Opinion
In this сase, we are asked to determine the enforceability of an “other insurance” clause in a liability policy issued by the appellant Century Surety Company (Century). That clause provided Century’s coverage for its insured would be “excess” to the coverage of other “valid and collectable insurance.” Century was one of four successive insurers that had provided coverage to a common insured over a five-year period. One of those other insurers was the respondent herein, Lumbermens Mutual Casualty Company (LMC). 1
After the common insured tеndered defense of a suit for damages that had been filed against it, LMC, along with United and Reliance, accepted the tender and agreed to provide, and did provide a defense under a reservation of rights; ultimately, those insurers settled the case. Century, however, rejected the tender and refused to provide a defense, claiming that its coverage was “excess” to that of the other insurers. Century claimed that it had no duty to participate as the underlying claim never threatened to exhaust the primary coverage of the other three insurers. When those insurers made demand upon Century for contribution, it filed this action seeking a declaratory judgment validating its coverage position. The trial court granted the motion for summary judgment filed by LMC and the other two insurers.
Our review of the relevant cases dealing with this issue persuades us that the proper resolution of this dispute is to ignore Century’s excess clause and compel an equitable proration among all four of the insurers. We will therefore affirm the judgment.
Factual and Procedural Background 2
This dispute between insurers arises out of an underlying action in which their common insured, County Line Framing, Inc. (County Linе), was sued. The complaint in that action was filed by Ronald Arterberry and several other homeowners in certain residential developments located in Imperial County that had been constructed by Lewis Homes of California (Lewis Homes), a general contractor. After it was served with the complaint, Lewis Homes filed cross-complaints against several of its subcontractors, one of which was County Line.
County Line was covered during the relevant period by a series of successive commercial general liability policies issued by four different insurers over a five-year period beginning on January 15, 1993, through February 1, 1998. United (policy No. NSA 1330803) provided coverage from January 15, 1993, through January 15, 1994; Reliance (policy No. NSA 1631850) was on the risk from January 15, 1994, through February 1, 1996; and LMC issued a policy (No. 3MF 729413-00) for the period from February 1, 1996, through February 1, 1997. Century issued a policy (policy No. CCP 141899) for the period from February 1, 1997, through February 1, 1998.
Each of the four policies included ISO Form CG 11188 and, thеrefore, contained a number of identical policy provisions. All of the policies, for example, provided that the insurer was obligated to “pay those sums the insured becomes legally obligated to pay as damages because of . . . ‘property damage’ to which this insurance applies” and had the duty to defend any “suit” seeking such damages. Each of the policies also provided that the insurance applied to “property damage” only if the damage was caused by an “occurrence” during the policy period. They еach also contained identical definitions of “occurrence” and “property damage.”
The problem before us, however, arises from the principal difference between Century’s policy and the other three. The policies issued by United, Reliance and LMC all included the same “other insurance” provision from ISO Form CG 1 11 88:
“4. Other Insurance.
“If other valid and collectible insurance is available to the insured for a loss we cover under Coverages A or B of this Coverage Part, our obligations are limited as follows:
“a. Primary Insurance
“This insurance is primary except when b. below applies [subparagraph b doеs not apply in this matter]. If this insurance is primary, our obligations are not affected unless any of the other insurance is primary. Then, we will share with that other insurance by the method described in c. below .... ra... ra
“c. Method of Sharing. If all of the other insurance permits contribution by equal shares, we will follow this method also. Under this approach, each insurer contributes equal amounts until it has paid its applicable limit of insurance or none of the loss remains, whichever comes first. If any of the other insurance does not permit contribution by equal shares, we will contribute by limits. Undеr this method, each insurer’s share is based on the ratio of its applicable limit of insurance to the total applicable limits of insurance of all insurers.”
The Century policy, however, included a “Contractors Amendatory Endorsement” that, inter alia, expressly replaced the “other insurance” provision of ISO Form CG 1 11 88 as follows:
“6. OTHER INSURANCE
“It is agreed that condition 4. Other Insurance of Section IV - Commercial General Liability Conditions is deleted and replaced by the following:
“4. Other Insurance:
“If other valid and collectible insurance is available to any insured for a loss we cover under Coverage A or B of this Coverage Part, then this insurance is excess of such insurance and we will have no duty to defend any claim or ‘suit’ that any other insurer has a duty to defend.”
