Traditional liability policies contain two general duties. The duty to defend and the duty to indemnify. These are related but differ in scope and timing. The duty to indemnify is triggered later and does not ripen until a judgment is entered or a settlement has been reached. The ultimate facts found in the judgment or settlement generally control the insurer’s duty to indemnify.
The duty to defend is triggered much earlier in the process. The carrier’s obligation to provide a defense is normally controlled by the allegations made against the insured in the petition/complaint and also facts that are known or could reasonably be known by the insurer. An insurer controlled defense must be initiated at an early stage and there can be severe consequences if the wrong decision is made.
Evanston Ins. Co. v. Enterprise Plan B, Inc. 2025 WL 2838814 (N.D. Cal. Oct. 7, 2025)
Enterprise is a home builder and renovation company in California. Enterprise had purchased the home at 1437 Weaver Drive, San Jose, CA (San Jose Home) and was in the process of renovating the San Jose Home. Enterprise had a general contractor performing the renovations with the exception of the plumbing. Enterprise instead hired James Brown, an unlicensed plumber, to do all the plumbing work.
Unfortunately, Brown ran a red light and struck Alex Borja while returning to the San Jose Home after purchasing supplies for the plumbing fixtures. Borja sustained a severe brain injury that required multiple surgeries. As a result of his injuries, Borja could no longer work or care for his children.
Evanston Policy
Prior to beginning renovations on the San Jose Home, Enterprise secured a liability policy by Evanston providing $1 Million in coverage. The policy contained two provisions the Court characterized as exclusions.
The first was an “auto exclusion” which provided there was no coverage for “bodily injury…arising out of the ownership, maintenance, use or entrustment of others of any…auto…owned or operated by…any insured.” Under the policy, employees of Enterprise were considered to qualify as insureds.
The second provision was a “Designated Premises or Project” limitation. This provision provided that the policy would apply “only to bodily injury…arising out of: (1) The ownership, maintenance or use of the Designated Premises; or (2) The Designated Project shown in the endorsement or in the Declarations.” The endorsement did not set out what was considered the designated project or premises and the declarations did not define those terms. The declarations did contain a section titled “All Premises You Own, Rent or Occupy” which listed the San Jose Home.
Underlying Lawsuit and Evanston’s Response
Borja filed a lawsuit against Brown and Enterprise for his injuries from the wreck. Enterprise tendered the lawsuit to Evanston for a defense and indemnity. When asked by Evanston, Enterprise stated that Brown was one of their subcontractor’s employees and was driving his own truck during the wreck.
Evanston denied coverage and refused to provide a defense for the claims. Evanston claimed the auto exclusion applied as Brown was an employee. Additionally, Evanston claimed The Designated Premises or Project limitation precluded coverage by apparently taking the position that coverage would only be provided for injuries occurring at the San Jose Home.
After Evanston’s blanket denial, Enterprise and Borja agreed to submit Borja’s claims in the Underlying Lawsuit to a neutral for resolution. The neutral found that at the time of the wreck, Brown was a statutory employee of Enterprise under California’s labor code. As such, Enterprise was vicariously liable for his actions. The trial court adopted the neutral’s findings and entered a $78 million judgment in favor of Borja. Enterprise would go on to assign any claims it had against Evanston to Borja.
Coverage Lawsuit
After judgment was entered in the Underlying Lawsuit, Evanston filed a declaratory judgment asking the Court to declare there was no coverage under the Evanston Policy for the Underlying Lawsuit, that Evanston had no duty to defend Enterprise in the Underlying Lawsuit, and that Evanston has no duty to indemnify Enterprise for the judgment. Evanston alleged that both the auto exclusion and the Designated Premises and Project limitation precluded coverage.
Borja took the opposite position and filed counter claims against Evanston. Through the counter claims, Borja sought a declaration that Evanston had a duty to defend the Underlying Lawsuit, has a duty to provide indemnity for the judgment and that Evanston breached its implied duties of good faith and fair dealing when denying coverage.
Eventually, both parties moved for summary judgment on the issues of the coverages owed.
Coverage Decision
In issuing its ruling, the Court noted that the only real issues in dispute were the application of the Designated Premises and Projects limitation and the auto exclusion. The Court addressed each and their impact on coverage
Designated Premises and Projects
The inapplicability of the Designated Premises and Projects limitation was an easy call for the Court. The Court rejected Evanston’s argument that the provision limited coverage to injuries solely occurring at the San Jose Home. Instead, the provision stated that coverage would be provided for injuries arising out of the ownership, maintenance or use of the San Jose Home. The arising out of language is required to be interpreted broadly and requires only a minimal causal connection between the injury and the San Jose Home.
Here Enterprise owned the San Jose Home and had contracted with Brown to perform plumbing work at the home. Brown had caused the wreck while transporting supplies to the property and the whole reason for his trip was to further the ownership interests of Enterprise in the San Jose Home. Because of this, far more than a minimal causal connection existed and the limitation could not preclude coverage.
Auto Exclusion
The application of the auto exclusion was a far closer call as it related to Evanston’s duty to indemnify. The application of the auto exclusion turned completely on whether Brown was categorized as an employee of Enterprise. Both Borja and Evanston had set forth conflicting evidence concerning Brown’s status as an employee creating a factual issue on Evanston’s duty to defend that could not be resolved at summary judgment.
However, this factual issue and conflicting evidence doomed Evanston’s arguments on its duty to defend. The duty to defend is of course much broader and is triggered if there is any possibility of coverage. Because there was a possibility that Brown was NOT an employee of Enterprise, Evanston had an obligation to defend Enterprise in the Underlying Lawsuit from its inception. It’s denial of coverage and failure to accept the defense was a breach of its policy obligation.
The Court did not lay out the penalty for Evanston failing to defend Enterprise in its decision and did not hold that Evanston was liable for the $78 million judgment entered against Enterprise. However, the penalties may ultimately prove severe. In many jurisdictions, Evanston would be liable for its coverage limits, may have been found to forfeit any coverage defenses applicable to the duty to indemnify and potentially would be bound by the terms of the judgment. It is also detrimental to Evanston in the extra-contractual litigation to be found to have failed to adhere to policy duties when trying to explain their position to a jury.
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