An additional insured endorsement’s “care, custody, or control” exclusion did not relieve an insurer of a duty to defend its additional insured, a general contractor, in a construction defect lawsuit. (McMillin Homes Construction, Inc. v. National Fire & Marine Ins. Co. (2019) 35 Cal.App.5th 1042)
Facts
McMillin Homes Construction, Inc. was the general contractor for a housing project in the San Diego area. McMillin hired Martin Roofing Company, Inc. (Martin) to install roofs at the project. The subcontract required Martin to obtain general liability insurance naming McMillin as an additional insured.
Martin obtained a general liability policy through National Fire & Marine Insurance Company (National Fire). The policy included an endorsement covering McMillin as an additional insured for property damage occurring during the policy period and arising out of Martin’s ongoing operations. However, the endorsement also contained an exclusion for property damage to “property in the care, custody, or control of the additional insured….”
Following completion of construction, various homeowners sued McMillin for construction defects at the project. Among other things, the homeowners alleged that roofing defects had caused water intrusion damage to their homes.
McMillin tendered the defense of the construction defect action to National Fire, asserting that McMillin was an additional insured on the National Fire policy. However, National Fire refused to defend McMillin.
McMillin subsequently sued National Fire for breach of contract and bad faith. McMillin essentially alleged that National Fire had erroneously and unreasonably failed to defend McMillan in the underlying construction defect action.
Following a bench trial on the duty to defend the issue, the trial court ruled that National Fire had no duty to defend McMillin in the construction defect action. McMillin appealed.
Holding
The Court of Appeal reversed, and held that National Fire did have a duty to defend McMillin in the construction defect action.
The appellate court reasoned that the additional insured endorsement covered McMillin for property damage occurring during the policy period and arising out of Martin’s ongoing operations at the project. Here, the homes in question “could have” sustained property damage during the policy period and while Martin’s operations were ongoing. Thus, the homeowners’ claims against McMillin in the construction defect action potentially fell within the basic insuring language of the additional insured endorsement.
Further, the additional insured endorsement’s “care, custody, or control” exclusion did not eliminate the possibility of coverage. Citing prior cases, the appellate court held that the care, custody, or control exclusion only applies where the insured has “exclusive or complete control” of the property that was damaged; the exclusion does not apply where the insured merely has “shared control” of the property. Here, McMillin was responsible for supervising the whole project and coordinating schedules to ensure that the project was finished on time. However, Martin was responsible for controlling its specific jobsite and supervising the roofing work. Thus, the most that could be said is that McMillin as general contractor and Martin as subcontractor had “shared control” over Martin’s roofing work. As such, the care, custody, or control exclusion did not relieve National Fire of a duty to defend McMillin in the underlying action.
The appellate court thus reversed and instructed the trial court to enter a new judgment in favor of McMillin on the issue of whether National Fire had a duty to defend.
Comment
This case is consistent with prior appellate cases holding that a standard “care, custody, or control” exclusion will apply only where the insured seeking coverage has exclusive or complete control – not merely shared control – over the property that is damaged. (See, e.g., Home Indem. Co. v. Leo L. Davis, Inc. (1978) 79 Cal.App.3d 863, 872.) Here, the facts indicated only shared control between the general contractor and its roofing subcontractor. Because the insurer did not prove that coverage for the underlying construction defect litigation was impossible, the insurer had a duty to defend the general contractor.