Mitchell, Silberberg & Knupp v. Yosemite Ins. Co.

Without reserving any rights against its insured, an excess liability insurer agreed to and did indemnify its insured by contributing to the settlement of a third party’s action against the insured. The excess insurer then sued the insured’s other insurers, claiming it was entitled to reimbursement for the entire amount of its contribution to the settlement. That lawsuit spawned yet another action (this one), a bad faith claim by the insured against its excess insurer in which the insured contends the excess insurer’s failure to reserve its rights against the insured was a waiver of its right to deny its coverage obligation in its subsequent litigation with the other carriers. The insured is wrong.

Facts

In 1974, Yosemite Insurance Company issued an umbrella liability policy to Mitchell, Silberberg & Knupp (MSK), excess to and following the form of a policy issued by the Phoenix Insurance Company. In 1984, Home Insurance Company issued a professional liability policy to MSK. In 1989, Brian Wilson sued MSK, alleging professional negligence. MSK tendered defense of the Wilson action to (and demanded indemnity from) Home, Phoenix, and Yosemite. Without reservation, Phoenix…