Summary
The Supreme Court of Texas answered certified questions concerning whether a co-primary insurer that paid more than its proportionate share of a settlement could obtain reimbursement from another co-primary insurer. The Court held that no direct duty of reimbursement existed between the insurers and that the paying insurer could not recover through contractual or equitable subrogation because the insured had been fully indemnified and no Stowers duty was triggered. The Court disapproved General Agents Insurance Co. v. Home Insurance Co. to the extent it recognized such a common-law duty.
Topics
Practice areas
Questions Presented
- Whether an overpaying co-primary insurer has a direct right of reimbursement or contribution against an underpaying co-primary insurer when both policies contain pro rata or other-insurance clauses.
- Whether the overpaying insurer may obtain reimbursement through contractual or equitable subrogation to the common insured's rights against the underpaying insurer.
- Whether Texas law should recognize or modify a common-law duty requiring a co-primary insurer to act reasonably in evaluating and participating in settlement of a third-party claim.
Holdings
- No direct right of contribution or reimbursement exists between co-primary insurers whose separate policies contain pro rata or other-insurance clauses. Those clauses make the insurers' contractual obligations several and independent, and an insurer that voluntarily pays more than its proportionate share cannot recover the excess from the other insurer.
- Liberty Mutual could not recover through subrogation because Kinsel, having been fully indemnified for its loss, had no remaining contractual right to recover an additional pro rata payment from Mid-Continent.
- Liberty Mutual could not recover through subrogation to Kinsel's common-law rights because Mid-Continent did not breach a Stowers duty and Texas law does not recognize a broader common-law duty requiring a co-primary insurer to participate reasonably in a settlement above its policy limits.
Key quotations
“We agree with Mid-Continent and conclude that Liberty Mutual is not entitled to reimbursement because there is no direct duty of reimbursement between these co-primary insurers, and because Kinsel has no rights against Mid-Continent to which Liberty Mutual may be subrogated.”
“We hold, therefore, that a fully indemnified insured has no right to recover an additional pro rata portion of settlement from an insurer regardless of that insurer’s contribution to the settlement.”
“An insurer’s common law duty in this third party context is limited to the Stowers duty to protect the insured by accepting a reasonable settlement offer within policy limits.”
Factual background
Kinsel Industries was covered under Liberty Mutual's $1 million primary CGL policy and excess policy, and was also an additional insured under Mid-Continent's $1 million primary CGL policy. After a serious automobile-accident lawsuit, Liberty Mutual valued Kinsel's potential liability substantially higher than Mid-Continent did and settled the claim for $1.5 million, paying $1.35 million while Mid-Continent paid $150,000. Liberty Mutual sought reimbursement for Mid-Continent's alleged proportionate share after the federal district court concluded that Mid-Continent had acted unreasonably in evaluating the settlement.
Procedural history
Liberty Mutual and Mid-Continent insured the same entity under separate primary liability policies containing pro rata clauses. After Liberty Mutual funded most of a settlement involving their common insured, it sued Mid-Continent for reimbursement. The United States District Court for the Northern District of Texas awarded Liberty Mutual $550,000 through subrogation. On appeal, the Fifth Circuit certified three questions of Texas law to the Supreme Court of Texas, which answered the first question in the negative and did not reach the remaining questions.
Remand instructions
The court answered the first certified question in the negative and did not reach the second or third certified questions. Application of the answer to the underlying case was left to the Fifth Circuit.