Texas co-insurer recovery of defense costs and indemnity

In Maryland Casualty Co. v. Acceptance Indem. Ins. Co., No. 10-50283 (5^th Cir. April 25, 2011), insured contractor Guidry built a swimming pool for McGee.  During the several years after completion, several leaks and a large crack developed in the pool. McGee sued Guidry alleging Guidry and its subcontractors negligently designed and constructed the pool and seeking damages for physical damage to and loss of use of the pool and damage to other property.  Guidry tendered its defense to its two CGL insurers–Maryland and Acceptance–which issued policies in effect from the time of construction through the filing of the lawsuit.  Maryland agreed to defend while Acceptance denied a defense.  Maryland settled the McGee lawsuit and then filed suit against Acceptance for contribution and subrogation seeking recovery of Acceptance’s pro rata share of defense costs and indemnity.  The federal district trial court held that Acceptance had a duty to defend Guidry but that, while Maryland may be entitled to subrogation, it was not entitled to contribution.  The case went to trial on Maryland’s subrogation claim and a judgment was entered in favor of Maryland.  On appeal, the U.S. Court of Appeals for the Fifth Circuit affirmed.   Applying Texas law, the court first held that, as it had previously held in Amerisure Ins. Co. v. Navigators Ins. Co., 611 F.3d 299 (5^th Cir. 2010), the Texas Supreme Court’s decision in Mid-Continent Ins. Co. v. Liberty Mutual Ins. Co., 236 S.W.3d 765 (Tex. 2007) does not bar a defending insurer’s subrogation claim against a non-defending insurer for a pro-rata share of a amounts the defending insurer paid to settle the underlying lawsuit.   The court next held that, as it had previously held in Trinity Universal Ins. Co. v. Employers Mut. Cas. Co., 592 F.3d 687  (5^th Cir. 2010), a defending insurer is entitled to subrogation against a non-defending insurer for defenses costs.   As it had in Trinity, the court rejected the argument that Mid-Continent barred such a claim.