North Counties Engineering, Inc. v. State Farm General Insurance
224 Cal. App. 4th 902
Cal. Ct. App.2014Background
- NCE and Akerstrom were sued in 2004 (two actions) for damages from Lolonis Dam construction completed in 1999.
- NCE and Akerstrom tendered defense to State Farm under a 1997 policy; State Farm denied, citing policy terms.
- State Farm later recognized the 2001 declarations page wrongly reflected coverage; defense offered from Sept 5, 2007, leaving ≈$504,000 pre-Sept 2007 expenses unpaid.
- Underlying actions alleged downstream sediment damage and erosion related to dam work, including non-supervisory engineering and construction tasks.
- Appellants sued State Farm for unpaid defense costs, damages, and related relief; trial court granted State Farm a directed verdict; appellate reversal followed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Duty to defend given policy language and facts | NCE/AKerstrom argued there was potential coverage under PCO and/or non-excluded claims | State Farm argued professional services exclusion and lack of coverage eliminated any duty | There was a duty to defend; reversal of directed verdict |
| Effect of professional services exclusion on duty to defend | Exclusion did not bar potential coverage given PCO and downstream damages | Exclusion should preclude any defense obligation | Exclusion did not conclusively preclude a potential defense; substantial evidence supported duty |
| Meaning of products-completed operations (PCO) coverage | PCO coverage existed with separate limits and could apply to completed dam work | PCO was illusory or subordinated to exclusions; not grant of independent coverage | PCO coverage existed and interacted with exclusions; did not defeat duty to defend |
| Trial court’s handling of the motion to determine coverage | Court should evaluate all potential coverage evidence; not weigh facts against insured | Court correctly evaluated coverage at tender | Trial court erred; evidence supported duty to defend |
| Remand consequences and required judgment on duty to defend | Remand should result in finding a duty to defend | Remand not necessary if no duty | Remand warranted; State Farm had a duty to defend on remand |
Key Cases Cited
- Horace Mann Ins. Co. v. Barbara B., 4 Cal.4th 1076 (Cal. 1993) (duty to defend broader than indemnity; default rule in insured's favor)
- Gray v. Zurich Ins. Co., 65 Cal.2d 263 (Cal. 1966) (duty to defend against potentially covered claims)
- Montrose Chemical Corp. v. Superior Court, 6 Cal.4th 287 (Cal. 1993) (duty to defend exists if potential for policy coverage; broad view for insured)
- Bank of the West v. Superior Court, 2 Cal.4th 1254 (Cal. 1992) (construction of policy in insured's favor; common-sense approach to ambiguity)
- Food Pro Int’l Inc. v. Farmers Ins. Exchange, 169 Cal.App.4th 976 (Cal. App. 4th 2008) (role of disputed facts; duty to defend under mixed coverage/ exclusion contexts)
- S.T. Hudson Engineers, Inc. v. Pennsylvania Nat. Mut. Cas. Co., 388 N.J. Super. 592 (2006) (N.J. Super. Ct. App. Div. 2006) (interaction of professional services exclusion with products-completed operations coverage)