On January 14, 1998, after receiving tender of the Arterberry action, Reliance and United agreed to provide a defense to County Line, subject to a reservation of rights. As already noted, County Line subsequently tendered defense of the action to LMC in April of 1998 and LMC agreed to defend County Line, also subject to a reservation of rights.
As a result of the acknowledgment of a duty to defend by United, Reliance and LMC, Century advised County Line that the “other insurance” clause in its policy provided that
its
coverage was “excess [to] any other valid and collectible primary insurance” and that, therefore, “[Century]
United, Reliance and LMC went forward and provided a defense to County Line in the Arterberry action until the case settled in May 2000. Century did not participate. United, Reliance and LMC paid defense fees and costs totаling $83,553,52 and contributed $5,000 to County Line’s settlement of the action. Relying on the language of its “other insurance” clause, Century denied that it had any obligation to provide either a defense or indemnity to County Line until coverage under the United, Reliance and LMC policies had been exhausted. Put another way, Century took the position that under the clear terms of its policy, its coverage was excess to the coverage of the other three insurers. The indemnity coverage afforded by the United, Reliance and LMC policies was never exhausted at any relevant timе. Thus, Century argues, its obligation to provide a defense or indemnity never arose.
Anticipating the dispute with the other insurers, Century filed this action for declaratory relief on July 7, 1999. Century sought a determination that it had no duty to defend or indemnify County Line in the underlying Arterberry action. United, Reliance and LMC all filed answers, but LMC also filed a cross-complaint seeking a declaration that Century did have a duty to defend County Line in the underlying action and that it was liable to contribute a proportional reimbursement of the amount expended by LMC in defending that action.
The parties all' stipulated to the facts recited above and then filed cross-motions for summary judgment. The trial court held that Century was a primary insurer and as such had a duty, along with the other three primary insurers, to defend and indemnify the common insured. Therefore, it was required to share a contributive burden for the defense and indemnity of County Line in the underlying Arterberry action. For that reason, the trial court denied Century’s motion and granted the motions filed by United, Reliance and LMC. Judgment was thereafter entered against Century on August 23, 2001, 3 and it has filed a timely appeal. 4
Century contends that the trial court erred in granting summary judgment to the other three insurers. The terms of its policy, Century argues, clearly provide that its coverage will be “excess” to any other valid and collectible insurance and therefore it is not liable to provide coverage where such other insurance was present. It claims that it is entitled to the benefit of the contractual bargain that it made with its insured.
As we explain below, there are sound jurisprudential and public policy reasons, reflected in a growing number of recent appellate decisions, that support the rejection of Century’s position.
Discussion
1. Standard of Review
This case comes to us on stipulated facts. The parties agree that summary judgment
in favor of someone
is appropriate. The issue before us turns upon the proper interpretation and application to be given to the language in a policy of insurance and that is a question of law.
(Waller v. Truck Ins. Exchange, Inc.
(1995)
2. Gеneral Coverage Principles Relating to “Other Insurance ” Clauses
There is a distinction between primary and excess insurance coverage that must be first understood.
“Primary
coverage is insurance coverage whereby,
under the terms of the policy,
liability attaches
immediately
upon the happening of the occurrence that gives rise to liability. [Citation.] Primary insurers generally have the primary duty of defense. [|] ‘Excess’ or
secondary
coverage is coverage whereby,
under the terms of the policy,
liability attaches only after a predetermined amount of primary coverage has been exhausted.”
(Olympic Ins. Co.
v.
Employers Surplus Lines Ins. Co.
(1981)
The “excess” insurance referred to in this definition is that
secondary
insurance which provides coverage after other
identified
insurance is no longer on the risk. The identification of the underlying primary insurance may be as to (1) a particular policy or policies that are specifically described or (2) underlying coverage provided by a particular and specifically described insurer. In short, excess insurance is insurance that is expressly understood by both the insurer and insured to be secondary to specific underlying coverage which will not begin until
after
that underlying coverage is exhausted and which does not broaden that underlying coverage.
