Insurance Coverage & Bad Faith - Winter 2021

The Travelers Indemnity Company Of Connecticut v. Navigators Specialty Insurance Company

Insurer Properly Alleged Claims for Equitable Indemnity and Equitable Contribution Against Other Insurers That Failed to Pay Defense Costs Incurred in Construction Defect Lawsuit

(December 2021) - In Travelers Indem. Co. of Conn. v. Navigators Specialty Ins. Co., 70 Cal.App.5th 341 (October 15, 2021), the California Fourth District Court of Appeal reversed the trial court’s order dismissing a lawsuit filed by Travelers alleging causes of action for declaratory relief, equitable contribution, and equitable indemnity against Navigators Specialty Insurance Company ((“Navigators”) and Mt. Hawley Insurance Company (“Mt. Hawley”). The parties’ dispute arose out of Travelers’ defense of a general contractor as an additional insured in a construction defect lawsuit. Travelers later amended its complaint to allege that coverage was never owed to the general contractor under its policy in the first instance. Travelers contended that Navigators was required to share in the defense of the general contractor on the same basis as Travelers as its policy made the general contractor an additional insured as well. In addition, because Mt. Hawley insured the general contractor directly, it too was required to share in the cost of defending the lawsuit. Alternatively, Travelers argued that it was entitled to equitable indemnity from Navigators and Mt. Hawley for all the defense costs that it had paid on behalf of the general contractor because coverage was not afforded under the Travelers policy.

In response to the Travelers lawsuit, Navigators filed a demurrer and argued that Travelers could not seek declaratory relief because the underlying lawsuit had ended and Travelers was no longer paying for the defense of the lawsuit. Navigators also argued that Travelers was not entitled to equitable contribution because it contended that coverage was not afforded under its policy. Lastly, Navigators argued that Travelers was not entitled to equitable indemnity because such remedy was not afforded for reimbursement of defense costs.

Mt. Hawley also filed a demurrer based on a request for the trial court to take judicial notice of the Travelers and Mt. Hawley policies. According to Mt. Hawley, the language of the Travelers and Mt. Hawley policies required Travelers to afford primary coverage to the general contractor while the Mt. Hawley policy afforded excess coverage. Alternatively, Mt. Hawley adopted Navigators’ arguments as the basis for dismissing the Travelers lawsuit.

The trial court sustained Navigators’ demurrer and issued an order dismissing the Travelers lawsuit. The trial court rejected Mt. Hawley’s request for judicial notice of the policies, but sustained Mt. Hawley’s demurrer on the same basis as the Navigators’ demurrer.

In reversing the trial court’s order, the Court of Appeal reasoned as follows in connection with the arguments advanced by Navigators and Mr. Hawley:

The trial court's ruling was based on the general principle that “[t]he doctrine of equitable contribution applies to insurers who share the same level of obligation on the same risk as to the same insured.” (Fireman’s Fund, supra, 65 Cal.App.4th at p.1294, fn. 4.) More specifically, “n the insurance context, the right to contribution arises when several insurers are obligated to indemnify or defend the same loss or claim, and one insurer has paid more than its share of the loss or defended the action without any participation by the others. Where multiple insurance carriers insure the same insured and cover the same risk, each insurer has independent standing to assert a cause of action against its coinsurers for equitable contribution when it has undertaken the defense or indemnification of the common insured. Equitable contribution permits reimbursement to the insurer that paid on the loss for the excess it paid over its proportionate share of the obligation, on the theory that the debt it paid was equally and concurrently owed by the other insurers and should be shared by them pro rata in proportion to their respective coverage of the risk. The purpose of this rule of equity is to accomplish substantial justice by equalizing the common burden shared by coinsurers, and to prevent one insurer from profiting at the expense of others.” (Id. at p. 1293.) Following these principles, trial court observed that Travelers would not have a valid claim for equitable contribution if it was not among the insurance carriers obligated to provide a defense to TFM in the construction defect action.

