The Duty to Defend is Broad but it is not Unlimited – Contractors Bonding and Insurance Company v. AmTrust International Underwriters Limited (AmTrust), No. 3:2020cv03248 – Document 37 (N.D. Cal. 2021)

I’ve been handling claims for almost 44 years now and have learned a thing or two. It is probably a good idea not to mention at a party, for example, that you are in the insurance business. If you do, immediately deflect by mentioning that your brother is a retired IRS agent.

I’ve learned a few axioms.  “The duty to defend is broader than the duty to indemnify.” “If there is a potential for coverage, there is a duty to defend.” “The defense obligation is immediate and complete.”

The broad defense obligation does have some caveats. Is the jurisdiction a four (eight) corner state or must/can extrinsic (to the suit) information be considered when determining the defense duty?  If there is a duty to defend, can the carrier seek reimbursement from the insured via a unilateral reservation of rights or specific provision in the policy itself, or at least seek equitable contribution from other insurers? What are the consequences of a reservation of rights while undertaking a defense?

A recent (June 9, 2021) U.S. District Court case, Contractors Bonding and Insurance Company v. AmTrust International Underwriters Limited (AmTrust), decided a contentious issue:

If the named insured (GC) is an additional insured on the sub’s policy, and the language of both policies supports the additional insured coverage as primary, is the additional insured coverage obligated to fund the entire defense even though the additional insured is sued for its own direct liability and/or vicarious liability of other parties, e.g., other subcontractors?

The court’s conclusion:

“CBIC cannot shift onto a subcontractor the burden to provide a complete defense for a suit including claims against only a general contractor. Each insurer must provide half of the defense costs in the underlying Wimmer matter and the civil case will be terminated. The parties are, of course, entitled to file a new case should one or both seek reallocation of defense costs after a determination of liability in the underlying matter.”

Here are the details, in a nutshell (includes quotes, in whole, in part, and paraphrased from ruling):

The construction defect lawsuit

  • Wimmer hired Whitney to provide foundation construction services and serve as the GC to remodel his home via a “limited scope” construction agreement.
  • Once foundation was complete, Whitney hired Grasshof, a framer, as a sub.
  • Whitney and Grasshof’s subcontract required Grasshof to name Whitney as an additional insured on his policy.
  • Due to disagreements between Wimmer and Whitney, Grasshof was removed from job and project was abandoned.
  • Wimmer sued Whitney, Grasshof, and another sub, Central Coast Welding.
  • Alleged defects include framing-specific deficiencies as well as foundation and general contracting issues. Whitney performed part of the deficient framing prior to hiring Grasshoff.

The policies

  • Whitney is the named insured on the CBIC policy.
  • Grasshof obtained insurance (two policies) from AmTrust.
  • Whitney is an additional insured on Grasshof’s policies.

Wimmer tender

  • Whitney tendered the Wimmer matter to AmTrust for defense and indemnification on June 3, 2016. Two years later, AmTrust agreed to participate in Whitney’s defense.
  • On November 7, 2018, CBIC requested reimbursement for defense fees incurred prior to AmTrust’s acceptance of coverage. CBIC made a second demand on December 7, 2018.
  • Almost a year later, AmTrust communicated to CBIC that it was only willing to provide a defense against issues related to its named insured, Grasshof. It claimed “[t]here are aspects of this claim that are not covered under our policy which include the negligence of [Whitney], and actions in the complaint that do not include [Grasshof]. Amtrust has always agreed to pay 50% of its share of defense. We never agreed to pay 100%.”

CBIC seeks equitable contribution, equitable subrogation, and declaratory reliefAmTrust argues that its carefully worded additional insured endorsement precludes defense of Whitney where any liability is solely the result of Whitney’s own negligence. Whitney is only entitled to a defense where the harm was “caused, in whole or in part” by Grasshof.

