2003, 2004, 2005 - In Review

Posted on January 6, 2010 by Sara Thorpe

2003, 2004, 2005 – (Happy new year!)  It is difficult to keep up with that Mike Aylward – especially when he is in a reminiscing-kind of mood. But I have to add my two cents, in addition to Mike’s list, of important California decisions from these three years because of their long-lasting impact, mainly in the area of policy interpretation. Of these, 2005 was the watershed year when a number of decisions from California’s Supreme Court were based on strict and literal policy interpretation.

2003

  • First party property policy with coverage for actual collapse did not cover imminent collapse – the court could not rewrite the parties’ contract. Rosen v. State Farm Gen. Ins. Co. (2003) 30 Cal.4th 1070.
  • Intentional misconduct may be excluded from coverage, but still may require duty to defend (depending on policy language and whether exclusion based on Ins. Code § 533). Marie Y. v. General Star Indem. Co. (2003) 110 Cal.App.4th 928.

 

2004

  • One that does not fit with the others summarized here is a decision that the underlying indemnity agreement must be considered along with the insurance policy provisions when determining indemnity and contribution rights. Hartford Cas. v. Mt. Hawley Ins. Co. (2004) 123 Cal.App.4th 278.

2005

  • Whether there is an obligation to pay defense costs under umbrella policies when there is no duty under the underlying primary policies because there is no “suit” depends on the policy’s language - in particular the insuring agreement and definition of ultimate net loss. Powerine v. Superior Court (2005) 37 Cal.4th 377; County of San Diego v. ACE Property & Cas. Co. (2005) 37 Cal.4th 406.
  • The pollution exclusion still does exclude coverage, here silica dust, in the wake of MacKinnon. Garamendi v. Golden Eagle Ins. Co. (2005) 127 Cal.App.4th 480.
  • Even with California’s efficient proximate cause law which decidely favors policy-holders, a weather conditions exclusion in a property policy precluded coverage. Julian v. Hartford Underwriters (2005) 35 Cal.4th 747.
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Ninth Circuit Addresses the Meaning of "Ice" in an All Risk Property Insurance Policy

Posted on October 29, 2009 by Diane Polscer

In Terminal Freezers Inc. v. U.S. Fire Ins., 2009 U.S. App. LEXIS 20321, an unpublished opinion issued on September 11, 2009, the Ninth Circuit Court of Appeals employed Washington law to examine the meaning of the undefined term “ice” as used in an “all risk” property insurance policy. In Terminal Freezers, the plaintiff, who runs a cold storage facility, made a claim for loss under three commercial “all risk” property insurance policies issued by U.S. Fire when areas of the facility were damaged by ice. U.S. Fire denied the claim. See Terminal Freezers, Inc. v. U.S. Fire Ins., 2008 U.S. Dist. LEXIS 48280 (W.D. Wash. June 23, 2008). Terminal Freezers’ claim involved two freezer warehouses, and the parties agreed that their construction was deficient in several respects, including that vapor retarders were not properly installed and caused excessive ice formation. Id. The district court granted U.S. Fire’s summary judgment motion brought on the grounds that the policy’s faulty workmanship exclusion precluded coverage, and that there is no coverage for damage caused by ice. Id.

On appeal, the Ninth Circuit, considered two questions in determining whether the insurance contract should cover the loss: first, which single act or event is the efficient proximate cause of the loss; and second whether the efficient proximate cause of the loss is a covered peril, noting that the efficient proximate cause is the predominant cause which sets into motion the chain of events producing the loss. The Ninth Circuit agreed with the district court’s conclusion that, based on an expert’s undisputed finding that “the excessive ice formation . . . [was] the result of a poorly installed vapor retarder,” and the policy, which precluded coverage for “loss or damage caused by or resulting from . . . [f]aulty, inadequate or defective . . . workmanship,” the faulty workmanship was the efficient proximate cause of the facility’s excessive ice formation, and that faulty workmanship is not a “covered peril” under the policy.

