California insurance appellate update – “other insurance” clause does not preclude the defense duty

By Kevin Clonts

The Fourth Appellate District of the California Court of Appeal issued its holding that an insurer cannot avoid its defense duty under an “other insurance” clause in the policy even if another insurer already is providing the insured’s defense.

In Underwriters of Interest v. ProBuilders Specialty Ins. (Oct. 26, 2015) __ Cal. App. __; 2015 Cal. App. LEXIS 936, the insured general contractor (GC) was named in a lawsuit. One insurer, Underwriters of Interest, provided GC’s defense. Another insurer, ProBuilders Specialty, acknowledged the potential for indemnity, but denied defense under the policy’s “other insurance” clause, which stated that ProBuilders had "the right and duty to defend [GC] against any suit seeking . . . damages [to which the insurance applied] provided that no other insurance affording a defense against such a suit is available to you." Because Underwriters was providing GC’s defense, ProBuilders argued that it had no duty to defend under the “other insurance” clause. The underlying suit settled, with ProBuilders contributing about one-fourth toward settlement. Thereafter, Underwriters sued Probuilders for equitable contribution for defense costs. The trial court agreed with ProBuilders’ policy argument and dismissed the contribution action.

The appellate court reversed the trial court. First, the appellate court reaffirmed the principles that "[e]quitable contribution is the right to recover from a co-obligor who shares a liability with the party seeking contribution,” and "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[…] 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." 


The appellate court then characterized the “other insurance” clause as an escape clause that should be subject to “judicial distrust,” because “it provides that ProBuilders will be liable to pay for defense costs for any suit seeking damages to which its insurance applied, but then purports to extinguish that obligation when there is ‘other insurance affording a defense against such suit . . . available to you.’”

Finally, the appellate court favorably considered other California cases that have rejected the argument that “other insurance” clauses can be used to escape indemnity, and concluded that they also cannot be used to escape the defense duty: “We adhere to the modern trend of requiring equitable contributions on a pro rata basis from all primary insurers regardless of the type of 'other insurance' clause in their policies."

The full decision can be found here:

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