The California Court of Appeal has held that a liability insurer may obtain equitable contribution from a coinsurer for defense costs paid on behalf of a mutual insured, even though the mutual insured had previously signed a release in favor of the coinsurer. ( Employers Insurance Company of Wausau v. Travelers Indemnity Company (2006) 141 Cal.App.4th 398)
Facts
Beginning in 1958 and continuing for years thereafter, Whitman Corporation (Whitman) allegedly released hazardous contaminants into the environment. During some of these years, Whitman had liability policies through Employers Insurance Company of Wausau (Wausau); during other years, Whitman had liability policies through Travelers Indemnity Company and other insurers (collectively, Travelers). All of the policies provided for a substantially similar duty to defend.
In 1997 and 1998, Whitman and Travelers entered into settlement agreements to resolve coverage disputes arising from certain environmental contamination lawsuits. Pursuant to the settlements, Travelers paid Whitman $24 million. In exchange, Whitman released Travelers from any duty to defend or indemnify Whitman from any past, present and future environmental claims.
Later, in 1999 and 2001, several hundred plaintiffs filed new lawsuits against Whitman alleging bodily injury and property damage due to environmental contamination. Wausau defended Whitman in the new lawsuits; Travelers did not.
Wausau later sued Travelers seeking equitable contribution toward Whitman’s defense costs in the new lawsuits. Travelers argued that Wausau had no right to contribution because Whitman, as part of the earlier settlements, had released Travelers from any obligation to defend and indemnify Whitman against past, present or future environmental lawsuits. In addition, Travelers argued that its prior settlements with Whitman reflected Whitman’s and Travelers’ “mutual intention” that the Travelers policy limits would be exhausted, thereby eliminating any future obligation to defend. The trial court rejected Travelers’ arguments and held that Wausau was entitled to contribution from Travelers for the costs of defending Whitman in the new lawsuits.
Holding
The Court of Appeal affirmed, holding that Travelers’ earlier settlements with Whitman did not extinguish any obligation Travelers might have to contribute with Wausau toward Whitman’s defense in the new lawsuits. According to the court, an insurer cannot avoid contribution to other insurers simply by settling with the insured. To allow such a result would frustrate the purpose of equitable contribution, which is to “accomplish substantial justice by equalizing the common burden shared by coinsurers, and to prevent one insurer from profiting at the expense of the others.”
The court also held that there was no showing that the Travelers policy limits had been exhausted. While Whitman and Travelers were free to agree as between themselves to “deem” the Travelers policy limits “exhausted,” there was no evidence that the earlier settlements had actually exhausted the Travelers policy limits. Whitman’s agreements with Travelers could not defeat Wausau’s contribution rights.
Comment
The right to equitable contribution belongs to each insurer individually. It is not based on any right of subrogation to the rights of the insured, and is not equivalent to “standing in the shoes” of the insured. An insurer that otherwise has a right to contribution from other insurers will not lose that right by virtue of separate agreements or releases the insured makes with the other insurers.