Insurance Law Hawaii

No Duty to Defend under Homeowner's Policy Where No Occurrence, No Property Damage

    The federal district court for the district of Hawaii granted the insurer's motion for summary judgment determining there was not duty to defend and no duty to indemnify the insured under a homeowner's policy. Allstate Ins. Co. v. Rosfeld, 2022 U.S. Dist. LEXIS 139123 (D. Haw. Aug. 4, 2022). 

    The insured homeowners were sued in the underlying case for alleged failure to disclose poor flooding and plumbing issues during a December 2016 sale of the residence on Kauai. The disclosure statement purportedly made false representations and omitted material facts regarding various issues with the residence. The disclosure statement noted no sewage, drainage, water-related, or grading problems on the property, no damage to structures from flooding or leaks, no defects in the foundations or slabs, and no defects in the interior walls, baseboards or trim despite the insureds having experienced such issues during their ownership. The underlying complaint further alleged that the property had a history of drainage problems dating to 2006 and 2007, which the insureds knew about, or should have known about, when completing the disclosure statement. The insureds made a claim with Allstate in 2014 under their flood and homeowners policies for flooding or seepage into the basement of the house.

    The insured tendered the underlying lawsuit to Allstate, who defended under a reservation of rights. Allstate then filed this suit in federal district court for a declaration that it had no duty to defend or indemnify the insureds. Allstate moved for summary judgment.

    The court determined there was no property damage alleged in the underlying suit. The complaint alleged that after they moved in, the plaintiffs discovered "numerous cracks in the concrete slab (many of which appeared to be covered with concrete caulk or liquid filler." The negligence claims in the underlying case were based on the insureds' failure to disclose the repairs, not that the repairs were negligent and caused further property damage. 

    There was also no "occurrence" alleged in the underlying case. The underlying complaint alleged that the insureds' actions or omissions were entirely intentional, not accidental. The underlying complaint alleged that the insureds knew about flooding and plumbing defects - for example, having warned a neighbor about them and having made an insurance claim for certain damages  - prior to selling the property, and yet failed to disclose those material conditions. Accordingly, Allstate owed no duties. 

    The insureds' cross-claim for bad faith was also dismissed. The insureds produced no evidence of bad faith to create an issue of fact at the summary judgment state. 

 

Failure to Allege Property Damage Within Policy Period Defeats Insured's Claim

    The insured's inability to determine when water damage occurred meant it could not pursue claims of property damage against the insurers. Creek v. State Farm Fire & Cas. Co., 2022 U.S. Dist. LEXIS 116939 (W.D. Wash. July 1, 2022). 

    Gold Creek Condominium complex experienced water damage. The complex was completed in 1982. The owners sued State Farm and Travelers under all-risk policies when tenders for the damage were denied. 

    In 2017, Creek hired an expert to investigate deterioration due to water intrusion. The expert noted that "water intrusion had been evident in the exterior walls, soffits, terraces, handrails and elevated entry walkways for some time." Thereafter, Creek tendered claims for property damage to State Farm and to Travelers.

    In January 2020, a joint exploratory investigation was conducted with representatives from Creek, State Farm and Travelers participating. Exploratory opening were made.so that the gypsum sheathing could be seen. Only one of the openings did not have water damage to the gypsum and it was in an area that was sheltered from wind-driven rain. 

    State Farm's expert found improper construction of the exterior walls and failure to adequately maintain the building enclosure system at the exterior walls led to rainwater infiltrating in during the frequent rainfall. Creek's expert opined that water intrusion, in the form of rainwater events, including wind-driven rain, was the primary causes of the water damage. At a deposition, Creek's expert acknowledged that he could not look at deteriorated gypsum sheathing plywood siding or wood framing and develop an opinion as to how long it took to deteriorate. Finally, Travelers' expert opined that the original construction deficiencies, poorly implemented repairs, inadequate maintenance, and genenal wear and tear had contributed to ongoing water infiltration at the exterior walls, walkways, and decks. Based on these reports, both State Farm and Travelers denied coverage.

