Lay a Foundation for Equitable Contribution
May 2010
If several parties are liable for a claim,
and if the insurer for one culpable party steps forward and pays the entire
loss, shouldn't the insurers of the other parties be made to pay their fair
share? Maybe not.
by
Rich Scislowski
IRMI
Whether or not the paying insurer in that situation is entitled to equitable
contribution depends on whether or not the paying insurer has laid a proper
evidence foundation so that a court is able to make the other insurers contribute
to the loss.
Great Northern Ins. Co. v. Greenwich Ins. Co.,
No. 08–4521, 2010 U.S. App. LEXIS 6034 (3d Cir. March 24, 2010), provides an
example of what can go wrong if the "white hat" insurer who settles a joint
obligation does not adequately prepare its contribution claim against nonpaying
insurers. In that case, the Parent corporation owned a well site, and a Subsidiary
corporation operated it. The Subsidiary entered into an agreement with a Drilling
Contractor. Chubb issued a commercial general liability (CGL) and umbrella to
the Parent and named the Subsidiary as an additional insured (AI). Greenwich
issued a CGL to the Contractor and also named the Subsidiary as an AI. The drilling
contract required the Subsidiary to indemnify the Contractor.
During the work, an explosion occurred, causing much third-party property
damage. Chubb stepped forward and paid $1.6 million under its CGL and umbrella
policy.
Chubb then brought this action against the Greenwich as the CGL insurer for
the Contractor, seeking equitable contribution. To succeed under Pennsylvania
law, Chubb had to prove that (1) it was one of several parties liable for a
common debt, and (2) it discharged the common debt for the benefit of other
parties.
Chubb fulfilled the first part of the test. Both Chubb and Greenwich owed
AI coverage to the Subsidiary—a common debt for which both insurers were potentially
liable. However, to fulfill the second part of the test, Chubb had to prove
that at least some of the $1.6 million was paid was on behalf of the Subsidiary,
the common AI, such that its payments discharged the common debt owed by Greenwich.
Chubb's evidence on that second point was completely lacking.
- Apparently, the settlements themselves did not allocate either fault
or portions of the payments to the Parent or the Subsidiary.
- Pre-suit correspondence indicated that Chubb's claim payments were made
on behalf of the Parent.
- Chubb's claim adjuster testified inconsistently about the settlements.
-
During his deposition, he testified that the claim payments
were made on behalf of the Parent (which would not have gone to satisfy
the joint obligation of Chubb and Greenwich to the Subsidiary as their common
AI).
-
During trial, he testified that the payments were really
made on behalf of the Subsidiary.
- Chubb submitted no evidence in the contribution action on which the
court could have allocated fault between the Parent and the Subsidiary.
The court really had no idea whether all, some, or none or the claim payments
were made on behalf of the Subsidiary—information necessary to fashion an equitable
remedy. Therefore, the court held that Chubb failed to prove that it was entitled
to equitable contribution. Chubb complained that this ruling would force claim
adjusters to apportion liability among their insureds and thereby usurp a court's
fact-finding role. The court rejected that argument, reasoning as follows:
A claims adjuster's determination of respective liability, while certainly
helpful, would not have been the only evidence that might have aided the district
court in its equitable apportionment. Evidence of comparative negligence on
the part of the insureds, acknowledgment of shared liability or payment on behalf
of a mutual insured, or even a concerted effort by the litigants to reduce general
allegations to specific numbers might guide the court's analysis. At bottom,
a claim for equitable contribution calls upon the power of the court to design
a remedy that is fair. Fairness cannot be fashioned from speculation.
So what could Chubb have done differently to better prepare for its claim
for equitable contribution?
- The adjuster could have stated in claim correspondence that Chubb was
acting on behalf of ALL INSUREDS, instead of just the first named insured
(the Parent).
- He could have sent a letter to Greenwich before each settlement advising
Greenwich that the insurers owed a joint obligation to the Subsidiary as
their common AI, that Chubb was intending on paying claims on behalf of
the Subsidiary, that such payments would discharge the joint obligation
of Greenwich, and that Chubb was reserving its rights to pursue equitable
contribution if Greenwich refused to participate.
- While the settlements need not have publicly admitted fault, the adjuster
could have worded the settlements to specifically allocate some (or all)
of the payments to satisfy the claims against the Subsidiary.
- The adjuster could have been better prepared for his deposition. Apparently,
the adjuster went in without knowing that the critical issue in the case
was whether any of the claim payments were made on behalf of the Subsidiary.
- In the contribution action, Chubb could have submitted the information
in its claim file as to the Subsidiary's potential fault to show that its
determination to allocate some (or all) of the claim payments to the Subsidiary
was reasonable.
Just because one insurer steps forward and does the right thing by settling
claims on behalf of other insurers does not automatically entitle the paying
insurer to equitable contribution. Remember: a proper foundation for contribution
must still be laid.
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