Nationwide prevails in dispute over cancelled fire policies

A federal appeals court has ruled in favor of a Nationwide Mutual Insurance Co. affiliate in a dispute with a Fairfax Financial Holdings Ltd. unit over cancelled policies.

New York-based Seneca Insurance Co. Inc., a Fairfax unit, filed suit against Columbus, Ohio-based AMCO Insurance Co., a Nationwide unit, in a dispute over coverage for two fires, according to court papers in Seneca Insurance Co. Inc. v. Allied Insurance Co. (Allied was incorrectly named as a defendant in the lawsuit.)

AMCO had issued, and later cancelled, two insurance policies to Group V San Bernardino L.P. and Niijar Realty Inc., both of which are based in El Monte, California, to cover a number of properties, according to court papers in the case. AMCO cancelled the policies because it determined they did not meet its underwriting guidelines, according to court papers.

Niijar and Group V then obtained a replacement policy from Seneca. The policyholders then had two fires on its properties, but AMCO refused to pay, citing the cancelation.

After the insureds tendered their claims to Seneca for the fire losses, they admitted they had failed to disclose material information in obtaining the policy.

With the agreement of the insureds, Seneca then rescinded its policy retroactive to is effective date, and paid the insureds for an assignment of their rights against AMCO. Based on this assignment of rights, Seneca then filed suit for breach of contract against AMCO, contending tis cancellation was “ineffective and void.”

As an alternative to the breach of contract claim, it also filed an equitable contribution claim against AMCO. Equitable contribution is a legal vehicle under California law for allocating costs among multiple insurers with common obligations to the same insured.

In December 2015, the U.S. District Court in Pasadena granted AMCO summary judgment dismissing the case, which was unanimously affirmed on appeal Wednesday by a three-judge appeals court panel of the 9th U.S. Circuit Court of Appeals in San Francisco.

An equitable contribution claim requires “two or more valid contracts of insurance covering the particular risk of loss and the particular casualty in question,” said the appeals court ruling, in citing an earlier case.

“Seneca’s first amended complaint alleged that Seneca rescinded its insurance policy retroactive to a date prior to the fires. Accordingly, Seneca’s equitable contribution claim is not viable became there were not two valid contacts of insurance covering the insureds’ loss at the time of the fires.”

On the breach of contract claim, the appeals court said the District Court correctly found this is barred by the applicable one-year limitations period.