Reversing the lower court, the California Court of Appeal found that the care, custody and control exclusion was not applicable to bar coverage for the general contractor as the additional insured under the subcontractor's policy. McMillin Homes Constr. v. Nat'l Fire & Marine Ins. Co., 2019 Cal. App. LEXIS 514 (Cal. Ct. App. June 5, 2019).

    McMillian was the developer and general contractor on the housing project. It hired Martin Roofing Company, Inc. to do the roofing job for the project. Martin secured a general liability policy from National Fire that named McMillian as an additional insured. By endorsement, the policy excluded coverage for damage to property in McMillin's "care, custody, or control" (CCC exclusion).

    In 2014, homeowners sued McMillin for construction defects. The complaint alleged water intrusion and damage caused by roofing defects. McMillin tendered its defense to National Fire. Coverage was refused. Suit was filed and the trial court entered judgment in favor of National Fire. 

    The Court of Appeal reversed. The policy provided coverage to McMillin as an "additional insured" with respect to liability arising out of:

A. Martin's ongoing operations performed for McMillin and

B. Acts or omissions of McMillin in connection with its general supervision of such operations.

    National Fire argued that the CCC exclusion in the additional insured endorsement barred coverage. The endorsement 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.

Because McMillin was the general contractor on the project, any damage alleged while the homes were being built would have been to property in McMillin's care, custody, or control. McMillin contended that the CCC exception applied only where the insured had exclusive or complete control over the damaged property. 

    The CCC exclusion had been judicially construed to require exclusive or complete control.  Therefore, the provision was not ambiguous. Here, Martin agreed to furnish all labor, materials, and equipment needed to do the roof job. It was primarily and directly responsible for the activities and conduct of its employees. All materials, equipment and tools remained Martins property until they were integrated into the structure and approved by McMillin. Martin and McMillin shared control over Martins roofing work. Accordingly, National Fire did not prove the CCC exclusion rendered coverage for the claims was an impossibility. 

    Therefore, National Fire owed a defense and the judgment was reversed.