Clarendon America Insurance Company (Clarendon) filed a complaint for declaratory relief, equitable contribution, and equitable indemnity against General Security Indemnity Company of Arizona as the attorney in fact for General Security Indemnity Company (General Security) after settling an action against Hilmor Development (Hilmor), a company that both Clarendon and General Security had insured during different timeframes. General Security cross-complained for declaratory relief and the trial court resolved competing motions for summary judgment in General Security's
Clarendon contends that the trial court incorrectly interpreted the "products-completed operations hazard" provision of the commercial general liability (CGL) policy issued by General Security, and that the action against Hilmor fell within the scope of General Security's coverage under that provision. Clarendon further contends that exclusions j(5) and j(6) of the General Security policy, as well as the "claims in progress" exclusion of that policy, do not preclude coverage.
Clarendon insured Hilmor under a CGL policy effective July 1, 2000, to July 1, 2001. General Security insured Hilmor under a CGL policy effective July 1, 2001, to July 1, 2002.
On or about September 30, 1999, Hilmor entered into a written construction contract with Haim and Lucinda Revah to serve as the general contractor for the construction of the Revahs' custom single-family home located at 705 North Alta Drive in Beverly Hills, California. The construction contract provided that Hilmor would perform "all work necessary to demolish the existing residence" and to "construct and complete the Improvements in accordance with the Contract Documents." The "Improvements" called for in the construction contract included "construction of a new residence ... consisting of an approximately 14,000 square foot single family home and related hardscape, landscape, fencing and other improvements." The construction contract provided several conditions that had to be met before the Revahs' home would be considered complete, including, among other things, the recording of a notice of completion and the Revahs' ability to beneficially occupy the entire property.
On May 18, 2001, prior to the completion of the Revah residence, the Revahs terminated their contract with Hilmor. In June 2001, Hilmor assigned all subcontracts to the Revahs as required under the construction contract. It was undisputed that the construction of the Revah residence was not completed at the time of Hilmor's termination from the project. Construction of the residence continued without further participation of any kind from Hilmor. A temporary certificate of occupancy for the Revahs' residence was issued on September 24, 2001.
On November 12, 2004, the Revahs filed an action against Hilmor alleging defects in the construction of their home. (Haim Revah v. Hilmor Development
Hilmor tendered its defense and indemnification in the Revah action to Clarendon. Clarendon accepted the tender and retained the law firm of Pierce & Weiss to defend Hilmor in the Revah action. Clarendon withdrew its defense in May 2006, then later agreed to defend after Hilmor's counsel threatened to file an insurance bad faith lawsuit against various carriers, including Clarendon. Clarendon retained Small, Henstridge, Cabodi & Pyles, which associated in as counsel on or about January 30, 2008.
Hilmor's defense and indemnification had been tendered to General Security on April 14, 2004, by Pierce & Weiss. At first, General Security agreed to participate in Hilmor's defense through Pierce & Weiss. On May 15, 2006, General Security withdrew its defense on the ground that there was no coverage or potential for coverage under the General Security policy because (1) Hilmor did not complete all of the work called for in Hilmor's contract with the Revahs prior to the inception of the General Security policy, therefore the products-completed operations hazard clause was not triggered; and (2) the faulty workmanship exclusions and other exclusions in the General Security policy operated to exclude coverage for the claims and damages asserted by the Revahs.
In October 2008, Clarendon settled with the Revahs, allegedly agreeing to pay its full policy limit of $1 million plus contributions of defense costs that it received from some of the subcontractors that worked on the Revah project. In addition, Clarendon allegedly paid defense fees in the amount of $473,463.29 to the Small, Henstridge, Cabodi & Pyles firm.
On February 13, 2009, Clarendon filed this action against General Security seeking contribution for the amounts Clarendon paid to defend and indemnify Hilmor in the Revah action. General Security filed a cross-complaint for declaratory relief seeking a judicial declaration regarding both its duty to defend and its duty to indemnify Hilmor in the Revah action.
On November 19, 2009, General Security filed its motion for summary judgment, or in the alternative summary adjudication, on the ground that there was no coverage or potential for coverage of the Revahs' claims against Hilmor under the General Security policy.