The additional insured and primary insurance endorsements do not make the subcontractor broadly responsible for all defects related to the remodel of Wimmer’s home. Rather, AmTrust is only responsible for liabilities traceable to the defects in Grasshof’s work. Because some of the claims in the Wimmer matter are unrelated to Grasshof’s work, AmTrust cannot be saddled with the entire defense obligation.

CBIC argues AmTrust is required to provide a full and complete defense because it has acknowledged a duty to defend. See Presley Homes, Inc. v. Am. States Ins. Co., 90 Cal.App.4th 571, 575 (2001) (“It is settled that where an insurer has a duty to defend, the obligation generally applies to the entire action, even though the suit involves both covered and uncovered claims, or a single claim only partially covered by the policy.”).

By CBIC’s own admission, however, it has also undertaken to defend the Wimmer matter — it seeks reimbursement “for defense fees incurred by CBIC prior to AMTRUST’s agreement to defend.” In consequence of this Court’s determination that its policy is not purely excess, CBIC also has a duty to defend the Wimmer matter. Because each policy is primary as to some portion of the claims, and both policies contemplate contribution by equal shares where all other insurance so permits, each insurer is required to fund half of the defense of the Wimmer matter.

CBIC’s attempt to undermine this conclusion by characterizing its policy as excess is unavailing.

AmTrust’s additional insured endorsement specifies that its policy “will not apply to any claim, loss, or liability which is determined to be solely the result of [Whitney’s] negligence or solely [Whitney’s] responsibility.” To induce primary coverage, Whitney’s liability must be “caused, in whole or in part” by Grasshof.  Whitney is not even an additional insured with regard to the Wimmer claims alleging defects in Whitney’s independent work, let alone entitled to demand primary coverage from AmTrust.

It would be unreasonable to conclude that, by acquiring additional insurance by way of its contractors, a general contractor’s commercial insurance policy would never be triggered. For both interpretive and policy reasons, CBIC’s policy cannot be considered excess.


Construction material varies with types of construction, geographical location, amenities desired, and other factors.  Materials typically include concrete, wood, steel, stone, glass, drywall, brick, landscaping, etc.

Building Components and Life Expectancy

In February 2007, the National Association of Home Builders/Bank of America Home Equity issued a report, Study of Life Expectancy of Home Components.[i] The following describes the U.S. Housing Stock in 2005:

The 2005 American Housing Survey by the U.S. Census Bureau shows that there are more than 124 million homes in the housing stock, with a median age of 32 years.  About one-third of the housing stock was built in 1960 or earlier.  About 10 percent was built in the 1960s, and another 20 percent was built in the 1970s.  Of the remainder, 13 percent was built in the 1980s, another 13 percent was built in the 1990s, and 8 percent in the first years of the 21st century.

Of the total stock of 124.3 million housing units, about 109 million are occupied housing units, 11.6 million are vacant and about 4 million are seasonal.  Two-thirds of all units in the nation’s housing stock are single-family detached or attached, 8 percent are in buildings with 2 to 4 units, and about 17 percent are in buildings with 5 or more units.  The remaining 7 percent of the stock is in HUD-code homes.

About 18 percent of the occupied housing stock is in the Northeast, 23 percent is in the Midwest, 37 percent is in the South, and 21 percent is in the West.

Here are just a few of the study’s findings:

  • Concrete and Masonry

Masonry is one of the most durable components of a home.  Chimneys, fireplaces, and brick veneers can last a lifetime, and brick walls have an average life expectancy of more than 100 years.

  • Engineered Lumber

Floor and roof trusses and laminated strand lumber are expected to last a lifetime, and engineered trim is expected to last 30 years.

  • Footings and Foundations

Poured as well as concrete block footings and foundations last a lifetime, assuming they were properly built.  Termite proofing of foundations will last about 12 years if the chemical barriers put in place during construction are left intact.  Waterproofing and bituminous coating lasts 10 years, but if it cracks it is immediately damaged.  Concrete or cast iron waste pipes are expected to last 100 years or more.

