Navigators Specialty Insurance Co. v. Moorefield Construction, Inc.
212 Cal. Rptr. 3d 231
Cal. Ct. App.2016Background
- Moorefield Construction was general contractor for a Best Buy store; flooring (VCT and carpet tile) was glued to a concrete slab. Moisture-vapor-emission tests in 2003 exceeded the project specification.
- Moorefield, with owner/tenant approval and after obtaining a warranty-release letter for the flooring subcontractor, directed installation despite test results. Flooring problems appeared within months and progressively worsened; Best Buy ultimately paid ~$377,404 to repair.
- JSL (owner) sued Moorefield and developer DBO for breach of contract, negligence, and related claims; DBO cross-complained seeking indemnity and fees.
- Navigators (Moorefield’s CGL insurer) accepted Moorefield’s defense under a reservation of rights, then paid its $1,000,000 policy limit toward a $1,310,000 settlement (Moorefield paid $150,000; others contributed $160,000).
- Trial court found the flooring failure was not a covered “occurrence” (no accident because installation was deliberate despite known excess moisture) and awarded Navigators reimbursement of the $1,000,000. The Court of Appeal affirmed no duty to indemnify but reversed as to Navigators’ right to recoup amounts that were supplementary payments (attorney fees/costs) and remanded to allocate settlement between damages and costs.
Issues
| Issue | Plaintiff's Argument (Navigators) | Defendant's Argument (Moorefield) | Held |
|---|---|---|---|
| Whether the flooring failure was a covered "occurrence" (i.e., an "accident") under the CGL policy | Failure not an accident because Moorefield intentionally directed installation with knowledge of excess moisture; no independent, unexpected event caused damage | Installation was not the kind of intentional, immediate act that negates an occurrence; construction defects can be fortuitous and thus covered | Held: Not an occurrence — no duty to indemnify (intentional act without an intervening unexpected event) |
| Whether supplementary payments provision ("costs taxed against the insured") covers attorney fees recoverable under the construction contract | Supplementary payments do not apply because the underlying liability was noncovered; insurer may recoup full policy payment | Supplementary payments include contract-based attorney fees taxable as costs; insurer had a duty to defend at settlement time, so insurer must cover those costs | Held: Supplementary payments cover contract-based attorney fees/costs where insurer owed defense; Navigators had duty to defend at settlement time, so some settlement funds were not recoverable |
| Whether Navigators can recoup the entire $1,000,000 settlement payment from Moorefield | Entire payment was for damages and therefore recoverable because the settlement waived fee claims among settling parties | Settlement included and allocated (or at least encompassed) attorney fees/costs subject to supplementary payments; insurer bears burden to prove allocation to noncovered items | Held: Insurer bears burden; trial court prejudicially erred in placing burden on insured — remand for limited retrial to allocate settlement between damages (reimbursable) and supplementary payments (not reimbursable) |
| Burden of proof for allocation of settlement between damages and costs | Allocation to noncovered items should be supported by insured’s evidence | Insurer must prove the portion of settlement that is attributable to damages (i.e., amounts it may recoup) | Held: Insurer (Navigators) bears the burden to prove allocation to noncovered damages; trial court misallocated burden and remanded for retrial limited to allocation |
Key Cases Cited
- Delgado v. Interinsurance Exchange of Automobile Club of Southern California, 47 Cal.4th 302 (California Supreme Court) (defining "accident" in liability insurance context)
- Fire Ins. Exchange v. Superior Court, 181 Cal.App.4th 388 (Cal. Ct. App.) (an intentional act is not an "accident" absent an additional unexpected, independent event)
- Scottsdale Ins. Co. v. MV Transportation, 36 Cal.4th 643 (California Supreme Court) (insurer that reserved rights may seek reimbursement only where, in hindsight, there never was potential for coverage)
- Buss v. Superior Court, 16 Cal.4th 35 (California Supreme Court) (insurer bears burden to prove right to reimbursement of defense costs)
- Montrose Chemical Corp. v. Superior Court, 6 Cal.4th 287 (California Supreme Court) (insurer must prove it cannot be liable; insured need only show potential for coverage to trigger duty to defend)
- Horace Mann Ins. Co. v. Barbara B., 4 Cal.4th 1076 (California Supreme Court) (duty to defend is broader than duty to indemnify)
- Employers Mutual Cas. Co. v. Philadelphia Indemnity Ins. Co., 169 Cal.App.4th 340 (Cal. Ct. App.) (contract-based attorney fees are included in policy supplementary payments when taxable as costs)
- Golden Eagle Ins. Co. v. Insurance Co. of the West, 99 Cal.App.4th 837 (Cal. Ct. App.) (discusses characterization of defense costs and indemnity in construction indemnity contexts)