Employers Mutual Casualty Co. v. North American Specialty Flooring, Inc., 424 F.Supp.3d 958

Sports Surfacing was subcontracted to apply a Koster concrete sealer and install rubber sports flooring at CSU Bakersfield's Student Recreation Center; testing later showed an insufficient sealant layer that allowed moisture in and caused the adhesive to fail.
CSU Bakersfield removed and replaced the defective flooring and back-charged its general contractor Anderson $229,345.71 for remediation costs.
Anderson sued Roy’s Flooring, Sports Surfacing, and Koster in Kern County Superior Court seeking reimbursement for the back-charge; Anderson’s complaint alleges defective sealer application and adhesive failure and seeks remediation costs.
Sports Surfacing and insurer Navigators tendered the underlying suit to EMC (insurer for Sports Surfacing); EMC denied coverage, arguing the claim is not for "property damage" under the policies and (alternatively) is excluded by Damage to Your Product/Work exclusions.
Parties stipulated the material facts. EMC filed this federal declaratory judgment action; Sports Surfacing counterclaimed. The court applied California law and decided EMC’s summary judgment motion.
Court granted summary judgment for EMC, holding EMC has no duty to defend or indemnify because the damages sought are not "property damage" under the policies; the court did not reach the exclusions.

Issue	Plaintiff's Argument (EMC)	Defendant's Argument (Sports Surfacing)	Held
Whether the damages sought in the Anderson action constitute "property damage" under the CGL/umbrella policies	Damages are remediation/economic loss for defective work, not physical injury or loss of use to other property, so not covered	The state complaint is ambiguous and refers to loss of use; potential coverage exists so insurer must defend	Held for EMC — no property damage as a matter of law; remediation costs are not covered
Whether the "Damage to Your Product" / "Damage to Your Work" exclusions bar coverage	Exclusions (if property damage) would preclude coverage for insured’s own product/work	Argues possibility of damage to other building portions and that coverage issue should await state court resolution	Court did not decide exclusions because no property damage; exclusions unnecessary to resolve
Whether this federal court should decline to exercise jurisdiction (Brillhart/Dizol abstention)	EMC: federal declaratory action appropriate; not forum shopping; coverage issues not before state court	Sports Surfacing: federal court should decline because parallel state action pending and state forum preferred	Held for EMC — court exercised jurisdiction; Brillhart factors did not compel abstention; noted parties had agreed to accelerate federal coverage decision

Horace Mann Ins. Co. v. Barbara B., 4 Cal. 4th 1076 (Cal. 1993) (insurer owes broad duty to defend; compare complaint to policy)
Gray v. Zurich Ins. Co., 65 Cal.2d 263 (Cal. 1966) (insurer must defend suits that potentially seek damages within coverage)
Montrose Chem. Corp. v. Superior Court, 6 Cal.4th 287 (Cal. 1993) (extrinsic facts known to insurer can create duty to defend)
F & H Constr. v. ITT Hartford Ins. Co., 118 Cal. App. 4th 364 (Cal. Ct. App. 2004) (defective component incorporated into larger structure does not constitute property damage absent physical injury to other property)
Reg'l Steel Corp. v. Liberty Surplus Ins. Corp., 226 Cal. App. 4th 1377 (Cal. Ct. App. 2014) (insurer entitled to summary judgment where undisputed facts conclusively eliminate potential for coverage)
Am. Home Assurance Co. v. SMG Stone Co., Inc., 119 F. Supp. 3d 1053 (N.D. Cal. 2015) (remediation costs do not constitute property damage under California law)
Dizol v. Government Employees Ins. Co., 133 F.3d 1220 (9th Cir. 1998) (Brillhart factors guide district court discretion on declaratory relief abstention)
Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491 (U.S. 1942) (framework for federal courts considering whether to exercise declaratory-judgment jurisdiction)