heavy rains, MMSD contracted with Veolia to operate the sewage system. Veolia had liability insurance with Steadfast Insurance Company naming MMSD as an additional insured.

    MMSD tendered the lawsuits to both Steadfast and Greenwich The lawsuits were settled without MMSD paying any damages. Steadfast reimbursed MMSD for $1.55 million in defense costs. Greenwich refused to contribute to the defense because its policy ended before the June 2008 rains. Greenwich relied on its "other insurance" clause to argue that its policy was excess to Steadfast's policy. 

    Steadfast sued Greenwich to recover the $1.55 million in defense costs it paid to MMSD. The circuit court granted summary judgment to Steadfast, awarding the entire amount Steadfast paid MMSD, as well as $25,000 in attorney fees that Steadfast incurred in bringing the lawsuit. The court of appeals affirmed.

    The Wisconsin Supreme Court noted that the plain language of both the Greenwich and Steadfast policies obligated the insurers to indemnify and defend their named insureds and MMSD against claims of damage caused by the negligence of their named insureds. The "other insurance" clauses did not apply unless the two policies were concurrent. Two policies could not be concurrent unless the insured the same risk, and the same interest, for the benefit of the same person, during the same time period. Here, Greenwich would owe MMSD only if the negligence of United Water caused damages for which MMSD was held responsible. Likewise, Steadfast would ow MMSD only if the negligence of Veolia caused damages for which MMSD was held responsible. The "other insurance" provisions were not relevant because Greenwich's "other insurance" clause provided successive insurance to MMSD 

    Further, Greenwich's policy provided potential coverage for a claim made in the lawsuits based on sewage backups. Therefore, Greenwich breached its duty to defend, and was responsible for all damages that naturally flowed from the breach. 

    The court also held that Steadfast was not entitled to full reimbursement of defense costs, but the defense costs should be allocated between Steadfast and Greenwich. The court adopted the pro rata allocation method to apportion the defense costs based on the insurers' policy limits. 

    Finally, Steadfast was entitled to recover attorney fees from Greenwich under contractual subrogation. Because Greenwich breached its duty to defend, MMSD had the right to request fees for successfully establishing Greenwich's obligation to defend. Because MMSD's rights of recovery against Greenwich would include attorney fees incurred in successfully establishing coverage, Steadfast was entitled to recover $325,000 in fees from Greenwich as MMSD's subrogee. 

Implied Contract Survives Motion to Dismiss in Subrogation Action

    The defendant's motion to dismiss an implied contract claim in a subrogation action was denied. Cumis Ins. Soc'y v. Count, 2018 U.S. Dist. LEXIS 118380 (D. Haw. July 16, 2018).

    Cumis issued a fidelity bond to Kauai Government Employee's Federal Credit Union (KGE). The bond provided coverage of losses incurred as a result of fraudulent acts by specified individuals. A Senior Loan Manager employed by KGE, Vallatini, allegedly committed fraudulent acts between 2008 and 2014 in approving loans for various members of the Credit Union. Cumis had to make payments under the fidelity bond. According to Cumis' complaint, Vallatini misrepresented that various members were qualified borrowers when they were not. 

    Vallatini moved to dismiss Count III of the complaint, breach of implied contract. He argued Count III failed to state a claim for breach of implied contract. Cumis argued that each of the misrepresentations made by Vallatini to the Credit Union constituted a failure to perform under the implied contract. 

    The Federal District Court for the District of Hawaii found that Cumis adequately stated a claim for breach of an implied contract. Vallatini had an implied obligation, as a condition of his continued employment with KGE, that he would comply with company policy regarding approval of loans to borrowers and selling repossessed vehicles to the highest bidder. KGE performed under the implied-in-fact contract, while Vallatini, allegedly, did not. Therefore, Count III sufficiently stated a breach of implied contract claim. 