    Creek filed suit for breach of contract and all parties moved for summary judgment. The court granted State Farm's motion based upon the one-year limitations provision of the policy. It stated that no action could be brought unless within one year after the occurrence causing loss or damage. "Occurrence" was defined as "an accident, including continuous or repeated exposure to conditions, which results in property damage. Therefore, Creek had to demonstrate the damage occurred during the policy period of 1989 to 1990, or not more than one year after the wind-driven rain caused the loss. The language of the policy did not depend on when the loss happened but when the "occurrence causing the loss' happened." The evidence did not give an reliable date of when the loss or damage occurred, so the policy was not triggered. 

    Travelers' motion also argued Creek could not prove that covered physical damage "commenced" during the policy's effective period. The policy provided that "Travelers will cover loss or damage commencing . . . during the policy period shown in the Declarations." Creek failed to identify instances of new damage during the Travelers policy's period to trigger coverage. Therefore, Travelers' motion also granted.

COVID-19 Claim with Multiple Occurrences Prevails on Summary Judgment

    The federal district court found there were multiple occurrences of property damage under a disease contamination provision in the policy. Dental Express, LLC v. Massachusetts Bay Ins. Co., 2022 U.S. Dist. LEXIS 119701 (N.D. Ill. July 7, 2022). 

    Dental Express operated seventy-three dental offices across nine states and the District of Columbia. All of the practices were covered by a policy issued by Massachusetts Bay. When the pandemic struck, state and local authorities nationwide issued executive orders suspending the operations of nonessential businesses. Dental Express suspended its operations to comply with these orders and consequently lost business income. It filed claims with Massachusetts Bay.

    The policy's disease contamination provision provided,

We will pay the actual covered loss of "business income" or "extra expensive" you sustain due to the necessary "suspension" or delay of your "operations" during the "period of Restoration." The "suspension" must be caused by a disease contamination event declared by the National Center for Disease Control, or the applicable city, county or state Department of Health.

Coverage applied "on an 'occurrence' basis" and limited a claim to $25,000 per occurrence. 

    Massachusetts Bay agreed Dental Express was entitled to coverage, but only for $25,000 for all office closures because there was a single occurrence. Dental Express filed suit, arguing that, with several different executive orders, each qualified as an occurrence as set forth in the policy. 

    The court determined that the executive orders were the operative event, not the pandemic itself. Illinois followed a cause-based rule for policies that were premised liability on a per-occurrence basis. Therefore, the number of occurrences was determined by referring to the cause or causes of the damages.

    The policy here defined "a series of similar, related acts" as a single occurrence. Each of the claimed losses was the result of a separate and intervening human act - specifically, executive orders issued separately by a number of different state or local governmental authorities. Therefore, Dental Express' losses qualified as multiple occurrences. Dental Express was entitled to summary judgment on liability on its breach of contract claims. 

Faulty Workmanship Claims Amount to Multiple Occurrences

    In a recommended decision, the magistrate found that claims of faulty workmanship against the insured constituted multiple occurrences. Millsap Waterproofing, Inc. v. United States Fire Ins. Co., 2022 U.S. Dist. LEXIS 90112 (S.D. Tex. May 19, 2022).     

    Maravilla Condominiums in Galveston, Texas was damaged by Hurricane Ike in 2008. While repairing the damage caused by the hurricane, an unrelated fire broke out and damaged 77 units. 

    In 2010, the Maravilla Owners Association, Inc. hired several contractors, including Millsap Waterproofing, Inc. Multiple problems arose with the various contractors' work. In 2016, Maravilla sued the contractors alleging that their shoddy work damaged the condominium complex. More than 80  condominium owners intervened, alleging that Millsap negligently performed work on windows, doorways, walkways, and balconies, resulting in extensive water damage. 

    Millsap had two policies. Amerisure issued a primary policy with limits $1 million per occurrence, subject to a $2 million aggregate limit. Millsap also had an umbrella policy issued by United States Fire Insurance Company with limits $11 million per occurrence in excess of the Amerisure policy. Amerisure agreed to defend. When it became clear that the claims would not settle for less than $1 million, Amerisure argued that the plaintiffs' damages arose from a single occurrence and refused to contribute more than $1million to a potential settlement. U.S. Fire denied coverage because it determined that the damages stemmed from multiple occurrences and were, therefore, subject to Amerisure policy's $ 2 million aggregate limit. 

    Millsap settled by adding $550,000 of its own money to the $1 million contributed by Amerisure.

