• American Safety Indem. Co. v. Admiral Ins. Co. (Sept. 27, 2013) - - Cal.App.4th - - , 2013 W.L. 5397890
  • November 11, 2013
  • Law Firm: McCormick Barstow Sheppard Wayte Carruth LLP - Fresno Office

    Developer Holding hired Ebensteiner to grade land. Ebensteiner agreed to indemnify Holding against liability for loss caused by Ebensteiner, even if Holding's conduct also contributed to the loss. The grading allegedly caused two landslides resulting in damage to several homes. The homeowners sued Holding and Ebensteiner. Holding was insured by Admiral. Ebensteiner was insured by ASIC, and Holding was an additional insured under the ASIC policy. ASIC filed a declaratory relief action against Admiral, seeking reimbursement of a pro rata share of the amount ASIC spent to defend two entities related to Holding ("the Horton entities") which had no contractual relationship with Ebensteiner and were not included as additional insureds under the ASIC policy. ASIC defended the Horton entities through the same counsel that ASIC retained to defend Holding; the law firm did not segregate its billings. Although the Horton entities were named insureds under the Admiral policy, Admiral argued that the $250,000 SIR in its policy applied not only to indemnity costs but also to defense costs, and thus Admiral had no duty to defend the Horton entities. The trial court found the SIR did not apply to defense costs and that Admiral had a duty to defend, and awarded ASIC $1.9 million of the $2.2 million it spent to defend Holding and the Horton entities jointly.

    The appellate court affirmed and began its opinion by stating, "In this case, we once again apply the well-established principle that any limitation on the coverage provided by a liability insurance policy must be express and consistent with the reasonable expectations of the insured." Admiral's SIR endorsement stated: "1. Our total liability for all damages will not exceed the limits of liability as stated in the Declarations and will apply in excess of the insured's self-insured retention (the 'Retained Limit'). 'Retained Limit' is the amount shown below, which you are obligated to pay, and only includes damages otherwise payable under this policy." (Emphasis in original.) The court noted that the Admiral policy was written on a "Commercial General Liability" form, which states it provides primary coverage to its insureds. The court also noted that the policy made Admiral's coverage excess only when other coverage is available to its insureds by way of other insurance acquired by the insureds or when the insureds are named as additional insureds on another party's policy. The court held the SIR did "not expressly make payment of the SIR a condition of the insurer's broader obligation to provide a defense when an arguably covered claim is tendered." Rather, the SIR clause "expressly applied only as a limitation on the insurer's duty to indemnify the insured for covered damages for which the insured [was] found liable." The court held that under this policy language as a whole, an insured could quite reasonably interpret it as providing a defense to arguably covered claims as soon as such claims are tendered and before any SIR has been paid.

    The court recognized that "other liability insurance policies contain SIR clauses that expressly and unambiguously make payment of a SIR obligation a condition of any obligation under the policy, including any duty to defend," and cited Nabisco, Inc. v. Transport Indemnity Co. (1983) 143 Cal.App.3d 831, 835 [policy language provided that insurance was excess to SIR]; General Star Indemnity Co. v. Superior Court (1996) 47 Cal.App.4th 1586, 1592 [same]; City of Oxnard v. Twin City Fire Ins. Co. (1995) 37 Cal.App.4th 1072, 1077-1078 [same]), acknowledging that "those SIR provisions have been enforced according to their terms." However, Admiral policy did not "contain such an express condition on the defendant insurer's duty to defend," and the court likened Admiral's SIR provision to those addressed in Legacy Vulcan Corp. v. Superior Court (2010) 185 Cal.App.4th 677, 695-696 [for SIR to apply to defense costs, language must be "conspicuous, plain and clear"] and Montgomery Ward & Co. v. Imperial Cas. & Indem. Co. (2000) 81 Cal.App.4th 356, 367-368 [same].

    The court noted that "the cases that have required satisfaction of a retained limit as a condition of an insurer's duty to defend were, in fact, not primary policies but in excess policies or involved express policy language that made both the duty to indemnify and the duty to defend subject to an SIR" (citing Montgomery Ward, supra).The court also concluded, "The significant point is that these cases, like all other insurance cases, look first to the terms of the policy." Thus, any purported general rule regarding application of a SIR must give way to careful analysis of the policy language.


    This opinion is not final. It may be withdrawn from publication, modified upon rehearing, or review may be granted by the California Supreme Court. These events would render the opinion unavailable for use as legal authority.