The 8th U.S. Circuit Court of Appeals affirmed the U.S. District Court for the District of Minnesota and found that insurer, National Union, had a duty to defend the insured and, therefore, another insurer, Continental Casualty, was entitled to equitable contribution from National Union despite the fact that National Union and the insured entered into a separate fronting arrangement whereby the insured agreed to indemnify and reimburse National Union for defense costs. Continental Cas. Co. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, 2016 WL 496999 (8th Cir. Feb. 9, 2016).
The Valspar Corporation (Valspar) bought primary general liability insurance from various insurers, including Continental Casualty Company (Continental), National Union Fire Insurance Company of Pittsburgh, PA (National Union) and others. In 2005 and 2006, benzene-related claims against Valspar triggered policies Valspar purchased from Continental, National Union and five other primary insurers. Continental defended Valspar, reserving its rights as to the contribution for defense costs from co-insurers. National Union denied it was required to contribute to defense costs because a “fronting agreement” with Valspar required Valspar to pay for its own costs.
When Continental filed a declaratory judgment action against National Union for a declaration that National Union owed a duty to defend Valspar and owed its share of defense costs, Valspar intervened. Valspar argued that requiring contribution from National Union would be, in essence, a requirement for Valspar to contribute to defense costs. National Union then filed a declaratory action seeking declaration that Valspar must indemnify National Union against any contribution Continental obtains. The District Court found that National Union had a duty to defend Valspar and a duty to contribute to defense costs and that Valspar did not have a duty to contribute to the defense costs directly. Valspar appealed. The 8th Circuit affirmed the District Court’s ruling and remanded for further proceedings.
The 8th Circuit found that the insurance policies stated that National Union had a right and duty to defend Valspar and that National Union never disclaimed that duty. Other agreements between Valspar and National Union required Valspar to reimburse National Union for some defense costs, but this duty to reimburse did not relieve National Union from its obligation to defend, because an insurer’s duty to defend extended beyond mere obligation to pay defense costs. Valspar argued that requiring Valspar to pay defense costs indirectly through National Union is the same as requiring Valspar to contribute to defense costs. Rejecting this argument, the 8th Circuit explained that the fact National Union ultimately may recover defense costs from Valspar does not affect a separate right by Continental to recover in equitable contribution defense costs from National Union.
In addition, the 8th Circuit rejected Valspar’s argument that by seeking contribution from National Union, Continental violated its agreement with Valspar not to seek recovery for defense costs paid by Continental. The 8th Circuit explained a waiver of rights against one party is not a waiver of different rights against another, unrelated party. Further, the 8th Circuit rejected Valspar’s claim that Continental has unclean hands because it breached its duty to defend by not reimbursing approximately $15,800 Valspar paid in defense costs. Even if Continental should have paid $15,800, which was only 3% of over $560,000 in defense costs paid by Continental, this conduct did not rise to the level of a breach of its duty precluding equitable contribution against another insurer.
Tressler Comments
This case illustrates the importance of analyzing each party’s obligations and relationships separately. In this case, it did not ultimately matter that the monies National Union paid as its share of defense costs would be paid by Valspar, the insured, and not National Union. Valspar’s obligation to National Union was a distinct obligation, independent from National Union’s separate obligation to Continental.