In RSUI Indemnity Co. v. Discover P&C Insurance Co [enhanced version available to lexis.com subscribers], the primary insurer issued the insured a commercial automobile liability policy with a $1 million limit per-occurrence and in the aggregate, while an excess insurer issued the insured a policy with an additional $4 million in coverage. The insured tendered an underlying action involving an automobile accident to the primary insurer, who agreed to defend. The third-party claimant offered to settle her claim for an amount within the primary insurer’s policy limits, but the primary insurer rejected the offer. The case ultimately settled, requiring the excess insurer to pay more than $3.5 million under its policy.
The excess insurer then brought suit against the primary insurer, contending that the primary insurer breached its duty to settle owed to the insured by exposing the insured to the risk of liability in excess of the primary limits. The excess insurer further argued that the primary insurer was liable to it under the doctrines of equitable subrogation, equitable contribution, equitable indemnification and “tort of another.” In response, the primary carrier filed a motion to dismiss.
The district court ruled in favor of the primary insurer, holding that all of the excess insurer’s claims against the primary insurer failed as a matter of law. In addressing the excess insurer’s subrogation claim, the court noted that an excess carrier may maintain an action against a primary carrier for wrongful refusal to settle within the primary policy limits through equitable subrogation, but only where the wrongful refusal resulted in a final excess judgment. Since the court found that there was no final excess judgment, the equitable subrogation claim failed as a matter of law. The court held that the equitable contribution claim lacked merit because the primary insurer and the excess insurer did not share the same level of obligation on the same risk. The court held the equitable indemnification claim failed as a matter of law since the excess insurer’s claim for reimbursement was limited to equitable subrogation. Finally, the court held that the excess insurer’s “tort of another” claim failed because a “tort of another” claim is only viable when a party is required to bring or defend an action against an individual or entity based on the tortious conduct of a third party, and the primary insurer did not commit a tort by rejecting the settlement offer within its limits.
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