Continental Casualty Co. v. Farmers Ins. Co.

Continental Casualty Co. v. Farmers Ins. Co.

Opinion

 [**474]   [*237]  OPINION

FERNANDEZ, Judge.

Appellant Farmers Insurance Company of Arizona appeals from the summary judgment granted in favor of appellee Continental Casualty Company (CNA), awarding pro rata attorney's fees incurred in defending a common insured. The only issue on appeal is whether the trial court erred as a matter of law in finding that Farmers, as the primary insurer, had a duty to defend despite having paid its policy limits and secured a covenant not to execute in favor of its insured. We reverse.

FACTS

On March 13, 1991, Karl Pohlhaus was the driver of an automobile which collided with a motorcycle driven by John McBryde. Both McBryde and Richard Duncan, a passenger on the motorcycle, were injured [***2]  and sued Pohlhaus. At the time of the accident, Farmers insured Pohlhaus's automobile with policy limits of $ 100,000 per person and $ 300,000 per occurrence. Because Pohlhaus, a minister, was on church business at the time of the accident, he was also insured under the church's policy with CNA which had a $ 500,000 limit of liability. Both insurance policies were written as primary policies. By operation of law, the Farmers policy was deemed primary and the CNA policy was deemed excess.

After investigating the accident, Farmers concluded that the value of each claim exceeded the $ 100,000 policy limits. Farmers entered into settlement agreements with both McBryde and Duncan pursuant to which Farmers paid its policy limits and secured covenants not to execute in favor of Pohlhaus. After paying the policy limits, Farmers refused to defend or share defense costs with CNA. Its refusal was premised on a provision of its policy which apparently read as follows: ¹ "We will not defend any suit or make additional payments after we have paid the limit of liability for the coverage." Ultimately, CNA settled with McBryde for an additional $ 457,500 and with Duncan for an additional $ 42,500.  [***3]  

CNA filed a complaint seeking contribution from Farmers for the attorney's fees and costs CNA incurred in defending the Duncan case. It also sought a declaration that Farmers was obligated to share in the costs of the defense in the McBryde case. Both parties moved for summary judgment. The trial court granted CNA's motion and denied Farmers' motion for reconsideration. This appeal followed.

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