35 Cal. App. 5th 1042
Cal. Ct. App. 5th2019Background
- McMillin Homes (general contractor) was added as an additional insured on Martin Roofing’s CGL policy (ISO endorsement CG 20 09) for Martin’s ongoing roofing operations at Auburn Lane during Nov 12, 2003–Nov 12, 2004.
- Homeowners sued McMillin in 2014 for construction defects (water intrusion allegedly from roofing defects) involving two homes Martin worked on (Galvan action).
- McMillin tendered defense to National Fire; insurer refused, citing the endorsement’s exclusion for "property in the care, custody, or control of the additional insured" (CCC exclusion) and an endorsement (CG 21 39) narrowing contractual-liability coverage.
- McMillin sued for declaratory relief and breach of contract; bench trial bifurcated to decide duty to defend under the additional insured endorsement.
- Trial court ruled for National Fire, finding the CCC exclusion barred a defense for a general contractor; Court of Appeal reversed, holding CCC exclusion applies only where control is exclusive/complete and National Fire failed to show coverage was impossible.
Issues
| Issue | Plaintiff's Argument (McMillin) | Defendant's Argument (National Fire) | Held |
|---|---|---|---|
| Whether insurer owed a duty to defend the additional insured general contractor under CG 20 09 for construction defect claims | Duty to defend exists because complaint alleges damage could have arisen during Martin's ongoing operations and control was shared, not exclusive | CCC exclusion bars defense because McMillin, as GC, had care/custody/control over the project | Duty to defend exists; insurer failed to prove coverage impossible |
| Proper construction of the CCC exclusion (does it require "exclusive or complete" control?) | CCC exclusion requires exclusive/complete control; shared control defeats exclusion (Davis) | Text lacks "exclusive" language; court cannot read words into exclusion | CCC exclusion judicially construed to require exclusive/complete control; exclusion inapplicable here |
| Relevance of prior decisions broadly construing additional-insured coverage (e.g., Pulte, McMillin) | Those cases support coverage when damage may arise during subcontractor's operations | Those cases used different ISO forms lacking CCC exclusion; here exclusion controls | Prior cases support the broad duty to defend; distinction insufficient to overcome CCC exclusion interpretation |
| Effect of CG 21 39 (narrowing "insured contract")—did it "close the loop" to bar indirect indemnity/defense? | Even if CG 21 39 narrows contractual-liability coverage for Martin, it does not change the reasonable expectations of McMillin or cure the CCC exclusion’s limits | Combined endorsements show intent to eliminate coverage either directly (additional insured) or indirectly (indemnity) | CG 21 39 does not negate McMillin’s objectively reasonable expectation of additional-insured defense; insurer still must show no potential for coverage |
Key Cases Cited
- Volf v. Ocean Accident & Guarantee Corp., 50 Cal.2d 373 (Cal. 1958) (applied CCC exclusion where contractor had control during damage)
- Silva & Hill Constr. Co. v. Employers Mut. Liab. Ins. Co., 19 Cal.App.3d 914 (Cal. Ct. App. 1971) (applied exclusion where contractual responsibility and ultimate control rested with insured)
- Home Indemnity Co. v. Leo L. Davis, Inc., 79 Cal.App.3d 863 (Cal. Ct. App. 1978) (construed CCC exclusion as inapplicable where control was shared, announcing exclusive/complete-control rule)
- Montrose Chemical Corp. v. Superior Court, 6 Cal.4th 287 (Cal. 1993) (insurer has no duty to defend if complaint cannot conceivably state a covered claim)
- Hartford Casualty Ins. Co. v. Swift Distribution, Inc., 59 Cal.4th 277 (Cal. 2014) (scope and timing of insurer’s duty to defend; insured shows potential for coverage; insurer must prove absence of potential)
- County of San Diego v. Ace Property & Casualty Ins. Co., 37 Cal.4th 406 (Cal. 2005) (judicial construction of policy terms should be read into the policy)
- E.M.M.I. Inc. v. Zurich American Ins. Co., 32 Cal.4th 465 (Cal. 2004) (policy provision ambiguous if subject to two reasonable constructions; exclusions construed narrowly)
- Waller v. Truck Ins. Exchange, Inc., 11 Cal.4th 1 (Cal. 1995) (insurance policy interpretation follows contract principles; ambiguities resolved to protect insured's reasonable expectations)