Axis Surplus Ins. Co. v. Glencoe Ins. LTD

Case Facts:      Axis Surplus Insurance Company and Glencoe Insurance Ltd. provided general liability insurance (Glencoe’s policy was a Wrap policy) to Pacifica Pointe L.P. Pacifica was sued in a construction defect suit and tendered claims to both Axis and Glencoe, both of which had SIRs on their respective polcies. Axis agreed to defend Pacifica subject to a reservation of rights. Glencoe declined the tender, asserting the $250k policy SIR provision in their reservation of rights letter and asking for evidence of satisfaction of this amount.  The case eventually settled with Axis paying $750k and Pacifica paying $250,000, which Glencoe was informed of.  Glencoe was advised in advance of the $1 mil. demand and responded a day prior to the demand lapsing that they lacked enough information to warrant contributing to the settlement and also indicated they didn’t feel the sum was for “covered” damages.  Axis then sued Glencoe for declaratory relief and contribution and was awarded a 60/40 split of the money it had paid against Glencoe

Appellate Issues:  Did the facts presented support Axis’s claim for equitable contribution against Glencoe despite the Glencoe policy SIR provision.      The two sub-issues presented by Glencoe in their argument were (1) did Axis have to prove the insured’s $250k payment toward the settlement was for “covered” damages and (2) was it an abuse of discretion to apportion the loss 60/40 rather than 50/50?  The Court said no to both.

Discussion:      Equitable contribution between carriers is based in equity and not contract. 

By standing on the sidelines and doing nothing until after their insured paid the $250k SIR, Glencoe waived its right to litigate whether the settlement payment was for “covered” damages.  That payment becomes “presumptive evidence” of the insured’s liability ad Glencoe was in no position to overcome that.  Axis was therefore not required to prove the SIR payment was for any “covered” losses.

Glencoe was correct to argue their duty to defend was triggered only after the SIR was paid.  However, as to Axis’s suit for indemnity contribution, Glencoe knew of this suit from day one and had been monitoring its progression all along.  For Glencoe to be able to stand by and use the SIR as a defense to the contribution would promote injustice against a co-carrier.  To resolve this, the Court created a limited exception to the normal rules where they held Glencoe responsible for their apportioned share of the indemnity.

As for the argument that Axis had to prove the settlement payments were for “covered” losses, the Court decline to accept that position.  Rather, the trigger was determined to be the potential for coverage and not a final determination of coverage.

Glencoe’s main support for its position it was only required to pay 50% of the Axis indemnity contribution was based on the policy provision about “other insurance”.  Those kinds of provisions typically say a carrier will share with other carriers equally.  The Court declined to adopt Glencoe’s argument that everything related to the case had to be slit between Axis and Glencoe equally.  Rather, it held that many factors can be taken into account, such as time on risk, nature of underlying claim, the carrier’s relationship with their insured, the actual policy language and other relevant factors as equity dictates.  Without too much discussion, the Court held the Trial Court didn’t do anything outside the bounds of reason in its allocation process and upheld it.