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(Article from Insurance Law Alert, July/August 2018)

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The Ninth Circuit ruled that an insured is responsible for paying three deductibles notwithstanding that the underlying claims alleged construction defects in 636 homes.  Probuilders Speciality Ins. Co. v. Yarbrough Plastering, 2018 WL 3099434 (9th Cir. June 25, 2018).

ProBuilders insured Yarbrough, a drywall and stucco contractor, under liability policies that required the company to pay a separate deductible for “each and every claim . . . irrespective of the number of claims which may be joined in any one suit.”  During the policy periods, Yarbrough performed work on several large housing developments. Thereafter, 636 homeowners filed three lawsuits against the general contractor alleging construction defects.  The contractor impleaded Yarbrough in three cross-complaints for indemnity.  ProBuilders settled the claims against Yarbrough and then sought reimbursement based on the deductible provision.  ProBuilders argued that Yarbrough owed a separate deductible for each of the 636 homes at issue in the underlying suits.

The court rejected this argument, finding that only three deductibles were due – one for each cross-complaint against Yarbrough.  The court noted that the policy requires a separate deductible payment for each “claim,” but emphasized that the policies did not specify whether the operative “claim” is the underlying homeowner’s claim against the contractor or the contractor’s claim against Yarbrough.  Finding both constructions reasonable, the court deemed the policy ambiguous and interpreted the provision in Yarbrough’s favor.  In so ruling, the court found it irrelevant that Yarbrough would have been obligated to pay 636 deductibles if the homeowners had sued Yarbrough directly.