    Millsap sued both insurers and filed a motion for partial summary judgment seeking a determination on whether Millsap's liability resulted from one or more occurrences. The motion was presented to the magistrate judge.

    Texas applied the "cause" approach to determine the number of occurrences. Under this test, the focus was on the events that caused the injuries and gave rise to the insured's liability, rather than on the number of injurious effects. The appropriate inquiry was whether there was one proximate, uninterrupted, and continuing cause which resulted in all the injuries and damage. If so, then there was a single occurrence. If the chain of proximate causation was broken by a pause in the negligent conduct or by some intervening cause, then there were multiple occurrences, even if the insured's negligent conduct which cause each of the injuries was the same kind of conduct.

    Amerisure argued that Millsap's negligent workmanship was the single proximate, uninterrupted, and continuing cause for damages sought against it. But this overlooked Millsap's various acts of faulty workmanship. The damages caused by Millsap were not the result of a single, uninterrupted, continuing cause, but from different types of work on multiple areas of separate buildings. The work lasted over a 10 month period and caused damages to both the individual condominium units and common elements. 

    The magistrate judge recommend that the court grant Millsap's motion to the extent it requested a finding that the claims brought against it involved more than one occurrence, and deny Amerisure's Motion for Summary Judgment. 

    

Insurer Has Duty to Defend Sub-Contractor

    Interpreting Connecticut law, the federal district court had that the insured sub-contractor was entitled to a defense. County Wide Mech. Servs. LLC v. Regent Ins. Co., 2022 U.S. Dist. LEXIS 86726 (D. Conn. May 13, 2022).

    The underlying plaintiff, The Saybrook at Haddam, entered a contract with PAC Group to serve as general contractor for construction of an addition to The Saybrook's facility. PAC Group sub-contracted with County Wide Mechanical Services to install the HVAC system.

    The HVAC system was put into service on November 14, 2014. In October 2019, The Saybrook filed the underlying action against PAC group, County Wide, and others. The underlying complaint alleged that there had been at least seven "critical failures" of the HVAC system. As a result, The Seabrook had to replace multiple compressors and several circuit boards, valves, and other components. Further, the entire system had to be replaced. The underlying complaint alleged breach of contract against PAC Group and County Wide. In addition to the alleged breach of contract between The Saybrook and County Wide, the Saybrook also alleged it was a third-party beneficiary of PAC Group's contract with County Wide regarding installation of the HVAC system. PAC Group cross-claimed against County Wide, asserting one count of contractual indemnification and one count of breach of contract under the PAC Group's contract with County Wide.

    County Wide tendered to its insurer, Regent. Coverage was denied based on there being no "property damage" caused by an "occurrence." Country Wide sued for breach of contract and bad faith. Regent moved for judgment on the pleadlngs.

    County Wide argued that a reasonable reading of the underlying complaint potentially included damage beyond the HVAC system itself, triggering Regent's duty to defend. The court agreed with County Wide. The Saybrook alleged that, as a result of the HVAC system's critical failures, it had to replace multiple compressors in the HVAC system and several circuit boards, valves and other components. The underlying complaint was silent as to whether the circuit boards, valves and other components were part of the HVAC system. Therefore, the allegations plausibly stated that the allegedly damaged circuit board, valves, and other components were external to the HVAC system. 

    The court then considered Excision (b), which provided an exclusion for contractual liability. The exclusion provided exceptions for "liability for damages . . . [a]ssumed in a contract or agreement that is an insured contract." "Insured contract" was defined, in part, as "That part of any other contract or agreement pertaining to our business . . . under which you assume the tort liability of another party to pay for 'bodily injury' . . . to a third person or organisation. Tort liability means a liability that would be imposed by law in the absence of any contract or agreement."

    The Saybrook complaint alleged that County Wide was directly liable for breaching the contract between Country Wide and PAC group because The Seabrook was an intended third-party beneficiary of that contract. The district court was unaware of an interpretation of the assumption of liability exclusion by the Connecticut Supreme Court. PAC Group's cross-claim alleged additional theories of liability against County Wide. First, PAC Group claimed that if it was liable to The Seabrook for the HVAC system, County Wide should indemnity PAC Group. Second, PAC Group claimed that County Wide was direct liable it for breaching the contract between them. 

