California Insurance - Insurer’s Right to Equitable Contribution for Settlement Amounts from a Non-Participating Insurer Only Requires Prima Facie Proof of a Potential for Coverage, Not Actual Coverage
Safeco Ins. Co. of America v. Superior Court, No. B189637 (Cal. Ct. App., June 22, 2006)
In an equitable contribution lawsuit between insurers, the Second District Court of Appeal (Los Angeles) held that a settling insurer’s burden of proof to recover settlement amounts from a non-participating insurer is the
same in the settlement context as it is in the defense context – a prima facie showing of the potential for coverage under the non-participating insurer’s
policy – shifting the burden to the non-participating insurer to prove the absence of actual coverage.
In Safeco, construction companies insured by Safeco Insurance Company of
Safeco and American States sued Century for equitable contribution for both defense costs and settlement sums they paid on behalf of their mutual insureds. The trial court resolved the “other insurance” issue
against Century, but denied summary judgment to Safeco and American States on their contribution claims, reasoning that even if Century had a duty to defend, it was not required to contribute toward any settlements unless it was
established as a matter of law that its policies actually covered the underlying claims.
On a petition for writ of mandate, the parties agreed that a settling insurer need only establish a potential for coverage to recover defense costs from a non-participating insurer, but disagreed about the showing necessary to recover
a settlement contribution. The Second District Court of Appeal sided with Safeco and American States. It held that once an insurer proves the potential for coverage under a non-participating insurer’s policy, the
absence of actual coverage is an affirmative defense that the non-participating insurer must raise and prove. The court reasoned that when a duty to defend is shown, a non-participating coinsurer is presumptively liable for
both the costs of defense and settlement, waiving the right to challenge the reasonableness of the settlement. While it retains the ability to raise other coverage defenses, it has the burden of proving that there is no coverage
under its policy.