The parties' motions were heard as cross-motions. On February 4, 2010, the trial court determined that General Security had met its burden of showing that there was no possibility of coverage under the General Security policy. First, the trial court analyzed the products-completed operations hazard clause in General Security's contract. The court held that there was "no triable issue of fact as to whether the products completed operations hazard coverage under Defendant's policy applied here. It did not." The court next determined that exclusions j(5) and j(6) of the General Security policy precluded coverage for "property damage arising out of Hilmor's work at the Revahs' residence during construction related to defective work and material or satisfactory work damaged by defective work and materials." Finally, the trial court determined that the "claim(s) in progress" exclusion in Defendant's policy clearly excludes coverage from continuing and progressive property damage that began before the inception of the policy. The trial court denied Clarendon's motion and granted General Security's motion.
On April 5, 2010, Clarendon filed its notice of appeal.
Summary judgment is properly granted when there are no triable issues of material fact and the moving party is entitled to judgment as a matter of law. (Code Civ. Proc., § 437c, subd. (c).) A moving party is entitled to summary judgment if it establishes a complete defense to the plaintiff's cause of action, or shows that one or more elements of each cause of action cannot be established. (§ 437c, subd. (o); Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 849 [107 Cal.Rptr.2d 841, 24 P.3d 493].) The moving party bears the burden of showing that there is no triable issue of material fact and that the moving party is entitled to judgment as a matter of law. (Aguilar, at p. 850.)
Interpretation of General Security's policy is a question of law. (Powerine Oil Co., Inc. v. Superior Court (2005) 37 Cal.4th 377 [33 Cal.Rptr.3d 562, 118 P.3d 589].) "In reviewing de novo a superior court's summary adjudication order in a dispute over the interpretation of the provisions of a policy of insurance, the reviewing court applies settled rules governing the interpretation of insurance contracts." (Id. at p. 390.) Under those rules, "`"[t]he fundamental goal ... is to give effect to the mutual intention of the parties." [Citation.] "Such intent is to be inferred, if possible, solely from the written provisions of the contract." [Citation.] "If contractual language is clear and explicit, it governs." [Citation].' [Citation.]" (Id. at p. 390.) However, if the language of the policy is capable of two or more reasonable constructions, it will be considered ambiguous, and will generally be construed against the party who caused the uncertainty to exist. (Ibid.)
With these principles in mind, we turn to the language of General Security's policy.
General Security's policy specifies that it only covers "bodily injury" or "property damage" caused by an "occurrence" that takes place in the "coverage territory" and occurs "during the policy period." It is undisputed that Hilmor did not work on the Revah project during the time period when General Security's policy was in effect.
The products-completed operations hazard provision in General Security's policy is designed to cover property damage that occurs after an insured's work is completed. Clarendon's claims against General Security for equitable contribution and equitable indemnity were based on its argument that coverage of the claims in the Revah action exists under this provision.
General Security's policy defines the products-completed operations hazard as follows:
"(1) Products that are still in your physical possession; or
"(2) Work that has not yet been completed or abandoned. However, `your work' will be deemed completed at the earliest of the following times:
"(a) When all of the work called for in your contract has been completed.
"(b) When all of the work to be done at the job site has been completed if your contract calls for work at more than one jobsite.
"(c) When that part of the work done at a job site has been put to its intended use by any person or organization other than another contractor or subcontractor working on the same project.
"Work that may need service, maintenance, correction, repair or replacement, but which is otherwise complete, will be treated as completed."
This definition plainly includes all property damage occurring away from the insured's premises and arising out of the insured's work or products, with the exception of (1) products still in the insured's possession, and (2) work that has not yet been completed or abandoned.
Hilmor's work on the Revah residence ended on May 18, 2001, when Hilmor was fired from the job. The letter from Haim Revah to Hilmor on that date specifies that its purpose is to give Hilmor "notice of our termination of Hilmor Development as contractor" with respect to the project. The letter made it clear that work was not complete on the project, indicating that "there are several months of work remaining" which a new general contractor would need to oversee. The Revahs specifically reserved "any rights that we have under the Residential Construction Contract."
Under these undisputed facts, the products-completed operations hazard coverage does not apply. Subdivision a(2) of that provision specifies that the coverage does not apply to work that has not yet been completed or abandoned. It was undisputed that Hilmor did not complete the work it had been hired to do, which was to oversee construction of the Revahs' single-family home. Under the contract, Hilmor's work could not be considered
Hilmor's work had not been completed, nor had it been abandoned. Instead, Hilmor was terminated from the job before it completed its work. Under the plain language of the policy, the products-completed operations hazard does not apply.
