Opinion ID: 170492
Heading Depth: 2
Heading Rank: 2

Heading: Proration of Defense Costs

Text: The district court found that both ACC and HCI had contributed to Ms. Rooks's defense costs and attorney fees  ACC had spent $134,578.43 and HCI $353,001.71. Recognizing that ACC had paid more than 3/11 of the total, the court entered a judgment for ACC in the amount of $90,252.96, so that the net payments by the parties would be in the same ratio as their liability limits. HCI asserts that the district court erred in awarding the $90,252.96 judgment. It contends that each insurer must bear its own defense costs and attorney fees because the doctrine of equitable contribution does not apply to defense costs. According to Oklahoma law, it argues, one insurance company cannot require another to pay defense costs and fees unless there is a specific contractual right as between the two insurance companies. Aplt. Br. at 34. Controlling precedent of this court, however, compels us to disagree. In St. Paul Mercury Insurance Co. v. Underwriters at Lloyds of London, England, 365 F.2d 659, 662 (10th Cir.1966), a diversity-case appeal from the Western District of Oklahoma, we applied the doctrine of equitable contribution to apportion defense costs and attorney fees when, as here, two policies insured the same person for the same risk at the same level of coverage. John Bennett had been involved in an accident while driving a vehicle owned by his employer. Liberty Mutual Insurance Company issued a policy to the employer that provided primary coverage to both the employer and Bennett. The two parties on appeal provided excess coverage: The St. Paul policy was issued to Bennett, but provided only excess if he was driving a nonowned car and other insurance covered the loss; the Lloyds policy (issued to the employer) covered the employer and Bennett, but only for loss above the primary-insurance coverage. As the primary insurer, Liberty Mutual defended the initial lawsuit and paid its policy limit in partial satisfaction of a judgment against Bennett. St. Paul contributed to the judgment and spent more than $20,000 defending later lawsuits against Bennett and settling those claims. When Lloyds refused to pay anything, St. Paul sued for contribution. We examined the policies and concluded: Both [St. Paul and Lloyds] undertook to provide excess coverage, and both were on an equal basis once the primary coverage was exhausted. There is no reason to distinguish between them. Id. at 662. Accordingly, we prorated the excess loss between the two insurers. Id. at 663. The costs and expenses of defense, we added, must likewise be prorated. Id.; see also 14 Steven Plitt, et al., Couch on Insurance § 200:35 (3d ed.2007) (where two or more primary insurers' policies contain `other insurance' clauses purporting to make respective policy excess to the other, the conflicting clauses will be ignored and the [defense costs] prorated among the insurers on the ground the insured would otherwise be deprived of protection.). HCI relies on two Tenth Circuit cases for the proposition that defense costs cannot be apportioned. But in neither case did the two insurance policies cover the same insured at the same level for the same risk. In United States Fidelity & Guaranty Co. v. Tri-State Insurance Co., 285 F.2d 579, 582 (10th Cir.1960), we considered the respective defense obligations of two insurers that provided the same insured different levels of coverage for the same risk and held that neither was entitled to divide the duty [to defend] nor require contribution from another absent a specific contractual right. The dispute arose out of an automobile accident involving a truck owned by one Barsh and used by Kerr Glass Company to make shipments. Tri-State Insurance Company provided primary coverage to Barsh and any person or organization legally responsible for the use (of the truck), provided the actual use . . . is by the named insured or with his permission. . . . Id. at 580 (internal quotation marks omitted). It was not disputed that Kerr was an additional insured under the policy. United States Fidelity and Guaranty (USF & G), on the other hand, insured Kerr, but provided only excess coverage with respect to loss arising out of the use of any non-owned automobile. . . . Id. at 581. Unlike the insurers in St, Paul, USF & G and Tri-State were not on equal footing; one provided primary coverage and the other was an excess insurer. Likewise, in West American Insurance Co. v. Allstate Insurance Co., 295 F.2d 513 (10th Cir.1961), the two insurers provided the same insured different coverage for the same risk. John Fender wrecked a vehicle borrowed from Lawrence Blevins. West American issued Blevins a policy providing primary coverage for him and any other person using such automobile, provided the actual use . . . is with the permission of the named insured. Id. at 513-14 (internal quotation marks