News - Tharpe & Howell - Litigation and Transaction Lawyers

CARRIERS SHARE DEFENSE AND INDEMNITY COSTS ABSENT INDEMNITY CONTRACT

The Fifth District Court of Appeal has ruled that carriers must share defense and indemnity costs on a pro-rata basis absent a specific indemnity contract to the contrary.

In the case of Edmondson v. Kwock, (2007) 156 CA4th 197, a personal injury action was filed against the owner and the manager of an apartment complex after a child fell off the roof of a storage shed located adjacent to the apartment complex where the child lived.

The property owner was insured by California Capital Insurance Company. The property manager was an additional insured under the California Capital policy, and was also insured by Farmers under a general business liability policy of insurance.

California Capital settled the claim for $550,000 (less than the available policy limits); with $50,000 of the settlement being apportioned toward the property owner's negligence, and $500,000 of the settlement being apportioned toward the property manager's negligence.

Although California Capital had demanded that Farmers contribute toward the settlement, Farmers refused - claiming that the indemnity provision of the property management agreement between its insured (the property manager) and California Capital's insured (the property owner) rendered the Farmers' insurance coverage excess to California Capital's.

California Capital filed a contribution action against Farmers - and the trial court ordered Farmers to pay half of the settlement amount. In turn, Farmers appealed the trial court's ruling.

The appellate court considered whether the indemnity provision in the property management agreement between the property owner (again - California Capital's insured) and the property manager (Farmers' insured) prevented California Capital from obtaining contribution from Farmers. The appellate court noted that the agreement did not expressly address whether the property owner (California Capital's insured) would fully indemnity the property manager (Farmers' insured) against third-party claims resulting from the property manager's own negligence; and that the trial court had in fact apportioned $500,000 of the $550,000 settlement toward the negligence of Farmers' insured (the property manager).

Based on the above, the appellate court held that the property owner (California Capital's insured) was not required to indemnify the property manager (Farmers' insured) for damages resulting from the manager's active negligence and, accordingly, California Capital was entitled to a contribution from Farmers equaling one-half of the settlement amount.

Related Attorney(s):
Timothy D. Lake

Related Practice Area(s):
Business and Intellectual Property Law