Self-Insured Retention Did Not Excuse Failure to Defend

Monday, September 30, 2013

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Self-Insured Retention Did Not Excuse Failure to Defend—C.A.

By KENNETH OFGANG, Staff Writer

A self-insured retention in a commercial general liability policy does not necessarily excuse the insurer from providing a defense to an insured who has not made an upfront contribution to payment of defense costs, the Fourth District Court of Appeal held Friday.

Unless the policy “expressly and unambiguously make[s] payment of a SIR obligation a condition of any obligation under the policy, including any duty to defend,” the insurer must provide a defense to any arguably covered claim, Justice Patricia Benke wrote for Div. One.

The court affirmed a San Diego Superior Court judge’s ruling that an insurer breached its obligation to defend its insured in subsidence litigation, and that another insurer that paid defense costs and damages on behalf of the insured was entitled to equitable subrogation as a result.

The plaintiff, American Safety Indemnity Co., was the insurer for D.R. Horton, Inc. Los Angeles Holding Company, a developer that worked with a Santa Clarita landowner to develop a housing tract. The defendant, Admiral Insurance Company, insured Ebensteiner Co., which was hired by the Horton holding company to grade the tract.

Landslide Issues

Following a landslide alleged to result from the grading, homeowners sued several defendants, including the Horton company and Ebensteiner. The Horton holding company tendered its defense to ASIC and Ebensteiner to Admiral.

Each policy had a $1 million limit and a provision declaring its coverage to be excess to any primary coverage the insured might have. The ASIC policy also covered the developer as an “additional insured.”

ASIC initially declined to defend. But after the developer sued for bad faith, ASIC agreed to a settlement in which it accepted the duty to defend the developer.

The underlying suit was settled in 2007, with Ebensteiner agreeing to pay $2.52 million, the developer $1.75 million, and another defendant $630,000. Ebensteiner and the developer agreed to release each other, except to the extent that either of their insurers might have a claim against the other’s.

ASIC and Admiral each contributed $1 million to its insured’s share of the settlement. ASIC, which said it had spent more than $2.2 million defending the developer, then sued Admiral.

Ruling for Plaintiff

Judge Richard Straus ruled for ASIC, saying it had undertaken Admiral’s obligation and was entitled to subrogation. While the self-insured retention required the insured to pay up to $250,000 in costs and damages, the judge concluded, Admiral had an independent duty to defend Horton and related defendants.

He awarded ASIC $1.9 million, plus interest.

In concluding that the trial judge was correct, Benke distinguished cases interpreting policies whose language differed from the policy issued by Admiral. Nor, she said, did ASIC act as a volunteer or waive its right to subrogation.

The case is American Safety Indemnity Co. v. Admiral Insurance Company, 13 S.O.S. 5062.