Subcontractors Found Liable to Reimburse Insurer Defense Costs in Equitable Subrogation Action

Bills coming out of wallet

A California appeals court reversed the denial of an equitable subrogation claim for reimbursement of defense costs from contractually obligated subcontractors to a defending insurer.

August 3, 2020
Christopher Kendrick & Valerie A. Moore – Haight Brown & Bonesteel LLP

In Pulte Home Corp. v. CBR Electric, Inc. (No. E068353, filed 6/10/20), a California appeals court reversed the denial of an equitable subrogation claim for reimbursement of defense costs from contractually obligated subcontractors to a defending insurer, finding that all of the elements for equitable subrogation were met, and the equities tipped in favor of the insurer.

After defending the general contractor, Pulte, in two construction defect actions as an additional insured on a subcontractor’s policy, St. Paul sought reimbursement of defense costs solely on an equitable subrogation theory against six subcontractors that had worked on the underlying construction projects, and whose subcontracts required them to defend Pulte in suits related to their work. After a bench trial, the trial court denied St. Paul’s claim, concluding that St. Paul had not demonstrated that it was fair to shift all of the defense costs to the subcontractors because their failure to defend Pulte had not caused the homeowners to bring the construction defect actions.

The appeals court reversed, holding that the trial court misconstrued the law governing equitable subrogation. Because the relevant facts were not in dispute, the appeals court reviewed the case de novo and found that the trial court committed error in its denial of reimbursement for the defense fees. The appeals court found two errors: First, the trial court incorrectly concluded that equitable subrogation requires shifting of the entire loss. Second, the trial court applied a faulty causation analysis – that because the non-defending subcontractors had not caused the homeowners to sue Pulte, thereby necessitating a defense, St. Paul could not meet the elements of equitable subrogation.

Reprinted courtesy of Christopher Kendrick, Haight Brown & Bonesteel LLP and Valerie A. Moore, Haight Brown & Bonesteel LLP
Mr. Kendrick may be contacted at ckendrick@hbblaw.com
Ms. Moore may be contacted at vmoore@hbblaw.com



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