A California appellate court affirmed a verdict that a landlord's insurer owed 50 percent contribution to a tenant's insurer for defense and settlement of an underlying suit. The case is Truck Ins. Exchange v. AMCO Ins. Co., 56 Cal. App. 5th 619 (Cal. Ct. App. 2020).
An auto accident in an intersection sent a vehicle crashing through the front doors of a restaurant, injuring two restaurant patrons. The patrons filed a suit for negligence and premises liability against the restaurant, the restaurant owner, and the couple who owned the property. The complaint alleged the landlords had not taken preventative measures, such as reinforcing the door or installing safety bollards, after a car crashed through the front doors seven years before the incident in the present case. Both the restaurant owner and the landlords sought summary judgment. The court ruled in favor of the restaurant owner because he did not know of the prior incident and could not make changes to the premises without permission from the landlords. The landlords' motion was denied based on their knowledge of the earlier accident and failure to implement protective measures. The landlords settled the matter with the injured patrons for $750,000.
The restaurant owner had a policy with AMCO Insurance Company (AMCO), and the landlords were insured by Truck Insurance Exchange (Truck). Each insurer provided a defense to their respective insureds. Truck later tendered its coverage for the landlords to AMCO, referencing a provision in the restaurant owner's lease that stated the restaurant owner had agreed to indemnify and defend claims levied against the landlords that were related to the restaurant owner's activities. AMCO refused the defense because the incident allegedly had not arisen from the landlords' use or occupancy of the building.
Truck sued AMCO for equitable contribution. According to Truck, the restaurant owner's lease required him to defend and indemnify the landlords as "additional insureds" against claims arising from the restaurant owner's use of the premises. AMCO argued they had no duty to defend the landlords because the underlying claim had arisen from the vehicle accident and the landlords' knowledge of an earlier, similar event, not the restaurant owner's use of the premises. The lower court ultimately ruled in favor of Truck, finding AMCO was obligated to pay 50 percent of Truck's expenses because the underlying claim had arisen from the restaurant owner's use of the restaurant as a restaurant that was leased to him by the landlords.
On appeal, AMCO argued that there was no connection between the underlying case and the restaurant owner's use of the premises, which meant the landlords were not owed coverage as additional insureds, and therefore AMCO was not obliged to pay Truck any equitable contribution. AMCO argued the landlords' liability could not have come from the restaurant owner's use of the premises because the restaurant owner was not found liable for the injuries suffered by the patrons.
The judges examined the additional insured endorsement and found that application of the endorsement was not determined based on a finding or lack of liability. The language of AMCO's additional insured endorsement was not written to preclude coverage in the absence of the restaurant owner's liability. They also pointed out that "additional insureds" under AMCO policy included the landlords so long as the suit arose from the landlords' liability based on the restaurant owner's use of the premises as a restaurant. The landlords' liability in this case was presumed due to the landlords' settlement of the underlying case with the injured patrons.
In determining the connection between the injuries suffered and the restaurant owner's use of the premises, both the trial and the appellate courts looked to Acceptance Ins. Co. v. Syufy Enterprises, 69 Cal. App. 4th 321 (Catl. Ct. App. 1999). In that case, an insurer, Acceptance, defended the owner of a theater after a contractor's employee was injured on the job. Acceptance later sued both the theater owner and its insured for equitable contribution, asserting that the theater was not an additional insured because the injuries at issue did not arise from the contractor's work. The trial court ruled in favor of Syufy, which was affirmed by the appellate court, stating that "the relationship between the defective hatch and the job was more than incidental."
The appellate judges agreed with the reasoning in Syufy. California case law only required "a minimal causal connection…to trigger coverage under an 'arising out of' clause." In the underlying suit, the injured patrons claimed the restaurant premises was unsafe because the landlords knew of the earlier incident where a car had crashed through the building's front doors and had taken no further steps to protect restaurant patrons from another, similar incident. This knowledge-based connection provided sufficient support to find coverage for the landlords under the additional insured endorsement.
The verdict in favor of Truck was affirmed.
Editor's Note: What it means for a claim to "arise out of" an incident is an important question in insurance. Insurers will not pay a claim that did not arise from events not covered by a policy. In this case, the additional insured endorsement would cover the landlords as additional insureds only if the incident giving rise to the underlying claim "arose from" the tenant's use of the premises. Since the landlords settled the case with the injured patrons, there was no question of their liability. However, AMCO argued the claim arose from the first auto accident at the premises and how the landlords had not taken extra safety measures, rather than actual use of the premises. Truck argued, and the court agreed, that the premises was being used as a restaurant, and the injured patrons had suffered injury while dining at the restaurant.
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