Interinsured Suit Exclusion and Additional Insured Coverage
May 6, 2013
The landlord's property insurer brought an action against the tenant's liability insurer to recover for the amount of a settlement for fire damage caused by the tenant. This case is Gemini Insurance Company v. Delos Insurance Company, 211 Cal. App.4th 719 (2012).
Delos insured a restaurant called Bobby's Focsle. The restaurant was a tenant in a building owned by Loch Lomond Marina. A fire at the restaurant caused damage to Loch Lomond's property. Loch Lomond was insured by Gemini Insurance for property damage.
Loch Lomond made a claim under its policy with Gemini and was paid $288,259. The insurer then filed a subrogation action against Bobby's, alleging that Bobby's negligence caused the fire. Delos defended Bobby's in that action. The case settled. Bobby's and Gemini entered into a stipulated judgment for the total paid to Loch Lomond. Gemini filed a lawsuit against Delos under the state insurance code that authorized an insured's judgment creditor to being an action against the insurer. The trial court ruled in favor of Gemini and Delos appealed.
The court of appeals said that this is the issue: Bobby's insurance did not provide coverage for any claim or suit brought by another insured. The Delos position was that Loch Lomond was an insured on Bobby's policy; Gemini claimed this was not the fact.
The court noted that the interinsured claims and suits exclusion in Bobby's policy provides that the liability coverage afforded by the policy does not apply to any claim or lawsuit by any insured against another insured. Delos cited that exclusion and claimed that the additional insured endorsement to the policy lists Loch Lomond as an additional insured and so, there is no coverage in this instance. The court said that this is true except for the relevance of another policy provision that compels a result to the contrary.
An endorsement titled “additional insured—managers or lessors of premises” reads: who is an insured is amended to include as an insured the person or organization shown in the schedule but only with respect to liability that arises out of the ownership, maintenance, or use of that part of the premises leased to (Bobby's), and occurs on that part of the premises leased to (Bobby's), and results from and by reason of an act or omission in the course of (Bobby's) operations at that part of the premises.
As read by Gemini, this provision means that Loch Lomond is an additional insured only when and if it faces liability arising from Bobby's acts undertaken in the course of Bobby's operations on the leased premises. The appeals court agreed with Gemini's interpretation. The court ruled that the additional insured provision is designed to protect parties that are not named insureds from exposure to vicarious liability for acts of the named insured. Loch Lomond insisted as a condition of the lease that it be listed as an additional insured on Bobby's policy. The court said that Loch Lomond would have done this in order to protect itself in the event that it was sued for Bobby's negligence. It surely would not have done so in order to limit its ability to recover in the event that it was injured by Bobby's negligence.
The judgment of the trial court was affirmed.
Editor's Note: The Court of Appeal, Second District, holds that the interinsured suit exclusion would normally apply in order to prevent an additional insured from suing the named insured. However, the court found that the landlord was not an additional insured in this instance since that status was based on vicarious liability, that is, liability arising from the acts of the named insured. The wording of the additional insured endorsement took precedence over the interinsured suit exclusion.