Another Important SIR Decision

By: Brendan J. Coughlin

The recent California case of American Safety Indemnity Co. v. Admiral Insurance Co. (2013) 220 Cal. App. 4th 1, confirms that policy language must be unambiguous when an insurer seeks to limit its obligations under an insurance policy. In this matter, the Court of Appeal found that while the language at issue clearly imposed a $250,000 Self-Insured Retention ("SIR") on damages paid to third parties, this SIR was inapplicable to the insurer's duty to defend claims made.

The case began with a landslide or two. It ended with an insurer or two, disputing who should pay for the years of intervening litigation. The facts reach back over a decade, when a grader contracted with developer D. R. Horton, Inc. [Los Angeles Holding Company] ("Holding") for housing construction in Santa Clarita.

Grading began in 2002. However, backcut slope failures resulted in landslides and tension cracks that visibly extended to within 50 feet of existing upslope homes. The slides caused physical damage to the property of several of these adjacent homeowners, who sued Holding, developer related entities D. R. Horton, Inc. and D. R. Horton, Inc. - Los Angeles ("Horton,") the grader and others in 2003.

The underlying subsidence lawsuit settled in 2007 for a total of nearly $5 million. The grader had been insured by American Safety Indemnity Co. ("ASIC.") Holding and Horton had been insured by Admiral Insurance Co. ("Admiral.") Holding was also an additional insured under the grader's ASIC policy.

During the underlying litigation, Holding tendered its defense to ASIC. This was declined. A bad faith lawsuit followed. In settlement of the bad faith action, ASIC agreed to defend Holding. ASIC also paid the defense fees of Horton, unaware of Horton's Admiral coverage.

The instant case arises from ASIC's declaratory relief action for indemnity and subrogation against Admiral. ASIC sought to recover its payment of Horton's defense costs. Admiral's principal defense was that because Horton had not paid the SIR on the Admiral policy, Admiral's duty to defend was not triggered.

The trial court granted ASIC's motion for summary adjudication, and eventually awarded ASIC $1.9 million plus interest. In reviewing the trial court's ruling, the Court of Appeal confirmed, and found that the SIR clause in the Admiral policy failed to expressly and unambiguously make payment of the SIR a condition precedent to Admiral's duty to defend. Instead, the language of the policy gave the Horton a reasonable expectation of defense upon tender. In subrogation, ASIC steps into the shoes of Horton's rights against Admiral. Principles of equitable subrogation required Admiral to reimburse ASIC for Horton's defense fees.

Contract provisions between parties, and insurance policy language, evolve and are often updated year-to-year. Contractual interpretation also evolves, is redefined, and may be reconfirmed or modified. This particular case illustrates that these can be complicated, precise issues. An insurance policy written years ago may simply not mean today what the insured or insurer think that it does.

Brendan J. Coughlin is an Associate with Kring & Chung, LLP's Irvine, CA office. He can be contacted at (949) 261-7700 or bcoughlin@kringandchung.com .

No Comments

Leave a comment
Comment Information
Premium Av Preeminent 5.0 out 5 Rating Peer Review Rated LexisNexis Martindale Hubbell Avvo Super Lawyers OC Metro Register
Contact

How Can We Help You?

Bold labels are required.

Contact Information
disclaimer.

The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.

close

Privacy Policy

Office Locations

Irvine Office
38 Corporate Park
Irvine, CA 92606

Phone: 949-345-1621
Fax: 949-261-8800
Irvine Law Office Map

Los Angeles Office
3435 Wilshire Blvd., Suite 2700
Los Angeles, CA 90010

Phone: 949-345-1621
Phone: 213-232-1633
Map & Directions

Temecula Office
41955 Fourth St., Suite 315
Temecula, CA 92590

Phone: 949-345-1621
Phone: 951-331-4520
Fax: 951-257-0450
Map & Directions

Sacramento Office
2620 J Street #1
Sacramento, CA 95816

Phone: 949-345-1621
Phone: 916-266-9000
Fax: 916-266-9001
Map & Directions

San Diego Office
11682 El Camino Real, Suite 100
San Diego, CA 92130

Phone: 949-345-1621
Phone: 858-436-0268
Fax: 858-436-0279
Map & Directions

Las Vegas Office
1050 Indigo Dr., Suite 200
Las Vegas, NV 89145

Phone: 949-345-1621
Phone: 702-260-9500
Fax: 702-260-9434
Map & Directions