Statutory Bar on Public Employee Indemnification of Public Employer Did Not Bar Employees' Insurer from Contributing to Employer's Insurer's Settlement of Lawsuit

In Westport Insurance v. California Casualty Management, published February 20, 2019, the 9th Circuit affirmed a district court's summary judgment entered on behalf of plaintiff Westport Insurance Corporation against defendant California Casualty Management Company in a diversity insurance contribution case decided under California law.  Three students of a school district sued the district and three of its administrators for failing to prevent a teacher from molesting them over various periods in the 1990s.  Westport, through a predecessor company, issued primary general liability insurance policies to the district  during the 1990s.  It also issued a series of annual excess policies covering the district and its employees during part of the same period.  During the same period, California Casualty issued successive annual liability policies to the Association of California School Administrators, providing excess liability coverage to the administrators who were sued.  Westport settled the three lawsuits for $15.8 million.  California Casualty refused to contribute to the settlement.  On cross-motions for summary judgment, the district court awarded Westport $2.6 million in contribution from California Casualty, along with $755,637.20 in prejudgment interest.

The 9th Circuit rejected California Casualty's argument that Government Code section 825.4 barred Westport's lawsuit.  Section 825.4 provides that (with exceptions that did not apply here) a public entity pays a claim or judgment against itself or a public employee, for an injury arising out of the employee's act or omission, the employee is not liable to indemnify the public entity.  Reviewing California law on the subject, the court concluded that no policy concern prevented California Casualty from indemnifying Westport. Case law holds that contribution from an employee's insurer is not wholly inconsistent with section 825.4. No employee personally contributed to the settlement costs.  The district provided primary insurance to both itself and its employees through Westport.  And California Casualty's coverage was limited to claims arising out of employment.  The 9th Circuit also upheld the district court's decisions concerning policy interpretation, the amount of contribution, and the date prejudgment interest began running.