Simon Glairy is a seasoned professional in the fields of insurance and Insurtech, specializing in the nuanced world of risk management and AI-driven risk assessment. With a career spent dissecting complex policy language and defending corporate interests in construction litigation, he brings a sharp perspective to the shifting legal strategies insurers use to recover costs. In this discussion, we explore a significant federal case in San Diego involving a multi-party dispute over defense expenses, the strategic use of additional insured endorsements, and the aggressive pursuit of reimbursement between industry rivals.
When an additional insured endorsement limits coverage specifically to liability caused by a subcontractor’s acts, how does that shift the legal burden compared to more standard, broader policy language?
The distinction in phrasing is not just a matter of semantics; it is the pivot point on which a $112,500 defense bill can turn. In this specific litigation, Travelers utilized a narrow blanket endorsement for Integrity Rebar that applied “only” to liability caused by the subcontractor’s specific acts or omissions, rather than the broader “arising out of” standard used by other carriers. This surgical precision in the policy language allows an insurer to step back the moment it becomes clear that the subcontractor was not the actual cause of the injury. We see the consequences of this clearly here, as the rebar work was physically located at an overpass at least 100 feet away from where the worker drove into the unmarked ditch. Because the injury was not “caused by” the subcontractor’s work in that specific footprint, the insurer can argue that the coverage hook was never truly engaged, allowing them to pursue every dollar spent during the initial defense phase.
What are the strategic risks for a carrier that agrees to defend a general contractor under a reservation of rights while insisting on the control of counsel?
By defending under a reservation of rights, a carrier like Travelers performs a delicate balancing act where they fulfill their immediate duty to defend while signaling that they may eventually demand a full refund. In this San Diego case, the carrier spent over $112,500 defending the general contractor, Skanska, even as they kept their right to dispute coverage and recover costs if the facts didn’t align with the policy. This move allowed them to manage the defense strategy and choose the legal team, but it also set the stage for a major conflict once the subcontractor successfully moved for summary judgment. After the September 2025 withdrawal letter was sent, the carrier’s insistence on recovering those funds underscores the reality that a “defense” is often a temporary financial bridge rather than a permanent commitment. It forces the general contractor to justify why they didn’t withdraw their tender once it became obvious the subcontractor’s work was irrelevant to the accident.
How do “Other Insurance” clauses and the actions of secondary insurers like Starr and Zurich complicate the recovery of defense costs in multi-carrier disputes?
The hierarchy of who pays first is governed by “Other Insurance” clauses, and Travelers is making a strong case that they were merely the “excess” layer over primary insurance available to the general contractor. They are pointing directly at Zurich, the direct primary carrier, as the party that should have shouldered the defense costs from day one. The tension is even higher with Starr, who insured another subcontractor, Select Electric, and reportedly ignored the tender for years despite a substantial $450,000 settlement with the injured worker. Travelers is now labeling Starr’s refusal to participate as a “wrongful denial,” specifically because Starr’s policy used the broader “arising out of” language that should have easily reached this incident. When one carrier ignores incident reports and discovery responses while another is paying the bills, it inevitably leads to these high-stakes federal lawsuits to reallocate the financial burden.
In the context of California law, why is the dispute over independent Cumis counsel so critical to the final outcome of these insurance reimbursement claims?
The fight over California Civil Code section 2860, which governs Cumis counsel, is essentially a fight over who gets to hold the checkbook and the steering wheel of the litigation. Travelers is seeking a ruling that the contractor was not entitled to independent counsel, which would reinforce their control over the defense and limit the costs they are expected to absorb. This becomes a major point of contention when a policy bars “voluntary payments” made without the insurer’s consent, as it puts the contractor in a position where any side deals or independent legal maneuvers could void their coverage. If the court finds that the general contractor overstepped by not withdrawing their tender or by seeking independent counsel when no conflict existed, it could leave them fully liable for the $112,500 in defense costs. It highlights the friction that occurs when a project manager tries to keep an insurer on the hook long after the legal basis for that coverage has evaporated.
What is your forecast for the future of these “clawback” lawsuits in the construction sector?
I expect to see a sharp increase in these reimbursement actions as carriers leverage more precise, AI-driven auditing of discovery documents to identify the exact moment a subcontractor’s liability is disproven. We are moving away from an era of “broad-brush” defense where carriers simply paid and moved on; instead, insurers will use the physical distance of work—like that 100-foot gap at the bridge—to aggressively withdraw from cases. Primary carriers will face more pressure to justify their denials when confronted with $450,000 settlements and clear incident reports, as excess carriers like Travelers will no longer be willing to act as a safety net for “wrongful denials.” Ultimately, general contractors will need to be much more proactive in vetting their subcontractors’ endorsements, because the “caused by” standard is becoming a powerful tool for insurers to reclaim their defense spending in federal court. General contractors should expect that any defense provided under a reservation of rights will be scrutinized with a fine-toothed comb the moment a subcontractor is dismissed from a case.
