Co-Insurers Share Indemnity Obligations Where Policies Cover Same Loss

Applying Minnesota law, the U.S. District Court for the District of Minnesota has held that co-insurers share a common liability for an insured’s settlement where both insurers’ policies cover the same loss, even if they do not insure the same risk.  Lexington Ins. Co. v. Axis Surplus Ins. Co., 2014 WL 2508730 (D. Minn. June 4, 2014).

An insured contractor was sued for alleged negligence in the design and construction of a building.  The parties settled the claim with payments by, among others, the contractor’s professional liability insurer, whose policy insured the contractor’s negligence in architecture and engineering.  The contractor’s general liability insurer, whose policy insured property damage but not professional services, denied coverage and refused to contribute to the settlement.  The professional liability insurer filed suit seeking contribution from the general liability insurer.

The general liability insurer moved to dismiss, arguing first that a right of contribution between co-insurers exists only as to defense costs, not indemnity payments.  The court disagreed, finding that nothing in Minnesota law precludes contribution in indemnity cases, and, moreover, refusing to permit contribution would reward insurers who wrongfully fail to participate in a settlement.

The general liability insurer also argued that the two insurers do not have a common liability for the settlement because their two policies insure different risks: faulty construction under the general liability policy and faulty design under the professional liability policy.  The court held that co-insurers share a common liability if their policies cover the same loss, regardless of whether they also insure the same risk.  Here, the court found, the professional liability insurer had alleged that the claim against the contractor and the settlement of that claim encompassed both negligent construction and negligent design.  Thus, the court held that the general liability insurer and the professional liability insurer could share equal liability for the settlement.

Wiley Executive Summary

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