With years of experience navigating the high-stakes world of commercial liability and multi-layered risk, this expert provides a deep look into the friction that occurs when multi-million dollar towers of insurance begin to crumble. We explore the complex dynamics of insurer-against-insurer litigation, focusing on the fallout of a derailed settlement and the ethical duties carriers owe one another. Our discussion moves through the strategic maneuvers used in the courtroom and the legal theories that allow one carrier to sue another for “gambling” with shared funds.
How do secondary and tertiary insurers typically coordinate during high-stakes mediations, and what happens when that alignment breaks down?
In a standard liability tower, coordination is the bedrock of a successful defense, especially when you have six insurers stacked on top of one another. The expectation is that the lower layers, like the third-layer carrier with a $10 million limit, will communicate transparently so the fourth-layer carrier knows exactly when their money is at risk. When this breaks down, it creates a chaotic environment where the upper layers are left completely exposed to the whims of the primary or secondary carriers. In the case involving the pedestrian struck at the shopping center, the lack of coordination reached a boiling point during the October 31 mediation. Instead of a unified front, one carrier allegedly sent a representative with zero authority to settle while the adjuster left early, claiming childcare obligations. This kind of professional ghosting doesn’t just frustrate the process; it essentially “smells like blood” to the plaintiff’s attorneys, who realize the defense is in total disarray.
In a tower of six insurers, how does the specific placement of a $10 million limit influence the pressure to settle before a trial begins?
The order of the tower is everything because each carrier’s liability only triggers once the layer directly beneath it is totally exhausted. In this specific scenario, Allied World sat at the third level with a $10 million limit, and Tokio Marine sat fourth, meaning Tokio Marine’s funds were only reachable after that initial $10 million was gone. If the third-layer carrier refuses to put their money on the table, the entire settlement process grinds to a halt, even if a deal could be reached for a reasonable sum between $16 million and $20 million. By withholding that $10 million limit during the early weeks of November, the lower-layer insurer effectively held the upper-layer carrier hostage. It’s a high-risk game where the lower carrier bets that a jury might return a low verdict, but if they lose that bet, it’s the upper-layer’s money—the fourth layer and beyond—that actually pays the price for the gamble.
What are the implications of a carrier attempting to “hijack” a defense just five days before a trial is set to commence?
Attempting to change the entire defense strategy five days before trial is a desperate, scorched-earth tactic that almost always backfires. On November 12, just as the trial was looming, the third-layer carrier proposed a radical shift to blame Ross Dress for Less—a defendant that had already been dismissed from the case. They weren’t just suggesting a new legal theory; they were allegedly trying to engineer a conflict to remove seasoned trial counsel and install their own attorney. This maneuver was a transparent attempt to force a continuance from a judge who had already signaled that no delays would be granted. When the court refused to budge, the defense was left with a new attorney who had less than a week to prepare for a complex personal injury case without any expert depositions. It was a strategic disaster that turned a manageable settlement into a multimillion-dollar liability trap.
How does the theory of equitable subrogation allow one insurance company to sue another for bad faith?
Equitable subrogation is a powerful legal tool because it allows an excess insurer to “step into the shoes” of the insured party to seek justice. Under California law, every insurer has a duty of good faith and fair dealing, but when a lower-layer carrier acts recklessly, they aren’t just hurting the policyholder; they are unfairly shifting the financial burden to the carriers above them. In this litigation, the fourth-layer carrier is arguing that they were forced to overpay by $6 million to $10 million because the lower layer refused to settle when the price was right. By suing for bad faith, they are seeking to recover that excess settlement money along with prejudgment interest and punitive damages. They are essentially telling the court that a carrier shouldn’t be allowed to “gamble” with another company’s money and then walk away when the bet fails.
What is your forecast for the future of insurer-against-insurer litigation in these complex liability towers?
I expect we will see a significant tightening of “cooperation clauses” between carriers in these towers to prevent the kind of “last-minute maneuvering” that derailed this particular settlement. This case serves as a massive warning sign that the “utmost good faith” duty isn’t just a suggestion; it’s a litigable obligation that can result in massive recovery claims for Brandt fees and punitive damages. If the court rules in favor of the fourth-layer carrier, it will set a precedent that lower-level adjusters cannot simply walk out of mediations or try to “hijack” a defense to force a trial delay. We are likely moving toward an era where excess carriers will demand much more oversight and real-time reporting from the primary layers to ensure their limits aren’t being treated as a safety net for someone else’s legal gambling. The “every man for himself” strategy is becoming far too expensive to sustain in the modern federal court system.
