Presenting a live 90-minute webinar with interactive Q&A Insurance and Contractual Indemnification: Reconciling Competing Indemnity Obligations With Insurance Coverage Drafting Indemnification Provisions and Ensuring Adequate Coverage for Contractual Liabilities WEDNESDAY, OCTOBER 7, 2015 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Jessica E. Brown, Attorney, Reed Smith , Chicago Robert M. Fineman, Esq., CNA Insurance , San Francisco Jason R. Schulze, Partner, Hinshaw & Culbertson , Chicago The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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Insurance, Indemnity and Contribution: The Complex Interplay in Commercial Transactions: Fundamental Issues In Contribution & Indemnity Jason R. Schulze Hinshaw & Culbertson LLP 222 N. LaSalle Street, Suite 300 Chicago, IL 60601 (312) 704-3000 jschulze@hinshawlaw.com
Contribution and Indemnity (and Subrogation) It is hard to imagine another set of legal terms with more soporific effect than indemnity, subrogation, contribution, co-obligation and joint tortfeasorship. Perhaps because the words describe legal relationships between multiple parties, they are vaguely reminiscent of complex mathematical equations which, after all, also describe relationships, except in numbers rather than words – and for most of us, they are about as easy to understand. Even lawyers find words like “indemnity” and “subrogation” ring of an obscure Martian dialect. Herrick Corp. v. Canadian Ins. Co. of Cal., 29 Cal. App. 4th 753, 34 Cal. Rptr. 2d 844 (4th Dist. 1994). 6
When It’s Simple: No Contracts At Issue 7
Still Pretty Simple: Parties Purchased Their Own Insurance 8
Getting Complicated: Multiple Insurers, Multiple Lines of Coverage, Multiple Layers 9
Downright Complicated: Indemnity/Additional Insured Arrangement Between Company A and Company B 10
Interplay Between Contribution and Indemnity (and Subrogation) Contribution: Where one party pays more than its fair share on behalf of its insured, it is entitled to recovery from another party in similar position owing the same obligation Indemnity: Where one party pays the obligation of the insured where another party should have paid the entire obligation, the party is entitled to recover from the party that failed to pay (Subrogation): Where one party pays on behalf of an insured, it can recover (in the name of that insured) against the responsible party or another party obligated to pay 11
General Standards for Contribution & Indemnity Equitable Contribution: Based in equity, not in contract and founded on a common obligation Home Ins. Co. v. Cincinnati Ins. Co., 821 N.E.2d 269, 276 (Ill. 2004): Contribution “is an equitable principle arising among coinsurers which permits one insurer who has paid the entire loss, or greater than its share of the loss, to be reimbursed from other insurers who are also liable for the same loss.” Must insure the “same entities, the same interests, and the same risks.” 12
General Standards for Contribution & Indemnity Implied Indemnity: when a person discharges a duty that is owed by him but which, as between that person and another, should have been discharged by the other Contractual indemnity: pursuant to a specific agreement between the parties (See Part III) Unlike subrogation, which can be had against the original tortfeasor, indemnity is generally found against two insurers and/or indemnitors with relationship to insured/indemnitee Distinction can be significant for statute of limitations 13
General Standards for Contribution & Indemnity Indemnity situations can arise: Indemnity agreement specifying priority of obligation found in contracts dealing with employer/employee liability; lessor/lessee liability; vendor liability; contractor/subcontractor liability Excess coverage/primary coverage 14
General Standards for Contribution & Indemnity Paying insurer seeking indemnity must be aware of volunteer doctrine (subrogation concept) – paying claim when it was not obligated to do so Right to indemnity appropriate where the paying insurer had a reasonable belief that its payment was necessary for its protection. An insurer settling on behalf of insured that contests liability should not make an insurer a volunteer because of possibility of judgment. Equally, where an insurer defends or settles despite coverage defenses (subject to appropriately raised reservations), the insurer should not be considered a volunteer. 15
Different Standards For Contribution Claims Focus before allowing contribution can be placed on whether the terms and conditions of the policies have been met. In essence, returns the analysis to whether both insurers have the same interests with respect to the same risks. Examples: failure to provide notice of claim or occurrence as condition precedent; known loss 16
Different Standards For Contribution Claims Pro rata “other insurance” clauses also may limit a party’s right to contribution. Mid-Continent Ins. Co. v. Liberty Mut. Ins. Co., 236 S.W.3d 765 (Tex. 2007) (holding that pro rata “other insurance” clauses give rise to a several obligation for the indemnification of a loss). 17
Getting Complicated: Multiple Insurers, Multiple Lines of Coverage, Multiple Layers 18
Different Standards For Contribution Claims Once right to contribution is granted, various methods to determine what was the fair share owed by the parties: Equal shares Maximum loss rule (each pays equally until limits are reached) Pro rata by limits (concurrent coverage), pro rata by time on the risk (consecutive coverage) or a combination of both. See, e.g., Owens-Illinois, Inc. v. United Ins. Co., 650 A.2d 974 (N.J. 1994). Courts turn to the other insurance clauses to determine the fair allocation (See Part II). 19
Exceptions To General Rule Allowing Contribution Some courts find no right to contribution for payment of defense costs and expenses. See e.g., Cont’l Cas. Co. v. United Pac. Ins. Co., 637 So. 2d 270, 272 (Fla. Dist. Ct. App. 1994); Barton & Ludwig, Inc. v. Fidelity & Deposit Co. of Maryland, 570 F. Supp. 1470 (N.D. Ga. 1983). Theory is that each insurer has its individual obligation to policyholder to defend. Thus, although insurers can elect to join together to provide this defense, each insurer is merely satisfying its contractual obligation by defending. But see Cargill, Inc. v. Ace American Ins. Co., 784 N.W.2d 341 (Minn. 2010) overruling this minority position found in Jostens, Inc. v. Mission Ins. Co., 387 N.W.2d 161, 167 (Minn. 1986). 20
Exceptions To General Rule Allowing Contribution Fifth Circuit has rejected this argument, addressing the Texas Supreme Court’s decision in Mid-Continent and limiting that case to contribution rights relating to indemnity. The Fifth Circuit allowed contribution of defense costs, holding that “other insurance” clauses apply only to indemnity and that defense obligation “creates a debt which is equally and concurrently due by all insurers,” thereby meeting contribution standards. Trinity Universal Ins. Co. v. Employers Mut. Cas. Co., 592 F.3d 687 (5th Cir. 2010). 21
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