The California Court of Appeal has ruled that a liability insurer whose policy covered a property manager as an additional insured was entitled to equitable contribution from another insurer whose policy covered the property manager as a named insured. ( California Capital Insurance Company v. Farmers Insurance Group (2007) WL 3036735)
Facts
Lin Kwock owned an apartment complex and employed Edmondson Property Management to manage the complex. The management contract between Kwock and Edmondson required Kwock to indemnify Edmondson against claims connected with Edmondson’s management of the property, and further required Kwock to obtain liability insurance listing Edmondson as an additional insured.
A seven-year-old girl who resided at the apartment complex was injured when she fell off the roof of a storage shed at the complex. The girl subsequently filed a personal injury action against Kwock as property owner and Edmondson as property manager. There was evidence that prior to the girl’s fall, Edmondson knew the girl was playing on the roof and did nothing to stop her.
California Capital Insurance Company had issued a primary general liability policy listing Kwock as the named insured and Edmondson as an additional insured. Farmers Insurance Group had issued a primary general liability policy listing Edmondson as named insured, but containing an “excess” other insurance clause. California Capital defended both Kwock and Edmondson in the personal injury action. California Capital ultimately paid $550,000 in settlement on behalf of Kwock and Edmondson, with $50,000 apportioned to Kwock and $500,000 allocated to Edmondson. Farmers refused to contribute to the settlement, claiming that: (1) Farmers’ coverage for Edmondson was “excess” to California Capital’s coverage for Edmondson; and (2) in any event, Farmers’ named insured, Edmondson, was entitled to express indemnification from California Capital’s named insured, Kwock.
California Capital subsequently filed an action against Farmers in order to recover all or a portion of the $500,000 California Capital had paid on behalf of Edmondson to settle the underlying personal injury action. The trial court ruled that: (1) the Farmers policy covering Edmondson was not “excess” to the California Capital policy covering Edmondson; (2) Farmers’ named insured, Edmondson, was not entitled to express indemnity from California Capital’s named insured, Kwock; and (3) Edmondson’s $500,000 share of the underlying settlement should be shared equally by Farmers and California Capital. The trial court thus ruled that California Capital was entitled to recover from Farmers half of the amount for which Edmondson was liable. Farmers appealed.
Holding
The Court of Appeal affirmed, holding that California Capital was entitled to contribution from Farmers.
The appellate court rejected Farmers’ argument that Farmers’ coverage for Edmondson was “excess” to California Capital’s coverage for Edmondson. The court emphasized that both the Farmers policy and the California Capital policy were written to provide “primary” coverage to Edmondson. Further, while the Farmers policy did contain an “excess” other insurance clause, the “modern trend” is to ignore an “excess” other insurance clause which is inserted into an otherwise primary policy. Thus, Farmers’ “excess” other insurance clause did not bar California Capital’s contribution claim against Farmers.
The appellate court also rejected Farmers’ argument that Farmers’ named insured, Edmondson, was entitled to express indemnity from California Capital’s named insured, Kwock. According to the court, the indemnity provision in the property management agreement between Kwock and Edmondson was a “Type II” or “general” indemnity provision which only covered Edmondson for “passive” negligence. Further, because Edmondson knew that the child played on the roof of the shed unsupervised and did not act to stop the child, Edmondson’s alleged negligence was not merely “passive” but, rather, was “active.” Since Edmondson was “actively” negligent, Edmondson was not entitled to contractual indemnification from Kwock.
The appellate court held that under these circumstances, California Capital was entitled to equitable contribution from Farmers for Edmondson’s share of the underlying settlement. Further, according to the appellate court, the trial court properly allocated half of that settlement to California Capital and half to Farmers.
Comment
The result in this case apparently would have been different if the management agreement between Kwock and Edmondson had given Edmondson “Type I” or “specific” indemnity rights against Kwock. In that scenario, Edmondson would have been entitled to indemnity from Kwock even for Edmondson’s own “active” negligence. If in fact Edmondson had been entitled to indemnification from Kwock, then the entire loss would have been the responsibility of Kwock’s insurer, California Capital.