Texas Excess Carrier Can Pursue Equitable Subrogation Claim
Insurance Law Update
Royal Insurance Company of America v. Caliber One Indemnity Company, et al.
Fifth Circuit Court of Appeals
The Fifth Circuit Court of Appeals held that, under Texas law, an excess carrier may bring a claim for equitable subrogation against two primary carriers.
In Royal Insurance Company of America v. Caliber One Indemnity Company, et al., --- F.3d ---, 2006 WL 2716506 (5th Cir., Sept. 25, 2006), Hartford Underwriters Insurance Company provided $1 million in primary liability coverage to the insured retirement home from April 1997 to April 1999. Caliber One Indemnity Company provided $1 million in primary liability coverage to the home from April 1999 to April 2000. Royal Insurance Company of America provided excess coverage of $1 million to the home from April 1999 to July 2000.
After a patient died from a pressure ulcer, sepsis and pneumonia, the survivors filed an action for wrongful death and survival claims against the home. The action settled for $2 million, with Hartford contributing $200,000, Caliber One $800,000 and Royal $1 million. Royal alleged that there was more than one “occurrence,” and therefore the entire $2 million should have been paid under the primary policies. Royal sued Hartford and Caliber One to recover its money. The district court granted summary judgment for the primary insurers and Royal appealed.
The Fifth Circuit reversed, relying on Texas law that holds that “[u]nder the doctrine of equitable subrogation, ‘an excess insurer, paying a loss under a policy, “stands in the shoes” of its insured with regard to any cause of action its insured may have against a primary insurer responsible for the loss.’” The court noted that the “Supreme Court of Texas recognized equitable subrogation as a remedy for excess carriers precisely because an insured who has excess insurance coverage may not have any incentive to press its primary carrier for the full limits of its policy.... An insured cannot reduce its primary policy limits to the detriment of its excess carrier any more than it can expand those limits.”
Regarding the issue of whether there was more than one occurrence (thereby triggering multiple policy limits under the primary policies), the Fifth Circuit examined the language of the primary policies and determined that only a single claim had been submitted under each policy. Accordingly, $1 million was available under the Hartford policy and an additional $1 million was available under the Caliber One policy. The court held, however, that Royal could not “stack” the limits of both policies before it had a duty to indemnify because the Hartford policy period did not overlap with the Royal policy period.