The U.S. Court of Appeals for the Second Circuit has certified the following two questions to the California Supreme Court:
(a) Where the insurance policies of two insurance companies (identified in this question as A and B) cover the same risk, the policy of company A is primary and contains no “other insurance” clause, and the policy of company B, which is also primary, contains an “other insurance” clause stating, “This insurance is excess over: . . . Any of the other insurance or your self-insurance plan that that [sic] covers a loss on the same basis,” is company A entitled under California law to equitable contribution from company B?
(b) Under the circumstances described above and where the amount company A paid to settle a case exceeds the policy limit of company B's policy, is a clause in the insurance policy of company B stating, “All payments made under any local policy issued to you by us or any other insurance company will reduce the Limits of Insurance of this policy” enforceable under California law?
Background
In its decision, the circuit court explained the facts as follows. Migdal Insurance Company Ltd., issued a liability insurance policy to Kinetic Systems Israel Ltd. and Kinetics Process Piping Israel Ltd. (together, “Kinetics Israel”). The Migdal policy contained the language referred to in the first question, i.e., the language of the policy of company A.
The Insurance Company of the State of Pennsylvania (“ICSOP”) issued a liability insurance policy to Kinetic Systems, Inc., covering its subsidiaries, including Kinetics Israel. The ICSOP policy contained the language referred to in the first and second questions, i.e., the language of the policy of Company B.
In 2008, the subrogee of Tower Semiconductor Ltd. sued Kinetics Israel, Migdal, and ICSOP for damage to Tower's property allegedly caused by Kinetics Israel. ICSOP refused to defend Kinetics Israel. Migdal defended and paid $1.75 million in full settlement of the Tower action.
In February 2014, Migdal sued ICSOP for equitable contribution. The U.S. District Court for the Southern District of New York ruled in favor of Migdal and ordered ICSOP to pay one third of the Tower settlement.
ICSOP appealed to the Second Circuit.
The Second Circuit's Decision
In its decision certifying the questions to the California Supreme Court, the Second Circuit explained that, with respect to ICSOP's “other insurance” clause, the court in Dart Industries, Inc. v. Commercial Union Insurance Co., 28 Cal. 4th 1059, 1080 (2002), had stated that “the modern trend is to require equitable contribution[] on a pro rata basis from all primary insurers regardless of the type of 'other insurance' clause in their policies.” The Second Circuit pointed out that the district court, in its decision in favor of Migdal, said that California considered a policy excess only when the policy said it was excess with respect to specifically identified policies.
The Second Circuit then pointed out that various California cases have declined to enforce an “other insurance” clause where there was a conflict between such a clause and a clause in another insurer's policy. See, e.g., Carmel Development Co. v. RLI Insurance Co., 126 Cal. App. 4th 502, 508-09 (6th Dist. 2005); Travelers Casualty & Surety Co. v. Century Surety Co., 118 Cal. App. 4th 1156, 1160 (4th Dist. 2004); Pacific Indemnity Co. v. Bellefonte Insurance Co., 80 Cal. App. 4th 1226, 1234-35 (4th Dist. 2000). It added that ICSOP maintained that California refused to enforce an “other insurance” clause only where such a conflict existed and that there was no conflict in this case because Migdal's policy had no “other insurance” clause.
The Second Circuit noted, however, that in Edmondson Property Management v. Kwock, 156 Cal. App. 4th 197, 203 (5th Dist. 2007), the court ordered equitable contribution even though the policy of the party obtaining such contribution did not contain an “other insurance” clause or any other clause that could be said to conflict with the defendant insurer's policy. In the Second Circuit's view, whether Edmondson should be understood to permit equitable contribution in the absence of a conflict between policies was unclear and it was unclear whether an insurer with an “other insurance” clause must contribute to an insurer whose policy did not contain such a clause. Therefore, it asked the California Supreme Court to decide the certified questions.
The case is Migdal Ins. Co. Ltd. v. Ins. Co. of State of Pa., No. 15-2588-cv (2d Cir. July 7, 2016). Attorneys involved include: for Migdal Insurance Company Ltd., Andrew N. Bourne and Hoguet Newman Regal & Kenney LLP, New York, NY; for The Insurance Company of the State of Pennsylvania, Lawrence Klein, Aaron F. Mandel, and Sedgwick LLP, New York, NY.
FC&S Legal Comment
We will monitor developments in this case and report back as warranted.
Steven A. Meyerowitz
Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. He may be contacted at [email protected].