Federal Court in North Carolina Enforces Insurers’ Duty to Defend a General Contractor as an Additional Named Insured Under the Subcontractor’s Commercial General Liability Policy

Westfield Ins. Co. v. Weaver Cooke Constr., LLC, 2019 BL 129431 (E.D.N.C. Apr. 11, 2019)

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Christine Z. Fan

This case arises out of the alleged defective construction of a condominium complex in North Carolina.  In 2009, the developer on the project filed suit for the alleged construction defects.  This related coverage lawsuit then ensued between the parties’ insurers regarding a duty to defend the general contractor.

The general contractor, Weaver Cooke Construction, LLC (“Weaver Cooke”) was the named insured under the respective commercial general liability policies by plaintiff Westfield Insurance (“Westfield”) and defendant Zurich America Insurance Company (“Zurich”).  Pursuant to the policies, Westfield and Zurich contributed to the costs of defending Weaver Cooke in the underlying construction-defect action.

Two of Weaver Cooke’s subcontractors, William H. Dale dba DD Plumbing Company (“DD Plumbing”) and East Carolina Masonry, Inc. (“ECM”), were the named insureds under the commercial general liability policies issued by defendant Selective Insurance Company of America (“Selective”) and defendant Penn National Insurance Company (“Penn”), respectively.  Both the Selective and Penn policies extended defense obligations to DD Plumbing’s and ECM’s contractors as the additional insured.

In light of the defect claims brought against it, Weaver Cooke tendered defense obligations to DD Plumbing and ECM and requested that the parties forward the tenders to their respective insurers (Selective and Penn).  On September 12, 2013, Westfield also directly tendered to Selective and Penn demanding a duty to defend Weaver Cooke.  Despite the tenders, however, Selective and Penn refused to defend Weaver Cooke as an additional insured under their policies.  Selective and Penn argued that coverage only applies to claims involving bodily injury and property damage, whereas the damages in the underlying defect action were purely for economic losses.

Westfield and Zurich thereafter sued to enforce Selective’s and Penn’s duty to defend as the primary insurers.  Weaver Cooke, Westfield, and Zurich all sought reimbursement from Selective and Penn for the defense costs and fees incurred in defending the claims.

Under North Carolina law, the interpretation of an insurance policy is a matter of law.  Where there is a hybrid of covered and excluded events, it is sufficient to impose a duty to defend if there is merely a possibility that the insured is liable.  Any doubt as to coverage should be resolved in the insured’s favor.

The pleadings in the underlying construction-defect action allege that ECM furnished brick and concrete masonry units and DD plumbing installed piping and plumbing fixtures.  The court determined that the pleadings implicate the work done by ECM and DD Plumbing and are thus covered under Selective’s and Penn’s policies.  The court found that the lawsuit’s triggering event is not merely related to economic losses but is the actual result of property damages due to poor construction.  It also found that these facts sufficiently trigger a duty to defend by both Selective and Penn as the primary insurer.  The duty arose when Selective and Penn first received notice of the lawsuit on September 12, 2013 through the tender letters.  It did not matter that the tender letters were sent by Westfield and not directly by Weaver Cooke.

Further, that court explained that it was irrelevant that Weaver Cooke chose to pay its selected attorney at a higher rate than Westfield and Zurich wanted to pay.  Specifically, when an insured provides notice of a claim to an insurer, the insurer gains an opportunity to mount its defense early to control the defense costs.  This means that where an insured fails to provide a timely notice, the insurer is not required to pay for the legal fees prior to its notice of the claim.  But Selective and Penn did receive proper notice of the claims and thus could have controlled the defense costs at the onset.  Their deliberate refusal to do so mooted the argument of excessive defenses costs.  As a result, the court award Weaver Cooke, Westfield, and Zurich reimbursement of their defense fees and costs.

Accordingly, the court granted the motions for summary judgment brought by Weaver Cooke, Westfield, and Zurich on the issue of duty to defend by Selective and Penn.  The court also granted Weaver Cooke’s motion for summary judgment against Penn under the Unfair and Deceptive Trade Practices Act sections 58-63-15(11)(e) and (n) for failing to promptly provide a reasonable explanation of in the insurance policy for denying Weaver Cooke’s claims.

To view the full text of the court’s decision, courtesy of Bloomberg Law, click here.