Travelers Property Casualty Company of America v. Liberty Mutual Fire Insurance…

Background

The Aldridge/Rosendin Joint Venture and the Skanska-Shimmick-Herzog Joint Venture each moved for partial summary judgment on whether Liberty Mutual owed them a duty to defend in an underlying state-court action. Partial summary judgment is a decision resolving part of a dispute without necessarily resolving the entire case.

Aldridge advanced two arguments. First, it argued that the pleadings in the underlying case showed a potential for insurance coverage and therefore immediately triggered Liberty Mutual’s duty to defend. Second, it argued that, even if the pleadings did not immediately trigger that duty, they put Liberty Mutual on inquiry notice. Under that theory, Liberty Mutual had to conduct a reasonable investigation before denying Aldridge’s tender of the defense. Skanska relied only on the first argument and did not challenge the adequacy of Liberty Mutual’s investigation.

Court’s Analysis

The court held that the pleadings did not themselves trigger Liberty Mutual’s duty to defend. The underlying cross-complaint alleged that Skanska delayed the project, performed defective work, installed defective materials and equipment, and failed to supervise or manage the site properly. The court found that these allegations suggested defective work and materials but contained no factual suggestion that property damage had occurred.

The cross-complaint also alleged in boilerplate terms that Skanska’s breaches could cause economic damages, property damage, liquidated damages, and consequential damages. The court held that this unsupported language was not enough. The cases cited by Aldridge involved complaints containing factual allegations that suggested a possibility of coverage, even when those allegations were remote, buried, or not stated as separate causes of action. Here, the court found no comparable factual content suggesting property damage.

The court nevertheless held that the pleadings placed Liberty Mutual on inquiry notice. That required Liberty Mutual to conduct a reasonable investigation before deciding whether to accept or deny Aldridge’s tender. The court found that no reasonable juror could conclude that Liberty Mutual had done so. Liberty Mutual acknowledged that it would review the case materials and pleadings, but then denied the tender without asking Aldridge any questions or requesting additional information.

The court rejected Liberty Mutual’s argument that its earlier efforts to obtain information from Skanska and Santa Clara excused its conduct toward Aldridge. Those parties’ lack of response did not eliminate Liberty Mutual’s separate obligation to reasonably investigate Aldridge’s tender. The court stated that a request for information from Aldridge might have revealed that property damage had occurred.

Ruling and Effect

The court granted Aldridge’s motion for partial summary judgment and denied Skanska’s motion for partial summary judgment. Because Liberty Mutual breached its duty to defend Aldridge, the court held that Aldridge was entitled to reimbursement for all defense fees and costs incurred in the underlying litigation since March 2, 2021, when Liberty Mutual’s duty to investigate was triggered by Aldridge’s initial tender.

The court also held that Liberty Mutual forfeited its right to control Aldridge’s defense, including its right to limit the rate paid to defense counsel under section 2860 of the California Civil Code. The court stated that Aldridge could seek payment before the underlying litigation ended by filing an administrative motion for a separate judgment under Federal Rule of Civil Procedure 54(b).