Coverage was denied under the policy's condominium exclusion in California Traditions, Inc. v. Claremont Liability Ins. Co., 2011 Cal. App. LEXIS 912 (Cal. Ct. App., ordered published July 11, 2011).

   California Traditions was the developer and general contractor for a housing development.  California Traditions subcontracted with Ja-Con to perform the rough framing work for 30 residential units.  The project had 146 separate residences that were freestanding with no shared walls, roof, halls, or plumbing or electrical lines.  To allow a higher density development, the project was developed, marketed and sold as condominiums.

   The purchaser of one of the units filed a complaint against California Traditions alleging property damage from the defective construction.  California Traditions cross-complained against Ja-Con.

   Ja-Con's insurer, Claremont, initially defended, but later withdrew its defense based on the condominium exclusion.  This exclusion barred coverage for property damage arising out of an insured's operations, work product or products that were incorporated into a condominium or townhouse project. Ja-Con knew the policy did not cover work on condominium projects.

   California Traditions obtained a default judgment against Ja-Con for more than $2 million.  It then sued Claremont for recovery on the judgment.  Claremont moved for summary judgment, arguing the undisputed facts showed the exclusion was applicable because Ja-Con's work was incorporated into a condominium project. California Traditions opposed the motion, contending the term "condominium project" was undefined and the policy was therefore ambiguous as to what was excluded from coverage.  Finding the exclusion was not ambiguous and that there was no potential for coverage because the project was a condominium project, the trail court granted Claremont's motion.

   The California Court of Appeal affirmed.  The exclusion was not ambiguous.  Both "condominium" and "condominium project" were defined by statute.  California law expressly included freestanding units as one type of a condominium unit that could comprise part of a "condominium project."

   California Traditions also argued there was a triable issue of fact whether Ja-Con had a reasonable expectation of coverage because it believed it was working on non-condominium single family residences.  The court rejected this argument because an insured's reasonable expectation of coverage was merely an interpretative tool used to resolve an ambiguity once it was found to exist.  Therefore, judgment was affirmed.

   Thanks to my Damon Key blogging colleague, Robert Thomas (www.inversecondemnation.com), for sending this case my way.