Excess Carrier Has Equitable Subrogation Rights Against Primary Carrier for Not Settling Within Policy Limits

Westchester Fire Ins. Co. v. Zurich Am. Ins. Co. (N.D. Ill.; March 12, 2014)

On September 19, 2007, a claimant was injured while descending a stairway in Hawthorne, California. The claimant sued the general contractor for a construction project on the stairway. In the ensuing declaratory judgment action, the plaintiff, the general contractor’s excess carrier, alleged that the defendant, the generalcontractor’s primary insurer, failed to notify it of the litigation and failed to settle the underlying case within the $1 million primary policy limits. The plaintiff sought to recover $700,000 it paid on a judgment that exceeded the defendant’s policy limit. The court concluded that the plaintiff’s allegations supported an inference that the defendant could have settled the claims against its insured in mediation for $375,000. In denying the defendant’s motion to dismiss, the court determined that the allegations made by the plaintiff were sufficient to satisfy the eight elements for equitable subrogation under California law whereby an “excess carrier may maintain an action against the primary carrier for (wrongful) refusal to settle within the latter’s policy limits.”