Joseph M. Junfola, CPCU

May 23, 2022

The case is noteworthy for a few reasons in terms of the interpretation of insurance coverage and issues like the fortuity doctrine, expected/intended consequences, legal damages versus equitable relief, and the definitions of bodily injury and property damage.

On March 24, 2022, the Appellate Division of the Supreme Court of New York, First Department, issued a noteworthy ruling in Certain Underwriters at Lloyd’s, London, et al. v. NL Industries, Inc., 2022 NY Slip Op 02056.

Another notable aspect of this case, and one that should never be underestimated, is the asset value of historical insurance policies.  In this case, this value is in the tens of millions of dollars.

But first, a little background.


In March 2000, Santa Clara County filed a class action lawsuit against manufacturers and promoters of Dutch Boy lead-based paints. NL Industries, a defendant, allegedly promoted the use of interior residential lead paint with knowledge of the danger to children.

Eleven years later, the case evolved into the Government Plaintiffs (including Santa Clara County) filing a fourth amended complaint asserting a claim for representative public nuisance on behalf of the People. Tried in Summer, 2013, the Court found in favor of the People and, in March 2014 filed an amended statement of that ruling requiring the defendants to pay $1.15 billion into an abatement fund.

After appeal from the defendants and remand, in July 2019 the Court approved a $305 million settlement. NL’s share was $101.6 million and, as of that date, had already paid $25 million.

The Court of Appeal affirmed that the plaintiffs must, and did, establish the defendants’ actual knowledge of the hazards of lead paint, including childhood lead poisoning, to sustain a claim for representative public nuisance. And the defendants knew this as early as the 1920s.

As to the remedy, the abatement of the representative public nuisance alleged on behalf of the People is equitable in nature and does not provide for a damages remedy. The defendants argued, unsuccessfully, that the abatement was “a thinly disguised damages award.”  Had the defendants succeeded, the claim would likely have been defeated since only equitable relief is available for a representative public nuisance claim.

This is significan because equitable relief is arguably not covered in a CGL policy, one of the arguments that the insurers made in the subsequent coverage action.


The carriers pursued a coverage action in New York and in late-December 2020, Certain Underwriters at Lloyd’s, et al. v. NL Industries, Inc., 2020 NY Slip Op 34331 (U), applying New York law, ruled against the carriers’ position that NL’s liability in the California action was not covered.

In support of their motion for summary judgment, the carriers argued:

  1. Because of NL’s knowledge of the danger of lead paints, it was held liable for the intentional and affirmative promotion of hazardous lead paint for interior residential use, giving way to expected or intended consequences and, therefore, is not covered.
  2. Only “damages” or “damages and expenses” are covered. The abatement remedy was neither, as it constituted equitable relief only as the California court explicitly ruled.
  3. Even if the abatement remedy could somehow be damages, it must be “because of” property damage or bodily injury as provided for in the policies and neither were “elements of the claim.”

The first argument failed. The Court ruled that, as to the expected/intended argument, in New York there is a distinction between knowledge of the risk of hazardous consequences as to one’s behavior and the intention to cause harm. The carriers failed to make a prima facie case that NL’s action was uninsurable. Furthermore, as to intent, the carriers failed to demonstrate that the alternative to expected/intended, i.e., the codified fortuity doctrine, precluded coverage.

The second argument failed as well. While the abatement remedy did not constitute damages in California, but instead was an equitable remedy, the New York court found for insurance coverage purposes, “that the abatement fund was not strictly intended to prevent harm, but was monies paid to the government, depleted by its ongoing efforts to remediate the longstanding contamination of houses and buildings by lead paint in California. It, therefore, qualifies as damages under the applicable policies.”

Finally, the New York Court ruled that while it agreed that property damage and bodily injury are not elements of the People’s representative public nuisance claim, there was a “connection between the lead poison injuries to the children residing in the buildings containing the lead paints promoted by NL and the property damage to those buildings as a result of NL’s promotion of lead paint.”

The carriers’ motion for summary judgment was denied and they appealed, bringing us to March 24, 2022, and the Appellate Division of the Supreme Court of New York, First Department’s ruling that the Supreme Court correctly denied the motion. Noteworthy is the Appellate Division’s concurrence that despite the ruling by the California court that abatement payments were not damages, they, “had a compensatory effect, which qualified them as damages under the applicable law and insurance policies.”


On July 24, 2019, the Superior Court issue an Order and Judgment approving a $305 million settlement, of which NL’s share is $101.6 million, and of which NL had already paid $25 million.

