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Insurer Owes No Defense To Additional Insured Where Underlying Complaint Makes No Allegations Of Damages From The Named Insured’s Work

In Monticello Ins. Co. v. Essex Ins. Co., 162 Cal.App.4th 1376 (2008), Blumenfeld Construction was the general contractor and Dana Drywall was the drywall subcontractor on a residential construction project. The owners filed suit against Blumenfeld and others for construction defects. Blumenfeld filed a cross-complaint against Dana Drywall and others alleging they were responsible for the damages.

Monticello Insurance defended Blumenfeld under a policy it issued to Blumenfeld. Essex Insurance defended Dana Drywall under a policy it issued to Dana Drywall. The Essex policy covered property damage resulting from Dana Drywall’s work.

Blumenfeld tendered its defense to Essex pursuant to an “Additional Insured Endorsement” that made Blumenfeld an additional insured under the Essex policy, “but only with respect to negligent acts or omissions of a Named Insured and only for occurrences, claims or coverage not otherwise excluded in the policy.” The endorsement further provided that “where no coverage shall apply herein for the Named Insured, no coverage nor defense shall be afforded to the above-identified additional insured. . . .” Essex declined.

Monticello then contributed to a global settlement on Blumenfeld’s behalf and sued Essex seeking equitable contribution as to Blumenfeld’s defense costs (not settlement costs). Monticello contended that the underlying complaint and the defect list from the underlying action alleged property damage potentially caused by drywall work, including damage to paint, interior finishes and stucco, so as to trigger Essex’s duty to defend Blumenfeld.

The Court disagreed. First, the Court specifically noted that the word “drywall” was not even mentioned in the underlying complaint and that there was no allegation that the “excessive cracking,” “premature failure of painted surfaces” or “water damage to structure” were in any way related to the work of Dana Drywall or to any drywall installation. Essex was not required to speculate that the alleged damage was related to Dana Drywall’s work.

Second, the Court noted that while the underlying action was pending, Essex was never provided with the defect list attributing any damage to Dana Drywall’s work. The Court stated that as the party seeking summary judgment, Monticello had the burden to show Essex actually had the defect list when it could have decided to participate in the defense of Blumenfeld in the underlying action. Monticello failed to make that showing.

Finally, the Court stated that Blumenfeld’s cross-complaint for indemnity did nothing to alter the fact that the plaintiff in the underlying action, the action for which a defense was sought, did not allege covered damages against Dana Drywall. Thus, Blumenfeld’s own allegations of Dana Drywall’s negligent work could not trigger a defense under the Essex policy.

This decision is helpful to insurers of subcontractors with additional insured provisions, in that it appears to draw a boundary for the defense duty in the context of an additional insured’s tender of construction defect claims, where the underlying factual allegations do not specifically implicate the named insured’s work. The decision is also a reminder to insureds and their insurers that notice of evidence of potential coverage must be presented to the insurer during the pendency of the underlying action.
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