Provision Purporting To Make Primary CGL Insurer’s Defense Duty Vanish If A Defense Is Available From Other Insurance Held A Disfavored Escape Clause
Certain Underwriters at Lloyds, London v. Arch Specialty Ins. Co., 246 Cal. App. 4th 418 (Cal. App. 3d Dist. 2016)
Categories: Equitable Contribution – Duty to Defend – “Other Insurance” Clause
If an “other insurance” provision would be recognized as a disfavored escape clause if placed elsewhere in a primary commercial general liability policy, does that conclusion change if it is placed in the insuring agreement? In Certain Underwriters at Lloyds, London v. Arch Specialty Insurance Co., the California Court of Appeal, Third Appellate District, concluded, “no.” It held that a primary commercial generally liability insurer could not, in a contribution action brought by a defending co-primary insurer, rely on a provision purporting to eliminate its own duty to defend whenever a defense is available under other insurance.
Over successive policy years, Certain Underwriters and Arch Specialty issued primary commercial general liability policies to the same named insured, a framing and carpentry contractor. Construction defect litigation was filed that included some defects allegedly attributable to the named insured’s work and implicated the policies issued by both Certain Underwriters and Arch Specialty. Certain Underwriters agreed to defend under a reservation of rights but Arch Specialty declined to defend, relying on language in its insuring agreement stating: “We have the right and duty to defend … provided that no other insurance affording a defense against such a suit is available to you.”
The underlying litigation ultimately settled with both insurers indemnifying the insured. Certain Underwriters then sued Arch Specialty for declaratory relief and equitable contribution for the defense costs incurred. The insurers filed cross-summary-judgment motions on whether or not Arch Specialty’s “other insurance” provision is enforceable so as to preclude any duty to defend. The trial court held that it was, finding it significant that the language Arch Specialty relied on to deny any defense duty was found in the policy’s insuring agreement.
On appeal, the California Court of Appeal reversed, holding that, regardless of its location in the policy, this “other insurance” clause is a disfavored escape clause that is unenforceable as a matter of public policy under the circumstances. The Court of Appeal noted that “enforcing Arch’s clause would result in imposing on Underwriters the burden of shouldering a portion of defense costs attributable to claims arising from a time when Arch was the only insurer.” The Court of Appeal distinguished Chamberlin v. Smith, 72 Cal. App. 3d 835 (1977), which Arch Specialty relied on in part, because it involved claims made professional liability insurance where the policy’s insuring agreement provided that no coverage existed for a claim based on acts, errors, or omissions predating policy inception unless there was no other available coverage (among other conditions) – not that an otherwise-existing defense duty vanished in the presence of other available insurance. Additionally, the Court of Appeal rejected the argument that the provision should be enforced because there is no risk the insured would thereby be left stranded, finding that is not the only relevant public policy consideration.
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