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M&C Prevails in Court of Appeal: Court Finds No Duty to Defend an Additional Insured

June 9, 2008

In the published decision of Monticello Ins. Co. v. Essex Ins. Co., a matter handled by Bryan M. Weiss, Co-Chair of the firm's Insurance Law practice group, the Court of Appeal for the Second Appellate District upheld a trial court's granting of summary judgment in favor of Essex Insurance Company as against Monticello Insurance Company, which had sought equitable contribution against Essex.  The court found that Essex had no duty to defend Monticello's named insured, who was also an additional insured under the Essex policy, and hence had no obligation to contribute to Monticello's defense and indemnity costs on behalf of its named insured.

Essex insured a drywall subcontractor that had entered into a subcontract agreement with the general contractor, Monticello's insured, on a construction project.  The drywall subcontractor agreed to name the general contractor as an additional insured under its policy with Essex and an additional insured endorsement was issued.  However, that endorsement provided that the general contractor would only be an insured under the Essex policy for liability being imposed because of the subcontractor's work.  In addition, the endorsement provided that if there is "no coverage" for the named insured, there is no duty to defend the additional insured.

The general contractor was named as a defendant in a construction defect lawsuit – the drywall subcontractor was not named as a defendant.  Although the complaint alleged such things as problems with painting surfaces and cracks, it did not specifically allege any problems with the drywall work itself.  In response to this complaint, the general contractor filed a cross-complaint against all subcontractors involved in the project, including the drywall subcontractor.  The general contractor also sought a defense as an additional insured under the Essex policy.  Essex refused to defend and Monticello defended and indemnified the general contractor through the conclusion of the case.  It then sought equitable contribution and indemnity from Essex.

In that action, the trial court granted Essex's motion for summary judgment, holding that the complaint in the underlying action did not allege any "property damage" due to the drywall work of Essex's insured such that the general contractor qualified as an additional insured.  The Court of Appeal affirmed, holding that the lack of any allegations in the complaint concerning "property damage" from drywall work failed to create a potential for coverage for the general contractor as an additional insured under the Essex policy.  The court further held that that potential for coverage was not created by the general contractor's own cross-complaint against the subcontractor.