No Escape: California Court of Appeals Gives a Primary CGL Insurer’s “Other Insurance” Clause Two Thumbs Down

No Escape movie

No Escape” is a 2015 action movie starring Pierce Brosnan and Owen Wilson (that’s right, Owen Wilson) and which the folks at rogerebert.com described as “a dreadful…would-be thriller” and “low-grade trash.”

It’s also, in short, the California Court of Appeal’s answer to a primary insurer’s recent bid to escape its duty to defend pursuant to an “other insurance” clause in a CGL policy in Underwriters of Interest Subscribing to Policy No. A15274001 v. ProBuilders Specialty Ins. Co., Case No. D066615, California Court of Appeals for the Fourth District (October 23, 2015).

In this case, plaintiff Underwriters insured Pacific Trades Construction & Development, Inc. (Pacific Trades) under a primary CGL policy from 2001 to 2003.  Defendant ProBuilders also insured Pacific Trades under primary CGL policies, but from 2002 to 2004.  When Pacific Trades was sued for construction defects, Underwriters agreed to pick up the defense.  Even though the CD complaint contained allegations of damage which potentially arose during years when ProBuilders was the only liability insurer covering Pacific Trades, ProBuilders refused to defend based on the “other insurance” clause in its policies.  That clause stated that ProBuilders had  “the right and duty to defend [Pacific Trades] against any suit … seeking damages [to which the insurance applied] provided that no other insurance affording a defense to such a suit is available to you.” Ultimately, both Underwriters and ProBuilders contributed to settle the action.  Thereafter, Underwriters brought an equitable contribution action against ProBuilders to recover some portion of the defense fees and costs Underwriters had paid.  The parties filed cross-motions for summary judgment, with ProBuilders arguing (in pertinent part) that since Underwriters had picked up the defense, there was other insurance available to Pacific Trades, and ProBuilders was thus excused from providing a defense.  The trial court agreed that the “other insurance” clause was enforceable and that ProBuilders thus owed no obligation to contribute to the defense.

In reversing the trial court’s decision, the appellate court characterized ProBuilder’s “other insurance” clause as an “escape clause”—i.e., a clause that attempts to have coverage, paid for with the insured’s premiums, evaporate in the presence of other insurance.  Noting that California public policy disfavors such clauses, the appellate court adhered 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 appellate ruled that ProBuilder’s escape clause must be disregarded, and that Underwriters was entitled to seek equitable contribution for defense fees and costs it had paid, to avoid improperly imposing on Underwriters the burden of shouldering that portion of defense costs attributable to claims arising from a time when ProBuilders was the only liability insurer covering Pacific Trades.

So,  when it comes to “other insurance” clauses in CGL policies, the question of whether California courts will enforce them in equitable contribution actions between primary co-insurers in the construction defect context seems to be—like “No Escape”—not much of a thriller: Underwriters clarifies that where doing so would result in a contributing insurer covering a loss outside its policy period but within a noncontributing insurer’s policy period, the answer is a big two thumbs down.

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