Court Rejects Insurer's Broad View of 'Care, Custody or Control' Exclusion

An appellate court in California has ruled that an insurer owed a defense to a general contractor as an additional insured under a subcontractor's commercial general liability insurance policy, rejecting the insurer's efforts to deny coverage based on an exclusion for damage to property in the “care, custody or control” of the additional insured.

June 10, 2019 at 04:10 AM

4 minute read

By Steven A. Meyerowitz

The original version of this story was published on Law.com

This story is reprinted with permission from the Insurance Coverage Law Center, the industry's only comprehensive digital resource designed for insurance coverage law professionals. Visit the website to subscribe.

An appellate court in California, reversing a trial court's decision, has ruled that an insurer owed a defense to a general contractor as an additional insured under a subcontractor's commercial general liability (“CGL”) insurance policy, rejecting the insurer's efforts to deny coverage based on an exclusion for damage to property in the “care, custody or control” of the additional insured.

The Case

McMillin Homes Construction, Inc., the developer and general contractor on a housing project in Chula Vista, California, hired Martin Roofing Company, Inc., to “render a complete roofing job.”

Homeowners in seven projects developed and built by McMillin subsequently sued McMillin for construction defects. The homeowners alleged water intrusion and damage caused by roofing defects. Two homes that Martin worked on were at issue in the case.

McMillin tendered its defense of the homeowners' action to National Fire and Marine Insurance Company, from which Martin had acquired a CGL policy that named McMillin as an additional insured.

National Fire denied coverage, relying on the exclusion in its policy for property in McMillin's “care, custody, or control” (the “CCC exclusion”).

McMillin sued.

The trial court, citing the CCC exclusion, determined that National Fire did not have to defend McMillin, and McMillin appealed.

The National Fire Policy

The additional insured endorsement in the National Fire policy provided that it did not cover:

“Property damage” to [¶] . . . [¶] Property in the care, custody, or control of the additional insured(s) or over which the additional insured(s) are for any purpose exercising physical control.

The Appellate Court's Decision

The appellate court reversed, holding that the CCC exclusion required that McMillin have “exclusive or complete control” of the damaged property but that in this case the facts indicated only shared control between McMillin and Martin.

In its decision, the appellate court rejected National Fire's contention that the CCC exclusion precluded a duty on the part of National Fire to defend McMillin as an additional insured because McMillin was the general contractor on the project and any damage alleged in the homeowners' action while their homes were being built would have been to property in McMillin's care, custody, or control.

The appellate court pointed out that Martin had agreed to furnish all labor, materials, and equipment needed “to render a complete roofing job” and that Martin was “primarily and directly responsible for the activities and conduct of its employees, subcontractors, agents and suppliers.” In addition, the appellate court continued, all materials, equipment, and tools remained Martin's property until they were integrated into the structure and approved by McMillin. It also was “Martin's job to coordinate with other subcontractors associated with its roofing work” and “Martin agreed to protect the building from any damage by its employees.”

The appellate court conceded that McMillin was responsible for the whole project and coordinating schedules to ensure the project finished on time, but it emphasized that Martin was responsible for controlling its jobsite and supervising the roofing work. The appellate court concluded that Martin and McMillin shared control over Martin's roofing work and, therefore, that the CCC exclusion did not apply to the homeowners' suit against McMillin.

The case is McMillin Homes Construction, Inc. v. National Fire & Marine Ins. Co., No. D074219 (Cal. Ct. App. June 5, 2019). Attorneys involved include: Ryan & Associates and Greg J. Ryan for Plaintiff and Appellant. Summers & Shives, Martin L. Shives, and Peter B. Lightstone for Defendant and Respondent.

Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. Mr. Meyerowitz is the Director of the Insurance Coverage Law Center and editor-in-chief of journals on insurance law, banking law, bankruptcy law, energy law, government contracting law, and privacy and cybersecurity law, among other subjects. He may be contacted at smeyerowitz@meyerowitzcommunications.com.