This continues the discussion begun on Monday, August 13, 2012.
Allocation is a concept with triple meanings in Insurance Coverage circles, as we know from our last previous post. The term refers to an Insurance Company doing any one of three things: Allocating expenses it incurred in defending noncovered claims under a liability Policy, for which it seeks reimbursement from its Insured; allocating indemnity payments it incurred in settling noncovered claims, and again for which it seeks reimbursement from its Insured; and third and finally, allocation of Coverage to a particular risk based on various factors such as time on the risk, etc., when the Carrier has issued Liability Policies over the course of several years.
In Axis Surplus Insurance Co. v. Reinoso, 2012 WL 3143907 (Cal. 2d DCA August 3, 2012), Download Axis Surplus Insurance Co. v. Reinoso (Cal. 2d DCA No. B228332, Opinion Filed August 3, 2012) PUBLIC ACCESS, the first two kinds of allocation were involved. Axis Surplus provided Edgar and Linda Reinoso with a defense and Axis also settled claims against the Reinosos, which Axis claimed were not covered and for which Axis sued the Reinosos for reimbursement.
The background of Axis Surplus's claims against the Reinosos, its Policyholders, is set out in our post here on Monday, August 13, 2012. That post addressed Axis Surplus's unsuccessful claim to reimbursement of its defense expenses.
This post will begin by addressing Axis's successful claim to reimbursement of its settlement payments on behalf of the Reinosos. Mrs. Reinoso alone among Axis's Insureds appealed a Trial Court Judgment in Axis's favor on this claim. Axis contributed $2,162,500.00 on behalf of the Reinosos and their corporation to the settlement of the underlying Tenant Action against them all. Axis Surplus Insurance Co. v. Reinoso, 2012 WL 3143907 *2 (Cal. 2d DCA August 3, 2012).
Axis sued to get its settlement payment back, in part here pertinent. In California as in many other States, "an insurer is entitled to reimbursement of reasonable settlement costs paid to settle noncovered claims if the insurer satisfied the prerequisites for seeking reimbursement:"
1. The Carrier timely and expressly reserved its rights;
2. The Carrier expressly notified the Insureds of its "intent to accept a proposed settlement offer; and"
3. The Carrier made an express offer to the Insureds "that they may assume their own defense when the insurer and insureds disagree whether to accept the proposed settlement."
Axis Surplus Insurance Co. v. Reinoso, 2012 WL 3143907 *7 (Cal. 2d DCA August 3, 2012), quoting and following established California law.
In the Axis Surplus case, there are three Insureds: Mr. and Mrs. Reinoso, and their property management corporation. Mrs. Reinoso alone appealed the Trial Court's Judgment of reimbursement of Axis Surplus's settlement payment. She argued in this regard that Axis had not allocated its indemnity payment among the three Insureds, and that the Trial Judge committed error when he "instead ordered the insureds to pay the entire sum jointly and severally" to Axis. Axis Surplus Insurance Co. v. Reinoso, 2012 WL 3143907 *7 (Cal. 2d DCA August 3, 2012).
The California Appellate Court disagreed. It affirmed the Trial Court's Judgment against both the Reinosos and their corporation, jointly and severally reimbursing Axis for the total amount of its settlement payment toward settlement of the underlying Tenant Action. On that claim, there was no burden on Axis to prove "that the claims it defended were not even potentially covered by the insurance policies". Axis Surplus Insurance Co. v. Reinoso, 2012 WL 3143907 *4 (Cal. 2d DCA August 3, 2012). Axis could recover the amount of its settlement payment even if it paid to settle claims which simply were not covered.
The Appellate Court's reasoning is direct and uncomplicated. The Reinosos and their corporation were jointly and severally liable for the underlying wrongs alleged against them in the Tenant Action, and for which the tenants claimed Damages jointly and severally from them all. Therefore, the three Insureds were correctly ordered to reimburse Axis for its settlement payment in the Tenant Action, jointly and severally.
The Appellate Court's reasoning, as noted, is simple and uncomplicated. It is worthwhile reading in any case:
Nevertheless, that there might be joint and several liability does not mean an apportionment should not be considered. It only suggests, as we conclude in this case, that the apportionment results in joint and several liability to the insurer. And of course, in some cases, the joint and several liability might only be as to some claims or to only certain types of damages.
The insurer seeking recovery against the insured for expenditures in settling a case when the claims were not covered should allocate those expenditures among the insureds.
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We may infer that the trial court made an implied finding of an allocation, which in this case was Linda's joint and several obligation to reimburse the insurers for the full amount of the settlement payment.
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There is substantial evidence to support that implied finding. That evidence shows that Linda had a sufficient benefit from the settlement such that not to allocate to her joint and several liability to the insurer of the full amount paid by the insurer to settle the Tenant Action would amount to unjust enrichment.
Axis Surplus Insurance Co. v. Reinoso, 2012 WL 3143907 *9-*10 (Cal. 2d DCA August 3, 2012).
The fact that Mr. and Mrs. Reinoso sold the property which was the locus of the Tenant Action "for a profit of $3.8 million" while Axis contributed $2,162,500.00 to settle the Tenant Action, was noted "parenthetically" by the California Appellate Court. Axis Surplus Insurance Co. v. Reinoso, 2012 WL 3143907 *10 n.8 (Cal. 2d DCA August 3, 2012).
The Reinoso case is also noted in 33 Cal. Tort Rptr. 11 (August 2012).
For a different take on allocation in another jurisdiction, in this case Massachusetts, and in this case involving allocation of liability among Insurance Companies on the same risk, see the excellent blog, Insurance Coverage Law in Massachusetts. In particular, see there the July 24, 2009 post on the Supreme Judicial Court's answers to certified questions:
The court adopted pro rata time-on-the-risk allocation, thereby overthrowing ten years of attorneys and litigants using their best guess that Massachusetts is a joint and several liability state based on a couple of not-very-clear Massachusetts Appeals Court decisions. The court also held that the insured must pay only a proportionate share of a self-insured retention for each triggered policy period.
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