Appeals court vacates insurers’ win in defense contribution fight

The 6th Circuit U.S. Court of Appeals Tuesday reversed a ruling relieving two insurers from contributing to defense costs a Chubb Ltd. unit incurred before it notified them of an underlying lawsuit, saying it was unclear if they were prejudiced by untimely notice.

A three-judge panel said in Ace American Insurance Co. v. Zurich American Insurance Co. et al. that the Chubb unit must show that it has a share defense obligation with Zurich and Travelers Cos. Inc. unit Discover Property & Casualty Insurance Co.

The panel said a federal judge in Ohio must determine if Zurich and Discover were prejudiced when Ace informed them in October 2019 about an August 2015 lawsuit brought by Richard Campfield and Ultra Bond Inc. against policyholder Safelite Group Inc.  

The judge must also determine if voluntary payment provisions in Zurich and Discover’s policies are applicable, the panel said.

Campfield and Ultra Bond accused Safelite of Lanham Act violations by saying in advertisements that windshield cracks larger than six inches cannot be repaired.

Safelite notified Ace of the lawsuit in June 2016, and the Chubb unit began funding the defense after Safelite satisfied its deductible in June 2017. Ace did not inform Zurich and Discover about the suit until October 2019, after it incurred more than $5 million in defense costs, court records show.

Although Zurich and Discover agreed to fund the future defense costs for the suit against Safelite, Ace sued to recover the costs it incurred before giving notice to the other insurers.    

Ace argued that regardless of any prejudice suffered by Zurich and Discover, it acted properly pursuant to Ohio’s “all sums” approach on equitable contribution. Under that theory, a targeted insurer, such as Ace, can initially take on a defense and later seek contribution from other insurers.

The trial judge awarded summary judgment to Zurich and Discover after finding that the “all sums” approach only applies in cases involving “progressive” injuries, such as continuous environmental pollution.   

Although the appeals panel agreed that the “all sums” approach does not apply in this case, it said the judge should evaluate if Zurich and Discover were prejudiced by the untimely notice.

Representatives for the insurers did not respond to requests for comment.