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THE ADJUSTER - San Diego Insurance Adjusters
Association
September, 2004
I am pleased to report that the Court of
Appeal has recently handed down two decisions which are logical and
well-reasoned. It can happen:
“OTHER INSURANCE” CLAUSE APPLIED AMONG
PARTICIPATING CARRIERS ON PRORATA BASIS DESPITE DIFFERING POLICY
PROVISIONS: Between July 1988 and 1993, Travelers Casualty and Surety
Co. issued successive CGL policies to Standard Wood Structures, Inc. The
policies had a “pro rata” “other insurance” clause.
Century Surety Company issued a primary
CGL policy to Standard from September 1996 through September 1997. The
policy contained an “excess” other insurance clause. Travelers and
Century defended Standard against a construction defect action, but
Century later withdrew based on its “excess” “other insurance” clause.
In Travelers Casualty and Surety Co. v. Century Surety Co., (2004) 118
Cal.App.4th 1156, 13 Cal.Rptr.3d 526, the Fourth Appellate District of
the California Court of Appeal affirmed the trial court’s judgment
finding defendant insurer had a duty to contribute on a pro-rata basis
to defense and indemnity expenses incurred by plaintiff insurer in
defending a common insured in a construction defect lawsuit despite an
“excess” “other insurance” clause.
Century contended its “excess” “other
insurance” clause made its policy excess to Travelers’ policy with the
“pro rata” provision. The appellate court disagreed, finding that where
primary polices of two or more insurers of a common insured contain
conflicting other insurance clauses, they are disregarded and the
policies pro rate among each other. The appellate court distinguished
the decision in Hartford Casualty Ins. Co. v. Travelers Indemnity Co.,
(2003) 110 Cal.App.4th 710, 2 Cal.Rptr.3d 18, which gave effect to an
“other insurance” clause in a landlord’s policy which declared the
policy excess “over other” “valid and collectible insurance…if [the
landlord was] added as an additional insured under any other policy.”
This has been a battle ground among
carriers for years. While this decision is fair, it’s an appellate
decision, meaning any other court outside the building where the
appellate justices decided this case can simply ignore it and cite a
differing opinion. INFERIOR WORK PERFORMED OR DEFECTIVE IN WORKMANSHIP
IS NOT COVERED “PROPERTY DAMAGE”: F&H had contracted with Contra Costa
Water District in September 1994, to build a water facility pumping
plant. F&H entered into a subcontract with O’ Reilly for the manufacture
and delivery of A-50 grade steel pile caps. O’ Reilly instead delivered
A-36 steel, which was a lesser grade of steel that had a lesser load
capacity.
F&H did not discover that the steel caps
were of a lesser grade until it had already welded the majority of the
caps into place. As a consequence F&H was required to perform
modifications to reinforce the steel caps so as to provide the needed
reinforcement to meet design requirements. The project was completed on
time and no liquidated damages were assessed against F&H for the change
in design. F&H filed suit against O’ Reilly seeking recovery of damages
in excess of $200,000 for the costs of modifying the pile caps and the
lost bonus for early completion of the project. After suit was filed O’
Reilly filed a petition for bankruptcy which automatically stayed F&H’s
suit.
The bankruptcy court granted F&H’s
petition to lift the stay for the limited purpose of pursuing the civil
action to obtain O’ Reilly’s insurance assets. F&H then filed suit
against Hartford, F&H’s insurer, for damages and breach of contract
seeking $243,064.37 for “property damage” under the CGL policy. In F&H
Const. v. ITT Hartford Ins. Co. of the Midwest, (2004) 118 Cal.App.4th
364, 12 Cal.Rptr.3d 896, the Third District Court of Appeal held that a
third party failed to establish it suffered covered “property damage”
within the meaning of the insured’s comprehensive general liability
insurance policy (“CGL policy”) when the loss arose from inferior work
performed for the third party or defective in workmanship. In analyzing
California law regarding the interpretation of “property damage” under
the CGL policy, the appellate court determined that the damages claimed
by F&H – “the costs of modifying the pile caps and the lost bonus for
early completion of the project” – were not recoverable as property
damage because they were intangible economic damages rather than damages
“to tangible property.”
The court also noted that a liability
insurance policy is not designed to serve as a performance bond or
warranty of a contractor’s product. With all due regard to our friends
and colleagues in the construction defect arena, this case is not,
should we say, earth moving. The damages were not resulting from the
inferior work performed for the third party or defective in workmanship
– they were economic. This case is consistent with well-established case
law.
James M. Roth is a
shareholder in The Roth Law Firm. Mr. Roth’s practice includes
representing TPAs and insurance carriers in coverage, SIU,
extra-contractual liability, and third party defense matters. Please
submit any questions or comments for future columns to Mr. Roth at
TheRothLawFirm.com. |