The policy did provide coverage, however, if faulty workmanship led to a “covered cause of loss.” Thus, even though the efficient proximate cause of Terminal Freezers’ loss was a poorly installed vapor retarder, Terminal Freezers could recover if the policy covered whatever resulted from the faulty vapor retarder--in this case, ice. While the policy specifically excludes ice as a covered cause of loss, it does not define the term. Terminal Freezers argued, relying on the canon of noscitur a sociis, a rule of interpretation that states that the meaning of unclear language in a contract or other legal document should be construed in light of the language surrounding it, that the policy only precludes ice in its “natural” form because the words surrounding “ice” in the policy - rain, snow, sleet, sand, and dust - are “natural” elements.

Following Washington’s rules to interpret the terms of an insurance contract, the Ninth Circuit declined to resort to canons of construction when the language of a contract is clear. If a term is undefined, Washington courts rely on the term’s ordinary meaning, and may look to dictionary definitions to determine that ordinary meaning. The Ninth Circuit determined that, as commonly used, and as defined in a dictionary, ice is “water reduced to the solid state by cooling . . . .” Apparently finding no support for Terminal Freezers’ contention, the Ninth Circuit noted that “[t]hat is the end of the inquiry.” Declining to modify the insurance contract to create ambiguity where none exists, the Ninth Circuit affirmed the district court’s finding of no coverage and grant of summary judgment to U.S. Fire.
 
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South Carolina's High Court Clarifies Rules on Construction Defect Coverage

Posted on March 12, 2008 by Diane Polscer
Clarifying several rulings on coverage for construction defects, South Carolina’s Supreme Court ruled this week that a trial court did not err in determining that a CGL policy covered damages awarded to a homeowner in an arbitration against an insured contactor for water intrusion related to negligent application of stucco by a subcontractor. The court first clarified prior decisions and found that an “occurrence” is present where defective construction results in property damage. The court acknowledged that there was some confusion in the trial courts as to the difference between an “occurrence” of alleged negligent construction from negligent construction resulting in an “occurrence.” The court concluded that although “the stucco subcontractor’s negligent application is not on its own sufficient to constitute an “occurrence,” we find that . . . the continuous water intrusion into the home resulting from the subcontractor’s negligence qualifies as an “accident” involving “continuous or repeated exposure to substantially the same harmful conditions.” The court additionally rejected the insurer’s argument that the water intrusion damages were excluded under the policy as “expected or intended” damages as the insured contractor certainly did not intend for its subcontractor to perform negligently. Finally, the court allowed for recovery under the policy for that portion of the arbitration award concerning removal and replacement of the stucco stating this was necessary in order to remedy the extensive water intrusion damage behind the stucco and was therefore associated with remedying covered property damage.
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New Hampshire Gives Effect To Anti-Concurrent Causation Wordings

Posted on March 7, 2008 by Mike Aylward

Not one to get left behind while the Fifth Circuit and other Gulf Coast states make all the first party law on concurrent causation, the New Hampshire  Supreme Court has issued a new opinion upholding a flood exclusion in a homeowner's policy.

 

The claims in Bates v. Phenix Mut'l Ins. Co.,  2007-177 (N.H. February 18, 2008) involved damage to the insured's real and personal property after a culvert above the insured's house gave way following a period of extremely heavy rain, deluging the insured's property.  Phenix Mutual denied coverage on the basis of the flood exclusion in its policy, a position that was upheld by a state trial court in the ensuing coverage liltigation.

On appeal to the New Hampshire Supreme Court, Bates argued that the failure of the culvert and the resulting collapse of the roadway was a covered "explosion" under the policy because it was caused by a "sudden release of energy in the form of movement of water."  The trial court had rejected this argument but further found that any resulting coverage was defeated by the water exclusion in the policy.  The Supreme Court agreed.

Exclusion G to the policy stated that the policy excluded "loss or damage caused directly or indirectly" by water "regardless of any other cause or event that contributes concurrently or in any sequence to the loss."   Since the insured conceded that water was at least an indirect cause of this loss, the Supreme Court declared that Exclusion G barred coverage.

Further, the court refused to find that the release of water caused an explosion within the ensuing loss provision of the exclusion.   The Supreme Court agreed with the trial court that applying "the ensuing loss provision to provide coverage for what is essentially a flood would subvert the intent of the parties."  In any event, the court observed that the actual damage complained of by the insured was not for damage due to an explosion (e.g.  flying rocks or debris).
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