omitted). Allstate, in contrast, provided excess coverage. It protected Fender's family, except that [w]ith respect to the use of a . . . non-owned automobile Allstate limited its liability to excess insurance over any other collectible insurance. Id. at 514 (internal quotation marks omitted). HCI also relies on authority from Oklahoma state courts. We are, of course, bound by declarations of state law in decisions of the state's highest court. See TMJ Implants, Inc. v. Aetna, Inc., 498 F.3d 1175, 1181 (10th Cir.2007). But we find no such holding contrary to St. Paul. The most recent opinion cited by HCI, United Services Automobile Ass'n v. State Farm Fire & Casualty Co., 110 P.3d 570 (Okla.Civ.App.2004) (USAA), would appear to support its position. The court in that case refused to apportion defense costs between two insurers. Although the opinion acknowledged that the Oklahoma Supreme Court in United States Fidelity & Guaranty Co. v. Federated Rural Electric Insurance Corp., 37 P.3d 828, 832 (Okla. 2001), recognized that the doctrine of equitable contribution generally applies when insurers cover the same insured for the same risk at the same level of coverage, it went on to say: However, in that case, the Supreme Court did not make a determination that the doctrine of equitable contribution is the law in Oklahoma. The law in Oklahoma is set forth in Fidelity & Casualty Co. of New York v. Ohio Casualty Insurance Company, [482 P.2d 924 (Okla. 1971)], wherein the Supreme Court held the duty of an insurance company to defend lawsuits against the insured is personal to each insurer, and that insurer is not entitled to divide the duty nor require contribution from another insurer, absent a specific contractual right. USAA, 110 P.3d at 573. For two reasons we do not follow USAA. First, a decision by a state intermediate appellate court is not binding on us with respect to matters of state law, see Occusafe, Inc. v. EG&G Rocky Flats, Inc., 54 F.3d 618, 622 n. 1 (10th Cir.1995), and a panel of this court cannot overturn one of our precedents on such authority, see Wankier v. Crown Equipment Corp., 353 F.3d 862, 866 (10th Cir.2003) (when a panel of this Court has rendered a decision interpreting state law, that interpretation is binding on . . . subsequent panels of this Court, unless an intervening decision of the state's highest court has resolved the issue. (emphasis added)). Second, with respect to the issue before us, USAA is unpersuasive. Fidelity & Casualty, 482 P.2d 924, on which USAA relied, considered a dispute between insurers who covered different insureds  a contractor and its subcontractor. Thus, it did not produce a holding regarding the propriety of equitable contribution between two insurers who cover the same insured for the same risk at the same level of coverage. And as for USAA 's treatment of Federated Rural 37 P.3d 828, we do not think that the Oklahoma Supreme Court's discussion of equitable contribution can be dismissed as lightly as the USAA opinion did. To be sure, the discussion of equitable contribution was dictum because the holding was that equitable subrogation does not apply between a primary and an excess insurer before exhaustion of the primary-policy limits. But if it had been settled law in Oklahoma that the doctrine of equitable contribution never applies, the Federated Rural discussion of the matter seems peculiar. Nowhere in the opinion does the Oklahoma Supreme Court express any discomfort with, much less criticism of, the doctrine. On the contrary, the opinion appears to endorse the equitable principle[] underlying [its] . . . public polic[y]. Id. at 832. As it describes that policy, The aim of equitable contribution is to apportion a loss between two or more insurers who cover the same risk so that each pays his fair share of a common obligation, and one co-insurer does not profit at the expense of the others. Id. Contrary to the view of the USAA opinion, we would read the following as a statement of Oklahoma law: Equitable contribution is the right to recover, not from a party primarily liable for the loss, but from a co-obligor or co-insurer who shares common liability with the party seeking contribution. The doctrine applies only when co-insurers have covered the same insured and the same particular risk at the same level of coverage. The right of contribution is not derivative of the rights of the insured, but belongs to each insurer independently to seek reimbursement from a co-insurer those sums which were paid in excess of an insurer's proportionate share of the common obligation. Id At the least, we do not read the Oklahoma Supreme Court's decision as undermining this court's otherwise controlling precedent in St. Paul Both ACC and HCI insured Ms. Rooks for the same risk at the same level of coverage. Accordingly, we conclude that the district court properly applied the doctrine of equitable contribution to apportion defense costs.