The Court of Appeal also rejected Navigators’ and Mt. Hawley’s arguments that Travelers’ allegations that its policy did not afford coverage to the general contractor constituted a “judicial admission” barring its claim for equitable contribution. The Court of Appeal reasoned as follows:

First, as we have explained, Travelers’ allegation that it had no duty to defend TFM was not a factual allegation, but rather was an allegation as to what it believed to be the legal effect of its recent discovery of the purportedly backdated subcontractor agreement. (Feldman, supra, 198 Cal.App.4th at p. 1500.) Thus, there is no merit to Navigators’ contention that Travelers should be prevented from alleging “contradictory and antagonistic facts” as to whether it had a duty to defend TFM.

Second, the requirements for | establishing a judicial admission are not present here. A judicial admission is ‘“a waiver of proof of a fact by conceding its truth, and it has the effect of removing the matter from the issues.’” (Valerio v. Andrew Youngquist Construction (2002) 103 Cal.App.4th 1264, 1271 [127 Cal. Rptr 2d 436].) “To be considered a binding judicial admission, the declaration or utterance must be one of fact and not a legal conclusion, contention, or argument.” (Eisen v. Tavangarian (2019) 36 Cal.App.5th 626, 637 [248 Cal.Rptr. 3d 744].) “[A] mere conclusion, or a ‘mixed factual legal conclusion’ in a complaint, is not considered a binding judicial admission.” (Castillo v. Barrera (2007) 146 Cal.App.4th 1317, 1324 [53 Cal. Rptr. 3d 494].) Here, as we have explained, Travelers' allegation that it did not have a duty to defend TFM is not a factual allegation. Accordingly, it cannot be treated as a judicial admission. Moreover, “[a] judicial admission is ... conclusive both as to the admitting party and as to that party's opponent. ... Thus, if a factual allegation is treated as a judicial admission, then neither party may attempt to contradict it—the admitted fact is effectively conceded by both sides.” (Barsegian v. Kessler & Kessler (2013) 215 Cal.App.4th 446, 452[155 Cal. Rptr. 3d 567].) Applying this principle, it is clear that Travelers did not make a judicial admission. As we have explained, far from conceding that Travelers owed no duty to defend TFM, Mt. Hawley takes the opposite position, contending that Travelers owed a duty to defend, which cannot be extinguished on a retroactive basis.

In sum, because Travelers is not bound by its allegation that it owed no duty to defend TFM, the trial court erred in sustaining the demurrers to the equitable contribution cause of action.

As respects Navigators’ and Mt. Hawley’s arguments related to Travelers’ claim for equitable indemnity, the Court of Appeal also rejected these arguments and reasoned as follows:

Case law and commentators recognize that an equitable indemnity claim may be asserted in a dispute between insurance carriers, even though they are not joint tortfeasors. In the context of litigation between insurers, “[although courts often use the terms ‘equitable contribution,’ ‘equitable indemnity’ and ‘equitable subrogation’ interchangeably, they are really separate remedies that apply in discrete situations Equitable contribution is a loss-sharing procedure. It lies where several insurers insure the same risk at the same level (e.g., all primary insurers) and one pays the entire loss. That insurer may seek equitable contribution from the others to obtain reimbursement for a portion of what it has paid.... Equitable indemnity is a loss-shifting procedure. ‘Equitable indemnity applies in cases in which one party pays a debt for which another is primarily liable and which in equity and good conscience should have been paid by the latter party.’” (Croskey et al., Cal. Practice Guide: Insurance Litigation (The Rutter Group 2021) 8:65.1, pp. 8-26 to 8-27, citation omitted, quoting United Services Auto. Assn, v. Alaska Ins. Co. (2001) 94 Cal.App.4th 638, 644-645 [114 Cal.Rptr.2d 449].)

The Court of Appeal also found that a claim for a claim for equitable indemnity could apply to a cause of action seeking reimbursement of defense costs.

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