Clarendon's position is that the work called for under the contract was completed. Clarendon's theory is that regardless of the original terms of the contract, the Revahs' termination of Hilmor terminated Hilmor's obligations under the contract. Thus, Clarendon argues, Hilmor's work on the project was finished for the purposes of the products-completed operations hazard provision.
Clarendon cites Hollypark Realty Co. v. MacLoane (1958) 163 Cal.App.2d 549 [329 P.2d 532], as authority for its position that the Revahs' termination of the contract terminated any obligations owed under the contract. Hollypark concerns a contract for the purchase and sale of real property, and provides no guidance on the applicability of the products-completed operations hazard provision in this matter.
First, Clarendon cites Allied Mutual Ins. Co. v. Hingst (D.N.D. 1973) 360 F.Supp. 1204, which it describes as "strikingly similar" to the matter before us. In Allied, the insured, Hingst, contracted to construct a building on a farm owned by the Klostermans. Hingst began work on the building but left the project when necessary materials did not arrive on schedule. (Id. at p. 1207.) When the materials did arrive, the Klostermans called Hingst to return to the project, but Hingst was delayed due to his work on a different project. The Klostermans therefore decided to have the work completed by another contractor, Vernon Brosowski. During the course of Brosowski's employment, Tveter, an employee of Brosowski, was injured. Hingst at no time returned to work on the project, and there was no evidence that the parties intended to reserve any rights under the contract after Brosowski was hired to complete the building. The court specifically determined that "the parties by mutual consent had terminated the contract and Hingst had abandoned the project prior to the date of the Tveter accident." (Ibid.)
Here, in contrast, there was no mutual intent to abandon the contract. Instead, the uncontested facts show that Hilmor was unilaterally fired by the Revahs. In addition, the Revahs reserved their rights under the residential construction contract and specifically noted that Hilmor's work on the project was not complete. These facts differentiate this matter from the facts in Allied, and the case does not persuade us that Hilmor's work was completed or abandoned as required under the products-completed operations hazard clause in the General Security policy.
Next, Clarendon cites a South Carolina case, Laidlaw Environmental Services (TOC), Inc. v. Aetna Casualty & Surety Co. (Ct.App. 1999) 338 S.C. 43 [524 S.E.2d 847] (Laidlaw). Laidlaw contracted with Radco to construct a "baghouse" for Laidlaw's hazardous waste incineration system. Radco abandoned the project, and Laidlaw hired another contractor to finish the project. When placed into operation, the baghouse leaked. Laidlaw sued Radco, which was insured by Aetna. The Aetna policy specified that it did not apply to injury or damage included within the products-completed operation hazard clause. (Id., 524 S.E.2d at p. 848.) Aetna took the position that the claims against Radco fit within the products-completed operations hazard coverage, which Radco had not purchased. Therefore Aetna did not feel that there was any potential for coverage. (Id. at p. 849.)
As explained above, the undisputed facts of this case do not support a finding that Hilmor abandoned its work on the Revah project. Unlike Radco, Hilmor was fired. Nor have the parties before us agreed that Hilmor abandoned the work. In fact, Clarendon's counsel admitted at oral argument that no abandonment occurred in the present case. Laidlaw did not address the application of a products-completed operations hazard clause under the circumstances of this case, and does not convince us that such coverage is applicable here.
The products-completed operation hazard provides coverage for injury and damage "arising out of `your product' or `your work'" with the exception of work "that has not yet been completed or abandoned." (Par. a(2).) However, under the policy, "your work" is "deemed completed" under three specific circumstances. Under paragraph a(2)(c), "your work" is deemed completed: "(c) When that part of the work done at a job site has been put to its intended use by any person or organization other than another contractor or subcontractor working on the same project."
Clarendon argues that Hilmor's work should be deemed completed under this provision. Clarendon points out that it is undisputed that a temporary certificate of occupancy was issued on September 24, 2001, at which time the house was put to its intended use as a residence. In addition, there is no evidence that the work done by Hilmor was demolished or otherwise not used in the completion of the construction. Thus, Clarendon argues, it is logical to conclude that the work of Hilmor was included in the final construction of the home and thus put to its intended use no later than September 24, 2001, during the term of General Security's policy. Even though it was not "complete," Clarendon states, Hilmor's work was put to its intended use.