    The court found the assumption of liability exclusion ambiguous. The phrase "assumption of liability" did not convey a definite and precise intent either to apply narrowly to only an insured's indemnification agreements or to apply broadly to all of an insured's contractual obligations. The exclusion did not unambiguously preclude coverage for County Wide as to all of the theories of liability that County Wide faced in the underlying suit. Because the phrase was ambiguous, Regent had a duty to defend.

    Regent also moved to dismiss the bad faith count. The court ruled that this was premature on a judgment on the pleadings. Whether County Wide had suffered damages arising from Regent's refusal of coverage was not yet determined. 

Disagreeing with Hawaii Supreme Court, South Carolina Holds Post-Lost Assignment Valid

    The South Carolina Supreme Court held that a post-loss assignment of rights under the policy was valid even though consent of the insurer was not requested. PCS Nitrogen, Inc. v. Cont'l Cas. Co., 2022 S.C. LEIXS 54 (S.C. April 13, 2022).

    In 1966, Columbia Nitrogen Corporation (Old CNC) began operating a fertilizer manufacture site. The insurers issued primary and excess liability policies to Old CNC with policy periods ranging form 1966 to 1985. The policies included an anti-assignment clause which read,"Assignment of interest under this policy shall not bind the company until its consent is endorsed hereon."

    Old CNC ceased all fertilizer production at the site in 1972 and sold the site in 1985. In 1986, Old CNC sold assets related to its fertiliser production business to CNC Corp. (New CNC). New CNC assumed some of Old CNC's liability, including those related to Old CNC's fertilizer production business. Old CNC dissolved. In 1997, New CNC became PCS Nitrogen (PCS) through mergers. 

    In 2005, Ashley II of Charleston, LLC, then owner of the site, filed a declaratory judgment action against PCS alleging PCS was liable under CERCLA for environmental remediation at the site. Ashley II alleged Old CNC contaminated the site and that PCS was liable for remediation. The federal district court found PCS liable under CERCLA.

    In this case, PCS sought a declaration that the insurers were obligated to provide coverage for its defense costs and environmental liabilities stemming from the CERCLA litigation. PCS contended that the insurers' consent to the assignment was not required because the assignment took place after the loss occurred. The circuit court granted summary judgment to the insurers, ruling the assignment was unenforceable as a matter of law because Old CNC did not secure the insurers' consent. The circuit court ruled that the assigment was not a post-loss assignment because, at the time of the assignment, no judgment had been entered against Old CNC. 

    On appeal, the Supreme Court noted that the majority rule was that such a provision did not bar an assignment made after a loss. The insurers relied upon decisions from Oregon and Hawaii (Del Monte Fresh Produce (Hawaii), Inc. v. Fireman's Fund Ins. Co., 117 Haw. 357 (2007). The South Carolina court refused to follow Hawaii and Oregon, and adopted the post-loss exception. Insurer consent was not required for an assignment of liability insurance coverage rights made after a loss. 

    The court next considered when the loss occurred and whether it was post-assignment. Again, the court followed the majority of jurisdictional and held the "loss" in the context of the post-loss exception, was synonymous with the "occurrence." In this case, the loss occurred before Old CNC executed the assignment in 1986.

    The court also agreed with PCS's public policy argument that relieving the insurers of their contractual duty to provide coverage would give the insurers a windfall. 

Insurers Must Defend Allegations of Faulty Workmanship

    Granting the insured's motion for partial judgment on the pleadings, the court determined the insurers had a duty to defend. Suez Treatment Solutions, Inc. v. Ace Am. Ins. Co. & Liberty Mut. Fire Ins. Co., 2022 U.S. Dist. LEXIS 59044 (S. D. N. Y. March 30, 2022). 

    Suez Treatment Solutions, Inc. held policies from Chubb and Liberty Mutual Fire Insurance Company to cover its operations in connection with the development of a pollution treatment system in North Carolina. When the project ultimately failed, an underlying action sought damages from Suez, alleging breach of contract, negligence, and fraud. Suez filed this case seeking a declaratory judgment that Chubb and Liberty were each obligated to defend and indemnify Suez in the underlying case. 

