The California Court of Appeal has ruled that a primary auto insurer was entitled to contribution from an excess auto insurer for defense fees the primary insurer paid to defend a mutual insured, pursuant to Insurance Code Section 11580.9(g). ( Mercury Casualty Company v. Scottsdale Indemnity Company (2007) 2007 WL 3355678)
Facts
Mercury and Scottsdale each issued personal automobile policies to the same insured. Mercury’s policy was primary and Scottsdale’s policy was excess. Scottsdale’s policy contained a provision stating that it had no duty to defend a suit unless “no other insurer has an obligation to do so.”
The insured was involved in an auto accident with a third party, who filed suit against the insured. Mercury defended the insured and paid its policy limits toward a settlement of the case. Scottsdale funded the remaining portion of the settlement.
Mercury then sued Scottsdale to obtain contribution for defense fees, pursuant to Insurance Code Section 11580.9(g). That statute states that “Where two or more personal policies affording … liability insurance apply to the same motor vehicle in an occurrence out of which a loss shall arise, and one policy … is primary … and one [is] excess … each insurer shall pay … the percentage of the total defense costs equal to the amount of damage paid by that insurer as a percentage of total damages paid by all insurers ….”
The trial court granted summary judgment to Mercury based on the terms of the statute, and Scottsdale appealed.
Holding
The Court of Appeal affirmed, holding that Mercury was entitled to contribution based on the terms of the statute. The Court also stated that the purpose of the statute is to spread the burden of defense costs in auto liability lawsuits and to encourage excess auto liability insurers to involve themselves in settlement discussions at an earlier time. The Court rejected Scottsdale’s argument that Insurance Code Section 11580.9(g) is unconstitutional, and held that the trial court properly denied Scottsdale’s request to continue hearing of the motion to allow discovery pertaining to that issue.
Comment
The Insurance Code governs allocation and “order of coverage” issues in automobile liability insurance and will take priority over contrary terms in auto insurance policies. Further, in light of the purpose of Section 11580.9(g), excess auto liability carriers would be wise to become involved early in evaluating high-damage auto liability claims and perhaps offer settlement funds with the primary carrier prior to the claimant’s filing of a suit and, if necessary, negotiate a defense-fee sharing agreement with the primary auto carrier in those cases that have gone to lawsuit.