(Wells Fargo Bank v. California Ins. Guarantee Assn.
(1995)
The “excess” insurance problem before us arises when one insurer аttempts, through the use of a so-called other insurance clause, to reduce a primary coverage obligation into a more limited excess liability. “Insurance policies commonly include ‘other insurance’ provisions which ‘attempt to limit the insurer’s liability to the extent that other insurance covers the same risk.’ [Citation.] One subcategory is known as ‘pro rata’ provisions, which look to limit the insurer’s liability to ‘the total proportion
“ ‘Escape’ clauses came to be so named because they permit an insurer to make a seemingly ironclad guarantee of coverage, only to withdraw that coverage (and thus escape liability) in the presence of other insuranсe. [Citation.] When ‘excess only’ clauses are found in primary liability policies, they are treated the same way as escape clauses. [Citations.] Because these types of provisions are disfavored, courts have developed a method of overriding them—‘When two or more applicable policies contain such clauses, both liability and the costs of defense should ordinarily be prorated according to the amount of coverage afforded.’ [Citations.] The reason for this rule is that the conflicting provisions are deemed essentially irreconcilable; if given effect competing clauses would strand an insured between insurers disclaiming coverage in a manner reminiscent of Alphonse and Gaston. [Citations.] Courts have found for the pro rata solution when confronted by a variety of conflicts between differing types of ‘other insurance’ provisions. . . . [If] A predicate for prorating policies with conflicting ‘other insurance’ provisions is that the policies operate on the same level of coverage, that is to say, two or more policies apply to the same damage or loss suffered by the same party. [Citations.] Put another way, ‘[a]n “other insurance” dispute can only arise between carriers on the same level, it cannot arise between excess and primary insurers.’ [Citation.]” (Commerce & Industry Ins. Co. v. Chubb Custom Ins. Co., supra, 75 Cal.App.4th at pp. 744-745, italics added.)
3. Century Is Required to Prorate
As the above discussion suggests, problems arise when two or more insurers providing coverage at the same level have “other insurance” clauses in their respective policies. That is the precise problem presented here. There is no question that Century sold, and County Line purchased, a primary policy providing coverage for the 1997-1998 period. Indeed, Century’s policy was the only policy that expressly provided County Line coverage for that period. It is because we have here a continuing-loss liability problem and United, Reliance and LMC, as the insurers for the preceding four years, had a continuing-loss coverage liability, that we have a multiple insurer dispute. Whatever may be said about the merits of Century’s attempt to limit its liability to “excess” coverage, it is clear that it was not, and it cannot claim to be, a true excess or secondary insurer as we have described that term. Century was one of County Line’s primary insurers on the claim embodiеd in the underlying Arterberry action. What Century seeks to do here is enforce its “excess” other insurance clause to avoid the contribution and allocation claims of the other insurers that had discharged their primary coverage duty to County Line. 5
The Supreme Court cited these principles and authorities with approval in
Dart Industries, Inc.
v.
Commercial Union Ins. Co.
(2002)
Unfortunately, there are a number of older appellate decisions that cannot be entirely harmonized with the more modem jurisprudential trend discussed above. Indeed, the older cases appear to go both ways on this issue. A number of those cases are briefly set forth and summarized in
CSE Ins. Group v. Northbrook Property & Casualty Co.
(1994)
As the Supreme Court has made clear, “ ‘The reciprocal rights and duties of several insurers who have covered the same event do not arise out
of contract, for their agreements are not with each other. . . . Their respective obligations flow from equitable principles designed to accomplish ultimate justice in the bearing of a specific burden. As these principles do not stem from agreеment between the insurers their application is not controlled by the language of their contracts with the respective policy holders.’ ”
(Signal Companies, Inc.
v.
Harbor Ins. Co.
(1980)
Applying these principles, and the important public policies on which they are based, we can only conclude that Century is liable to contribute on some equitable basis to the defense and indemnity expenses of United, Reliance and LMC. The Century “other insurance” clause and the pro rata clauses of the other three insurers are mutually repugnant. If we enforce Century’s clause, then we cannоt enforce the clauses of the other primary insurers.
