Denial of Summary Judgment Does Not Automatically Establish Duty To Defend

In McMillin Companies, LLC v. American Safety Indemnity Company, a California appeals court found a trial court erred in finding the denial of an insurer’s motion for summary judgment on the duty to defend meant the insurer’s duty to defend was established as a matter of law.

McMillin Companies, LLC was the general contractor for a series of residential construction projects in Temecula, California.  After the projects were completed, McMillin was named in a construction defect lawsuit that arose out of the projects.  McMillin tendered its defense to the insurers of allegedly implicated subcontractors, including American Safety Indemnity Company (“ASIC”), contending it was an additional insured.  None of the insurers accepted McMillin’s tender.

McMillin sued ASIC and other insurers for breach of contract and bad faith based on their alleged failure to defend.  After numerous settlements, ASIC was left as the sole remaining defendant.  ASIC submitted a motion for summary judgment, arguing, inter alia, that it did not owe any duty to defend because its policy only covered  liability arising out of its named insured’s “ongoing operations” which had ceased prior to the occurrences alleged in the litigation.  This motion was denied on the basis ASIC had not met its initial burden of proof to show no triable issue of material fact.

At trial, McMillin moved in limine to exclude argument disputing ASIC’s duty to defend, and ASIC moved in limine to preclude McMillin from arguing the amounts it had received from the other insurers in settlement were not offsets to McMillin’s alleged damages against ASIC.  The trial court granted McMillin’s motion, finding the prior denial of ASIC’s motion for summary judgment demonstrated the existence of a disputed issue of material fact which necessitated a finding of a duty to defend.  The trial court also granted, without explanation, ASIC’s motion as to the settlement offsets.

The California court of appeal reversed, holding the trial court erred in granting the motions in limine.  Disagreeing with the trial court’s conclusion, the appeals court reasoned that the denial of an insurer’s motion for summary judgment because it failed to meet its initial burden of proof was not the same as denying the motion based on an unresolved factual dispute.  The appeals court also concluded McMillin’s settlements with the other insurers were not potential offsets to damages but rather would only affect McMillin’s right to recover any damages awarded at trial.