The pertinent language vis-à-vis bankruptcy insolvency in Great American’s policy stated:
2. In the event of bankruptcy or insolvency of any underlying insurer, the insurance afforded by this policy shall not replace such “underlying insurance,” but shall apply as if the “underlying insurance” was valid and collectible.
Id. at 786.
The court found that if the limits of the underlying insurer’s policies are reduced by virtue of losses paid, Great American nonetheless continues as the excess insurer above those reduced limits. The court emphasized that
Under Washington law, in continuous damage situations, like this one, each insurer is jointly and severally responsible for the liability covered by the policy. Gruol Constr. Co. v. Ins. Co. of N. Am., 11 Wash.App. 632, 637-38, 524 P.2d 427 (1974).
Id. at 788.
The court also rejected Great American’s argument that it is entitled to a $2 million credit in the amount of the insolvent primary carrier’s indemnity obligation. The court reasoned:
Great American’s insolvency clauses provided that if Great American’s underlying insurers – United Capitol, for both of Great American’s policy periods – became insolvent, Great American’s coverage would not replace the underlying insurers’ policy limits but would, instead, apply as if the underlying policies were “valid and collectible.”
Id. at 790.
The court concluded:
In other words, as to each of its two policy periods, Great American was jointly and severally liable for that portion of the Polygon settlement exceeding the solvent primary insurers’ policy limits plus United Capitol’s policy’s limits, which its insolvency provision required the trial court to treat as though it was valid and collectible. Thus, as to each of the two policy periods Great American insured, it was jointly and severally liable for sums in excess of $3 million, up to the full settlement amount of $7.8 million. . . .
The trial court’s ruling did not recognize that Great American, as an insurer sued for contribution by another insurer, cannot be held liable for a sum greater than it would have had to pay its insured.
Id. at 790, 791.
The net effect of this was to place Great American in a better posture than the other carriers due to the fact that the primaries below it became insolvent. Addressing the supplementary payment provisions and their proper allocation, the court reasoned:
Because we reject Great American’s argument that the phrase “costs taxed” in Assurance’s primary policy included the homeowners’ “litigation costs” as set forth in the Polygon settlement, we hold that the trial court erred by apportioning $743,000 of these “litigation costs” to Assurance for payment from its supplementary payments provision. . . . Instead, the entirety of the sum that the trial court assigned to Assurance as a supplementary payment must be considered as a loss in excess of Assurance’s primary policy limit and, accordingly, must be paid by and apportioned among Assurance, Ohio, and Great American pursuant to their excess coverage obligations according to the formula of equitable apportionment utilized by the trial court on remand.
Id. at 796.
The court found prejudgment interest readily awardable in equitable actions following the principle that “he who retains money which he ought to pay to another should be charged interest upon it.” Prier, 74 Wash. 2d at 34, 442 P.2d 621, quoting 5 A. CORBIN, CONTRACTS § 1046 n.69 (1964). Id. at 798.
The court found that prejudgment interest prevented unjust enrichment by assuring that the party who lost the use of money that should have been otherwise paid to it is not disadvantaged. Upon remand, the trial court was to equitably reevaluate the proper amount of the settlement and calculate prejudgment interest thereon.
The court found that the rule permitting an insured to obtain its attorneys’ fees to establish coverage pursuant to Olympic Steamship Co. v. Centennial Insurance Co., 117 Wash. 2d 37, 811 P.2d 673 (1991) did not, in a contribution action, permit the party seeking equitable contribution any recovery of its attorneys’ fees incurred.
