Insurance Law

Insurer’s Duty to Defend Did Not Arise until Insurer Was Provided with All Necessary Information to Determine the Existence of Coverage

Carrier’s Right to Control the Defense Includes the Right to Appoint Counsel of Its Choosing and to Settle Claims without the Participation of the Insured

Travelers Prop. Cas. Co. of Am. v. Kaufman & Broad Monterey Bay, Inc., 2015 U.S. Dist. LEXIS 16952 (N.D. Cal. Feb. 11, 2015) [subscribers can access an enhanced version of this opinion: lexis.com | Lexis Advance].

In Kaufman, the Northern District of California found that a CGL carrier’s duty to defend did not arise until the insured provided the necessary information to establish that they qualified as additional insureds under the applicable policy.  The district court also found that the carrier did not breach its duty to defend by settling all covered claims within the policy limits without the insured’s participation in the settlement negotiations or by appointing defense counsel to which the insured objected.

Kaufman arose out of an underlying construction defect suit brought by homeowners against the general contractor, among others.  The general contractor tendered the underlying action as an additional insured under a subcontractor’s CGL policy.  The carrier acknowledged receipt of the tender approximately two weeks later and informed the general contractor that it needed a copy of the subcontract between the general contractor and subcontractor in order to complete its investigation.  Upon receipt of the subcontract two months later, the carrier agreed to defend the general contractor in connection with the underlying action under a reservation of rights and appointed defense counsel, but only agreed to pay defense expenses beginning from the date it received the subcontract.  The general contractor found the appointed counsel unacceptable because of a potential conflict, and argued that the carrier’s duty to defend was triggered by the initial tender.  The carrier subsequently settled the underlying action without the participation of the general contractor – an action to which the general contractor also objected.  The general contractor sued the carrier and the parties filed cross-motions for summary judgment on the issues of whether the carrier acted improperly in: (1) refusing to pay defense costs incurred prior to the receipt of the relevant subcontract, (2) appointing defense counsel to which the general contractor objected, and (3) excluding the general contractor from settlement negotiations.

On the first issue, the district court held that the carrier’s duty to defend is not triggered until it receives all information necessary to analyze coverage.  Because the carrier could not confirm that the general contractor was an additional insured until it was provided with a copy of the relevant subcontract, the district court ruled that the carrier’s duty to defend was only triggered upon receipt of that subcontract and that the insurer had properly denied coverage for defense expenses incurred prior to that date.  On both the second and third issues, the district court held that the policy vested the carrier with the right to control the defense, and that this right included the right to appoint counsel of its choosing and to settle claims on terms it finds appropriate.  Accordingly, the court granted the carrier’s motion for summary judgment and denied the general contractor’s motion.

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