Equitable indemnity action by insurer barred by good faith settlement

In the recent case of Mid-Century Insurance v. Daimler-Chrysler Corporation, the appellate court reviewed the question of whether an insurer, who pays the policy limits on a potential claim against its insured in return for a complete release prior to litigation, is barred from pursuing an equitable indemnity action against other tortfeasors who enter into good faith settlements with the injured party after litigation commences. The Court of Appeal concluded that CCP section 877.6 would bar such litigation.

Mid-Century insured Frank Eggloff, who owned a 1994 Chrysler Le Baron. Mr. Eggloff and his friend, Mr. Von Lowtzow, were attempting to start the car, with the hood up when the battery suddenly exploded in Mr. Von Lowtzow's face, causing serious injuries to his face and eyes.

Mid-Century settled Mr. Von Lowtzow's claim paying its policy's limits and obtained a complete release before Mr. Von Lowtzow filed suit against other tortfeasors.

After settling with Mr. Eggloff, Mr. Von Lowtzow filed suit against Daimler-Chrysler Corporation, St. Claire Cadillac-Oldsmobile and Johnson Controls Battery Group (defendants). Mid-Century independently sued Chrysler and Johnson Controls for equitable indemnification. The actions were consolidated.

The defendants settled with Mr. Von Lowtzow for $450,000. They obtained determinations that their settlements were in good faith. Mid-Century indicated it had no intention of disputing the good faith nature of the settlements.

The trial court dismissed Mid-Century's indemnity action based on the section 877.6 good faith settlement. The Court of Appeal affirmed.

Mid-Century argued that section 877.6 did not bar its indemnity claim because neither it nor Mr. Eggloff were joint tortfeasors. The appellate court acknowledged, "that insurers, in their role as insurers, are not tortfeasors or joint tortfeasors for purposes of section 877.6." However, Mid-Century as the insurer of Mr. Eggloff, under equitable subrogation principles, stepped into the shoes of its insured, subject to the same defenses assertable against the insured. Because Mr. Eggloff was a potential joint tortfeasor, section 877.6 barred Mid-Century's equitable indemnity action.

The appellate court noted that Mr. Eggloff did not need to be a defendant in Mr. Von Lowtzow's lawsuit to be a potential joint tortfeasor and that he probably would have been a defendant in that lawsuit if Mid-Century had not settled the claim before his suit was filed.

The appellate court also emphasized that Mid-Century did not object to the reasonableness of the defendants' settlements with Mr. Von Lowtzow.

(Mid-Century Insurance v. Daimler-Chrysler Corporation. (1st Dist., October 26, 2001) 2001 WL 1299192.)