A $3.6 million construction dispute has triggered a high-stakes insurance battle, with Atain Specialty Insurance Company seeking to avoid defending a California contractor in court.
Atain Specialty Insurance Company, a Michigan corporation, has filed a complaint in the United States District Court for the Central District of California, seeking declaratory relief that it has no duty to defend or indemnify SQS Contractors, Inc. or its officer, Rosa Del Carmen Santillana, in litigation related to a commercial construction project in Covina, California. The underlying action involves P&K Builders, LLC’s claims against Retail Ventures One, LLC and others for breach of contract, open book account, account stated, reasonable value of labor and materials furnished, and foreclosure of mechanics lien, with damages sought totaling $3,595,233.70.
According to the complaint, P&K Builders was hired to manage construction for tenant improvements at the Covina property. Retail Ventures alleges that P&K performed work without a valid California contractor’s license and seeks disgorgement of $3,595,233.70 paid to P&K, as well as damages for alleged construction defects. P&K claims it served as project manager in conjunction with SQS, who was licensed and obtained a permit for the project.
The litigation expanded as Retail Ventures and P&K filed cross-complaints, including allegations that SQS negligently allowed P&K, a non-licensed entity, to perform work under SQS’s permit, failed to supervise the project, and caused “massive damage” to Retail Ventures. SQS and its officer, Rosa Del Carmen Santillana, were later substituted in as defendants to the Second Amended Complaint. SQS tendered its defense to Atain under its commercial general liability (CGL) policies.
Atain agreed to defend SQS under a reservation of rights, but now seeks a judicial declaration that it owes no duty to defend or indemnify, and that it is entitled to reimbursement of defense fees and costs. The insurer cites several policy provisions, including the CGL policy’s insuring agreement, which covers “bodily injury” or “property damage” caused by an “occurrence,” but excludes coverage for economic damages from misrepresentation. Atain also points to a professional services exclusion, which states that the insurance does not apply and there shall be no duty to defend or indemnify any insured for any “occurrence,” “suit,” liability, demand or cause of action arising, in whole or in part, out of any claim involving the rendering or failure to render any “professional service.” In addition, an unfair competition exclusion states the policy shall not apply to any “claim,” “suit,” or liability arising, in whole or in part, out of “unfair competition” as defined by statute or common law.
Atain alleges that the claims against SQS and Santillana – primarily for intentional and negligent misrepresentation, negligence, and breach of contract – do not fall within the scope of coverage under the CGL policy and are excluded by the professional services and unfair competition exclusions. Atain seeks reimbursement for all defense fees and costs, as well as any amounts paid to indemnify SQS or Santillana, referencing California case law.
All statements are allegations as set out in the complaint and have not been established by the court.
The outcome will clarify the insurer’s obligations regarding defense and indemnity in this context.
