A primary insurer (Truck Insurance Exchange) and an umbrella insurer (Federal Insurance Company) have been involved in a series of lawsuits dating back to 2007. The California Court of Appeal recently ruled that their litigation is not done yet. Truck Ins. Exch. v. Fed. Ins. Co., No. B332397, 2025 WL 1367172, ___ Cal. Rptr. 3d ___ (2025).
Truck and Federal insured a company named Moldex-Metric, Inc., which was named as a defendant in several civil lawsuits. Initially, Moldex was defended and indemnified by various primary insurers.
In 2003, when the primary insurers' limits were purportedly exhausted, Federal – which had issued a commercial umbrella policy to Moldex – began to indemnify Moldex and pay for its defense. However, in late 2004, Moldex discovered it was an additional insured under a primary liability policy issued by Truck. This ultimately led to three different lawsuits between Federal and Truck.
Lawsuit #1: Federal first sued Truck seeking contribution for indemnity and defense costs that Federal had paid on Moldex's behalf. Federal argued, among other things, that as an umbrella/excess insurer, Federal had no duty to indemnify or defend Moldex until all primary policies were exhausted – including Truck's. The trial court ruled in Federal's favor. While the case was on appeal, Truck reached a settlement with Federal as part of which Truck agreed to pay more than $4.8 million in defense and indemnity costs.
Lawsuit #2: Truck later sued Federal (and other defendants) seeking reimbursement or contribution for defense and indemnity costs that Truck paid after its policy limits were exhausted. In response, Federal argued Truck could not seek reimbursement from Federal for defense costs because Federal had no duty to defend Moldex; rather, Federal claimed that it "made a business decision" to exercise its right to associate in Moldex's defense. Specifically, Federal relied on a provision in its umbrella policy that stated it "shall not be called upon to assume" the defense of any suits brought against Moldex, but that Federal "shall have the right and be given the opportunity to be associated in the defense," which if it chose to do would be at Federal's "own expense." Federal ultimately prevailed in that second lawsuit, in part, based on that argument.
Lawsuit #3: Truck then filed a fraud action against Federal that alleged, among other things, that Federal had misrepresented to Truck that Federal had a duty to defend Moldex or, alternatively, that Federal concealed that it had voluntarily made defense payments as a "business decision." Truck argued that had it known that Federal's payments were voluntary, Truck never would have entered into the $4.8 million settlement because Federal would not have had a basis to seek contribution from Truck for defense costs that Federal voluntarily assumed.
That fraud action went to a bench trial. After considering extensive evidence, the trial court issued a tentative statement of decision in Federal's favor finding that Federal had no duty to disclose to Truck that Federal did not have a duty under its umbrella policy to defend Moldex. The court also concluded that even if the evidence supported that Federal had committed fraud, that fraud was intrinsic to Lawsuit #1 and therefore protected by the litigation privilege. Truck objected to the trial court's tentative, including because it did not address Truck's alternative concealment claim. The trial court disagreed and entered judgment in Federal's favor, which Truck appealed.
The California Court of Appeal reversed. First, the court held that the trial court failed to address Truck's concealment claim – which was not that Federal concealed it had no duty to defend under its policy, but that Federal concealed that it made a "business decision" to voluntarily assume that duty. In doing so, the court rejected Federal's argument that it was not acting as a "volunteer" simply because it was motivated to avoid potential bad faith liability to Moldex. The court also recognized that "California law does not require one insurer to contribute to or reimburse another insurer who makes a voluntary payment."
Second, the court held that Truck's concealment claim was not barred by the litigation privilege. The court concluded that during Lawsuit #1, Truck did not unreasonably neglect to explore whether Federal had voluntarily assumed the defense of Moldex. Of note, the court pointed to how Federal had alleged in its complaint in that lawsuit that Truck was "obligated" to reimburse Federal for defense costs, which was inconsistent with Federal voluntarily assuming a defense obligation. Moreover, Federal never disclosed during discovery anything that indicated that it had made a voluntary "business decision" to defend Moldex. Therefore, the court agreed with Truck that Federal's alleged concealment would amount to extrinsic fraud, which does not fall under the litigation privilege.
Accordingly, the Court of Appeal remanded the case to the trial court with instructions to hold a new trial on Truck's concealment claim.
There are lessons to be learned on both sides of this dispute. For primary insurers, when faced with a contribution claim from an excess insurer, it's important to closely review the excess insurance policy to assess the nature of the excess insurer's obligations to the insured – e.g., whether it does or does not have a duty to defend. That could impact the excess insurer's right to seek contribution from a primary insurer, in particular, if the excess insurer's payments could be considered voluntary.
As for excess insurers, be aware that voluntarily assuming an obligation not owed under the terms of the policy could impact your right to seek recovery from other insurers.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
