Global Modular v. Kadena Pacific, Inc., E063551

Background

Kadena (general contractor) hired Global (subcontractor) to build and deliver 53 modular units for a VA project; Global delivered units with only plywood roof substrate (roofing excluded from Global’s scope).
Delivery was delayed into rainy season (Oct–Jan); despite tarping, interiors suffered water damage; Kadena completed remediation after terminating Global.
Global paid Kadena $321,975 in a settlement releasing all VA-project claims except those related to claims covered by Global’s insurer (NAC); Global received $153,025 to dismiss its payment claims.
A jury found Global contractually liable for $1,068,541.91 in water-remediation and delay damages. NAC disputed indemnity under its CGL policy; the trial court granted summary judgment for Kadena that NAC must indemnify Global for the award and also awarded Kadena attorney fees; the court offset the award by the $321,975 settlement payment.
On appeal, the court affirmed coverage and attorney-fee entitlement but reversed the offset, holding the settlement paid for different (uninsured) claims and did not compensate the water-remediation damages.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether NAC’s CGL covers repair/replacement costs (wet drywall, insulation, framing, ducting) or are excluded by j(5) and j(6)	Kadena: exclusions are ambiguous or narrow; they apply only to the specific component of defective work, so interior repairs are covered	NAC: exclusions bar coverage for property damage to insured’s work in progress (business-risk of faulty workmanship)	Covered: j(5) and j(6) construed narrowly; do not bar remediation costs as a matter of law
Whether delay damages (131 days) are covered as consequential damages from "property damage" or excluded (exclusion m)	Kadena: delay is consequential loss "because of" property damage and thus covered; exclusion m applies only to defective work	NAC: delay is not "property damage" and exclusion m bars coverage	Covered: delay damages are consequential damages within insuring clause; exclusion m inapplicable here
Whether Kadena released its right to contractual attorney fees in the settlement	Kadena: settlement carved out claims "related to" covered property damage, preserving right to seek fees tied to those claims	Global/NAC: carve-out did not preserve attorney-fee claim; fees are separate/costs, not covered claims	Held for Kadena: carve-out preserved claims related to covered property damage; prevailing-party fee entitlement under contract/Cal. law survives
Whether the jury award must be offset by Global’s $321,975 settlement payment	Global: settlement released broad claims—offset prevents double recovery	Kadena: settlement compensated uninsured claims (e.g., defective-work, pre-rain claims); trial was limited to water-remediation only	Reversed offset: settlement did not compensate the water-remediation damages the jury awarded; offset was improper

Key Cases Cited

Aguilar v. Atlantic Richfield Co., 25 Cal.4th 826 (summary judgment standards under Cal. law)
Clarendon America Ins. Co. v. General Security Indemnity Co. of Arizona, 193 Cal.App.4th 1311 (insurance-policy interpretation and exclusions)
Mid-Continent Cas. Co. v. JHP Dev., Inc., 557 F.3d 207 (5th Cir.) (exclusion j(5) applies to active physical operations)
Schauf v. Columbia Mut. Ins. Co., 967 S.W.2d 74 (Mo.) (present-tense "performing operations" requires active work)
Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1 (Tex.) (CGL insuring clause must control over business-risk assumptions)
Thommes v. Milwaukee Ins. Co., 641 N.W.2d 877 (Minn.) (exclusions j(5)/j(6) ambiguous; examine policy text first)
AIU Ins. Co. v. Superior Court, 51 Cal.3d 807 (damages in CGL insuring clause include consequential costs)