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An insurer that sues another insurer often wastes its time



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TO PROVE THE RIGHT TO FAIR SUBROGATION OR UNBREAKABLE ENRICHMENT REQUIRES PROOF

Two insurance companies for Gateway Science & Engineering’s (“Gateway”): Admiral and ACE American settled a lawsuit against Gateway and then Admiral sued ACE American to get its share of the settlement back. Admiral Insurance Co. (“Admiral”) appealed the district court’s decision granting ACE American Insurance Co.’s (“AAIC”) claim for summary judgment. In Admiral Insurance Company, a Corporation v. ACE American Insurance Company, No. 21-55789, United States Court of Appeals, Ninth Circuit (July 5, 2022), the Ninth Circuit resolved the lawsuit.

FACTS

Gateway’s work as the manager of a construction project in Los Angeles was protected by insurance coverage under the Admiral’s Professional Liability Policy (“Admiral Policy”), which covered claims arising from negligence in Gateway’s provision of professional services. Gateway also received coverage under AAIC’s general liability policy (the “AAIC Policy”), which generally covered claims arising out of bodily injury or property damage. The Admiralty policy excluded claims covered by a commercial general liability policy and the AAIC policy excluded claims arising from Gateway’s “reproduction of or failure to provide any professional services.” According to their terms, the insurances did not overlap, but insured against different risks of loss.

The Hartford Fire Insurance Company (“Hartford”) sued Gateway, claiming that Gateway’s negligence had damaged the construction project. AAIC and Hartford agreed to settle all claims against Gateway covered by the AAIC policy. One month later, Admiral and Hartford agreed to settle the rest of Hartford’s claims against Gateway.

THE APPEAL

The Admiral then sued AAIC, claiming that, as part of its settlement agreement with Hartford, the Admiral had paid Hartford to settle claims for which AAIC was responsible. The Admiral appealed the decision of the Federal District Court to grant AAIC’s summary judgment on six claims:

violation of the implied obligation to reconcile;
breach of the contractual obligation to make amends;
violation of the implied obligation to make amends;
reasonable compensation;
fair subrogation; and
unfair enrichment.
ANALYSIS

Even if an insurer has a “duty to regulate when liability for the insured bec[o]me[s] quite clear ” [Blue Ridge Ins. Co. v. Jacobsen, 25 Cal.4th 489, 504 (2001) (quoting State Farm Fire &Cas. Co. v. Coop. of Am. Physicians, Inc., 163 Cal.App.3d 199, 204 (1984)]”an insurer has no obligation to pay money to settle an uncovered claim,” [Marie Y. v. Gen. Star Indem. Co., 110 Cal.App.4th 928, 958 (2003).]

By regulating all claims covered by the AAIC policy, AAIC fulfilled the obligation to regulate.

Even if an insurer has an obligation to compensate the insured for the amounts that the insured becomes legally obliged to pay as damages for a covered indemnity, this obligation arises only after liability has been established. Since all claims against Gateway were settled before liability was established, the obligation to indemnify never arose.

The ninth circle therefore concluded that the admiral could not recover according to the doctrines of fair indemnity or fair subrogation. A reasonable compensation only applies when two insurers were obliged to compensate or defend the same damage or claim. Because the AAIC policy and the admiral policy did not overlap, the AAIC and the admiral were not “obliged to make amends… The same… Requirements.[s]”And as a result, the admiral’s claim for equitable compensation failed.

In turn, a reasonable subrogation only applies when one party pays a debt for which another is primarily responsible. By settling all claims covered by the AAIC policy, AAIC cleared all liabilities owed to Hartford. With that debt erased, the Admiral’s settlement with Hartford could not have paid a debt for which AIC was primarily responsible. The Ninth Circuit also concluded that the admiral’s claim to reasonable subrogation had failed.

For similar reasons, the Admiral’s claim for unjustified gain failed because, under California law, the basis for a claim of unjustified gain is the receipt of a benefit and the unfair retention of the benefit at the expense of another.

As AAIC regulated all claims covered by the AAIC policy, AAIC received no benefit from the Admiral’s settlement with Hartford. Consequently, the admiral’s claim to unjust enrichment failed.

ZALMA Opinion

Equitable Subrogation, Equitable Indemnation and unfair claims on profit require two insurers who insure the same risks of loss. Since the two insurers insured different risks of damage, neither of them is entitled to anything from the other.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, is available at http://www.zalma.com and zalma@zalma.com.

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