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McMillin Homes Constr., Inc. v. Nat'l Fire & Marine Ins. Co. - 35 Cal. App. 5th 1042 (2019)

Rule:

Broader than the duty to indemnify, a liability insurer's duty to defend is assessed at the very outset of a case. An insurer owes a broad duty to defend against claims that create a potential for indemnity under the insurance policy; it must defend even where the evidence suggests but does not conclusively show the loss is not covered. Moreover, the duty to defend is a continuing one, arising upon tender and lasting until the underlying litigation is resolved, or until the insurer has established there is no potential for coverage

For purposes of interpreting the care, custody, or control (CCC) exclusion, the case law has announced a general rule: the CCC exclusion is inapplicable where the facts at best suggest shared control.

Facts:

Plaintiff-appellant general contractor was covered as an additional insured on a commercial general liability (CGL) policy issued to its roofing subcontractor. Defendant-appellee insurer refused to defend the general contractor after it was sued by homeowners for construction defects concerning roofing, prompting this lawsuit. After a bench trial, the trial court concluded the insurer owed no duty to defend. It believed the exclusion in the additional insured endorsement for damage to “property in the care, custody or control of the additional insured” precluded any duty to defend the general contractor in construction defect litigation. he general contractor disputes the insurer's interpretation of the policy and asserts there was a duty to defend. We agree and reverse the judgment. As judicially construed, the care, custody, or control exclusion requires exclusive or complete control. 

The trial court ruled that an insurer that issued a CGL policy to a roofing subcontractor had no duty to defend the general contractor as an additional insured in construction defect litigation alleging damage caused by roofing defects. The general contractor sought review.

Issue:

Did the insurer owe a duty to defend the general contractor in a homeowners' construction defects lawsuit, where the general contractor was covered as an additional insured on a commercial general liability (CGL) policy issued to its roofing subcontractor?

Answer:

Yes.

Conclusion:

On appeal, the general contractor disputed the insurer's interpretation of the policy and asserts there was a duty to defend. The Court of Appeal agreed and reversed the judgment. The Court explained that the care, custody, or control exclusion requires exclusive or complete control. The Court found that the facts indicated only shared control between the general contractor and its roofing subcontractor. Because the insurer did not prove coverage for the underlying construction defect litigation was impossible, it owed the general contractor a duty to defend the homeowner claim.

The Court explained that where an insurance policy term has been judicially construed, it is not ambiguous. Here, because an exclusion for damage to property in the care, custody, or control of an insured had been judicially construed as inapplicable to shared control and thus was not ambiguous, the insurer that issued the commercial general liability policy to the roofing subcontractor had a duty to defend the general contractor as an additional insured. The Court concluded that National Fire owed McMillin a duty to defend.

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