    The City of High Point hired Suez to upgrade the facilities at its wastewater treatment plant staring in 2021. Because mercury levels were too high in emissions from sewage-sludge incinerators, Suez began working on the installation of a Mercury Removal System. After installation, a leak occurred in a component known as the heat exchanger. The leak caused the system to shut down and weeks-long repairs began. 

    The underlying complaint alleged that the day after the system shut down for repairs, Suez and its subcontractor left and did not instruct High Point on how the system should be monitored during the shutdown. The shutdown caused an increase of the carbon monoxide levels. High Point contacted Suez who instructed the plant to open an outlet damper to evacuate the heat. This action caused temperatures to increase, however. A fire ignited, and the burning carbon created high concentrations of toxic sulphur-dioxide gas. It was alleged that fire created health and safety hazards at the treatment plant and surrounding area. The fire was finally extinguished almost a month after the shutdown by dumping the carbon out of the unit. 

    According to the City, Suez did nothing to repair the unit for months. When attempts to repair were made, they were fruitless. Another fire occurred during the planned start-up, causing extensive damage to the system. 

    High Point sued for breach of contract, breach of warranties, negligence, negligent misrepresentation, fraud, and unfair and deceptive trade practices.  

    When a defense was denied, Suez sued Chubb and Liberty for a declaratory judgment. The Chubb policy was a Contractors Pollution Liability and Errors & Omission Policy that ran from July 24, 2016 to July 24, 2017. Liberty issued a CGL policy with a policy period from March 1, 2016 to March 1, 2017. Suez moved for partial judgment on the pleadings.

    Chubb relied upon a Products Liability Exclusion to deny coverage. The exclusion barred coverage for any suit against Suez "arising out of or related to" "[a]ny goods, products or equipment designed, manufactured, sold, supplied or distributed by [Suez]." The underlying complaint alleged that Suez supplied the mercury removal system that caused the loss and that Suez served as a sales force and distributor. Other underlying allegations, however, related to professional services rendered at the facility, therefore falling outside the scope of the Products Liability Exclusion and triggering a duty to defend. There was a question of fact with respect to whether the damages arose entirely from the "design, manufacture, sale, supply or distribution" of the mercury removal system by Suez, or if other actions taken by Suez - such as a failure to train or supervise - also gave rise to the damage at the High Point facility. Therefore, the Products Liability Exclusion did not, at this stage, preclude coverage as a matter of law. 

    Numerous issues of fact meant that Liberty also had a duty to defend. Liberty argued there was no occurrence because the damage arose from faulty workmanship. But Liberty read the underlying complaint too narrowly. The complaint alleged damage beyond the property Suez supplied, caused by an accident or repeated exposure to conditions. For example, the underlying complaint alleged that the fire damaged other components of the system.

    The business risk exclusions in Liberty's policy also did not bar coverage because issues of fact were present. Further, although the underlying complaint alleged "design and oversight responsibilities" were breached, the Professional Liability Exclusion did not bar coverage because the underlying complaint did not allege that the property damaged arose solely out of a failure to render professional services. 

    Therefore, the court granted Suez's motion against both Chubb and Liberty, granting declaratory relief with respect to the duty to defend. 

No Duty to Defend Faulty Workmanship Under Hawaii Law, but All is not Lost for Insured Contractor

    The federal district court found no duty to defend claims of faulty workmanship under certain policies issued to the insured contractor, but rejected arguments made by the Insurers regarding various provisions of the general liability and excess policies. St. Paul Fire & Marine Ins. Co. v. Bodell Consr. Co., 2022 U.S. Dist. LEXZIS 79379 (D. Haw. May 2, 2022). (Note- our office represents the insured contractor).

    In 2003, Bodell was hired by developer Sunstone Realty Partners L LLC to be the general contractor for construction work on a condominium project, "Ali`i Cove." The project consisted of approximately 37 buildings and one recreation center that were constructed over the course of four years. On August 14, 2015, the AOAO of Ali`i Cove sued Sunstone, alleging that Sunstone developed, built, and sold condominium nits using embedded straps that did not meet building codes, instead of bolting house frames to their foundations. The AOAO filed a second amended complaint alleging numerous additional defects which were referenced in an expert report. These included additional alleged construction defects such as site conditions, structural issues, building envelope, roofing, general architecture, mechanical, plumbing and electrical. In all, the report purported to find approximately 281 instances of faulty workmanship.

