although the retained limits provisions of their respective policies did not specifically
refer to defense costs, the retained limits requirements should have been interpreted as
underlying insurance within the meaning of separate provisions that made the policies
excess to other available insurance. In rejecting this argument, the court stated: "[A]ll of
the policies make it clear there is a difference between underlying insurance and retained
limits, and the Insurers understood this difference when they entered into these contracts.
The Insurers now ask us to relieve them of this clear contractual obligation, and instead to
deem retained limits in other potentially applicable policies to be primary insurance. To
do so, we would have to find Montgomery Ward's SIR's in all of its policies constitute
'other collectible insurance with any other insurer' . . . or 'specific valid and Collectible
Underlying Insurances'. . . , as to which the Insurers' policies are excess. This we will not
do. We are offered no public policy or other compelling reason to engraft new meaning
on plain language, and accordingly 'we may not rewrite what [the insurers] themselves
wrote.' [Citation.]" (Id. at p. 367, fns. omitted.)
As the court in Montgomery Ward also noted, the cases that have required
satisfaction of a retained limit as a condition of an insurer's duty to defend were, in fact,
15
not primary policies but in excess policies or involved express policy language that made
both the duty to indemnify and the duty to defend subject to an SIR. (Montgomery Ward,
supra, 81 Cal.App.4th at pp. 367-368; see, e.g., Nabisco, Inc. v. Transport Indemnity Co.
(1983) 143 Cal.App.3d 831, 835 [policy language provided that insurance was excess to
SIR]; General Star Indemnity Co. v. Superior Court (1996) 47 Cal.App.4th 1586, 1592
[same]; City of Oxnard v. Twin City Fire Ins. Co. (1995) 37 Cal.App.4th 1072, 1077-
1078 [same].) "The significant point is that these cases, like all other insurance cases,
look first to the terms of the policy. [Citation.]" (Montgomery Ward, supra, at p. 368.)
C. Analysis
Contrary to Admiral's argument, its policy does not expressly and unambiguously
make its duty to defend the Horton entities subject to the SIR. Rather, the SIR
endorsement expressly provides the contrary: "'Retained Limit' is the amount shown
below, which you are obligated to pay, and only includes damages otherwise payable
under this policy." In light of this unambiguous limitation on the scope of the SIR, it is
not surprising that there is no other provision of the SIR that nonetheless extends the
scope of the SIR to include the costs of defense.
Were there any doubt as to the scope of Admiral's SIR, we need only look to the
policy's provisions with respect to other insurance. As in Montgomery Ward, the
Admiral policy expressly provides that where a claim is covered by other insurance, the
Admiral policy is excess and Admiral has no duty to defend. The absence of such an
express extension of the scope of the SIR leads us, and would lead any reasonable
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insured, to conclude that, consistent with the express terms of the SIR, the SIR only
applies to damages.
In sum, the trial court did not err in determining the Horton entities were not
required to satisfy the SIR as a condition of obtaining a defense from Admiral.
III
Admiral argues that even if it owed the Horton entities a duty to defend, ASIC
either waived its right to subrogation or acted as a volunteer. Like the trial court, we
reject these defenses as well.
A. Settlement with Holding
The trial court found ASIC's settlement of Holding's bad faith suit against it did
not bar ASIC's later effort to obtain subrogation for defense costs it paid on behalf of the
other Horton entities. The record supports the trial court's finding that by way of the
settlement ASIC only agreed to provide defense costs to Holding and that it did not by
way of the settlement forego its right to recoup those defense costs from other parties. In
particular, nothing in the agreement itself or in the circumstances giving rise to it support
Admiral's contention the defense costs ASIC paid were paid as "damages" for any act of
bad faith on ASIC's part and therefore outside the scope of expenses that were rightfully
Admiral's obligation.
