Oregon Court Allows Contribution Action Against Settling Insurer
The Oregon Court of Appeals, in Certain Underwriters at Lloyd's London v. Massachusetts Bonding and Ins. Co., et al., found that a non-settling carrier may pursue a contribution action for defense costs against a carrier that settles with a joint insured. The Court of Appeals ruled that London was entitled to pursue its contribution action against carriers that previously settled with Zidell based on the theory of equitable contribution. London did not seek contribution for amounts paid toward indemnity. The key holding is:
"For that reason, we conclude that defendants' settlements with Zidell did not operate to extinguish plaintiffs' right to equitable contribution for defense costs paid prior to the settlement. If plaintiffs and defendants had the same obligation to defend Zidell, and plaintiffs discharged a disproportionate share of that obligation, then their right to equitable contribution arose at that point in time. Although Zidell was able to release its own claims against defendants for defense costs, Zidell was not in a position to release plaintiffs' claims against defendants."
The court noted that its decision only applied to defense costs incurred before the date of a settlement between a carrier and the insured. The court expressed no opinion as to the fate of any underlying defense costs incurred after a carrier settles with its insured. The court held that the Oregon statute governing contribution among carriers for an environmental claim does not preclude a contribution action against a settling carrier because it allowed a carrier to at least seek contribution from another carrier who is "liable or potentially liable."
The court also held that because the insurer may only seek contribution based on equity, not contractual obligations, London was not entitled to statutory attorney fees in pursuing the contribution claim. With respect to what constitutes a suit, the court ruled that a letter from the Oregon Department of Environmental Quality that is the equivalent of an "agency ultimatum," asserting that the insured must investigate and remediate its site, qualifies as a "lawsuit." The court held that since the letter from the agency satisfied this requirement. The court held there was a duty to defend because the letter required investigation into the "extent" of third party property damage, rather than "whether" third party property damage had occurred.
-Submitted by Andrew Moses, Gordon & Polscer LLC
