On Monday, in Certain Underwriters at Lloyd’s, London v. Arch Specialty Ins. Co., 16 C.D.O.S. 3833 (Cal. Ct. App. Apr. 11, 2016), the California Court of Appeal (Third District) rejected Arch Specialty Insurance’s attempt to enforce “other insurance” clauses in the conditions and coverage grant of the relevant policies.
London and Arch issued successive primary policies to Framecon, which was sued on construction defect claims triggering the policies of London and Arch. Arch declined to defend, citing “other insurance” clauses in the insuring agreement stating that, if another insurer was defending Framecon, the Arch policy would be excess of such insurance. London, which had a similar clause in an endorsement, agreed to defend under a reservation of rights.
London filed suit, seeking declaratory relief and equitable contribution from Arch for defense costs. The trial court granted summary judgment for Arch on the basis of its “other insurance” clauses and London appealed. On review de novo, the appellate court found Arch had a duty to defend despite the “other insurance” clauses, following a line of California cases requiring equitable contribution among primary insurers where both insurers have similar “other insurance” clauses. Though Arch had argued these cases were distinguishable because they involved “other insurance” clauses in the conditions section of the policies while Arch’s policy included that language in the coverage grant, the Court of Appeal rejected the argument, finding the California state court cases did not decide the issue based on the location of the language in the policy. The Court of Appeal also distinguished and declined to follow a 1977 decision that supported Arch’s argument but “predated the ‘modern trend’ extending the distrust of escape clauses to ‘other insurance’ clauses that attempt to shift the burden away from a primary insurer[.]”