  • Framing and Other Structural Systems

Framing and structural systems have extended longevities: poured-concrete systems, timber frame houses, and structural insulated panels will all last a lifetime.  Wall panels and roof and floor trusses will similarly last a lifetime.  Softwood, hardboard, and plywood last an average of 30 years, while OSB and particleboard are expected to function properly for 60 years.

  • Insulation and Infiltration Barriers

As long as they are not punctured, cut, or burned, and are kept dry and away from UV rays, the cellulose, fiberglass, and foam used in insulation materials will last a lifetime.  This is true whether the insulation was applied as loose fill, house wrap, or batts/rolls.

  • Roofing

The life of a roof depends on local weather conditions, proper building and design, material quality, and adequate maintenance.  Slate, copper, and clay/concrete roofs have the longest life expectancy – over 50 years.  Roofs made of asphalt shingles last for about 20 years while roofs made of fiber cement shingles have a life expectancy of about 25 years, and roofs made of wood shakes can be expected to last for about 30 years.

[i] National Association of Home Builders/Bank of America Home Equity, Study of Life Expectancy of Home Components, Prepared by the Economics Group of NAHB, February 2007,


At the outset, it is important to realize that structures can fail for reasons other than construction and design defects:

…all buildings have an expected lifespan and even the structures of the ancient world will erode into a mound of sand given enough time.  The eventual failure of a structure is an expected result rather than a manifestation of a construction defect.[i]

While design and construction professionals can fail to meet standards of care resulting in construction defects and damages, structures are simply not built to last forever and neither are they required to be perfect in design and construction.  The question, then, is whether the failure is due to normal wear and tear, the result of the expiration of the useful life of the structure, a maintenance problem, or one actually due to a construction and/or design defect.[ii]

Construction defects often are initially latent, with a later manifestation of symptoms of the defect.  They can also be patent, that is, they are readily apparent.[iii]  Timing is important for a number of reasons including the impact on statutes of limitations and repose, and the “trigger of coverage”.


Construction defects can be defined by statute.  For example, in Nevada, NRS 40.615 defines a constructional defect as…

… a defect in the design, construction, manufacture, repair or landscaping of a new residence, of an alteration of or addition to an existing residence, or of an appurtenance and includes, without limitation, the design, construction, manufacture, repair or landscaping of a new residence, of an alteration of or addition to an existing residence, or of an appurtenance:

1.  Which presents an unreasonable risk of injury to a person or property; or

2.  Which is not completed in a good and workmanlike manner and proximately causes physical damage to the residence, an appurtenance or the real property to which the residence or appurtenance is affixed.[iv]

Florida’s Chapter 558.002, defines a construction defect in this way:

…a deficiency in, or a deficiency arising out of, the design, specifications, surveying, planning, supervision, observation of construction, or construction, repair, alteration, or remodeling of a dwelling, any appurtenance to the dwelling, or the real property to which the dwelling or appurtenance is affixed resulting from:

(a)  Defective material, products, or components used in the construction or remodeling;

(b)  A violation of the applicable codes in effect at the time of construction or remodeling which gives rise to a cause of action pursuant to s.553.84;

(c)  A failure of the design of a dwelling to meet the applicable professional standards of care at the time of governmental approval; or

(d) A failure to construct or remodel a dwelling in accordance with accepted trade standards for good and workmanlike construction at the time of construction.[v]

A Working Definition

A “construction defect” can be defined as a failure of the construction to perform in an intended or expected way.  This failure to perform can, but not necessarily, cause physical injury to the work itself and/or other property or work.  “Construction defects” include defects in design, faulty work, defective building products/material, and various types of soil failure.

Design defects include:

  • Improper site selection
  • Building/system does not work as designed
  • Defective plans, specifications, selection of improper materials

Defective (physical) construction includes: 

  • Faulty workmanship
  • Poor quality
  • Noncompliance with codes, specifications, plans, product manufacturer instructions, buyer’s expectations, industry standards

Material or products used in a project may be defective, inferior, or inadequate.

Soil defects can be categorized separately and include expansive and saturated soils, and improper grading, fill, compaction, and defective testing.

