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Insurance Law

Amounts Incurred in Lawsuit Involving Multiple Claims Must Be Allocated Equally as Between Multiple Retentions absent Evidence Supporting an Alternative Allocation

In Evanston Ins. Co. v. N. Am. Capacity Ins. Co., the Eastern District of California, which previously held that each home involved in four underlying construction defect actions constituted a separate claim, held that amounts incurred in those actions must be allocated evenly as between the multiple retentions owed by the insured unless it was established that an unequal allocation was appropriate.

Evanston and North American Capacity (“NAC”) mutually insured a contractor that was sued in four construction defect actions. Evanston agreed to defend and indemnify the contractor, but NAC denied coverage partially based on the position that each of the homes involved in the actions constituted a separate claim. Based on that position, NAC argued that the insured must satisfy multiple retentions for each underlying lawsuit and had failed to do so even after settlement of those actions. Evanston sued NAC for contribution and indemnity, and the parties filed cross-motions for partial summary judgment on that issue. The court ruled in NAC’s favor.

Subsequently, the parties filed cross-motions for summary judgment on NAC’s duty to defend. NAC argued that, based on the court’s prior ruling, the insured had not satisfied the retentions required for coverage under its policy and, therefore, NAC had no duty to pay anything on behalf of the insured. Evanston countered by arguing that, although the court had ruled that each of the underlying actions required the satisfaction of multiple retentions for indemnity purposes, the satisfaction of a single retention was sufficient to establish NAC’s duty to defend. Evanston further argued that the court had not yet ruled on whether payments could be applied toward the full satisfaction of a single retention – which, according to Evanston, would trigger NAC’s duty to defend the entire action – before the insured began to satisfy as second retention. Based on this position, Evanston argued that NAC’s duty to defend was triggered upon payment of amounts equal to a single retention in NAC’s policy and that NAC had a duty to contribute to defense fees incurred after that point.

The court held that, absent evidence to the contrary, amounts incurred by the insured should be allocated evenly as between the multiple retentions at issue. The court further held that the record before it did not establish whether an uneven allocation – because more money had been incurred in connection with one house than another – was appropriate, and ordered further briefing from the parties on that issue.

Evanston Ins. Co. v. N. Am. Capacity Ins. Co., 2015 U.S. Dist. LEXIS 75265 (E.D. Cal. June 10, 2015), [subscribers can access an enhanced version of this opinion: lexis.com | Lexis Advance].

Originally published in California Insurance Law Review - 2015

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