The court denied the insurer's motion for summary judgment, holding that the insurer had a duty to defend the additional insured against claims for construction defects. Centex Homes v. Lexington Ins. Co., 2014 U.S. Dist. LEXIS 164472 (C.D. Cal. Nov. 24, 2014).
Centex contracted with Gateway Concrete, Inc. to install concrete foundations for a housing development. Gateway was required to purchase insurance with an endorsement naming Centex as an additional insured. Gateway obtained the policy from Lexington.
The homes Gateway worked on were sold between August 2005 and October 2007. Several individuals sued Centex and all of the subcontractors for property damage to their homes. In February 2009, Centex tendered the defense and indemnity to Lexington. Lexington declined coverage. In September 2011, Centex settled with the homeowners for $1,078,000, and then sued Lexington for breach of contract and bad faith.
Lexington moved for summary judgment, arguing (1) only Gateway could satisfy the self-insured retention (SIR) and never did so; (2) policy exclusions barred coverage for the types of damages alleged to have resulted from Gateway's work.
Under the SIR Endorsement, Gateway was to assume the retained limit, and Lexington had no duty to defend until the retained limit was exhausted. The court first held that Centex could satisfy the SIR. Unless a policy expressly provided otherwise, a retained limit could be satisfied by a codefendant's payment or by other insurance obtained by the insured. At a minimum, the SIR Endorsement was ambiguous as to whether payment to satisfy the requirement could only be made by Gateway.
Lexington next argued that Exclusions j (5) and j (6) precluded coverage. The underlying action alleged damage both for the costs of replacing and reconstructing faulty work "as well as to correct, replace and reconstruct the damage to the property resulted therefrom." Therefore, because the homeowners alleged damage to other property, Exclusions j (5) and j (6) did not apply.
Finally, the court denied Lexington's motion for summary judgment as to Centex's claim for the breach of good faith and fair dealing. Centex argued that Lexington took nearly 14 months to make a decision to deny coverage and the delay was unreasonable. Viewed in a light most favorable to Centex, a jury could conclude that Lexington acted unreasonably.