A California appeals court just made it easier for additional insureds to go after their contractor's insurer – without filing a separate lawsuit.
In a decision filed on March 20, 2026, the Court of Appeal for the Fourth Appellate District, Division One, reversed a lower court ruling that had blocked the City of Riverside from naming RLI Insurance Company in a cross-complaint that also included RLI's own insured, Design Services, Inc. (DSI). The case turns on a question that comes up regularly in commercial insurance disputes: can an additional insured sue the insurer and the named insured in the same action, or does California law require those fights to happen separately?
The short answer from the appellate court: they can stay in the same case.
The dispute traces back to a fatal pedestrian accident in Riverside. Ferial Harb was struck by a vehicle while walking on or near a roadway and died from his injuries. His family sued the City, alleging the roadway was unreasonably dangerous, lacked sufficient signs or signals, had inadequate visibility, and had been the site of numerous prior collisions.
The City, in turn, pointed the finger at DSI, a contractor it had hired to provide professional consulting services for a citywide LED street light conversion project. Under the contract, DSI was responsible for evaluating street lighting – including on the road where the accident happened – and recommending a schedule for replacing the lighting between 2016 and 2022. The City alleged that DSI's assessment of whether the lighting met compliance standards, and its recommendations on replacement timing, were at least partly to blame for the conditions the Harb family challenged.
Here is where the insurance piece comes in. The City's contract with DSI required DSI to carry insurance policies protecting the City against claims arising out of DSI's work. RLI, as DSI's insurer, added the City as an additional insured on the relevant policies, and certificates of insurance were issued confirming that status. When the Harb family's lawsuit landed, the City tendered its defense and indemnity to RLI. RLI said no.
The City then filed a cross-complaint against DSI, RLI, and several other contractors and their insurers, asserting claims for breach of contract, declaratory relief, and insurance bad faith, among others. RLI pushed back with a demurrer, arguing that under a well-known 1979 California Supreme Court decision – Royal Globe Ins. Co. v. Superior Court – a plaintiff cannot sue both the insurer and the insured in the same lawsuit. The concern behind that rule is straightforward: if a jury knows the defendant has insurance, it might be more inclined to find liability or award higher damages. California's Evidence Code section 1155 exists to prevent exactly that kind of prejudice by keeping evidence of insurance out of negligence trials.
The trial court agreed with RLI and dismissed the City's claims against the insurer, though it noted the City was free to file a separate lawsuit.
The appellate court saw it differently. The key distinction, the court found, is that the City was not some outside party trying to drag an insurer into a tort case. The City was an additional insured on the RLI policy – meaning RLI had a direct, written contractual obligation to the City. That makes the City a first-party claimant, not a third-party one, and the Royal Globe rule was designed for the third-party scenario.
The court leaned heavily on a 2002 appellate decision, Royal Surplus Lines Ins. Co. v. Ranger Ins. Co., which reached the same conclusion in a similar fact pattern involving a property owner, its subcontractor, and the subcontractor's insurer. In that case, the court held that an additional insured is not barred from suing the insurer and the named insured together.
RLI tried to distinguish Royal Surplus by pointing out that the underlying tort claims in that earlier case had already settled, removing any risk of jury prejudice. Here, the Harb family's wrongful death claims were still very much alive. The appellate court was not persuaded. It noted that a cross-complaint is generally treated as a separate action from the original complaint, and that any concerns about prejudice could be handled through bifurcation - trying the insurance issues separately from the tort claims – rather than forcing the City into a whole new lawsuit.
The court also dismissed RLI's concern that allowing the City's claims to proceed in the same case would let the Harbs and the City seek discovery of materials from RLI's claim file, thereby driving a wedge between the insurer and its own insured. Because the City's claims against RLI were contract claims, not tort claims, the court found no conflict of interest in discovery related to the policy itself or how RLI interpreted it. The court pointed to Civil Code section 2860, which provides that no conflict of interest exists as to claims for which the insurer has denied coverage.
The matter now goes back to the trial court, which must vacate its earlier order and take up the remaining grounds of RLI's demurrer that it had previously declined to address. The City was awarded costs on appeal.
For insurance professionals, the practical takeaway is this: in California, denying a tender from an additional insured does not guarantee a clean exit from the underlying litigation. An additional insured with a valid endorsement on the policy has privity of contract with the insurer and can bring coverage claims in the same action as the tort case - and the court's preference is to manage any prejudice concerns through trial management, not dismissal.