    Vallatini also argued that Cumis' implied-in-fact contract allegations were insufficient in the at-will employment context because the complaint did not allege any qualifying statements of actions by either party that would modify the relationship between KGE and Vallatini from an employment-at-will relationship to something more. The court disagreed. Vallatini's employment relationship with KGE was subject to his implied promise to comply with company policy regarding approval of loans to borrowers and selling repossessed vehicles to the highest bidder. 

    Vallatini alternatively argued that even if an implied contract existed wherein he agreed not to misrepresent information to KGE, the remedy for any alleged breach of an implied employment contract was termination. He provided no legal authority for this argument, however. Instead, the non-breaching party would seek to recover its compensatory damages for actual losses sustained as a result of Vallatini's alleged breach. The claimed losses sustained by Cumis and its insured, KGE, were reasonably foreseeable damages that flowed from the type of breach attributed to Vallatini. 

Misread of Other Insurance Clause Becomes Costly for Insurer

    One insurer's refusal to defend based upon its "other insurance" provision ultimately meant the insurer had to pay all of the insured's defense costs. Steadfast Ins. Co. v. Greenwich Ins. Co., 2018 Wis. App. LEXIS 51 (Wis. Ct. App. Jan. 17, 2018). 

    Milwaukee Metropolitan Sewerage District (MMSD) was a government agency that provided water reclamation and flood management services to the city. From March 1, 1998 to February 20, 2008, MMSD contracted with United Water Services Milwaukee LLC to operate the sewerage system. From March 1, 2008 on, MMSD contracted with Veolia Water North America-Central, LLC to operate the system. 

    Through agreements, both companies were obligated to indemnify MMSD for claims arising out of the operations and maintenance of the system and to obtain insurance to cover their indemnity obligations. Both companies complied.

    In June 2008, heavy rain overwhelmed MMSD's sewer system and more than 8,000 homeowners reported basement sewage backups. Four rain event lawsuits were filed against MMSD. The suits alleged that MMSD and Veolia were negligent in the inspection, maintenance, repair and operations of the system. United Water was later named as a defendant in one of the lawsuits. 

    MMSD tendered its defense to Steadfast and Greenwich. Steadfast, the insurer for Veolia, which had named MMSD as an additional insured, accepted the tender and defended MMSD. Greenwich, United Water's insurer, did not accept the tender and did not pay any of the defense costs. The underlying suits eventually settled without MMSD or Steadfast making any contribution to the settlement. However, Steadfast reimbursed MMSD $1.55 million towards defense costs that MMSD incurred.

    Steadfast then sued Greenwich to recoup the monies it paid to MMSD for defense costs. The parties filed cross-motions for summary judgment. The trial court denied Greenwich's motion, finding Greenwich had breached its duty to defend MMSD and thereby waived its rights to raise any coverage defense.  After further motion practice, the court awarded Steadfast judgment against Greenwich in the amounts of $1.55 million as damages and $325,500 as attorney fees for the coverage action. Greenwich appealed. 

    The court first analyzed the other insurance provisions in the Greenwich and Steadfast policies. Other insurance provisions were effective in situations involving concurrent coverage. Here the policies were successive, not concurrent. They did not cover the same time period. The court concluded that the Greenwich policy provided primary coverage for the claims against MMSD for the earlier conduct of United Water in operating and maintaining the MMSD system, not excess coverage for that of the Steadfast policy. 

    Greenwich also argued that MMSD did not exhaust the $250,000 self-insured retention (SIR) in its policy. MMSD had submitted a declaration in the summary judgment proceedings stating that it had paid over $800,000 in defending the underlying cases. The appellate court agreed that the SIR had been met. As a consequence, Greenwich's policy provided primary coverage based on United Water's conduct in operating and maintaining MMSD's system. Further, MMSD was entitled to recover the defense costs, including attorney fees, from Greenwich based upon Greenwich's breach.

