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(A version of this article appears in the California
Construction Law Reporter, published by the West Group.)
By James E. Acret
The
general contractor employed subcontractors to build a residential
development and required subcontractors to name the general
contractor as an additional insured "provided specifically
that such policies are primary and non-contributing…."
Subcontractors obtained liability insurance coverage from
Nationwide and purchased additional insured endorsements
which stated that general contractor was an insured "but
this insurance… applies only to the extent that [general
contractor] is held liable for your acts or omissions arising
out of and in the course of operations performed for [general
contractor]…." The endorsement also provided,
in typewritten capitalized letters:
Coverage
provided to the additional insured under this endorsement
is primary, but only with respect to acts or omissions
of the named insured. Any other insurance maintained by
the additional insured is deemed to be excess.
The
homeowners' association sued the general contractor for
construction defects, and the general contractor tendered
the defense to its own insurer and to Nationwide, which
had issued the additional insured endorsements. Nationwide
refused to defend. The general contractor's insurers defended
and sought subrogation or equitable contribution from Nationwide.
The defense costs at issue totaled approximately $2.5 million.
The trial court held that Nationwide had the obligation
to reimburse the entire cost of defense on the ground that
the policies issued to the general contractor by its insurers
were excess. REVERSED. Maryland Casualty Co. v. Nationwide
Mutual Insurance Co., ___ Cal.App.4th ___, ___ Cal.Rptr.2d
___, 2000 Daily Journal D.A.R. 6917 (2000).
The
trial court's interpretation is not reasonable. Interpretation
of an insurance contract is to give effect to the mutual
intent of the parties. It is not consistent with the objectively
reasonable expectations of the insured that its own insurance
would become excess even as to claims arising out of its
own negligence and the negligence of other subcontractors
and that the entire burden of defending against all such
claims would be cast upon Nationwide. Such an interpretation
would alter the purpose and nature of the additional insured
endorsement.
The
doctrines of subrogation and equitable contribution are
entirely different. Equitable subrogation allows an insurer
who paid defense costs to be placed in the insured's position
to pursue full recovery from another insurer that is primarily
responsible for the loss. Equitable contribution applies
to apportion costs among insurers that share the same level
of liability on the risk as to the same insured. Here, all
carriers were primary so it is the doctrine of equitable
contribution, not equitable subrogation, that applies.
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