Insurer Duties in Dispute
A general liability insurer filed a reimbursement claim against another general liability insurer for its indemnity and defense costs. These costs arose from settlement of claims in an underlying lawsuit against the insured subcontractor for alleged defective construction in installing exterior doors at a home. This case is Pennsylvania Lumbermens Mutual Insurance Company v. Indiana Lumbermens Mutual Insurance Company, 43 So.3d 182 (2010).
Indiana Lumbermens (ILM) insured Causeway from April 30, 2000 to April 30, 2001 and Pennsylvania Lumbermens (PLM) insured Causeway from June 1, 2001 to June 1, 2005. The Paxsons purchased a home from Ecclestone Signature homes and Ecclestone had contracted with Causeway to install exterior doors to the home. The Paxsons sued Ecclestone seeking recovery for damages incurred from water intrusion and Ecclestone filed a third party complaint against Causeway. The complaint alleged that the damages suffered by the homeowners occurred sometime after February 17, 2000.
Causeway submitted the claim to ILM and PLM for defense. PLM did not provide a defense and did not participate in the settlement of the case. ILM did provide a defense under a reservation of rights. ILM agreed to pay $40,000 to settle the claim and then filed a lawsuit against PLM seeking a declaration that there had been coverage for the claim against Causeway under PLM's policy and that ILM was entitled to reimbursement from PLM for its indemnity and defense costs.
The Fifteenth Judicial Circuit Court, Palm Beach County, granted summary judgment to ILM and PLM appealed.
PLM argued that the trial court erred in awarding ILM defense costs because ILM had a duty to defend, and that ILM was not entitled to summary judgment on the duty to indemnify because disputed issues of fact existed. ILM admitted that it had a duty to defend the insured based on the third party allegations of covered losses that could have occurred during the ILM policy period. However, ILM contended that it was entitled to recover its defense costs because evidence ultimately showed that its policy did not provide coverage for the water damage claims.
The appeals court said that ILM was not entitled to reimbursement of attorney fees and costs expended in defense. It was clear that ILM had a duty to defend and in fact, ILM admitted as much. ILM had an independent contractual duty to defend Causeway (even though it was eventually determined that the claim was not covered by the ILM policy). Moreover, there is no right of reimbursement of defense costs between primary insurers of a common insured. Traditional principles of subrogation will not support a reimbursement of defense costs in favor of someone who has the independent contractual duty to pay all such expenses.
As for the indemnity costs, the appeals court ruled that the trial court did not err in awarding indemnity costs to ILM. The court said that the duty to indemnify is determined by the facts adduced at trial or during discovery. The uncontroverted testimony from the homeowner, an environmental scientist, and the insurance adjuster established that the actual physical damage occurred sometime in late 2004 or early 2005, the period during which PLM provided coverage for Causeway. So, since coverage is triggered by the resulting damage to the property caused by the water and this occurred during the PLM policy period, PLM had to indemnify ILM for its payment of $40,000 in the settlement of the claim.
Editor's Note: The Appeals Court in this decision noted the distinction between an insurer's duty to defend and the duty to indemnify, and then determined the resulting duty of one insurer to another.
The duty to defend is determined solely by the allegations in the complaint, and it arises when the complaint alleges facts that create potential coverage under the policy (regardless of the truth of those allegations). Both insurers had a duty to defend based on the complaint against the insured, but only one insurer did so (albeit with a reservation of rights). However, the court found no right of reimbursement to defense costs between primary insurers of a common insured, especially here, since the one insurer that did pay for the defense of the insured had an independent contractual duty to do so.
The duty to indemnify is determined by the facts of the alleged loss as revealed at trial or during discovery. Only one insurer was clearly shown to have a duty to indemnify since the actual property damage occurred during its policy period. Since the other insurer did pay for the loss and the claim was not covered by its policy, that insurer was entitled to reimbursement from the insurer whose policy did apply to the loss.