American Safety Indemnity Company v. Admiral Insurance Company

In American Safety Indem. Co. v. Admiral Ins. Co., 220 Cal.App.4th 1 (September 27, 2013), the California Fourth District Court of Appeal affirmed the trial court’s entry of judgment in favor of American Safety Indemnity Company (“ASIC”) regarding its action for equitable subrogation and indemnity against Admiral Insurance Company (“Admiral”) in connection with the defense of a general contractor against an underlying lawsuit arising out of damage sustained by homes due to adjacent slope failure. ASIC insured the grader for the adjacent property, Ebensteiner Company (“Ebensteiner”). Ebensteiner had been hired by the developer of the property, D. R. Horton, Inc. and certain other D.R. Horton Companies (collectively “Horton entities”) under a general liability policy which included a $250,000 self-insured retention. ASIC did not insure the Horton entities (neither as named insureds nor additional insureds). Nonetheless, ASIC defended the Horton entities in the underlying lawsuit.

Ultimately, ASIC settled the homeowners lawsuits in conjunction with Admiral. Thereafter, ASIC requested Admiral to contribute to the cost of defending the Horton entities against the underlying homeowner lawsuit. Admiral refused to contribute to the cost of defending the Horton entities as it contended that the $250,000 self-insured retention applicable to its policy had not been satisfied by payments from such entities. In response, ASIC took the position that the Horton entities were not insureds under its policy and that it was entitled to equitable subrogation for the cost of defending the Horton entities against the homeowners lawsuit. The trial court agreed with ASIC and held that Admiral was entitled to reimburse ASIC for the cost of defending the Horton entities against the underlying lawsuit.

The Court of Appeal characterized the language in the Admiral’s policy as follows:

The insuring clause in Admiral's policy states: “We will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies. We will have the right and duty to defend the insured against any `suit' seeking those damages. However, we will have no duty to defend the insured against any 'suit' seeking damages for ‘bodily injury’ or ‘property damage’ to which this insurance does not apply . . .” (Italics added.)

The Admiral policy contains the following definitions:

“17. 'Property damage' means:

“a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or

“b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the ‘occurrence’ that caused it.
“18. ‘Suit’ means a civil proceeding in which damages because of ‘bodily injury,’ ‘property damage’ or ‘personal and advertising injury’ to which this insurance applies are alleged . . .”

Admiral's duties are limited by an SIR endorsement to its policy which provides in part:

“1. Our total liability for all damages will not exceed the limits of liability as stated in the Declarations and will apply in excess of the insured's self-insured retention (the ‘Retained Limit’). ‘Retained Limit’ is the amount shown below, which you are obligated to pay, and only includes damages otherwise payable under this policy.

"Retained Limit:	$250,000	Per Occurrence- Other than Products and Completed Operations
	$250,000	Per Occurrence-Products and Completed Operations

"2 Expenses incurred under the SUPPLEMENTAL PAYMENTS-COVERAGES A AND B provisions of this policy are:
". . . [¶]

“4. We have the right in all cases, at our expense, to assume charge of the defense and/or settlement of any claim wherein your liability is reasonably expected to exceed the Self-Insured Retention and, upon written request from us, you will tender such portion of the Self-Insured Retention as we may deem necessary to complete the settlement of such claim.”

The policy Admiral provided the Horton entities is written on a “Commercial General Liability” form. The face of the policy identifies it as providing primary coverage to its insureds. The policy makes Admiral's coverage excess only when other coverage is available to its insureds by way of other insurance acquired by the insureds or when the insureds are named as additional insured on another party's policy. Significantly, when such other insurance is available and Admiral becomes an excess insurer, the policy states; “[W]e will have no duty under Coverages A or B to defend the insured against any ‘suit’ if any other insurer has a duty to defend the insured against that ‘suit’. If no other insurer defends, we will undertake to do so, but we will be entitled to the insured's rights against all those other insurers."

The Court of Appeal held that the language in the Admiral policy addressing the self-insured retention was ambiguous in that it could be interpreted to only apply to damages otherwise payable under the policy as opposed to defense costs and damages. The Court of Appeal stated as follows:

Contrary to Admiral's argument, its policy does not expressly and unambiguously make its duty to defend the Horton entities subject to the SIR. Rather, the SIR endorsement expressly provides the contrary: “’Retained Limit' is the amount shown below, which you are obligated to pay, and only includes damages otherwise payable under this policy." In light of this unambiguous limitation on the scope of the SIR, it is not surprising that there is no other provision of the SIR that nonetheless extends the scope of the SIR to include the costs of defense.

Were there any doubt as to the scope of Admiral's SIR, we need only look to the policy's provisions with respect to other insurance. As in Montgomery Ward, the Admiral policy expressly provides that where a claim is covered by other insurance, the Admiral policy is excess and Admiral has no duty to defend. The absence of such an express extension of the scope of the SIR leads us, and would lead any reasonable insured, to conclude that, consistent with the express terms of the SIR, the SIR only applies to damages.

In sum, the trial court did not err in determining the Horton entities were not required to satisfy the SIR as a condition of obtaining a defense from Admiral.

In addition, the Court of Appeal held that ASIC was equitably subrogated to the recovery of defense costs paid out on behalf of the Horton entities and did not act as a volunteer.