The court found that the insurer had a duty to defend and dismissed the insurer’s motion for summary judgment. Travelers Indem. Co. of Conn. v. I.C. Refrigeration Services Inc., 2025 U.S. Dist. LEXIS 221768 (N.D. Cal. Nov. 10, 2025).

Flory Construction, Inc. sued the project owner, Highbridge, asserting claims for (1) foreclosure on mechanics liens; (2) breach of contract; and other cliams. Flory agreed to furnish labor, materials and equipment for improvements to Highbridge’s properties. Flory alleges Highbridge failed to provide payment despite Flory completing “all requested contract work . . . except to the extent prevented by Highbridge.”

Highbridge filed a cross-complaint against Flory claiming, among other things, breach of contract and negligence. Highbridge alleged that Flory’s failure to correct deficiencies meant the HVAC was not properly installed. Accordingly, Highbridge’s tenants were threatening to vacate and terminate their leases.

Flory was an additional insured under a policy issued by Travelers to Flory’s subcontractor, IC Refrigeration Service Inc. Travelers agreed to defend Flory against Highbridge’s cross-complaint under a reservation of rights. Travelers then filed suit against Flory for declaratory relief seeking a determination of its duty to defend and indemnify. Flory moved to dismiss Travelers’ complaint.

Flory argued Travelers could not establish there was no potential for coverage. The underlying suit sought damages potentially covered by the policy as a matter of law. Highbridge sought damages based on tenants’ vacating and terminating their leases, which could be covered under the policy’s definition of “property damage” as a “[l]oss of use of tangible property that is not physically injured.” Further, Flory’s construction work may have caused “[p]hysical injury to tangible property, including all resulting loss of use of that property.” Therefore, Travelers had a duty to defend.

Under California law, the duty to indemnify could only be determined when the insured’s underlying liability was established. Accordingly, it was appropriate to stay the proceedings regarding Travelers duty to indemnify pending resolution of the underlying suit.