    Steadfast, as the non-breaching insurer, had a claim for equitable subrogation against Greenwich, who breached its duty to defend. Upon payment to MMSD of defense costs, Steadfast stepped into MMSD's shoes and was entitled to recover from Greenwich the same damages that MMSD would have been entitled to recover from Greenwich. 

    Finally MMSD was entitled to recover the attorney fees incurred in the coverage action under the Greenwich policy. Under the doctrine of equitable subrogation, Steadfast stepped into MMSD's shoes and was equitably entitled to recover those fees in defending coverage. 

 

Hawaii Health Insurer Has No Equitable Subrogation Against Third-Party Tortfeasor

    The Hawaii Supreme Court held that a health insurer did not have subrogation rights against third-party tortfeasors who caused injury to its insureds. Yukumoto v. Tawarahara, 2017 Haw. LEXIS 92 (Haw. May 26 2017).

    Gregory Yukumoto was injured while driving his moped and struck by Ruth Tawarahara, driving her SUV. Yukumoto sustained serious injuries. Yukumoto sued Tawarahara. Hawaii Medical Service Association (HMSA) filed a Notice of Claim of Lien, contending that HMSA had paid $325,824.33 for medical expenses associated with Yukumoto's injuries.

    Yukumoto filed a Petition for Determination of Validity of Claim of Lien pursuant to Haw. Rev. Stat. 663-10. According to the Petition, Yukumoto's wage loss and general damages claim was approximately $4,000,000. The Yukumotos contended that Tawarahara had only $1,100,000 in coverage through a State Farm policy, which State Farm agreed to pay "pursuant to a general damages only release." 

    The parties settled the lawsuit. Tawarahara did not admit fault. Coupled with a $50,000 "underinsured motorist claim" that Yukumoto submitted to GEICO, the Petition contended that Yukumoto's total recovery before payment of attorneys' fees and costs was $1,150,000. This left $2,850,000 in uncompensated damages. 

    Yukumoto sought a ruling that HMSA had no lien or subrogation rights in the personal injury settlement because HMSA could not satisfy the provisions of Haw. Rev. Stat. 663-10. Under the statute, Yukumoto argued that for a health insurer to receive any portion of a plaintiff's  recovery, the health insurer had the burden of proving that the settlement or recovery duplicated medical expenses that were paid by the health insurer. The circuit court eventually ruled that all settlement funds be released to Yukumoto's counsel and that HMSA was not entitled to a payment of the amount of its claimed lien. HMSA appealed. 

    The Supreme Court ruled that HMSA did not have equitable subrogation rights in the context of personal insurance. It was apparent that the legislature intended to limit a health insurer's right of subrogation under Haw. Rev. Stat. 663-10 and 431:13-103. Any contractual provision conflicting with Haw. Rev. Stat. 663-10 was invalid, and HMSA was not entitled to contractual subrogation rights. Consequently, the circuit court's judgment was affirmed.

    Hawaii courts recognized the difference between property/casualty insurance and personal insurance by allowing the insured to maintain subrogation rights in a property insurance context and limiting subrogation rights in personal insurance contexts. Tort recovery in personal insurance contexts often included payment by the tortfeasor for intangible losses such as life, death, health, pain and suffering, and physical well being, where it was difficult to ascertain exact measurements of loss. Therefore, recovery for medical insurance benefits and tort damages did not involve the principles which supported equitable subrogation in the property/casualty context. Such recovery did not necessarily produce a windfall or duplicative recovery for the insured. Accordingly, the insurer did not have equitable subrogation rights in personal insurance contexts.

    Further, the plain language of Haw. Rev. Stat. 663-10 demonstrated that the legislature limited the subrogation rights of health insurers. The statute provided that any judgment entered would include the amount due and owing to any holder of a valid lien, to be paid to the lienholder from "special damages recovered by the judgment or settlement." Thus, the legislature limited the type of damages from which a lienholder could be reimbursed. Moreover, Haw. Rev. Stat. 431:13-103 (a) (10) prohibited the insurer from refusing to provide or limiting coverage available to an individual because the individual may have a third-party claim for recovery of damages. The legislature did not provide that the lienholder could be reimbursed from an insured's recovery of general damages, which were difficult to determine. 

