Court Considers Equitable Allocation Among Multiple Insurers, and Precludes Allocation to Insurer Absent From Coverage Action

It is becoming more common for courts to consider the nuts and bolts of an equitable allocation among insurers that cover the same risk. Along comes another such decision in the very heavily litigated coverage dispute that already has many lengthy trial court decisions. The latest decision in MGA Entertainment v. The Hartford, 2012 U.S. Dist. LEXIS 55281 (C.D. Ca., April 18, 2012) involves the equitable sharing of many tens of millions of dollars in defense costs incurred by Bratz doll manufacturer, MGA, in an acrimonious lawsuit with Mattel involving copyright infringement and trade secret theft, among other issues.

In granting summary judgment in favor of three defending insurers against a primary insurer that breached its duty to defend, the Court equitably allocated defense costs among nine years of primary insurance issued by four separate primary insurers, only three of which were parties to the coverage action. Both the prevailing insurers and the policyholder moved for reconsideration agreeing that the proper equitable spread should be only over seven years because the two years of primary coverage issued by the non-party did not involve a potential for coverage.

The Court’s decision on reconsideration parsed many “equitable” details relating to allocation of defense costs and concluded that reconsideration was appropriate. Although the Court did not reconsider its decision that all nine years of primary insurance was triggered and owed a duty to defend, it nonetheless revised its initial decision and found that an equitable allocation to seven years was appropriate under the circumstances. Deciding what the Court described as an “issue of first impression,” it held that “a defendant insurer that failed to implead other insurers may not reduce its fair share fraction on summary judgment by arguing that the fraction’s denominator should include the non-party insurers.”

This decision highlights some of the complicated arguments that are made and considered by courts in connection with contribution actions among insurers.