The California Court of Appeal has held that, in the absence of a “potential” for coverage, a general contractor was not entitled to a defense as an “additional insured” under a subcontractor’s liability policy. ( Monticello Insurance Company v. Essex Insurance Company (2008) 162 Cal.App.4th 1376)
Facts
Martina and Georgean Goldman hired Blumenfeld Construction Company to act as general contractor for the construction of the Goldmans’ residence. Blumenfeld in turn hired Dana Drywall to act as drywall subcontractor for the project.
Following completion of construction, the Goldmans filed a construction defect action against the general contractor, Blumenfeld. In their complaint, the Goldmans alleged that their house suffered from various defects, including “excessive cracking in the interior and exterior of the property,” “premature failure of painted surfaces” and “water damage to structure.” Blumenfeld tendered defense of the construction defect action to its own insurer, Monticello Insurance Company, and Monticello agreed to defend Blumenfeld in the action.
Blumenfeld filed a cross-complaint for indemnity against various subcontractors, including Dana Drywall. Dana Drywall tendered defense of the cross-complaint to its insurer, Essex Insurance Company, and Essex agreed to defend Dana Drywall against the cross-complaint.
Later, Blumenfeld tendered defense of the action to Dana Drywall’s insurer, Essex, on the ground that Blumenfeld was an “additional insured” on Dana Drywall’s policy through Essex. The Essex policy did contain an endorsement stating that Blumenfeld is “an additional insured under this policy, but only as respects negligent acts or omissions of [Dana Drywall] and only for occurrences, claims or coverages not otherwise excluded in the policy. It is further understood that where no coverage shall apply herein for [Dana Drywall], no coverage nor defense shall be afforded to [Blumenfeld].” Essex rejected Blumenfeld’s tender.
The construction defect action settled. Thereafter, Blumenfeld’s insurer, Monticello, filed a contribution action against Essex. Monticello essentially alleged that Monticello and Essex both had a duty to defend Blumenfeld in the underlying construction defect action, and that Monticello was therefore entitled to recover from Essex a share of Blumenfeld’s defense costs.
The trial court ruled that Monticello failed to prove it was entitled to contribution from Essex, and thus entered judgment in favor of Essex. Monticello appealed.
Holding
The Court of Appeal affirmed, holding that Monticello had failed to show that the Goldmans’ claims against Blumenfeld in the underlying construction defect action were potentially covered under Dana Drywall’s policy through Essex. The court reasoned that while the complaint in the underlying action did contain allegations of “excessive cracking,” “premature failure of painted surfaces” and “water damage to structure,” there were no allegations that those damages were in any way related to the work of Dana Drywall. According to the appellate court, Essex was “not required to speculate” that these damages might be attributable to the work of Dana Drywall.
The court also held that Monticello could not rely on the Goldmans’ “defect list” from the underlying construction defect action to establish that Essex had a duty to defend Blumenfeld in the underlying action. The court noted that while Monticello had introduced the defect list into evidence in the contribution action, Monticello failed to prove that the defect list was ever provided to Essex during the pendency of the underlying construction defect action. Because there was no proof that Essex ever had the defect list while the underlying action was pending, Monticello could not rely on the defect list to prove that Essex had a duty to defend Blumenfeld.
Nor was it sufficient that Blumenfeld’s cross-complaint against Dana Drywall contained allegations that Dana Drywall was negligent. According to the court, Blumenfeld’s cross-complaint for indemnity “does nothing to alter the fact that the Goldmans, the plaintiffs in the main action, the action for which a defense is sought , did not allege covered damages against Dana Drywall.”
Comment
This case stands for the proposition that when a participating insurer sues a non-participating insurer for contribution of defense costs, the participating insurer must prove that the facts supporting a “potential” for coverage were known by the non-participating insurer during the pendency of the underlying lawsuit. Absent such proof, the participating insurer is not entitled to contribution from the non-participating insurer.