A developer was sued by a condominium association for construction defects which resulted in extensive water damage to the condominium buildings. The developer, in turn, filed a third-party complaint against the contractor/insured, for breach of contract, breach of warranties, errors and omissions, indemnification and contribution. Ultimately, the Insured and the developer settled for $4.5 million. As part of the settlement, the Insured assigned to the developer its rights to pursue coverage from its commercial general liability carrier (the “Insurer”). Subsequently, the developer settled with the condominium association, with the developer’s insurer providing a portion of the settlement. The developer’s Insurer thereby became subrogated (the “Subrogee”) to the Insured’s rights against its Insurer.
Prior to the settlement of the underlying action, the Insurer filed a declaratory judgment action against its Insured seeking a declaration that it owed no duty to defend or indemnify the Insured in the underlying lawsuit. The trial court entered judgment in favor of the Insurer and the Insured appealed. The Ninth Circuit Court of Appeals reversed, holding that the policy exclusions relied on as the basis to deny coverage did not apply. The Court of Appeals remanded, directing the trial court to consider whether any other exclusions applied. Concluding that no exclusions applied, the trial court entered judgment in favor of the Insured and went on to consider the Insured’s damages and, particularly, its entitlement to attorney’s fees.
The Insurer maintained that attorney’s fees should not be awarded because the Subrogee was pursuing the Insured’s right to coverage through subrogation, rather than assignment of that right from the Insured. The District Court disagreed and held that it is of no consequence that the Subrogee was representing the Insured’s interests in the coverage action through its subrogation rights because it was, nonetheless, asserting the Insured’s rights against its Insurer and incurred the fees while standing in the shoes of the Insured. The District Court awarded the Subrogee all of the attorney’s fees incurred in establishing the Insured’s entitlement to coverage.
