California Courts Give Effect to the Intent of the Parties to an Insurance Contract
A recent California Court of Appeals decision served as a reminder of the long-standing rule in California that the mutual intent of the parties will always control the interpretation of potentially conflicting provisions in an insurance contract. In its recent decision in Gemini Ins. Co. v. Delos Ins. Co. (Dec. 5, 2012, B239533) __ Cal.App.4th __ [2012 WL 6050774] [Second Dist., Div. Five], the Court of Appeals was faced with the task of interpreting the inter-insured exclusion (i.e., an exclusion for claims between two insureds) in a liability policy as it applied to an additional insured named in the policy when the additional insured’s property has been damaged.
The Facts: A restaurant owner, and tenant to the property, negligently caused a fire which caused damage to property of the landlord. The landlord was an additional insured under the policy at issue, which insured him from liability for acts caused by the restaurant. The policy also contained an exclusion for claims asserted between two insureds. After the fire, the landlord sought relief from the restaurant for damage to his property. On a motion for summary judgment by the landlord’s insurer, the landlord argued that he was not an insured under the policy, and therefore the inter-insured exclusion did not apply. The trial court granted the motion.
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The Ninth Circuit Court of Appeals in a recent decision held that an insurer’s duty of good faith and fair dealing, which is implied in every contract of insurance, may be violated by the insurer’s failure to attempt to effectuate a settlement within policy limits after liability of its insured has become reasonably clear. In essence, the Court found that an insurer’s unreasonable refusal to attempt to effectuate settlement after the evidence reasonably indicates that the insured’s liability will be in excess of the policy limits constitutes bad faith.
Gaylord owns and operates a livestock operation, raising his own cattle and raising cattle for others. In June 2008 some of the cattle die suddenly. By September and October 2008 cattle begin dying at an alarming rate. Gaylord suspects feed poisoning. Autopsies and feed testing confirm that the cattle are dying from liver failure caused by toxic plants in the alfalfa feed. There is no known cure, so Gaylord gets permission from the Department of Agriculture to sell the cattle off for early slaughter—but at a financial loss for Gaylord and the other cattle owners. 
Delving into the sometimes arcane metes and bounds between insurers’ rights of equitable subrogation and equitable contribution, a California appellate court recently denied an excess insurer’s right to bring an equitable subrogation action against its insured’s agent for failing to renew another excess insurer’s policy that would have covered the same underlying bodily injury risk. The appellate court expanded on the trial court’s reasoning, and concluded that the excess insurer could not establish at least two necessary elements of an action for equitable subrogation, and could not show that it had paid more than its fair share under the doctrine of equitable contribution. James Dobbas, et al. v. Fred Vitas, et al., 2011 Cal. App. LEXIS 15 (January 7, 2011).