According to NL, Insurers issued or subscribed to 320 policies for NL between 1949 and 2000. More specifically, “[b]etween 1949 and 1997, approximately $1.285 billion (43%) in coverage was bought while NL was headquartered in New York, while approximately $1.690 billion (57%) in coverage was negotiated and delivered to NL at its Texas headquarters.”

In a footnote, it is pointed out that NL believes it purchased policies from the insurers as far back as 1946 but has not located them. Given the ages of the policies, NL was fortunate to have found the policies it did.  The value of old policies as financial sources in long-tail liability claims cannot be stressed enough.

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.

King’s Cove Marina v. Lambert Commercial Construction/MN Supreme Court

  1. A commercial general liability insurance policy does not cover property
    damage to an insured’s own completed work under the plain language of a “your work”
    exclusion, which applies to work included in the “products-completed operations hazard.”
  2. A Miller-Shugart settlement agreement that does not allocate between claims
    that are covered and not covered by the insurance policy is not per se unreasonable and
    unenforceable against the insurer.
  3. Determining the reasonableness of an unallocated Miller-Shugart settlement
    agreement is a two-part inquiry that first examines the overall reasonableness of the
    settlement and then determines how a reasonable person in the position of the insured
    would have valued and allocated the covered and uncovered claims at the time of the

501 EAST 51ST STREET, LONG-BEACH-10 LLC, Plaintiff and Appellant v. KOOKMIN BEST INSURANCE CO., LTD., et al., Defendants and Respondents. Filed 4/2/20; Certified for Publication 4/16/20 IN THE COURT OF APPEAL OF THE STATE OF CA SECOND APPELLATE DISTRICT Excerpts/Concepts by Junfola 4/17/20


  • Breach of covenant of good faith and fair dealing, aka bad faith
  • Efficient proximate cause
  • Genuine dispute doctrine


  • Defendants denied plaintiff’s claim for damages to its apartment complex caused by a ruptured underground water main.
  • Experts hired by plaintiff and defendants provided conflicting reports on the cause of the damage.
  • Plaintiff sued for bad faith, breach of contract, etc.
  • Defendants argued: “genuine dispute doctrine” provided a complete defense to a finding of bad faith. Denial was based on expert opinions that the damage was caused by long-term settlement and earth movement, which was not a covered loss.
  • Plaintiff appeals judgment following summary adjudication of plaintiff’s claim for breach of the covenant of good faith and fair dealing in favor of defendants.
  • Ruling: there is no material dispute whether defendants denied the claim in good faith based on an expert report concluding the damage was not caused by the broken water main, and affirm the judgment.  

Supreme Court of the State of New York Appellate Division: Second Judicial Department Northside Tower Realty, LLC, respondent, v Admiral Insurance Company, appellant, et al., defendant. 2/5/20 Excerpts/summary by Junfola 4/15/20

Admiral is obligated to defend and indemnify the plaintiff in Vachon v Northside Tower Realty, LLC.

Issues/Concepts: additional insured

  • Northside sued, pursuant to a CGL policy issued by Admiral to nonparty Scorcia and Diana Associates, Inc.
  • Northside demonstrated that it qualified for additional insured status under the policy Admiral issued to Scorcia. 
  • “‘When determining whether a third party is an additional insured a court must ascertain the intention of the parties to the policy, as determined from within the four corners of the policy itself’”
  • The additional insured endorsement extended coverage to any person or organization Scorcia had agreed by written contract to name as an additional insured.
  • A written contract between Northside and Scorcia provided that “[p]rior to the commencement of any of the Work, [Scorcia] shall purchase and maintain, at its own expense, the following insurances as will protect it and [Northside]” and lists CGL insurance as one of the types of insurance that Scorcia must procure and maintain.  
  • The natural and intended meaning of the phrase “as will protect it and [Northside]” is that Scorcia and Northside were both intended to enjoy the coverage specified in the contract. 
  • The intent and meaning of the phrase “as will protect it and [Northside]” becomes clear when juxtaposed with the language of another provision of the contract that references “Additional Insureds” under the policy.  If Northside and Scorcia did not intend to confer additional insured status on Northside, the provision referencing “Additional Insureds” would be rendered meaningless or superfluous.  A court should not read an agreement so as to render any term, phrase, or provision meaningless or superfluous.


Damages from a continuous bodily injury judgment must be allocated on a pro rata, time-on-the-risk basis across all insured and insurable periods triggered by the plaintiff’s injuries.