SUMMARY

In National Union Fire Ins. Co. of Pittsburgh, P.A. v. Tokio Marine and Nichido Fire Ins. Co., __ Cal. Rptr. 3d __, 2015 WL 459231 (Feb. 4, 2015), the Second District Court of Appeal reversed a trial court’s judgment in favor of defendant indemnitor finding that the trail court had erroneously concluded that an indemnitee is limited to the product defect theories raised in the underlying product liability suit. It held that exclusion of the indemnitee’s expert testimony showing alternative product defects was reversible error per se in that it prevented the indemnitee from offering essential evidence to its claim.

FACTS & HOLDING

Plaintiff National Union issued excess insurance to Costco. Defendant Tokio Marine issued primary and excess insurance to tire defendant-manufacturer Yokohama. Those same Tokio policies also insured Costco pursuant to a vendors endorsement. For a number of years prior to 1998, Costco sold, installed and serviced Yokohama tires. One of its customers, Jack Daer, had purchased Yokohama tires for his Ford Explorer and in 1997 brought his Explorer in for service. Shortly after this service visit, one of the Yokohama tires failed causing a rollover accident that resulted in Daer suffering quadriplegic injuries. Daer sued Ford, Yokohama and Costco under strict liability and negligence theories. At trial, Daer was prepared to offer expert testimony showing the tire had three defects. He was also poised to offer expert testimony showing the blowout was the result of negligence on the part of Costco’s service department. Yokohama and Costco settled on the first day of trial. Yokohama paid about $1.1 million and National Union paid over $4.3 million on behalf of Costco.

Following trial, National Union sued (for itself and as subrogee of Costco) Tokio on indemnity and contribution theories and Yokohama for contractual indemnity and breach of the supplier contract. It sought reimbursement for the settlement amount and for the costs incurred to defend Costco. National Union offered its own product defect expert who was prepared to testify that eight separate design and manufacturing defect theories contributed to the failure of the Yokohama tire. Tokio and Yokohama moved in limine to exclude all defect theories not pursued in the underlying matter by Mr. Daer. They argued that the underlying claim was settled based on Daer’s allegations and proffered evidence and that any indemnity or contribution claim must be limited to the facts and allegations raised by the claimant at the time of settlement. The trial court agreed and excluded National Union’s expert.

The Second District Court of Appeal reversed. It held that National Union could offer alternative defect theories in establishing its indemnity and other claims for reimbursement. It reasoned that if an indemnitee-retailor were limited to evidence offered by the underlying claimant, it would be forced to marshal its own evidence of product liability in the underlying matter or risk impairing its rights to recover against the product manufacturer. The court noted this would place an unfair burden on Costco and might undermine public policy in favor of settlements.

SIGNIFICANCE

This case confirms that an indemnitee may offer its own expert evidence to establish product defects against an upstream supplier or manufacturer and is not limited to those theories pursued by the underlying injured claimant. This may include cases where the only underlying claim is negligence on the part of the retailor.

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