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‘Common burden’ permits equitable contribution claim

Virginia Lawyers Weekly//July 29, 2019

‘Common burden’ permits equitable contribution claim

Virginia Lawyers Weekly//July 29, 2019

Where an insurer settled a claim in full after the circuit court ruled the insurer was primarily liable, the settling insurer can seek equitable contribution from the other insurer on the risk after the circuit court’s ruling was reversed on appeal.


Two insurers, collectively “Nationwide” and Erie, another insurer, sought a declaration in a coverage dispute involving a defendant in a wrongful death case arising from a traffic accident. Nationwide issued three policies: a $1 million commercial general liability policy, a $1 million business auto policy and a $1 million umbrella policy. Erie had two policies on the risk, a $1 million commercial auto policy and a $5 million business catastrophe policy.

The circuit court ruled that Nationwide had prior for the first $3 million in coverage and Erie was responsible for excess coverage. Counsel for the wrongful death plaintiff warned if there was no settlement, he would seek $10 million at trial. Nationwide asked Erie to contribute toward a settlement. Erie refused. Nationwide then settled the case for $2.9 million and obtained a full release.

Nationwide appealed the circuit court’s ruling. The Virginia Supreme Court reversed. Nationwide then filed an action for equitable contribution from Erie but the circuit court granted Erie’s demurrer. Erie successfully argued that it had no common obligation with Nationwide to pay the settlement because Nationwide voluntarily agreed to settle, and that a condition precedent to Erie’s payment under its policies – either a judgment or Erie’s consent to settle – had not be satisfied.

We reverse.

Claim stated

“Nationwide settled with the tort claimant for an amount for which it was then wholly liable, based upon the circuit court’s holding that Nationwide was liable to cover the first $3 million. We later reversed the circuit court’s holding, finding that Erie was responsible for primary coverage of up to $1 million, that Nationwide was responsible for excess coverage of up to $1 million after that, and that both parties shared, pro rata, responsibility for excess coverage over that amount (here $900,000) under their respective umbrella and catastrophe policies. Our holding reconfigured their respective obligations. The purpose of equitable contribution is to spread the ultimate liability in a fair proportion among the jointly liable obligors. …

“Even when a payor misapprehends the law governing the payment, we need not mechanically apply the rule of voluntariness based on mistake of law where to do so would lead to a ‘wholly inequitable result.’ …

“Erie refused to contribute toward the settlement because, armed with a circuit court order confirming its view, it took the position that Nationwide was exclusively responsible for the first $3 million in coverage. The settlement amount, $2.9 million, was within that amount of Nationwide’s exclusive coverage, and thus, Erie was not responsible to contribute anything toward the settlement. For this reason, Erie effectively denied any obligation to cover claims under $3 million.

“Erie’s refusal to contribute toward a settlement under $3 million had nothing to do with Erie’s right to agree to the settlement but was instead based upon Erie’s then-existing right to refuse to pay anything toward a settlement exclusively within Nationwide’s, not Erie’s, coverage.

“Under settled principles, an insurer that denies coverage waives any contractual right to participate in a settlement of the claim and cannot later refuse to pay a covered claim on this basis. … For this reason, the conditions precedent to payment requiring consent to a settlement or judgment against the insured did not apply here.”

Vacated and remanded for further proceedings. The circuit court will determine whether the settlement was reasonable and enter an order awarding contribution consistent with our previous decision.

Nationwide Mutual Fire Ins. Co, et al. v. Erie Ins. Exchange. Record No. 180572. (Published Order) (Kelsey, dissenting, joined by Goodwyn) July 18, 2019. (Appeal from Loudoun Circuit Court) John Mason Claytor, Mark Gregory Carlton, Robert Forest Friedman for Appellants, Henry Cannon Spaulding III, Michael Gordon Matheson, John Paul O’Herron for Appellee. VLW 019-6-048, 11 pp.

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