    Finally, HMSA argued that it had contractual subrogation rights because Yukumoto's agreement with HMSA's included a right of subrogation. The court was not convinced, however, because the statute took precedence, making the contractual provision invalid. HMSA was not entitled to contractual subrogation rights. 

    Therefore, the circuit court's judgment was affirmed. 

Following Hawaii's Lead, Excess Carrier Allowed to Pursue Equitable Contribution from Primary

    Citing the Hawaii Supreme Court's decision in St. Paul Fire & Marine Ins. Co. v. Liberty Mut. Ins. Co., 135 Haw. 449, 353 P.3d 991 (2015), the California Court of Appeal determined that the excess carrier could pursue an equitable subrogation action alleging that the primary insurers' unreasonable failure to settle within policy limits resulted in a settlement exceeding policy limits, thereby damaging the excess carrier. Ace Am. Ins. Co. v. Fireman's Fund Ins. Co., 2016 Cal. App. LEXIS 647 (Cal. Ct. App. Aug 5, 2016).

    John Franco suffered serious injury in a special effects accident while working on a film set. He and his wife sued Warner Brothers Entertainment, Inc. and related entities. Fireman's Fund provided primary insurance with a $2 million limit, and an umbrella policy with a $3 million limit. Ace American provided the Warner Brothers entities an excess policy with a $50 million limit.

    Fireman's Fund defended the Warner Brothers entities. Franco made settlement demands within the limits of Fireman's Fund's policies. Fireman's Fund refused such demands. Subsequently, Franco settled the lawsuit for an amount substantially in excess of policy limits. Fireman's Fund consented to the settlement and contributed to it. Ace American funded the amounts in excess of Fireman's Fund's policies' limits.

    Ace American then filed suit against Fireman's Fund for equitable subrogation and breach of the covenant of good faith and fair dealing. Fireman's Fund demurred. Fireman's Fund argued an excess insurer could only sue for equitable subrogation if there was a judgment against the insured that exceeded the limits of the primary policy. Because the Franco lawsuit had settled and there was no judgment against Warner Brothers, Fireman's Fund argued, Ace American could not sue for equitable subrogation.

    The California Court of Appeal noted that an insurer's cause of action for equitable subrogation included the following: Ace American had paid the claim of the insured, Warner Brothers, to protect its own interest and not as a volunteer; Ace American suffered damages caused by Fireman's Fund's act or omission; and Ace American's damages were in a liquidated sum. The appellate court found no reason to hold that either Warner Brothers or its assignee, Ace American, must suffer a loss due to Fireman's Fund's failure to reach a reasonable settlement with no remedy simply because the case settled instead of being litigated through trial. Ace American's alleged damages were clear, liquidated, and certain.

    The court noted that most other jurisdictions that had considered the issue found that an insured or excess insurer that contributes to a settlement can pursue the primary insurer for failing to accept reasonable settlement within primary limits. The court cited the Hawaii Supreme Court's St. Paul decision, noting the case involved a post-verdict settlement in excess of primary limits. The Hawaii Supreme Court stated "the public interest in encouraging reasonable settlement is best serviced by permitting an excess insurer to seek relief under the doctrine of equitable subrogation." St. Paul, 135 Haw. at 456. 

    Therefore, the court reversed the judgment sustaining Fireman's Fund's demurrer, and remanded the case for further proceedings.

Insurer's Subrogation Rights Confirmed

    The First Circuit reversed the District Court's holding that the insurer's subrogation rights were waived based on a clause in the condominium's bylaws. Pacific Indemnity Co. v. Deming, 2016 U.S. App. LEXIS 12374 (1st Cir. July 5, 2016).

