Crum & Forster Specialty Insurance Company v. Navigators Specialty Insurance…

Background

The dispute concerns insurance coverage for an $11 million settlement of consolidated state-court construction-defect claims. The claims involved work performed on a construction project for Tibidabo, LLC. Design Line Construction, Inc. served as the general contractor after Tibidabo terminated the original contractor and retained Design Line to complete construction and remediate defects.

The underlying claims alleged numerous defects, including problems involving windows, doors, waterproofing, roofing, flooring, ceilings, electrical work, plumbing, and mold. The claims against Design Line settled in June 2025. Navigators paid $1 million toward the settlement. Crum & Forster Specialty Insurance Company and Homesite Insurance Company each paid $5 million under their excess policies, subject to a reservation of rights.

The plaintiffs alleged that Navigators had a duty to indemnify Design Line under a primary policy effective April 1, 2019, to April 1, 2020, and under a related excess policy. They asserted claims for equitable subrogation, equitable contribution, equitable indemnity, and declaratory relief. Navigators moved to dismiss for failure to state a claim, relying primarily on exclusion j(5), and also raised exclusion j(6).

Court’s Analysis

The court first concluded that the plaintiffs plausibly alleged that at least some of the property damage for which they paid the settlement occurred during the 2019–2020 policy period. The pleadings and settlement materials did not precisely identify when all damage occurred, but the court was required at this stage to draw reasonable inferences in the plaintiffs’ favor.

The court nevertheless held that exclusion j(5) applied as a matter of law. That exclusion bars coverage for property damage to the particular part of real property on which the insured or its contractors are performing operations when the damage arises from those operations. Applying California law, the court explained that for a general contractor, the relevant “particular part” encompasses all work at the project, including subcontractors’ work. Design Line was alleged to have been the project’s general contractor during the policy period, so the entire project fell within the exclusion’s scope.

The court also held that the alleged damage arose out of Design Line’s operations. Under California law, “arising out of” requires a connection with, or flow from, the insured’s work. The underlying allegations connected the claimed damage to Design Line’s construction and remediation work. The plaintiffs did not identify allegations supporting a different inference for damage occurring during the policy period.

The court rejected the plaintiffs’ reliance on California cases involving subcontractors and concluded those decisions did not provide convincing evidence that California’s highest court would reject the rule that a general contractor’s work encompasses the entire project. The court therefore followed the California intermediate appellate authority it found applicable.

Disposition

Judge Jacqueline Scott Corley granted Navigators’ motion to dismiss, with leave to amend. The court did not state that the dismissal was with prejudice. The plaintiffs’ amended complaint, if any, was due by March 26, 2026. The court stated that if they did not amend, judgment would be entered. The order disposed of Docket No. 14.