Key Decisions

July 2012 – Insureds Have Joint And Several Liability

(filed under: Key Decisions Archive | August 8, 2012)

Insureds Have Joint And Several Liability To Insurer Who Settles An Uncovered Claim

Axis Surplus Insurance Company v. Reinoso
(Cal. Ct. of App., 2d Dist.), filed June 26, 2012


Edgar and Linda Reinoso owned and operated a number of apartment buildings. They had ongoing maintenance and habitability issues. A group of tenants in one of the properties eventually sued them for being “slum-lords.”

The Reinosos tendered the suit to their liability insurance carrier, Axis Surplus Insurance Company. Axis undertook their defense under a reservation of rights.

Based on determinations that the Reinosos faced exposures of up to $30 million and that Edgar would not do well at trial, Axis settled the claims against the Reinosos.

After the settlement, Axis sued the Reinosos. It took the position that it had no duty to indemnify and that, as such, it was entitled to reimbursement for the cost of defending the Reinosos and the amount it paid in settlement of the claims against them.

After a bench trial, the trial court denied Axis recovery of its defense costs, but awarded it the amount of the settlement. It denied defense costs because Axis had failed to carry its burden to show that the claims it defended were not even potentially covered by the insurance policies — a requirement for recovery of defense costs. However, it awarded the settlement amount because it determined that there was ultimately no duty to indemnify. The court apparently based its determination on its finding that the tenants’ injuries were barred by policy and statutory exclusions for intentional or willful acts, namely the willful failure to maintain the apartments in a habitable condition.


The Court of Appeal affirmed.

The court rejected Linda Reinoso’s contention that the trial court erred when it found that she was not an “innocent” insured entitled to benefits under the insurance policies. The court briefly addressed statutory and policy exclusions for intentional and willful acts, and the “innocent” insured exception to these exclusions. It then ruled that there was substantial evidence supporting the trial court’s finding that Linda was not an “innocent” insured. In particular, it found that there was substantial evidence showing Linda knew how the properties she and Edgar owned and operated were being operated.

The court also rejected Linda’s contention that the trial court erred when it ordered the insureds to pay the entire sum jointly and severally. The court reasoned that the insureds were jointly and severally liable for the tenants’ injuries and that Linda, although not as culpable as Edgar, received the full benefit of the settlement.


This case emphasizes the differing standards that attach to the relatively broad duty to defend, on the one hand, and the somewhat narrower duty to indemnify, on the other.