    Deming rented a unit in the condominium under a lease with the unit's owners. He fell asleep after turning on the bathtub faucets. The water from the bathtub overflowed and leaked into the condominium units below, causing considerable damage. Pacific, which insured Deming's unit, paid $351,159.09 to the unit's owners as a result of the damage.

    Pacific sued to recover the amount it paid to the owners. Pacific pled that under its policy and by operation of law, it was subrogated to the owners' rights against Deming for the damages. Deming filed a motion for summary judgment, arguing that the waiver of subrogation contained in Pacific's policy was enforceable and prohibited Pacific's claim. Deming relied upon the bylaws, which provided that each unit owner would carry insurance at its own expense and that all such policies would contain waivers of subrogation. Deming argued that by agreeing to the requirements of the condominium association, Pacific's insured purchased a policy that permitted waiving the right of subrogation.

    In its cross motion for summary judgment, Pacific argued that as a tenant, Deming could not establish there was a contractual impediment to Pacific's pursuit of a subrogation claim. The policy language, which provided that the insured "may waive any rights of recovery from another person for a covered loss in writing before the loss occurs," was not self-effectuating, but rather authorized insureds to enter into separate agreements which waived subrogation against particular persons. Deming was not such a person who received a pre-loss waiver.

    The district court granted Deming's motion and denied Pacific's cross-motion. The court determined that the bylaws required unit owners to obtain an insurance policy that "shall" contain a waiver of subrogation and concluded that the provision applied to tenants.

    The First Circuit reversed. Nothing in the record suggested that the owners actually waived their insured's subrogation rights. The bylaws required unit owners to procure insurance that contained waivers of subrogation. Pacific's policy stated that an insured could waive any rights of recovery from another person for a covered loss in writing before the loss occurred. But nothing in these documents amounted to an actual waiver of subrogation. Pacific's policy merely gave the insured the option to waiver rights of recovery, but could not be read as a waiver of subrogation. The only way to read the bylaws as constituting a waiver of subrogation was to read the requirement to purchase insurance with a waiver of subrogation as itself being a waiver of subrogation. This reading, however, was contrary to the plain text, and was rejected by the court.

    Therefore, Pacific was not subject to a waiver of subrogation and could pursue its claims against Deming.

Contractual Indemnity is Not Form of Other Insurance

   The insurer's argument that a contractual indemnity provision in favor of the insured acted as an "other insurance" provision failed before the Fifth Circuit. Cameron Int'l Corp. v. Liberty Ins. Underwriters, Inc., 2015 U.S. App. LEXIS 20115 (5th Cir. Nov. 19, 2015).

   In an insurance dispute arising out of the Deepwater Horizon oil spill in the Gulf of Mexico, Liberty was an excess carrier for Cameron. Liberty covered $50 million in excess of policies covering the first $100 million in losses. Cameron was the manufacturer of the blowout preventer used on the Deepwater Horizon. After the spill, Cameron settled with BP, the well owner, and then sought indemnity from Liberty to help cover the settlement costs. 

   BP contracted with Transocean, which owned the Deepwater Horizon, to drill the well and to indemnify Transocean for liability associated with drilling. Transocean indemnified Cameron for liability associated with the blowout preventer. Accordingly, Cameron was indemnified by Transocean, which was in turn indemnified by BP.

   After the spill, thousands of lawsuits were filed against BP, Transocean, Cameron, and others. When Transocean refused to indemnify, Cameron sued. Transocean sought indemnity from BP and BP refused. BP also sued Cameron, claiming that Cameron was responsible for the losses that BP incurred. Cameron notified Liberty. Liberty neither rejected nor paid the claim.

   The parties discussed settlement. BP agreed to indemnify Cameron in exchange for $250 million, but only if Cameron's insurers agreed to waive their subrogation rights and Cameron agreed to waive its indemnification rights against Transocean. Liberty was the lone insurer for Cameron that objected and declined to offer its policy limits. Liberty did not agree to a settlement that waived its subrogation rights and Cameron's indemnification rights against Transcoean, leaving Liberty on the hook for $50 million. Liberty also argued the other insurance provision in its policy meant that its obligation to pay had not yet been triggered. The clause provided that "if other insurance applies to a loss that is also covered b this policy, this policy will apply excess of such other insurance." 

