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Insurance — Duty to Defend – Contract – Settlement & Defense Agreements – Subcontractor

Liberty Mutual Fire Insurance Co. v. KB Home (Lawyers Weekly No. 14-02-1019, 10 pp.) (W. Earl Britt, Sr. J.) 5:13-cv-00831; E.D.N.C.

Holding: Even though the parties’ settlement agreement and defense agreement were executed on the same day and dealt with the same underlying lawsuit, since the settlement agreement dealt with past defense costs while the defense agreement dealt with ongoing defense of the underlying lawsuit, and since the defense agreement includes an integration clause, the defense agreement is a stand-alone document that controls the plaintiff-insurer’s ongoing defense obligations, to the exclusion of the insurance policies and the settlement agreement.

Defendant’s motion for judgment on the pleadings is granted. The court declares that the insurer is obligated to continue to defend defendant under the terms of the defense agreement, despite the insurer’s contention that the policy limits have been exhausted.

Under the terms of the defense agreement, the insurer can be discharged from its ongoing defense obligations upon the occurrence of one of the following conditions: (1) the resolution of the underlying action by settlement verdict or judgment or (2) the insurer’s filing of a declaratory judgment action to determine whether the insurer may withdraw from the defense of that action should the plaintiffs therein assert a claim for mold damages or amend their complaint to allege damages not covered by the policies. The insurer does not allege the satisfaction of either of these conditions. Therefore, the pleadings and incorporated materials fail to establish that the insurer has fulfilled its defense obligations under the defense agreement.

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