Thus, the only proper result is to ignore all of the clauses and require some equitable pro rata apportionment. This result is consistent with the public policy disfavoring escape clauses whereby promised coverage evaporates in the presence of other insurance. (See
Argonaut Ins. Co.
v.
Transport Indem. Co.
(1972)
As the
CSE
court put it (and with only contextual paraphrase): “to impose the entire liability on the issuer of the prorated policy would annul the proration clause. It would, in the process, also create an anomaly. If [Century’s] other-insurance clause were identical to the [clauses of the other three insurers] under settled law the [differing] policies would prorate. To rule in [Century’s] favor, we would have to embrace the proposition that an insurance policy will prorate if and only if it states
As Century argues only that it should escape liability altogether and raises no objection to the specific proration formula adopted by the trial court, we have no need to further consider the matter. In any event, our review of this record reflects that the allocation specified in its order was well within the trial court’s discretion. (See
Fireman’s Fund Ins. Co. v. Maryland Cas. Co., supra,
Disposition
The judgment filed on August 23, 2001 is affirmed. LMC shall recover its costs on appeal.
Batching, J., and Aldrich, J., concurred.
On June 25, 2003, the opinion was modified to read as printed above. Appellant’s petition for review by the Supreme Court was denied September 17, 2003. Kennard, J., did not participate therein.
Notes
The other two insurers were United Pacific Insurance Company (United) and Reliance National Insurance Company (Reliance). While these two insurers are not parties to this appeal, they were parties below and their legal position was identical to that asserted by LMC on appeal.
There are no undisputed facts; indeed, the facts we recite are set out in the written stipulation оf the parties and filed in support of their respective cross-motions for summary judgment.
The trial court’s final judgment provided in relevant part: “Judgment is granted in United Pacific/Reliance and LMC’s favor on Century’s complaint. Accordingly, this court declares that Century is not entitled to the declaration it seeks in Century’s complaint because Century’s policy number CCP 141899, issued to named insured County Line Framing, Inc., is primary insurance. Because its policy is primary insurance, Century shares with United Pacific/Reliance and LMC duties to defend and indemnify County Line Framing, Inc., against the underlying action entitled Arterberry, et al. v. Lewis Homes of California, et al., Imрerial County Superior Court, Case No. 92227 (‘the underlying action’). [j[] Judgment is farther granted in LMC’s favor on its cross-complaint against Century and Century is to be allocated a specific amount of County Line Framing, Inc.’s defense fees and indemnity costs against the underlying action, which it must reimburse to United Pacific/Reliance and LMC. The court determines that the most equitable manner in which to apportion the expense of defense and the cost of settlement is by the number of years each insurer was on [the] risk. In this case, Century was on [the] risk one out of five total years of insurancе on risk. The total defense fees and indemnity costs of County Line Framing, Inc., against the underlying action are $88,553.52. One-fifth of this amount (20%) is $17,710.70. Thus, Century must pay to United Pacific/Reliance and LMC $17,710.70, plus interest in the amount of 10% per annum calculated from July 1, 2000, all to be divided among United Pacific/Reliance and LMC as they see fit.”
As already indicated, neither United nor Reliance is a party to this appeal, as neither has appeared herein.
We reject Century’s argument that the language of LMC’s “other insurance” clause constitutes a consent to Century’s status as an excess insurer. It dоes not; indeed, it does the opposite. LMC’s policy clearly specifies that its obligation to defend and pay all covered damages up to the amount of its policy limits is unaffected as long as there are no other primary insurers on the risk. In claiming that this amounts to a consent to Century’s claim to excess status, Century necessarily must assume its conclusion. LMC’s concession would only apply if Century were in fact an excess insurer. Such policy language, however, does not constitute a concession or agreement that Century is entitled to be trеated as an excess insurer. The principal authority relied upon by Century
(American Continental Ins. Co.
v.
American Casually Co.
(1999)
“ ‘Excess-only’ provisions have often collided with ‘proration’ provisions, with results that cannot be harmonized. (E.g.,
Pacific Employers Ins. Co.
v.
Maryland Casually Co.
(1966)