NO CONTRIBUTION NEEDED BY EXCESS INSURER

Commercial Umbrella Policy	Secondary Excess
Additional Insured	Other Insurance Clauses

Abel Vargas (Vargas), an employee of CAB Concrete (CAB).was severely injured while working, He filed suit against Carmel Development Company (Carmel) the general contractor and Largo Concrete Company (Largo) was the primary concrete subcontractor. CAB was a sub-subcontractor performing work on behalf of Largo.

Vargas sued Largo and Carmel. Largo settled with Vargas but Carmel proceeded to trial where a jury awarded Vargas $10,569,242 in damages.

Carmel was covered by a by a commercial general liability (CGL) policy from Reliance Insurance Company (Reliance) and a $10 million excess liability policy from Fireman's Fund (Fund). Largo was covered by a CGL policy with Acceptance Insurance Company (Acceptance) and a commercial umbrella liability policy with RLI Insurance Company (RLI). On Carmel’s behalf, Reliance and Fund settled the Vargas action for $7.25 million (Reliance-$1 million and Fund-$6.25 million). Carmel, with the Fund, sued Acceptance and RLI, alleging that it was an additional insured under their policies and asking that RLI contribute to the Vargas settlement. RLI filed a cross complaint.

Fund contended that it and RLI were excess insurers whose policies contained irreconcilable "other insurance" clauses. RLI maintained that its policy was "second level excess," which applied only after the Fund policy was exhausted. The trial court found Carmel to be an additional insured under the Acceptance and RLI policies issued to Largo and that both insurers were obligated to provide coverage when the underlying policies' limits were exhausted. Because the RLI and Fund policies had competing "other insurance" clauses, the court ordered them to contribute to the settlement in proportion to their policy limits. RLI appealed its order to pay a $2,083,333 settlement.

The issue on appeal was whether the trial court correctly interpreted the terms of the Fund and RLI policies and that the equitable contribution was appropriate. The appeals court reviewed these clauses and found that the language of the basic insuring provisions did not place RLI and Fund in the same position. The Fund policy provided coverage immediately after Reliance's limit was exhausted. The RLI policy stepped in only when the limits of both the Acceptance policy and all other available coverage, both primary and excess, were exhausted.

Although the "other insurance" clauses were similar the RLI form made additional explicit limitations on its obligations on the first page of the policy stating that it did not rely solely on the "other insurance" clause. The court agreed that the RLI language was relevant and that proration in this case would ignore or distort the meaning and intent of the RLI coverage terms.

The court found that Fund provided coverage specifically excess of the underlying primary policy but that that RLI was liable only for claims that were in excess of any other insurance. Because the two policies did not operate at the same level of coverage the fact that both contained excess-only other insurance clauses was not relevant. RLI therefore had no duty to contribute because the Fund policy limit was not exceeded by the Vargas settlement,

The judgment against RLI was reversed and RLI was entitled to its costs on the appeal.

Carmel Development Company, Plaintiff, v. RLI Insurance Company, Defendant, Cross-Complainant and Appellant; Fireman's Fund Insurance Company, Intervenor and Respondent. California Court of Appeals, Sixth Appellate District. No. H026360. Filed January 12, 2005, Reversed. 2005 CCH Personal and Commercial Liability Cases. Paragraph 8090.