Another Texas Decision Barring
Allocation Among Insurers
United States District Court, Southern District of Texas
Trinity Universal Ins. Co. v. Employers Mutual Casualty Co.
, 2008 U.S. Dist. LEXIS 39581
(S.D. TX May 15, 2008)
The Southern District of Texas last week followed the recent Texas Supreme Court’s holding in
Mid
Continent Ins. Co. v. Liberty Mutual Ins. Co
., 236 S.W.3d 765 Tx. 2007 reported in our last newsletter
finding that an insurer’s claim for contribution and subrogation for defense costs against another
insurer was without legal merit. Texas now has two decisions that place insurers on warning that
their perception of “other insurance” rights against co insurers of a common insured are not what
they think they are.
In Trinity, the insured masonry contractor was named as a defendant in an EIFS construction defect
claim concerning the construction of a hospital. The masonry contractor made a demand for a de
fense and indemnity under four policies he claimed covered the claims brought against him. Three
of his four insurers agreed to defend him pursuant to a reservation of rights. The fourth, EMC, re
fused to defend contending that the allegations of the complaint came within a specific policy exclu
sion. The Court, applying the summary judgment standard on the duty to defend, found EMC did
not carry its burden on the exclusion. All four policies had identical pro rata “other insurance”
clauses. While the liability case was pending, the three defending insurers filed for declaratory relief
against the fourth carrier, asserting contribution and subrogation, based on EMC’s failure to pay its
pro rata share of the defense costs. The Court citing Mid Continent stated the insurers paying the
defense costs under reservation of rights had no right to contribution via their “other insurance”
terms finding that a “co insurer that pays more than its pro rata share under the ‘other insurance’
clause does so voluntarily”.
Additionally, the Court reiterated that each of the insurance policies, as a result of the “other insur
ance” language were independent contracts with the insured only and the “independence of the con
tracts extended not only to the duty to indemnify but also to the duty to defend”. As regards the
insurers’ claim for subrogation, the Court denied subrogation finding, in accord with
Mid Continen
,
that as the insured was fully defended, had been made whole, and his insurers “stand in no better
position” for recovery. The Court refused to rule on the duty to indemnify until the issue had been
made ripe by judgment or settlement.
Our Comment: Even under
Mid Continen
, this case appears wrongly decided, at a minimum as re
gards the going forward defense cost and future indemnity obligations, which are not already “volun
tarily” paid by the participating insurers. Their declaratory action should entitle them to a judicial
ruling of allocation per the “other insurance” clause of all future defense and indemnity obligations
CASE UPDATE
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