    Sunstone then filed a third-party complaint against various entities, including Bodell. Sunstone alleged that Bodell oversaw the construction of the project, including he installation of the embedded straps in all units of the project. 

    Sunstone tendered the defense of the underlying litigation to the Insurers, St. Paul, Phoenix and Travelers Indemnity, as an additional insured under policies issued to Bodell. The Insurers agreed to defend under a reservation of rights. Bodell also tendered the underlying litigation to the Insurers. Two of Bodell's insurers, Phoenix and Travelers Indemnity, agreed to defend Bodell under a reservation of rights.

    The underlying litigation was stayed so that two arbitrations could proceed. The first arbitration between the AOAO and Sunstone was resolved in a settlement. Sunstone and its insurer, Steadfast Insurance Company, funded the settlement. In the second arbitration between Sunstone and Bodell, the arbitrator found in favor of Sunstone. In drafting her award, the arbitrator relied upon an expert report authored by Sunstone's expert, Trinity ("Trinity Report"), which addressed the 281 instances of alleged defects. The Trinity Report was used as a framework for identifying alleged defects, but did not differentiate between work done by subcontractors versus work done by Bodell. The arbitration award listed numerous defects for which Bodell was responsible or partly responsible. Some of the alleged defects involved work done by subcontractors, but again, the arbitration award did not identify such work. 

    Bodell's coverage included general liability and excess policies issued from 2003 to 2016. The court broke the various policies into two sets, the "First Policies" being policies issued before  September 2012, and the "Second Policies" issued after September 2012. 

    The Insurers sued for a declaratory judgment that they had no duty to defend or indemnify either Bodell or Sunstone. The Insurers filed two motions for summary judgment, the first seeking a ruling that there was no duty to defend under the First Policies and the second motion seeking a determination on the interpretation of various provisions in the First and Second Policies.

    The court granted the Insurers first motion, finding that under Hawaii law, faulty workmanship does not constitute an occurrence, and there was no duty to defend. The insureds argued that under Hawaii law, a building code violation was considered a negligent and therefore a tort. Consequently there was an occurrence. Further, Bodell and Sunstone argued that the Insurers had made partial payment to Sunstone, thereby conceding coverage under the First Policies. The court found that the Insurers carried their burden of showing an absence of genuine material fact with respect to the lack of coverage under the First Policies and were entitled to summary judgment on the first motion.

    Turning to the Insurers' second motion, the Second Policies contained an amended definition of occurrence. The first portion of the amended definition of occurrence was the same as used in the First Policies. Therefore, the court granted summary judgment as to this portion of the Occurrence Amendment because it provided no coverage under the Second Policies.

    The Occurrence Amendment went on, however, to further define "occurrence" as "[a]n act or omission, including all related acts or omissions, that causes 'subcontracted work property damage.'" The Occurrence Amendment also defined "subcontracted work property damage" as ""property damage" that "[i]s neither expected nor intended from the stand point of the insured" and "[i]s to 'your work' arising out of it or any part of it . .  if the damaged work out of which the damage arises was performed on your behalf by a subcontractor." The Insurers argued this definition only provided coverage for property damage caused by subcontractors, not work self-performed by Bodell. The court disagreed. The phrase "act or omission" was unencumbered by any of the limiting language that the Insurers appeared to believe should exist in order for the definition to not include work self-performed by Bodell. A plain and ordinary reading of the words "[an] act or omission" could include an act or omission committed by or at the direction of Bodell that then caused subcontractor work property damage. Therefore, the Insurers' argument that "occurrence" as defined under the Occurrence Amendment could not include work self-performed by Bodell was rejected.

    The court next turned to the "Non-Cumulation Amendment," which the Insurers argued meant that if the same occurrence caused property damage in multiple policy years, the amount of money paid with respect to such a occurrence was limited by what was paid under prior policies. The court agreed that if property damage over multiple policy periods involved just one occurrence, the amount paid would be reduced by the amount of each payment made under prior policies because of the same occurrence. 

