Opinion ID: 683215
Heading Depth: 2
Heading Rank: 4

Heading: Insurance Offset Against Extraordinary Expenses

Text: 42 Bank of the West succeeded in having its liability insurer, Chubb, pay $1.14 million toward the loss. Chubb insured Bank of the West against lenders' liability claims of the sort which Bank of the West spent $11 million defending and settling. (See Ex 703 p 4; Supp Ex 106). The district court subtracted this money from extraordinary expenses. Valley National thereby got half of Bank of the West's liability insurance recovery. Bank of the West argues that it should not have had to share the benefit of liability insurance it paid for itself, for its own protection. 43 The participation agreement does not say anything about the collateral source rule. It applies to expenses incurred or sustained by Lender. The only reference in the agreement to offsets against extraordinary expenses is the statement that they are to be reimbursed by Valley National only to the extent such Extraordinary Expenses are not collected from the Borrower. This offset does not apply, because the $1.14 million was collected from Chubb, not Technical Equities. 44 We conclude that Valley National was not entitled to an offset for the $1.14 million in liability insurance. This falls within the general principal that indemnitors must pay all the legal expenses of its indemnitee, even if the indemnitee's insurer already paid for the expenses. See Long v. Keller, 104 Cal.App.3d 312, 318, 163 Cal.Rptr. 532 (1980); Tillman v. Wheaton-Haven Rec. Ass'n, Inc., 580 F.2d 1222, 1230 (4th Cir.1978). An insurer may be subrogated to the policyholder's right to indemnity from a third party. See Lesmark, Inc. v. Pryce, 334 F.2d 942, 945 (D.C.Cir.1964). If that is so, there is no windfall to anyone. Even if the insurer is not entitled to subrogation, calling the insurance a windfall somewhat misstates the case. Bank of the West chose to bear the expense of purchasing the liability insurance, and Valley National did not contract to share in the benefit. We must remand so that the district court can correct the judgment by eliminating this offset against Bank of the West's claim. 45 AFFIRMED in part, REVERSED in part and REMANDED.