Appellate; Civil; Insurance; Litigation; Personal Injury

Mid-Continent Insurance Co. v. Liberty Mutual Insurance Co.

10/12/2007  05-0261

Justice Wainwright; Concurring opinion by Justice Willett

One of two primary Insurers is not, as an "other Insured", required to reimburse other of cost of settlement.

This is in answer to a certified question. 405 F.3d 296, 310 (5th Cir. 2005). Two insurers, providing the same insured applicable primary insurance liability coverage, under policies with $1 million limits and standard provisions (one insurer also providing the insured coverage under a $10 million excess policy), cooperatively assume defense of the suit against their common insured, admitting coverage. The insurer, also issuing the excess policy, procures an offer to settle for the reasonable amount of $1.5 million, and demands that the other insurer contributes its proportionate part of that settlement, but the other insurer, unreasonably valuing the case at no more than $300,000, contributes only $150,000, although it could contribute as much as $700,000, without exceeding its remaining available policy limits. As a result, the case settles (without an actual trial) for $1.5 million, funded $1.35 million by the insurer, which also issued the excess policy, and $150,000 by the other insurer. Held: In this situation, there is no actionable duty owed (directly or by subrogation to the insured's rights) to the insurer paying the $1.35 million by the underpaying insurer, to reimburse the former, respecting its payment of more than its proportionate part of the settlement. Liberty Mutual is not entitled to reimbursement between these co-primary insurers, and because Kinsel has no rights against Mid-Continent, to which Liberty Mutual may be subrogated. General Agents Insurance Co. of America v. Home Insurance Co. of Illinois, 21 S.W.3d 419 (Tex. App. - San Antonio 2000, pet. dism'd by agr.), is disapproved, to the extent that it would provide recovery to an overpaying co-primary insurer, in the context presented. Additionally, there is no contractual right of contribution between them, and the presence of the pro rata clauses in the comprehensive general liability (CGL) policies precludes an equitable contribution claim. In this situation, no contractual obligations exist between co-insurers, to apportion between themselves, the payment on behalf of the insured, and the Court declines to create such an obligation, under the common law.

Right of contribution between co-insurers disappears when the policies contain "other insurance" or "pro rata" clauses.

If two or more insurers bind themselves to pay the entire loss insured against, and one insurer pays the whole loss, the one so paying has a right of action against his co-insurer, or co-insurers, for a ratable proportion of the amount paid by him, because he has paid a debt which is equally and concurrently due by the other insurers. The right of action  is one of the contributions, the elements of which require that the several insurers share a common obligation or burden, and that the insurer seeking contribution has made a compulsory payment or other discharge of more than its fair share of the common obligation or burden. However, this direct claim for contribution between co-insurers disappears, when the insurance policies, as those here, contain "other insurance" or "pro rata" clauses. 

State Bar of Texas Civil Digest

October 24,2007