Abjuring the Collateral Indemnity Exception to Insurer Contribution

34 Pages Posted: 15 Feb 2013

See all articles by Joseph Lavitt

Joseph Lavitt

University of California, Berkeley - School of Law

Date Written: 2011

Abstract

In recent years, courts throughout the United States have sought unsuccessfully to clarify whether a contract requiring one party (the promisor) to obtain liability insurance in favor of another (the promisee) supplants a liability insurance policy procured by the latter. This issue educes markedly divergent judicial opinions. A dominant approach turns on whether the promisor also agreed to indemnify the promisee. If so, courts in most jurisdictions will find the issuer of a liability policy procured by the promisor solely liable for sums owed co-extensively by the issuer of a liability policy procured directly by the promisee.

Drawing on the terms of an indemnity contract collateral to the operative insuring agreements to inform the reciprocal obligations of two (or more) insurers is an injudicious exception to the usual method of apportionment. Usually, coverage afforded by more than one policy of liability insurance is apportioned according to the doctrine of equitable contribution. Courts, exercising jurisdiction in equity, generally require insurers to contribute to a co-extensively insured loss according to a loosely defined, but reasonably discernible, range of judicially determined considerations. The conventional objective of such apportionment is to recognize and enforce the insurers’ co-extensive obligations, not excuse them.

This Article provides a fresh perspective on a court’s exercise of equitable powers to relieve an insurer entirely of its contractual obligation based on a co-extensive obligation contractually owed by another to its insured. The competing claims that arise in these circumstances can be resolved only by understanding principles of tort and contract law as malleable in equity into a fused amalgam. The so-called “collateral indemnity” exception to equitable contribution instead dwells outside these fitting restraints. Unstated but inherently flawed views about equitable jurisdiction have roused in these instances a misguided theory of exculpation that was doomed from the outset to fail on both theoretical and practical grounds.

Keywords: insurance, contribution, subrogation, contracts, torts, equitable, jurisdiction, equity, contractor, subcontractor, Rossmoor, collateral contract, insurer, insured, liability insurance, co-insurance, co-insurers, apportionment

Suggested Citation

Lavitt, Joseph, Abjuring the Collateral Indemnity Exception to Insurer Contribution (2011). Wayne Law Review, Vol. 57, No. 1333, 2011 (Forthcoming), Available at SSRN: https://ssrn.com/abstract=2217023

Joseph Lavitt (Contact Author)

University of California, Berkeley - School of Law ( email )

215 Boalt Hall
Berkeley, CA 94720-7200
United States

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