An insurer that settled a construction defect case on behalf of an insured was barred by the two-year of limitations from seeking equitable contribution from another insurer that had refused to participate in the settlement. ( American States Ins. Co. v. National Fire Ins. Co. of Hartford (2011) 202 Cal.App.4th 692)
Facts
American States Insurance Company (ASIC) issued general liability policies to Vision Systems, Inc. (Vision Systems) for the period of April 15, 1993 through April 15, 1996. National Fire Insurance Company of Hartford (National)subsequently issued general liability policies to Vision Systems for the period of April 15, 1996 through April 15, 2002. Both ASIC’s policies and National’s policies covered Vision Systems’ liability for property damage occurring “during the policy period.”
Various homeowners filed a construction defect action in which Vision Systems was named as a defendant. The construction defect action was settled, and dismissed, by April 2007 . As part of the settlement, ASIC paid over $1.4 million on behalf of Vision Systems. National, on the other hand, did not contribute anything toward the settlement. Vision Systems assigned its rights against National to ASIC.
In May 2009 , ASIC filed a lawsuit against National in which ASIC sought to recover a portion of the $1.4 million settlement from National. The trial court ruled that ASIC’s action against National was one for “equitable contribution” and that it was subject to a two-year statute of limitations. The trial court further ruled that since ASIC’s cause of action against National accrued at the latest when the underlying case was dismissed in April 2007 , and since ASIC had not filed suit against National until May 2009 , ASIC’s lawsuit against National was barred by the two-year statute of limitations. ASIC appealed.
Holding
The Court of Appeal affirmed. Because ASIC and National had each issued policies covering Vision Systems’ liability for property damage, ASIC and National were co-obligors. As a result, ASIC’s sole remedy against National was equitable contribution, which is subject to a two-year statute of limitations. Because ASIC filed suit against National more than two years after the settlement money was paid, ASIC’s lawsuit against National was time-barred.
The appellate court rejected ASIC’s argument that ASIC should be able to pursue an “equitable subrogation” claim against National, which claim is subject to a four-year statute of limitations. According to the appellate court, ASIC could not establish the essential elements of a claim for equitable subrogation. The court reasoned that a claim for equitable subrogation arises when, among other things, the claimed loss was one for which the paying insurer was not primarily liable. However, in cases such as this involving progressive property damage which occurs over several policy periods, each insurer is responsible for the full extent of the insured’s liability. Therefore, ASIC was primarily liable for the sums it paid, even if National was also primarily liable. As a result, ASIC could not establish that it had contributed to a settlement for which it was not primarily liable.
The appellate court also rejected ASIC’s argument that ASIC could proceed against National based on an “assignment” from Vision Systems, and that ASIC’s lawsuit was thus subject to the four-year statute of limitations. The appellate court reasoned that since Vision Systems had been fully defended and indemnified, Vision Systems had nothing to “assign” to ASIC.
Comment
Under California law, where a case involves progressive damage over multiple policy periods, each insurer is responsible for the full extent of the insured’s liability. Because both ASIC and National were primarily responsible here, ASIC’s cause of action against National was for equitable contribution, not equitable subrogation. Since ASIC did not file suit against National within the applicable two-year statute of limitations, ASIC was barred from recovering anything from National.