Like Clarendon, General Security relies on foreign authority to bolster its arguments. While we are not bound by these cases as precedent, we find that they provide support for our interpretation of the products-completed operations hazard provision.
In McGowan v. State Farm Fire & Casualty Co. (Colo.App. 2004) 100 P.3d 521, the Colorado Court of Appeals confronted facts similar to those before us. The McGowans hired Eagle Summit Construction Co. to build a house for them. When the work was not yet complete, the McGowans discovered that the house had several structural problems. The McGowans fired Eagle Summit and hired another contractor to complete the project. (Id. at p. 522.) State Farm had issued two consecutive one-year contractors policies to Eagle Summit, but refused to defend or provide coverage when the McGowans sued Eagle Summit. The McGowans obtained a default judgment against Eagle Summit and attempted to collect it through a garnishment of insurance proceeds from State Farm. (Id. at p. 523.) The Court of Appeals agreed with the trial court in holding that there was no coverage under the products-completed operations hazard provision. The Court explained: "Here, numerous allegations in the complaint in the underlying action referred to the McGowans' need to hire other contractors to `complete the house as contracted.' Because the work was allegedly not completed when the damage occurred, the property damage does not fit within the policy definition of a
Vintage Contracting, L.L.C. v. Dixie Building Material Co. (La.Ct.App. 2003) 858 So.2d 22, also provides guidance. Vintage was hired to construct a new residence in Louisiana. In connection with the project, Vintage obtained a CGL policy from Maryland Casualty Company, Inc., which contained a products-completed operations hazard provision. Vintage contracted with Dixie to furnish concrete for a concrete slab. However, the project engineer refused to certify the slab based on failure to comply with contract specifications. Vintage later made a demand against Dixie and Maryland in connection with losses suffered as a result of removal and replacement of the slab. Maryland declined coverage under the policy, and brought a successful motion for summary judgment when sued. (Id. at pp. 24-25.) The Court of Appeal affirmed, explaining that completed-operations hazard coverage "refers to the insured's exposure to liability arising out of completed work performed away from his premises." (Id. at p. 29.) There was no coverage because "Vintage's contract was not complete nor was part of the work put to its intended use by someone other than another contractor or subcontractor working on the same project." (Ibid.)
Significantly, the Louisiana court rejected Vintage's argument that the products-completed operations hazard provision was ambiguous, stating that the clause was "clear and unequivocal. In order for this coverage to apply, the work must have been completed or abandoned, neither of which occurred in this case." (Vintage Contracting, L.L.C. v. Dixie Building Material Co., supra, 858 So.2d at pp. 29-30.) The same analysis applies to the matter before us.
Finally, in Century Indemnity Co. v. Golden Hills Builders, Inc. (2002) 348 S.C. 559 [561 S.E.2d 355] (Century), the Supreme Court of South Carolina answered certain questions certified by the United States Fourth Circuit Court of Appeals. The relevant facts were as follows: the homeowners filed an action against the general contractor (the insured) alleging that a subcontractor of the insured constructed the stucco exterior of their home in a
The South Carolina Supreme Court determined that there was no liability under the policy because coverage was excluded under the faulty workmanship provision. (Century, supra, 561 S.E.2d at p. 359.) However, the court was also asked, "If the coverage is precluded by the faulty workmanship provision, is that coverage restored by a provision that provides coverage for damage arising from products-completed operations hazards?" (Ibid.) The court also answered this question in the negative, finding that "the products-completed operations hazard does not include `property damage' which arose out of Insured's work that had not yet been completed," and that the insured's work had "clearly not been completed at the end of the policy period." (Ibid.) Similarly, in our case, the insured's work had definitely not been completed prior to the end of General Security's policy period. Because the insured was fired, it never completed its work.
The products-completed operations hazard coverage applies only where the insured's work has been completed, as specifically described in the policy, or abandoned. Neither of those circumstances exists here, thus the products-completed operations hazard does not, as a matter of law, provide coverage.
