Additional Insured Carrier Not Entitled To Apportion Defense Costs.
Presley Homes Inc. v. American States Ins. Co., (June 11, 2001) 90 Cal.App.4th 571
Construction defect lawsuits commonly involve a dispute over the extent of an insurer's obligation under an additional insured endorsement to provide a defense to the additional insured. The Presley case specifically addresses the scope of that defense.
Presley Homes, Inc. contracted to build a residential construction project called Andora. Various subcontractors were hired, including Link Construction, who installed the concrete foundations, driveways, walkways and stoops, and Sunrise Framers, who agreed to provide lumber and perform rough carpentry work. Each contractor named Presley Homes as an additional insured on their comprehensive general liability policies. The additional insured endorsements provided coverage pursuant to a CG 2010 1185 form of endorsement for liability arising out of the work of the named insured for the additional insured.
Daniel and Denise Cassidy sued Presley Homes seeking damages for defects in their residence. Presley Homes cross-complained for indemnity against the subcontractors, including Link and Sunrise. American States Insurance Company insured both Link and Sunrise. Presley Homes tendered the defense of the action to American States. American States agreed to defend as to the claims related to its named insureds, but denied having any duty to defend all of the claims alleged.
The Cassidy action was eventually resolved. The settlement included claims against Link and Sunrise. Presley Homes paid no part of the settlement.
Presley Homes then initiated this action against American States seeking recovery of the sums it paid for its defense. Each side moved for summary judgment. The trial court denied Presley's motion for summary judgment and entered judgment for defendant. Presley Homes appealed.
The Court of Appeal reversed the trial court, and held that a subcontractor's insurer must provide a defense to a developer listed as an additional insured on the subcontractor's liability policy when the developer is sued for construction defects allegedly resulting from the subcontractor's work. The Court noted that the additional insured endorsements limited the insurer's obligation to pay indemnity in cases where Presley Homes was held vicariously liable for work performed by Link or Sunrise. There was no such limitation on the defense.
The duty to defend applies to an entire action, even though a suit involves both covered and uncovered claims. In this case, while coverage was limited to liability arising from Link's or Sunrise's work, nothing in either policy limited the obligation to provide a defense. When American States agreed to pay a part of Presley Homes' defense costs, it admitted it owed a duty to provide a defense. American States' effort to limit its defense obligation to the portion attributable to Link's and/or Sunrise's potential exposure was improper.
The Court specifically addressed the fairness of this approach, noting that any carrier with a duty to defend has a right to seek contribution from any other insurer who is also obligated to provide a defense.
For a discussion of other implications of the Presley decision, contact: Ira James Harris, Esq. at 925-258-5100 or by e-mail at ira@iraharris.com.
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