Clearing The Murky Waters Of Equitable Contribution: Insured Can’t Recover Unpaid Defense Costs From Its Insurers On Equitable Contribution Grounds.

A Minnesota federal court recently held the insured’s equitable contribution obligation to a co-insurer cannot be reduced by unpaid defense costs of the insurer, even where any contribution amount would have to be repaid by the insured.  In Continental Casualty Co. v. National Union Fire Ins. Co. of Pittsburg, PA, Civil No. 09-287 (JRT/JJG) (D. Minn. Sept. 12, 2014), Continental brought a declaratory judgment action against National Union seeking contribution towards its costs in defending Valspar in several toxic tort lawsuits.  The underlying lawsuits implicated policies from Valspar’s historic insurers – including policies issued by Continental and National Union – for exposure to and injury from Valspar’s products from 1966 to 1990.  The court allowed Valspar to intervene because its policy with National Union was essentially self-insurance program that could make Valspar reimburse any payments from National Union to Continental.

The Court held National Union had a duty to defend Valspar and, under Cargill, Inc. v. Ace Am. Ins. Co., 784 N.W.2d 341, 354 (Minn. 2010), National Union had an obligation to had to contribute to defense costs incurred by Continental. Cont’l Cas. Co. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, 940 F. Supp. 2d 898, 930 (D. Minn. 2013).  Valspar’s reimbursement obligations to National Union did not change National Union’s duty.  The Court found that since seven insurers had a duty to defend, National Union owed one-seventh of the defense costs incurred by Continental.

The parties agreed Continental paid $563,645 in defense costs.  Continental argued it was entitled to one-seventh of that amount, or $80,520, from National Union.  Valspar contended it paid $67,626 for its defense in the underlying cases and that amount should added to the total defense costs, then subtracted from National Union’s one-seventh share to Continental.  The result would be National Union, and ultimately Valspar, paying only $22,555.  The Court ordered National Union to pay $80,520 plus interest to Continental.

This decision is significant for its calculation of an insurer’s equitable contribution and clarifies the insured has limited rights in an equitable contribution action.  An insured’s remedy lies in breach of contract, not equitable contribution.  By sitting on unpaid bills, an insured’s rights will likely be foreclosed in an equitable contribution action.

We will continue to monitor this and other decisions involving equitable contribution.  If you have any questions about this or any other matter please contact us.