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Attempt to Avoid Reimbursement of Excess Insurer Fails
No Good Deed Goes Unpunished
In Western World Insurance Company v. Federal Insurance Company, Defendant, 2d Civ. No. B311994, California Court of Appeals, Second District, Sixth Division (September 8, 2022) two insurers disputed about the priority of coverage arising from a single incident.
FACTS
In May 2014, Elliot Roger murdered his two roommates and their friend at the Capri Apartments (Capri) in Isla Vista, California. The victims’ heirs brought an action for wrongful death (Chen v. Hi-Desert Mobile Home Park (Super. Ct. Santa Barbara County, 2015, No. 15CV04163) (Chen action) against the owner of the apartments, Hi-Desert Mobile Home Park, LP (Hi-Desert) and the manager, Asset Campus Housing, Inc. (ACH). The action alleged that ACH and Hi-Desert had notice of Roger’s violent propensities but assigned him to be the victims’ roommate.
Insurance Coverage
Western World Insurance Company (Western) provided excess general liability coverage for ACH, but not Hi-Desert.
The insurers did the right thing by their insureds. They each contributed funds for a settlement of the underlying action, leaving the question of priority of coverage to separate litigation among the insurers.
Primary Liability
Prior to the settlement of the Chen action, ACH had an assignable cause of action against Federal because Federal refused to acknowledge its duty to indemnify that ACH was primary to Western’s coverage. It would be absurd to allow Federal to use Western’s money to settle Federal’s debt to ACH, and hold the settlement deprived Western of the right to recover the money from Federal.
Equitable Position
Western’s coverage is in excess to Federal’s coverage; the settlement of the Chen action did not exhaust the limits of Federal’s coverage; therefore, Western is entitled to the return of its money.
ZALMA OPINION
Western World Insurance Company did the right thing when a dispute arose between the various insurers about which insurer was primary, which excess, and which – of two excess insurers – must exhaust before the other must pay. It turned out Western was the last in line and needed reimbursement from the others of the money it paid subject to this later suit to determine who was on first, second and third. Federal tried to avoid doing the right thing only to have the Court of Appeal slap their cobbled together arguments down. Western World acted fairly and in good faith the insured and the other insurers only to have Federal try to not pay what it owed.