We reject Admiral's reliance on United Services Automobile Association v. Alaska
Insurance Company (2001) 94 Cal.App.4th 638, 646 (USAA). There, the excess carrier,
USAA, sought subrogation against the primary insurer, New Hampshire, for damages
17
USAA paid the insured, Mrs. Thomas, in her bad faith action against USAA. New
Hampshire in fact provided the insured with a defense and settled with the underlying
personal injury claimaint within New Hampshire's policy limits. (Id. at p. 647.) Given
these circumstances, we concluded USAA had no subrogation claim against New
Hampshire for the USAA's own bad faith in failing to provide Mrs. Thomas with a
timely defense. (Ibid.) We stated: "Because USAA, under the theory of equitable
subrogation, stands in Mrs. Thomas's shoes and is entitled to recover from New
Hampshire only what Mrs. Thomas could have recovered from New Hampshire, USAA's
equitable subrogation claim rests on the untenable premise that Mrs. Thomas could have
recovered compensation from New Hampshire for USAA's alleged wrongful denial of
coverage." (Ibid.)
In ASIC's subrogation action, it stands in the shoes of the Horton entities. The
Horton entities never made any bad faith claim against ASIC because there was no theory
upon which ASIC owed the Horton entities any duty of defense: the Horton entities were
not named insureds under the ASIC policy and were not additional insureds as a result of
any contract with Ebensteiner. The Horton entities were named insured under the
Admiral policy, and it is Admiral's unfulfilled defense obligations under that policy that
gives rise to ASIC's subrogation claim. In short, unlike the circumstances we confronted
in USAA, here, ASIC is in no sense seeking to recover subrogation for any wrong it
committed.
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B. Volunteer
Like the trial court, we also reject Admiral's contention that it voluntarily paid the
Horton entities' defense costs.
The record shows that, notwithstanding requests from ASIC, the law firm
defending Holding and the other Horton entities refused to provide ASIC with separate
billing for each of the three entities. We also note the record shows and the trial court
found that Admiral and Horton failed to disclose to ASIC the existence of the Admiral
policies. Given these circumstances, the volunteer defense did not require that ASIC
engage in further coverage litigation with Holding or the other Horton entities in order to
preserve its rights against Admiral, which, as we have discussed, owed the Horton
entities a duty of defense. In this regard, we note where, as here, one insurer has an
otherwise valid subrogation claim against another insurer, the "volunteer" defense has
been criticized: "'"[T]here are . . . compelling reasons for allowing recovery when the
other insurer has not entered the case at all or has refused to defend the insured against
suit by the injured party. . . . [T]his view represents the current trend and better rule in
the 'volunteer' situations."' [Citation.]" (Fireman's Fund, supra, 65 Cal.App.4th at p.
1290.)
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DISPOSITION
The judgment is affirmed. ASIC to recover its costs of appeal.
BENKE, Acting P. J.
WE CONCUR:
McINTYRE, J.
O'ROURKE, J.
20
AI Brief
AI-generated · verify before citing
Holding. A primary liability insurance policy's self-insured retention (SIR) provision does not relieve the insurer of its duty to defend the insured unless the policy contains express and unambiguous language making the payment of the SIR a condition precedent to the duty to defend. In the absence of such language, the insurer must provide a defense for arguably covered claims upon tender.
Issues
Whether an insurer's duty to defend is subject to a self-insured retention (SIR) when the policy does not expressly make the SIR a condition of the defense obligation.
Whether an insurer that pays defense costs for an entity it does not insure is entitled to equitable subrogation against the entity's primary insurer.
Disposition. Affirmed.
Quotations verified verbatim against the opinion
“the SIR clause we are asked to consider does not expressly make payment of the SIR a condition of the insurer's broader obligation to provide a defense when an arguably covered claim is tendered.”
“The policy in dispute here, however, does not contain such an express condition on the defendant insurer's duty to defend.”
“the trial court did not err in determining the Horton entities were not required to satisfy the SIR as a condition of obtaining a defense from Admiral.”