Federal Court Properly Enforces Heavy Burden for Insurers to Assert Exclusions
By David A. Gauntlett*
Introduction
Very few judges have a thorough understanding of the intricacies of insurance law. As a result, they are often tempted by insurer arguments in favor of enforcing exclusions. The arguments are usually straightforward, focus on the gravamen of the underlying case, and allow the judge to quickly resolve the coverage dispute. Unfortunately, the arguments are also generally wrong. With a receptive judge, experienced coverage counsel can explain that coverage law rarely allows for such simple solutions.
Mt. Hawley Ins. Co. v. GJM Eng'g, Inc.
In Mt. Hawley Ins. Co. v. GJM Eng'g, Inc.,[1] a Los Angeles plumbing contractor (GJM) faced counterclaims in a California state-court action brought by piping manufacturer Aquatherm. Aquatherm alleges that GJM defectively installed its piping at three Los Angeles apartment buildings—the Lorenzo, Da Vinci, and Broadway Palace—resulting in leaks and property damage. GJM sought coverage under commercial general liability policies issued by Mt. Hawley Insurance Co. from 2020 through 2024, while Mt. Hawley argued that the claims were excluded because the alleged property damage fell within an exclusion precluding potential coverage for any property damage “[w]hich first existed, or are alleged to have first existed, prior to the inception date of this Policy; or . . . [w]hich are, or are alleged to be, in the process of taking place prior to the inception date of this Policy, even if the actual or alleged . . . 'property damage['] . . . continues during this policy period” or (2) “which were caused, or are alleged to have been caused by any defect, deficiency, inadequacy or condition which first existed prior to the inception date of this policy.”[2]
The alleged damage at the Lorenzo and Da Vinci occurred before the relevant policy periods, but the timing and cause of the damage at Broadway Palace were less certain. GJM began installing piping there in 2015, construction was completed around December 2020, and leaks were first discovered in June 2021 and August 2022, during the policy period. Mt. Hawley therefore sought a declaration that it had no duty to defend or indemnify GJM, while GJM argued that the policies required the insurer to defend the underlying action.
U.S. District Judge Vernon S. Broderick granted summary judgment to GJM, holding that Mt. Hawley had a duty to defend the entire Aquatherm cross-complaint. Applying New York law pursuant to the policies' choice-of-law provision, the judge emphasized the broad scope of an insurer's duty to defend and Mt. Hawley's heavy burden to establish that there was no reasonable possibility that the claims fell outside the relevant exclusion.[3] Although the Lorenzo and Da Vinci claims were outside coverage, the court found unresolved questions about whether testing performed by GJM during the policy period caused damage at Broadway Palace and whether the alleged maintenance and operational problems occurred before the policies began.
Because those uncertainties created a potential for coverage, the Broadway Palace claims triggered Mt. Hawley's obligation to defend the entire action. The judge noted that the duty could end if it were later established that GJM's negligence caused the physical damage and that the negligence predated the policies. The court also declined to rule on indemnification, finding that such a determination would be premature while factual disputes in the underlying action remained unresolved.
Analogous “Prior Publication” Exclusion Cases Offer Further Insight
All exclusions are to be interpreted strictly against insurers, only precluding potential coverage if they apply in “all possible worlds.”[4] As noted above, courts often fall short in applying this rigorous standard, but two recent cases correctly rejected insurer arguments in favor of applying a “Prior Publication” exclusion.
In PriMed Pharm. LLC v. Starr Indem. & Liab. Co.,[5] the insurer conceded potential trade dress coverage arose but argued it properly denied a duty to defend based on the “Prior Publication” exclusion. The allegations asserted that the policyholder’s conduct began “in the past 24 months,” but the policy’s coverage window only covered roughly half of that time.[6] The court rejected Starr’s argument first because the uncertainty of the timeline must be resolved in favor of the policyholder:
If PriMed “published” its first “advertisement” for Abbott's test strips in, for example, December 2014, the Prior Publication Exclusion would not apply; on the other hand, if PriMed “published” its first “advertisement” in October 2014, the Prior Publication Exclusion would apply. Because this uncertainty in the Abbott FAC leaves open the possibility that the Prior Publication Exclusion does not apply, Starr does have a duty to defend.[7]
The court also observed Starr’s failure to establish that the earliest relevant publications (emails sent to “a dozen or so contacts”) qualified as “advertisements,” defined by the policy as a notice “published to the general public or specific market segments.”[8] The court noted that Starr could only invoke the exclusion based on the date of first publication in an “advertisement,” not the first publication in general.[9] This same reasoning was crucial in the case below as well.
