The Rights of Concurrent Insurers "Inter Se" Explained
April, 2005
By what right may an insurer, which has no legal relationship with a co-insurer, seek contribution for benefits paid on behalf of their common insured?
I submit the legal predicate is quasi-contract or contract implied in law, not unlike the legal fiction by which some jurisdictions have permitted a tortfeasor indemnity against another who is guilty of more egregious fault.
The teachings of Home Ins. Co. v. Cincinnati Ins. Co., 213 Ill. 2d 307, 821 N.E.2d 269 (2004), explore prerequisites for the right of contribution, as well as those for the right of indemnity.
Contribution, as it pertains to insurance law, is an equitable principle which arises among co-insurers and permits one which has paid the entire loss, or more than its share of loss, to be reimbursed from others which are liable for the same loss. This theory applies only where the insurance is concurrent and both policies insure the same risk, or chance of loss. The Home Insurance court explained two circumstances where the insurers do not share the same risk. There is no right of action where an excess insurer which has paid the loss seeks reimbursement from the primary insurer. The policies simply do not cover the same risk. The protection provided by the excess policy does not begin until those afforded by the primary policy have ceased.
The requisite identity of risk is also absent where OCP policies contain an “arising out of the work” provision and the carriers cover the same additional insured -- but only for liability “arising out of” the work of different named insureds. The risk of injury differs because each insurer covers the additional insured for liability arising out of the work of a different named insured.
The right of equitable subrogation is entirely different. The elements of an equitable subrogation claim follow:
(1) the defendant carrier must be primarily liable to the insured for a loss under a policy;
(2) the plaintiff carrier must be secondly liable to the insured for the “same loss” under its policy; and
(3) the plaintiff carrier must have discharged its liability to the insured and, at the same time, extinguished the liability of the defendant carrier.
The “same loss” requirement does not equate to the “same risk” prerequisite of contribution. An excess insurer can proceed against a primary carrier on a theory of equitable subrogation because they cover the same loss -- notwithstanding that the risks they insure differ.
In sum, the terms “contribution” and “indemnification” are often used interchangeably but there are differences between them. 15 Couch on Insurance 3d, Section 217:15 (rev. 2004).•
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