We have determined that the products-completed operations hazard provision in General Security's policy does not provide coverage for the underlying claims against Hilmor. However, General Security has set forth two alternative grounds for summary judgment: exclusions j(5) and j(6) of the policy, also known as the faulty workmanship exclusions, and the claims in progress exclusion. We discuss these provisions briefly below, and agree that they support a grant of summary judgment in favor of General Security.
Exclusions j(5) and j(6) provide:
"This insurance does not apply to: . . .
"`Property damage' to: . . .
"(5) That particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the `property damage' arises out of those operations; or
"(6) That particular part of any property that must be restored, repaired or replaced because `your work' was incorrectly performed on it."
The exclusion found in j(5) applies to works in progress. The insurer is not obligated to indemnify a policyholder for property damage that occurs while the insured is performing operations on that property. Thus, if the Revahs' claims encompassed property damage that occurred while Hilmor or its subcontractors were performing operations on the property, no coverage would exist.
Clarendon argues that paragraph j(6) does not exclude coverage for damage to the work of others caused by the insured's faulty work. Clarendon proposes that if some of the damage at issue in the Revah action constituted damage to work done by other contractors, that part of the claim would not be barred by this exclusion. We reject this argument. The list of observed defects and deficiencies that the Revahs attached to their complaint against Hilmor does not reference any damage to the work of others, it simply lists faulty work which must be repaired or replaced. In addition, Clarendon has failed to cite to any specific examples of damage to the work of others that might have been caused by Hilmor's allegedly faulty work. In the absence of such specific evidence, Clarendon's speculation may not create a triable issue of fact. (Roberts v. Assurance Co. of America (2008) 163 Cal.App.4th 1398, 1404 [78 Cal.Rptr.3d 361] ["To defeat summary adjudication, plaintiffs could not rely on assertions that are `conclusionary, argumentative or based on conjecture and speculation,' but rather were required to `make an independent showing by a proper declaration or by reference to a deposition or another discovery product that there is sufficient proof of the matters alleged to raise a triable question of fact . . . .'"].)
The "Claim(s) in Progress Exclusion" in General Security's policy provides:
"1. The Policy shall not apply to bodily injury or property damage, which begins or takes place before the inception date of coverage, whether such bodily injury or property damage is known to an insured, even though the nature and extent of such damage or injury may change and even though the damage may be continuous, progressive, cumulative, changing or evolving, and even though the occurrence causing such bodily injury or property damage may be or involve a continuous or repeated exposure to substantially the same general harm.
"2. All property damage to units of or within a single project or development, and rising from the same general type of harm, shall be deemed to
There was evidence that the continuing and progressive property damage of which the Revahs complained began prior to the inception of the General Security policy. A letter dated April 27, 2006, from Clarendon's counsel states "[t]he discovery that has transpired since the date of denial has revealed that property damage may very well have resulted prior to July 1, 2001."
Clarendon argues that there was never a finding as to when the damage first happened, and that the letter referenced by General Security provides nothing more than speculation that the damage may have begun prior to the inception of the General Security policy. However, General Security has already shown that any damage arising after Hilmor was fired is not eligible for coverage under the products-completed operations hazard provision. The claims in progress clause strengthens General Security's position by precluding any possibility of coverage for damage which began or took place prior to the effective date of the General Security policy: July 1, 2001.
The products-completed operations hazard provision provides coverage for "bodily injury" or "property damage" arising out of Hilmor's work or product, with the exception of "[w]ork that has not yet been completed or abandoned." Because Hilmor never completed or abandoned its work on the Revah project, there was no coverage under the products-completed operations hazard provision.
In addition, the faulty workmanship provisions found in paragraphs j(5) and j(6) preclude coverage for poor workmanship and materials, which form the basis for the Revahs' action against Hilmor.
Whether the claims asserted against Hilmor in the Revah action arose from damage occurring while Hilmor was on the job, or after Hilmor left the job, General Security has met its burden of proving that there was no potential for coverage of the Revahs' claims under the policy that it issued to Hilmor. General Security was therefore entitled to summary judgment as a matter of law. (Powerine Oil Co., Inc. v. Superior Court, supra, 37 Cal.4th at p. 390.)
The judgment is affirmed. General Security is entitled to its costs of appeal.
Boren, P.J., and Ashmann-Gerst, J., concurred.
