Contractors Bonding and Insurance Company v. AmTrust International Underwriters…

Background

Greg Wimmer hired J.P. Whitney Construction to remodel his home. Whitney hired Mike Grasshof Construction as a framing subcontractor, but Whitney later removed Grasshof from the project and abandoned it. Wimmer sued Whitney, Grasshof, and another subcontractor in San Mateo Superior Court, alleging framing defects and other construction and contracting problems.

Contractors Bonding and Insurance Company (CBIC) insured Whitney. AmTrust insured Grasshof under two policies covering successive periods. Whitney and Grasshof’s subcontract required Grasshof to name Whitney as an additional insured under Grasshof’s policy.

Whitney tendered Wimmer’s lawsuit to AmTrust for defense and indemnification. AmTrust eventually agreed to participate in the defense but stated that it would defend only issues related to Grasshof and would pay 50 percent of its share of the defense. CBIC sought reimbursement for defense fees it had incurred and brought claims for equitable contribution, equitable subrogation, and declaratory relief.

Insurance-policy provisions

The AmTrust endorsement made coverage for Whitney primary for liability allegedly arising from Grasshof’s operations, but excluded claims determined to be solely the result of Whitney’s negligence or responsibility. It also limited additional-insured coverage to bodily injury or property damage caused, in whole or in part, by Grasshof’s work.

Both policies contained duties to defend lawsuits alleging covered bodily injury or property damage. Both also provided for contribution by equal shares when the other insurance permitted that method. CBIC argued that its policy was excess over insurance available to Whitney as an additional insured under a subcontractor’s policy.

Court’s analysis

The court applied the summary-judgment standard, which permits judgment without a trial when no genuine dispute about a material fact exists and the moving party is entitled to judgment under the law.

The court relied on the reasoning of Maryland Casualty Co. v. Nationwide Mutual Insurance Co. and First Mercury Insurance Co. v. Great Divide Insurance Co. It determined that AmTrust’s additional-insured coverage was limited to liability traceable to Grasshof’s work. It did not make AmTrust responsible for all defects in the remodel, including claims unrelated to Grasshof.

The court rejected CBIC’s argument that its policy was purely excess. It reasoned that requiring AmTrust to bear the entire defense burden would improperly expand the subcontractor’s additional-insured coverage to include Whitney’s independent acts and the acts of other subcontractors. The court also concluded that CBIC’s policy could not be treated as excess for this dispute.

Because AmTrust had a duty to defend some portion of the claims and CBIC also had a duty to defend, and because both policies provided for equal-share contribution, each insurer was required to fund half of the defense of Wimmer’s lawsuit.

Disposition

The court granted AmTrust’s motion for summary judgment and denied CBIC’s motion for summary judgment. It ordered each insurer to provide half of the defense costs in the underlying Wimmer matter and terminated this civil case. The court stated that the parties could file a new case if either sought to reallocate defense costs after liability was determined in the underlying matter.