Scottsdale Insurance Company ("Scottsdale") and Century Insurance Company ("Century") both insure subcontractors in the construction industry. As a result, the insurers often have insureds in common. Century repeatedly declined to participate in the defense and indemnity of common insureds, relying on the prior work exclusion in its policies. While Century refused to participate, Scottsdale and other insurers defended their common insureds and agreed to share the costs of defense and settlement of the claims.
Scottsdale filed an action against Century, seeking equitable contribution with respect to more than three hundred (300) underlying actions involving seventeen (17) common insureds. The complaint did not specify any particular measure of damages sought; it simply alleged that Scottsdale had paid more than its equitable share and that Century should be required to pay "in an amount according to proof at trial, and in accordance with equitable principles." Although other insurers assisted Scottsdale in defending and settling the claims of the common insureds, neither Scottsdale nor Century brought these insurers into the equitable contribution action.
By the time the case proceeded to trial, the number of underlying claims had been reduced to one hundred and eight-four (184). At trial, Century raised several coverage defenses, including the prior work exclusion. The trial court held that the prior work exclusion did not preclude coverage and that Scottsdale had a duty to defend and indemnify the common insureds. Therefore, the trial court ordered that Century pay Scottsdale one-half the amount that Scottsdale had paid on each claim. Both parties appealed.
The California Court of Appeal was called upon to decide whether the claims were covered by the Century policies and, if so, what amounts Scottsdale could recover in an equitable contribution action. In the unpublished portion of the opinion, the Court held that the Century policies provided coverage for the claims because the prior work exclusion did not apply. The Court also held that the statute of limitations had not run on Scottsdale's right to seek equitable contribution.
In the published portion of the opinion, the Court addressed Scottsdale's recovery. Scottsdale argued that Century was responsible for one-half of the amounts Scottsdale had paid, regardless of whether any other insurers shared in the defense and indemnity of the common insureds. Century, on the other hand, argued that it was only required to reimburse Scottsdale for sums spent in excess of Scottsdale's fair share. For example, if Scottsdale paid 25% of the defense costs on a claim but its fair share was only 20%, Century argued that Scottsdale was only entitled to recover the additional 5% it paid as a result of Century's declination of coverage.
The Court of Appeal held that the touchstone of an equitable contribution action is that a party cannot recover unless it paid more than its fair share. If an insurer has not paid more than its fair share, it cannot recover any sums, even against an insurer that paid nothing. At trial, Scottsdale had only shown what payments it made on the underlying claims. This was an insufficient evidentiary showing. The Court of Appeal held that Scottsdale was not only required to prove what sums it had paid in the underlying actions but also that what it paid was more than a fair share. Practically speaking, this required Scottsdale to introduce evidence of the allocation arrangements it entered into with the other insurers in each of the underlying actions. Only with this evidence, could the trial court determine if Scottsdale paid more than its fair share. Accordingly, the Court of Appeal remanded the case back to the trial court to recalculate damages in light of the allocation arrangements.
This opinion is not final. It may be withdrawn from publication, modified on rehearing, or review may be granted by the California Supreme Court. These events would render the opinion unavailable for use as legal authority.
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