Travelers Insurance v. Industrial Indemnity Co.

Citations: 18 Cal. App. 3d 628; 96 Cal. Rptr. 191; 36 Cal. Comp. Cases 934; 1971 Cal. App. LEXIS 1417Docket: Civ. 1265

Court: California Court of Appeal; July 8, 1971; California; State Appellate Court

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Industrial Indemnity Company (Industrial) appeals a summary judgment favoring Travelers Insurance Company (Travelers) related to a contribution claim stemming from insurance policies for Evans Telephone Company. On December 8, 1949, both insurers had active policies when employee Melvin Williams was injured by a Pacific Gas and Electric Company (P.G. & E.) wire. Industrial compensated Williams under its workmen's compensation policy, while Travelers held a general liability policy. Williams later sued P.G. & E. and received significant damages. In 1962, P.G. & E. sued Evans for implied indemnity, prompting Evans to seek defense from Travelers, which was provided. In July 1963, Evans and Travelers requested Industrial to join the defense, but Industrial declined, claiming its policy did not cover third-party indemnity actions against Evans. In March 1967, Travelers and Evans settled with P.G. & E. for $15,000, with a stipulation ensuring Travelers' claim for contribution from Industrial remained intact. Travelers then sued Industrial for a pro rata share of the settlement and associated legal fees. The trial court granted Travelers' motion for summary judgment regarding the settlement amount but reserved the issue of attorney fees for trial. Subsequently, a stipulated agreement resolved the attorney fees, leading to a judgment against Industrial for $22,691 plus prejudgment interest. Travelers argues that the duty to defend, as outlined in Industrial's policy, obligated Industrial to defend Evans in the P.G. & E. suit, supporting its claim for contribution based on legal precedents regarding insurers' obligations.

The right to recover attorneys' fees and costs hinges on whether Industrial's insurance policy covered the type of liability Evans faced from P.G. & E.'s damage action. The policy's key provision states it indemnifies the employer against losses due to legal liability for employee injuries. The trial court interpreted this to include third-party indemnity claims, while Industrial contends the coverage is limited to direct employee claims. Industrial did not provide evidence of the parties' intent regarding the policy's terms, so the interpretation is approached as a matter of law based on the policy's wording.

The critical issue is whether implied indemnity, not explicitly stated or excluded in the policy, is covered. Additionally, the impact of changes in liability scope due to judicial decisions post-policy issuance is examined. In 1949, California courts did not recognize the right of a third-party tortfeasor to recover from an employer under implied indemnity. However, subsequent legal developments recognize such indemnity claims. The court distinguishes a 1937 New York case cited by Industrial, concluding that California law has evolved since the policy was issued.

The court holds that when judicial rulings expand liability during a policy's effective period, the policy’s language should cover that expanded liability. This approach, while seemingly harsh given the 20-year gap, prevents insured parties from losing coverage due to shifts in legal interpretations. The judgment affirming coverage is upheld, concluding that the policy's language encompasses liabilities recognized by courts while the policy remains active.