The California Court of Appeal affirmed the trial court's determination of no coverage for construction defects based upon the policy's prior work exclusion. Yu v. Landmark Am. Ins. Co., 2014 Cal. App. Unpub. LEXIS 5966 (Cal. Ct. App. Aug. 22, 2014).
Plaintiff was the owner and developer of a hotel. She contracted with ATMI Design Build to act as general contractor to construct the hotel. C&A Framing Company was a subcontractor to provide rough framing for the project. In May 2003, ATMI fired C&A before it had completed all the work required by the subcontract. After May 2003, C&A never returned to the construction site. Notice of Completion for the project was recorded April 15, 2004.
In September 2004, Landmark issued to C&A a CGL policy for the period September 18, 2004 to September 18, 2005. The policy was later cancelled, effective January 14, 2005. The policy contained an endorsement entitled, "Exclusion - Your Prior Work." The exclusion barred coverage for "'property damage' arising out of 'your work' prior to 9/18/04."
Plaintiff sued ATMI and all the subcontractors, including C&A, for alleged construction defects. C&A tendered to Landmark, but coverage was denied based on the Your Prior Work Exclusion. C&A assigned rights under the Landmark policy to plaintiff.
Plaintiff then sued Landmark. The trial court granted summary judgment to Landmark based on the Your Prior Work Exclusion.
The Court of Appeal affirmed. Plaintiff argued the Your Prior Work Exclusion was ambiguous because, despite Landmark's interpretation that the 9/18/04 date modified "your work," it could also be reasonably interpreted to modify "property damage." The court found this construction of the exclusion was unreasonable. It was not objectively reasonable for an insured to believe property damage rather than prior work was being excluded. Further, another provision in the policy entitled, "Exclusion - Pre-Existing Damage or Injury" excluded property damage occurring before the policy period. This section would be wholly redundant and constitute surplusage if the Your Prior Work Exclusion was interpreted as plaintiff argued.
