Evanston Insurance Company v. American Safety Indemnity Company, 4:10-cv-01472

Evanston seeks equitable contribution from American Safety for defense costs in Ayala v. Northern Cal; underlying suit involves defects in homes built by Northern Cal.
Both insurers issued general liability policies to Northern Cal; the policy at issue is ESL010742-05-01 (9/19/05–9/19/06) with an SIR of $50,000.
Two endorsements are contested: Subcontractor’s Warranty Endorsement (requires subcontractor coverage and named Additional Insured as a precondition to coverage) and a Total Prior Work Exclusion.
Ayala plaintiffs allege improper work by Northern Cal and resulting damages; six homes were completed before the policy period, while others were completed during the policy period.
Northern Cal tendered defense to Defendant on June 29, 2008; Defendant demanded payment of the SIR and satisfaction of the Subcontractor’s Warranty Endorsement as conditions precedent to defense; Northern Cal ultimately paid the SIR in Oct. 2009 but did not obtain Additional Insured endorsements for subcontractors.
Court grants in part Evanston’s partial summary judgment: Subcontractor’s Warranty Endorsement does not preclude all coverage; Total Prior Work Exclusion does not preclude all coverage; Defendant has a duty to defend; however, no ruling on the amount or start date of defense costs other than denial of automatic liability from tender date

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Subcontractor’s Warranty Endorsement bars coverage entirely	Evanston argues endorsement is a condition precedent to coverage only for specific subcontractor actions.	ASIC contends the endorsement precludes any coverage if Northern Cal failed to obtain Additional Insured endorsements.	Endorsement does not preclude all coverage; duty to defend remains.
Whether Total Prior Work Exclusion precludes all coverage	Exclusion should not bar coverage given mixed timing of work; some claims arise from work during policy period.	Exclusion precludes coverage for pre-policy work as to all claims.	Exclusion does not preclude coverage for all claims; duty to defend remains.
When did the duty to defend attach given the SIR condition	Duty should run retroactively from the date Northern Cal tendered defense.	Duty attached only after SIR payment; exhaustion is the condition precedent.	Duty did not arise at tender; attaches after SIR payment was exhausted.
Whether Defendant owes defense costs from the tender date	Plaintiff seeks shared defense costs from the tender date.	Duty to share costs starts when the defense duty attaches (post-SIR exhaustion).	Court grants partial summary judgment denying automatic liability for costs from tender date.

Montrose Chemical Corp. v. Superior Court, 6 Cal.4th 287 (Cal. 1993) (duty to defend broader than indemnity; requires potential coverage to arise unless proven otherwise)
Scottsdale Ins. Co. v. MV Transp., 36 Cal.4th 643 (Cal. 2005) (duty to defend depends on potential coverage; endorsements can define conditions for coverage)
North American Capacity Insurance Co. v. Claremont Liability Ins. Co., 177 Cal.App.4th 272 (Cal. App. 2009) (warranty endorsements and coverage limitations; distinguishable facts but relevant to conditions precedent)
Legacy Vulcan Corp. v. Superior Court, 185 Cal.App.4th 677 (Cal. App. 2010) (SIR exhaustion may delay but not automatically bar defense; true SIR limits when defense obligation arises)