Carmel Development Company (Carmel) was the general contractor on a golf and residential facilities construction project in Monterey County, California. It subcontracted the concrete work to Largo Concrete Company (Largo), which in turn subcontracted part of that work to CAB Concrete (CAB). In January 1999, Abel Vargas (Vargas), a CAB employee, filed suit against Largo and Carmel after he was severely injured at work. Largo settled with Vargas but Carmel proceeded to trial where a jury awarded Vargas $10,569,242 in damages.
Carmel was insured by a commercial general liability (CGL) policy from Reliance Insurance Company (Reliance) and a $10 million excess liability policy from Fireman's Fund (Fund). Largo had a primary CGL policy with Acceptance Insurance Company (Acceptance) and a commercial umbrella liability policy with RLI Insurance Company (RLI). Reliance and Fund settled the Vargas action for $7.25 million (Reliance-$1 million and Fund-$6.25 million). Carmel (joined by the Fund) then sued Acceptance and RLI, alleging that it was an additional insured under their policies and that RLI was obligated to contribute to the Vargas settlement and RLI filed a cross complaint.
At trial, Fund contended that it and RLI were both excess insurers whose policies contained irreconcilable "other insurance" clauses. RLI maintained that its policy was "second level excess," which applied only after the Fund policy was exhausted. The trial court found Carmel to be an additional insured under the Acceptance and RLI policies issued to Largo and both insurers were obligated to provide coverage when the underlying policies' limits were exhausted. Because the RLI and Fund policies had competing "other insurance" clauses, the court ordered them to contribute to the settlement in proportion to their policy limits. RLI appealed its order to pay a $2,083,333 settlement.
The issue on appeal was whether the trial court correctly interpreted the terms of the Fund and RLI policies and that equitable contribution was appropriate. The appeals court reviewed these clauses and found that the language of the basic insuring provisions did not place RLI and Fund in the same position. The Fund policy provided coverage immediately after Reliance's limit was exhausted. The RLI policy stepped in only when the limits of both the Acceptance policy and all other available coverage, both primary and excess, were exceeded.
Fund pointed out that its obligation to pay was outlined in the "other insurance" clause in its policy, like RLI. However, RLI also made additional explicit limitations on its obligations on the first page of the policy and did not rely solely on the "other insurance" clause found buried in the Conditions section towards the end of the policy. The court agreed that the RLI language was relevant. It found that proration in this case would ignore or distort the meaning and intent of the coverage terms.
The appellate court summarized that the Fund provided coverage specifically excess of the underlying primary policy, whereas RLI was liable for claims in excess of any other insurance. The two policies did not operate at the same level of coverage, so it was irrelevant that they both contained excess-only "other insurance" clauses. Since the Fund policy limit was not exceeded by the Vargas settlement, RLI had no duty to contribute to the indemnification of Carmel. The judgment against RLI was reversed and RLI was entitled to its costs on the appeal.
Carmel Development Company, Plaintiff, v. RLI Insurance Company, Defendant, Cross-Complainant and Appellant; Fireman's Fund Insurance Company, Intervenor and Respondent. California Court of Appeals, Sixth Appellate District. No. H026360. Filed January 12, 2005, Reversed. 2005 CCH Personal and Commercial Liability Cases. Paragraph 8090.