Properly construed, this exclusion (like the exclusion analyzed by the GJM court) cannot apply where there is any factual ambiguity.[10] The pertinent allegations courts have deemed sufficient to trigger potential liability within the policy period include “long standing,”[11] “ongoing,”[12] “recently,”[13] “no earlier than,”[14] “some time in,”[15] “continuing,”[16] “subsequent,”[17] “between [year X] and [year Y],”[18] and “on earlier dates so far unknown to Plaintiffs.”[19]
Conclusion
While many judges fail to apply the standards required for enforcing exclusions as rigorously as the law requires, the recent GJM decision serves as a reminder of the proper application of coverage law principles. Jurisdictions across America are uniform in the conclusion that exclusions must be construed narrowly so as to maximize coverage for the insured.
*David A. Gauntlett is a principal of Gauntlett Law and represents policyholders in insurance coverage disputes regarding intellectual property, antitrust, and business tort claims, as well as in the underlying actions. Mr. Gauntlett can be reached at (949) 514-5662 or dag@gauntlettlaw.com. For more information, visit Gauntlett Law at www.gauntlettlaw.com.
[1]Mt. Hawley Ins. Co. v. GJM Eng'g, Inc., No. 24-CV-6857 (VSB), 2026 U.S. Dist. LEXIS 168816 (S.D.N.Y. July 29, 2026).
[2]Id. at *15–16.
[3]DPC N.Y., Inc. v. Scottsdale Ins. Co., 2020 U.S. Dist. LEXIS 88651, at *16 (S.D.N.Y. May 19, 2020) (“In order to demonstrate that it has no duty to defend an insured, an insurer must demonstrate that the allegations of the underlying complaint cast the pleadings wholly within that exclusion, that the exclusion is subject to no other reasonable interpretation, and that there is no possible factual or legal basis upon which the insurer may eventually be held obligated to indemnify under any policy provision.”)
[4]Atlantic Mutual Ins. Co. v. J. Lamb, Inc.,100 Cal. App. 1017, 1032 (2002).
[5] 2023 U.S. Dist. LEXIS 44673 (S.D.N.Y. Mar. 16, 2023).
[6]Id. at *24–25.
[7]Id. at *27.
[8]Id. at *28.
[9]Id. at *29–30.
[11]Castle & Cooke v. Great Am. Ins. Co., 42 Wn. App. 508, 517, 711 P.2d 1108, 1113 (1986) (“long standing”).
[12]Jaco Envtl., Inc. v. Am. Int'l Specialty Lines Ins. Co., No. 2:09-cv-0145 JLR, 2009 U.S. Dist. LEXIS 51785, at *16 (W.D. Wash. May 19, 2009) (“ongoing”).
[13]Carnival Brands, Inc. v. American Guar. & Liab. Ins. Co., 726 So. 2d 496, 500 (La. Ct. App. 1999) (“recently”).
[14]Arnette Optic Illusions, Inc. v. ITT Hartford Grp., Inc., 43 F. Supp. 2d 1088, 1097-98 (C.D. Cal. 1998) (“no earlier than”) (italics in original).
[15]Hudson Ins. Co. v. Colony Ins. Co., No. EDCV 07-01497-SGL (OPx), 2008 U.S. Dist. LEXIS 106668, at *6 (C.D. Cal. Dec. 16, 2008), aff'd, 624 F.3d 1264 (9th Cir. 2010) (“some time in”) (While the allegation that “some time in May, 2005, [claimant] became aware that the insured was offering for sale counterfeit jerseys” left open the possibility that offending conduct occurred before May 14th when the policy period commenced, it simultaneously raised the possibility that the first publication occurred after May 14th, after the policy period commenced.).
[16]Transcon. Ins. Co. v. Wash. Pub. Utils. Districts' Util. Sys., 111 Wash. 2d 452, 467 (1988) (“[T]he bondholders allege injuries resulting from multiple causes, some separate and independent, others continuing through several policy periods, and still others long-standing, existing before and during the policy periods.”) (emphasis added).
[17]Finger Furniture Co. v. Travelers Indem. Co., CIVIL ACTION NO. H-01-2797, 2002 U.S. Dist. LEXIS 15351, at *25 (S.D. Tex. Aug. 19, 2002) (“Commencing at a time subsequent to the first use of the TRUE VALUE mark by TruServ, Finger began using the identical mark TRUE VALUE.”) (emphasis added).
[18]Tool Touring, Inc. v. Am. Ins. Co., No. B230136, 2012 Cal. App. Unpub. LEXIS 3461, at *40 (May 8, 2012) (Allegations that potentially covered acts took place “between 1991 and 2002” sufficed for policy running from August 23, 2002 through August 23, 2003).
[19]R. Mktg. v. Hartford Cas. Ins. Co., No. A115846, 2007 Cal. App. Unpub. LEXIS 9679, at *9 (Nov. 30, 2007) (Underlying complaint stated that “in August, 2005, Plaintiffs learned, for the first time, that on earlier dates so far unknown to Plaintiffs,” the policyholder had disparaged the underlying Plaintiffs.).