Subcontractors’ Coverage Is Excess over CGL Coverage, Circuit Court Rules

After a condominium unit owners association sued the project’s general contractor, the general contractor filed a third party complaint against several subcontractors. The general contractor’s commercial general liability insurer defended the general contractor and paid to settle the state court litigation. The insurer then sued the subcontractors’ insurers, seeking equitable contribution.  A federal district court judge concluded that the subcontractors’ coverage was excess over the CGL coverage, and the CGL insurer appealed.

The U.S. Court of Appeals for the Ninth Circuit affirmed. It first explained that the CGL policy stated that it provided primary CGL coverage for the general contractor and was rendered excess only if there was any other “primary” insurance available to the general contractor as an additional insured. With respect to one subcontractor’s policy, the circuit court reasoned that its additional insured endorsement included two alternative conditions precedent; neither was satisfied, however, and the coverage available to the general contractor as an additional insured remained excess. Moreover, because there was no evidence that the CGL policy limits had been exhausted by the defense and settlement of the state court litigation, neither the excess coverage nor the duties to investigate and defend under that policy had been triggered.

The circuit court reached the same conclusion with respect to a second subcontractor’s policies. The circuit court explained that for insureds, including additional insureds such as the general contractor, that obtained coverage that was not expressly excess over the coverage under those policies, the “other insurance” provision in those policies provided that those policies were excess. Because the general contractor was afforded only excess coverage as an additional insured under those policies, the condition precedent in the CGL’s “other primary insurance” provision was not satisfied, the circuit court found.

The Ninth Circuit then concluded that because the CGL policy limits were not exhausted by the defense of the general contractor and the settlement in the state court litigation, the excess coverage under this subcontractor’s policies was not implicated, either. It therefore affirmed the district court’s decision.

The case is American Family Mut. Ins. Co. v. National Fire & Marine Ins. Co., No. 10-16859 (9th Cir. Dec. 23, 2011).

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