California subcontractor warranty exclusion and self-insured retention

In Evanston Ins. Co. v. American Safety Indem. Co., No. C 10-01472 CW (N.D. Cal. Feb. 10, 2011), insured developer Northern Cal was sued by homeowners seeking damages for defective construction.  Northern Cal tendered its defense to its CGL insurers, Evanston and American Safety.  Evanston agreed to defend but American Safety denied a defense based on Northern Cal’s failure to satisfy a condition precedent of establishing that it was named as an additional insured under its subconractors’ CGL policies. American Safety also asserted that, even assuming a duty to defend, the duty commenced only when Northern Cal satisfied the self-insured retention which was sometime after it had first tendered its defense to American Safety.  Evanston sued American Safety for equitable contribution.    The federal district trial court, applying California law, first held that American Safety’s subcontractor warranty exclusion did not preclude a duty to defend because, although Northern Cal in fact had failed to ensure that its subcontractors provided additional insured coverage to Northern Cal, because the exclusion “unambiguously restricts the condition precedent to instances in which Northern Cal seeks defense or indemnity for a particular subcontractor’s actions” and the underlying complaint does not allege that any or all of the damages are attributable to Northern Cal’s subcontractors.   The court next held that, because Northern Cal’s satisfaction of the SIR was a condition precedent to American Safety’s duty to defend, Essex would be entitled to contribution only for those defense costs incurred subsequent to the date that Northern Cal satisfied the SIR.