Insurance dispute arises between employer’s two insurers after lawsuit settles
The case of California Capital Insurance Company v. Employers Compensation Insurance Company arose from a 2013 motor vehicle accident where the passenger suffered traumatic brain injuries. The passenger and the driver were employees of the La Sirena Grill.
On the day of the accident, both employees spent their work days at La Sirena in South Laguna, had drinks together there, and left at about 10 p.m. to attend a party. The intoxicated driver, who worked as a cook for La Sirena, hit a tree in Laguna Niguel shortly before midnight. Both employees had been off the clock for several hours by that time.
The injured passenger filed a lawsuit alleging negligence on the part of La Sirena and the driver. He made the following claims:
- Drinking on the job was common at La Sirena
- That night, La Sirena provided the alcohol that got the driver drunk on the job
- La Sirena’s management knew about the driver’s intoxicated state but did not prevent him from driving
- The driver was acting within the course and scope of his employment when the accident occurred
- The driver was using a vehicle that La Sirena entrusted to him for performing his job duties
La Sirena had insurance policies with two different insurers. The California Capital Insurance Company – the respondent in this case – issued a commercial general liability policy. The policy’s coverage generally included bodily injury claims, with a limit of $2 million per occurrence, but excluded workers’ compensation claims and bodily injuries arising out of and in the course of the claimant’s employment with La Sirena.
The Employers Compensation Insurance Company (ECIC) – the appellant in this case – issued La Sirena a workers’ compensation and employers’ liability policy. This policy covered bodily injury claims arising out of and in the course of the claimant’s employment with La Sirena.
California Capital agreed to defend La Sirena against the passenger’s lawsuit. But it reserved its rights under the provision excluding coverage for bodily injuries arising out of and in the course of the claimant’s employment with La Sirena.
In 2014, the passenger’s lawyer made a settlement demand of $2 million, California Capital’s policy limit. California Capital told La Sirena that, if it agreed to pay the demand, it would reserve its right to seek reimbursement. It asked ECIC to participate in the settlement, but ECIC refused.
California Capital incurred around $88,000 in attorney fees to defend La Sirena. It settled the passenger’s lawsuit for $2 million in 2015. It then filed a lawsuit seeking equitable contribution from ECIC.
ECIC filed a motion for summary judgment. It claimed that its policy did not cover the allegations in the passenger’s lawsuit.
The trial court denied the motion and awarded California Capital $44,182.42 in equitable contribution for the cost of defending La Sirena, $1 million in equitable contribution for indemnifying La Sirena, and interest of $501,299.37. California Capital was equitably entitled to half of what it spent to defend and to settle the passenger’s lawsuit because ECIC’s policy potentially covered that suit, the trial court said.
Equitable contribution claim fails
The California Court of Appeal for the Fourth District, Third Division reversed the trial court’s judgment in California Capital’s favor and directed the trial court to rule in ECIC’s favor instead.
An equitable contribution claim would only succeed if two insurers shared the same level of liability on the same risk in relation to the same insured party, the appellate court said. Here, the appellate court found the two insurance policies mutually exclusive.
California Capital was not entitled to equitable contribution because it did not insure the same risk as ECIC, the appellate court said. California Capital’s policy covered bodily injury claims unless the claimant was an employee injured in the course and scope of their employment.
On the other hand, ECIC’s policy covered bodily injury claims only if the claimant was an employee injured in the course and scope of their employment. Thus, ECIC did not potentially cover the passenger’s lawsuit and had no duty to defend or to indemnify La Sirena against the passenger’s claims, the appellate court concluded.