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October 2014

California Team Wins Summary Judgment in Federal Insurance Contribution Action

On Sept. 16, Gordon & Rees partners Timothy Lindell and George Soares and senior counsel Jennifer Kellar of San Diego and Los Angeles associate Steven Inouye won summary judgment for the defendant in an insurance contribution action pending in the U.S. District Court for the Central District of California.  In its ruling, the court held that no duty to defend is triggered by general allegations of unspecified damages or expert testimony regarding possible causes of damage and that an insurer may negate a duty to defend through extrinsic facts developed through its investigation of the claim.

The defendant and plaintiff were successive insurers of a contractor who constructed a retaining wall at a commercial construction project.  The owner of the commercial building sued the contractor, along with others, alleging improper construction resulted in damage to the building.  Specifically, the underlying complaint alleged “the damage is the result of, amongst other things, subsidence of the foundation soils caused by improper earthwork.”  The insurance company seeking contribution argued the “amongst other things” phrase used in the complaint should be read broadly to potentially include causes of damage unrelated to subsidence and thereby negating application of the defendant’s subsidence exclusion and creating a duty to defend.

On behalf of the defendant, Gordon & Rees argued the underlying complaint could not be read so broadly because to do so would require divorcing the complaint from the undisputed facts: 1) The mutual insured’s work was restricted to the building of the retaining wall; 2) the wall was constructed prior to the building; 3) the wall did not touch the building; 4) the defendant’s policy clearly excluded coverage for damage arising out of or related to subsidence; and 5) the only way for the wall to interact with the building was through the earth between the two structures.

Agreeing, the court concluded “the complaint allege[d] no cause of damage other than subsidence and no facts would support an allegation of an alternative cause.”  The court further found that even reading the underlying complaint as broadly as the plaintiff requested, the duty to defend was terminated when the defendant’s investigation confirmed there were no allegations of covered claims at issue.  Finally, rejecting the plaintiff’s argument that expert deposition testimony obtained later in the underlying action created a potential for coverage, the court stated such testimony was never provided to the defendant and in any event “[a] potential theory made by an expert in deposition does not mean that the claim was made or that the complaint should be interpreted to assert the claim.”

Finding no duty to defend, the court also concluded the defendant had no duty to indemnify the mutual insured in the underlying action.

Steven R. Inouye
Jennifer J. Kellar
George P. Soares