(Article from Insurance Law Alert, April 2021)
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A California federal district court dismissed an insurer’s equitable contribution claim against another insurer, finding that the claim was time barred by the applicable statute of limitations. Lexington Ins. Co. v. QBE Specialty Ins. Co., 2021 WL 735665 (N.D. Cal. Feb. 25, 2021).
A policyholder tendered defense of a construction defect suit to Lexington Insurance Company. The policyholder opted not to seek coverage from another insurer, QBE, because it wished to preserve limits on the QBE policy for future claims and because the QBE policy included a deductible. Lexington agreed to defend and ultimately settled the suit. Thereafter, Lexington made several requests to QBE for contribution of defense and indemnity expenses, which QBE refused. More than two years after the underlying settlement, Lexington filed an action for equitable contribution.
The court dismissed the action, ruling that it was time-barred under California’s two-year statute of limitations for equitable contribution claims. Under California law, the limitation period for an equitable contribution claim accrues when the non-contributing insurer first refuses the demand to contribute, but is tolled until all defense obligations in the underlying action are terminated by final judgment. Applying this standard, the court held that Lexington’s claim against QBE accrued in 2016, when QBE refused to participate in the policyholder’s defense—nearly three years before Lexington filed suit. Further, the court held that the statute of limitations was tolled only from the date of underlying settlement, which was more than two years before Lexington filed suit. The court rejected Lexington’s assertion that the statute of limitations is tolled until the date of last underlying payment for which the insurer seeks contribution. The court noted that the argument had “some support” in California case law, but was not binding by persuasive authority.
QBE also argued that dismissal was warranted based on a “selective tender” rule, which recognizes a policyholder’s right to select an insurer for tender. The court declined to address the merits of the “selective tender” argument based on its finding that dismissal was warranted on statute of limitations grounds, but noted that it would be “extremely reluctant” to apply the rule based on its apparent inconsistency with California’s recognition of equitable contribution claims among insurers. The court stated: “The right to seek equitable contribution is predicated on the commonsense principle that where multiple insurers or indemnitors share equal contractual liability . . . the selection of which indemnitor is to bear the loss should not be left to the often arbitrary choice of the loss claimant.” (Citations omitted).