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Truck v. Kaiser Part Two: A closer look at stacking coverages

On Behalf of | Mar 27, 2022 | Insurance Recovery |

In part 2, we look at how the Kaiser court recognized a limitation on an insurer’s ability, after being targeted by the insured to defend and indemnify a case against the insured, to reallocate a portion of the insurer’s defense and indemnity expenses to other insurers of an insured. As noted in part 1, Truck was targeted by its insured, Kaiser, to defend and indemnity it under a single policy year, which policy had no aggregate limit (just a per occurrence limit). Truck wanted to reallocate those expenses to other policy years. In this case, Truck wanted to reallocate to other Truck policy years, at least facially because Truck wanted to trigger reinsurance agreements for those other policy years. Kaiser resisted, because such reallocations could cause those subsequent Truck policies (or excess policies above them) to exhaust, potentially leaving Kaiser without any coverage in certain policy years.

The court rejected Truck’s attempt to reallocate sums paid under its 1974 no-aggregate policy to other Truck policy years. Previously, including in Armstrong and Aerojet, California courts acknowledged an insured’s right to target a specific policy to defend and indemnity it. However, they also held that the targeted insurer could use equitable contribution theories to reallocate indemnity payments to other insurers of the insured. In this case, one of first impression, Truck sought to reallocate the loss from its 1974 policy to other Truck policy years. The court held that Truck could not do so.

The court explained that reallocating loss by an insurer across its own various policies did not sound in equitable contribution. It noted that application of Truck’s intra-insurer reallocation would prejudice the insured. Such reallocation would deplete and maybe even exhaust other policy years. Truck’s intra-insurer reallocation would also harm the excess carriers on those other policy years, as it would effectively shift responsibility for future claims from itself to excess carriers of the insured. The fact that Truck’s attempt to reallocate across its own policies would harm the insured was, as noted by the court, “inconsistent with the notion of fairness underlying equitable contribution.”

The court’s ruling on this score is important for insureds. It is common for insureds to have multiple policies from a single insurer across multiple policy periods. In such a situation, the Kaiser court’s decision seemingly allows an insured to both target a specific policy period to defend and indemnify it and use the Kaiser decision to prevent that insurer from spreading the loss across multiple policies the insurer issued to the insured. Such a rule has many potential uses for an insured, which has been sued for a continuing and progressive loss.

If you find your company has been sued and are looking for ways to strategically manage that loss, make sure you retain someone experienced in both evaluating your company’s insurance and risk mitigation program to determine how best to minimize the company’s liability exposure, as well as someone experienced in pursuing insurance claims on behalf of policyholders. At McLeod Law Group, we are here to help insureds who find themselves in just such a situation.