Why it matters: Under Minnesota law, primary insurers may seek contribution from other primary insurers that had a duty to defend under a fronting policy even where, as here, the insured ultimately would bear those costs pursuant to indemnities and other side agreements that typically form a part of such policies.
A district court in Minnesota recently confronted what appeared to be a routine claim of contribution between liability insurers over the cost of defending four toxic tort claims against the insured, The Valspar Corp. ("Valspar"). Continental Casualty Company v. National Union Fire Ins. Co., _ F. Supp. 2d _ (D. Minn. March 29, 2013).
This case, however, had a twist: The "insurer" defendant (National Union) had actually issued a fronting policy to Valspar, which meant that Valspar, and not National Union, ultimately paid for any defense costs up to a specified limit.
Over National Union's and Valspar's objections, the court held this distinction did not warrant deviations from Minnesota's contribution rule.
First, the district court noted that since 2010 Minnesota has permitted a primary insurer (here, Continental) to bring a claim for equitable contribution seeking defense costs from any other insurer that also had a duty to defend the insured.
Second, the district court carefully distinguished between the duty to defend and the duty to reimburse for defense costs, holding, not surprisingly, that the former entailed additional duties such as the retention of defense counsel and management of the litigation.
Third, the district court then held that the fronting policies issued by National Union to Valspar imposed a duty to defend on National Union. In painstaking detail, the district court examined each and every contractual arrangement that formed Valspar's fronting program and held that nothing therein altered National Union's duty to defend.
Moreover, the fact that Valspar had a contractual obligation to reimburse National Union for defense costs paid pursuant to the duty to defend did not itself alter the duty to defend. Accordingly, Continental had demonstrated a right to contribution from National Union.
However, Minnesota also follows an allocation rule of equal shares between defending insurers. The court found that as among the seven insurers with a duty to defend, including Continental and National Union, Continental was therefore entitled to contribution in the amount of approximately $78,000.