There are many situations where one insurance coverage company will seek contribution from another insurance company for defense costs and indemnity payments. However, this does not give insurers a carte blanche to file lawsuits against each other seeking reimbursement.
Equitable contribution, equitable subrogation and contractual subrogation are all theories that are used to seek contribution and subrogation between insurers. However, these theories are all relatively nuanced and cannot be pursued by insurers in every situation.
For example, Illinois law is well settled as to recovery under a theory of equitable contribution. “In order for an insurer to recover under a theory of equitable contribution, the insurer seeking contribution must prove: 1) all facts necessary to the claimant’s recovery against the insured; 2) the reasonableness of the amount paid to the insured; and 3) an identity between the policies as to parties and insurable interests and risks. In Illinois, an excess insurer cannot seek equitable contribution from a primary insurer because excess carriers and primary carriers insure different risks.” Schal Bovis v. Casualty Insurance Company, 315 Ill.App.3d 353, 732 N.E.2d 1179 (1st Dist. 2000).
Determining which carrier is primary and excess is not always clear cut. It can involve the interpretation of both insurance policies and contracts between insureds and those claiming to be insureds under the policy. But, once this determination is made, if the excess carrier pursues a contribution action from a primary carrier, it cannot do so through a theory of equitable contribution. This does not mean there is no avenue for an excess insurer to seek subrogation from a primary carrier, but an excess insurer will not be able to pursue an equitable contribution action against a primary insurer.