    The Insurers next argued that the underlying litigation involved a single occurrence because the damages at issued arose from a single project, at a single site, pursuant to Bodell's single construction agreement. The court could not agree, however that the myriad of alleged deficiencies in the project's construction constituted but one occurrence. It was alleged in the underlying litigation that there may be up to 281 alleged defects, including deficiencies as varied as biological growth, improper window installations and shower assemblies, cracked concrete, downspout inversions, and loose guardrails. A layperson with reasonable expectations would not construe "one occurrence" to mean 281 alleged defects in the construction of a condominium project and even more so when these alleged defects did not involve the same deficiency or field. 

    Therefore, the Insurers' second motion was granted in part and denied in part. 

Subsidence Exclusion Bars Coverage for Damage Caused by Landslide

    The Ninth Circuit affirmed the district court's order granting summary judgment to the insurer who denied coverage based upon the policy's subsidence exclusion. Atain Spec. Ins. Co. v. JKT Associates, 2022 U.S. App. LEXIS 6351 (9th Cir. March 11, 2022). 

    JKT was hired by Lora Eichner Blanusa in 2011 to perform landscape and hardscape work at her house. After selling the house to Richard Meese, a catastrophic landslide occurred in 2019. Portions of the rear of the property slid downhill by 15 feet. Meese sued JKG and others. The owner of an adjacent property, Kristi Synek, filed a separate action against JKT and others. JKT tendered both suits to Atain, who defended under a reservation of rights.

    Atain filed a coverage action in federal district court regarding both underlying suits. The district court granted summary judgment to Atain, ruling there was no duty to defend or to indemnify.

    The Ninth Circuit affirmed. The subsidence exclusion read:

This insurance does not apply and there shall be no duty to defend or indemnify any insured for any "occurrence", "suit", liability, claim, demand or cause of action arising, in whole or part, out of any "earth movement." This exclusion applies whether or not the "earth movement" arises out of any operations by or on behalf of any insured.

    Because a landslide was an "earth movement," the terms of the exclusion barred any coverage for any claim "arising, in whole or pert," from the landslide or from any "settling" or "slipping" that preceded the landslide, and did so regardless of the case of the landslide.

    The Meese complaint did not allege any facts or claims concerning injuries that occurred independent of the occurrence of the landslide and the earth movement that preceded it. Nothing in the underlying complaint suggested that Meese suffered any relevant injuries that were independent of the landslide. Because all injuries connected to the Meese complaint "aris[e] in whole or part, out of . . . 'earth movement,'" there was no possibility of coverage. 

    The same conclusion was reached as to the Synek complaint. JKT could not point to any allegation in the complaint that sought compensable damage flowing from the alleged encroachment apart from its subsequent contribution to the landslide,.

 

Construction Defect Claims Not Covered

    The court found that the insured's negligent acts causing damage to only the structure of the home it built were not covered under the CGL policy. Westfield Ins. Co. v. Zaremba Builders II LLC, 2022 U.S. Dist. LEXIS 36189 (N.D. Ill. March 2, 2022).

    Zaremba contracted to build a house for the Vrdolyak Trust. After completion of the home, the occupants found many problems, including painting defects such as bubbling and peeling, leaving the basement full of water for months, causing damage to ductwork, framing and piping in the house, etc. The Trust sued and Westfield denied a defense.

    Westfield filed a declaratory judgment action for a ruling that it had no duty to defend or indemnify. On Westfield's motion for summary judgment, the court determined there was no property damage. Property damage included "physical injury to tangible property." When the alleged damage occurred in the course of a construction project, tangible property had to be property outside the scope of the contract for project. 

    Zaremba's construction project encompassed the entire home. The underlying complaint alleged only damage to the structure itself, or damage that fell within the scope of Zaremba's contract. All the alleged damage constituted damage to the very house Zaremba was contracted to build. Therefore, it did not quality as "property damage" under the policy.

    Zaremba argued he purchased Products-Completed Operations coverage. But purchase of the coverage did not mean that, once the project is complete, any damage to the project itself was covered. While the Products-Completed Operations provision extended the grant of coverage in the insuring agreement to completed products or operations, it remained limited by the terms of that grant of coverage. Here, the insuring agreement required that an "occurrence" result in "property damage' to trigger coverage. There was no property damage here when the underlying complaint alleged only construction defects causing damage within the scope of the contracted-for project. 

    Therefore, summary judgment was granted to Westfield.