Lexington Insurance Company v. QBE Specialty Insurance Company

Background

Lexington Insurance Company and QBE Specialty Insurance Company issued commercial general liability policies to Cell-Crete Corporation. A project owner sued Cell-Crete and others over alleged construction defects. Cell-Crete tendered the defense to Lexington, which accepted the defense, appointed counsel, and later paid $400,000 to settle the underlying action. Cell-Crete did not tender the action to QBE and told QBE that it did not want QBE to participate.

Lexington later sought contribution from QBE for part of the defense and indemnity costs. It filed this action on September 24, 2019, asserting two claims: declaratory relief and equitable contribution. Lexington alleged that it incurred approximately $667,223.52 in defense expenses and paid $400,000 in settlement damages on Cell-Crete’s behalf.

The parties’ arguments

QBE moved for summary judgment, which is a decision without a trial when the evidence shows that no important factual dispute requires a trial. QBE argued that both claims were barred by California’s two-year statute of limitations. QBE also argued that the equitable-contribution claim was barred because Cell-Crete had chosen to tender the action only to Lexington. Lexington argued that its claims were timely and that California did not recognize that selective-tender rule.

Statute of limitations

The court held that California’s two-year limitations period applied to both claims. Under the California appellate decision discussed in the opinion, an equitable-contribution claim between insurers accrues when the insurer that did not participate first refuses a demand to contribute, but the limitations period is paused until the underlying defense obligations end through final judgment.

QBE refused to participate in February 2016 and again in September 2016. Cell-Crete was dismissed from the underlying action with prejudice on August 15, 2017. Lexington did not file this lawsuit until September 24, 2019, more than two years later.

Lexington argued that the time limit should have remained paused until its final payment to defense counsel on September 30, 2017. The court rejected that argument. It concluded that the language Lexington relied on from the California appellate decision was not part of that decision’s holding and appeared to be an aside rather than a controlling rule. Lexington also identified no persuasive case extending the pause beyond the final judgment or dismissal of the underlying action.

The court separately considered whether traditional equitable tolling could apply. Equitable tolling can pause a filing deadline when the plaintiff provided timely notice, the defendant would not be unfairly prejudiced, and the plaintiff acted reasonably and in good faith. The court found timely notice and no indication of prejudice, but found that Lexington offered no evidence showing reasonable and good-faith conduct. Lexington had a draft complaint in December 2017 but waited almost two years more to sue. The court therefore concluded that no reasonable factfinder could find equitable tolling warranted.

Selective tender

QBE also argued that Cell-Crete’s decision to tender the action only to Lexington barred Lexington from seeking contribution. The court stated that it would be extremely reluctant to apply that rule based on California case law, but it did not decide the issue because the statute of limitations independently resolved both claims.

Disposition

Judge Beth Labson Freeman granted QBE’s motion for summary judgment as to Claim 1 for declaratory relief and Claim 2 for equitable contribution on statute-of-limitations grounds. The court entered judgment for QBE and against Lexington and terminated the motion.