A self-insured retention (SIR) provision will not excuse an insurer from a duty to defend unless the policy expressly and unambiguously conditions the insurer’s duty to defend on satisfaction of the SIR. ( American Safety Indemnity Co. v. Admiral Ins. Co. (2013) 220 Cal.App.4th 1)
Facts
A developer hired a grading contractor to perform grading on a tract of land. Thereafter, several adjacent homeowners noticed physical damage to their property allegedly caused by slope failures arising out of the grading work. The homeowners thus filed suit against the developer and its related entities, among others.
Admiral Insurance Company (Admiral) insured the developer and its related entities. American Safety Indemnity Company (ASIC) insured the grading contractor and also covered the developer as an additional insured; however, the developer’s related entities were not additional insureds on ASIC policy.
ASIC paid the costs of defending the developer’s related entities against the homeowners’ lawsuit. Admiral, on the other hand, refused to contribute to the defense costs ASIC incurred on behalf of the developer’s related entities. Therefore, ASIC filed an action against Admiral seeking reimbursement of the defense costs.
Admiral’s policy contained an SIR endorsement which provided in relevant part: ” Our total liability for all damages will not exceed the limits of liability as stated in the Declarations and will apply in excess of the insured’s self-insured retention (the ‘Retained Limit’). ‘Retained Limit’ is the amount shown below, which you are obligated to pay, and only includes damages otherwise payable under this policy .” The SIR endorsement also stated: “We have the right in all cases, at our expense, to assume charge of the defense and/or settlement of any claim wherein your liability is reasonably expected to exceed the Self-Insured Retention and, upon written request from us, you will tender such portion of the Self-Insured Retention as we may deem necessary to complete the settlement of such claim.”
Admiral contended that it did not have a duty to defend the developer’s related entities because its SIR requirement had not been satisfied and its SIR endorsement applied not only to its duty to indemnify but also to its duty to defend.
The trial court granted ASIC’s motion for summary adjudication, determining that Admiral’s duty to defend the developer’s related entities was independent of the policy’s SIR provision, which only related to Admiral’s duty to indemnify .
Holding
The Court of Appeal affirmed the trial court’s determination that the developer’s related entities were not required to satisfy the SIR as a condition to obtaining a defense from Admiral. The appellate court reasoned that Admiral’s policy did not expressly and unambiguously make its duty to defend the developer’s related entities subject to the SIR. Instead, the court held that Admiral’s SIR endorsement only applied to Admiral’s duty to indemnify because the SIR provision only referred to damages payable under the policy.
Comment
In this decision, the appellate court noted that no other provision from the SIR endorsement extended the scope of the SIR to include the costs of defense. According to the appellate court, the absence of an express extension to include the costs of defense in the SIR would lead any reasonable insured to conclude that the SIR only applies to damages. As such, ASIC was entitled to pursue its reimbursement claim against Admiral.