119 F. Supp. 3d 1053
N.D. Cal.2015Background
- Olympic & Georgia Partners contracted Webcor to build a high-rise; Webcor subcontracted SMG and Colavin to install stone floor tile. Plaintiffs AHA and ISOP were insurers for Olympic, Webcor, SMG, and Colavin.
- Tile installation began Nov. 2009; in early 2010 fractures appeared in the stone tiles. Removal and replacement of fractured tiles required disturbance of drywall and concrete subfloor installed by other subcontractors.
- Olympic notified insurers in May 2010 and later initiated arbitration in Nov. 2011 against Webcor, SMG, and Colavin; Webcor settled with Olympic for $8 million (insurer Steadfast paid $7 million). SMG and Colavin sued Webcor for nonpayment; Webcor cross-complained alleging defective tile work caused consequential damages.
- AHA’s primary CGL policy (May 25, 2009–May 25, 2010) covers property damage caused by an "occurrence," but contains workmanship/product-completed/exclusion endorsements (j(5), j(6), and l) that limit coverage for damage to the insured’s work or work requiring repair. ISOP issued a follow-form excess policy.
- Plaintiffs denied defense/indemnity; Plaintiffs sued for declaratory relief seeking judgment that policies do not cover the tile fracture claims and that they had no duty to defend or indemnify. Parties filed cross-motions for summary judgment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the fractured tiles and remediations constitute an "occurrence" and "property damage" under the policy | Plaintiffs: fractures were occurrences but did not produce covered "property damage" because harm was the insureds' defective work and remediation costs | Defendants: fractures and damage to subfloor/drywall from remediation are physical property damage or loss of use and thus covered | Court: Fractures were an "occurrence," but the damage is the insureds' defective work/remediation and does not meet the policy's "property damage" definition |
| Whether the loss-of-use prong applies (delay/marketing use) | Plaintiffs: mere delay or marketing use does not show loss of use; units were not put to intended residential use | Defendants: units were in use for marketing/sales, causing loss of use and damages | Court: Temporary marketing/sales use is not put to intended use; loss-of-use prong not met |
| Whether Exclusion j(5) (damage to the part of property on which insured was working) bars coverage | Plaintiffs: j(5) excludes incidental damage and remediation costs that arise out of insureds' operations | Defendants: j(5) does not apply to subfloor/walls completed by others or to fractures occurring after installation | Court: j(5) applies because the damage arises out of the insureds’ operations, excluding coverage |
| Whether Exclusions j(6) and l (workmanship/products-completed and defective work exclusions) bar coverage or are avoided by the products-completed operations exception | Plaintiffs: j(6) and l exclude damage to the part of property that must be restored due to faulty work; the products-completed exception does not apply because work was not put to intended use | Defendants: work was complete/being used for sales so exception applies; tiles are not necessarily "your work" because owner furnished tiles | Court: j(6) and l apply; work was not put to intended residential use so exception fails; "your work" includes work and materials related to insureds' operations, so exclusion l applies |
Key Cases Cited
- Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment standard)
- Anderson v. Liberty Lobby, 477 U.S. 242 (genuine issue for trial standard)
- Anthem Elecs., Inc. v. Pac. Emp’rs Ins. Co., 302 F.3d 1049 (9th Cir. 2002) (occurrence and loss-of-use analysis; duty to defend potential coverage)
- Md. Cas. Co. v. Reeder, 221 Cal.App.3d 961 (Cal. Ct. App. 1990) (CGL excludes repair/replacement of defective work unless other property injured)
- F & H Constr. v. ITT Hartford Ins. Co., 118 Cal.App.4th 364 (CGL not a performance bond; repair of defective work is excluded)
- Regional Steel Corp. v. Liberty Surplus Ins. Corp., 226 Cal.App.4th 1377 (repair/remediation costs and incidental damage not covered)
- St. Paul Fire & Marine Ins. Co. v. Coss, 80 Cal.App.3d 888 (defective work requiring repair does not create coverage for remediation costs)
- Montrose Chem. Corp. v. Superior Court, 6 Cal.4th 287 (1993) (broad duty to defend where complaint or extrinsic facts show potential coverage)
- Collett v. Ins. Co. of the West, 64 Cal.App.4th 338 (work-completed exclusion bars coverage for defective construction requiring repair)
- Golden Eagle Ins. Co. v. Travelers Cos., 103 F.3d 750 (9th Cir. 1996) (faulty workmanship exclusions preclude incidental removal/replacement costs)