A $1.5 million insurance clash has landed in federal court, as Gemini Insurance Company accuses Associated Industries Insurance Company of dodging its duty to defend a mutual client in a construction defect lawsuit.
In a complaint filed Sept. 26 in the US District Court for the Central District of California, Gemini claims it has been left covering legal costs after Associated Industries Insurance Company, Inc. (AIIC) refused to participate in defending Art Deck, Inc., a contractor named in a property damage dispute. The underlying lawsuit, brought by Privilege Underwriters Reciprocal Exchange (PURE), alleges that work performed by Art Deck at a Laguna Niguel, California home led to water intrusion and over $1.5 million in damages.
According to the complaint, PURE issued a homeowners policy to Gary and Linda Dinkin, owners of the property at 13 Old Ranch Road. Art Deck was hired to install wall deck sheet metal and apply waterproofing. Gemini alleges that, as of November 2015, Art Deck had billed for 70% of the work. On or about April 9, 2020, water damage was discovered at the property, which PURE claims originated from the exterior balconies. PURE alleges it paid $1,586,261 to repair the water damage and perform mold remediation, then filed a subrogation action against Art Deck and others to recoup those costs.
Gemini asserts it has provided a defense to Art Deck since Aug. 10, 2023, under a reservation of rights. The complaint states that AIIC also insured Art Deck during the relevant periods, but when Art Deck’s defense and indemnity were tendered to AIIC in or about January 2022, AIIC denied coverage on March 2, 2023. AIIC’s denial was based on its position that no “property damage” took place during its policy periods, asserting that all damages arose from a single rainstorm on April 9, 2020. Gemini disputes this in the complaint, calling AIIC’s position “completely unsubstantiated.”
Gemini alleges it challenged AIIC’s denial in correspondence dated May 26, 2023, but AIIC maintained its position in a July 19, 2024, email, and did not provide a formal coverage determination. As a result, Gemini claims it has incurred and continues to incur more than its equitable share of the costs of defense due to AIIC’s refusal to participate.
The lawsuit seeks a judicial declaration of the respective rights, duties, and obligations of Gemini and AIIC regarding the duty to defend Art Deck in the underlying action, as well as an award of damages to equitably allocate the defense costs.
The allegations represent Gemini’s claims and have not been adjudicated or proven in court. The outcome of the case remains pending.
For the insurance industry, the dispute highlights the challenges that can arise when multiple insurers are involved in defending a mutual insured in a high-value construction defect claim. The case underscores the importance of clear coverage determinations and timely participation in defense obligations, as the financial stakes for insurers can be significant.