Some “usual suspects” in construction defect claims include:

  • Saturated, expansive, and poorly compacted soil
  • Improper reinforcement of foundation systems, failure to properly prepare for utilities, failure to properly install anchor bolts, crawl space moisture, and improper foundation waterproofing
  • Defects in civil engineering and site drainage
  • Framing defects encompassing shear panels, absence of fire stopping, out-of- plumb and out-of-plane walls, and balcony deck framing
  • Plumbing defects that include the failure to ream ends of copper pipes that are cut and failure to isolate pipes from framing[vi]

Construction defects can be grouped into the following defect categories: site, building envelope, structural, heating/ventilation/air conditioning, electrical, plumbing, and fire/life safety systems.[vii]

Why do construction defects seem to be occurring more frequently?  A number of reasons have been offered: an abandonment of “the traditional design approach where the architect would utilize established…standards and details…that were similar and consistent, i.e. ‘tried and true’”;  untested new business materials that are limited in application; inadequate design detail; a change in the contractor’s role from “Master Builder” to “master broker” with the latter’s emphasis on “low initial cost and higher profits” overriding the goal of a product free of defects; the priorities of getting the project done as quickly as possible and maximizing profit; the overall “lack of quality assurance and quality control,” and the lack of effective coordination “resulting in scheduling and sequencing problems.”[viii]

[i] Frank Gatlin, AIA, NCARB, Identifying & Managing Design and Construction Defects (Construction/Insight from Hindsight: Issue 5, Winter 2013)

[ii] Gatlin.

[iii] Gatlin.

[iv], retrieved 1/23/20.

[v], retrieved 1/23/20.

[vi] Robert S. Mann, Defect-Free Buildings: A Construction Manual for Quality Control and Conflict Resolution (New York, NY: McGraw-Hill Companies, 2007) 92.

[vii] Gatlin.

[viii] Gatlin.

Do all construction defects need to be fixed?

Probably the most famous “construction defect” of them all is the Leaning Tower of Pisa in Italy.  More than 700 years after completion, it still stands, albeit a bit crooked, and seemingly defying gravity.  But if it wasn’t leaning, would the tower be the tourist attraction that it is today?  There’s no substitute for seeing it in person.  It is breathtaking.

The construction of this bell tower for a church began in 1173 A.D. and continued in several phases over a very long period of time. There were lengthy interruptions that delayed the project’s completion, over 200 years later.

The project is unique in its design, construction, and aesthetics.  The engineer, Bonanno Pisano, designed a 16,000-ton tower that is 179 feet in height on a stone base that is approximately 10 feet thick.  Unfortunately, or fortunately depending on one’s perspective, it was constructed on top of a “crumbly state of the ground.” Apparently, the tower started to tilt sometime in 1185 A.D. and today has an inclination measured at about 15 feet.[i] Subterranean water is present and it is apparent that the soil, composed of clay and other deposits, is subsiding. 

In the last century, the increasingly accurate measurements of the building and the surveys of the subsurface conducted with a wide range of devices, combined with historical and archival surveys, have shed some light on the matter. The Tower was presumably initially designed as a straight building; however, it must have begun to subside right from the first stages of the building work. The subsidence was due to the special morphological features of the ground, composed of several layers of clayey materials and silt, run through by groundwater levels at about one metre deep. These conclusions can be drawn from an observation of the soil, and the corrections made to every floor of the building. What is certain, based on the scarce information we have, is that over the centuries the oscillation of the building was minimal, since it must have eventually settled on the ground.[ii]

Movement of the Leaning Tower of Pisa continues, as do restoration efforts to stabilize it. Incredibly, despite the design and construction defects, the tower still stands.  Aside from the antiquity and beauty of the structure giving it historical value, the leaning caused by a defect in construction or design certainly enhances its value.

[i] G. Barsali, U. Castelli, R. Gagetti, O. Parra, Pisa: History and Masterpieces (Sesto Fiorentino, IT: Casa Editrice Perseus) 8, 18.