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A U.S. District court ruled in favor of an insurer seeking contribution from another insurer for the defense of a mutual insured. The case is Am. States Ins. Co. v. Ins. Co. of the Pa., 2017 U.S. Dist. LEXIS 46171 (E.D. Cal. 2017).
Sierra-Pacific Industries conducted timber harvesting on a piece of land in California. The company entered a logging agreement with Howell's Forest Harvesting (Howell), which required Howell to obtain a CGL policy that named Sierra-Pacific as an additional insured. Howell purchased the required coverage from American States Insurance (American States), but the policy only extended to Sierra-Pacific if Howell was found liable for operations conducted on behalf of Sierra-Pacific.
Sierra-Pacific also opted to purchase a policy from the Insurance Company of the State of Pennsylvania that provided both primary and excess coverage. The policy would provide excess coverage when an underlying policy covering Sierra-Pacific, such as Howell's policy from American States, reached its limits due to the payment of claims. The Pennsylvania policy would apply as primary coverage when Sierra-Pacific was found liable for property damage that was not covered by an underlying policy.
One day, Howell employees were working on Sierra-Pacific's land when a fire broke out, allegedly due to the use of heavy machinery, that spread and consumed more than 65,000 acres of land. Sierra-Pacific was sued for its vicarious liability for Howell and for its independent liability in not halting operations in the presence of certain weather conditions. American States tendered a defense for Sierra-Pacific as an additional insured under Howell's policy, but Pennsylvania mounted no such defense.
The claims against Sierra-Pacific were eventually settled. After the settlement exhausted American States's liability limits for Sierra-Pacific, Pennsylvania paid the limits for the excess coverage part of its policy with Sierra-Pacific. American States sought reimbursement for the defense from Pennsylvania based on the insurer's duty to defend Sierra-Pacific under the primary coverage part of its policy. Both parties filed for summary judgment. The question before the court was whether Pennsylvania was obligated to reimburse American States for its defense of Sierra-Pacific based on Pennsylvania's duty to defend.
The judges pointed out that Pennsylvania's policy offered both primary and excess insurance. Under the umbrella portion of its policy, Pennsylvania was obligated to indemnify Sierra-Pacific for property damage claims that weren't otherwise covered by an underlying policy. The underlying lawsuits had also claimed that Sierra-Pacific was independently liable for the fire because Sierra-Pacific was required to halt operations when certain weather conditions applied and had not done so. Since the allegation was made against Sierra-Pacific independently of its vicarious liability for Howell, that claim could have been covered by the Pennsylvania policy.
The court granted summary judgment in favor of American States.
FC&S editor's note: The Pennsylvania policy specifically stated it would provide coverage to Sierra-Pacific for claims that were not otherwise covered by the underlying American States policy. The allegations against Sierra-Pacific for working in certain weather conditions when they shouldn't have, however, were not related to Howell. They were only levied against Sierra-Pacific, so the American States policy did not apply. In the absence of underlying coverage, the Pennsylvania policy would provide primary coverage, and therefore Pennsylvania was obligated to contribute to the defense of Sierra-Pacific.
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