   Cameron settled nonetheless, putting up $50 million of its own money in addition to the $200 million from its other insurers. 

   Cameron then sued Liberty. The district court granted Cameron a $50 million judgment on its breach of contract action.

   On appeal, Liberty argued Cameron had not exhausted the indemnification agreement with Transocean or obtained a judicial determination that it was not entitled to indemnification. Cameron responded that its indemnity claim against Transocean did not apply to its loss because Transocean refused Cameron's demands for indemnification. Cameron also argued that its indemnity claim against Transocean was not "other insurance" under the policy.

   The court agreed with Cameron's interpretation. The policy did not specifically reference Cameron's indemnity agreement with Transocean, nor did it require Cameron to maintain any such agreement. The other insurance provision did not require that Cameron exhaustively litigate other potential sources of coverage before Liberty's payment obligation was triggered.

   Liberty further argued Cameron forfeited its right to coverage by breaching the policy's subrogation clause in settling with BP. But because Liberty breached the contract by wrongfully denying coverage, it waived its rights under the subrogation clause before Cameron settled. Liberty's interpretation of the other insurance provision was erroneous. It also violated the policy's requirement to "promptly pay" Cameron's claim.

Exclusion Barring Suits By One Insured Against Another Found Inapplicable

   The court analyzed the impact of the policy exclusion barring coverage where one insured sued another. Gemini Ins. Co. v. Delos Ins. Co., 2012 Cal. App. LEXIS 1230 (Cal. Ct. App. Dec. 5, 2012).

   Delos insured Bobby's, a restaurant, located in the Loch Lomond Marina, San Rafael, California. The landlord was Loch Lomond Marina. A fire at Bobby's caused damage to Loch Lomond's property. Another business, Arena Yacht, also suffered property damage from the fire. Loch Lomond was insured by Gemini for property damage. 

    Gemini paid Loch Lomond $288,259 and Arena Yacht $65,088 for the damage caused by the fire. Gemini then sued Bobby's for subrogation, alleging Bobby's negligence caused the fire. Delos defended Bobby's. The case settled. Bobby's and Gemini entered into a stipulated judgment for the total which Gemini had paid to its insureds. Delos paid $65,088 of the judgment, the amount Gemini had paid to Arena Yacht. 

   Gemini then sued Delos. Delos' policy did not provide coverage for any claim or suit brought by another insured. Loch Lomond was an additional insured under the policy. Delos therefore argued that it did not cover Bobby's on a claim by Loch Lomond for damage to Loch Lemond's property. Gemini contended Loch Lomond was not an insured under Bobby's Delos policy.

   The trial court agrred with Gemini, finding that under the language of the Delos policy, including the additional insured endorsement, Loch Lomond was never an "insured" under the policy. Judgment was entered for Gemini in the amount of $288,259, the amount Gemini had to paid to Loch Lomond.

   The Delos policy's Interinsured Claims and Suits Exclusion barred coverage for any insured against a claim or suit by another insured. The policy defined "insured" as "an organization other than a partnership, joint venture, or limited liability company." The additional insured endorsement listed Loch Lomond as an additional insured.

   However, there was another relevant policy endorsement entitled "Additional Insured - Managers or Lessors of Premises." Under this endorsement, Loch Lomond was an additional insured only when it faced liability arising from Bobby's acts, undertaken in the course of Bobby's operations on the leased premises. No one had sought to hold Loch Lomond liable for the fire. Instead, in the underlying case, Loch Lomond sought to recover from Bobby's.

    Therefore, the interinsured claims and suits exclusion did not apply and the trial court's judgment was affirmed.