The insured's request for a defense when sued in a construction defect action was denied under the owned property exclusion and the alienated property exclusion in 1777 Lafayette Partners v. Golden Gate Ins. Co., 2011 U.S. Dist. LEXIS 48562 (N.D. Cal. April 29, 2011).
In 1999, Lafayette Partners purchased an abandoned walnut processing factory to convert into living and working units. The property was developed into a rental property from 2000-2001, and thereafter rented. In May 2003, Lafayette Partners entered into a sales agreement with Wolff Enterprises LLC. The sale closed in February 2005. Wolff then converted the rental units into condominiums.
In December 2007, the Walnut Factory Owners Association sued Wolff for construction defects. In Lafayette Partners was added to the suit in 2009. The suit alleged a variety of defective conditions, including the roofs, exteriors, windows, electrical , plumbing, and mechanical components and systems.
Lafayette Partners was a named insured on a policy that took effect on August 1, 2002, after construction was completed and the units were held for rent. In Lafayette Partners remained insured in renewals of the policy until August 1, 2005.
The policy's owned property exclusion eliminated coverage for property damage to "property you own, rent or occupy." Under the alienated property exclusion, the policy barred coverage for property damage to "premises you sell, give away or abandon, if the 'property damage' arises out of any part of those premises." An exception stated the exclusion did not apply "if the premises are 'your work' and were never occupied, rented or held for rental by you."
When Lafayette Partners tendered its defense in the underlying defect action, the insurer denied coverage. Lafayette Partners filed this coverage action. The district court agreed there was no coverage. First, the owned property exclusion precluded coverage before the project was sold. Further, even if the owned property exclusion did not apply after Lafayette Partners no longer owned the property, the alienated premises exclusion applied after the sale of the property. The exception to the alienated property exclusion did not apply because the property was held out for rental, and actually rented, by Lafayette Partners for three years prior to its sale.
As a matter of law, there was no duty to defend Lafayette Partners.
