Axis Surplus Insurance v. Reinoso
145 Cal. Rptr. 3d 128
Cal. Ct. App.2012Background
- Linda and Edgar Reinoso co-owned and managed ~15 rental properties in Palmdale; Proud American Investments managed them.
- In 2003-2005, city code and probation issues arose at J-3 Apartments, a 48-unit complex.
- Tenant Action (Jan. 2005) alleged habitability deficiencies and related claims against the Reinosos, Proud American, and Kaufman.
- Axis Surplus Insurance provided liability coverage and defended under a reservation of rights; settlement totaled just over $3 million, Axis contributing $2,162,500.
- Axis sought reimbursement of defense costs and settlement payments; trial court awarded ~$2.143 million for settlement costs, with questions about allocation.
- Appellant Linda contested she was an innocent insured and argued settlement costs should be allocated among insureds based on actual amounts attributable to each.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Linda was a covered, innocent insured for the Tenant Action. | Axis argued Linda was not innocent given knowledge of conditions. | Linda contends she was an innocent insured and not liable for non-covered costs. | No; substantial evidence shows Linda knew of conditions and management methods, thus not an innocent insured. |
| Whether the settlement costs should be allocated among Axis’s insureds rather than joint and several. | Axis sought allocation among Linda, Edgar, and Proud American based on actual benefits. | Linda argued proper allocation required per-insured amounts. | The court impliedly allocated Linda joint and several liability for the full settlement amount due to benefit from settlement. |
Key Cases Cited
- Buss v. Superior Court, 16 Cal.4th 35 (Cal. 1997) (allocation of defense costs in mixed actions; burden on insurer to prove solely noncovered costs)
- LA Sound USA, Inc. v. St. Paul Fire & Marine Ins. Co., 156 Cal.App.4th 1259 (Cal. App. 2007) (allocation of defense/indemnity among insureds in rescission context; equitable restitution principles)
- Montrose Chemical Corp. v. Superior Court, 6 Cal.4th 287 (Cal. 1993) (test for whether damage is expected or intended; subjective standard)
- Hasson v. Mercy American River Hospital, 31 Cal.4th 709 (Cal. 2003) (injury expected or intended based on insured’s subjective state of mind)
- Waller v. Truck Ins. Exchange, Inc., 11 Cal.4th 1 (Cal. 1995) (establishes subjective standard for determining policy coverage against intended injuries)
- Delgado v. Interinsurance Exchange of Automobile Club of Southern California, 47 Cal.4th 302 (Cal. 2009) (exclusion for willful acts; impact on coverage determinations)
- State Farm Fire & Casualty Co. v. Superior Court, 164 Cal.App.4th 317 (Cal. App. 2008) (policy coverage limits and implications for allocation)