Additional Insured Not Subject To Cross-Insured Exclusion

Gemini Insurance Company v. Delos Insurance Company
(Cal. Ct. of App., 2d Dist.), filed December 6, 2012

KEY FACTS

Delos Insurance Company insured a restaurant called Bobby’s Focsle and its owners. Bobby’s landlord was Loch Lomond Marina. Loch Lomond was named as an additional insured under Bobby’s policy.

A fire at Bobby’s caused damage to Loch Lomond’s property, and to another business, both of which had property insurance with Gemini Insurance Company.

Gemini paid its insureds and then filed a subrogation action against Bobby’s. Delos paid Gemini’s claim with respect to the other business, but refused to pay Gemini’s claim with respect to Loch Lomond. It asserted that because Loch Lomond was an additional insured under Bobby’s policy, an exclusion for claims between insureds applied and barred coverage.

In the ensuing coverage litigation, the trial court found that the additional insured endorsement did not make Loch Lomond an “insured” such that the interinsured exclusion applied.

HOLDING & REASONING

The Court of Appeal affirmed.

The court focused on the endorsement that named Loch Lomond as an additional insured. It was titled “Additional Insured – Managers or Lessors of Premises” and read in part: “Who is an Insured (section II) is amended to include as an insured the person or organization shown in the Schedule but only with respect to such person or organization’s liability which both (1) arises out of the ownership, maintenance or use of that part of the premises leased to you and shown in the Schedule, and (2) occurs on that part of the premises leased to you and shown in the Schedule, and (3) results from and by reason of your act or omission or an act or omission of your agent or employee in the course of your operations at that part of the premises leased to you and shown in the Schedule.”

Under that endorsement, Loch Lomond is an additional insured only when and where it faces liability arising from Bobby’s acts, undertaken in the course of Bobby’s operations on the leased premises. It is designed to protect parties who are not named insureds from exposure to vicarious liability for acts of the named insured.

ANALYSIS

The court’s decision is consistent with the purpose of policy exclusions for claims between insureds. Such provisions exist to avoid issues of collusion that may arise when insureds, such as family members or business partners, sue each other. In such actions, one insured may benefit from having its insurer pay another insured. As such, the insured against whom a claim is made may have no incentive to let the adversary system develop the truth. In contrast, when one is an insured only in the circumstances of a landlord who is sued vicariously, those issues do not exist.