Different Expectations Between Additional Insured and Named Insured

By March 10, 2014 Insurance Blog
William Hoang

William Hoang

In a recent case, the California Court of Appeal found that for purposes of determining whether an additional insured to an excess and umbrella liability policy is entitled to a defense by an insurer, the reasonable expectations of an additional insured may be different than the reasonable expectations of the named insured.

Background

In Transport Insurance Company v. Superior Court (2014) 222 Cal.App.4th 1216, Transport Insurance Company (“Transport”) issued a commercial excess and umbrella liability insurance policy to Vulcan Materials Company (“Vulcan”) (the “Policy”).  R.R. Street & Co., Inc. (“R.R.”) was added as an additional insured under the Policy.  Vulcan and R.R. were later named as defendants in several underlying lawsuits.

Transport then brought a declaratory relief action against R.R. alleging that Transport did not have a duty to defend R.R. in certain underlying actions.  R.R. subsequently filed a motion for summary adjudication against Transport asserting that Transport had a duty to defend R.R. in the underlying actions.  R.R. contended that a certain provision in the Policy relevant to Transport’s duty to defend was already found in a prior action to be ambiguous based on Vulcan’s reasonable expectations.  Under California law, if the terms of an insurance policy are ambiguous, any ambiguity must be resolved in favor of the objectively reasonable expectations of the insured.  Therefore, R.R. attempted to use the prior ruling to argue that Transport was collaterally estopped from contending Transport did not have a duty to defend R.R. in the underlying actions pursuant to the provision at issue.  The trial court granted R.R.’s motion for summary adjudication.

Holding

The Court of Appeal reversed the trial court’s ruling, holding that the trial court erred when it failed to consider R.R.’s objectively reasonable expectations of coverage.  The Court of Appeal reasoned that since R.R.’s motion for summary adjudication concerned Transport’s duty to defend R.R. in the underlying actions as an additional insured under the Policy, the relevant inquiry was R.R.’s, not Vulcan’s, objectively reasonable expectations of coverage.  Therefore, since R.R.’s reasonable expectations were not litigated in the prior action, the trial court was not bound by collateral estoppel to rely on Vulcan’s objectively reasonable expectations as found in the prior action.